Dee Frye, et al v. Auto-Owners Insurance Company

Filing

Filed opinion of the court by Judge Flaum. The judgment of the district court is REVERSED and the case is REMANDED for further proceedings consistent with this opinion. Joel M. Flaum, Circuit Judge; Michael S. Kanne, Circuit Judge and Ann Claire Williams, Circuit Judge. [6808759-1] [6808759] [16-1677]

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In the

United States Court of Appeals
For the Seventh Circuit
____________________
No. 16-1677
DEE FRYE and LANHUI FRYE,
Plaintiffs-Appellants,
v.
AUTO-OWNERS INSURANCE CO.,
Defendant-Appellee.
____________________
Appeal from the United States District Court for the
Northern District of Indiana, South Bend Division.
No. 3:13-CV-113 — Rudy Lozano, Judge.

____________________
ARGUED SEPTEMBER 21, 2016 — DECIDED JANUARY 3, 2017
____________________
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.

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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]

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(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-underinsuredmotorist 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:

1

We omit in this opinion the emphases originally included in the
quoted policy provisions.

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…
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 insurer 3); and $382,314.21 under the

2

Frye also sued Nationwide Mutual Insurance Company, the entity
that had insured the car Frye was driving at the time of the collision. Nationwide was ultimately dismissed from the case, and is not a party to this
appeal.
3

Frye claimed damages exceeding $1 million, so Auto-Owners maintained that it owed no more than $900,000 under the automobile policy—
which, as already noted, capped the insurer’s liability at the lesser of:

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umbrella policy ($1 million in UIM coverage, less $617,685.79
in net workers’-compensation payments 4).
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 setoff 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 AutoOwners. Frye appeals.
[the per-person limit ($1 million)]

–

[amounts paid by the liable party ($100,000)] =

$900,000;

and
[total damages ( > $1 million)]

–

[amounts paid by the liable party ($100,000)] =

> $900,000.

Frye objected to this calculation before the district court, but has not renewed his objection on appeal.
4

It is unclear how Auto-Owners obtained this figure. Frye received
$692,895.79 in workers’ compensation; and, as noted above, $75,000 of that
amount was returned to his employer’s insurance carrier (also Auto-Owners)—thus yielding a net compensation payment of $617,895.79, not
$617,685.79. We also question whether the net payment amount should
not also reflect (i.e., be further reduced by) the $25,000 that went to Frye’s
attorney. See Tunny v. Erie Ins. Co., 790 N.E.2d 1009, 1012, 1015–17 (Ind. Ct.
App. 2003) (concluding that amounts assigned to an insured’s lawyer under Indiana Code § 22-3-2-13 were not amounts retained by the insured).
As Frye does not object to the insurer’s calculation, however, we assume
for present purposes that this calculation is correct.

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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

5

Unless otherwise noted, we refer to the 2009 version of the statute,
which was in effect when Auto-Owners renewed the umbrella policy for
Frye’s employer. Frye argued in the district court that the 2009 version did
not apply here, as the umbrella policy was first issued in 2007. The district
court disagreed, and Frye has abandoned the issue on appeal. The quoted
language from 2009 (with one immaterial exception) still appears in the
current version of § 27-7-5-2.

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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

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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

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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 of policies to which the statute applied, see id. § 27-7-5-2(a)—then
Indiana law required that the policy cover all injuries caused
by underinsured motorists, see United Nat’l Ins. Co. v. DePrizio,
705 N.E.2d 455, 457–463 (Ind. 1999) (interpreting § 27-7-5-2 to
impose the UIM-coverage requirement on umbrella policies
insuring against motor-vehicle-related liability). In DePrizio,
the Indiana Supreme Court made clear that if the state legislature wished to exclude any specific types of insurance contracts from the UIM-coverage mandate, only an explicit statutory carve-out would suffice. See id. at 463–64. Subsection
(d), which was added to the statute in 2009, effected just such
an exemption for commercial umbrella policies; and, because
of that exemption, insurers need not include in such contracts
any UIM coverage at all. Nothing in the language of subsection (d), however, permits insurance companies—to the extent they do include UIM coverage in their commercial umbrella policies—to provide that coverage in any manner they
like.

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That the Indiana legislature did not intend such a result is
further evidenced by later amendments to the same statute.
Section 27-7-5-2(h), which appears in the current version of
the statute, provides that insurers are not required to make
available in personal (as distinguished from commercial) umbrella or excess liability policies “the coverage described in
subsection (a).” Ind. Code § 27-7-5-2(h)(1) (2013). So subsection (h), like subsection (d), exempts insurers from having to
include UIM coverage in certain types of insurance contracts.
But subsection (h) also states that, where an insurer does include such coverage, the insurer “may make available the coverage in limits determined by the insurer,” and “is not required
to make available the coverage in limits equal to the limits specified in the personal umbrella or excess liability policy.” Id.
§ 27-7-5-2(h)(3) (emphases added). We must therefore assume
that the exception for commercial contracts in subsection (d)—which (still) contains no such language—grants no
such permission. Otherwise, the permission explicitly afforded in subsection (h) would be redundant. See, e.g., Buelna
v. State, 20 N.E.3d 137, 142 (Ind. 2014) (“We read statutes as a
whole—avoiding an interpretation that makes any part of the
statute superfluous.” (citing City of Carmel v. Steele, 865 N.E.2d
612, 618 (Ind. 2007)); Marquez v. Weinstein, Pinson & Riley, P.S.,
836 F.3d 808, 811 (7th Cir. 2016) (“It is a cardinal principle of
statutory construction that a statute ought … to be so construed that, if it can be prevented, no clause, sentence, or word
shall be superfluous, void, or insignificant.” (quoting TRW
Inc. v. Andrews, 534 U.S. 19, 31 (2001); United States v. Michalek,
54 F.3d 325, 335–36 (7th Cir. 1995))) (internal quotation marks
omitted).
Section 27-7-5-2(d) allowed Auto-Owners to abstain from
providing UIM coverage in the umbrella policy issued to

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Frye’s employer. Once the insurance company elected to afford such coverage, however, it was required under
§ 27-7-5-2(a) to provide that coverage in limits equal to or
greater than the policy’s general liability limit: $5 million. We
thus agree with Frye that the latter limit applies here by operation of statutory law.
B. The Workers’-Compensation Set-Off
The district court interpreted the umbrella policy to permit Auto-Owners to reduce its UIM liability limit by the
amount of Frye’s previous workers’-compensation payments.
Frye argues that the set-off was contrary to both the contractual language and Indiana public policy. We do not reach the
latter issue, as we agree with Frye that the set-off violated the
contract’s terms.
We generally interpret insurance policies as we do other
types of contracts, though a few “specialized” rules of construction apply. See Justice v. Am. Family Mut. Ins. Co., 4 N.E.3d
1171, 1176 (Ind. 2014) (citing Holiday Hosp. Franchising, Inc. v.
AMCO Ins. Co., 983 N.E.2d 574, 577 (Ind. 2013); Everett Cash
Mut. Ins. Co. v. Taylor, 926 N.E.2d 1008, 1012 (Ind. 2010); Wagner v. Yates, 912 N.E.2d 805, 811 (Ind. 2009)). Where a policy’s
terms are ambiguous, for example, we construe them in favor
of the insured. See id. (citing Am. States Ins. Co. v. Kiger, 662
N.E.2d 945, 947 (Ind. 1996)). We otherwise give to clear and
unambiguous policy language its plain and ordinary meaning. See id. (citing Am. Econ. Ins. Co. v. Motorists Mut. Ins. Co.,
605 N.E.2d 162, 164 (Ind. 1992)); Holiday Hosp., 983 N.E.2d at
577 (citing Colonial Penn Ins. Co. v. Guzorek, 690 N.E.2d 664, 667
(Ind. 1997)).

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Paragraph 4(b)(1)(c) of the umbrella policy provides that
the insurer’s limit of liability for UIM coverage “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.
(emphasis added). “Retained limit” is in turn defined (in paragraph 1(a)(3)) 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 ….
The parties agree that “the highest applicable limit” of the relevant underlying policy—i.e., the automobile policy issued to
Frye’s employer—is $1 million, thus making $1 million (which
exceeds $500,000) the “retained limit” under the umbrella
contract.
Frye’s workers’-compensation payments were “in excess
of” this limit, argues Auto-Owners, because Frye also received $900,000 from that insurance company under the automobile policy, as well as an additional $100,000 from the underinsured motorist’s own insurer. This is not quite right. Because “retained limit” is defined in the umbrella policy as
simply a dollar amount (here, $1 million), the policy in effect
states that Auto-Owners’s liability “shall be reduced by

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[workers’-compensation payments and payments made by or
on behalf of the underinsured motorist] which are in excess of
[$1 million].” However, the workers’-compensation payments
that Frye received—even when considered in combination
with the $100,000 obtained from the other motorist’s insurer—
did not exceed $1 million; so no portion of those payments
may be subtracted from Auto-Owners’s liability cap.
This is not to say that the workers’-compensation payments may never be taken into account under the umbrella
contract. Paragraph 4(b)(1)(b) of that policy makes clear that
coverage exists only for damages “in excess of” the retained
limit and, among other things, amounts paid under any workers’-compensation laws. Thus, Auto-Owners need not pay anything under the umbrella policy unless and until Frye’s compensable damages have exceeded at least $1,617,685.79
(which includes the $1 million retained limit, plus $617,685.79
in net workers’-compensation payments). Should his damages clear that threshold, Auto-Owners is liable for the difference, up to $5 million. What Auto-Owners seeks to do here is
to also decrease that $5 million cap. But such a reduction is not
permitted in this case, as explained above.
III. Conclusion
For the foregoing reasons, we REVERSE the judgment of the
district court and REMAND for further proceedings consistent
with this opinion.