Case Information
*1 Before B AUER , R IPPLE , and S YKES , Circuit Judges .
R IPPLE , Circuit Judge . Robert Lodholtz sustained injuries in the factory of Pulliam Enterprises, Inc. (“Pulliam”). He then brought an action in the Superior Court of St. Joseph County, Indiana, against Pulliam, seeking compensation for those injuries. Pulliam in turn filed an insurance claim with its insurer, Granite State Insurance Company (“Granite”). Granite retained a claims adjuster, York Risk Services Group, Inc. (“York”). Pulliam assumed, erroneously, that Granite would provide a defense under the insurance policy and defaulted on the state court claim. Neither Granite nor York ever had communicated to Pulliam whether they be- lieved Granite had a duty to defend Pulliam under the terms of the policy.
Pulliam subsequently entered into a settlement agree- ment with Mr. Lodholtz. Under the terms of that agreement, Pulliam assigned to Mr. Lodholtz any claims it had against Granite or its agents for failing to undertake a defense under the insurance policy. The agreement also provided that Mr. Lodholtz would not seek to recover its damages from Pulliam.
Following the entry of a default judgment in the underly- ing state case, Granite brought this action in the district court, seeking a declaratory judgment that it had no duty to indemnify Pulliam. Mr. Lodholtz later filed a complaint in the district court against Granite, alleging breach of contract, bad faith, and negligence, and against York for negligence. The district court consolidated the cases. York then moved for judgment on the pleadings, contending that, under Indi- ana law, a claims adjuster such as itself owes no legal duty to the insured. The district court granted the motion. After the district court entered a final judgment in favor of York and made the requisite certification under Federal Rule of Civil Procedure 54(b), Mr. Lodholtz appealed. [1]
The district court correctly granted the motion to dismiss. As the district court noted, the Court of Appeals of Indiana has held that an insurance adjuster owes no legal duty to the insured, and Mr. Lodholtz has failed to establish that the In- diana Supreme Court would disagree with that decision.
I
BACKGROUND A.
Mr. Lodholtz was employed by Forge Staffing and as- signed to perform services at Pulliam’s assembly plant. A machine owned and maintained by Pulliam malfunctioned and caused Mr. Lodholtz to be pulled into a laser cutting machine. He suffered severe injuries.
On June 24, 2011, Mr. Lodholtz filed an action against Pulliam in the Superior Court of St. Joseph County, Indiana, alleging that he sustained his injuries as a result of Pulliam’s negligence. On June 27, 2011, Pulliam was served with the complaint, which it promptly forwarded to Granite, its in- surer. [2] Granite then assigned York the task of handling the Lodholtz complaint for Pulliam.
On July 7, 2011, York notified Pulliam that it had re- ceived the complaint and had set up a file on the matter. The next day, York contacted Mr. Lodholtz’s counsel and re- quested an extension for Pulliam to file an answer to the complaint. Mr. Lodholtz’s counsel agreed to the extension. On July 11, 2011, York confirmed in a letter to Mr. Lodholtz that Pulliam had received an extension to answer the com- plaint until August 19, 2011. This letter confirmed that York was the authorized representative of Granite and their in- sured, Pulliam.
York reassigned the handling of the claim to a more sen- ior adjuster within the company, who began to investigate whether the claim was within the policy’s coverage. A third adjuster later assumed internal responsibility for the case and, on August 18, 2011, sent a letter to Pulliam stating that the handling of the claim would “progress as seamlessly as possible.” [3]
Despite these assurances to Pulliam, York did not retain counsel to defend the company against Mr. Lodholtz’s claim. Nor did it inform Pulliam that Granite would not defend Pulliam. Granite admitted that York “should have advised Defendant Pulliam before August 19, 2011 that it believed this lawsuit was not covered under the Granite State Policy and that Defendant Pulliam should have retained counsel to protect its interests.” [4]
On August 22, 2011, after Pulliam’s extended deadline to file an answer had passed, Mr. Lodholtz filed a motion for default judgment. This motion was served upon Pulliam, who forwarded it to Granite on August 23. On the same day, the court entered a default judgment against Pulliam and ordered that a trial be set on damages. Also on the same day, York sent an email to Pulliam, stating:
Sincere apologies for any miscommunication in the past regarding the assignment of defense counsel. Please note that Pulliam Enterprises, Inc. will need to retain its own defense attor- ney to represent you in this matter for as ex- plained the insurance carrier Granite State does not appear to cover this loss. [ [5] ]
The email explained that the policy did not cover injuries to employees of the insured. [6]
On August 24, 2011, Pulliam’s counsel appeared for Pul- liam in the state action and obtained an extension until Sep- tember 22, 2011, to file an answer. Pulliam also emailed York and requested that Granite provide its official coverage posi- tion. Pulliam stated that, in light of what had occurred, Pul- liam might have to assert various claims against York and Granite. York responded that Granite has issued or would issue shortly, or direct York to issue, a letter denying cover- age. York further suggested that Pulliam take action to va- cate the default and defend itself in the state action.
Pulliam reached a settlement with Mr. Lodholtz on Sep- tember 7, 2011. The agreement provided that Pulliam would not move to vacate the default judgment, nor would it con- test the amount of damages that Mr. Lodholtz sought to es- tablish. Pulliam further agreed to assign Mr. Lodholtz all claims that it had against Granite and its agents. Mr. Lod- holtz would be entitled to proceed against Granite and York to collect damages on any judgment Mr. Lodholtz obtained against Pulliam. For his part, Mr. Lodholtz agreed not to seek execution against Pulliam’s assets for any portion of the judgment.
On November 1, 2011, after an evidentiary hearing, the state court entered a final judgment for Mr. Lodholtz and against Pulliam for $3,866,462.
B.
On November 3, 2011, Granite filed an action in the dis- trict court, seeking a declaratory judgment that it had no du- ty to indemnify Pulliam in the underlying state court law- suit. The next day, Mr. Lodholtz, as assignee of the claims held by Pulliam, filed a complaint against Granite for breach of contract, bad faith, and negligence, and against York for negligence. The district court consolidated these cases.
Count IV of Mr. Lodholtz’s federal complaint alleged that York negligently had breached a duty owed to Pulliam by failing to exercise reasonable care in handling Pulliam’s defense in the state-court proceedings. York answered that no relationship existed between either York and Pulliam or between York and Mr. Lodholtz from which a duty or breach could occur. York then filed a motion for judgment on the pleadings, contending that Mr. Lodholtz’s complaint does not give rise to a negligence claim. Specifically, York contended that it had no legal duty to Pulliam, Mr. Lod- holtz’s assignor, and therefore Mr. Lodholtz could not re- cover.
The district court granted York’s motion. The court noted that whether a claims adjuster, such as York, had a common law duty of reasonable care toward an insured, such as Pul- liam, is not a novel question under Indiana law. It concluded that “York, as Granite State’s insurance adjuster, has no common law duty of reasonable care to Pulliam in handling the defense of the state court case.” [7] The court further con- cluded that York did not assume a duty to Pulliam because York had not specifically and deliberately undertaken the task that it was alleged to have performed negligently.
On June 6, 2014, the district court granted York’s motion for entry of final judgment under Federal Rule of Civil Pro- cedure 54(b). [8] Mr. Lodholtz now appeals the court’s decision to dismiss his claim against York.
II
DISCUSSION A.
We first set forth the standards that govern our decision
today. We review de novo a district court’s decision to ren-
der judgment on the pleadings under Rule 12(c).
Adams v.
City of Indianapolis
,
–––––––––––––––––––––––––––––– (…continued)
if the court expressly determines that there is no just rea- son for delay. Otherwise, any order or other decision, however designated, that adjudicates fewer than all the claims or the rights and liabilities of fewer than all the parties does not end the action as to any of the claims or parties and may be revised at any time before the entry of a judgment adjudicating all the claims and all the par- ties’ rights and liabilities.
The district court’s jurisdiction was based on diversity of
citizenship. The district court, and this court on review, is
therefore obliged to apply state law to the substantive issue
in the case.
See Erie R.R. Co. v. Tompkins
, 304 U.S. 64, 78
(1938);
Weigle v. SPX Corp.
,
B.
The Indiana Supreme Court has not addressed the pre-
cise issue before us. Following our established protocol,
therefore, we turn to the decisions of the Court of Appeals of
Indiana for guidance. An examination of the cases decided
by that court sheds considerable light on the path that we
must follow. In
Troxell v. American States Insurance Co.
, 596
N.E.2d 921 (Ind. Ct. App. 1992), the Court of Appeals of In-
diana noted, albeit briefly, that an insurance adjuster is an
agent of the insurer and therefore has no direct relationship
with the insured.
See id.
at 925 n.1. The court cited with ap-
proval
Velastequi v. Exchange Insurance Co.
,
The Court of Appeals of Indiana confirmed this approach in Meridian Security Insurance Co. v. Hoffman Adjustment Co. , 933 N.E.2d 7 (Ind. Ct. App. 2010). In Meridian , an insurer brought a claim against the insured’s adjuster, alleging that the adjuster had interfered with the insurer’s contract with the insured and had engaged in fraud. The Indiana court held that, by entering into an adjuster agreement with the insured, the adjuster was the insured’s agent. As the in- sured’s agent, the adjuster could not be liable to the insurer. See id. at 12. The court noted that
[a]n agent is not liable for harm to a person other than his principal because of his failure adequately to perform his duties to his princi- pal, unless physical harm results from reliance upon performance of the duties by the agent, or unless the agent has taken control of land or other tangible things.
Id. (alteration in original) (internal quotation marks omitted). In dismissing the claims against the adjuster, the court noted that the adjuster’s status as the insured’s agent insulated it from liability from the insurer. See id. at 14. Therefore, alt- hough dealing with a distinctly different factual situation, the Indiana court articulated, and relied upon, the principles that it had articulated in Troxell .
These two decisions by Indiana’s intermediate appellate court, Troxell and Meridian , provide substantial support for the view that a claims adjuster does not owe a duty of care to the insured. Mr. Lodholtz offers no compelling reason for why the Indiana Supreme Court would not apply the rule stated in Troxell .
Mr. Lodholtz first submits that these cases are inapposite to the present case because they apply only to first-party claims, while the present action presents a third-party claim. We cannot accept this argument. Mr. Lodholtz has not been able to invite our attention to any Indiana case or, indeed, a case in any other state that recognizes such a distinction. [10]
He relies on Erie Insurance Co. v. Hickman ex rel. Smith , 622 N.E.2d 515 (Ind. 1993), to support his view. But in Erie , the court only noted that the relationship between an insurer and insured is unique because it can be both of an adversari- al and of a fiduciary nature. See id. at 518. The court explicit- ly refused to address whether the first- or third-party dis- tinction would affect the circumstances in which an insurer could be held liable. See id. at 519 n.2. It would be remarka- ble to extend that distinction to claims against an insurance adjuster when the Indiana Supreme Court has not yet ap- plied it to claims against an insurer.
Not only can Mr. Lodholtz not find case-law support for his view, but there are also three additional considerations that indicate that the Indiana Supreme Court would adopt the rule articulated in Troxell . First, the approach adopted by the Indiana appellate court in Troxell is the rule adopted by the majority of American jurisdictions. [11] See Shree Hari Ho- –––––––––––––––––––––––––––––– (…continued)
App. 2007) (holding that an independent adjuster owes no duty to the
insured);
Meineke v. GAB Bus. Servs., Inc.
, 991 P.2d 267, 271 (Ariz. Ct.
App. 1999) (same);
Sanchez v. Lindsey Morden Claims Servs., Inc.
, 84 Cal.
Rptr. 2d 799, 803 (Cal. Ct. App. 1999) (same);
Grossman v. Homesite Ins.
Co.
, No. FSTCV075004413S, 2009 WL 2357978, at *4–5 (Conn. Super. Ct.
July 6, 2009) (same);
King v. Nat’l Sec. Fire & Cas. Co.
, 656 So. 2d 1338,
1339 (Fla. Dist Ct. App. 1995) (per curiam) (holding that “Florida law
does not recognize a cause of action by an insured against an independ-
ent insurance adjuster in simple negligence”);
Baugh v. Parish Gov’t Risk
Mgmt. Agency
, 715 So. 2d 645, 647 (La. Ct. App. 1998) (holding that an
independent adjuster owes no duty to the insured);
Haney v. Fire Ins.
Exch.
,
To summarize, the state courts of Alabama, Arizona, California, Connecticut, Florida, Louisiana, Missouri, New York, North Carolina, Oklahoma, South Carolina, Texas, and Vermont have held that a claims adjuster does not owe a duty of care to the insured. Similarly, a federal court has applied the laws of Rhode Island and reached the same conclu- sion. In contrast, only Alaska and New Hampshire recognize that an ad- juster owes a duty of care to the insured. Indeed, while this appeal was
(continued…) tels, LLC v. Soc’y Ins. Co. , No. 1:11-cv-01324, 2013 WL 1500455, at *3 (S.D. Ind. April 11, 2013) (concluding that, in Troxell , Indiana adopted the majority approach).
Second, the rule comports with the general principles of Indiana agency law. Generally, an agent is not liable for ac- tions taken on behalf of the principal. See Greg Allen Constr. –––––––––––––––––––––––––––––– (…continued)
pending, Oklahoma, which originally had applied the minority rule, re-
versed course and adopted the majority view.
See Trinity Baptist Church
,
Some state courts have been more willing to hold that an insurance
adjuster may be liable to the insured under alternative theories.
See Bock
v. Hansen
,
Co. v. Estelle , 798 N.E.2d 171, 174 (Ind. 2003) (noting an “[a]gent who intentionally or negligently fails to perform duties to his principal is not thereby liable to a person whose economic interests are thereby harmed,” and “[a]n agent is not liable for harm to a person other than his principal be- cause of his failure adequately to perform his duties to his principal, unless physical harm results from reliance upon performance of the duties by the agent”) (alterations in orig- inal) (quoting Restatement (Second) of Agency §§ 352, 357 (1958)); McAdams v. Dorothy Edwards Realtors, Inc. , 604 N.E.2d 607, 612 (Ind. 1992) (holding that real estate broker was agent of seller and therefore not liable to buyer under agency principles and noting that the wrong was therefore perpetrated by the principal).
Mr. Lodholtz also submits that an agent who commits a
tortious act is liable
along with
the principal. But Mr. Lod-
holtz ignores the Indiana Supreme Court’s distinction be-
tween acts that would be tortious despite a contractual rela-
tionship and those acts that are only tortious because of a
contractual relationship.
See Greg Allen Constr. Co.
, 798
N.E.2d at 173–75 (“The proper formulation of the reason Al-
len is not liable here is that his negligence consisted solely of
his actions within the scope of his authority in negligently
carrying out a contractual obligation of the corporation as
his employer. Nothing he did, and therefore nothing the
corporation did, constituted an independent tort if there
were no contract.”). An agent is not liable for the harm that
befalls a third party by failing to perform under the contract.
Cf. Brown v. Owen Litho Serv., Inc.
, 384 N.E.2d 1132, 1135
(Ind. App. Ct. 1979) (noting an agent is not liable if the prin-
cipal is disclosed at the time of contracting). These principles
apply here because the legal duty attached to an insurance
claim flows from the parties’ contractual obligations.
See Me-
ridian Sec. Ins. Co.
, 933 N.E.2d at 12;
see also Meineke v. GAB
Bus. Servs., Inc.
,
Third, the decision comports with the logic underlying insurer liability in Indiana. In Indiana, insurer liability for negligence is premised on the unique nature of insurance contracts. See Erie , 622 N.E.2d at 518–19. In Erie , the court noted that “[t]his contractual relationship is at times a tradi- tional arms-length dealing between two parties,…but it is also at times one of a fiduciary nature, and, at other times, an adversarial one.” Id. at 518 (citation omitted). The court con- cluded that, “[g]iven the sui generis nature of insurance con- tracts,” it was appropriate to recognize “a cause of action for the tortious breach of an insurer’s duty to deal with the in- sured in good faith.” Id. at 519. But the adjuster is not a party to that contract. Consequently, courts have held that the ad- juster’s liability is premised on its contract with the insurer and is thus limited to the insurer. See Meineke , 991 P.2d at 270–71 (“[T]he duties of an insurance adjuster vary and are defined by the terms of the contract between the insurer and the adjuster….We conclude that the relationship between adjuster and insured is sufficiently attenuated by the insur- er’s control over the adjuster to be an important factor that militates against imposing a further duty on the adjuster to the insured.”); see also 46A C.J.S. Insurance § 1876 (2007 & Supp. 2014) (“An adjuster who is retained by an insurance company is subject to a duty which runs to the company and not to the insured in adjustment of a claim, and, where not a party to the contract of insurance, he or she is not subject to an implied duty of good faith and fair dealing to the in- sured.” (footnote omitted)).
C.
Mr. Lodholtz not only disputes the applicability of the specific doctrinal approach adopted by the Court of Appeals of Indiana, but offers alternate approaches that, in his view, the Indiana Supreme Court would adopt: that York owed a common law duty to Pulliam and, alternatively, that York assumed a duty to Pulliam. Neither of these approaches casts serious doubt on the approach taken by the Court of Appeals of Indiana nor provides any basis for questioning whether the State’s Supreme Court would depart from the view of its intermediate appellate court.
In this respect, Mr. Lodholtz contends that the Indiana
Supreme Court would rely on the three-part test articulated
in
Webb v. Jarvis
,
We cannot accept this argument. We think that the Indi-
ana courts would regard the content of York’s communica-
tions with Pulliam simply as evidence of York’s position as
an agent of Granite. Indeed, other parts of the record, when
read with the areas suggested by Mr. Lodholtz, add addi-
tional support for such a view. Because the record demon-
strates an agency relationship between Granite and York and
because agents are generally only liable to the principal un-
der Indiana law, we do not believe that the Indiana Supreme
Court would extend the liability of York further.
See Greg Al-
len Constr. Co
,
Mr. Lodholtz also points out that Pulliam was a reasona- bly foreseeable victim injured by a reasonably foreseeable harm. See Webb , 575 N.E.2d at 997. It should be reasonably foreseeable to any claims adjuster, he continues, that the in- sured is relying on them to coordinate the insured’s defense and that the entry of a default judgment is a foreseeable con- sequence of failing to answer a complaint. York responds that, as an agent of Granite, Granite was the only foreseeable victim of York’s negligence. It would seem that, as a practi- cal matter, it is foreseeable that negligence by a claims ad- juster may harm the insured. However, this factor alone cannot be relied upon to impose a legal duty. See id. at 995 (noting factors must be balanced).
Turning to the public policy factor, Mr. Lodholtz relies on Key v. Hamilton , 963 N.E.2d 573 (Ind. Ct. App. 2012), which held that a driver who waves another driver through an intersection, after engaging in a thorough examination of traffic in order to ensure another driver’s safety, has a duty to third parties that may be harmed as a result. See id. at 584. The court noted that public policy demands that the court hold individuals responsible for the results of their behavior because “allowing an individual to escape liability for dam- age he causes would fly in the face of the normal expecta- tions of our civil society.” Id. at 583.
It is, of course, the prerogative of the Indiana courts to
fashion state common law according to the public policy of
Indiana, and Mr. Lodholtz’s contentions continue to ignore
that, in Indiana, torts alleged in the context of an insurance
contract are not run-of-the-mill torts. Indiana courts have
imposed a duty on insurers because of their unique relation-
ship with the insured through the insurance contract.
See
Erie
,
Mr. Lodholtz further contends that York assumed a duty
to Pulliam by working as an adjuster on the Pulliam insur-
ance claim. Indiana recognizes, as a general principle, an as-
sumption of duty when a party affirmatively assumes or
undertakes a duty to act.
See Griffin v. Simpson
, 948 N.E.2d
354, 359 (Ind. Ct. App. 2011). To have assumed a duty,
“‘[t]he defendant must have specifically and deliberately
undertaken the duty which he is charged with having done
negligently.’”
Id.
at 359–60 (quoting
Holtz v. J.J.B. Hilliard
W.L. Lyons, Inc.
,
Conclusion
We conclude that the district court appropriately dis- missed the claim against York. The judgment of the district court is affirmed.
AFFIRMED
Notes
[1] The jurisdiction of the district court was based on 28 U.S.C. § 1332. Our jurisdiction is based on 28 U.S.C. § 1291.
[2] Granite had sold an insurance policy to Pulliam on January 12, 2011. Pulliam timely paid all premiums on the policy, which covered January 2011 to January 2012.
[3] R.1-8 at 1. All record citations are to the docket in Case No. 3:11-cv-435.
[4] R.1 at 4 ¶ 27 (Lodholtz Compl.).
[5] R.1-7.
[6] The Granite insurance policy excluded coverage for bodily injury to an employee of the insured that occurred in the course of employment. See R.1-1 at 16 (Insurance Contract). In a motion submitted to the state court, Granite stated that it was not clear whether Mr. Lodholtz, as an employ- ee of Forge Staffing assigned to Pulliam, was an “employee” of Pulliam. See R.1-4 at 4 ¶ 23.
[7]
Granite State Ins. Co. v. Pulliam Enters., Inc.
, Nos. 3:11-CV-432, 3:11-CV-
435,
[8] Federal Rule of Civil Procedure 54(b) provides: When an action presents more than one claim for re- lief—whether as a claim, counterclaim, crossclaim, or third-party claim—or when multiple parties are in- volved, the court may direct entry of a final judgment as to one or more, but fewer than all, claims or parties only (continued…)
[9] New York courts continue to apply the rule announced in
Velastequi v.
Exchange Insurance Co.
,
[10] Courts have applied the same rule insulating claims adjusters from
liability to the insured in both first- and third-party claims without dis-
tinction.
See, e.g.
,
Koch v. Bell, Lewis & Assocs., Inc.
,
[11] A survey of state-court decisions confirms that the majority of states
have held that a claims adjuster owes no independent duty to the in-
sured.
See Akpan v. Farmers Ins. Exch., Inc.
,
[12] In Webb v. Jarvis , 575 N.E.2d 992 (Ind. 1991), the court addressed whether a physician could be held liable for prescribing steroids to a pa- tient who subsequently became violent. According to the court, the plaintiff “sought recovery from Dr. Webb on the theory that his overpre- scribing of anabolic steroids turned Neal into a toxic psychotic who was unable to control his rages.” Id. at 994.
[13] See R.1-3 (York representing itself as “the authorized representative of Granite State Insurance Company and their insured Pulliam Enterprises Inc.”); R.1-12 at 1 (Pulliam asking York to inform Granite that it declines the defense with reservation of rights); R.1-10 at 2 (Pulliam assigning all claims against Granite and its agents, without ever mentioning York by name).
[14] For example, in
Rodriguez v. United States Steel Corp.
, No. 45A04-1407-
CT-350,