                            In the

United States Court of Appeals
              For the Seventh Circuit

No. 10-1073

H AYES L EMMERZ INTERNATIONAL, INC.,

                                               Plaintiff-Appellant,
                                v.

ACE A MERICAN INSURANCE C OMPANY,

                                              Defendant-Appellee.


            Appeal from the United States District Court
     for the Northern District of Indiana, South Bend Division.
           No. 3:08-cv-288—Philip P. Simon, Chief Judge.



      A RGUED JUNE 1, 2010—D ECIDED A UGUST 31, 2010




 Before B AUER, P OSNER, and F LAUM, Circuit Judges.
  P OSNER, Circuit Judge. This appeal from a judgment
dismissing a diversity suit by a disappointed insured
against its insurance company presents issues of
Indiana insurance law.
  The defendant, ACE Insurance Company, had issued
a “Workers Compensation and Employers Liability
Insurance Policy” to Hayes Lemmerz International, a
manufacturer of aluminum and steel wheels, and to
2                                               No. 10-1073

subsidiaries of HLI (as we’ll call the plaintiff). One of
those subsidiaries is Hayes Lemmerz International-Hun-
tington (Huntington). A workers compensation and
employer liability policy is a standard liability insurance
policy designed to insure an employer primarily for
liability under workers’ compensation laws, but second-
arily for liability for workplace accidents not covered by
such laws—for example, liability for a claim by an em-
ployee’s family member injured by a workplace injury
to the employee (as when an injury to a pregnant em-
ployee injures her fetus as well), or for claims for work-
place injuries not covered by workers’ compensation,
such as injuries to farm employees or an injury to an
employee by a fellow employee motivated by spite. See,
e.g., Pomer v. Schoolman, 875 F.2d 1262, 1266-67 (7th
Cir. 1989); Forum Ins. Co. v. Allied Security, Inc., 866 F.2d
80 (3d Cir. 1989). Such insurance coverage fills gaps
in workers’ compensation law that sometimes allow an
employee to sue his employer in tort, bypassing the
limits on workers’ compensation relief. Schmidt v. Smith,
713 A.2d 1014, 1016-17 (N.J. 1998); La Jolla Beach & Tennis
Club, Inc. v. Industrial Indemnity Co., 884 P.2d 1048, 1052
(Cal. 1994).
  In 2005 a worker injured in an accidental explosion at
a plant in Indiana owned by Huntington, and the widow
and estate of another worker killed in the explosion,
brought a tort suit against both HLI, the parent, and
Huntington, the subsidiary, in an Indiana state court.
The complaint alleged that the plant “was owned and
operated by [Huntington] and/or [HLI],” and that they
had failed to exercise reasonable care to prevent the
accident.
No. 10-1073                                              3

  The complaint did not identify either company as an
“employer” of the accident victims and of course the
workers at a work site are often not employees of the
site’s owner. The plaintiffs would not have wanted to
describe either defendant as the employer, because the
exclusive remedy for workplace injuries is usually and
in this instance a claim under workers’ compensation
law, filed with an administrative agency, rather than a
conventional tort suit, which was the nature of the suit
against HLI and Huntington. Ind. Code. § 22-3-2-6;
Sims v. United States Fidelity & Guaranty Co., 782 N.E.2d
345, 349-50 (Ind. 2003). The plaintiffs had already filed a
workers’ compensation claim, naming both HLI and
Huntington as the employers of the accident victims, and
had received workers’ compensation, though whether
paid by both companies, and if so in what proportions,
we cannot determine. Had the tort suit named them as
employers, the court would at once have dismissed
them from the case.
   No doubt the plaintiffs were hoping that not naming
either company as their employer would give them a
shot at obtaining common law damages, which are
more generous than workers’ compensation awards. This
was not necessarily a disreputable (though as we’re
about to see it was an ineffective) maneuver. If Hunting-
ton was their only employer, HLI might not (were it not
for a quirk of Indiana law discussed below) have the
protection of workers’ compensation law and might
therefore be liable in tort if, for example, it had influ-
enced its subsidiary’s choice of safety measures. A parent
(like HLI) or other affiliate enjoys limited liability, but
4                                                No. 10-1073

this just means it isn’t liable for an affiliate’s torts (in-
cluding torts covered by workers’ compensation)
just by virtue of the relationship. If however it plays
a causal role in the affiliate’s negligence, it is liable
directly rather than vicariously to the victim, and under
normal tort law rather than workers’ compensation law,
since the injured worker is the affiliate’s employee
rather than the parent’s. Forsythe v. Clark USA, Inc.,
864 N.E.2d 227, 240-41 (Ill. 2007); Gulfstream Land & Devel-
opment Corp. v. Wilkerson, 420 So. 2d 587, 588-90 (Fla. 1982);
Boggs v. Blue Diamond Coal Co., 590 F.2d 655, 662-63 (6th
Cir. 1979). That is just a special instance of the general
principle that a nonemployer can be sued in tort for injury
to a worker without regard to workers’ compensation law,
though the worker’s remedy against his employer is given
exclusively by that law. E.g., Turner v. Richmond Power &
Light Co., 756 N.E.2d 547, 552-53 (Ind. App. 2001); Campbell
v. Eckman/Freeman & Associates, 670 N.E.2d 925, 929-30 (Ind.
App. 1996); Reboy v. Cozzi Iron & Metal, Inc., 9 F.3d 1303,
1304-05, 1308 (7th Cir. 1993) (Indiana law).
  HLI and Huntington knew of course that Huntington
was the employer of the accident victims and that
HLI, the parent corporation, was not. But the lawyer
handling the tort suit for the two companies seems not
to have known (maybe the plaintiffs didn’t know either)
that in 2001 Indiana, reacting negatively to a decision
by the Indiana Supreme Court confirming the under-
standing of affiliate liability set forth above, McQuade v.
Draw Tite, Inc., 659 N.E.2d 1016, 1020 (Ind. 1995), had
amended its workers’ compensation law to provide that “a
No. 10-1073                                              5

parent corporation and its subsidiaries shall each be
considered [for purposes of workers’ compensation
law] joint employers of the corporation’s, the parent’s, or
the subsidiaries’ employees.” Ind. Code § 22-3-6-1(a).
Hence HLI was insulated from tort liability to the
victims of the explosion: by virtue of being deemed a
joint employer, its liability to them was governed exclu-
sively by workers’ compensation law even if in other
states it could have been sued as a tortfeasor had it con-
tributed to the injuries to its affiliate’s employees.
   HLI promptly notified ACE of the tort suit and asked
it to acknowledge coverage. The insurance policy entitled
ACE to take control of HLI’s defense to the suit, if it
wanted to. See Paint Shuttle, Inc. v. Continental Casualty
Co., 733 N.E.2d 513, 520-21 (Ind. App. 2000); Transport
Ins. Co. v. Post Express Co., 138 F.3d 1189, 1193 (7th Cir.
1998). Evidently it didn’t want to. Instead it agreed to
pay half the combined litigation expenses of HLI and
Huntington. HLI argues, and we accept for purposes of
this appeal, that ACE believed that Huntington was the
only employer of the accident victims, as indeed it was
in the usual sense (both legal and lay) of the word “em-
ployer”: it had hired them and directed their work and
paid them, though (as is not uncommon) they re-
ceived certain benefits under an ERISA plan that covered
employees of other Hayes Lemmerz affiliates as well.
  One might think that ACE would have known that HLI
would be deemed an employer under Indiana’s workers’
compensation law; and if so and it had assumed the
defense of both defendants it would if alert have moved
6                                               No. 10-1073

to dismiss the suit because both were employers of the
accident victims by virtue of the 2001 amendment. But
the amendment was recent and, though it seems clear
enough, apparently there was some doubt about its
meaning. Carol Modesitt Wyatt, “Recent Survey of
Worker’s Compensation Law,” 34 Ind. L. Rev. 1115, 1124
(2001). Indeed, the Indiana trial court initially ruled
that HLI was not an employer of the accident victims.
In any event ACE was not handling the defense.
  HLI did tell ACE that it disagreed with ACE’s decision
to pay only half the companies’ litigation costs, but it
did not pursue the issue and instead tried for the next
two years to persuade the state court that it was not an
employer of the accident victims and therefore (though
there was no “therefore,” since an injurer can be liable
in tort to someone else’s employee) it could not be liable
to them. In the course of this futile effort it incurred at-
torneys’ fees and related litigation expenses of some
$267,000, which ACE refused to reimburse, precipitating
this suit to recover them. HLI would have avoided most
of the expense had it moved to dismiss the suit on the
basis of the amendment. Eventually it did wake up and
as part of a settlement was dismissed from the suit with
prejudice, on the ground that it was indeed an employer
under the amended workers’ compensation law.
  HLI’s basic position is simple: because it was an em-
ployer, ACE was obliged by the terms of the insurance
policy to defend it either directly or by reimbursing its
defense costs. ACE ripostes that HLI was not named as
an employer in the suit. But neither was Huntington, yet
ACE agreed to reimburse the companies for half the cost
No. 10-1073                                                  7

of their defense; and HLI asked ACE to acknowledge
coverage of both companies. The tort claims against HLI
fell within the scope of the insurance policy; that they
had no possible merit, because of the amendment to
the workers’ compensation law, was irrelevant. “The
insured who has bought a liability policy that entitles
him to defense as well as indemnification wants to be
defended against claims of liability regardless of their
merit.” Scottsdale Ins. Co. v. Subscription Plus, Inc., 299
F.3d 618, 622-23 (7th Cir. 2002); see Trisler v. Indiana Ins.
Co., 575 N.E.2d 1021, 1023 (Ind. App. 1991); National Fire &
Casualty Co. v. Norris ex rel. West, 107 F.3d 531, 534-35
(7th Cir. 1997) (Indiana law).
  But we must consider what exactly triggers the duty
to defend. A much-criticized (but never overruled) deci-
sion by the Indiana Supreme Court states that the “duty
to defend is determined solely by the nature of the com-
plaint.” Transamerica Ins. Services v. Kopko, 570 N.E.2d
1283, 1285 (Ind. 1991). This could be interpreted to
mean that the insurance company only has to read the
complaint. But that interpretation is not inevitable;
“nature of the complaint” might refer to the allegations
of the complaint plus additional facts known or rea-
sonably ascertainable by the insurer. This interpretation
has support in Indiana law, Monroe Guaranty Ins. Co. v.
Monroe, 677 N.E.2d 620, 624 (Ind. App. 1997); Indiana
Farmers Mutual Ins. Co. v. North Vernon Drop Forge, Inc.,
917 N.E.2d 1258, 1268-69 (Ind. App. 2009); cf. Auto-Owners
Ins. Co. v. Harvey, 842 N.E.2d 1279, 1291 (Ind. 2006),
reflecting the “modern trend” in insurance law. 14 Couch
on Insurance § 200:17 (3d ed, 2007); see, e.g., Scottsdale Ins.
Co. v. MV Transportation, 115 P.3d 460, 466 (Cal. 2005);
8                                               No. 10-1073

Advantage Homebuilding, LLC v. Maryland Casualty Co., 470
F.3d 1003, 1007-08 (10th Cir. 2006) (Kansas law); Columbia
Union Nat’l Bank v. Hartford Accident & Indemnity Co., 669
F.2d 1210, 1214-15 (8th Cir. 1982) (Missouri law). A
readily ascertainable fact in this case was that HLI is an
employer by virtue of the 2001 amendment to Indiana’s
workers’ compensation law.
   HLI admits it made a dreadful mistake in denying in
the tort suit that it was an employer. It blames its law
firm for the mistake, and has sued the firm for malprac-
tice. We cannot understand why any part of the costs
of that mistake should be shifted to ACE. HLI did not
ask ACE to handle its defense against the tort suit, but
only for reimbursement of its legal expenses. The duty
of reimbursement is limited to reasonable expenses, Em-
ployers Ins. of Wausau v. Recticel Foam Corp., 716 N.E.2d
1015, 1027 (Ind. App. 1999), as otherwise the insured
would have no incentive to economize; and HLI’s ex-
penses were unreasonable—that indeed is the premise of
its malpractice suit. It is reduced to arguing that ACE
should have told it that its law firm was making a
dumb defense—that it had only to invoke the 2001 amend-
ment to the workers’ compensation law to quash the
suit. But a liability insurer that does not control the
defense of the suit against its insured is not obliged to
give advice to the insured on legal strategy, whether in
the name of “good faith” or any other doctrine of insur-
ance law. That way madness lies; any time an insured
lost a tort suit it would accuse its insurer of having failed
to intervene with correct legal advice, thus making the
insurer jointly liable with the insured’s law firm for the
latter’s malpractice. We’re not surprised to find no previ-
No. 10-1073                                            9

ous case in which an insured has made so audacious a
claim for defense costs.
  Because HLI was, by virtue of Indiana law, a joint
employer, ACE was contractually obligated to reim-
burse the reasonable expense of HLI’s getting itself dis-
missed from the tort suit. But HLI is not claiming that
ACE has refused to pay that modest amount. It is com-
plaining that ACE breached its duty to defend by failing
to advise HLI that HLI’s law firm was not defending
the suit properly. ACE had no duty to provide its
insured’s lawyers with legal advice.
                                              A FFIRMED.




                         8-31-10
