Erie Ins. Group v. Sear Corp.

• Decision Date: 16 December 1996
• Docket Number: No. 96-1831,96-1831
• Citation: 102 F.3d 889
• Parties: ERIE INSURANCE GROUP, Plaintiff-Appellee, v. SEAR CORPORATION, Larry Bass, and Birch Dalton, Defendants-Appellants.
• Court: U.S. Court of Appeals — Seventh Circuit

Page 889

102 F.3d 889

ERIE INSURANCE GROUP, Plaintiff-Appellee, v. SEAR CORPORATION, Larry Bass, and Birch Dalton, Defendants-Appellants.

No. 96-1831.

United States Court of Appeals, Seventh Circuit.

Argued Sept. 24, 1996.

Decided Dec. 16, 1996.

John C. Trimble (argued) and Richard K. Shoultz, Lewis & Wagner, Indianapolis, IN, for Plaintiff-Appellee.

Richard A. Cook (argued) and Richard R. Skiles, Skiles & Reed, Indianapolis, IN, for Defendants-Appellees.

Before POSNER, Chief Judge, HARLINGTON WOOD, Jr., and ESCHBACH, Circuit Judges.

ESCHBACH, Circuit Judge.

Defendants-appellants Sear Corporation, Larry Bass and Birch Dalton (collectively "Sear") appeal the district court's grant of summary judgment in favor of plaintiff-appellee Erie Insurance Group ("Erie"). Erie initiated this action against its insured, Alliance Environmental Group ("Alliance"), and Sear, seeking a declaratory judgment that it had no duty to defend or indemnify Alliance in Sear's underlying lawsuit against Alliance. The district court granted summary judgment in Erie's favor, and declared that Erie had no duty to defend or indemnify Alliance in the Sear lawsuit. For the reasons below, we now affirm that decision.

I. FACTS

In 1991, the Lafayette School Corporation ("LSC") hired Sear to conduct an asbestos removal project in the "B" pump room of the Lafayette-Jefferson High School in Lafayette, Indiana. Eight months after Sear completed the removal, an LSC employee discovered additional contaminated material in an air handling unit in the "B" pump room. LSC then hired Star Environmental, Inc. to remove the remaining asbestos, and hired Alliance to investigate the source of the material and to assign responsibility for its presence in the pump room. After its investigation, Alliance reported that Sear failed to remove all of the asbestos at the high school. Presumably based on Alliance's report, LSC eventually brought an action against Sear for faulty asbestos removal work, to which Sear responded by filing a third party complaint against Alliance for tortious interference with contract, defamation, and civil rights violations.

During the pendency of Alliance's consultation work for LSC, Erie insured Alliance under a general liability policy that included coverage for "advertising injury" inflicted by Alliance employees (the "Erie policy"). Under the Erie policy, "advertising injury" includes defamatory statements made by Alliance employees about another organization's products or services, but only if the statements are made "in the course of advertising" Alliance's services. After receiving notice of the charges against it in the LSC-Sear lawsuit, Alliance made a claim on Erie for defense and indemnity under the Erie policy. Erie denied the claim and filed this suit in federal district court under diversity jurisdiction, seeking a declaratory judgment that it had no duty to defend or indemnify Alliance under the policy.

On cross motions for summary judgment, the district court granted Erie's motion, finding that Erie had no duty to defend or indemnify Alliance in part because the advertising injury coverage provision in the Erie policy did not cover Alliance's allegedly defamatory statements against Sear. ¹ We are now asked to review this finding on appeal.

II. STANDARD OF REVIEW

We review the district court's entry of summary judgment de novo. Cincinnati Ins. Co. v. Flanders Elec. Motor Serv., Inc., 40 F.3d 146, 150 (7th Cir.1994). Summary judgment is appropriate when the pleadings and supporting documents reveal no genuine issue of material fact left for decision, and the moving party is entitled to judgment as a matter of law. Fed.R.Civ.P. 56(c). In our review of the grant of summary judgment for Erie, we must view all evidence and draw all reasonable inferences in the light most favorable to Sear, the non-moving party. See Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 247, 106 S.Ct. 2505, 2509-10, 91 L.Ed.2d 202 (1986).

The central dispute in this case is whether Alliance's alleged defamation of Sear occurred "in the course of advertising" Alliance's goods, products or services, thus requiring Erie to defend and indemnify Alliance under the advertising injury provision of the Erie policy. Our resolution of this dispute turns on the meaning of the term "advertising" as used in the phrase "in the course of advertising" in the policy. As a federal court sitting in diversity, we must evaluate the district court's application of relevant Indiana substantive law. See Colip v. Clare, 26 F.3d 712, 714 (7th Cir.1994). Interpretation of terms in an insurance policy is a question of state contract law. Tate v. Secura Ins., 587 N.E.2d 665, 668 (Ind.1992). However, because the precise legal interpretation we face has not been addressed by the Indiana Supreme Court, we must make our best determination of how that court would resolve the issue. Todd v. Societe Bic, S.A., 21 F.3d 1402, 1405 (7th Cir.1994). In so doing, we consider relevant authority of other jurisdictions that have addressed the issue.

Instead of our immediate resolution of the state law contract interpretation issues before us, Sear requests that we stay proceedings pending certification of those issues to the Indiana Supreme Court. Although this Court is vested with the authority to certify dispositive questions of state law to a state's highest court, we decline to do so here.

Certification is proper where a federal court is considering questions of state law the outcome of which will be dispositive. Todd, 9 F.3d at 1222, 7th Cir. R. 52. The Supreme Court of Indiana is authorized to accept certified questions when there are "no clear controlling precedents in the decisions of the Supreme Court of [Indiana]...." Ind. R.App. P. 15(O). Although the meaning of "advertising" in a policy offering coverage for "advertising injury" which occurs "in the course of advertising" the insured's goods or services has not been addressed by the Indiana Supreme Court, we receive ample assistance from general principles of contract interpretation and persuasive authority from other jurisdictions that have interpreted similar provisions. Although the ultimate resolution of this issue would no doubt be aided by decisions from Indiana courts, certification is discretionary, and mere difficulty in ascertaining state law does not justify the delay incumbent to a stay pending certification in all cases. Specifically, this court has found such a delay inappropriate in cases where the outcome of the analysis would produce a fact bound, particularized decision lacking broad precedential significance. See LTV Steel Co., Inc. v. Northwest Engineering & Const., Inc., 41 F.3d 332, 338 (7th Cir.1994) (citing Woodbridge Place Apartments v. Washington Square Capital, Inc., 965 F.2d 1429 (7th Cir.1992)). Our analysis in this case involves the interpretation of a specific insurance policy as negotiated between two business entities and as applied to particular factual circumstances. It is difficult to see how the interpretation of one of these coverage terms could have a far-reaching precedential effect for others. Sear's request for certification is denied.

III. DISCUSSION

A.

Before we reach the merits of the policy interpretation issue, we must first address the parties' disagreement over the proper assignment of the burden of proof. Under Indiana law, the insured is required to prove that her claim falls within the coverage provisions of her policy. Mutual Hosp. Ins., Inc. v. Hagner, 475 N.E.2d 32 (Ind.Ct.App.1984); Allstate Ins. Co. v. Neumann, 435 N.E.2d 591, 594 (Ind.Ct.App.1982). However, if insurance is promised in general terms followed by specific exclusions or limitations, the insurance company bears the burden of proving the applicability of the exclusion. Mutual Hospital, 475 N.E.2d at 34 (citing Zebrowski & Assoc., Inc. v. City of Indianapolis 457 N.E.2d 259, 262 (Ind.App.Ct.1983)).

The parties disagree about whether the language at issue is properly characterized as a coverage provision or an exclusionary provision, thus producing conflict about the proper assignment of burden. The relevant language of the policy provides:

Advertising Injury Liability--Coverage H

We will pay for damages because of advertising injury for which the law holds anyone responsible and which are covered by your policy. We cover only advertising injury caused by an offense committed during the policy period and in the course of advertising your goods, products or services and which takes place in the covered territory.

(emphasis added). Sear argues that Erie has the burden to prove that Alliance's alleged defamatory remarks occurred "in the course of advertising" Alliance's services. Sear bases its argument on an assertion that the italicized language in "Coverage H" above is a limitation on the general coverage language in the first sentence, citing Zebrowski as support. Erie counters that the phrase "in the course of advertising" is not an exclusion, but part of the definition of coverage, and we agree.

Although the second sentence in the above provision, which includes the coverage requirement that the advertising injury occur "in the course of advertising," may literally limit the coverage set out in the first sentence of "Coverage H," we think Sear has made too mechanical an application of Zebrowski. One reason for requiring the insurer to prove the application of exclusionary provisions is that insurance companies often place the exclusionary provisions far from the coverage provisions in the policy, resulting in misled insureds. This possibility is alleviated where the "limiting" language is not hidden in the back pages of a lengthy and obtuse policy.

In Fuja v. Benefit Trust Life Insurance Co., 18 F.3d 1405 (7th Cir.1994), we affirmed the district court's burden of proof analysis on similar facts. The dispute in Fuja involved a medical insurance policy that provided coverage for health care...