Cincinnati Insurance Company The v. Casteel Construction Corporation et al
Filing
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OPINION AND ORDER denying 11 MOTION TO DISMISS FOR FAILURE TO STATE A CLAIM filed by Memorial Health System Inc. Signed by Chief Judge Philip P Simon on 11/15/11. (ksc)
UNITED STATES DISTRICT COURT
NORTHERN DISTRICT OF INDIANA
SOUTH BEND DIVISION
THE CINCINNATI INSURANCE COMPANY,
Plaintiff,
vs.
CASTEEL CONSTRUCTION CORPORATION,
and MEMORIAL HEALTH SYSTEMS, INC.,
Defendants.
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3:11-cv-354
OPINION AND ORDER
Cincinnati Insurance Company filed this declaratory judgment action on September 1,
2011. One of Cincinnati’s policy holders, Casteel Construction Corporation, has been sued in an
underlying state-court lawsuit by Memorial Health System, Inc. for alleged damages to
Memorial’s property. Cincinnati has filed the present suit seeking a declaration that it has no
obligation to defend or indemnify either Casteel or Memorial in the underlying lawsuit.
Memorial has now filed a motion to dismiss [DE 11], arguing that Cincinnati lacks
standing to sue Memorial in this lawsuit because under Indiana’s Declaratory Judgment Act law
Memorial is not a “person[] interested under a . . . written contract or other writings construing a
contract . . . .” Ind. Code 34-14-1-2. Memorial cites no caselaw whatsoever in its two-page
memorandum in support of its Motion and opted not to file a reply brief, but its argument is
really that this Court lacks subject-matter jurisdiction over a claim by Cincinnati against
Memorial because, since Memorial was not a party to any of the underlying Cincinnati insurance
contracts, there is no case or controversy pending between Memorial and Cincinnati.
Memorial’s position is contrary to black-letter insurance law. It is commonplace for
insurers to bring declaratory judgment actions against both an insured and the victim injured by
the insured because if the victim prevails in the underlying lawsuit it could potentially bring a
subsequent claim against the insurer. So, although a tort victim’s interest does not stem from a
contractual relationship with the tortfeasor’s insurer, “a tort victim has a practical, albeit only a
potential, financial interest in the tortfeasor’s insurance policy, and the impairment of such an
interest is an injury that will support standing under Article III.” Truck Ins. Exch. v. Ashland
Oil, Inc., 951 F.2d 787, 789 (7th Cir. 1992). See also Maryland Cas. Co. v. Pacific Coal & Oil
Co., 312 U.S. 270, 273-74 (1941) (holding that there was an actual controversy in a declaratory
judgment action between an alleged tortfeasor's insurer and the tort victim); Bankers Trust Co. v.
Old Republic Ins. Co., 959 F.2d 677, 682 (7th Cir. 1992) (sufficiently probable case or
controversy between injured party and liability insurer to satisfy subject matter jurisdiction
requirements even though underlying judgment not yet rendered). It is for this reason that a
claimant in an underlying lawsuit is a proper party defendant in a declaratory judgment action to
determine the scope of an insured's policy. See, e.g., Essex Ins. Co. v. Kasten Railcar Servs.,
Inc., 129 F.3d 947, 948 (7th Cir. 1997); Cmty. Action of Greater Indianapolis, Inc. v. Ind.
Farmer’s Mut. Ins., 708 N.E.2d 882, 885 (Ind. Ct. App. 1999) (“[I]n Indiana, the injured victim
of an insured’s tort has a legally protectable interest in the insurance policy before he has
reduced his tort claim to judgment. Such an interest will support standing under the [Declaratory
Judgment] Act.”).
Given this caselaw, there is clearly a sufficiently concrete case or controversy between
Cincinnati and Memorial to establish federal subject-matter jurisdiction. Memorial has sued for
damages it allegedly suffered at the hands of Casteel, Cincinnati’s insured. Although that
underlying litigation has not yet been reduced to a judgment against Casteel, the probability that
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it will be at some point is not so remote or so slight so as to preclude there being an actual case
or controversy between Cincinnati and Memorial. See Bankers Trust, 959 F.2d at 680-81
(“Article III requires only a probabilistic injury.”).
Memorial’s Motion to Dismiss [DE 11] is therefore DENIED.
SO ORDERED.
Entered: November 15, 2011.
s/ Philip P. Simon
PHILIP P. SIMON, CHIEF JUDGE
UNITED STATES DISTRICT COURT
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