Frye v. Auto-Owners Ins. Co., 16-1677

• Decision Date: 03 January 2017
• Docket Number: No. 16-1677,16-1677
• Citation: 845 F.3d 782
• Parties: Dee FRYE and Lanhui Frye, Plaintiffs–Appellants, v. AUTO–OWNERS INSURANCE CO., Defendant–Appellee.
• Court: U.S. Court of Appeals — Seventh Circuit

845 F.3d 782

Dee FRYE and Lanhui Frye, Plaintiffs–Appellants,

v.AUTO–OWNERS INSURANCE CO., Defendant–Appellee.

No. 16-1677

United States Court of Appeals, Seventh Circuit.

Argued September 21, 2016

Decided January 3, 2017

Rehearing and Rehearing En Banc Denied February 1, 2017

Peter J. Agostino, Attorney, Matthew James Anderson, Attorney, Anderson, Agostino & Keller PC, South Bend, IN, for Plaintiffs–Appellants.

Stephen C. Wheeler, Attorney, Smith Fisher Maas Howard & Lloyd, P.C., Indianapolis, IN, for Defendant–Appellee.

Before Flaum, Kanne, and Williams, Circuit Judges.

Flaum, Circuit Judge.

Dee Frye was injured in a car accident caused by an underinsured driver. Frye sued his insurance company for coverage, and the parties reached a partial settlement, but Frye thought he was entitled to additional payments under the policy. The district court disagreed, and awarded summary judgment to the insurer. Frye appeals, and for the reasons that follow, we reverse the decision of the district court.

I. Background

In January 2011, Dee Frye was seriously injured in a car accident while driving for his job. The other driver admitted responsibility for the collision, and the latter's insurance company agreed to pay Frye $100,000, the applicable per-person limit. Frye accepted the payment and offered to assign it to his lawyer and to his employer's insurer, Auto–Owners Insurance Company, from which Frye had already received $692,895.79 in workers'-compensation benefits. Auto–Owners took $75,000 of the third-party payment (in partial satisfaction of a statutory lien), and the remaining $25,000 went to Frye's attorney. See Ind. Code § 22–3–2–13.

Frye's injuries were also covered by two other insurance policies—a commercial automobile policy, and a commercial umbrella policy—issued by Auto–Owners to Frye's employer. The former policy required Auto–Owners to pay any compensatory damages Frye was legally entitled to recover for bodily injuries caused by an underinsured motorist, and defined the insurer's per-occurrence limit of liability as the lesser of:

(1) the difference between:

(a) the amount paid in compensatory damages ... to the injured person by or for any person ... who may be liable for the injured person's bodily injury; and

(b) the "each person" limit for ... Underinsured Motorist Coverage stated in the Declarations [i.e. , $1 million]; [and]

(2) the difference between:

(a) the total amount of compensatory damages ... incurred by the injured person; and

(b) the amount paid by or for any person ... liable for the injured person's bodily injury.¹

The latter policy afforded follow-on coverage to the automobile policy, and stated with respect to the insurer's limit of (excess) liability:

The most we shall pay under this [umbrella policy] in any one occurrence shall not exceed the Limit of Liability shown in the Declarations for ... [t]he combined coverages of Uninsured Motorist and Underinsured Motorist....

The declarations reflected an uninsured-and-underinsured-motorist liability limit of $1 million. (The general limit for bodily injury was also $1 million when the umbrella policy was first issued in November 2007. Beginning in May 2010, however, the general limit was increased to $5 million per occurrence.) As to underinsured-motorist (or UIM) coverage in particular, the umbrella policy stated:

For [such] coverage, our Limit of Liability shall be reduced by any amounts:

...

2) Paid or payable for the same bodily injury covered under any workers compensation or similar law; and

3) Paid by or on behalf of any person ... who may be legally responsible for the bodily injury

which are in excess of the retained limit.

"Retained limit" was defined as the greater of:

(a) The highest applicable limits of liability of any and all underlying policy(ies); [and]

(b) ... $500,000 for bodily injury....

In January 2013, Frye and his wife (collectively, "Frye") sued Auto–Owners in Indiana state court, seeking payment under the aforementioned policies for damages arising from Frye's January 2011 car accident.² Auto–Owners removed the suit to federal court, and the parties later reached a partial settlement, through which Auto–Owners agreed to pay Frye $1,282,314.21. This amount included: $900,000 under the automobile policy ($1 million in total coverage, less $100,000 from the other motorist's insurer³ ); and $382,314.21 under the umbrella policy ($1 million in UIM coverage, less $617,685.79 in net workers'-compensation payments⁴ ).

Auto–Owners asserted that the settlement amount exhausted its obligations under the relevant policies, but Frye disagreed. According to Frye, Indiana statutory law required Auto–Owners to provide through its umbrella policy UIM coverage in an amount equal to the policy's general liability limit: $5 million (as of May 2010). Moreover, said Frye, the set-off for workers'-compensation payments was impermissible—both under the umbrella contract's terms, and also as a matter of Indiana public policy. The district court rejected both arguments, and awarded summary judgment to Auto–Owners. Frye appeals.

II. Discussion

We review de novo a district court's grant of summary judgment, construing all facts and drawing all reasonable inferences in favor of the non-moving party—here, Frye. See C.G. Schmidt, Inc. v. Permasteelisa N. Am. , 825 F.3d 801, 805 (7th Cir. 2016) (citation omitted). Summary judgment is appropriate where there are no genuine issues of material fact and the movant is entitled to judgment as a matter of law. Fed. R. Civ. P. 56(a).

A. The UIM Coverage Limit

Frye argues that § 27–7–5–2 of the Indiana Code obligates insurers who provide UIM coverage to provide such coverage in amounts equal to the limits of liability for bodily injury in general. Thus, says Frye, although the umbrella policy here purported to cap Auto–Owners's UIM liability at $1 million, the statute required a UIM liability limit equal to the policy's general per-incident limit of $5 million.

Section 27–7–5–2 states:⁵

(a) Except as provided in subsection (d) , the insurer shall make available, in each automobile liability or motor vehicle liability policy ... insuring against loss resulting from ... bodily injury ... arising from the ... use of a motor vehicle, ... the following types of coverage:

(1) ... for the protection of persons ... entitled to recover damages from owners or operators of uninsured or underinsured motor vehicles because of bodily injury [or] injury to or destruction of property ...; or

(2) ... for the protection of persons ... entitled to recover damages from owners or operators of uninsured or underinsured motor vehicles because of bodily injury....

The uninsured and underinsured motorist coverages must be provided by insurers ... in limits at least equal to the limits of liability specified in the bodily injury liability provisions of an insured's policy , unless such coverages have been rejected in writing by the insured....

...

(d) An insurer is not required to make available the coverage described in subsection (a) in a commercial umbrella or excess liability policy ....

Ind. Code § 27–7–5–2 (emphases added). In construing a state statute, we must interpret the statute as we think the state's highest court would interpret it. United States v. Mohamed , 759 F.3d 798, 804 (7th Cir. 2014) (citing Laborers Local 236, AFL–CIO v. Walker , 749 F.3d 628, 634 (7th Cir. 2014) ). Indiana courts employ the basic tools of statutory interpretation: Statutes are read as a whole, and words are given their plain and ordinary meaning. See id. (explaining that the plain language of the statute is the best evidence of legislative intent) (citations omitted); see also Ellis v. CCA of Tenn. LLC , 650 F.3d 640, 651 (7th Cir. 2011) (same) (quoting Estate of Moreland v. Dieter , 576 F.3d 691, 695 (7th Cir. 2009) ).

The parties agree that the plain language of § 27–7–5–2(d) exempts insurers from having to provide UIM coverage in their commercial umbrella policies. The present dispute instead turns on the extent to which subsection (d) creates a carve-out. Auto–Owners argues that § 27–7–5–2(d) permits insurers issuing (or renewing) commercial umbrella policies to selectively dispense with any requirements set forth in subsection (a) of that statute. In other words, not only may insurance companies abstain from providing UIM coverage in the first place, but if they do provide such coverage, they may provide it in any form they choose. In Frye's view, subsection (d) allows insurers to omit from commercial umbrella policies any UIM coverage, but if such coverage is included, it must otherwise comply with the limit-of-liability requirements set forth in subsection (a). Frye's reading is the more sensible one.

Section 27–7–5–2(d) states that insurers are not required to make available in commercial umbrella policies "the coverage described in subsection (a)." Ind. Code § 27–7–5–2(d). And subsection (a) defines "coverage" as one of two things: UIM protection against bodily injury and property damage; or UIM protection against bodily injury only. Id. § 27–7–5–2(a). Subsection (a) then states that these "coverages must be provided ... in limits at least equal to the limits of liability [for] bodily injury" generally. Id. (emphasis added). So the limit-of-liability requirement is modifying the "coverage" already described; the liability requirement is not part of the description itself.

Auto–Owners nevertheless insists that the liability requirement must be part of the "coverage described in subsection (a)"—and that subsection (d) therefore exempts insurers from satisfying that requirement—because this is what the Indiana legislature intended in adding subsection (d) to the statute. We disagree. Initially, § 27–7–5–2 contained no affirmative exceptions to the UIM-coverage mandate (though the insured could still reject such coverage in writing). See Ind. Code § 27–7–5–2 (1995). So if an insurance policy was an "automobile liability" or "motor vehicle liability" policy—the types...