Dee Frye v. Auto-Owners Insurance Company
2017 U.S. App. LEXIS 46
7th Cir.2017Background
- In January 2011 Dee Frye was seriously injured by an underinsured driver; the driver’s insurer paid Frye $100,000 (policy per-person limit). Frye had also received $692,895.79 in workers’ compensation from his employer’s insurer, Auto-Owners.
- Frye’s employer carried a $1 million commercial automobile policy (including underinsured motorist (UIM) coverage) and a commercial umbrella policy with UIM declared at $1 million; the umbrella’s general liability limit was later increased to $5 million (May 2010).
- The parties settled partially: Auto-Owners paid $900,000 under the automobile policy and $382,314.21 under the umbrella, for a combined $1,282,314.21; Auto-Owners asserted this exhausted its obligations.
- Frye sued Auto-Owners seeking (1) application of the umbrella policy’s general $5 million liability limit to UIM coverage under Indiana statute § 27‑7‑5‑2, and (2) disallowance of a workers’‑compensation set‑off that Auto‑Owners applied against the umbrella UIM limit.
- The district court granted summary judgment for Auto‑Owners. On appeal the Seventh Circuit reversed, holding (a) when a commercial umbrella includes UIM coverage, Indiana law requires UIM limits at least equal to the policy’s general liability limit (here $5 million), and (b) Auto‑Owners could not reduce the umbrella’s UIM cap by Frye’s workers’‑compensation payments because those payments did not exceed the umbrella’s retained limit.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether Indiana statute § 27‑7‑5‑2 requires UIM coverage in a commercial umbrella to match the policy’s general liability limit | Frye: when an umbrella includes UIM coverage, the statute requires limits at least equal to the policy’s bodily‑injury liability limit (so UIM = $5M) | Auto‑Owners: § 27‑7‑5‑2(d) exempts commercial umbrella policies from the subsection (a) requirements, so insurer may set UIM limits as it chooses | Court: § 27‑7‑5‑2(d) permits omitting UIM in commercial umbrellas but does not allow providing UIM in lesser limits; therefore UIM must be at least the general $5M limit |
| Whether the umbrella policy permitted reducing the UIM limit by prior workers’‑compensation payments | Frye: the umbrella’s contract language and Indiana policy bar reducing the UIM cap by workers’‑comp payments here | Auto‑Owners: the umbrella permits reducing its liability by amounts paid under workers’‑comp because those payments exceeded the retained limit | Court: "retained limit" is $1M; Frye’s workers’‑comp plus other payments did not exceed $1M, so the umbrella cap could not be reduced by those payments; set‑off was impermissible |
Key Cases Cited
- United Nat’l Ins. Co. v. DePrizio, 705 N.E.2d 455 (Ind. 1999) (interpreting § 27‑7‑5‑2 and requiring explicit statutory carve‑outs to exclude umbrella policies from UIM mandate)
- Tunny v. Erie Ins. Co., 790 N.E.2d 1009 (Ind. Ct. App. 2003) (addressing treatment of attorney assignments under Indiana workers’‑compensation set‑offs)
- Justice v. Am. Family Mut. Ins. Co., 4 N.E.3d 1171 (Ind. 2014) (rules for construing insurance policies and resolving ambiguities in favor of insured)
- C.G. Schmidt, Inc. v. Permasteelisa N. Am., 825 F.3d 801 (7th Cir. 2016) (standard of review for summary judgment)