                             In the

United States Court of Appeals
               For the Seventh Circuit

Nos. 11-2762 & 11-2771

A MERISURE INSURANCE C OMPANY,

                        Plaintiff-Counter-Defendant-Appellant,

                                 v.

N ATIONAL S URETY C ORPORATION,

                          Defendant-Cross-Claimant-Appellant,

                                 v.

S COTTSDALE INSURANCE C OMPANY,

                            Defendant-Cross-Claimant-Appellee.


            Appeals from the United States District Court
     for the Southern District of Indiana, Indianapolis Division.
    No. 1:09-cv-00866-WTL-DKL—William T. Lawrence, Judge.



    A RGUED JANUARY 18, 2012—D ECIDED A UGUST 17, 2012




 Before B AUER, M ANION, and W OOD , Circuit Judges.
  W OOD , Circuit Judge. This litigation arises out of a
dispute over insurance coverage for work-related
2                                   Nos. 11-2762 & 11-2771

injuries sustained by the employee of a subcontractor.
Indiana Steel Fabricating (ISF) submitted and won a bid
to perform the steel fabrication work for a project. ISF
then engaged Central Steel Erectors as a subcontractor.
In the course of that work, Brian Colip, a Central Steel
employee, fell from a roof and injured himself. He filed
suit against ISF under a theory of vicarious liability
and settled his claims for $2.9 million. Now ISF’s
insurers, Amerisure Insurance Company (Amerisure) and
National Surety Corporation (National), and Central
Steel’s insurer, Scottsdale Insurance Company (Scottsdale),
are quarreling over which of them is responsible for
bearing the cost of that settlement. The district court ruled
that each one was liable for a share: Amerisure for
$1 million, Scottsdale for $1 million, and National
for $900,000. For the reasons that follow, we affirm.


                              I
  In November 2005, Mark Swanson Associates, Inc.,
hired ISF to complete steel fabrication work for a con-
struction project in Indiana. In October 2006, ISF hired
Central Steel to perform the necessary steel erection
work. As part of that arrangement, ISF and Central
Steel signed a subcontract in which Central Steel
explicitly agreed to procure adequate insurance and to
“defend, indemnify and hold harmless [ISF] . . . from
and against all claims, actions, judgments, damages,
losses and expenses” related to the agreement.
  In order to fulfill its obligations, Central Steel pur-
chased two insurance policies from Scottsdale. The first
Nos. 11-2762 & 11-2771                                      3

was a $1 million commercial general liability policy (the
Scottsdale CGL policy), and the second was a $2 million
umbrella insurance policy (the Scottsdale Umbrella
policy). ISF also carried general and umbrella coverage.
It had purchased $1 million in commercial general
liability coverage from Amerisure and $7 million in
umbrella coverage from National.
   In November 2006, one month after ISF hired Central
Steel, Brian Colip (one of Central Steel’s employees)
was seriously injured at work when he fell 30 feet
through a hole in the roof of a building. Colip filed suit
against ISF, arguing that ISF owed him a non-delegable
duty of care and was therefore vicariously liable for his
injuries. Colip eventually settled that suit for $2.9 million,
and the three insurance companies paid the settlement
amount according to the terms of a funding agreement.
That agreement provided that Scottsdale would pay
$1 million out of the Scottsdale CGL policy and $950,000
out of the Scottsdale Umbrella policy, while Amerisure
would pay the remaining $950,000. Initially, National
had no obligation to contribute. The agreement explicitly
reserved the rights of the parties to seek reimbursement
or contribution from each other. Amerisure took ad-
vantage of that provision and filed suit against Scottsdale
and Central in the United States District Court for the
Southern District of Indiana. Scottsdale responded with
counter- and cross-claims against Amerisure and Na-
tional. The district court dismissed Central from the
litigation and granted summary judgment in favor of
Scottsdale, ruling that it had no obligation to pay
under its umbrella policy. It thus awarded Scottsdale
4                                   Nos. 11-2762 & 11-2771

$50,000 from Amerisure (thereby exhausting Amerisure’s
$1 million policy) and the remaining $900,000 from Na-
tional. Amerisure and National now appeal.


                             II
  The primary issue on appeal relates to Scottsdale’s
obligation to contribute to Colip’s settlement under the
Scottsdale Umbrella policy. Scottsdale argues that the
Umbrella policy contains an explicit exclusion that
exempts it from paying; Amerisure and National counter
that Scottsdale is estopped from relying on that provi-
sion, and in any event it does not apply here.


                             A
  As usual, in order to resolve the dispute we must turn
to the governing policy to see what it says. In the
Scottsdale Umbrella policy, we find a provision entitled
the “Cross Liability Exclusion,” which says that:
    This insurance does not apply to ‘bodily injury,’ ‘prop-
    erty damage’ or ‘personal or advertising injury’
    arising out of a claim or suit brought by any insured
    against another insured.
The parties all agree that Colip suffered “bodily injury,”
and they all accept that ISF and Colip are both “insured”
under policy. Amerisure and National argue, however,
that Colip’s injury did not “aris[e] out of a claim or suit.”
As they see it, Colip’s injury arises out of a workplace
accident, but the liability for that injury arises out of
Nos. 11-2762 & 11-2771                                    5

Colip’s lawsuit. Ergo, they conclude, the Exclusion does
not apply to Colip’s case, even though it might apply if
a landlord were injured while trying personally to
evict a tenant, or if someone were to slip and fall while
filing papers with a court.
   This does not strike us as a sensible reading of the
policy language; instead, it is a strained effort to avoid
the natural meaning of the words while at the same time
preserving just enough to avoid making the provision
illusory. The appellants stridently argue that because
this litigation is between insurance companies, we must
construe the Scottsdale Umbrella policy from “a neutral
stance,” Indiana Lumbermens Mut. Ins. Co. v. Statesman
Ins. Co., 291 N.E.2d 897, 899 (Ind. 1973). From that, they
reason that the risk of any drafting error goes to the
drafter. But even if we agreed with them that
Scottsdale’s policy is unclear, their conclusion does not
follow from Indiana Lumbermens. What the Supreme
Court of Indiana actually requires in this type of
contract litigation, and what we will accordingly do, is
to “seek out the general intent of the contract from a
neutral stance.” Id. at 899; see also Burkett v. American
Fam. Ins. Grp., 737 N.E.2d 447, 452-53 (Ind. Ct. App. 2000).
  Here, the straightforward way to read the policy ex-
clusion is as one that applies to lawsuits between two
parties covered by the same insurance—or as the policy
puts it, “a claim or suit brought by any insured against
another insured.” (Emphasis added.) This makes sense.
Without the Exclusion, parties insured under the
same policy would have no disincentive to sue one an-
6                                  Nos. 11-2762 & 11-2771

other, since only the insurance company would ulti-
mately bear the cost of the judgment. This sets up
what is known to economists as a moral hazard,
because the party taking the risk will not bear the
costs of its behavior. The Exclusion counteracts that
problem by eliminating the possibility of a third party’s
subsidization of such a lawsuit. See Miller v. St. Paul
Mercury Ins. Co., 683 F.3d 871, 872 (7th Cir. 2012). We
are satisfied that the Exclusion’s language—including
its title, which clarifies that it applies to instances of
cross-liability—reflects the intent of Scottsdale and
Central Steel not to purchase insurance that would cover
personal injury lawsuits between insured parties under
the Umbrella policy.
   In response, Amerisure and National argue that it is
this reading of the Cross Liability Exclusion that
impermissibly makes the policy illusory, because it pur-
ports to grant coverage for Central Steel’s indemnity
obligations to ISF, but then it does not actually provide
any such coverage. But this does not do the policy jus-
tice. There are many instances in which a company
might need to call on its commercial general liability
insurance (or an umbrella extension of that insurance)
where third parties are involved. By excluding only
coverage for suits between two named insured parties,
the policy remains in full force for cases that involve
a third-party (e.g., delivery people, visitors to the site,
or other contractors not involved in the steel work). The
worst one might imagine is that, by agreeing to the
Cross Liability Exclusion, Central Steel failed to fulfill
its obligation to ISF under the subcontract to procure
Nos. 11-2762 & 11-2771                                  7

adequate indemnity coverage. That question, however,
is not before us. We are satisfied both that the
Exclusion applies to this case and that this does not
render the policy illusory.


                            B
  Having established that the Cross Liability Exclusion
saves Scottsdale from any obligation to draw on the
Umbrella policy to fund Colip’s settlement, we move on
to the second question the parties have raised: Did
Scottsdale wait too long to assert its rights under the
Exclusion? Amerisure and National argue that Scottsdale
did not bring up the Exclusion until too late in the
game, and that this late assertion constitutes an unfair
attempt by Scottsdale to “mend its hold.”
  The mend-the-hold doctrine (which acquired its name
from a nineteenth-century wrestling term, see Harbor
Ins. Co. v. Continental Bank Corp., 922 F.2d 357, 362 (7th
Cir. 1990)) prevents a defendant in contract litigation
from “chang[ing] its defenses” midstream without any
reason for doing so. Ryerson Inc. v. Federal Ins. Co., 676
F.3d 610, 614 (7th Cir. 2012). Appellants argue that
Scottsdale’s letter of June 24, 2008, and other pre-trial
communications, did not alert them to Scottsdale’s
intent to rely on the Exclusion; instead, they say,
Scottsdale mentioned only a number of other, materially
different, defenses. This shift in strategy, they assert,
prejudiced them. We find this argument unavailing
for several reasons.
8                                   Nos. 11-2762 & 11-2771

  In the first place, it is not at all clear that the Indiana
courts have any intention of adopting or applying the
mend-the-hold doctrine. We can find only one decision
by any Indiana state court that mentions it, and that
case was decided over eight decades ago, in 1928. See
National Hame & Chain Co. v. Robertson, 161 N.E. 851 (Ind.
Ct. App. 1928). Indeed, at present the doctrine is applied
in only a minority of the states. See Robert H. Sitkoff,
Comment, ‘Mend the Hold’ and Erie: Why an Obscure Con-
tracts Doctrine Should Control in Federal Diversity Cases,
65 U. C HI. L. R EV. 1059, 1068-77 (1998). Absent any in-
dication that the Indiana courts would apply the
doctrine at all, we see no warrant for taking the initia-
tive to use it here.
  But even if we thought that the Indiana courts might
borrow the doctrine from their neighbors in Illinois, or
if another form of estoppel might apply, Amerisure’s
and National’s substantive arguments are unavailing.
Scottsdale’s June 24 letter is not as constraining as the
appellants urge. In fact, Scottsdale not only specifically
stated its “position” that the Scottsdale Umbrella cov-
erage was subordinate to the Amerisure policy, but
it also explicitly reserved Scottsdale’s “right to assert
defenses regarding any of the other terms, conditions,
or exclusions of this policy.” Thus, the parties had ample
notice of Scottsdale’s intent to “assert all defenses to
coverage available to it under the policy” (emphasis
added). And although it is true that Scottsdale did not
specifically invoke the Cross Liability Exclusion in
these pre-trial communications, we recently said that
“mend the hold does not forbid the defendant to add
Nos. 11-2762 & 11-2771                                   9

a defense after being sued” because “[t]o require a poten-
tial defendant to commit irrevocably to defenses before
he is sued would be unreasonable to the point of absur-
dity.” Ryerson, 676 F.3d at 614.
   Finally, we doubt that Amerisure and National were
unfairly surprised or prejudiced by the allegedly “eleventh
hour” assertion of the Cross Liability Exclusion at litiga-
tion. Just as Scottsdale had warned it would do before
the commencement of this litigation, its complaint stated
its intention to rely on the exclusions contained in the
Scottsdale Umbrella policy. The appellants concede
that they had access to the complete terms of the
Scottsdale Umbrella policy throughout this litigation.
Amerisure and National easily could have uncovered
the Cross Liability Exclusion and prepared for its
eventual introduction in the district court. We decline,
under these circumstances, to find that the appellants
were prejudiced by Scottsdale’s litigation conduct.


                            C
   Lastly, Amerisure and National argue that the mend-the-
hold doctrine prevents Scottsdale from recovering
any more than $450,000 (rather than $950,000), because
it inadvertently typed a “4” instead of a “9” in the
first column in some of its filings. Although this does
strike us as quite a careless error—the 4 key on a
normal keyboard is nowhere near the 9 key, even on the
numeric pad—we decline to hold that these isolated
errors limit Scottsdale’s available scope of relief. As the
district court noted, Scottsdale’s trial filings repeatedly
10                                  Nos. 11-2762 & 11-2771

reflect its intention to recoup all payments made under
its umbrella policy. Scottsdale’s “Statement of Special
Damages,” a document required under the district
court’s Case Management Plan for this litigation, clearly
stated that it was seeking “Nine Hundred Fifty
Thousand and No Cents Dollars ($950,000.00).” Reading
the file as a whole, there is no doubt that Scottsdale
was trying to recover the full $950,000 that it had been
required to contribute from the Umbrella policy. We
agree with the district court that Scottsdale was entitled
to recoup these funds pursuant to the policy’s terms and
that there are no equitable bars to Scottsdale’s recov-
ery of all such payments it has made. The judgment
is A FFIRMED.




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