Judges uphold insurers’ share of settlement liability

A District judge did not err in how he apportioned liability among three insurers for payment of a settlement between an injured worker and a contractor, the 7th Circuit Court of Appeals held Friday.

Indiana Steel Fabricating hired Central Steel Erectors as a subcontractor on a project. In the course of that work, Brian Colip, a Central Steel employee, fell from a roof and injured himself. He sued ISF and settled for $2.9 million. At issue before the 7th Circuit is how much, if any, should ISF’s insurers, Amerisure Insurance Co. and National Surety Corp., or Central Steel’s insurer, Scottsdale Insurance Co., be liable with regard to the settlement.

U.S. District Judge William Lawrence ultimately found Amerisure and Scottsdale liable for $1 million each and National liable for $900,000.

The appeal relates to Scottsdale’s obligation to contribute to the settlement under its umbrella policy. Central Steel had two policies through Scottsdale: a commercial general liability policy and an umbrella policy. Scottsdale claimed that the umbrella policy contains an explicit exclusion that exempts it from paying; Amerisure and National countered that Scottsdale is estopped from relying on that provision and it doesn’t apply here.

The exclusion says the insurance doesn’t apply to “bodily injury” arising out of a claim or suit brought by any insured against another insured. The judges found a straightforward way of reading this exclusion is as one that applies to lawsuits between two parties covered by the same insurance, and it reflects the intent of Scottsdale and Central Steel not to purchase insurance that would cover personal injury lawsuits between insured parties under the umbrella policy.

The exclusion applies to this case, the 7th Circuit held, so Scottsdale doesn’t have to draw on the umbrella policy to fund the settlement. The appellate court also rejected Amerisure and National’s arguments that Scottsdale didn’t bring up its rights under the exclusion until too late in the game, which constitutes an unfair attempt by Scottsdale to “mend its hold.” The mend-the-hold doctrine prevents a defense in contract litigation from changing defenses midstream without any reason for doing so.

Indiana has only applied this doctrine once – back in 1928 – and the judges declined to use it in this case. In addition, the parties had ample notice of Scottsdale’s intent to assert all defenses to coverage available to it under the policy, Judge Diane Wood wrote.

A typo in some of Scottsdale’s filings regarding how much it seeks to recover does not prevent it from recovering more than $450,000, the judges ruled.