Erie Ins. Group v. Alliance Environmental

• Decision Date: 04 March 1996
• Docket Number: No. IP 94-2076-C H/G.,IP 94-2076-C H/G.
• Citation: 921 F. Supp. 537
• Parties: ERIE INSURANCE GROUP, Plaintiff, v. ALLIANCE ENVIRONMENTAL, INC., Alliance Indiana, Inc., Alliance Illinois, Inc., R. Bruce Wallace, Sear Corporation, Larry Bass, and Birch Dalton, Defendants.
• Court: U.S. District Court — Southern District of Indiana

921 F. Supp. 537

ERIE INSURANCE GROUP, Plaintiff, v. ALLIANCE ENVIRONMENTAL, INC., Alliance Indiana, Inc., Alliance Illinois, Inc., R. Bruce Wallace, Sear Corporation, Larry Bass, and Birch Dalton, Defendants.

No. IP 94-2076-C H/G.

United States District Court, S.D. Indiana, Indianapolis Division.

March 4, 1996.

John C. Trimble, Lewis & Wagner, Indianapolis, Indiana, for plaintiff.

Thomas E. Farrell, Scopelitis, Garvin, Light & Hanson, for Alliance defendants.

Richard A. Cook, Skiles & Reed, Indianapolis, Indiana, for defendants Wallace, Sear Corporation, Bass, and Dalton.

ENTRY ON CROSS MOTIONS FOR SUMMARY JUDGMENT

HAMILTON, District Judge.

This case presents several questions of Indiana law about the scope of liability insurance coverage under a business's general liability insurance policy. Several of the defendants in this case — Sear Corporation and two of its officers, Larry Bass and Birch Dalton (collectively, the "Sear defendants") — have filed suit in state court for defamation and tortious interference with contract against the "Alliance defendants" — Alliance Environmental, Inc., Alliance Indiana, Inc., Alliance Illinois, Inc., and Bruce Wallace, who is president and chief operating officer of each those corporations. The Alliance defendants submitted a claim for defense and coverage to their general liability insurance carrier, Erie Insurance Group ("Erie"), which is the plaintiff here. Erie denied the claim and seeks a declaratory judgment that it has no duty to defend or indemnify the Alliance defendants for any of the claims asserted against them by the Sear defendants in the underlying suit. This court has subject matter jurisdiction based on diversity of citizenship, and there is a ripe controversy between the parties.

All parties have moved for summary judgment and agree that Indiana law governs the insurance policy at issue here. Erie argues that the "personal injury" liability coverage provided in the policy it issued to the Alliance defendants excludes coverage for damages arising out of "services of a professional nature." The Alliance defendants and the Sear defendants argue that Erie is obligated to provide coverage because the underlying lawsuit asserts claims beyond the scope of the professional services exclusion. Both sets of defendants also contend that the policy's "advertising injury" liability coverage applies even if the professional services exclusion also applies to bar personal injury liability coverage. As explained below, the court concludes that the Erie policy does not apply because the Sear defendants seek to hold the Alliance defendants liable for actions taken in providing professional services and because the Alliance defendants' actions were not "in the course of advertising" their services. The court therefore grants Erie's motion for summary judgment and denies the Alliance defendants' and Sear defendants' motions for summary judgment.

Summary Judgment Standard and Applicable Indiana Insurance Law

Summary judgment should be granted when there is no genuine issue of material fact and the moving party is entitled to judgment as a matter of law. Fed. R.Civ.P. 56(c). A genuine issue of material fact exists if there is sufficient evidence for a jury to find in favor of the non-moving party on the particular issue. E.g., Methodist Medical Center v. American Medical Security, Inc., 38 F.3d 316, 319 (7th Cir.1994). Interpretation of a written contract, such as a contract of insurance, is ordinarily a question of law suitable for resolution on motions for summary judgment. E.g., Tate v. Secura Ins., 587 N.E.2d 665, 668 (Ind.1992); Wayne Township Bd. of Sch. Comm'rs v. Indiana Ins. Co., 650 N.E.2d 1205, 1208 (Ind.App. 1995); accord, Hurst-Rosche Engineers, Inc. v. Commercial Union Ins. Co., 51 F.3d 1336, 1342 (7th Cir.1995) (affirming summary judgment applying Illinois law and holding that professional services exclusion applied to bar coverage for claims of libel and tortious interference with contract). When the question presented is whether an insurance policy provides liability coverage for a particular claim or lawsuit, the central material facts are ordinarily the terms of the written contract and the contents of the plaintiff's allegations in the underlying litigation. E.g., Wayne Township Bd. of Sch. Comm'rs, 650 N.E.2d at 1208 (if pleadings in underlying suit show that claim is clearly precluded under terms of policy, insurance company is not required to defend or provide coverage for insurer). Both sets of facts will ordinarily not be disputed, and they are not disputed here. The parties disagree about the legal conclusions to be drawn from the terms of insurance contract as applied to the underlying lawsuit.

Indiana law governs the interpretation of the Erie policy, so the task for this court is to decide issues of Indiana law as the court believes the Supreme Court of Indiana would decide them. Under Indiana law, words in an insurance policy should be given their plain and ordinary meaning whenever possible. See Tate, 587 N.E.2d at 668; Cincinnati Ins. Co. v. Flanders Electric Motor Service Inc., 40 F.3d 146, 151 (7th Cir.1994). Generally, ambiguous language in an insurance contract must be construed in favor of the insured, and language is ambiguous if reasonable persons may honestly differ as to its meaning. Eli Lilly & Co. v. Home Ins. Co., 482 N.E.2d 467, 470 (Ind.1985); Cincinnati Ins. Co. v. Flanders Electric Motor Service Inc., 40 F.3d at 151. Exclusionary provisions in insurance contracts are subject to this principle. As one Indiana court has said: "An exclusion will be given effect only if it unmistakably brings the act or omission within its scope." Evans v. National Life Accident Ins. Co., 467 N.E.2d 1216, 1219 (Ind.App.1984). See also American National Fire Ins. Co. v. Rose Acre Farms, Inc., 846 F.Supp. 731, 736 (S.D.Ind.1994) (citing Evans among other cases); Indiana Ins. Cos. v. Granite State Ins. Co., 689 F.Supp. 1549, 1557 (S.D.Ind.1988) (citing Evans).

Indiana's interpretation rule about ambiguity in both coverage and exclusion provisions should not be taken to its extreme. An insurance company cannot be held to a standard of clarity requiring it to have anticipated every factual situation that possibly could arise and to have expressly addressed how the policy would apply to all of those situations. Harnischfeger Corp. v. Harbor Ins. Co., 927 F.2d 974, 976 (7th Cir.1991) (explaining attempt to cope with all possible interactions of fact and text would produce incomprehensible and expensive policy "more like a federal procurement manual than like a traditional insurance policy"). The ambiguity rule works in default to break a genuine tie but does not dictate that all conflicts be resolved against the drafter. Id. ("There must be genuine (meaning, substantial) uncertainty, not resolvable by other means, and the insured's proposed reading must be reasonable.").

Undisputed Facts

This dispute arose after asbestos was discovered at Jefferson High School in Lafayette, Indiana. Because the allegations in the complaint ordinarily govern the scope of the insurer's duty to defend and indemnify, the central facts here are actually the allegations in the Sear defendants' complaint against the Alliance defendants in state court. (As far as this court is aware, the truth of the material allegations is hotly disputed in that action, but this court must focus on the allegations for purposes of deciding this case.) In 1991, the Lafayette School Corporation contracted with Sear Corporation to remove the asbestos. Sear Corporation removed asbestos between September 5, 1991, and November 27, 1991. The school corporation then allegedly discovered asbestos remaining at the high school in areas where Sear had worked. The school corporation contracted with Star Environmental, Inc. to remove the additional asbestos. Star completed that work in the summer of 1992.

The school corporation also hired the Alliance companies in August 1992 to "inspect and investigate the source and responsibility for the asbestos materials" at the high school. Sear Cplt. ¶ 19. After completing their investigation, the Alliance defendants (through Wallace) reported their findings to the school corporation, the Indiana Department of Environmental Management, and "others." The Alliance defendants' findings were that Sear failed to remove all of the asbestos at the high school, and that Sear negligently committed "civil and criminal violations in failing to do so."¹ The Sear defendants allege that, as a result of the actions of the Alliance defendants and others, Sear Corporation lost its license as an asbestos contractor with the State of Indiana, but later regained its license.

The school corporation brought suit against the Sear defendants in Tippecanoe Circuit Court for failing to remove all the asbestos at the school. The Sear defendants filed a third party complaint against the Alliance defendants and others for tortious interference with a contractual relationship, defamation, and civil rights violations. The Alliance defendants submitted a claim to Erie for coverage under the liability policy. Erie denied the Alliance defendants' claim and filed this lawsuit to obtain a declaratory judgment that its policy provides no coverage here.

The Erie insurance policy at issue (Policy No. Q40 0750196 R, in effect from April 7, 1992, to April 7, 1993), covers Alliance Environmental, Inc., Alliance Indiana, Inc., Alliance Illinois, Inc., and their officers and directors acting within the scope of their employment. The policy includes casualty protection for the Alliance defendants' business property and business income. The policy also includes liability protection for personal injury or property damage. The term "personal injury" is defined to include injury arising out of libel, slander, and defamation of character. The policy contains an exclusion that lies at the heart...