Federal Ins. Co. v. Stroh Brewery Co.

• Decision Date: 22 December 1998
• Docket Number: No. 1:95-CV-0287.,1:95-CV-0287.
• Citation: 35 F.Supp.2d 650
• Parties: FEDERAL INSURANCE COMPANY, Plaintiff, v. The STROH BREWERY COMPANY, Defendant.
• Court: U.S. District Court — Northern District of Indiana

35 F.Supp.2d 650

FEDERAL INSURANCE COMPANY, Plaintiff, v. The STROH BREWERY COMPANY, Defendant.

No. 1:95-CV-0287.

United States District Court, N.D. Indiana, Fort Wayne Division.

December 22, 1998.

COPYRIGHT MATERIAL OMITTED

David C. Campbell, James M. Hinshaw, Bingham Summers Welsh and Spilman, Indianapolis, IN, Timothy M. Thornton, Jr., Nelsen Thompson Pegue and Thornton, Santa Monica, CA, for Federal Insurance Company, plaintiff.

Kevin K. Fitzharris, Gary J. Rickner, Cathleen M Shrader, Barrett and McNagny, Fort Wayne, IN, Dwight B. Palmer, Jr., Stanley C. Nardoni, Bell Jones Quinlisk & Palmer, Chicago, IL, for G. Heileman Brewing Company, defendant.

ORDER

WILLIAM C. LEE, Chief Judge.

Before the Court is a Motion for Further Relief Pursuant to 28 U.S.C. § 2202, which the Defendant, the Stroh Brewery Company ("Stroh"), filed February 2, 1998. Plaintiff, Federal Insurance Company ("Federal"), responded on February 20, and Stroh replied on March 13. In its Order of May 22, 1998, the Court found that Federal had not waived the defenses which it properly raised in District Court, but which neither the District Court nor the Circuit Court resolved. The Court ordered further briefing on the issue of the extent to which the Circuit Court's estoppel finding barred Federal from asserting these defenses. Federal and Stroh filed their Supplemental Briefs on June 11. Federal's Response Brief came in on June 22, and Stroh's on June 25.

The Court then scheduled a hearing for September 24, 1998, on two issues: (1) whether, under Indiana law, the Seventh Circuit's finding of estoppel in Fed. Ins. Co. v. Stroh Brewing Co., 127 F.3d 563, 571 (7th Cir.1997), reaches Federal's defense of late notice; and (2) whether, under Indiana law, Stroh may recover its fees and costs expended in defending the declaratory judgment action brought by Federal. The Court also asked the parties for their views on certifying these issues to the Indiana Supreme Court. Federal and Stroh filed Supplemental Briefs on October 30 and Response Briefs on November 13. The Court is now prepared to rule on the matters raised by Stroh's Motion for Further Relief.

For the reasons that follow, the Court GRANTS Federal a credit of $49,379.43 for the prejudgment interest that accrued on Stroh's principal while proceedings were stayed due to Heileman's bankruptcy; pursuant to 28 U.S.C. § 2202, the Court ORDERS Federal to pay to Stroh: principal of $1,633,586.73; interest to December 1, 1997, of $226,796.88 and interest of $358.05 for each day from December 31, 1997 to the day this judgment is entered; and $105.00 charged to appeal this case. The Court DENIES Stroh's petition for fees and costs expended to defend Federal's declaratory action.

DISCUSSION

Facts

This action began on August 29, 1995, when Federal filed a Complaint for Declaratory Relief and Reimbursement, seeking a declaration that it owed no duty to defend or indemnify Stroh's predecessor in interest, the Heileman Brewing Company ("Heileman") in the Calumet v. G. Heileman Brewing Co. action, Northern District of Indiana, Hammond Division, Case No. 2:94CV165JM. In that action, Calumet alleged that Heileman discriminated in the price it charged Northern Indiana beer wholesalers who purchased beer from Heileman in smaller quantities as opposed to those who purchased in larger quantities. Heileman was insured under Federal's commercial umbrella liability policy with limits of 20 million dollars per occurrence. Coverage A of the policy applied to claims above the limits of the underlying commercial general liability policy written by Employers Insurance of Wausau. Coverage B afforded Heileman primary liability insurance with no deductible and included a duty by Federal to defend suits brought against Heileman. Heileman stipulated that the Wausau policy did not cover the claims presented to Federal, so the question before the Court was whether Federal was liable for the Calumet suit under coverage B of its policy.

On January 30, 1996, this Court granted Federal's Motion for Judgment on the Pleadings and denied Stroh's Motion for Judgment on the Pleadings. The Court found that there was no coverage under Federal's insurance policy because (1) "discrimination" did not include "price discrimination," and (2) Heileman's claim was excluded under the exception for discrimination effected "with the knowledge and consent of the insured." But on September 19, 1997, the Seventh Circuit reversed this Court, ruling in favor of Stroh and against Federal on both issues. Federal Ins. Co. v. Stroh Brewing Co., 127 F.3d 563 (7th Cir.1997) (Flaum dissenting). The Seventh Circuit held that Federal's policy covered Heileman for the price discrimination alleged in the underlying Calumet suit, that the exception did not bar coverage, and that Federal had consequently breached its duty to defend. The Circuit Court also held that Federal's delayed and wrongful refusal to honor its insuring clause estopped Federal from recourse to its exclusions.

In its Motion for Further Relief, Stroh claimed that Federal refused to pay anything other than the Bill of Costs awarded Stroh as the winning party on appeal, and sought that this Court: (1) direct Federal to pay Stroh the principal sum of $1,633,586.73, which represents Stroh's legal and settlement expenses in the Calumet suit (Stroh's Brief of Feb. 2 at 2); (2) direct Federal to pay Stroh's prejudgment interest of $276,176.31 plus daily interest of $358.05 from December 31, 1997, to the entry of this Court's order (id. at 3-4); (3) award Stroh declaratory action fees and costs with Stroh to submit its supporting invoices hereafter (id. at 5-6); (4) pursuant to Fed.R.App.P. 39(e), direct Federal to pay Stroh the $105.00 charged to make the appeal (id. at 6); and (5) award Stroh any other additional relief this Court deemed proper (id.).

Federal, however, maintained that there remained pending several coverage defenses which had not been ruled upon either by this Court or by the Court of Appeals. These were: (1) whether Stroh is barred from recovering the loss due to the Calumet suit because Heileman's practice of price discrimination began prior to the commencement of coverage provided in the insurance policy (Response of Feb. 20, 3-4); (2) whether Heileman's late tender precludes coverage (id. at 4); (3) whether the fees and costs incurred prior to Heileman's tender are covered (id. at 4-5); and (4) whether Stroh is entitled to prejudgment interest accrued while Heileman was in bankruptcy (id. at 5-6). Federal also raised a fifth issue, whether Federal is entitled to a setoff. Stroh argued that Federal abandoned and waived these defenses when it did not raise them on appeal. Reply of March 13, 5-6.

The Court, in its Order of May 22, 1998, decided that Federal did not waive its other defenses by failing to argue them on appeal. The Court then instructed the parties to brief the question of whether Federal is nevertheless barred from recourse to its other defenses because of the Seventh Circuit's finding of estoppel in Federal v. Stroh.

Stroh's Petition for Further Relief

28 U.S.C. § 2202 provides, "Further necessary or proper relief based on a declaratory judgment or decree may be granted, after reasonable notice and hearing, against any adverse party whose rights have ben determined by such judgment." Stroh resorts to this statute because Federal has refused to provide Stroh with the monetary relief Stroh claims as a result of the Seventh Circuit's ruling in Federal v. Stroh.

Estoppel

The Seventh Circuit's decision in Federal v. Stroh is a mandate which this Court must follow. "A trial court must implement both the letter and spirit of the [appellate court's] mandate ... upon remand [the trial court] may consider, as a matter of first impression, those issues not expressly or implicitly disposed of by the appellate decision. ..." Bankers Trust Co. v. Bethlehem Steel Corp., 761 F.2d 943, 949-50 (3d Cir. 1985) (citations omitted); Law v. Medco Research, Inc. 113 F.3d 781, 783 (7th Cir.1997). In Federal v. Stroh, the Seventh Circuit estopped Federal from asserting its exclusions against coverage. 127 F.2d at 571. Federal, however, claims that the Seventh Circuit's finding of estoppel does not bar Federal from asserting the defenses which the Circuit Court did not rule on, including its defenses of prior loss, late notice, pretender fees and costs, prejudgment interest accrued during bankruptcy, and setoff. Response of Feb. 20 at 3-6. Stroh contends that the estoppel finding does indeed bar the assertion of virtually all of Federal's defenses. Reply of March 13 at 5-6. To follow the Circuit's mandate, this Court must decide whether the estoppel finding reaches the defenses Federal has advanced.

Here is what the Seventh Circuit said in regard to estoppel:

We now consider whether reliance on the exclusion must be rejected on other grounds as well. Heileman argues that because Federal delayed six months before notifying Heileman of its wrongful decision to decline to defend, Federal now should be barred from denying coverage based on an exclusion. See Indiana Ins. & Co. v. Ivetich, 445 N.E.2d 110, 112 (Ind.Ct.App. 1983) ("when an insurer induces the insured to effect self-help to protect himself, it cannot then hide behind the language of the insurance policy to avoid its duty to defend or insure.") (citing American Family Mut. Ins. Co. v. Kivela, 408 N.E.2d 805 (Ind.Ct.App.1980). In Ivetich the insurance company refused to pay a claim on grounds that the claims alleged were not covered. Similarly, in Kivela the insurer denied both coverage and a duty to defend. Because the insurance companies in both cases wrongfully denied coverage, the Indiana courts held that the insurer could not then "hide behind the language of the contract in an attempt to avoid its duty to insure." Id. In other words, choosing to deny coverage based on non-coverage by the insuring clause,...