Lexington Ins. Co. v. Rugg & Knopp, Inc.

• Citation: 165 F.3d 1087
• Decision Date: 14 January 1999
• Docket Number: No. 98-2078,98-2078
• Parties: The LEXINGTON INSURANCE COMPANY, Plaintiff-Appellant, v. RUGG & KNOPP, INC., and the Salt Lake City Corporation, Defendants-Appellees.
• Court: United States Courts of Appeals. United States Court of Appeals (7th Circuit)

Page 1087

165 F.3d 1087

The LEXINGTON INSURANCE COMPANY, Plaintiff-Appellant, v. RUGG & KNOPP, INC., and the Salt Lake City Corporation,

Defendants-Appellees.

No. 98-2078.

United States Court of Appeals, Seventh Circuit.

Argued Nov. 6, 1998.

Decided Jan. 14, 1999.

David L. Joslyn, Rivkin, Radler & Kremer, Chicago, IL, Steven R. Merican (argued), Naperville, IL, for Plaintiff-Appellant.

Eric S. Darling (argued), Schmidt, Darling & Erwin, Milwaukee, WI, for Defendant-Appellee Rugg & Knopp, Inc.

Timothy J. Strattner, Schellinger & Doyle, Brookfield, WI, Robert G. Wright, Richards, Brandt, Miller & Nelson, Salt Lake City, UT, for Defendant-Appellee Salt Lake City Corporation.

Before CUMMINGS, EASTERBROOK and EVANS, Circuit Judges.

CUMMINGS, Circuit Judge.

The Salt Lake City Corp. ("Salt Lake City"), Utah, contracted with Rugg & Knopp, Inc. ("R & K") to construct a facility at the municipal airport. R & K did an unsatisfactory job and was ultimately terminated for negligence and incompetence. R & K had the foresight to insure itself against losses due to such dereliction with the Lexington Insurance Company ("Lexington"). Unfortunately for R & K, it failed to notify Lexington within the period prescribed by the contract of insurance. But luck--or the Wisconsin legislature--may have been with R & K, because a state statute may have imposed liability on Lexington despite the facial provisions of the contract. Whether it did so is the question here.

In this diversity case to be decided under Wisconsin law, Lexington sought a declaratory judgment that, because of R & K's untimely notification, Lexington should be relieved of its obligation under the insurance policy to indemnify R & K for the losses arising from R & K's incompetent performance of the construction contract. Salt Lake City is a defendant because it has an interest in coverage under the insurance policy in dispute. On cross-motions for summary judgment, the district court granted that of R & K and Salt Lake City and denied that of Lexington. We affirm.

I. Background

The record establishes the following undisputed facts: In 1992, Salt Lake City awarded R & K a contract to design and partially construct a Fire Simulation Training Facility at the city airport. In April 1994, Lexington issued R & K a "claims-made" insurance policy ("Policy 1"). The period of Policy 1 was April 14, 1994 to April 14, 1995. In February 1995, R & K applied for a renewal Policy ("Policy 2"), stating that it was unaware of any circumstances likely to give rise to a claim against R & K. This was not true. R & K knew that Salt Lake City was unhappy. From January to June 1995 (twice in January), Salt Lake City informed R & K of various complaints it had about R & K's inadequate and negligent performance of its obligations under the construction contract between them. Not receiving satisfaction, Salt Lake City terminated the construction contract on June 1, 1995. On that date Salt Lake City notified R & K and Lexington that it sought compensation of over $160,000 for claims arising from R & K's negligence in performing the construction contract. This was the first that Lexington had heard of any claims against R & K. Fearing that it might have to pay, however, Lexington filed the action we now consider.

If the interpretation of the insurance policy were the only issue, setting aside any statutory context, the plaintiff would win. The defendants did not provide notice of their losses within the period required by the policy. But the Wisconsin "notice-prejudice" statutes would seem to say that this failure does not bar liability for insurer or invalidate or reduce a claim unless the insurer was prejudiced by the failure. The statutes apply this rule to "every liability insurance policy." Plaintiff argues that the statutes do not apply, however, to the sort of policy at issue here, a "claims-made" policy. Such a policy limits coverage to claims made during the policy period and reported to the insurer within a certain period--here within 30 days of its expiration. An "occurrence" policy, by contrast, covers occurrences within the policy period regardless of when filed, but typically require notice to be given "as soon as reasonably possible." The main issue posed in this appeal is whether the statutory term "every" means "some but not all," excluding, among others, claims made policies. We agree with the district court that "every" means "every," and therefore conclude that that court was correct in its disposition of the case.

II. Analysis

By way of preliminary observation, this Court reminds the parties that Circuit Rules are to be followed. The rule in this Circuit in a diversity case is that where any party is a corporation, the jurisdictional statement "shall identify both the state of incorporation and the state in which the corporation has its principal place of business." 7th Cir. R. 28(a)(1). In its jurisdictional statement, Lexington simply asserts that the parties are of different state citizenships. R & K and Salt Lake City aver that Lexington's statement of the Court's jurisdiction is "complete and correct." It is not. This cavalier attitude towards Circuit Rules is unacceptable and reflects quite poorly on the counsel for all parties. A bare recitation that subject matter jurisdiction exists is insufficient. If the record did not happen to support the facts showing that diversity jurisdiction existed, we should have to remand to the district court for certification that such jurisdiction existed. See Jason's Foods, Inc. v. Peter Eckrich & Sons, Inc., 768 F.2d 189 (7th Cir.1985). That would be a tedious, time wasting, and unnecessarily costly enterprise. Parties in diversity cases must prove subject matter jurisdiction and abide by Court Rules.

Summary judgment is appropriate where there are no genuine issues of material fact and the moving party is entitled to judgment as a matter of law. Fed.R.Civ.P. 56(c); Celotex Corp. v. Catrett, 477 U.S. 317, 106 S.Ct. 2548, 91 L.Ed.2d 265. No party in the present case raises any argument that there are disputed issues of material fact. The only questions posed are issues of substantive Wisconsin state law concerning the interpretation of an insurance policy and whether the policy is subject to the Wisconsin statutes. Under Erie R. Co. v. Tompkins, 304 U.S. 64, 58 S.Ct. 817, 82 L.Ed. 1188, a federal court of course applies state substantive law and federal procedural law in a diversity case. As a court sitting in diversity, we attempt to predict how the Wisconsin Supreme Court would decide the issues presented here. Allen v. Transamerica Ins. Co., 128 F.3d 462, 466 (7th Cir.1997). Where the state supreme court has not ruled on an issue, decisions of the state appellate courts control, unless there are persuasive indications that the state supreme court would decide the issue differently. Id. In the absence of Wisconsin authority, we may consider decisions from other jurisdictions. Valerio v. Home Ins. Co., 80 F.3d 226, 228 (7th Cir.1996). We review the district court's grant of summary judgment de novo, Bourke v. Dun & Bradstreet, 159 F.3d 1032, 1036 (7th Cir.1998), as well as reviewing de novo the determination of the content of the state law to be applied. Salve Regina College v. Russell, 499 U.S. 225, 231, 111 S.Ct. 1217, 1221, 113 L.Ed.2d 190.

We first consider the interpretation and application of the contract of insurance, Policy 1. Under Wisconsin law, "[t]he construction of ... insurance policies is generally a matter of law and is controlled by the same rules of construction as are applied to contracts generally." Kremers-Urban Co. v. American Employers Ins. Co., 119 Wis.2d 722, 351 N.W.2d 156, 163 (1984). As a matter of law, this Court construes the policy language de novo. Scottish Guarantee Ins. Co. v. Dwyer, 19 F.3d 307, 309 (7th Cir.1994). Under the terms of Policy 1, standing alone, ¹ R & K would not be entitled to coverage because it failed to provide timely notice. The policy expressly provides that for coverage to apply, the following conditions "must be satisfied:.... 3. claim is made against insured during the policy period; 4. the insured must report the claim to the company, in writing, as otherwise provided in this policy within the policy period or within the thirty (30) day period succeeding the expiration of the policy period." The policy period ran for one year from April 14, 1994. Salt Lake City made claims against R & K as early as January 18, 1995 and again in February and March of 1995. A claim, according to Policy 1 itself, is "any demand for money or services," and Salt Lake City demanded reimbursement for various costs and R & K's provision of various construction services in its correspondence from January to March of 1995. Policy 1 expired on April 14, 1995. R & K had to notify Lexington of the claims within 30 days, or by May 14, 1995. Lexington was not notified until June 1, 1995. Therefore, under the terms of Policy 1 on its face, Lexington would not have been obligated to pay the claims under the contract.

Lexington is not obligated to compensate R & K under Policy 2, the renewal policy running for a year from April 14, 1995, identical in every way, except the period, to Policy 1. The claims were not made within the Policy 2 policy period and R & K did have "knowledge prior to the effective date of this policy of such ... circumstance likely to give rise to a claim," which, by the terms of Policy 2, barred any liability of the insurer. Salt Lake City's claims against R & K constituted such knowledge. R & K and Salt Lake City do not contest liability under Policy 2.

Still, Wisconsin law may supersede the notice provisions in Policy 1, allowing R & K and Salt Lake City to recover. Wisconsin insurance policies are governed by Wisconsin law. See Lopardo v. Fleming Cos., Inc., 97 F.3d 921, 926 (7th Cir.1996). Wisconsin has two arguably applicable "notice-prejudice" statutes. Wis....