102 F.3d 889 (7th Cir. 1996), 96-1831, Erie Ins. Group v. Sear Corp.

Docket Nº:96-1831.
Citation:102 F.3d 889
Party Name:ERIE INSURANCE GROUP, Plaintiff-Appellee, v. SEAR CORPORATION, Larry Bass, and Birch Dalton, Defendants-Appellants.
Case Date:December 16, 1996
Court:United States Courts of Appeals, Court of Appeals for the Seventh Circuit

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102 F.3d 889 (7th Cir. 1996)

ERIE INSURANCE GROUP, Plaintiff-Appellee,


SEAR CORPORATION, Larry Bass, and Birch Dalton, Defendants-Appellants.

No. 96-1831.

United States Court of Appeals, Seventh Circuit.

December 16, 1996

Argued Sept. 24, 1996.

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[Copyrighted Material Omitted]

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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.


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.


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

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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...

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