Federal Ins. Co. v. Stroh Brewing Co.

• Decision Date: 19 September 1997
• Docket Number: No. 96-1477,96-1477
• Citation: 127 F.3d 563
• Parties: 1997-2 Trade Cases P 71,928 FEDERAL INSURANCE COMPANY, Plaintiff-Appellant, v. STROH BREWING COMPANY, Defendant-Cross Defendant-Appellant, and Employers Mutual Insurance Company of Wausau, Defendant-Cross Claimant-Appellee.
• Court: U.S. Court of Appeals — Seventh Circuit

Page 563

127 F.3d 563

1997-2 Trade Cases P 71,928

FEDERAL INSURANCE COMPANY, Plaintiff-Appellant, v.STROH BREWING COMPANY, Defendant-Cross Defendant-Appellant and Employers Mutual Insurance Company of WausauDefendant-Cross Claimant-Appellee.

No. 96-1477.

United States Court of Appeals Seventh Circuit.

Argued April 11, 1997.

Decided Sept. 19, 1997.

David C. Campbell, Bingham, Summers, Welsh & Spilman, Indianapolis, IN, Timothy M. Thornton, Jr.(argued), Santa Monica, CA, for Plaintiff-Appellee.

Dwight B. Palmer, Jr.(argued), Sara E. Elder, Wilson & McIlvaine, Chicago, IL, Gary J. Rickner, Barrett & McNagny, Fort Wayne, IN, for Defendant-Appellant.

Before CUDAHY, FLAUM and ROVNER, Circuit Judges.

CUDAHY, Circuit Judge.

Say "discrimination" today and those around you may think of race or sex discrimination, usually in connection with a school or work setting.But that has not always been the case.Time was, "discrimination" might have brought immediately to mind charging one person more than another for the same product.That definition, although perhaps less in public consciousness, remains just as valid today.¹

G. Heileman Brewery Company, Inc.(Heileman) purchased an umbrella business liability insurance policy from Federal Insurance Company(Federal).² In June of 1994 Calumet (a wholesale beer distributor in Indiana) sued Heileman for discrimination allegedly based on Heileman's pricing practices.In March of 1995, Heileman turned this lawsuit over to its insurer, Federal, and requested both that Federal defend it against Calumet and that Federal cover any losses Heileman might incur as a result of the suit.Not until August of 1995(with trial set for November 6 of the same year) did Federal alert Heileman that it was declining both coverage and the duty to defend.Heileman spent $650,000 defending itself and then settled for an additional $850,000.Heileman then sued Federal, seeking coverage, and Federal countersued, seeking a declaratory judgment of no coverage.The district court entered summary judgment in favor of Federal, denying coverage.We review a summary judgment de novo, and will affirm only if no genuine issue of material fact remains to be resolved and if Federal is entitled to judgment as a matter of law.SeeAlexander v. City of Chicago, 994 F.2d 333, 335(7th Cir.1993).We reverse.

We must determine the extent of Federal's duty to defend and duty to indemnify.Whether Federal had a duty to defend Heileman depends on whether Calumet's complaint alleged facts giving rise to liability.Calumet's suit accused Heileman of engaging in price discrimination.Heileman offered a staggered price discount based on the volume purchased.³Calumet sued; it believed that Heileman's pricing structure discriminated against smaller wholesalers unable to purchase large amounts of beer on a monthly basis.Only one wholesaler, Central Distributing, was able consistently to purchase enough beer to qualify for the largest discount.Calumet thus believed Heileman favored Central Distributing over other wholesalers.Calumet sought relief under the Clayton Act, the Robinson-Patman Act and Indiana beverage laws.⁴

Heileman's policy covers, among other personal injuries, "discrimination."Calumet repeatedly alleged discrimination in its complaint: "Heileman is now and has been discriminating in price between different purchasers of commodities of like grade and quality, that is, Heileman is selling and has sold beer, a commodity, of identical grade and quantity at the same time at different prices to different customers."Calumet Complaintat 17(internal quotation marks omitted)."The sales by Heileman to Central Distributing, Heileman's favored purchaser, and Calumet, Heileman's disfavored purchaser, are a discrimination in commerce."Id."The effect of such discrimination not only may be to substantially lessen competition but has, in fact, already substantially lessened competition in the sale of Heileman beer in Northwest Indiana."Id."The effect of such discrimination by Heileman has also been to injure, destroy or prevent competition with any person who either grants or knowingly receives the benefit of such discrimination, or with customers of either of them."Id."This discrimination is not because of any due allowance for difference in the cost of manufacture, sale, or delivery."Id. at 18(internal quotation marks omitted)."This discrimination is not in response to changing conditions."Id.Thus, if discrimination in price is covered by the policy, Federal had a duty to defend Heileman.

Heileman argues that Calumet's complaint falls within the plain language of the policy and that Federal's duty to defend is correspondingly clear.Federal believes "price discrimination" to be a term of art describing conduct not included in coverage for "discrimination."The district court agreed with Federal and gave two alternative reasons for denying coverage.First, that the term "discrimination" was unambiguous and had only one meaning which did not include "price discrimination."Second, that, even if "price discrimination" were properly understood as part of "discrimination," the policy contained an exclusion which applied to the facts as alleged by Calumet.Because we find that "price discrimination" is simply a particular form of discrimination, and because we find that, even if the exclusion does apply, Federal is estopped from asserting it, we reverse.

I.Duty to Defend

We note as an initial matter that Indiana law (which here follows generally accepted principles) governs the present case.Typically, an insurer has a duty to defend its insured against suits alleging facts that might fall within the coverage.While the insurer does not have an unconditional duty to defend, the insurer's duty is expansive, since the duty to defend is considerably broader than the duty to indemnify.SeeSeymour Mfg. Co., Inc. v. Commercial Union Ins. Co., 665 N.E.2d 891, 892(Ind.1996).The parties dispute how an insurer must determine whether the duty to defend has been triggered.Federal relies on Wayne Township Bd. of Sch. Comm'rs v. Indiana Ins. Co., 650 N.E.2d 1205(Ind.Ct.App.1995), an Indiana Court of Appeals decision which holds that "[i]f the pleadings disclose that a claim is clearly excluded under the policy, no defense is required....When the underlying factual basis of the complaint, even if proved true, would not result in liability under the insurance policy, the insurance company can properly refuse to defend."Id. at 1208.Heileman prefers an Indiana Supreme Court statement that "[t]he duty to defend is determined solely by the nature of the complaint."Transamerica Ins. Servs. v. Kopko, 570 N.E.2d 1283, 1285(Ind.1991);see alsoWayne Township, 650 N.E.2d at 1208(quotingTerre Haute First Nat'l Bank v. Pacific Employers Ins. Co., 634 N.E.2d 1336, 1339(Ind.Ct.App.1993))("It is the nature of the claim and not its merits that determines the duty to defend.").

This is not the first time we have tangled with the variously framed pronouncements of the Indiana courts on this issue.SeeFidelity & Guar. Ins. Underwriters, Inc. v. Everett I. Brown Co., 25 F.3d 484, 489-90(7th Cir.1994).While Indiana's courts may use differing language to describe the standard, we believe there is essentially only one standard--that the allegations of the complaint, including the facts alleged, give rise to a duty to defend whenever, if proved true, coverage would attach.Calumet's complaint alleged discrimination (in favor of Central Distributing and against Calumet) that took the form of a pricing structure giving Central Distributing a lower price than Calumet for the same product.

Hence, we examine the policy issued by Federal and the complaint filed by Calumet to determine if Federal had a duty to defend Heileman in the Calumet litigation.Heileman's umbrella policy contained two forms of coverage, of which only Coverage B is at issue here.Coverage B promised that Federal would pay on Heileman's behalf any damages resulting from "personal injury" or "advertising injury" if caused by an offense committed during the policy period and no primary insurance applied.We are concerned only with the "personal injury" coverage in the present case.Personal injury is defined by the policy, in part, as "humiliation or discrimination EXCEPT: (1) when arising out of the willful violation of a statute; (2) when committed by or with knowledge or consent of the insured."⁵The term "discrimination" within this definition is not defined in the policy.Nevertheless, to determine if Calumet's allegations are properly considered discrimination under the policy we must look to the meaning of "discrimination" as used in the policy.

Federal defends its denial of coverage with the argument that "price discrimination" is a term of art, not covered by the policy under the designation "discrimination."Heileman argues both that Calumet's complaint alleges discrimination, pure and simple, and that "price discrimination" is merely a label for the particular form of discrimination alleged by Calumet.Further, because the policy at issue is an "umbrella" policy, drafted by Federal, Heileman argues that the language should be interpreted broadly and against the insurer.SeeCommercial Union Ins. Co. v. Walbrook Ins. Co., 7 F.3d 1047, 1053(1st Cir.1993)("Umbrella policies differ from standard excess insurance policies in that they are designed to fill gaps in coverage both vertically (by providing excess coverage) and horizontally (by providing primary coverage)....Moreover, this interpretation is consonant with the broader function served by umbrella policies--extending coverage even to unanticipated 'gaps.'As one authority has explained, umbrella policies effectively shift away from the insured the burden of choosing the risks to which the insured remains exposed.")(citations omitted)(emphasis supplied).

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