Federal Signal Corporation v. Tammcor Industries, Inc. et al

Filing 63

MEMORANDUM Opinion and Order. Signed by the Honorable Harry D. Leinenweber on 4/7/2016. Mailed notice (lf, )

{qM'
IN THE T'NITED STATES DISTRICT COI'RT
FOR THE NORTHERN DISTRICT OF ILLTNOIS
EASTERN DIVTSTON

FEDERAL

SIG}IAI

CORPORATION,

PJ.aintiff

,

Case

v.

No. 14 C 7683

iludge Harry D. Leinenweber

IIIDUSTRIES, INC. and
PEERLESS I![DE!{NTTY INSI'RJA}ICE
TADTMCOR

COMPA}IY,

Defendants.
MEMORJA}iIDI'M

Plaintiff

OPINTON ATiID ORDER

Eederar signal corporation ("Eederar signal")

sued Defendants Tammcor rndustries ("Tammcor") and peerless
rndemnity rnsurance ("Peerless"), seeking indemnificatlon for
certain costs it incurred defending against, and later sett11ng,
a separate l-awsuit.
Motion for

Af

ter l-imited discovery, Peerl-ess f iled

Summary Judgment IECF No.

the rel-evant contracts, it
signal.

a

38], craiming that under

has no duty to indemnif y

Federal-

For the reasons stated herein, the court grants the

Motion.

I.

BACKGROI'IID

Federal Signal designs and manufactures security

and

communication systems, among other products, for a variety of

customers.

Among

their products was a speaker system install-ed

on the Navy supply ship,

USNS

Matthew Perry. Tammcor Industries

manufactures various machine components and supplied Federal

Signal with the metal housing for the speaker system on the
ship.

The origins of the present lawsult trace back to

an

accident involving that speaker system. A speaker a11eged1y
mal-functioned sometime in April 2071 and sent debris into the

eyes of a nearby person.

The injured party filed a lawsuit in

California state court against Federal Signal, and the parties
settled for an undisclosed

sum.

Federa] Signal now seeks indemnlfication for the l-osses it

sustained in defending and eventually settling the Cal-ifornia

suit.

ft

brings claims against Tammcor, whom it

alleqes

manufactured the component responsible for the injury.

But it

al-so names Tammcor's insurer, Peerless, as a defendant.

Complaint maintains that

Federal SignaI enjoys "additj-onal

insured" status under Peerless' insurance policy with
making Peerl-ess directly

liabilities

The

Tammcor,

responsible for Federal Signal's

legaJ-

in the Cal-lforni-a case.

The dispute implicates two contracts.
general liability

insurance policy between Peerl-ess and

An amendment to the policy
insurance lingo

The first

is the
Tammcor.

termed an "endorsement" in

contains the following provision:

ADDITIONAL INSURED VENDORS
A. SECT]ON II
WHO
IS AN INSURED is amended to include as an additional-

insured any person or organi-zation (referred to below
as vendor) when fTammcor] and such person or

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organizatlon have agreed in writing in a contract or
agreement that such person or organization be added as
an additional insured on ITammcor's] policy.
Such
person or organization is an additional i_nsured only
with respect to "bodi-Iy injury" or "property damage"
arising out of "your products" which are distributed
or sol-d in the regular course of the vendor's
business. .
(Compl.

Ex

. 2.

)

The policy period for the coverage was from February 2, 20ll to

February 2, 2072.

The second relevant contract is one between Tammcor
Federal Signal (Tammcor questions whether it

is

and

a valid

contract, but the Court assumes for the purposes of this opinion
that it is) .

The contract was a purchase order for the parts

used in the speaker system on the

USNS

Matthew Perry.

The

purchase order contained certain terms and conditions, including

the fol-lowing provisi-on:
INDEMNIFICATION: ITammcor] shall defend, indemnify,
and hold harml-ess IEederaI Signal] against all
damages, claims or liabilities
and expenses (including
attorney's fees) arising out of or resulting in any
way from any defect in the goods or servi-ces purchases
hereunder, or from any act or omissions of [Tammcor],
its agents, employees or subcontractors.
Thi s
indemnification shaIl be in addition to the warranty
obligations of ITammcor] and ITammcor] agrees to
provide Certificates of Insurance for such Indemnity

upon request.

(Compl. Ex. 1.

)

The date of the Iast rel-evant purchase order is uncertain, but

according to the Complaint, Tammcor supplied al-l- components for
-3

the speaker system to Eederal Signal between 2003 and
(Comp1. tI

10 .

)

2008.

Whether Peerless agreed to indemnify Federal

Signal as an "addi-tional insured" is the only issue raised in
the present Motion for

Summary Judgment.

II.
Summary judgment

LEGAT STAI{DARD

is appropriate when "there is no genuine

dispute as to any material fact and the movant is entltl-ed to
judgment. as a

matter of law." Fno. R. Crv. P. 56(a). The parties

do not dlsagree on any facts that are re1evant to resol-ution of

this Motion.
But the parties
Federal courts sitting

do

disagree about the cont.roJ-1ing

in diversity apply state substantive

and federal procedural law .

u.s.

l-aw.

64, 78*80 (1938).

See, Erie RaiLroad v. Tompkins,

The question is,

l-aw

304

which state's

substantive l-aw applies to lnterpreting the contracts in this
case? The Court begins by examining the choice-of-1aw rules
used by the state in which the federal action was filed .

See,

Midwest Grain Products v. Productization, Inc. , 228 F.3d

'784,

781 (7th Cir. 2000) (citing Kl-axon Co. v. Stentor El-ectric Mfq.,
313 U.S. 4B'7, 496 (1941)).

Ill-inois

adheres to the Restatement

(Second) of Confl-ict of Laws, which in turn dictates that courts

should follow either

the choice of law provision in the

governing contract, or to the law of the state with the
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most

significant

rel-ationship to the contract.

See,

Res

tatement

(Second) of Conffict of Laws, SS 781, 188; see aJso, Midwest

Grain, 228 F.3d at 788 (collecting re1evant cases under Il-l-inois
law)

.

Here, there is a divergence: the purchase order between
Tammcor and Federal- Signal conta j-ns a choice-of -l-aw clause
stating that

f

Il-inois

law will- govern the agreement.

The

insurance policy between Peerless and Tammcor, however, contains

no choice-of-Iaw clause, and both parties seem to agree that
Kentucky has the most signj-ficant relationship to it.

presents a practical difficulty

This

because the Court must consider

both contracts in tandem.
Kentucky l-aw undoubtedly applies to the insurance policy.
Because the right

to be named an "additional j-nsured"

stems

primarily from that contract, and because Peerless was not

a

party to the purchase order, the Court agrees with Federal
Signal's position that Kentucky law applies.

Significantly

though, the outcome of the dlscrete issue presented by this
Motion would not change under Ill-inois

l-aw.

In Kentucky, contract interpretation,
about ambiguity, are questions of law.

including questions

See, Hazard Coal- Corp.

v. Kniqht, 325 S.W.3d 290, 298 (Ky. 2010) (internal quotation
and citation

omitted).

Moreover, the Court construes

-J-

tr

an

insurance poricy liberalry

in favor of the insured.

st.

pauL

Fire & Marine rns. v. Powefl--waLton-Milward,870 s.w.2d 223, 22j
(Ky. 1994) .
"As long as coverage is available under a
reasonable interpretation

of an ambiguous clause, the insurer

should not escape liability.

." Id. (citatlons omitted)

III.

.

AI{ALYSIS

Federal- Signal believes that the amendment to the Peerl-ess

i-nsurance policy regarding additional insureds "automatically

provides Federal signal coverage pursuant to
ordersl with Tammcor." (PI. Mem. in Opp'n to

Ithe purchase

Summ.

J., 1.)

By

operation of those agreements, Federaf Signal argues that
Peerl-ess insured 1t directly,

ds if Federal- slgnal were a

beneficlary on Peerless' insurance policy.

named

The upshot is that,

if Federal- Signal is an additional insured, Peerless had a duty
to defend it against the legal action in California and to cover
the costs incurred as a result of the settl_ement.
This issue is more straightforward than Federal- Signal
suggests

the relevant contractual- provisions are

Flrst, the insurance policy:

unambiguous.

Peerless agreed to adopt a party

as an additlonal insured only when Tammcor and that party
"agreed in writing 1n a contract or agreement that such [party]
be added as an additional

insured. "

(Compl. Ex. 2.)

The

requlred agreement in writing, according to Federal- signal, is
-6-

satisfied by the purchase orders signed between

2OO3

and

2OOB

for the speaker components. But the purchase orders'terms
state that Tammcor, not Peerless, will indemnify Federal Signal
for all- relevant

damages.

To

Federal-

implies that Peerless wil_l_ i_ndemnify the

SignaI, that provision
company

by defaul_t, but

it offers no logical explanatJ-on as to why. The provlsion is
unambiguous: Tammcor alone is on the hook for Federal Signal,s
1ega1 liability.

An insurer (for example, Peerless) may

be

eventually responsibl-e for Tammcor's losses, but that insurer
would only be considered riabl-e to

Federal signal in

a

derivative fashion.
In another relevant term of the purchase orders,

Tammcor

agrees "to provide Certifj-cates of Insurance for such Indemnity
upon request."

indemnification

Recall that "such rndemnity" refers to
of

Signal,

Federal

and

Tammcorrs

nothing

more.

certificates of rnsurance, as Eederal- signal polnts out, are not
insurance; they are proof of exlsting insurance. So at most,
this clause implies that

Tammcor

has existing insurance and will

furnlsh proof of it to Federal signal upon request. The clause
makes sense
a party to the purchase order might worry
otherwise that the counterparty indemnifying it wouldn, t be able
to cover the liability
product.

costs if

something went wrong with the

In this wdy, the offer to provide the certificates

-1

of

insurance implies that Tammcor's indemnification is genuine

meaningful, but it

does not mean that Tammcor's j-nsurance

becomes Eederal Signal's insurance.

policy required

Tammcor

an additional insured.

The Peerl-ess insurance

to contract explicitly

in order to

add

The terms of the purchase order do not

state that "Tammcor and its insurer
liabilities,

and

(s

) indemnif y you f or

al_l_

" nor do they state that the certificates

of

insurance will show that Federal Signal was added to its policy.

The Court is unable to locate a case from Kentucky that

considers a closely
bel-ieves it

analogous situation.

Federal Signal

has found two such cases, both decisions from

federal district

courts sitting

in Kentucky.

According to

Federal- Signal, the cases show that Kentucky law does not

require an insurance policy to identify an additional- insured
specifically

in order to indemnify them.

unpublished

case

First. up is

, Asher v. [Jnarco Material Hand]-inq, 20LL

9158815 (E.D. Ky. June 29, 20Ll).

an
WL

Without citation to Kentucky

Iaw, the court in Asher concl-uded that "when a contract requires
a party to obtain insurance covering another party, a bl-anket
additional- insured endorsement automatically provides liability
coverage even if the i-nsured is not named." Asher, 2077 WL
9158815 at *2.
But even a shal-l-ow dive into the underlylng
facts

of

the Asher dispute revear that
-8

it

involved the

of an additional_ insured (Wa1-Mart),

unequlvocal- identif ication

an obJ-igation that

subsequently

was

ass

j-gned

f rom one

subcontractor to another.

See, Asher v. Unarco MaterialHandJing, 201,L WL 42999 at *3 (E.D. Ky. Jan. 6, 20L1,) . The
express identification

of an additional- insured is precisely

what is lacking here.

Federal Signal's reliance on the second case, Johnson v.
Service Merchandise, 321

F.

Supp.2d 735

(E.

D. Ky.

2004)

, is

similarly misplaced. There, the court applied Kentucky state
law to find that an additional insured clause swept in a thirdparty because of Kentucky's "reasonable expectations doctrine."
Id.

at 731.

The reasonable expectations doctrine simply

dictates that, where there is amblguity in an insurance policy,
it

should be interpreted in favor of the insured's reasonabl-e

Id. (citing True v. Raines, 99 S.W.3d 439,

expectations.
(Ky.

2003) ) .

443

As the Court has already noted, the contractual

provJ-sions in the present case are unambiguous, so the doctrine

1s inapplicable.

But even if

there were ambiguity, Eederal Signat had

no

reasonable expectation that it would be covered by Peerless. It

signed the last purchase order in 2008. At that time, it

was

reasonable to expect that Tammcor would indemnify it for certain

of the components the terms of the purchase order said
-9-

as

much.

There is

no evidence, however, that

Federal Signal

believed at that time, or in 207L when the accident occurred,

that it was covered directly under an insurance policy hel-d by
Tammcor. There is similarly no evidence that Federal Signal
ever inquired about its status as an additional insured prior to
the accident; that it ever questioned Tammcor's ability
for potential liabifitles,'
proof of insurance.

or even that it requested

Even if

expectation of insurance,

to

pay

Tammcor's

Federal Signal did entertain

it would be unreasonable,

an

because

third-party insurer is nowhere mentioned in the purchase orders.
Federal- Signal is a 1arge, established public company, not

unsophisticated individual-.

If

it

an

wanted additional insured

status, it should have contracted for it.
In sum, there is no support for Federa1 Signal's position
that the insurance policy combined with the purchase order
"automatically"

provided it

with

insurance coverage from

Peerl-ess. The insurance policy required an explicit contract to
add an addltional i-nsured, and the purchase orders do not
suffice.

Cf. llestchester Surplus Lines Ins. v. Stonitsch

Const., 512 E.Supp.2d 946, 953-54 (N.D. II1. 2008) (holding that
"fl-linois law does not support [the] argument that an additional
i-nsured may be added under a policy provision requiring a
contract, when no such contract exists").
-

10

Separate questions

are whether

Tammcor

the california

is l-iable to Federal Signa1 for the costs of

case, and whether

in turn coll-ect
But peerless j-s not

Tammcor may

from Peerress for any such liability.

directly liabl-e to Eederal- Signal, and that is the only question
before the Court.

rv.

coNclusroN

For the reasons stated hereln, Defendant Peerless'

Motj-on

for Summary Judgment IECF No. 38] is granted. The case is
dismi-ssed with prejudlce as to Defendant Peerless on1y.
rT TS SO ORDERED.

Harry D. Leinenweber, Judge
United States District Court
Dated

, ftfrn,

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?, 2-a,,6

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