Grinnell Mut. Reinsurance Co. v. Reinke

Grinnell Mut. Reinsurance Co. v. Reinke

Opinion

 [*1153]  EASTERBROOK, Circuit Judge. An auto accident on August 8, 1992, claimed the lives of Charles Bittner, Leslie Bittner, and Rita Reinke; Karrah Bittner was seriously injured. The administrators of the Bittners' estates (and the guardian of Karrah Bittner) sued Reinke's estate, contending that she drove recklessly while under the influence of alcohol. They also sought to recover from Reinke's employer, Deeter's Restaurant, and its partners. Deeter's Restaurant owned the car Reinke was driving at the time, and the complaint alleged that she was conducting the Restaurant's business. Deeter's tendered the defense to its automotive insurer, which is conducting the litigation on its behalf. The Restaurant also informed its general insurer, Grinnell Mutual Reinsurance Company. Grinnell took the position that its policy does not cover the accident, and it filed this diversity litigation seeking a declaratory judgment of non-coverage. All of the parties to the state tort suit are defendants [**2]  in the federal suit. For clarity, we refer to the administrators and guardian, the plaintiffs in the state litigation, as "the victims."

The district court afforded Grinnell the relief it requested, ruling that a clause in the policy excludes liability for damage caused by an auto the Restaurant owned. 1994 U.S. Dist. LEXIS 7590. (Actually there are two policies; as their language is identical in all important respects, we proceed as if there were only one.) The Restaurant and its partners filed an untimely notice of appeal, which has been dismissed. But the victims acted in time, and the first question in their appeal is whether they are the proper parties to contest the judgment. After all, the Restaurant did not have to purchase insurance; whether a particular policy covers a particular injury is, one would think, something that concerns only the parties to the contract. Yet the victim of a tort is a (potential) judgment creditor of the insured, and a creditor is interested in preventing the debtor from squandering assets--for if the Restaurant and its partners do not expect to emerge from the litigation with significant assets no matter what happens  [**3]  in the declaratory judgment case, they have no particular reason to preserve the value of the policy for the victims. ] We have held accordingly that a victim may appeal from a declaration that a policy of insurance is inapplicable, even if the insured runs up a white flag. E.g., Bankers Trust Co. v. Old Republic Insurance Co., 959 F.2d 677 (7th Cir. 1992).

Today's case presents a wrinkle we have not previously discussed: may the victim enforce the policy's duty to defend? Most insurance policies require the insurer to defend as well as to indemnify its insured. Of the two, the duty to defend is broader, for it applies even if the allegations of the complaint are false--as Grinnell's policy explicitly provides. A complaint stating a claim within the policy's coverage activates the duty to defend whether or not the victim is likely to prevail. The victims remind us of this difference and argue that the district court erred in not giving their complaint a liberal reading that would activate the duty to defend. Yet how could they be helped by an order compelling Grinnell to assist in the defense of the suit they have filed? They want a weak defense, not a strong [**4]  one. Their interest lies in enforcing the indemnity provisions of the insurance contract, not the defense provisions, which are for the mutual benefit of the insured and the insurer. (An insurer needs control to reduce its exposure from careless defense by a judgmentproof insured or, worse, collusion between the plaintiff and the insured.)

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