Robert Lodholtz v. York Risk Services Group, Inco , 778 F.3d 635 ( 2015 )

In the
United States Court of Appeals
For the Seventh Circuit
____________________
No. 14-2571
ROBERT LODHOLTZ, as Assignee of
Pulliam Enterprises, Inc.,
Plaintiff-Appellant,
v.
YORK RISK SERVICES GROUP,
INCORPORATED,
Defendant-Appellee.
____________________
Appeal from the United States District Court for the
Northern District of Indiana, South Bend Division.
Nos. 3:11-cv-00432-RL-CAN,
3:11-cv-00435-RL-CAN — Rudy Lozano, Judge.
____________________
ARGUED DECEMBER 4, 2014 — DECIDED FEBRUARY 11, 2015
____________________
Before BAUER, RIPPLE, and SYKES, Circuit Judges.
RIPPLE, 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
No. 14-2571 2
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
No. 14-2571 3
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.
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.
No. 14-2571 4
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
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.).
No. 14-2571 5
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-
5 R.1-7.
6The 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.
No. 14-2571 6
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
No. 14-2571 7
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.
7Granite State Ins. Co. v. Pulliam Enters., Inc., Nos. 3:11-CV-432, 3:11-CV-
435, 2014 WL 1094877, at *4 (N.D. Ind. Mar. 19, 2014).
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…)
No. 14-2571 8
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, 742 F.3d 720, 727 (7th Cir. 2014). A Rule
12(c) motion is governed by the same standards as a motion
to dismiss for failure to state a claim under Rule 12(b)(6). Id.
at 727–28. In order to survive a motion to dismiss under Rule
12(b)(6), a complaint must “state a claim to relief that is
plausible on its face.” Bell Atl. Corp. v. Twombly, 550 U.S. 544,
570 (2007). “A claim has facial plausibility when the plaintiff
pleads factual content that allows the court to draw the rea-
sonable inference that the defendant is liable for the miscon-
duct alleged.” Ashcroft v. Iqbal, 556 U.S. 662, 678 (2009). Alt-
hough we draw all reasonable inferences and facts in favor
of the nonmovant, we need not accept as true any legal as-
sertions. Vesely v. Armslist LLC, 762 F.3d 661, 664–65 (7th Cir.
2014).
––––––––––––––––––––––––––––––
(…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.
No. 14-2571 9
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., 729 F.3d 724, 737 (7th Cir. 2013).
The parties do not dispute that Indiana law governs this ac-
tion. See Koransky, Bouwer & Poracky, P.C. v. Bar Plan Mut.
Ins. Co., 712 F.3d 336, 341 (7th Cir. 2013) (noting that, in the
absence of an assertion to the contrary by the parties, it is
appropriate to apply the law of the state in which the district
court sits). Thus, we apply the law that would be applied by
the Indiana Supreme Court. See King v. Order of United Com-
mercial Travelers of Am., 333 U.S. 153, 160–61 (1948); West v.
Am. Tel. & Tel. Co., 311 U.S. 223, 236–37 (1940); Home Valu,
Inc. v. Pep Boys-Manny, Moe & Jack of Del., Inc., 213 F.3d 960,
963 (7th Cir. 2000). If the Indiana Supreme Court has not
spoken on the issue, we generally treat decisions by the
state’s intermediate appellate courts as authoritative, unless
there is a compelling reason to think that the state supreme
court would decide the issue differently. See Home Valu, Inc.,
213 F.3d at 963.
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
No. 14-2571 10
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., 505 N.Y.S.2d 779
(N.Y. Civ. Ct. 1986), which held that the adjuster’s duty was
solely to the insurer, and not to the insured. 9 See id. at 782.
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-
9 New York courts continue to apply the rule announced in Velastequi v.
Exchange Insurance Co., 505 N.Y.S.2d 779 (N.Y. Civ. Ct. 1986). See Colum-
bia Energy Grp. v. Fisher, 851 N.Y.S.2d 12, 13 (N.Y. App. Div. 2008) (hold-
ing that insurance adjuster’s obligations flow from its contracts and that
the insured “provided no authority for its contention that [the adjuster]
also had a common law duty” to the insured); Bardi v. Farmers Fire Ins.
Co., 687 N.Y.S.2d 768, 787 (N.Y. App. Div. 1999) (“As agents of a dis-
closed principal whose actions were undertaken at the direction of the
insurer, the adjusters cannot be held personally responsible to plain-
tiffs….”); Youngs v. Sec. Mut. Ins. Co., 775 N.Y.S.2d 800, 801 (N.Y. Sup. Ct.
2004) (holding that, “[b]ecause there was no contractual relationship be-
tween [the adjuster] and the insured, it follows that the absence of any
other independent duty by [the adjuster] to the insured precludes an ac-
tion against [the adjuster] individually”); 31 Anne M. Payne & Joseph
Wilson, New York Practice Series § 31:38 (2014–2015 ed.) (“The insurance
adjuster owes its duties to the insurance company, as its agent or em-
ployee. …Generally, insurance adjusters, as agents and employees of the
insurer, do not owe the insured any independent duty that could cause
the adjuster to be personally liable to the insured for bad faith.”).
No. 14-2571 11
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
No. 14-2571 12
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-
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., 627 S.E.2d 636, 638–39
(N.C. Ct. App. 2006); Dear v. Scottsdale Ins. Co., 947 S.W.2d 908, 917 (Tex.
App. 1997), overruled on other grounds by Apex Towing Co. v. Tolin, 41
S.W.3d 118 (Tex. 2001); see also Wolverton v. Bullock, 35 F. Supp. 2d 1278,
1280–81 (D. Kan. 1998) (applying Kansas law and holding that a claims
adjuster did not owe the insured a duty of good faith in an action involv-
ing a third-party claim).
11A 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., 961 So. 2d 865, 874 (Ala. Civ.
(continued…)
No. 14-2571 13
––––––––––––––––––––––––––––––
(…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., 277 S.W.3d 789, 792–93 (Mo. Ct. App. 2009) (same); Columbia Ener-
gy Grp., 851 N.Y.S.2d at 13 (same); Koch, 627 S.E.2d at 638–39 (citing with
approval the majority rule and holding that an adjuster did not owe a
duty to claimants that were not the insured); Trinity Baptist Church v.
Bhd. Mut. Ins. Servs., LLC, No. 113,072, 2014 WL 6908858, at *8–9 (Okla.
Dec. 9, 2014) (holding that an independent adjuster owes no duty to the
insured); Charleston Dry Cleaners & Laundry, Inc. v. Zurich Am. Ins. Co.,
586 S.E.2d 586, 588–89 (S.C. 2003) (same); Dear, 947 S.W.2d at 917 (same);
Hamill v. Pawtucket Mut. Ins. Co., 892 A.2d 226, 230 (Vt. 2005) (same); see
also Robertson Stephens, Inc. v. Chubb Corp., 473 F. Supp. 2d 265, 280 (D.R.I.
2007) (holding that claims adjuster did not owe a duty of reasonable care
to insured under Rhode Island law). But see Cont’l Ins. Co. v. Bayless &
Roberts, Inc., 608 P.2d 281, 287–88 (Alaska 1980) (holding that a claims
adjuster owes the insured a duty of ordinary care); Morvay v. Hanover Ins.
Cos., 506 A.2d 333, 335 (N.H. 1986) (holding that claims adjusters owe a
duty to the insured to conduct a fair and reasonable investigation of an
insurance claim).
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…)
No. 14-2571 14
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,
2014 WL 6908858, at *8–9, overruling Brown v. State Farm Fire & Cas. Co.,
58 P.3d 217 (Okla. Civ. App. 2002).
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, 170 Cal. Rptr. 3d 293, 304 (Cal. Ct. App. 2014) (holding “that a
cause of action for negligent misrepresentation can lie against an insur-
ance adjuster”); Riccatone v. Colo. Choice Health Plans, 315 P.3d 203, 207
(Colo. App. 2013) (holding that, “absent a financial incentive to deny an
insured’s claims or coerce a reduced settlement, a third party that inves-
tigates and processes an insurance claim does not owe a duty of good
faith and fair dealing to the insured”); Bass v. Cal. Life Ins. Co., 581 So. 2d
1087, 1090 (Miss. 1991) (holding that a claims adjuster is not liable for
simple negligence but may be liable for gross negligence). But see Bleday
v. OUM Grp., 645 A.2d 1358, 1363 (Pa. Super. Ct. 1994) (holding that in-
sured could not bring a breach of good faith action against an adjuster
because the adjusters owed no contractual duty). Generally, however,
courts reject attempts to impose liability on an insurance adjuster. See 14
Steven Plitt et al., Couch on Insurance § 208:10 (3d ed. 2005 & Supp.
2014) (“Liability for conduct of adjusters and investigators employed by
the insurer directly generally falls primarily on the insurer in its status as
the employer, and personal liability is unusual.”); Thomas R. Malia, An-
notation, Liability of Independent or Public Insurance Adjuster to Insured for
Conduct in Adjusting Claim, 50 A.L.R. 4th 900 (1986 & Supp. 2014) (provid-
ing an overview of the legal theories under which claims are brought
against claims adjusters, generally without success).
No. 14-2571 15
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
No. 14-2571 16
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., 991 P.2d 267, 271 (Ariz. Ct. App. 1999) (not-
ing an “adjuster’s obligation is measured by the contract be-
tween the adjuster and the insurer”); cf. Erie Ins. Co., 622
N.E.2d at 518–19. York and Pulliam had no such contractual
relationship.
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
No. 14-2571 17
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, 575 N.E.2d 992 (Ind. 1991), 12 and hold that
York owes a common law duty to Pulliam under Indiana
law. In Webb, the Indiana Supreme Court set forth three fac-
tors to determine whether a common law duty exists: “(1)
the relationship between the parties, (2) the reasonable fore-
seeability of harm to the person injured, and (3) public poli-
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.
No. 14-2571 18
cy concerns.” Id. at 995. Pointing to a series of communica-
tions between York and Pulliam, Mr. Lodholtz submits that
Pulliam, like any insured, relied upon the adjuster. Specifi-
cally, Mr. Lodholtz relies on York’s representation that it
was the authorized representative of Pulliam, York’s secur-
ing for Pulliam an extension to answer the complaint, York’s
handling the Lodholtz complaint for Pulliam, York’s investi-
gation of the lawsuit and potential coverage issues, and
York’s letter to Pulliam stating that the handling of the claim
would progress as seamlessly as possible. Mr. Lodholtz ar-
gues that, in light of these activities, York had actual
knowledge that Pulliam was relying on its services, thus cre-
ating a relationship “akin to that of a third party beneficiary
of a contract, where the professional has actual knowledge
that the services being provided are, in part, for the benefit
of such third persons.” Id. at 996.
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. 13 Because the record demon-
strates an agency relationship between Granite and York and
because agents are generally only liable to the principal un-
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).
No. 14-2571 19
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, 798 N.E.2d at 174.
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. 14 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
14 For example, in Rodriguez v. United States Steel Corp., No. 45A04-1407-
CT-350, 2014 WL 7450436 (Ind. Ct. App. Dec. 31, 2014), the Court of Ap-
peals of Indiana, recognizing that the foreseeability component should
not be narrowly applied, held that “a third-party motorist could be a rea-
sonably foreseeable victim of an injury inflicted by an employee suffer-
ing from work-induced fatigue.” See id. at *4. Nonetheless, the court con-
cluded that “public policy strongly counsels against the imposition of a
duty” and held that an employer did not have a duty to monitor worker
fatigue. Id.
No. 14-2571 20
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, 622 N.E.2d at 519 (noting “it is in society’s interest that
there be fair play between insurer and insured” because of
the “sui generis nature of insurance contracts”). Absent an
insurance contract, the policy rationales for imposing a duty
on a claims adjuster cease to exist. Mr. Lodholtz also ignores
that the relationship between the parties implicate agency
principles. That York was an agent of Granite appears to
provide a particularly strong public-policy rationale for re-
fusing to conclude that the Indiana Supreme Court would
recognize a duty here.
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
No. 14-2571 21
negligently.’” Id. at 359–60 (quoting Holtz v. J.J.B. Hilliard
W.L. Lyons, Inc., 185 F.3d 732, 744 (7th Cir. 1999)). “[T]he par-
ty on whose behalf the duty is being undertaken [must] re-
linquish control of the obligation; the party who adopts the
duty must be acting ‘in lieu of’ the original party.” Id. at 360
(quoting Holtz, 185 F.3d at 744). “While the issue of whether
a defendant has assumed a duty generally rests with the
trier of fact, if no facts or reasonable inferences in the record
create material issues of genuine fact, the question can be de-
termined by law.” Holtz, 185 F.3d at 744 (citation omitted).
Here, the uncontroverted evidence shows that York, in un-
dertaking various actions in the underlying transactions,
acted in fulfillment of its contractual duties to Granite and
on behalf of Granite.
Conclusion
We conclude that the district court appropriately dis-
missed the claim against York. The judgment of the district
court is affirmed.
AFFIRMED