Telamon Corp. v. Charter Oak Fire Ins. Co.

• Decision Date: 09 March 2017
• Docket Number: No. 16-1205, No. 16-1815,16-1205
• Citation: 850 F.3d 866
• Parties: TELAMON CORPORATION, Plaintiff–Appellant, v. CHARTER OAK FIRE INSURANCE COMPANY and St. Paul Fire and Marine Insurance Company, Defendants–Appellees. Telamon Corporation, Plaintiff–Appellant, v. Charter Oak Fire Insurance Company and Travelers Casualty & Surety Company of America, Defendants–Appellees.
• Court: U.S. Court of Appeals — Seventh Circuit

850 F.3d 866

TELAMON CORPORATION, Plaintiff–Appellant,

v.CHARTER OAK FIRE INSURANCE COMPANY and St. Paul Fire and Marine Insurance Company, Defendants–Appellees.

Telamon Corporation, Plaintiff–Appellant,

v.Charter Oak Fire Insurance Company and Travelers Casualty & Surety Company of America, Defendants–Appellees.

No. 16-1205

No. 16-1815

United States Court of Appeals, Seventh Circuit.

Argued September 29, 2016

Decided March 9, 2017

Sean M. Hirschten, Attorney, George M. Plews, Attorney, Plews, Shadley, Racher & Braun LLP, Indianapolis, IN, for Plaintiff–Appellant.

Michele A. Chapnick, Attorney, Gregory & Meyer P.C., Troy, MI, Richard K. Shoultz, Attorney, Lewis Wagner, LLP, Indianapolis, IN, for Defendants–Appellees Charter Oak Fire Insurance Company (Case Nos. 16–1205, 16–1815), St. Paul Fire & Marine Insurance Company (Case No. 16–1205).

Christie M. Bird, Attorney, Arthur Neil Lambert, Attorney, Frenkel Lambert Weiss Weisman & Gordon, LLP, New York, NY, Darren A. Craig, Attorney, Julia Blackwell Gelinas, Attorney, Frost Brown Todd LLC, Indianapolis, IN, for Defendant–Appellee Travelers Casualty and Surety Company of America (Case No. 16–1815).

Before Wood, Chief Judge, and Ripple and Williams, Circuit Judges.

Wood, Chief Judge.

Underlying this insurance dispute is a regrettably common tale of greed and dishonesty. Telamon, an Indiana telecommunications firm, engaged Juanita Berry to work for it from 2005 to 2011 as its Vice President of Major Accounts. Berry used that position to steal over $5 million from the firm. Upon discovering this loss, Telamon then turned to two insurance policies in an effort to recover its money: a crime insurance policy with Travelers Casualty & Surety (Travelers), and a commercial property policy with Charter Oak Fire Insurance (Charter Oak). At that point, Telamon crashed into a brick wall. Travelers denied coverage because Berry was not , legally speaking, an employee. And Charter Oak refused to pay because, in practice, she was .

Telamon cried foul and filed a lawsuit in which it argued that Berry's actions were covered under both policies and that the insurers had breached their duty of good faith. At the eleventh hour, it tried to add St. Paul Fire and Marine Insurance (St. Paul) as a defendant. The court rejected the amendment, at which point Telamon filed a new action against St. Paul and Charter Oak. That case promptly found its way back to the same court and was dismissed as an impermissible effort to split the claim. Telamon appealed (case 16–1205). Later the court granted summary judgment in favor of the defendants in the original case. Again, Telamon appealed (case 16–1815). We consolidated the appeals for disposition. Finding no error in either of the district court's decisions, we affirm.

I

We refer to the original suit against Charter Oak and Travelers as Telamon I , and the suit against Charter Oak and St. Paul as Telamon II . The critical background facts are the same for both cases.

Berry worked for Telamon from 2005 to 2011. Her employment was governed by a series of Consulting Services Agreements (Agreements) between Telamon and J. Starr Communications, Berry's one-woman company through which she provided her services. The terms of the Agreements remained largely unchanged during Berry's six-year association with Telamon. Her role, however, did not. Berry's responsibilities expanded well beyond those described in the Agreements, and she eventually became Telamon's Vice President of Major Accounts, making her the company's senior manager in the New York and New Jersey region. In this capacity she oversaw Telamon's AT&T Asset Recovery Program, which was supposed to remove old telecommunications equipment from AT&T sites and sell it to salvagers. Berry removed the equipment and sold it, but she pocketed the profits. By the time the company realized something was amiss in 2011, it had suffered $5.2 million in losses. Telamon fired Berry and she was later convicted in the District of New Jersey on federal charges of wire fraud and tax evasion; she was sentenced to 60 months' imprisonment and was assessed $3,440,885 in restitution payable to Telamon.

Berry's misdeeds left Telamon with the problem of recouping its losses. Undoubtedly dubious that it would ever see much of the required restitution, it turned to two insurance policies for that purpose: its crime insurance policy with Travelers and its general commercial insurance policy with Charter Oak. These two insurers are subsidiaries of a larger Travelers entity, and so Telamon asked them to work together to avoid duplicative claims investigations. They obliged, but in late 2012 they each gave Telamon the disappointing news that they were denying coverage. Telamon fought back by filing Telamon I , which started out in Indiana state court and landed in the federal court via removal. Telamon asserted that its loss was covered under both policies and that the insurers had acted in bad faith (a tort under Indiana law). The district court granted summary judgment for the insurers on the coverage issues in December of 2015, and dismissed the remaining bad faith claims the following April.

Meanwhile, in June 2014, Telamon sought permission to amend its complaint in Telamon I to add another set of claims based on older policies issued by St. Paul and Charter Oak. Because this request came almost a year after the deadline for amending pleadings had expired, the court said no. At that point, Telamon filed Telamon II in Indiana state court, raising essentially the same claims. The insurers again removed, and in January 2016, the district court dismissed the suit as an impermissible attempt to split claims.

II

As these cases rest on diversity jurisdiction, we resolve Telamon's claims under Indiana law. See Native Am. Arts, Inc. v. Hartford Cas. Ins. Co. , 435 F.3d 729, 731 (7th Cir. 2006). Indiana courts interpret insurance policies under "the same rules of construction as other contracts," taking "the perspective of an ordinary policyholder of average intelligence." Bradshaw v. Chandler , 916 N.E.2d 163, 166 (Ind. 2009). An insured has the burden of proving the existence of coverage, while the insurer must show that an exclusion applies. Nat'l Fire & Cas. Co. v. W. By & Through Norris , 107 F.3d 531, 535 (7th Cir. 1997) ; Home Fed. Sav. Bank v. Ticor Title Ins. Co. , 695 F.3d 725, 732 (7th Cir. 2012).

The analysis of an insurance policy proceeds in two steps. First, the court examines whether the terms of a policy are unambiguous. If they are, then the court adopts the ordinary meaning of the words. Beam v. Wausau Ins. Co. , 765 N.E.2d 524, 528 (Ind. 2002) ; Allgood v. Meridian Sec. Ins. Co. , 836 N.E.2d 243, 246–47 (Ind. 2005) (referring to the dictionary). If there is ambiguity, the court advances to the second step, where it construes any ambiguity strictly against the insurer and in favor of coverage. Bradshaw , 916 N.E.2d at 166. A policy is ambiguous if "reasonable people would differ as to its meaning." Justice v. Am. Family Mut. Ins. Co. , 4 N.E.3d 1171, 1176 (Ind. 2014).

A

The Travelers policy at issue covers theft by "an Employee." It defines "an Employee" to include "any natural person ... who is leased to the Insured under a written agreement between the Insured and a labor leasing firm, while that person is subject to the Insured's direction and control and performing services for the Insured." Berry is a natural person, and there was a written agreement between Telamon and J. Starr. To prevail, Telamon must show both that J. Starr was a "labor leasing firm" and that Berry was "subject to [Telamon's] direction and control." Failure to prove either of these is enough to defeat its claim.

Telamon argues that the plain meaning of a "labor leasing firm" is a company "in the business of placing its employees at client companies for varying lengths of time in exchange for a fee." Pac. Emp'rs Ins. Co. v. Wausau Bus. Ins. Co. , 2007 WL 2900452, at *8 (M.D. Fla. Oct. 15, 2007) ; see also Scottsdale Ins. Co. v. Torres , 561 F.3d 74, 76, 78 (1st Cir. 2009) (adopting a similar interpretation). In other words, a "labor leasing firm" is a business concern that sells another person's work for a specified time and for a specified fee.

We will accept that definition for purposes of this opinion. Yet even so, we cannot conclude that J. Starr meets it. It is true that the Agreements were contracts between Telamon and J. Starr under which the former obtained the right to Berry's labor. But J. Starr was not a firm in the business of leasing labor; it was just Berry's vehicle for providing her own services. To classify her corporate alter ego as a "labor leasing firm" would be to elevate form over substance. The cases Telamon cites to support its position underscore our point. The "labor leasing firm" in Pacific Employers had multiple branches and specialized "in providing industrial clients with daily workers." 2007 WL 2900452, at *1–2. Similarly, the firm in Torres "hire[d] individuals and place[d] them with client companies for varying lengths of time," including at least six with the company litigating its insurance coverage. 561 F.3d at 75–76. There is no way to squeeze J. Starr into the same box. Berry's company was a legal convenience, and nothing more. Because it was not a "labor leasing firm," she was not an "Employee" for purposes of the Travelers policy.

B

Telamon also claims that Berry's theft is covered by its Charter Oak commercial property policy. That policy covers risks of direct physical loss, unless one of its exclusions applies. We can assume that Telamon suffered a loss covered by the policy. We thus turn to the exclusions, and in particular to the exclusion for any "[d]ishonest or criminal act by ... employees (including leased employees), directors, trustees, authorized representatives or anyone (other than a carrier for hire or bailee) to whom you entrust the property for any purpose ." (Emphasis added.) The parties agree that...