Reliance Nat'l Insur v. Great Lakes Aviation ( 2005 )

In the
United States Court of Appeals
For the Seventh Circuit
____________
Nos. 04-4120, 04-4148
RELIANCE NATIONAL INSURANCE CO.,
Plaintiff,
v.
GREAT LAKES AVIATION, LTD., et al.,
Defendants-Appellees,
v.
ARNY BERGER, et al.,
Defendants-Appellants.
____________
Appeals from the United States District Court
for the Central District of Illinois.
No. 97 C 3289—Richard Mills, Judge.
____________
ARGUED SEPTEMBER 13, 2005—DECIDED NOVEMBER 23, 2005
____________
Before POSNER, RIPPLE, and WOOD, Circuit Judges.
POSNER, Circuit Judge. This case presents questions
concerning the law of contribution among joint tortfeasors.
The questions arise in a complex procedural setting; but
we can simplify. In 1996, two airplanes, one carrying ten
passengers, collided on a runway in a small municipal
airport in Illinois. All fourteen persons aboard the two
airplanes were killed. The two owners of the smaller plane
2 Nos. 04-4120, 04-4148
had a $1 million liability insurance policy that had been
issued by Reliance National Insurance Company. Reliance
filed an interpleader suit in federal district court, 28 U.S.C.
§ 1335, naming as defendants everyone who might have a
claim to the insurance proceeds, including the owners of the
smaller plane (all references to “owners” in this opinion are
to them), the pilots (actually of course their estates, but we’ll
suppress that detail for the sake of simplicity), the passen-
gers (that is, their estates), the manufacturer of both
planes—Raytheon Aircraft Company—and the airline that
operated the passenger plane, Great Lakes Aviation.
Reliance deposited $1 million in the court and was dis-
missed. The eventual judgment in the interpleader suit,
awarding the $1 million to Great Lakes and Raytheon, is
challenged in this appeal, which is by the passengers.
The passengers had filed tort suits in an Illinois state court
against Great Lakes, Raytheon, the owners, and the pilots.
The two pilots of the smaller plane had filed similar suits
against Great Lakes and the owners. The passengers settled
with Great Lakes and Raytheon, receiving $44 million from
the former and $8 million from the latter, for a total of $52
million. In exchange, the passengers released their claims
against all the defendants, except that both they and the
defendants “reserve[d] their respective rights, title and
interest in their respective claims to the funds interpleaded
by Reliance.”
The pilots’ state court suits went to trial in 2003, and on
the eve of trial Great Lakes agreed with the owners that
it would not seek any contribution from them person-
ally; it would limit any claim of contribution to the $1
million that Reliance, the owners’ liability insurer, had
deposited in the federal district court in the interpleader
suit. These parties further agreed that the amount of
Nos. 04-4120, 04-4148 3
contribution from the owners to which Great Lakes would
be entitled would be determined by multiplying all amounts
that Great Lakes had paid in settlement of the passengers’
claims (that is, $44 million) by the percentage of responsibil-
ity for the collision that the jury in the pilots’ suit allocated
to the lead pilot of the smaller plane. That turned out to be
65 percent, implying a contribution claim for Great Lakes of
$28.6 million ($44 million × .65). A similar agreement with
Raytheon (though, oddly, it had not been named as a
defendant) assessed its contribution claim as $5.2 million ($8
million [the amount of its settlement with the passengers] ×
.65). Great Lakes and Raytheon have agreed to divide the $1
million of insurance proceeds—if they are awarded those
proceeds—in the same proportion as their claims. Their
entitlements to contribution, calculated in accordance with
their agreements with the owners, are much greater, but the
sum they can actually receive is capped at the $1 million in
the district court’s registry.
Although the agreements were embodied in agreed
judgment orders entered by the state court, the passengers
claim to be entitled to the $1 million. The district judge
rejected their claim. He thought that because Great Lakes
and Raytheon apparently had been the only defendants
in the passengers’ suits to have paid anything—they had
in fact paid the healthy sum of $52 million—the principles
of equity entitled them to the modest contribution, $1
million, that they would receive if they were awarded the
money that the owners’ insurer had deposited in the district
court. Alternatively he ruled that the agreed judgment
orders in the state court gave Great Lakes and Raytheon a
claim to the money that was prior to the passengers’ claim.
The passengers contend that those judgments are entitled to
no weight because the passengers were not parties to the
litigation in which the judgments were entered and because
4 Nos. 04-4120, 04-4148
an Illinois law bars contribution in the circumstances of this
case. They further argue that as the only blameless parties
(although actually Raytheon’s liability has never been
determined), they should get the $1 million.
The passengers are correct that contribution is barred
by Illinois law. In words that could not be much clearer,
the Illinois Joint Tortfeasor Contribution Act provides
that “a tortfeasor who settles with a claimant . . . is not
entitled to recover contribution from another tortfeasor
whose liability is not extinguished by the settlement.” 740
ILCS 100/2(e). The purpose appears to be to discourage
piecemeal settlement of multiparty cases, but in any
event the rule is clear, and so, it seems to us, is its applica-
tion to this case. The settling tortfeasors are Great Lakes and
Raytheon, which together paid the “claimant” (the passen-
gers) $52 million. The “tortfeasor[s] whose liability is not
extinguished by the settlement” are the owners, provided
the $1 million in the court’s registry is attributed to
them—but it should be, even though the deposit into the
registry was made by their insurer. Suppose they hadn’t
been insured, and had deposited $1 million of their own
money in the court. Their settlement with the passengers
would not have extinguished their liability, but merely have
limited it to the $1 million that they had deposited. It cannot
make a difference that the money was actually deposited by
their liability insurer, any more than it would have made a
difference had it been deposited by a wire from their bank.
The liability insurer is a surrogate for the tortfeasor whom
it has insured. Flatt v. Country Mutual Ins. Co., 682 N.E.2d
1228, 1232 (Ill. App. 1997); Shelton v. Country Mutual Ins. Co.,
515 N.E.2d 235, 240 (Ill. App. 1987); Reagor v. Travelers Ins.
Co., 415 N.E.2d 512, 514 (Ill. App. 1980).
This would be painfully obvious if the suit against the
owners had gone to judgment and damages had been
Nos. 04-4120, 04-4148 5
assessed at $1 million and the owners had no personal
assets, but just the insurance. Could Reliance have re-
fused to pay the judgment on the ground that it was not
the tortfeasor? Obviously not; and what difference can
it make that instead of waiting for a judgment or settlement,
Reliance deposited the proceeds with the court in order to
minimize its own litigation expense? The interpleader
procedure is not intended to alter substantive rights. Sanders
v. Armour Fertilizer Works, 292 U.S. 190, 200 (1934); Avant
Petroleum, Inc. v. Banque Paribas, 853 F.2d 140, 143 (2d Cir.
1988).
So “tortfeasor” in the Contribution Act cannot mean
uninsured tortfeasor. What is true, however, and is easily
confused with an attempt to reach the proceeds of a liability
insurance policy, is that a plaintiff who has two claims
against the defendant, one of which is not a tort claim or (as
here) based on a tort claim, need not release that claim as
well in order for the defendant to be able to obtain contribu-
tion from a joint tortfeasor. That is the holding of Hall v.
Archer-Daniels-Midland Co., 524 N.E.2d 586, 588-90 (Ill. 1988).
(To the same effect see Claudy v. Commonwealth Edison Co.,
626 N.E.2d 1088, 1097 (Ill. App. 1993), reversed on other
grounds, 660 N.E.2d 895 (Ill. 1995).) The plaintiff in Hall had
a tort claim against some of the defendants and a workers’
compensation claim against another defendant. The court
held that a workers’ compensation claim is not a tort claim
within the meaning of the Contribution Act, so the claim,
not having been “derived from negligent or otherwise
culpable conduct,” 524 N.E.2d at 589, didn’t have to be
released for contribution to be possible. But the passengers’
claim to the money deposited in the district court derives
entirely from the allegedly negligent conduct of Reliance’s
insureds; it thus is a tort claim—the passengers’ tort
claim against the owners. They have no contractual or other
6 Nos. 04-4120, 04-4148
right against the owners’ insurer; they have not sued the
insurer. They were sucked into the interpleader suit only
because the insurer deposited in a federal district court
assets available to satisfy a tort judgment against the
insureds. The fact that Reliance deposited the proceeds of its
liability insurance policy with the district court has no more
significance than if it had deposited the money in an escrow
account in a bank, or if the owners themselves, anticipating
liability, had cashed a $1 million certificate of deposit.
So Great Lakes and Raytheon are barred from seeking
the $1 million, but then what to do with it? The passen-
gers’ “clean hands” theory for why they’re entitled to it and
Great Lakes’ and Raytheon’s “we’ve suffered enough”
theory are equally wide of the mark, though they gesture
toward relevant considerations.
Remember that from the standpoint of liability the
$1 million in the court’s registry is the equivalent of
$1 million in the owners’ bank account. That money is owed
to the passengers only if two conditions are satisfied: the
owners are liable in tort to the passengers; and the amount
the passengers have already received in settlement of their
claims does not equal or exceed their legal entitlement. It is
toward the first condition that the passengers gesture with
their reference to “clean hands,” and it is toward the second
that Great Lakes and Raytheon gesture with their reference
to the “equities.” The passengers must prove that the
owners were negligent, or otherwise tortiously culpable in
some way for the accident, but they must also establish the
amount of damages for which the owners are liable, given
that the passengers have received money from other
tortfeasors. “A tort victim can obtain only one recovery for
his harm, no matter how many tortfeasors inflicted it.” Bosco
v. Serhant, 836 F.2d 271, 280 (7th Cir. 1987); see also Zenith
Nos. 04-4120, 04-4148 7
Radio Corp. v. Hazeltine Research, Inc., 401 U.S. 321, 348
(1971). So the owners, if found liable, can defend on the
ground that, as Great Lakes and Raytheon contend without
proof, the passengers have been fully compensated by the
settlements.
So the case must be remanded to the district court for a
determination of the owners’ liability. The agreed judgment
orders should play no role in that determination. They were
not the result of an adjudication and the passengers were
not parties to them. They are entitled to neither preclusive
force nor evidentiary weight. United States v. City of Chicago,
870 F.2d 1256, 1260-62 (7th Cir. 1989); LaSalle Bank National
Ass’n v. Village of Bull Valley, 826 N.E.2d 449, 456 (Ill. App.
2005).
To avoid, if possible, a further appeal, we consider fi-
nally who gets the $1 million if the passengers fail to
establish the owners’ liability. Great Lakes and Raytheon
have no claim to it. Their only possible claim would be
one based on a right of contribution, and the statute bars
that. Logically the money should go back to Reliance if the
passengers fail to establish the owners’ liability to them,
because in that event no one will have a superior claim
to Reliance’s claim. The money is, after all, Reliance’s, which
it deposited in court solely in order to avoid being dragged
into the disputes between its insureds and their tort claim-
ants. It is no longer the law that the interpleader plaintiff
(Reliance) must have no stake in the proceeding. Indianapolis
Colts v. Mayor & City Council of Baltimore, 733 F.2d 484,
486 (7th Cir. 1984); Ashton v. Josephine Bay Paul & C. Michael
Paul Foundation, Inc., 918 F.2d 1065, 1069 (2d Cir. 1990); 4
Moore’s Federal Practice § 22.02[2] (3d ed. 2005).
We are told that Reliance is in bankruptcy. But presum-
ably that just means that the trustee or the debtor in posses-
8 Nos. 04-4120, 04-4148
sion will enforce Reliance’s claim. In the unlikely event that
it is determined that Reliance abandoned the money, and no
other claimant appears, the money will eventually escheat
to the State of Illinois, the state in which the registry in
which the money was deposited is located. 765 ILCS
1025/8.1; In re Moneys Deposited in and Now under the Control
of U.S. District Court, 243 F.2d 443, 445 (3d Cir. 1957); see 28
U.S.C. § 2042.
The judgment is reversed and the case remanded to the
district court for further proceedings consistent with this
opinion.
A true Copy:
Teste:
_____________________________
Clerk of the United States Court of
Appeals for the Seventh Circuit
USCA-02-C-0072—11-23-05