Allstate Ins. Co. v. Tozer

• Decision Date: 28 December 2004
• Docket Number: No. 04-1220.,04-1220.
• Citation: 392 F.3d 950
• Parties: ALLSTATE INSURANCE COMPANY, Plaintiff-Appellant, v. John TOZER, Georgette Tozer, Lindsay Tozer, et al., Defendants-Appellees.
• Court: U.S. Court of Appeals — Seventh Circuit

392 F.3d 950

ALLSTATE INSURANCE COMPANY, Plaintiff-Appellant, v. John TOZER, Georgette Tozer, Lindsay Tozer, et al., Defendants-Appellees.

No. 04-1220.

United States Court of Appeals, Seventh Circuit.

Argued November 9, 2004.

Decided December 28, 2004.

Larry L. Barnard (argued), Miller, Carson, Boxberger & Murphy, Fort Wayne, IN, for Plaintiff-Appellant.

Jennifer R. Fitzwater, Wood, Touhy, Gleason, Mercer & Herrin, Nicholas C. Deets (argued), Hovde Law Firm, Indianapolis, IN, for Defendants-Appellees.

Before FLAUM, Chief Judge, and CUDAHY and POSNER, Circuit Judges.

FLAUM, Chief Judge.

This is a declaratory judgment action brought by Plaintiff-appellant Allstate Insurance Company ("Allstate"). Allstate seeks a declaration that the claims of Kristina and Nicholas Keltner for negligent infliction of emotional distress caused by witnessing their brother's death are subject to the same limit of liability applicable to the brother's injuries. The district court granted summary judgment in favor of the insureds, and Allstate appealed. For the reasons stated herein, we reverse.

I. Background

On January 3, 2001, Lindsay Tozer was driving her parents' car when the automobile struck a telephone pole. Riding in the car with Lindsay were Kyle Keltner and his two siblings, Nicholas and Kristina. Kyle was severely injured in the accident and eventually died. Kristina and Nicholas sustained relatively minor physical injuries in the crash, but allege that they suffered severe emotional distress witnessing their brother's injuries and death.

Lindsay's parents had insured the car (and therefore Lindsay) through a policy issued by Allstate. That policy limits Allstate's liability for bodily injury claims to $100,000 for "each person" and $300,000 for "each accident." After Kyle's estate sued (or threatened to sue)¹ Lindsay for wrongful death, Allstate settled the claim for $1.1 million. One hundred thousand dollars of this sum was paid under the Tozers' automobile policy; the remaining one million was paid under an umbrella policy that is not at issue in this case.

On February 22, 2002, Nicholas and Kristina filed a complaint against Lindsay in Hamilton County Superior Court. The complaint sought, among other things, damages for the "emotional distress as the result of seeing the injuries and death of their brother Kyle Keltner." Allstate hired Smith, Maley & Douglas to defend Lindsay in the state-court action, and the firm entered its appearance on March 21, 2002. The insurer did not issue a letter to Lindsay reserving its right to deny coverage under the policy.

On July 31, 2002, Allstate filed the instant suit in the Southern District of Indiana, seeking a declaration that Nicholas's and Kristina's emotional distress claims were subject to the $100,000 "each person" limit of liability applicable to their brother's injuries, and that Allstate had exhausted its liability for these claims by paying Kyle's estate $100,000 under the auto policy. At the close of discovery, the parties filed cross-motions for summary judgment. The district court ruled in favor of defendants, holding that the siblings had asserted separate bodily injury claims under the policy. The district court interpreted the policy's definition of bodily injury to include a claim for emotional distress so long as the plaintiff sustained a physical impact at the time of the event triggering the claim, even if that impact did not cause the emotional distress. The court reasoned that this analysis would accord with the "modified impact rule" applicable to negligent infliction of emotional distress claims announced in Shuamber v. Henderson, 579 N.E.2d 452, 456 (Ind.1991).² Because Nicholas and Kristina each sustained physical trauma in the crash, the court held their claims to be separate bodily injuries under the policy and granted summary judgment in favor of the insureds. Allstate appeals.

II. Discussion

Summary judgment is appropriate "if the pleadings, depositions, answers to interrogatories, and admissions on file, together with the affidavits, if any, show that there is no genuine issue of material fact and that the moving party is entitled to judgment as a matter of law." Fed.R.Civ.P. 56(c). "Where there are no genuine issues of material fact, contract interpretation is particularly well-suited for summary judgment." Anstett v. Eagle-Picher Indus., Inc., 203 F.3d 501, 503 (7th Cir.2000). We review a district court's grant of summary judgment de novo. Sullivan v. Ramirez, 360 F.3d 692, 696 (7th Cir.2004).

This appeal raises two issues: (i) whether the siblings' claims of emotional distress are subject to the "each person" limit of liability applicable to their brother's injuries; and (ii) whether Allstate is estopped from raising the argument because it assumed control over Lindsay's legal defense in state court. The parties agree that Indiana law governs both issues. We look first to Indiana Supreme Court precedent. Because we have located no case on point, "decisions of the state appellate courts control, unless there are persuasive indications that the state supreme court would decide the issue differently." Lexington Ins. Co. v. Rugg & Knopp, Inc., 165 F.3d 1087, 1090 (7th Cir.1999). "In the absence of [Indiana] authority, we may consider decisions from other jurisdictions." Id.; see also Valerio v. Home Ins. Co., 80 F.3d 226, 228 (7th Cir.1996); Foster v. Cont'l Can Corp., 783 F.2d 731, 733-34 n. 3 (7th Cir.1986).

A. The "Each Person" Limit of Liability

Allstate contends that Nicholas's and Kristina's emotional distress claims are subject to the $100,000 "each person" limit of liability applicable to their brother's injuries and death. Because it has already paid Kyle's estate $100,000 to settle his wrongful death claim, Allstate argues that it has exhausted its liability for the siblings' emotional distress claims. Defendants assert that the emotional distress claims constitute separate bodily injuries entitled to additional coverage under the policy.

Despite the absence of Indiana Supreme Court precedent on this precise issue, settled principles of Indiana law guide our analysis. Under that law, the question of whether the siblings' claims fall under the "each person" limit of liability applicable to Kyle's claim is an issue of contract interpretation. See Bowers v. Kushnick, 774 N.E.2d 884, 887 (Ind.2002) ("Contracts of insurance are governed by the same rules of construction as other contracts."). "If the policy language is clear and unambiguous, it should be given its plain and ordinary meaning." Id. (quoting Eli Lilly & Co. v. Home Ins. Co., 482 N.E.2d 467, 470 (Ind.1985)). Indiana courts "will not find coverage under [an] insurance policy unless the language of the contract admits liability." Am. Family Mut. Ins. Co. v. Hall, 764 N.E.2d 780, 784 (Ind.Ct.App.2002); see also, e.g., Ramirez v. Am. Family Mut. Ins. Co., 652 N.E.2d 511, 515 (Ind.Ct.App.1995); Allstate Ins. Co. v. Kepchar, 592 N.E.2d 694, 697 (Ind.Ct.App.1992); City of Muncie v. United Nat'l Ins. Co., 564 N.E.2d 979, 982 (Ind.Ct.App.1991). Accordingly, we look to the terms of the policy to ascertain the scope of its coverage.

The policy provides that "Allstate will pay damages which an insured person is legally obligated to pay because of ... bodily injury." (R.1, Ex. A at 6.) The policy defines bodily injury, subject to exceptions not relevant here, as "physical harm to the body, sickness, disease, or death." (Id., Ex. A at 3.) Allstate limits its liability to $100,000 for "each person," up to a maximum of $300,000 for "each accident." (Id., Ex. A at 1.) The policy defines these limits as follows:

The limits shown on the Policy Declarations are the maximum we will pay for any single accident involving an insured auto. The limit stated for each person for bodily injury is our total limit of liability for all damages because of bodily injury sustained by one person, including all damages sustained by anyone else as a result of that bodily injury. Subject to the limit for each person, the limit stated for each accident is our total limit of liability for all damages for bodily injury.

(Id., Ex. A at 8.) (emphasis added and deleted).

Under the plain language of the policy, Allstate's liability for bodily injuries suffered by Kyle and "damages sustained by anyone else as a result of" his injuries is limited to a total of $100,000. It is clear that Nicholas's and Kristina's emotional distress claims are for "damages sustained ... as a result of" Kyle's injuries: their state-court complaint alleges that they suffered emotional distress "as a result of seeing the injuries and death of their brother Kyle Keltner." Accordingly, these claims are subject to the $100,000 cap applicable to Kyle's injuries.

Stated otherwise, the siblings' claims do not amount to separate "bodily injuries" under the policy. A reasonable interpretation of the policy's definition of bodily injury — "physical harm to the body, sickness, disease, or death" — does not include emotional distress, at least where, as here, the distress is not caused by physical trauma.

Indiana caselaw confirms this reading. In Wayne Township Board of School Commissioners v. Indiana Insurance Co., 650 N.E.2d 1205, 1210 (Ind.Ct.App.1995), the Court of Appeals of Indiana held that a policy defining bodily injury to include "sickness or disease" was broad enough to encompass a child's claim that she suffered emotional distress after being sexually molested. Id. at 1210-11. The court reasoned that the emotional harm "results from a physical intrusion upon the child's body and therefore is bodily injury." Id. at 1211. It carefully limited its holding, however: "[T]he term `bodily injury' does not include emotional damage that does not arise from a bodily touching." Id. at 1210. See also Armstrong v. Federated Mut. Ins. Co., 785 N.E.2d 284, 293 (Ind.Ct.App.2003) ("`bodily injury', as used in certain insurance policies,...