In the
United States Court of Appeals
For the Seventh Circuit

No. 98-1608

Archer Daniels Midland Company, et al.,

Plaintiffs-Appellants,

v.

Hartford Fire Insurance Company,

Defendant-Appellee.



Appeal from the United States District Court
for the Southern District of Illinois.
No. 95-CV-4001-JLF--James L. Foreman, Judge.


Argued February 20, 2001--Decided March 14, 2001



  Before Easterbrook, Evans, and Williams,
Circuit Judges.

  Easterbrook, Circuit Judge. For many
years Archer Daniels Midland (adm) bought
$50 million of business-interruption
coverage from Employers’ Insurance of
Wausau. But when Wausau quoted a price
increase of roughly $19,000 (from $43,750
to $62,500) for adm’s 1993 fiscal year,
adm deemed the premium excessive and went
shopping for a bargain. This attempt to
save $19,000 has cost adm $50 million, for
the replacement insurance did not cover
the losses adm sustained as a result of
the flood in the upper Mississippi River
basin during 1993, the greatest in the
nation’s history. In this litigation
under the diversity jurisdiction, adm
asked the court to "reform" the policy it
purchased from Hartford Fire Insurance
Company so that it would cover adm’s loss.

  The flood inundated about eight million
acres of farmland and disrupted
transportation on the Mississippi and
Missouri Rivers and their tributaries.
Much of adm’s business depends on corn,
which increased in price by about 15 per
bushel after at least 5% of expected 1993
u.s. production was lost and healthy crops
could not be moved to market. Disruption
not only of water transport but also of
railroads with tracks near or crossing
the rivers made it more costly for adm to
ship its own products. adm sought to
insure against such events. Regular
business-interruption insurance replaces
profits lost as a result of physical dam
age to the insured’s plant or other
equipment; contingent business-
interruption coverage goes further,
protecting the insured against the
consequences of suppliers’ problems.
Regular business-interruption coverage
did adm little good in 1993, for the flood
largely spared its plants, but contingent
business-interruption coverage was just
the ticket. adm’s plan called for $100
million of coverage for both its own and
its suppliers’ business interruptions.
Until fiscal 1993 Wausau furnished the
layer between $50 and $100 million,
excess to four other layers of coverage.
Because Wausau effectively had a $50
million deductible (though it had some
drop-down obligations in the event lower-
tier insurers failed to indemnify for a
loss), its band of coverage cost adm less
than 1 for every $11 of insurance,
reflecting a judgment that the covered
loss had a less than 1 in 1,000 chance of
occurrence. But, as adm grew, Wausau’s
exposure grew too; equipment failure is
more likely as a firm has more machines,
and the probability that the loss would
exceed $50 million also climbed. Wausau
quoted a higher price for 1993, and adm
directed Rollins Hudig Hall of Minnesota,
Inc., to replace the coverage. (This
broker has become part of Aon Risk
Services, but we follow the parties’
convention and use the rhh acronym.)

  adm expected rhh to ensure that insurance
in the $50 to $100 million layer followed
form--that is, covered the same risks as
the carriers in the lower bands. adm and
rhh had developed a detailed form on which
they took bids from insurers; adm is large
enough that the costs of calculating
risks on an unusual form are acceptable
to its carriers. But something went
wrong. Hartford Fire Insurance, which
agreed to insure the $50 to $100 million
band (for an annual premium a little less
than Wausau had charged in 1992), issued
its policy on its own standard business-
interruption form, which covered the
profits lost because of failures in adm’s
equipment but not losses caused by
problems afflicting adm’s suppliers. adm
concedes that the policy Hartford issued
does not cover the loss it sustained, and
it blames rhh for failing to secure from
Hartford a follow-form policy. To justify
reformation of Hartford’s policy, it had
to persuade the district court that rhh
acted as Hartford’s agent for the purpose
of binding coverage. Like all demands for
reformation of a contract, that
contention posed equitable issues,
triable to the court rather than a jury,
and at a bench trial adm failed to
persuade the district judge that rhh was
Hartford’s agent for the purpose of
making underwriting decisions. Judgment
therefore was entered in Hartford’s
favor.

  Hartford and adm agree that rhh butchered
the job. That’s easy for them to say. rhh
is not a party, and an empty chair can’t
defend itself. About two years after
filing this suit against Hartford in the
Southern District of Illinois, adm sued
rhh in the District of Minnesota. See
Archer Daniels Midland Co. v. Aon Risk
Services, Inc., 187 F.R.D. 578 (D. Minn.
1999). In Minnesota adm contends that rhh
is liable for negligent execution of its
duties as adm’s agent; in Illinois adm
contends that Hartford is liable because
rhh erred in its role as Hartford’s agent.
(These positions are not inconsistent; adm
believes that rhh acted as both parties’
agent.) One complex commercial dispute
thus has been broken into two, not only
wasting judicial (and the litigants’)
resources, for discovery and trial must
be duplicated, but also potentially
precluding either district court from
finding out what happened. In Duluth
there is a different empty chair:
Hartford’s. Sundering the dispute carries
with it the risk of inconsistent
outcomes, which cannot be rectified on
appeal because the districts are in
different circuits--though, if that
occurs, adm will bear both the
responsibility and the consequences, for
it can lose in both forums but not win in
both, and it may not prevail in either.
Still, because rhh is not a party to this
case, everything we say about it reflects
only the mutual strategy to cast rhh as
the villain; facts developed in Minnesota
may put rhh’s acts in a better light, and
neither our narrative nor the district
court’s findings have any effect adverse
to rhh in the Minnesota case.
  Here is a sketch of events according to
adm. For many years rhh had been adm’s
insurance broker, administering an
elaborate set of policies. After Thomas
Duffield, adm’s Vice President of
Insurance and Risk Management, decided to
reject Wausau’s bid, he told rhh to find
replacement coverage on the same terms
and conditions as Wausau’s policy, but
costing less. Hartford agreed to insure
the $50 to $100 million layer and sent rhh
a binder of coverage. The binder promised
regular but not contingent business-
interruption coverage; it also reserved
Hartford’s right to examine the
underlying policies and use its own form.
Hartford likely bound only regular
coverage because rhh’s solicitation did
not request contingent business-
interruption coverage, did not include
copies of the Wausau policies or adm’s
form, and did not ask Hartford to follow
form to the underlying policies. rhh told
adm that it had replaced the Wausau
policy, which adm then canceled, but did
not send it a copy of Hartford’s binder,
which would have revealed the differences
between Wausau’s policy and Hartford’s
commitment; instead rhh falsely told
Duffield that Hartford had agreed to
follow form to the underlying policies.

  By now it was the middle of November
1992. Hartford wanted to see the
underlying policies, but rhh tarried. It
sent adm’s form to Hartford at the end of
January 1993; this caused Hartford to ask
for engineering data so that it could
assess the risk of contingent business-
interruption coverage. It took some two
months for rhh to comply, and with the
data in hand Hartford decided to use its
own form rather than adopt adm’s. By now
it was mid-April 1993, but still before
the flood; adm might have had time to
secure contingent business-interruption
coverage had rhh alerted Duffield, but it
did not send him the Hartford policy
until September 27, 1993, after the flood
had abated (and only three days before
the end of the policy year). On September
30, the policy’s final day, rhh sent
Duffield a fax stating: "Expiring
[Hartford] form does not meet specs in
several areas and may provide coverage
not needed." Nonetheless, rhh renewed
Hartford’s coverage for the next year and
once again erroneously informed adm that
Hartford had provided "Contingent
Business Interruption . . . per Brokers
manuscript policy on file with
companies." No, it hadn’t--not for 1993,
and not for 1994, as adm later learned.

  rhh acted throughout as adm’s agent.
Nonetheless, adm contends, rhh also acted
as Hartford’s agent, with at least
apparent authority to bind Hartford to
the adm form. The district court found
otherwise, concluding not only that
Hartford had done nothing to imbue rhh
with apparent authority to act on its
behalf but also that adm did not think of
rhh as anyone else’s agent in this
transaction. On appeal, adm contends that
the district court committed a legal
error, which we may review de novo. That
error, according to adm, was a belief that
it is impossible for an insurance broker
to serve two masters. True enough,
Illinois permits dual agency. See State
Security Insurance Co. v. Burgos, 145
Ill. 2d 423, 583 N.E.2d 547 (1991). (The
parties agree that Illinois law supplies
the rule of decision.) But we cannot find
any part of the district court’s opinion
that says otherwise, or even a passage
that could be taken from context and
misunderstood to deny the possibility. If
the district judge thought it conclusive
that rhh was adm’s agent, there would have
been no need for a trial. Yet the judge
took evidence and asked whether the
record supported a finding that rhh also
was Hartford’s agent. The judge found the
evidence wanting, and that finding, on
which appellate review is deferential,
see American Insurance Corp. v. Sederes,
807 F.2d 1402, 1406 (7th Cir. 1986), is
not clearly erroneous. The district court
wrote that it was granting "judgment as a
matter of law" to Hartford, a
formulation, borrowed from Fed. R. Civ.
P. 50, implying plenary appellate review:
it is the phrase used to describe the act
of taking a case away from a jury. But
here the district court was sitting in
equity and conducted a bench trial, after
which it made findings of fact and
conclusions of law. See Fed. R. Civ. P.
52. The reference to "judgment as a
matter of law" was a misdescription of
the procedure. Appellate review of fact-
specific decisions after a bench trial is
deferential, see Anderson v. Bessemer
City, 470 U.S. 564 (1985), and review of
decisions to grant or withhold equitable
relief, or to characterize the parties’
relations, likewise is deferential. Cf.
Icicle Seafoods, Inc. v. Worthington, 475
U.S. 709 (1986).

  One of adm’s theories at trial was that
rhh acted as Hartford’s agent because
Hartford had signed an agreement naming
rhh as its agent. That would create actual
authority--if the agreement covered
policies such as this one. The district
court found, however, that this agreement
covered only other types of policies and
"had nothing to do with the excess policy
that adm was seeking here." adm no longer
argues that rhh had actual authority to
bind Hartford and concentrates on
apparent authority. But its only evidence
of apparent authority is that rhh received
the policy from Hartford and sent it on
(eventually) to adm, signing it in the
process, and received the premium from adm
and deducted a commission before sending
the remainder to Hartford. These events
show that rhh was a go-between, but why
does this status imply that it was
Hartford’s agent? Did rhh behave any
differently in the hundreds of other
transactions in which it was solely adm’s
agent? It did what adm had hired it to do,
and as in other cases it was compensated
for these services by a percentage of the
premium.

  Conducting a brokerage business in the
normal way does not demonstrate apparent
authority to make underwriting decisions
for an insurer--for recall that adm must
establish not simply that rhh had
authority to receive money and shuffle
(or even sign) papers on its behalf but
also that it was Hartford’s agent for the
purpose of deciding what risks to accept,
and at what price. If adm really thought
that rhh had that authority, then adm must
have believed that the world was its
oyster. Why should rhh bother soliciting
bids? It could just write insurance, on
behalf of Hartford or any other
convenient company, for whatever coverage
adm wanted at bargain-basement prices.
Neither rhh nor adm behaved in that
manner, however, which supports the
district court’s conclusion. Dual agency
is most likely in thin markets; if there
is only one insurance broker in town,
both the driver and the auto insurer may
need to use that person’s services. But
adm was shopping in an international
market, and it hired rhh to be its long-
term champion. Only an exceedingly
foolish insurer would have deemed rhh its
agent in the same transactions, and adm
was too sophisticated to believe that for
a big-stakes transaction an insurer would
appoint as its agent a firm that had
already promised to put adm’s interests
first.

  What the district court concluded is not
that it was legally impossible for rhh to
be a dual agent, but that rhh did not have
apparent authority to act on Hartford’s
behalf in the only way that matters--in
promising to cover a particular risk for
a particular price. The district judge
added an independent ground of decision:
that an insurer "is not responsible for
the broker’s representations of which it
is unaware and which it did not ratify."
That proposition is true even if the
insurer holds the broker out as its
agent. There are contrary suggestions in
some state cases, but we have concluded
that the Supreme Court of Illinois, when
it resolves the conflict among the
intermediate appellate courts, will hold
that brokers’ unauthorized conduct does
not create authority from thin air. See
Anetsberger v. Metropolitan Life
Insurance Co., 14 F.3d 1226 (7th Cir.
1994); Lazzara v. Howard A. Esser, Inc.,
802 F.2d 260 (7th Cir. 1986). Nothing
Hartford did created whatever authority
adm perceived, and impressions conveyed by
rhh without Hartford’s consent are
inadequate under Illinois law. So the
district court’s ultimate conclusion is
sound; Hartford’s policy cannot be
reformed to cover what rhh unilaterally
said it would cover.

  More than two years into the suit, and
shortly before the bench trial, adm tried
to amend its complaint to add multiple
additional claims. The proposed amended
complaint--at 45 pages and 204 paragraphs
a rollicking transgression against the
spirit of Fed. R. Civ. P. 8(a) (a
complaint must be "a short and plain
statement of the claim showing that the
pleader is entitled to relief")--would
have added six new claims to the demand
for reformation. Much of the new
complaint is just the same claim
multiplied, the sort of redundancy (four
reformation theories rather than one)
that does little beyond running up
lawyers’ bills. Complaints need not plead
law, so why four claims that differ only
in the legal foundation for a single
grievance? See Bartholet v. Reishauer
A.G. (Zurich), 953 F.2d 1073 (7th Cir.
1992). Still other claims in the proposed
amended complaint just made official
strains of argument (such as ratification
and estoppel) that adm had espoused
without need for statement in a
complaint. Its original complaint
specified that it wanted Hartford held to
the coverage rhh told adm it had obtained.
Multiple "counts" recapitulating that
demand were so much dross, except that
the proposed amendment tried to avoid the
impending bench trial by stating legal
rather than equitable theories. Only one
aspect of the revised complaint was a
genuine novelty--a claim that Hartford
itself defrauded adm. Fraud, which must be
pleaded with particularity, see Fed. R.
Civ. P. 9(b), could enter the case only
via an amendment. But the district court
declined to allow adm to file its amended
complaint, and again appellate review is
deferential. See Foman v. Davis, 371 U.S.
178, 182 (1962); Perrian v. O’Grady, 958
F.2d 192, 194 (7th Cir. 1992); Bohen v.
East Chicago, 799 F.2d 1180 (7th Cir.
1986).

  Once again we perceive no abuse of
discretion. The suit was two years old
and on the eve of trial. It had been four
years since the underlying events. (A
penchant for delay is manifest. adm
appealed early in 1998 but did not file
its opening brief until September 2000.)
adm wanted not only to expand the suit by
adding a fraud claim but also to switch
the locus of decision from a judge to a
jury. Trying to change the rules when the
game seems to be going badly is not a
tactic that district judges are obliged
to facilitate. If the district court had
allowed the amendment, it would have been
necessary to reopen discovery and take
new depositions, of persons who had been
through that unpleasant process already,
to explore topics that had been
irrelevant to the original claim for
reformation. It might have been possible
to litigate about estoppel, ratification,
and waiver without new discovery, but the
district judge accurately observed that
these amendments likely would have been
futile given the limits of the evidence
revealed at the bench trial. adm treats
this comment as a violation of the
principle that, when some elements of a
case are triable to a judge and others to
a jury, the jury’s findings control on
the common issues. See Beacon Theatres,
Inc. v. Westover, 359 U.S. 500, 511
(1959); Dairy Queen, Inc. v. Wood, 369
U.S. 469, 472-73 (1962). But the judge
was not saying that his findings would
preclude a jury from reaching different
conclusions; he was saying instead that
the evidence revealed the unlikelihood
that a jury would do this, making it
wasteful to allow the amendment in the
first place. adm could amend its complaint
only with the judge’s leave, and it was
sensible for the judge to take into
account the improbability that Hartford
would prevail on the revised claims--for
if the destination is fated, it is best
to avoid the travail of the journey.

Affirmed
