Accident Fund Insurance Compan v. Schultheis Insurance Agency, I ( 2022 )


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  •                                In the
    United States Court of Appeals
    For the Seventh Circuit
    ____________________
    Nos. 21-2548, 21-2549, & 21-2560
    ACCIDENT FUND INSURANCE CO. OF AMERICA,
    Plaintiff-Appellee,
    v.
    CUSTOM MECHANICAL CONSTRUCTION, INC.,
    Defendant-Appellant,
    and
    LIBERTY MUTUAL INSURANCE CO.,
    Intervenor-Appellant,
    and
    SCHULTHEIS INSURANCE AGENCY, INC. and
    JAMES LEE SUBLETT,
    Third-Party Defendants-Appellants.
    ____________________
    Appeals from the United States District Court for the
    Southern District of Indiana, Evansville Division.
    No. 3:16-cv-00251 — Richard L. Young, Judge.
    ____________________
    ARGUED SEPTEMBER 8, 2022 — DECIDED SEPTEMBER 27, 2022
    2                             Nos. 21-2548, 21-2549, & 21-2560
    ____________________
    Before WOOD, ST. EVE, and JACKSON-AKIWUMI, Circuit
    Judges.
    ST. EVE, Circuit Judge. Danny Cope was injured on a job site
    in Kentucky and filed a workers’ compensation claim. The
    subcontractor who hired him for the project, Custom Mechan-
    ical Construction, Inc. (“CMC”), is based in southern Indiana
    and had an insurance policy with Accident Fund Insurance
    Co. of America (“AFICA”) at the time of the accident. Schul-
    theis Insurance Agency and Lee Sublett (collectively, “Schul-
    theis”) procured the policy for CMC, but Schultheis failed to
    inform AFICA that CMC did business in Kentucky.
    AFICA filed suit in federal court, seeking a declaration
    that its policy does not cover Cope’s claim. The district court
    granted summary judgment in favor of AFICA and entered
    partial final judgment under Fed. R. Civ. P. 54(b). The dispos-
    itive question in this appeal is whether CMC’s insurance pol-
    icy with AFICA covers workers’ compensation claims for
    workers who are injured outside of Indiana. Because CMC in-
    disputably never notified AFICA that it had work (or began
    work) in Kentucky, we affirm.
    I. Background
    A. Factual Background
    CMC is a mechanical contractor incorporated in Indiana
    with its principal place of business in Evansville, Indiana. Alt-
    hough most of its jobs are in Indiana, CMC has been regis-
    tered to do business in Kentucky since 2009. CMC contracted
    with Schultheis to procure insurance coverage on its behalf.
    Nos. 21-2548, 21-2549, & 21-2560                             3
    Lee Sublett, one of Schultheis’s agents, has worked with CMC
    since it opened in 2005. Sublett claims he was not aware that
    CMC performed work in Kentucky until the accident at the
    center of this litigation, but it is undisputed that CMC com-
    pleted jobs in Kentucky over the years.
    Prior to 2015, CMC had a workers’ compensation policy
    with Midwestern Insurance Alliance (“Midwestern”). The
    Midwestern policy provided two types of coverage: “primary
    coverage” for Indiana, and “other states coverage” for tempo-
    rary or incidental work performed in other states. In 2015,
    when the Midwestern policy was up for renewal, Sublett ob-
    tained quotes from Midwestern and AFICA. CMC decided to
    switch to AFICA, and Sublett prepared an application. In re-
    sponse to the question, “Do employees travel out of state?”
    Sublett wrote “no.” AFICA issued a policy (the “First Policy”)
    for workers’ compensation coverage between October 24,
    2015, and October 24, 2016.
    On May 13, 2016, CMC’s original owners sold the com-
    pany to new owners. The new owners were aware that CMC
    performed work in Kentucky, and they met with Sublett to
    discuss CMC’s insurance needs prior to taking over. Sublett
    notified AFICA of the change in ownership, and AFICA in-
    formed him that its practice was to issue a new policy instead
    of transferring the old policy. On June 1, 2016, when Sublett
    prepared an application for a new policy, he again responded
    “no” when asked if CMC’s employees travel out of state.
    AFICA issued a short-term policy that day (the “Second Pol-
    icy”) and backdated it from June 1 to May 13. The Second Pol-
    icy, like the First Policy, was scheduled to end on October 24,
    2016.
    4                             Nos. 21-2548, 21-2549, & 21-2560
    Other than the change in ownership, the First and Second
    Policies are functionally the same. Both provide primary cov-
    erage in Indiana and other states coverage—subject to certain
    notice requirements. On the “Information Page” of the Second
    Policy, Item 3 (“Coverage”) states in relevant part:
    A. Workers Compensation Insurance: Part One of the
    policy applies to the Workers Compensation Law of
    the states listed here: IN
    ...
    C. Other States Insurance: Part Three of the policy ap-
    plies to the states, if any, listed here: All states and
    U.S. territories except monopolistic states, Puerto
    Rico, the U.S. Virgin Islands, and states designated in
    Item 3.A. of the Information Page.
    The crux of this suit is the proper interpretation of the Second
    Policy’s other states coverage. Part Three provides:
    A. How This Insurance Applies
    1. This other states insurance applies only if
    one or more states are shown in Item 3.C.
    of the Information Page.
    2. If you begin work in any of those states after
    the effective date of this policy and are not
    insured or are not self-insured for such
    work, all provisions of the policy will apply
    as though that state were listed in Item 3.A.
    of the Information Page.
    Nos. 21-2548, 21-2549, & 21-2560                               5
    3. We will reimburse you for the benefits re-
    quired by the workers compensation law of
    that state if we are not permitted to pay the
    benefits directly to persons entitled to
    them.
    4. If you have work on the effective date of this
    policy in any state not listed in Item 3.A. of
    the Information Page, coverage will not be
    afforded for that state unless we are notified
    within thirty days.
    B. Notice
    Tell us at once if you begin work in any state listed in
    Item 3.C. of the Information Page.
    (emphases added).
    On October 16, 2016, Danny Cope was working on a CMC
    job site in Kentucky when he fell and suffered serious injuries.
    CMC hired Cope along with other Kentucky union members
    to work on a job known as “the Pilgrim’s Pride project.” Sub-
    lett reported the claim to AFICA the next day, and AFICA be-
    gan investigating the incident. On November 11, AFICA de-
    nied coverage because CMC failed to notify AFICA of its
    work in Kentucky. During 2016, CMC worked on twelve dif-
    ferent jobs in Kentucky—in May, June, July, August, Septem-
    ber, and October. All of those jobs were performed with Indi-
    ana workers except for the Pilgrim’s Pride project. That pro-
    ject involved Kentucky workers from the local union hall.
    6                                 Nos. 21-2548, 21-2549, & 21-2560
    B. Procedural Background
    AFICA sued CMC and Cope in the Southern District of In-
    diana, seeking a declaratory judgment that the Second Policy
    does not provide coverage for Cope’s accident. 1 CMC filed
    counterclaims for breach of contract and bad-faith denial of
    coverage. CMC also filed a third-party complaint against
    Schultheis and Sublett, alleging they negligently failed to pro-
    cure adequate insurance coverage and failed to properly ad-
    vise CMC. 2 All parties filed cross-motions for summary judg-
    ment. Liberty Mutual Insurance Co. intervened because, if
    CMC does not have adequate coverage, Liberty Mutual may
    be liable as the insurer for the general contractor that oversaw
    the Pilgrim’s Pride project.
    The district court granted summary judgment in favor of
    AFICA and against CMC, Cope, and Liberty Mutual. First, the
    court concluded that the Second Policy’s primary coverage
    did not apply because the accident occurred in Kentucky, not
    Indiana. (No one disputes this conclusion on appeal.) Second,
    the court held that the Policy’s other states coverage also did
    not apply because CMC failed to notify AFICA prior to the
    accident that it performed work in Kentucky. The court
    reasoned that Part Three’s section A.2 did not apply because
    CMC did not inform AFICA “at once” that it had begun work
    in Kentucky, as required by section B. Similarly, section A.4
    did not apply because CMC “had work” in Kentucky on the
    1The parties are diverse (AFICA is a citizen of Michigan, CMC is a citizen
    of Indiana, and Cope is a citizen of Kentucky), and the amount in contro-
    versy exceeds $75,000. See 
    28 U.S.C. § 1332
    .
    2Schultheis is an Indiana corporation, but the district court had supple-
    mental jurisdiction over the third-party claims. See 
    28 U.S.C. § 1367
    .
    Nos. 21-2548, 21-2549, & 21-2560                                 7
    effective date of the policy (May 13, 2016), but it failed to
    notify AFICA within thirty days. The district court rejected
    many of the arguments that CMC reprises on appeal, noting:
    “[T]he problem is not that Custom Mechanical provided
    notice late; the problem is that it never provided notice.”
    Accident Fund Ins. Co. of Am. v. Custom Mech. Constr., Inc., 
    504 F. Supp. 3d 913
    , 923 (S.D. Ind. 2020). The court therefore
    rejected CMC’s counterclaims for breach of contract and bad-
    faith denial of coverage.
    Although the district court granted summary judgment in
    AFICA’s favor as to the proper interpretation of the Policy,
    disputed facts precluded summary judgment as to CMC’s
    third-party claims against Schultheis. The court granted the
    parties’ joint request for partial final judgment under Fed. R.
    Civ. P. 54(b), and this appeal followed.
    II. Discussion
    We review de novo the district court’s grant of summary
    judgment. Legend’s Creek Homeowners Ass’n, Inc. v. Travelers
    Indem. Co. of Am., 
    33 F.4th 932
    , 934 (7th Cir. 2022). Summary
    judgment is appropriate if the moving party shows there is no
    genuine dispute as to any material fact and the moving party
    is entitled to judgment as a matter of law. Fed. R. Civ. P. 56(a).
    “Where, as here, the case comes to us from a decision on cross-
    motions for summary judgment, we review the evidence and
    draw all reasonable inferences ‘in favor of the party against
    whom the motion under consideration [was] made.’” N.J. ex
    rel. Jacob v. Sonnabend, 
    37 F.4th 412
    , 420 (7th Cir. 2022) (quoting
    Dunnet Bay Constr. Co. v. Borggren, 
    799 F.3d 676
    , 688 (7th Cir.
    2015)). “Proper interpretation of an insurance policy, even if
    it is ambiguous, generally presents a question of law that is
    appropriate for summary judgment.” USA Gymnastics v.
    8                             Nos. 21-2548, 21-2549, & 21-2560
    Liberty Ins. Underwriters, Inc., 
    27 F.4th 499
    , 512 (7th Cir. 2022)
    (quoting Am. Home Assur. Co. v. Allen, 
    814 N.E.2d 662
    , 666
    (Ind. Ct. App. 2004)).
    The parties agree that Indiana law applies to this diversity
    suit. “Under Indiana law, insurance policies are interpreted
    ‘from the perspective of an ordinary policyholder of average
    intelligence.’” USA Gymnastics, 27 F.4th at 511 (quoting Brad-
    shaw v. Chandler, 
    916 N.E.2d 163
    , 166 (Ind. 2009)). “Although
    special rules of construction have developed for interpreting
    insurance policies as a result of the disparity in bargaining
    power between insurers and insureds, insurance contracts are
    generally governed by the same rules of construction as other
    contracts.” USA Gymnastics, 27 F.4th at 511 (quoting Everett
    Cash Mut. Ins. Co. v. Taylor, 
    926 N.E.2d 1008
    , 1012 (Ind. 2010)).
    “[C]lear and unambiguous language in an insurance policy
    should be given its plain and ordinary meaning,” but “where
    policy language is ambiguous, it is to be construed strictly
    against the insurer and in favor of the insured.” Taylor, 926
    N.E.2d at 1012. “Ambiguity exists when a policy is susceptible
    to two or more reasonable interpretations.” Id. (citing Beam v.
    Wausau Ins. Co., 
    765 N.E.2d 524
    , 528 (Ind. 2002)). In other
    words, “an insurance policy will be found to be ambiguous in
    cases where reasonable people would differ as to the meaning
    of its terms.” Taylor, 926 N.E.2d. at 1013. At the same time,
    “[t]he fact that the parties disagree over the meaning of the
    contract does not, in and of itself, establish an ambiguity.” 
    Id.
    We begin by addressing whether Schultheis has standing
    to join this appeal, even though the district court did not enter
    partial final judgment against it. We then turn to the interpre-
    tation of CMC’s insurance policy with AFICA.
    Nos. 21-2548, 21-2549, & 21-2560                               9
    A. Schultheis’s Standing to Appeal
    The district court entered partial final judgment in favor
    of AFICA and against CMC, Cope, and Liberty Mutual pur-
    suant to Rule 54(b). CMC’s third-party claims against Schul-
    theis (for negligent procurement and failure to advise) could
    not be resolved on summary judgment, so those claims re-
    main pending in the district court. Schultheis nonetheless
    seeks to join this appeal because it believes AFICA’s policy
    provides coverage for Cope’s workers’ compensation claim.
    If Schultheis is correct, then it will have a complete defense
    against CMC’s negligence claims. For its part, AFICA does
    not dispute that Schultheis has standing to appeal.
    Even though Schultheis was not bound to the Rule 54(b)
    judgment, we conclude it has a sufficient stake in the resolu-
    tion of this declaratory judgment action to participate in this
    appeal. Standing to appeal “requires an injury caused by the
    judgment rather than injury caused by the underlying facts.”
    Wachovia Sec., LLC v. Loop Corp., 
    726 F.3d 899
    , 907 (7th Cir.
    2013) (internal quotation marks omitted). Ordinarily, courts
    of appeals “lack authority to consider an appeal from a party
    not subject to the order sought to be challenged.” Fischer v.
    Magyar Államvasutak Zrt., 
    892 F.3d 915
    , 916 (7th Cir. 2018); see
    also Raley v. Hyundai Motor Co., 
    642 F.3d 1271
    , 1274 (10th Cir.
    2011) (Gorsuch, J.) (“[I]t is usually only parties who are suffi-
    ciently aggrieved by a district court’s decision that they pos-
    sess Article III and prudential standing to be able to pursue
    an appeal of it.”). But as a third-party defendant, Schultheis
    was injured by the district court’s no-coverage determination
    in favor of AFICA. See Fed. R. Civ. P. 14(a)(2)(C) (third-party
    defendants “may assert against the plaintiff any defense that
    the third-party plaintiff has to the plaintiff’s claim”).
    10                             Nos. 21-2548, 21-2549, & 21-2560
    Nonparties who are affected by a judgment may appeal “if
    the would-be appellant can show significant involvement
    with the judgment, … a risk that its interests will not be
    adequately protected by the parties, and a lack of untoward
    interference in the affairs of the parties.” 15A Charles Alan
    Wright & Edward H. Cooper, Federal Practice & Procedure
    § 3902.1 (2d ed. 2022). Schultheis satisfies these criteria: it was
    significantly involved in the litigation below; its interests may
    not be adequately protected by CMC (which is agnostic as to
    whether AFICA, Schultheis, or Liberty Mutual pays Cope’s
    workers’ compensation claim); and allowing Schultheis to
    appeal jointly with CMC and Liberty Mutual will not unduly
    interfere with our resolution of the merits. See also Kicklighter
    v. Nails by Jannee, Inc., 
    616 F.2d 734
    , 738 n.1 (5th Cir. 1980)
    (holding that a “third-party defendant can assert on appeal
    errors in the main case”); United States v. Lumbermens Mut.
    Cas. Co., 
    917 F.2d 654
    , 658 n.5 (1st Cir. 1990). Given the nature
    of Schultheis’s primary defense to CMC’s third-party claims,
    it follows that Schultheis has standing to join this appeal.
    B. The AFICA Policy Does Not Cover Cope’s Workers’
    Compensation Claim
    The plain text of the Second Policy is unambiguous:
    because CMC failed to notify AFICA until after Cope’s
    accident that it was working in Kentucky, AFICA is not liable
    for Cope’s workers’ compensation claim. As explained below,
    the Appellants’ attempts to circumvent this result are
    unpersuasive.
    1. Section A.2 Does Not Provide Coverage
    To recap, Part Three, section A.2 provides: “If you begin
    work in [states other than Indiana] after [May 13, 2016] … , all
    Nos. 21-2548, 21-2549, & 21-2560                                 11
    provisions of the policy will apply ….” The Appellants argue
    that this provision means AFICA will cover claims for work-
    ers’ compensation in other states, regardless of whether CMC
    provides notice of such work. As the district court observed,
    however, section A.2 cannot be read in isolation. Section B
    provides: “Tell us at once if you begin work in any state listed
    in Item 3.C. of the Information Page.” (emphasis added). Set-
    ting aside whether the meaning of “at once” is ambiguous, it
    is undisputed that CMC never notified AFICA that it was per-
    forming work in Kentucky until after the Cope accident.
    If the Appellants had their way and notice was not re-
    quired in order for “other states coverage” to apply, then
    AFICA would be on the hook for claims in any state at any
    time. That is not a sensible way to read the Policy, which iden-
    tifies just one state, Indiana, as the “primary coverage” state.
    Notice is a condition precedent to coverage in another state.
    See Koransky, Bouwer & Poracky P.C. v. Bar Plan Mut. Ins. Co.,
    
    712 F.3d 336
    , 342 (7th Cir. 2013) (“[An insurance policy’s] no-
    tice requirement … ‘defines the limits of the insurer’s obliga-
    tion.’”) (quoting Paint Shuttle, Inc. v. Cont’l Cas. Co., 
    733 N.E.2d 513
    , 522 (Ind. Ct. App. 2000)); see also Ashby v. Bar Plan Mut.
    Ins. Co., 
    949 N.E.2d 307
    , 312 (Ind. 2011).
    Perhaps recognizing that they have a notice problem, the
    Appellants contend that Sublett was acting as an agent of
    AFICA (not CMC), and therefore his knowledge of CMC’s
    work in Kentucky should be imputed to AFICA. The Appel-
    lants concede that Sublett denies knowing of CMC’s work in
    Kentucky before the accident, but supposedly this factual dis-
    pute is sufficient to proceed to trial. It may be true that, under
    Indiana law, “[a]n intermediary in the insurance business is
    the agent of the insured while shopping for a policy, and the
    12                              Nos. 21-2548, 21-2549, & 21-2560
    agent of the insurer after a policy issues.” Fid. & Cas. Co. of
    N.Y. v. Tillman Corp., 
    112 F.3d 302
    , 304 (7th Cir. 1997). That
    does not mean, however, that an insurance broker automati-
    cally becomes an agent of the insurer. See 
    id.
     at 304–06 (ex-
    plaining that “[a]gency is a voluntary relation” and a cus-
    tomer’s insurance broker was not acting as an insurer’s agent
    when it applied to Indiana’s assigned-risk pool on the cus-
    tomer’s behalf).
    The Indiana Supreme Court has clarified that there is an
    important distinction between an insurance broker, who acts
    as an agent of the insured, and an insurance agent, who rep-
    resents an insurer under an employment agreement. Est. of
    Mintz v. Conn. Gen. Life Ins. Co., 
    905 N.E.2d 994
    , 1001 (Ind.
    2009). While the “acts of an [insurance] agent are imputable
    to the insurer,” a broker’s actions are not. 
    Id.
     In an opinion
    resolving AFICA’s motion to dismiss CMC’s counterclaims,
    the district court concluded CMC failed to allege sufficient
    facts that Schultheis was acting as AFICA’s agent. The Appel-
    lants did not challenge that decision in their opening brief on
    appeal, so even if this argument had merit, we would deem it
    waived. See, e.g., Williams v. Bd. of Educ. of City of Chi., 
    982 F.3d 495
    , 507 n.30 (7th Cir. 2020) (“arguments raised for the first
    time in a reply brief are waived”).
    2. Section A.4 Does Not Provide Coverage
    The Appellants fare no better under section A.4, which
    provides: “If you have work on the effective date of this policy
    in any state [other than Indiana], coverage will not be
    afforded for that state unless we are notified within thirty days.”
    (emphasis added). One of the new owners conceded during
    his deposition that CMC was working on a project in
    Kentucky on May 13, 2016—the effective date of the Second
    Nos. 21-2548, 21-2549, & 21-2560                                       13
    Policy. In its counterclaim against Schultheis, CMC even
    alleged that Schultheis “was aware, or should have been
    aware that CMC consistently worked on projects in
    Kentucky.” And CMC’s Answer to AFICA’s complaint
    admitted that “CMC was performing work in Kentucky prior
    to May 13, 2016,” but ironically blamed AFICA for failing to
    incorporate that fact into the Second Policy. 3 In short, CMC
    cannot seriously dispute that it had work in Kentucky on the
    effective date of the policy.
    Well over thirty days passed between May 13 and October
    17, when CMC filed a claim for Cope’s accident. The fact that
    the new owners failed to read the policy, and therefore were
    unaware of the notice requirement, is irrelevant. See Ohio Cas.
    Ins. Co. v. Rynearson, 
    507 F.2d 573
    , 577 (7th Cir. 1974)
    (“[A]lthough late notice has been excused where the insured
    was unaware of the existence of a policy, … it is not excused
    where the insured alleges that he was unaware of coverage
    simply because he failed to read his policy.”) (citing Metro.
    Life Ins. Co. v. Peoples Trust Co., 
    98 N.E. 513
    , 515 (Ind. 1912));
    see also 27 Williston on Contracts § 70:114 (4th ed. 2022) (“One
    who signs or accepts a written contract, in the absence of
    fraud or other wrongful act on the part of another contracting
    party, is conclusively presumed to know its contents and to
    assent to them.”).
    Undeterred, the Appellants argue that CMC did not really
    “have work” in Kentucky until October 2016 because the
    3 The Appellants go so far as to argue that “AFICA’s own workers’ com-
    pensation audit failed to reveal ‘ongoing’ work in Kentucky prior to the
    [Second] Policy.” But the policy plainly puts the burden on the insured to
    notify the insurer that it is performing work in another state.
    14                            Nos. 21-2548, 21-2549, & 21-2560
    Pilgrim’s Pride project was the only CMC project in 2016 that
    employed Kentucky-based workers. Yet nothing in the Policy
    indicates that the residency of CMC’s workers affects the cov-
    erage analysis. The only relevant factors are the time work be-
    gins (relative to the effective date of the Policy), the state
    where the work is performed, and whether CMC provided
    notice. CMC had work in Kentucky months before the acci-
    dent, yet it failed to notify AFICA until October 17, 2016.
    The Appellants make much of the fact that AFICA back-
    dated coverage of the Second Policy from June 1 to May 13.
    But as AFICA notes, Schultheis requested backdating on be-
    half of CMC due to the change in ownership. AFICA had no
    incentive to backdate the policy maliciously months before
    the accident, precisely because it was unaware that CMC was
    working on projects in Kentucky. The Appellants’ strongest
    argument, perhaps, is that “CMC’s Kentucky work has al-
    ways been sporadic, and made up less than 5% of its total
    work.” Even so, the Second Policy does not condition the no-
    tice requirement on the sporadic nature of an insured’s work
    in another state. It simply says: “If you have work on the effec-
    tive date of this policy in any state [other than Indiana], cov-
    erage will not be afforded for that state unless we are notified
    within thirty days.” In light of CMC’s own admissions and the
    fact that CMC has been registered to do business in Kentucky
    since 2009, the Policy’s notice requirement applied.
    Finally, because the plain language of the Policy precludes
    coverage under section A.4, the court will not consider the
    Appellants’ extrinsic evidence to the contrary. See Vesuvius
    USA Corp. v. Am. Com. Lines LLC, 
    910 F.3d 331
    , 333 (7th Cir.
    2018) (applying Indiana law) (“Clear and unambiguous terms
    in a contract are deemed conclusive, and we will not construe
    Nos. 21-2548, 21-2549, & 21-2560                             15
    an unambiguous contract or look to extrinsic evidence, but
    will merely apply the contractual provisions.”).
    III. Conclusion
    For the foregoing reasons, the district court’s partial final
    judgment in favor of AFICA is
    AFFIRMED.