Cummings Wholesale Elec. Co., Inc. v. Home Owners Ins. Co.
Decision Date | 21 February 1974 |
Docket Number | 73-1062 and 73-1070.,73-1061,No. 73-1049,73-1049 |
Citation | 492 F.2d 268 |
Parties | CUMMINGS WHOLESALE ELECTRIC CO., INC., Plaintiff-Appellant, v. HOME OWNERS INSURANCE COMPANY et al., Defendants-Appellees. James BAYLOR, Plaintiff and Counter-Defendant-Appellee, v. OTTO ELECTRIC COMPANY, INC., et al., Defendants. DELPHI COMMUNITY SCHOOL BUILDING CORP., Plaintiff-Appellant, v. NORTHEASTERN INSURANCE COMPANY OF HARTFORD et al., Defendants-Appellees. |
Court | U.S. Court of Appeals — Seventh Circuit |
Henry J. Price, Stephen K. Smith, Indianapolis, Ind., for appellants in No. 73-1049.
William M. Evans, Indianapolis, Ind., for appellants in Nos. 73-1061 and 73-1062.
Alan H. Lobley, D. Robert Webster, Charles J. Todd, Indianapolis, Ind., and Lewis N. Mullin, Delphi, Ind., for appellants in No. 73-1070.
Charles W. Linder, Jr., Sydney L. Steele, James W. Riley, Jr., Indianapolis, Ind., for appellees Nationwide Mutual Ins. Co., Northeastern Ins. Co. of Hartford, and Allstate Ins. Co.
Nicholas C. Nizamoff, Richard H. Riegner, William A. Wick, Indianapolis, Ind., for James Baylor as amicus curiae in No. 73-1070 and appellee in all other cases.
Before CUMMINGS and STEVENS, Circuit Judges, and GRANT, Senior District Judge.*
Rehearing En Banc Denied March 25, 1974.
These appeals involve common issues concerning plaintiffs' rights against the reinsurers of the insolvent Home Owners Insurance Company, which had issued certain surety bonds in Indiana.
In No. 73-1049, plaintiff Cummings Electric furnished more than $120,000 worth of materials to Otto Electric Company, which became insolvent. Home Owners had written surety bonds for Otto Electric. Home Owners in turn had reinsurance agreements with the three defendant reinsurers. Home Owners also became insolvent and was undergoing liquidation in Illinois. Plaintiff obtained a default judgment against Home Owners on August 27, 1971. Through negotiations with its liquidator, the default judgment was vacated and a consent decree filed nunc pro tunc as of April 14, 1972, against the liquidator. Plaintiff filed an amended complaint on April 17, 1972, to join the defendant reinsurers who had been ceded portions of Home Owners' risks on the surety bonds. Judge Noland granted the reinsurers' and liquidator's motions to dismiss the amended complaint without prejudice in an order not containing any reasons for the dismissal.
In Nos. 73-1061 and 1062, two Indiana public school building corporations filed counterclaims against Home Owners. They were obligees on 1969 performance bonds securing the completion of electrical work to be done by Otto Electric on two new public high school buildings in Indiana. These counterclaims sought the recovery of all costs and expenses incurred by the schools in completing the electrical work for their high school buildings following the default of Otto Electric. On December 17, 1971, the defendant school building corporations filed their amended supplemental counterclaim seeking judgment against the three reinsurance companies and the liquidator of Home Owners. In his two orders dismissing the counterclaimants' actions without prejudice, Judge Steckler explained:
"This dismissal does not operate as an adjudication upon the merits, and Counter-Claimants and Third-Party Plaintiffs are free to pursue their claim in the proper forum, i. e., the Illinois liquidation proceedings of Home Owners Insurance Company brought in the Circuit Court of Sangamon County, Illinois."1
In No. 73-1070, another Indiana public school building corporation entered into a contract with Otto Electric Company for work to be performed in constructing Delphi Community High School. Otto Electric entered into a performance bond and labor and materials bond with Home Owners as surety for $344,888. After partial performance Otto Electric defaulted and plaintiff expended $176,146.70 to complete the unperformed work. Plaintiff sued the reinsurers without joining the liquidator of Home Owners. In an unreported opinion granting the reinsurers' motion to dismiss, Judge Eschbach held that the liquidator of Home Owners was an indispensable party and could not be joined because of the April 8, 1971, injunction of the Circuit Court of Sangamon County, Illinois, restraining all persons with claims against Home Owners from asserting any claim against the liquidator except in the Illinois liquidation proceedings. As in Nos. 73-1061 and 1062, the court stated that plaintiff was free to pursue its claim in the Illinois liquidation proceedings of Home Owners.
These various appeals involve the proper construction to be given to Ind. Code 1971, § 27-1-13-6 (Burns § 39-4307), which was enacted as Section 175 of the 1935 Indiana Insurance Law and provides as follows:
This statute was apparently modeled on a comparable New York statute (Laws of 1920, ch. 563, § 3, now as amended McKinney's Consol. Laws, ch. 28, Insurance Law §§ 47, 315). However, we have found no cases or legislative history under either statute to illuminate the meaning of the critical, italicized proviso.
The Indiana legislature required that these reinsurance policies be "in such form" as to permit the obligee or beneficiary to sue the reinsured and reinsurer jointly. Paragraph 14 of the General Reinsurance Agreement sufficiently satisfies this requirement.2 Because of the mandate of Section 4307, we reject the reinsurers' argument that Paragraph 14 is inconsistent with Article XIV of the Separate Reinsurance Agreements3 and hence was not incorporated therein by Article XI thereof.4 This does not require a strained construction of Article XIV, since it only relates to payments during insolvency, and as will be seen, Section 4307 grants no preference and authorizes no direct action after liquidation proceedings begin. Because no part of any of the agreements other than Paragraph 14 of the General Agreement gives the insured any rights against the reinsurers, we hold that these agreements provide such rights only to the extent necessary to comply minimally with Section 4307.
The various insured claimants in these cases were given a direct right of action against the reinsurers by virtue of Section 4307 and...
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