7th Circuit rules against insurer in jurisdiction dispute

The 7th Circuit Court of Appeals reversed a federal court judgment in favor of an insurer after the insurer’s motion to intervene in a state court lawsuit on the same matter was denied. The federal court incorrectly determined the state court did not have jurisdiction over an injured worker’s lawsuit.

“The question for us … is whether a federal court can ignore a state court judgment on the ground that the state court misconceived its jurisdiction over the case, and thus whether it is open to Granite State to try to prove in its federal case that Lodholtz really was an employee of Pulliam and therefore the state courts had no jurisdiction of his suit against Pulliam,” Posner wrote.

Robert Lodholtz was seriously injured in 2011 while working at a plant owned by Pulliam Enterprises, and he filed a lawsuit in state court. Pulliam asked its primary liability insurer, Granite State Insurance Co., to defend and indemnify it, but Granite State declined. The insurer believed Pulliam was not liable because Lodholtz, as an employee injured in the course of his employment, could only make a claim for workers’ compensation. Lodholtz claimed that he was not employed by Pulliam, but by another firm while working at the plant.

The state court denied Granite State’s motion to intervene and ruled in favor of Lodholtz with a judgment of nearly $4 million. After striking out in appellate court, Granite State filed a lawsuit in federal court, which ruled in the insurer’s favor. The District Court found Lodholtz was an employee of Pulliam, so the state courts had no jurisdiction to entertain Lodholtz’s suit as it was really a workers’ comp issue and an administrative matter.

“One might have thought that because the Indiana courts denied Granite State’s motion to intervene, the insurance company never had a chance to argue absence of jurisdiction as a party to the litigation. As we know, that is not true; we know that Granite State made the argument – indeed the argument was the entire premise of its refusal to cover Lodholtz’s liability to Pulliam,” Posner wrote. “Had Granite State been willing to relinquish its reservation of rights, its motion to intervene would have been granted. It was not willing; and in asserting a reservation of rights it was trying to undermine the Indiana law that gives the insured the right to manage its own defense when the insurer reserves the right to deny coverage.

“The Supreme Court of the United States is the only federal court with appellate authority over state courts. … But even the Supreme Court would have no authority over the Indiana courts in Lodholtz v. Pulliam because no issue of federal law was involved in that litigation. Granite State has struck out.”

The case is Robert Lodholtz v. Granite State Insurance Company, 14-8015.