VISTEON CORPORATION et al v. NATIONAL UNION FIRE INS. CO. OF PITTSBURGH, PA et al

Filing 184

ENTRY approving and adopting the Magistrate Judge's Report and Recommendation. National Union's amended motion for partial summaryjudgment 112 and USF&G's motion for partial summary judgment 104 are GRANTED. Visteon's motion for partial summary judgment 88 is DENIED. Signed by Judge Richard L. Young on 7/22/2013. (PG)

UNITED STATES DISTRICT COURT
SOUTHERN DISTRICT OF INDIANA
INDIANAPOLIS DIVISION

VISTEON CORPORATION,
VISTEON SYSTEMS, LLC,
LOUIS HEEB,

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Plaintiffs,
vs.
NATIONAL UNION FIRE INS. CO. OF
PITTSBURGH, PA,
UNITED STATES FIDELITY &
GUARANTY CO.,
Defendants.

1:11-cv-00200-RLY-TAB

ENTRY ON PLAINTIFFS’ OBJECTION TO MAGISTRATE JUDGE
BAKER’S REPORT AND RECOMMENDATION ON PARTIAL
MOTIONS FOR SUMMARY JUDGMENT

I.

Introduction
This case concerns an insurance dispute that arose when Plaintiffs Visteon

Corporation’s and Visteon Systems, LLC’s (collectively “Visteon”) Connersville, Indiana
plant was found to have soil and groundwater contamination. Specifically,
trichloroethene (“TCE”) was found at the plant and in the surrounding areas. This
contamination caused millions of dollars in damages. Plaintiff Louis Heeb owns land
near the plant and also seeks damages arising from the contamination.

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Defendants, National Union Fire Insurance Company of Pittsburgh and United
States Fidelity & Guaranty Company (“USF&G”), served as insurance providers for
Visteon at the time of the contamination. However, Defendants denied Visteon coverage
under pollution exclusion provisions contained within the policies. Plaintiffs argue that
these provisions are unenforceable under Indiana law. Defendants argue that Michigan
law applies and, under Michigan law, such provisions are enforceable. For the purposes
of the parties’ partial motions for summary judgment, the limited question before the
court is whether Indiana or Michigan law governs the policies. For the reasons set forth
below, the Magistrate Judge’s Report and Recommendation is approved and adopted.
II.

Standard of Review
The Magistrate Judge’s Report and Recommendation concerns a dispositive

motion. Accordingly, the district court reviews the Report and Recommendation de
novo. See Govas v. Chalmers, 965 F.2d 298, 301 (7th Cir. 1992) (citing 28 U.S.C. §
636(b)(1)(B), (C); FED. R. CIV. P. 72(b)). De novo review requires the court to reexamine the evidence with fresh eyes and make “an independent judgment of the issues.”
Moody v. Amoco Oil Co., 734 F.2d 1200, 1210 (7th Cir. 1984).
III.

Discussion
The Seventh Circuit has noted that before a court engages in a choice of law

analysis, it must first determine whether a conflict of law actually exists. In re Griffin
Trading Co., 683 F.3d 819, 824 (7th Cir. 2012) (citing Prudential Ins. Co. of Am. v.
Kamrath, 475 F.3d 920, 924 (8th Cir. 2007)). In the present case, the court finds, and the
parties agree, that Indiana and Michigan law are in direct conflict with respect to the
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enforceability of pollution exclusion provisions in contracts. In fact, the language found
in the policies at issue in this case is virtually identical to language that the Supreme
Courts of both Indiana and Michigan have previously considered. Yet, the Courts’
holdings stand in direct opposition to one another. The Indiana Supreme Court recently
held that the definition of “pollutant” contained within a pollution exclusion clause was
overly broad and ambiguous. State Auto. Mut. Ins. Co. v. Flexdar, Inc., 964 N.E.2d 845,
850 (Ind. 2012). Therefore, the Court construed the language against the insurer and in
favor of coverage for the insured. Id. at 852. In contrast, the Michigan Supreme Court
examined what can practically be considered the same language and found that it was
neither patently nor latently ambiguous. City of Grosse Pointe Park v. Mich. Mun. Liab.
& Prop. Pool, 473 Mich. 188, 203 (Mich. 2005). The Court remanded the case with
instructions to grant summary judgment for the insurer. Id. at 208.
After finding that a choice of law inquiry is indeed required, this court must
proceed with its analysis by adhering to the choice of law doctrine adopted by the Indiana
Supreme Court: “A district court sitting in diversity must apply the choice of law
principles of the forum state (in this case Indiana) to determine which state’s substantive
law governs the proceeding.” West Bend Mut. Ins. Co. v. Arbor Homes LLC, 703 F.3d
1092, 1095 (7th Cir. 2013) (citing Tanner v. Jupiter Realty Corp., 433 F.3d 913, 915 (7th
Cir. 2006); French v. Beatrice Foods Co., 854 F.2d 964, 966 (7th Cir. 1988)).
When faced with a choice of law issue in which an insurance policy covers
multiple risks in multiple states, Indiana utilizes the “uniform-contract-interpretation”
approach, which directs the court to apply the law of one state to the entire contract.
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Nat’l Union Fire Ins. Co. v. Std. Fusee Corp., 940 N.E.2d 810, 813 (Ind. 2010). The
“uniform-contract-interpretation” comports most closely with the “most intimate contact”
test. Id. In Standard Fusee, the Indiana Supreme Court noted that the test “looks for the
state with the ‘most significant relationship to the transaction and the parties.’” Id. at
815. The “most intimate contact” test employed by Indiana courts is consistent with the
approach taken by RESTATEMENT (SECOND) OF CONFLICT OF LAWS (1971). Id. Section
188 of the Restatement notes that in the absence of a choice of law provision in the
contracts or some other agreement by the parties (as is the case in the matter presently
before the court), the court should determine the law that governs the issue by
considering five contacts:
(1) the place of contracting
(2) the place of negotiation of the contract
(3) the place of performance
(4) the location of the subject matter of the contract
(5) the domicile, residence, nationality, place of incorporation and place of
business of the parties.
RESTATEMENT (SECOND) § 188. Whereas Section 188 notes that these contacts
may be “evaluated according to their relative importance,” there is no need to
adhere to the order provided above. Id. Each of the contacts will be addressed in
the order they are addressed by the parties.

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A.

Principal Location of the Insured Risk (The Location of the Subject
Matter of the Contract)

According to the Standard Fusee Court, “In insurance contract cases, we first
attempt to determine the principal location of the insured risk. If the principal location of
the insured risk can be determined, it is given more weight than other factors. If no such
location exists, we continue our analysis of the most intimate contacts.” 940 N.E.2d at
816. The principal location of the insured risk can be determined by identifying “the
state having more insured sites than any other.” Id. See also Employers Ins. Co. v.
Coachmen Industries., Inc., 838 N.E.2d 1172, 1181 (Ind. Ct. App. 2005) (“[W]hile
Coachmen’s risks were scattered throughout the country because of its numerous
subsidiaries, Indiana is the principal location of the insured risk because Indiana is, and
has always been, the state with the largest number of insured sites.”); Emp’rs Ins. of
Wausau v. Recticel Foam Corp.,716 N.E.2d 1015, 1025 (Ind. Ct. App. 1999)
(“[A]lthough there was potential liability in both Indiana and New York, Indiana was the
location of more sites.”); Travelers Indem. Co. v. Summit Corp. of Am., 715 N.E.2d 926,
933 (Ind. Ct. App. 1999) (the Court found that Indiana was the principal location of the
insured risk because four out of the seven sites were located in Indiana); Hartford Acc. &
Indem. Co. v. Dana Corp., 690 N.E.2d 285, 294 (Ind. Ct. App. 1997) (“Although Dana’s
sites are scattered to a degree, they are nonetheless principally located in Indiana.”).
Importantly, Indiana courts have not held that a state must lay claim to a majority of the
insured sites in order to be the principal location of the insured risk; a plurality is enough.

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See Coachmen, 838 N.E.2d at 1181. The analysis for this factor is largely objective and
based upon a simple count of insured sites.
In its briefing, Visteon offers two primary arguments concerning the principal
location of the insured risk. First, Visteon contends that this factor is inconclusive
because Visteon’s operations (and therefore its risk) are spread throughout the world.
Second, Visteon argues that a specific risk analysis actually implicates Indiana as the
principal location of the insured risk.
1.

Global and Domestic Risk

Visteon first contends that the principal location of the insured risk is inconclusive
because it is a global entity. Indeed, during the insured period, Visteon had fourteen sites
in Mexico, fourteen in Michigan, three in Indiana, three in Canada, and two or less in
other states and countries. Visteon cites to two Third Circuit cases that support the
assertion that when the insured’s risk is spread across several states or the world, the
principal location of the insured risk is inconclusive and given little weight in a choice of
law analysis. See Hammersmith v. TIG Ins. Co., 480 F.3d 220, 233 (3d Cir. 2007);
Compagnie des Bauxites de Guinee v. Argonaut-Mw. Ins. Co., 880 F.2d 685, 690 (3d Cir.
1989). Putting aside the fact that these decisions come out of a different jurisdiction, it is
unclear whether the facts in these two cases are similar to the case presently before the
court. Noticeably absent from the Hammersmith and Compagnie Courts’ analyses are
any details whatsoever regarding the numerical breakdown of insured sites for each state
and country. Thus, the Hammersmith and Compagnie Courts might have faced scenarios

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that are quite different from Visteon’s operations. Quite simply, it is unclear how the
Courts came to the conclusions that Visteon uses in support of its argument.
The Magistrate Judge dismisses Visteon’s argument about the inconclusiveness of
this factor by drawing a distinction between global and domestic risk. The Report
essentially notes that global and domestic risks are insured separately under the National
Union policy, so Visteon’s international sites should not be considered in the choice of
law analysis. (Report at 4). There are no Indiana cases that are directly on point
regarding this issue, so it is unclear whether the court should draw a distinction between
foreign and domestic sites when determining the principal location of the insured risk.
However, the court need not determine whether such a distinction should be drawn in this
case because the same state is implicated regardless of whether Visteon’s domestic sites
are considered alone or in conjunction with its foreign sites. The slight difference in
analysis does not actually change the ultimate result.
If the court only considers Visteon’s domestic sites, Michigan has fourteen and
thus, is objectively the “the state having more insured sites than any other.” Standard
Fusee, 940 N.E.2d at 816. If the court considers foreign sites as well, Mexico also has
fourteen. Of Michigan and Mexico, the court still finds Michigan to be the principal
location of the insured risk for several reasons. First, Visteon’s headquarters are located
in Michigan. See id. (the Standard Fusee Court concluded that even though the number
of sites in Maryland and Indiana was the same, “the fact that the Maryland site is also
[the plaintiff’s] headquarters suggests that it is the principal location of the insured
risk.”). Second, Visteon’s policy with USF&G only provides coverage to Visteon for
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sites located in the United States. In other words, the Mexico sites are not insured by
USF&G. Lastly, National Union and USF&G provide ample evidence to show that the
majority, or at least a plurality, of Visteon’s overall operations occur in Michigan, not
Mexico. As directed by the Standard Fusee Court, this factor is given more significance
than the other Section 188 factors. 940 N.E.2d at 816.
2.

Specific Risk Analysis

Visteon argues that if a single location of general risk cannot be determined, this
court should engage in a specific risk analysis. According to Visteon, the court should
narrowly consider just the risk of TCE contamination and then determine if the evidence
shows that the principal location of the insured risk points to a single state. As both
National Union and USF&G explain, this type of analysis is contrary to Indiana law.
In Standard Fusee, the Court explicitly rejected a site-specific approach for
determining the principal location of the insured risk in favor of the “uniform-contractinterpretation” approach. 940 N.E.2d at 815. The Court reasoned that the application of
the site-specific approach would require a court to examine each site separately and
potentially apply a different state’s law to each one. This would force the court to engage
in dépeçage, or “the process of analyzing different issues within the same case separately
under the laws of different states.” Simon v. United States, 805 N.E.2d 798, 801 (Ind.
2004) (quoted in Standard Fusee, 940 N.E.2d at 814-15). Visteon’s specific risk
approach is similar to the site-specific approach, and would give rise to the same
problems. Because the Indiana Supreme Court has unequivocally refused to allow for

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dépeçage or the type of analysis Visteon recommends, this court still finds that Michigan
is the principal location of the insured risk.
B.

The Place of Performance

Indiana courts have consistently defined the place of performance as the
location where the insurance funds will be put to use. See Standard Fusee, 940
N.E.2d at 817; Coachmen, 838 N.E.2d at 1180; Dana, 690 N.E.2d at 293; Recticel,
716 N.E.2d at 1024; Summit, 715 N.E.2d at 932. Importantly though, the
comments to the Restatement explain that this factor “can bear little weight in the
choice of the applicable law when (1) at the time of contracting [the place of
performance] is either uncertain or unknown . . . .” RESTATEMENT (SECOND) §
188 cmt. e.
In this case, it is undisputed that the insurance funds will be put to use in
Indiana, as that is where Visteon’s Connersville site is located. However, the
parties disagree as to how much weight this factor should have in the court’s
choice of law analysis. Visteon argues that this factor should be controlling and
cites the following language from this court in Reliance Ins. Co. v. Raybestos
Prods. Co. as justification: “In a situation like this -- where the contract contains
no choice of law provision, the parties are from different states, and the parties
have negotiated without meeting in person -- the place of performance is usually
given controlling weight.” 2000 U.S. Dist. LEXIS 23137, at *17-18 (S.D. Ind.
Jan. 19, 2000). However, almost immediately following that quoted language, this
court noted that, in that case, “the location of the insured risk [was] entirely in
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Indiana.” Id. at *18. That cannot be said of the matter before the court. As has
already been discussed, Visteon has insured sites spread throughout the world.
Furthermore, it is unclear from the opinion whether the other Section 188 factors
in Raybestos were conclusive.
The comments to the Restatement direct this court to give the place of
performance little weight because “at the time of contracting” the location where
the insurance funds would be put to use is “uncertain or unknown.”
RESTATEMENT (SECOND) § 188 cmt. e. While it is now obvious that the funds
would be put to use in Indiana, the evidence does not suggest that this was
apparent at the time of contracting. In its Objection, Visteon argues that there is
evidence that suggests Defendants knew funds would be needed in Indiana, but
this argument is unpersuasive. While it may be true that further discovery into this
matter was denied, the evidence Visteon is able to present on this matter does not
support its conclusion. Consequently, the place of performance points to Indiana,
but is given little weight.
C.

The Place of Contracting

The place of contracting is defined as “the place where occurred the last act
necessary, under the forum’s rules of offer and acceptance, to give the contract
binding effect.” RESTATEMENT (SECOND) § 188 cmt. e. Essentially, the court
must determine the state in which Visteon manifested assent to the insurance
policies with Defendants. Seemingly simple on its face, Indiana courts have
regularly struggled to find that this contact conclusively points to a single state.
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Coachmen, 838 N.E.2d at 1179 (although evidence suggested that Indiana was the
place of contracting, the Court could not draw a conclusive determination);
Recticel, 716 N.E.2d at 1024 (place of contracting implicated two states and was
thus found to be “not determinative”); Summit, 715 N.E.2d at 932 (evidence was
inconclusive or lacking with regard to where the place of contracting took place);
Dana, 690 N.E.2d at 292-93 (place of contracting was indeterminate because the
countersignatures were primarily those of the insurer’s authorized agent, who was
located in a different state from the insurer’s primary place of business); but cf.
Standard Fusee, 940 N.E.2d at 817 (the facts regarding the place of contracting
“slightly favored” Maryland).
National Union and USF&G argue that the place of contracting is
Michigan. Defendants focus their analysis on where certain policies were
delivered, purchased, and invoiced—all of which implicates Michigan. Visteon
contends that the factor is inconclusive by demonstrating that certain policies were
delivered in New York and premiums were received by National Union in Illinois.
Consequently, under Visteon’s analysis, several states are implicated by this
factor.
This court ultimately draws a similar conclusion to that of the Coachmen
Court. While the evidence used to show that Michigan is the place of contracting
is strong, Visteon’s analysis prevents the court from conclusively pointing to
Michigan as being “the place where occurred the last act necessary . . . to give the

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contract binding effect.” RESTATEMENT (SECOND) § 188 cmt. e. Thus, this factor
is inconclusive.
D.

The Place of Negotiation of the Contract

This factor asks the court to determine where the parties negotiated the
terms of the insurance policies at issue in this case. Importantly, the word
“negotiation” implies a back-and-forth discussion, in which both parties make
concessions and demands. The final contract is a product of the compromises
made during those discussions. This understanding of negotiation is difficult to
apply to insurance contracts. As the Indiana Court of Appeals has recognized,
insurance contracts do not typically involve negotiation. American Economy Ins.
Co. v. Liggett, 426 N.E.2d 136, 142 (Ind. Ct. App. 1981). Finding insurance
contracts to be contracts of adhesion, the Court declared, “The insurance
companies write the policies; we buy their form or we do not buy insurance.” Id.
While National Union and USF&G contend that Michigan is the place of
negotiation, their contention is unpersuasive. This court is inclined to agree with
Visteon: there is simply no evidence to suggest that any true negotiation took
place with respect to the policies at issue in this case. Thus, the place of
negotiation is inconclusive.
E.

The Domicile, Residence, Nationality, Place of Incorporation and Place
of Business of the Parties

The final factor in the court’s choice of law analysis seeks to identify the
“places of enduring relationship to the parties.” RESTATEMENT (SECOND) § 188
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cmt. e. The following are facts not in dispute: National Union is incorporated in
Pennsylvania and its principal place of business is in New York; USF&G is
incorporated in Connecticut and its principal place of business is in Connecticut;
Visteon Corporation is incorporated in Delaware and its principal place of
business is in Michigan; Visteon Systems, LLC is a Delaware limited liability
company and its principal place of business is in Michigan. An objective count of
the states implicated reveals that this factor points to five different states. Notably,
Connecticut, Delaware, and Michigan are each implicated twice. The court does
not end its inquiry there though.
The comments to the Restatement direct the court to give greater weight to
each party’s principal place of business: “[A] corporation’s principal place of
business is a more important contact than the place of incorporation, and this is
particularly true in situations where the corporation does little, or no, business in
the latter state.” RESTATEMENT (SECOND) § 188 cmt. e. Of the three states that
are implicated twice, Connecticut and Michigan are both principal places of
business.
The Standard Fusee Court’s analysis on this factor rendered similar results,
and the Court ultimately determined that the factor pointed to Maryland because:
(1) the insured’s headquarters was located there when it procured the policies and
(2) the other state being considered in the choice of law inquiry (Indiana) was not
implicated at all. 940 N.E.2d at 816. Following the reasoning of the Standard
Fusee Court, this court finds that this factor points to Michigan because: (1)
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Visteon’s principal place of business and world headquarters were located in
Michigan when it procured the policies and (2) the other state being considered in
the choice of law analysis (Indiana) is not implicated at all. However, because this
factor does implicate several other states, the court will give it little weight.
In its Objection, Visteon contends that this contact is a “three-way split”
between Michigan, New York, and Connecticut and, therefore, inconclusive. It is
important to note that Visteon arrives at this conclusion by considering only the
principal places of business of the parties and also merging Visteon Corporation
and Visteon Systems, LLC into one entity, despite the fact that they are two
separate plaintiffs. However, if only the principal places of business are
considered and each party is properly represented, the implicated states would be
New York, Connecticut, Michigan, and Michigan. Therefore, the factor would
conclusively point to Michigan; there would not be a “three-way split” as Visteon
claims. Regardless, the court cannot rely on Visteon’s analysis because Section
188 calls for the domicile, residence, nationality, place of incorporation and place
of business of the parties. While the comments to the Restatement do state that a
corporation’s principal place of business is more important than its place of
incorporation, it does not state the place of incorporation should not be considered
whatsoever.
Visteon also argues in its Objection that Mr. Heeb’s presence in the case
should be considered in the analysis for this factor because Mr. Heeb has a legally
recognizable interest under the Indiana Declaratory Judgment Act. While it may
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be true that Mr. Heeb has a viable tort claim against Defendants, that claim does
not require this court to consider Mr. Heeb’s domicile in its choice of law analysis.
Quite simply, this is an action for declaratory judgment on insurance coverage.
Mr. Heeb was not a party to the insurance policies at issue in this case.
Consequently, Mr. Heeb’s presence should not be accounted for under this
contact. The United States District Court for the Northern District of Indiana
recently held the same in a similar case. Ill. Nat’l Ins. Co. v. Temian, 779 F. Supp.
2d 921, 925 (N.D. Ind. 2011).
In summary, two of the Section 188 factors (place of contracting and place of
negotiation) are inconclusive, two (principal location of the insured risk and place of
domicile/headquarters) implicate Michigan, and one (place of performance) implicates
Indiana. Regardless of whether this court objectively bases its determination on the fact
that Michigan is implicated twice and Indiana is only implicated once, or the court
subjectively considers how each factor should be weighted, the end result is the same:
Michigan law governs the action.
IV.

Conclusion
For the foregoing reasons, the court approves and adopts the Magistrate Judge’s

Report and Recommendation. National Union’s amended motion for partial summary
judgment (Docket # 112) and USF&G’s motion for partial summary judgment (Docket #

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104) are GRANTED.1 Visteon’s motion for partial summary judgment (Docket # 88) is
DENIED.2

SO ORDERED this 22nd day July 2013.

__________________________________
_______________________ _________
RICHARD L. YOUNG, CHIEF JUDGE
RICHARD L. YOUNG, CHIEF JUDGE
United States District Court
United States District Court
Southern District of Indiana
Southern District Indiana

Distributed Electronically to Registered Counsel of Record.

1

National Union’s original motion for partial summary judgment (Docket # 92) is DENIED AS
MOOT.
2
Visteon’s Request for Oral Argument (Docket # 161) and Renewed Request for Oral Argument
(Docket # 181) exclusively pertain to the parties’ summary judgment motions on the choice of
law issue, and are therefore DENIED AS MOOT.
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