Winston Network, Inc. v. Indiana Harbor Belt R. Co.

• Decision Date: 25 September 1991
• Docket Number: 90-2766 and 90-2796,90-1337,Nos. 90-1237,90-2360,90-1325,s. 90-1237
• Parties: WINSTON NETWORK, INCORPORATED, a Delaware corporation, Plaintiff-Appellee, v. INDIANA HARBOR BELT RAILROAD COMPANY, an Indiana corporation, Defendant-Cross-Plaintiff-Appellee, v. AETNA INSURANCE COMPANY, a Connecticut corporation, Defendant-Cross-Defendant-Appellant. WINSTON NETWORK, INCORPORATED, a Delaware corporation, Plaintiff-Appellant, v. INDIANA HARBOR BELT RAILROAD COMPANY, an Indiana corporation, Defendant, v. AETNA INSURANCE COMPANY, a Connecticut corporation, Defendant-Appellee. WINSTON NETWORK, INCORPORATED, a Delaware corporation, Plaintiff, v. INDIANA HARBOR BELT RAILROAD COMPANY, an Indiana corporation, Defendant-Cross-Plaintiff-Appellant, v. AETNA INSURANCE COMPANY, a Connecticut corporation, Defendant-Cross-Defendant-Appellee. WINSTON NETWORK, INCORPORATED, a Delaware corporation, Plaintiff, v. INDIANA HARBOR BELT RAILROAD COMPANY, an Indiana corporation, Defendant-Counter-Plaintiff-Appellee, v. AETNA INSURANCE COMPANY, a Connecticut corporation, Defendant-Counter-Defendant-Appellant. WINSTON NETWORK, INCORPORATED, a Delaware corporation, Plaintiff-Appellee, v. INDIANA HARBOR BELT RAILROAD COMPANY, an Indiana corporation, Defendant-Appellant.
• Court: U.S. Court of Appeals — Seventh Circuit

Page 1351

944 F.2d 1351

WINSTON NETWORK, INCORPORATED, a Delaware corporation, Plaintiff-Appellee, v. INDIANA HARBOR BELT RAILROAD COMPANY, an Indiana

corporation, Defendant-Cross-Plaintiff-Appellee, v. AETNA INSURANCE COMPANY, a Connecticut corporation,

Defendant-Cross-Defendant-Appellant.

WINSTON NETWORK, INCORPORATED, a Delaware corporation, Plaintiff-Appellant, v. INDIANA HARBOR BELT RAILROAD COMPANY, an Indiana

corporation, Defendant, v. AETNA INSURANCE COMPANY, a Connecticut corporation,

Defendant-Appellee.

WINSTON NETWORK, INCORPORATED, a Delaware corporation, Plaintiff, v. INDIANA HARBOR BELT RAILROAD COMPANY, an Indiana

corporation, Defendant-Cross-Plaintiff-Appellant, v. AETNA INSURANCE COMPANY, a Connecticut corporation,

Defendant-Cross-Defendant-Appellee.

WINSTON NETWORK, INCORPORATED, a Delaware corporation, Plaintiff, v. INDIANA HARBOR BELT RAILROAD COMPANY, an Indiana

corporation, Defendant-Counter-Plaintiff-Appellee, v. AETNA INSURANCE COMPANY, a Connecticut corporation,

Defendant-Counter-Defendant-Appellant.

WINSTON NETWORK, INCORPORATED, a Delaware corporation, Plaintiff-Appellee, v. INDIANA HARBOR BELT RAILROAD COMPANY, an Indiana

corporation, Defendant-Appellant.

Nos. 90-1237, 90-1325, 90-1337, 90-2360, 90-2766 and 90-2796.

United States Court of Appeals Seventh Circuit.

Argued May 8, 1991.

Decided Sept. 25, 1991.

John A. Dienner, III, argued, Lydon & Griffin, Chicago, Ill., for plaintiff-appellee Winston Network, Inc.

Diane I. Jennings, argued, Alvin E. Domash, Lord, Bissell & Brook, David F. Schmidt, Peterson & Ross, Chicago, Ill., for defendant-appellee Indiana Harbor Belt R. Co.

Jay S. Judge, Knight, Hoppe, Fanning & Knight, Des Plaines, Ill., John T. Burke, Burke & Associates, Chicago, Ill., for defendant-appellant Aetna Ins. Co.

Before WOOD, Jr., COFFEY and KANNE, Circuit Judges.

HARLINGTON WOOD, Jr., Circuit Judge.

On June 30, 1981, a train owned by the Indiana Harbor Belt Railroad ("IHB") toppled a scaffolding erected for the purpose of painting an advertisement on an IHB-owned bridge. A state court jury determined that the negligence of both IHB and Transportation Displays, Inc. ("TDI"), caused the accident, which injured one painter and killed another, and that the resulting damages were in excess of $2.4 million. That verdict was later affirmed on appeal. Carter v. Indiana Harbor Belt R.R., 190 Ill.App.3d 1052, 547 N.E.2d 488, 138 Ill.Dec. 321 (1st Dist.1989).

The state court plaintiffs have since received payment and the only remaining issue is a quarrel between IHB, TDI, and TDI's insurer, Aetna Insurance Company ("Aetna"), regarding the ultimate liability for the underlying judgment. TDI's parent corporation, Winston Network, Inc. ("Winston Network"), filed this diversity, declaratory-judgment action seeking to determine the rights and responsibilities of the various parties. IHB thereafter filed a counterclaim against Winston Network and a cross-claim against Aetna. As the caption attests, none of the parties was entirely happy with the disposition below and the resulting appeals, cross-appeals, and protective appeals have been consolidated for more efficient review.

I.

A. The Parties

Winston Network is engaged in the business of outdoor advertising and TDI, its wholly owned subsidiary, specializes in advertising on property owned by railroads. Under the standard scenario, TDI contracts for rights to place advertising on the railroad's property and then seeks out advertisers. When it finds a willing advertiser, TDI sells that party an advertising license and shares the revenue with the railroad.

On November 15, 1980, Aetna issued a "Commercial Package Policy" that covered both Winston Network and TDI. This policy included general liability coverage for TDI's own negligence. TDI had significantly more exposure, however, because each of its 300 railroad contracts included a promise to hold harmless and indemnify the railroad for any negligence on the part of either TDI or the railroad. In order to cover this additional exposure, the policy included coverage for liability assumed under "any contract or agreement relating to the conduct of the named insured's business."

IHB, the final party to this action, is a switching railroad that operates approximately forty miles of track. The railroad has always been a subsidiary--presently of the Consolidated Rail System ("Conrail"), ¹ which in turn acquired the line from the Penn Central Railroad, which in turn inherited it from the New York Central Railroad. IHB has never functioned independently of its parent, which has, for example, always handled IHB's real estate transactions.

B. The Business Relationship Between TDI and IHB

On July 17, 1951, the New York Central Railroad granted TDI an exclusive license to place advertising on New York Central's property in return for, inter alia, TDI's promise to hold harmless and indemnify New York Central. This base agreement was amended in 1961 to include "additional billboard rights on properties owned, leased, operated or controlled by [New York Central], specifically those of the IHB." The agreement was further amended in 1971 to include advertising rights on overhead bridges.

TDI and IHB continued to do business under the 1951 agreement even after control of IHB passed by merger to the Penn Central Railroad. When Conrail assumed control of the ailing Penn Central, it, too, was initially satisfied with the 1951 agreement. In 1980, however, Conrail decided to consolidate the motley collection of contracts that it had inherited from bankrupt railroads like Penn Central. It requested bids on an advertising management contract that would cover the entire Conrail system. TDI won the bid and a new contract was executed on June 1, 1981.

The 1981 agreement purports to have been "made and entered into" by TDI and "CONSOLIDATED RAIL CORPORATION, a Pennsylvania corporation ... ('Conrail')." The agreement thereafter acknowledged that TDI was the successful bidder for the right to advertise "throughout Conrail's rail system." It then granted TDI "the exclusive right ... to use, as a license only, Conrail property for sign advertising purposes."

The remainder of the integrated agreement, which purports to be governed by Pennsylvania law, spelled out the terms under which the advertising license was granted. There are provisions, for example, wherein TDI agreed to procure liability insurance listing Conrail as a named insured. ² TDI also promised to hold harmless and indemnify "Conrail, its officers, agents, and employees" from "any and all claims, suits, loss, costs, and liability, arising from, or in connection with ... any personal injury, death, or property damage, whatsoever." Other portions of the contract note that "Conrail" reserved absolute and unconditional discretion over all signs and that "Conrail" could terminate the agreement by giving notice. Finally, the agreement purports to abrogate all prior contracts "between TDI and the various predecessors of Conrail to the extent Conrail inured to the benefits and assumed the obligations of such contracts."

The 1981 agreement did not separately identify any of the dozens of railroads that make up the Conrail rail system, nor did TDI or Conrail believe it necessary to list each one individually. Prior to June 1, 1981, TDI looked to the 1951 agreement to determine a particular term or condition of its relationship with IHB; after June 1, 1981, TDI looked to the 1981 agreement. There was no change in the course of conduct between TDI and IHB after June 1, 1981, and TDI continued to place advertising on IHB's property and pay a share of the advertising revenue to IHB.

C. The Accident and the Carter Litigation

Sometime on or before May 15, 1980, a TDI employee prepared an application by Pal Construction Company for an advertising license for the north face of an IHB-owned bridge at 4901 South Western, Chicago, Illinois. A license was issued on May 26, 1981, and Pal Construction made arrangements for B & G Quality Signs to paint its advertisement. The B & G painters had attached their scaffolding to the viaduct and were in the process of painting the advertisement when a passing IHB train with a defective boxcar door snagged a hook on the scaffolding and caused it to collapse, killing one painter and wounding another.

Wrongful death and personal injury actions were thereafter commenced in state court, see Carter v. Indiana Harbor Belt Railroad Co., 190 Ill.App.3d 1052, 547 N.E.2d 488, 138 Ill.Dec. 321 (1989), and both TDI and IHB were named as defendants. TDI tendered its defense of the suit to Aetna, which, pursuant to TDI's general liability coverage, assumed the defense and eventually paid TDI's portion of the judgment. IHB tendered its defense of the suit to TDI, which in turn tendered the defense to Aetna under its contractual liability coverage. Aetna refused to defend IHB, arguing generally that there was no indemnity contract between TDI and IHB and arguing specifically that IHB was not expressly named in TDI's policy and that the indemnity provision in the 1981 agreement did not cover IHB.

D. Proceedings Before the District Court

In 1988, after the jury in Carter returned a $2.4 million verdict against TDI and IHB, Winston Network filed a complaint for declaratory relief seeking an adjudication of the parties' rights and responsibilities under the 1951 and 1981 agreements. It also sought an adjudication of Aetna's liability under the contractual liability coverage. IHB, which was named as a defendant alongside Aetna, filed a counterclaim against Winston Network for breach of the 1951 and/or 1981 agreement to defend and indemnify. IHB also filed a cross-claim against Aetna for breach of its duty to defend and indemnify under the contractual liability coverage.

Winston Network and IHB initially attempted to resolve the dispute by means of motions for summary judgment. These motions took the position that the indemnity...