Robert Lodholtz v. York Risk Services Group, Inco
778 F.3d 635
7th Cir.2015Background
- Robert Lodholtz was severely injured by a machine at Pulliam Enterprises; he sued Pulliam in Indiana state court.
- Pulliam forwarded the complaint to its insurer, Granite State; Granite retained York Risk Services as its claims adjuster.
- York communicated with Pulliam and Lodholtz’s counsel, obtained extensions, investigated coverage, but did not retain defense counsel or clearly notify Pulliam that Granite would decline defense before Pulliam’s answer deadline.
- A default judgment (later entered as a final judgment for $3,866,462) was entered against Pulliam after Pulliam did not timely answer; Pulliam then settled with Lodholtz and assigned to him any claims against Granite or its agents for failure to defend.
- Lodholtz (as assignee) sued Granite (for breach, bad faith, negligence) and York (for negligence) in federal court; the district court dismissed York on the ground that an adjuster owes no duty to the insured and entered final judgment under Rule 54(b).
- The Seventh Circuit affirmed, applying Indiana law and concluding the Indiana intermediate appellate decisions and agency principles support that an insurance adjuster owes no independent common-law duty to the insured and did not assume one here.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether an insurance adjuster owes a common-law duty of care to the insured | Lodholtz: York’s communications and involvement created a relationship and foreseeable reliance, so a duty exists under Webb factors | York: As Granite’s agent, York owes duties to insurer, not insured; Indiana precedent rejects adjuster liability | Held: No common-law duty; Indiana appellate precedent and agency law preclude imposing such duty |
| Whether York assumed a duty to Pulliam by undertaking claim handling | Lodholtz: York affirmatively undertook handling and thus assumed duty to act for Pulliam | York: Any actions were on behalf of Granite under its contract; no deliberate undertaking in lieu of Pulliam | Held: No assumption of duty — York acted for Granite and did not specifically and deliberately assume Pulliam’s duty |
| Whether the first-/third-party claim distinction changes adjuster duty analysis | Lodholtz: Third‑party context distinguishes this case from first‑party precedents | York: Courts do not distinguish first- vs third-party for adjuster liability; rule applies to both | Held: Distinction not persuasive; Indiana would not carve out a third-party exception |
| Whether public policy/foreseeability supports imposing duty on adjuster | Lodholtz: Foreseeable harm to insured and public policy favor imposing duty to prevent default judgments | York: Public policy and agency principles counsel against extending duties beyond insurer | Held: Foreseeability insufficient alone; public policy and agency principles counsel against imposing duty on adjuster |
Key Cases Cited
- Troxell v. Am. States Ins. Co., 596 N.E.2d 921 (Ind. Ct. App. 1992) (adjuster is agent of insurer and owes duties to insurer, not insured)
- Meridian Sec. Ins. Co. v. Hoffman Adjustment Co., 933 N.E.2d 7 (Ind. Ct. App. 2010) (adjuster’s obligations derive from contract with insurer; agent status limits liability to insurer)
- Erie Ins. Co. v. Hickman ex rel. Smith, 622 N.E.2d 515 (Ind. 1993) (insurance contracts have unique nature warranting insurer duties of good faith; court declined to decide first-/third-party distinction)
- Webb v. Jarvis, 575 N.E.2d 992 (Ind. 1991) (three-factor test for recognizing common-law duty: relationship, foreseeability, public policy)
- Greg Allen Constr. Co. v. Estelle, 798 N.E.2d 171 (Ind. 2003) (agency principles: agent failing to perform duties to principal is not liable to third parties absent special circumstances)