Martinsville Corral, Inc. v. Society Insurance

In the
United States Court of Appeals
For the Seventh Circuit
No. 18-1945
MARTINSVILLE CORRAL, INC., doing
business as MARTINSVILLE TEXAS
CORRAL, et al.,
Plaintiffs-Appellants,
v.
SOCIETY INSURANCE,
Defendant-Appellee.
Appeal from the United States District Court for the
Southern District of Indiana, Indianapolis Division.
No. 1:16-cv-02487-TWP-MPB — Tanya Walton Pratt, Judge.
ARGUED NOVEMBER 5, 2018 — DECIDED DECEMBER 13, 2018
Before BAUER, ROVNER, and ST. EVE, Circuit Judges.
BAUER, Circuit Judge. Martinsville Corral, Inc. d/b/a
Martinsville Texas Corral, Victor A. Spina, and William Spina
(collectively, “MCI”), held a business owners insurance policy
with an “Employment-Related Practices Liability Endorse-
2 No. 18-1945
ment” (“Endorsement”) from Society Insurance (“Society”).
When DirecTV sued MCI for publicly displaying its program-
ming in MCI’s two restaurants without paying the commercial
subscription rate, Society denied MCI’s claim. MCI sued
Society for coverage, and the district court granted summary
judgment for Society. MCI appeals the summary judgment
order, limiting its appeal to the denial of coverage under the
Endorsement only. For the following reasons, we affirm.
I. BACKGROUND
Martinsville Corral, Inc. owns two Texas Corral restaurants
in Indiana. Victor A. Spina and William Spina are both Indiana
residents, and each own 50% of Martinsville Corral. Society is
an insurance company with its principal place of business in
Wisconsin. With the parties diverse and the amount in contro-
versy exceeding $75,000, the district court exercised diversity
jurisdiction pursuant to 28 U.S.C. § 1332(a).
On December 6, 2013, Society issued an insurance policy to
MCI that provided general business liability coverage. MCI
also purchased additional coverage under an “Employ-
ment-Related Practices Liability Endorsement.” The Endorse-
ment requires Society to cover MCI for “damages resulting
from a ‘wrongful act’ to which [the Policy] applies.” The
Endorsement defines “wrongful act” to include, in relevant
part, “[l]ibel, slander, invasion of privacy, defamation or
humiliation.”
On January 26, 2015, DirecTV, LLC filed two lawsuits
against MCI pursuant to the Cable Communications Policy
Act of 1984, 47 U.S.C. § 521, et seq. The complaints alleged that
MCI displayed DirecTV’s satellite television programming in
No. 18-1945 3
its restaurants, but paid only for a residential subscription and
not the higher commercial subscription rate. DirecTV claimed
it was damaged by MCI’s actions because “(a) DIRECTV has
been denied subscription fees for commercial use of its
Satellite Programming; (b) DIRECTV's sales revenues have
been reduced through Defendants’ unfair competition;
(c) DIRECTV’s propriety rights in the Satellite Programming
have been impaired.” DirecTV further asserted that its
“goodwill and reputation have been usurped” as a result of
MCI’s violations of the CCPA, while MCI gained unjust profits
and goodwill by displaying DirecTV’s programming without
paying the commercial rate.
Taking the position that DirecTV’s claims for impairment
of its goodwill and reputation constituted the “wrongful acts”
of libel, slander or defamation under the Endorsement, MCI
requested Society to defend the suit and provide indemnifica-
tion. Society denied coverage and refused to indemnify MCI.
DirecTV ultimately dismissed its suit, but not before MCI
incurred over $75,000 in expenses defending against it.
MCI filed a complaint against Society for breach of contract.
Society counter-claimed seeking a declaratory judgment that
there was no coverage. MCI and Society filed cross-motions for
summary judgment. The district court granted summary
judgment to Society. MCI’s appeal is limited to whether
Society properly denied coverage under the Endorsement for
what MCI asserts is a defamation claim.
4 No. 18-1945
II. ANALYSIS
We review the district court’s grant of summary judgment
de novo, drawing all reasonable inferences in favor of the party
opposing the motion. Simmons v. Chicago Bd. of Educ., 289 F.3d
488, 491–92 (7th Cir. 2002). Summary judgment should be
granted “if the movant shows that there is no genuine dispute
as to any material fact and the movant is entitled to judgment
as a matter of law.” Fed. R. Civ. P. 56(a). Rule 56 “mandates
the entry of summary judgment, after adequate time for
discovery and upon motion, against a party who fails to make
a showing sufficient to establish the existence of an element
essential to that party’s case, and on which that party will bear
the burden of proof at trial.” Celotex Corp. v. Catrett, 477 U.S.
317, 322 (1986). “Summary judgment is appropriate when no
material fact is disputed and the moving parties are entitled to
judgment as a matter of law, meaning that no reasonable jury
could find for the other party based on the evidence in the
record.” Carman v. Tinkes, 762 F.3d 565, 566 (7th Cir. 2014).
Society asks this court to apply the doctrine of issue
preclusion against MCI based on Indiana state court judgments
entered against William Spina and Victor Spina in lawsuits
against their respective homeowner insurance providers.
William and Victor Spina each sought coverage on the same
basis that coverage is sought here—that DirecTV was seeking
damages for libel, slander, or defamation. In general, “issue
preclusion bars subsequent litigation of the same fact or issue
that was necessarily adjudicated in a former suit.” Miller
Brewing Co. v. Ind. Dep’t of State Revenue, 903 N.E.2d 64, 68 (Ind.
2009). Both Spina appellants sought coverage by their home-
owner insurance providers and sued their homeowner
No. 18-1945 5
insurance providers when coverage was denied. A final order
in favor of the insurance providers was entered in each case.
However, issue preclusion is an affirmative defense that must
be raised in a responsive pleading and Society failed to raise it
in the district court. See Fed. R. Civ. P. 8(c)(1). “We will not
affirm a judgment based on an affirmative defense raised for
the first time on appeal.” McDonald v. Adamson, 840 F.3d 343,
347 (7th Cir. 2016). Ergo, Society’s issue preclusion argument
must fail.
Turning to the district court’s opinion, an insurance policy
is subject to the same rules of interpretation as other contracts.
Eli Lilly & Co. v. Home Ins. Co., 482 N.E.2d 467, 470 (Ind. 1985).
If a policy’s language is clear and unambiguous, it must be
given its plain and ordinary meaning. Tate v. Secura Ins., 587
N.E. 2d 665, 668 (Ind. 1992). Additionally, an insurer must
defend a claim if the alleged facts “arguably fall within the
described offenses for which coverage is provided.” Ind. Ins.
Co. v. N. Vermillion Cmty. Sch. Corp., 665 N.E.2d 630, 635
(Ind. Ct. App. 1996).
MCI argues that Society is required to cover its costs and
expenses for the DirecTV action because DirecTV claimed
damages that fall within the scope of the Endorsement’s
coverage for libel, slander or defamation claims. To maintain
an action for defamation under Indiana law, a “plaintiff must
demonstrate (1) a communication with defamatory imputation;
(2) malice; (3) publication; and (4) damages.” Kelley v. Tanoos,
865 N.E.2d 593, 596–97 (Ind. 2007). Furthermore, “[a]ny
statement actionable for defamation must not only be defama-
tory in nature, but false.” Trail v. Boys and Girls Clubs of Nw.
Ind., 845 N.E.2d 130, 136 (Ind. 2006).
6 No. 18-1945
The opinion in Vermillion, relied upon heavily by MCI, is
instructive. There, Earl Storms sued the school which em-
ployed him for terminating him in violation of his constitu-
tional rights, and for several state law tort claims. Vermillion,
665 N.E.2d 630, 631–32. The school’s insurance policy included,
in relevant part, coverage for lawsuits based on “the publica-
tion or utterance of a libel or slander or of other defamatory or
disparaging material.” Id. At 633. While Storms did not use the
terms libel, slander or defamation in his complaint, he did state
that the school “conspired to deprive [Storms] of his employ-
ment and sought to further damage him by impugning his
good reputation in the community” and that the school
“continued to deliberately and willfully cause him harm by
harrassing [sic] him and embarrassing him and subjecting him
to ridicule and humiliation by others.” Id. at 634. The Court
concluded that Storms’ allegations “fit within the broadly
written confines of ‘other defamatory or disparaging material’,
if not libel or slander.” Id. at 635.
Unlike in Vermillion, there is no reasonable interpretation of
the DirecTV complaint where it could arguably fall within the
category of libel, slander or defamation. DirecTV’s complaint
alleged that MCI damaged DirecTV’s goodwill by showing its
programming without paying the correct subscription fee. In
DirecTV’s complaints, there are no allegations that MCI made
any false, defamatory statement about DirecTV. DirecTV’s
actions did not include allegations that MCI made any kind of
statement at all.
No. 18-1945 7
III. CONCLUSION
The district court correctly determined that the Endorse-
ment did not provide coverage for the DirecTV action. The
district court’s order granting summary judgment to Society is
AFFIRMED.