In Their Opinion : Seventh Circuit Court of Appeals Commentary : Lawyer & Attorney Michael E. Rigney : Kelley Drye & Warren Law Firm

CAROLINA CASUALTY v. ESTATE OF KARPOV (March 17, 2009)

Stanislaw Gill was driving his tractor-trailer on the Indiana Toll Road when he rear-ended a stopped car. More collisions followed. Eventually, four persons died and many others were injured. Carolina Casualty insured Gill and his employer. The policy provided a limit of $1 million of coverage for any one accident. Carolina Casualty filed an interpleader action, naming Gill, his employer, and everyone who had filed a claim arising out of the accident. Carolina Casualty deposited $1 million with court and sought a declaration that $1 million was the limit of its liability. The court granted summary judgment to Carolina Casualty. Margarita Karpov appeals individually and as administratrix of the estate of Dimitry Karpov.

In their opinion, Judges Cudahy, Manion and Williams affirmed. The sole issue on appeal was whether the Motor Carrier Act (“MCA”) and the endorsement issued by Carolina Casualty verifying compliance with the MCA establish coverage limits of $750,000 per person. The Court agreed that the MCA, in § 31139(b), establishes a $750,000 minimum level of financial responsibility. Appellants cite § 13906 for the proposition that the $750,000 level was a per-person, rather than a per-accident, threshold. Section 13906 provides: “The security must be sufficient to pay not more than the amount of the security, for each final judgment against the registrant for bodily injury to, or death of, an individual resulting from the negligent operation, maintenance, or use of motor vehicles, . . . .” Appellants rely on the “for each final judgment” language to argue that the limit was per person. The Court found little authority on the subject. Two district courts have relied on the “not more than” language to hold that § 13906 creates a limit of coverage from a single accident. One of the decisions was affirmed, albeit in an unpublished opinion. The Court agreed with the rationale of the district courts and held that the MCA did not create a per-person limit. The Court also rejected appellants’ argument that the policy endorsement itself created a per-person limit, on several grounds: a) the endorsement merely verifies compliance with the MCA, which does not adopt a per-person limit, b) the endorsement specifically refers to the per-accident limits in the policy itself, and c) the language of the endorsement is provided in a government regulation and states the limits “for each accident.” Finally, the Court found nothing in legislative history or public policy that supported a different conclusion.

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HK SYSTEMS v. EATON CORPORATION (January 28, 2009)

IBP owned a large beef-processing plant in Nebraska. It wanted to replace its material handling system at the plant. Alvey and an Eaton Corporation (“Eaton”) subsidiary submitted the successful joint bid. During the contract negotiations, Eaton sold its subsidiary to HK Systems, Inc. (“HK”). The contract of sale contained broad cross-indemnities. A month later, IBP and HK entered into a contract for the purchase of the system. IBP was not satisfied with the speed at which the system operated and sued HK in state court. IBP alleged fraud, based on a system-speed representation made by Eaton before it sold its subsidiary, and breach of contract, based on a system-speed provision of the contract. The suit was settled for $8 million, $5 million from Alvey and $3 million from HK. HK brought this suit against Eaton for indemnification. Eaton argued that HK’s loss had been caused by HK’s own actions, not Eaton’s. The court originally denied summary judgment and judgment as a matter of law. A jury awarded HK $3 million. The court reconsidered the earlier motion for summary judgment and granted it. HK appeals.

In their opinion, Judges Posner, Ripple and Evans affirmed. The Court first noted that there was nothing improper in the district court’s reconsideration of it summary judgment ruling. Eaton had not preserved its argument that HK was responsible for its loss in its motion for judgment as a matter of law. Although the doctrine of the law of the case normally counsels against a judge reconsidering an earlier ruling, the district court does have discretion to do so when it is convinced that its earlier ruling was wrong and no harm will result. Here, the Court observed that the trial judge ruled on the meaning of the indemnification clause, which he considered a question of law. On reconsideration, he ruled that Eaton was not liable for HK’s loss because the contract between HK and IBP was an intervening cause. The Court agreed with the district court’s view on reconsideration, although it preferred framing the issue in terms of responsibility rather than cause. In any multiple factor case, responsibility is determined by reference to policy. Sometimes intervening acts are enough to shield one from liability – other times not. The Court referred to the contract between HK and Eaton. It contained mirror-image indemnification provisions. If Eaton was liable to HK for certain losses due to its representations, then HK was liable to Eaton for the loss it suffered because of its act – signing the contract – that occurred after the sale. The Court found that the district court’s resolution of this dilemma by adopting a narrow reading of the indemnity was consistent with the Court’s earlier decision holding that an indemnity will normally not apply, without explicit language, to a breach of contract claim for a contract entered into after the indemnity. The Court explained the policy reasons for such a holding. A party is typically in control of its contracts and performance. One should not be able to insure or acquire an indemnity to protect against liability for a breach when the one most able to protect against a breach is the very person insured. Here, HK should have made sure that its new subsidiary was capable of performing its contractual obligations to IBP before entering into the agreement. It cannot shift that liability to Eaton.

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