Appeal from the United States District Court for the Northern District of Indiana, Hammond Division. No. 80 C 5-James T. Moody, Judge.
Cudahy and Posner, Circuit Judges, and Swygert, Senior Circuit Judge.
Defendants-appellants Pinkerton's, Inc. and National Surety Corporation appeal a judgment against them in an action for property damages arising out of a fire at a warehouse owned by plaintiff-appellee Simmons, Inc. The jury returned a verdict in favor of Simmons and assessed damages in the amount of $971,012.65. We affirm.
Simmons, a manufacturer of residential and commercial bedding, owned a warehouse in Munster, Indiana, which it used as a regional distribution center for its products. In order to protect the warehouse, Simmons entered into a contract with defendant Pinkerton's, a national company providing investigative and security services, under which Pinkerton's agreed to provide uniformed guard protection for the warehouse 24 hours a day, 7 days a week. The contract provided that Pinkerton's would "ensure a professional, reliable and efficient effort to protect its clients' property and personnel against security hazards." In addition, Pinkerton's explicitly accepted liability for all acts of negligence, fraud or dishonesty on the part of its security employees in the performance of their duties, but disclaimed any other liability. Pinkerton's also represented that its employees were trained both in security and in fir protection.
About July 18, 1978, Pinkerton's hired William Hayne for the position of security guard. Hayne apparently lied in several instances on his employment application, but the deceptions went undetected since Pinkerton's failed to check Hayne's references and other sources of information about him, in contravention of its own policy and procedure manuals. Pinkerton's also neglected to give Hayne certain types of training, including fire protection training, which its manuals indicated were mandatory for security guards.
On September 25th, 1978, William Hayne reported for work at the Simmons warehouse at 3:00 p.m. The security guard on duty ordinarily makes rounds at designated security points throughout the Simmons warehouse and periodic checks of fire reporting equipment, but because the main door controlling access to a loading dock at the warehouse was broken and fixed in an open position, Hayne had been ordered to remain at a guard desk near the loading dock. At 4:30 p.m., all Simmons' employees left the warehouse. At about 5:45 p.m., an office cleaning person, Ms. Anna Benedict, reported for work. Hayne and Benedict were the only people present in the loading dock area of the warehouse, and they spent some time talking in an office near the loading dock, where Benedict was working. About 6:00 p.m., Hayne left his station and went to get a drink from some vending machines adjoining a storage area in a different part of the warehouse. He then returned to the loading dock area. A few minutes later, he offered to get a soft drink for Benedict, and then went back to the vending machines to do so. He came back, gave Benedict the drink, and started back to his post. According to Hayne's testimony, he the discovered a fire in progress. Hayne attempted to put the fire out with several cannister fire extinguishers but was unsuccessful. A reel fire hose was available in the area, but Hayne was not trained to use the hose and was unable to operate it properly. The Munster Fire Department arrived and contained the fire, but not before damage to the building and extensive damage to the bedding occurred.
The Chief of the Munster Fire Department determined the the fire originated on or near a wooden partition that the fire originated on or near a wooden partition that separated stored rows of bedding. Because the point of origin was 12 inches above the floor in an area where there was no apparent source of ignition, and in light of other suspicious circumstances, the Munster Fire Chief requested the Indiana Fire Marshal's Office to investigate whether Hayne might have accidentally or intentionally started the fire. An investigator from that office concluded that the fire was of incendiary origin and was most likely set by Hayne as an "attention getter." Pinkerton's requested that Hayne take a polygraph examination, which was performed in Chicago. The results of this examination were inconclusive. Subsequently, Hayne agreed to take a second polygraph examination in Indiana, but did not do so. Nevertheless, when an investigator later asked Hayne whether he had taken and passed the second test, Hayne falsely stated that he had.
Simmons then brought this diversity action against Pinkerton's, and against the National Surety Corporation as surety for Pinkerton's. The complaint alleged that Pinkerton's was liable under several theories: breach of the contract to provide fire protection and security services, failure to sue reasonable care in providing such services-particularly with respect to selecting, training and supervising security personnel-and statutory liability under the Indiana Detective Licensing Law. After trial the jury found in favor of Simmons and awarded it the amount of damages claimed. Pursuant to Simmons' post-trial motion, the trial court awarded prejudgment interest on the damages. Pinkerton's and Nation Surety raise several claims of error relating to the trial court's instructions to the jury, admission of evidence and award of prejudgment interest. We consider each of these claims separately.
The defendants' first contention is that the trial court erred in instructing the jury that a violation of the Indiana Detective License Law, IND. CODE § 25-30-1-1 et seq. (1982), constitutes negligence per se, when that statute is irrelevant to the issues in this case, and does not provide a standard of care creating a private cause of action for the plaintiff. Despite the objections of all the parties, the trial judge gave the jury Instruction No. 5 on the Indiana Detective License Law. The instruction quoted verbatim seven separate sections of that statute, including provisions relating to the short title of the act, the definitions of "licensee" and "private detective business," the requirements for a license, the grounds for denying, suspending or revoking a license, the requirement that a licensee obtain a surety bond and a provision entitling a licensee to employ unlicensed persons to assist it. The challenged instruction concluded with a statement that if the jury found from a preponderance of the evidence that the defendant violated "the provisions of the statute, such conduct would constitute negligence on the part of the defendant if done without excuse or justification," and result in liability if it was the proximate cause of the damages.
The defendants argue, and we agree, that most if not all of the provisions of the Indiana Detective Law quoted in Instruction No. 5 are not relevant to any issue in this case. The bulk of the quoted provisions relate to requirements that licensees must meet in order to obtain and maintain a mandatory license. (The term "licensee" as used in the statute refers to detective businesses, such as Pinkerton's, not to their employees.) Yet there was not allegation that Pinkerton's had failed to qualify for or obtain a license, had or should have had its license revoked, had failed to obtain a license, had or should had its license revoked, had failed to obtain a surety bond or was similarly delinquent. Thus we do not see how the jury could have concluded that Pinkerton's had "violated" any of these provisions, or that such a violation proximately caused plaintiff's damages. There was no good reason for giving this portion of the instruction.
The only provision of the Indiana Detective Law that arguably was applicable to the issue in this case is section 25-30-1-11, which provides:
25-30-1-11. Employees of licensee; record; requisites-- (a). A licensee may employ, to assist him in his business as a private detective, as many unlicensed persons as may be necessary. Such a licensee is civilly responsible for the good conduct of each employee while he is acting on behalf of the licensee.
Simmons contends that this section creates a cause of action for damages caused by the wrongful conduct of security guards while on duty, and hence the instruction that referred to the section was proper. Pinkerton's, on the other hand, argues that including this section as part of the instruction was reversible error because the provision does not establish a statutory standard of care, the violation of which would constitute negligence.
In diversity cases state law determines the substance of jury instructions, while federal law governs the procedure in formulating the instructions and the manner in which they are given. E.g., Morris v. Getscher, 708 F.2d 1306, 1309 (8th Cir. 1983); IN re Air Crash Disaster Near Chicago, Ill., 701 F.2d 1189, 1199 (7th Cir. 1983), cert. denied, 464 U.S. 866, 104 S. Ct. 204, 78 L. Ed. 2d 178 (1983). Thus our first task is to determine whether the instruction given accurately reflected Indiana substantive law. Since section 25-30-1-11 (relating to the good conduct of licensees' employees) is, for this purpose, the pertinent part of the statute, our initial focus is on the meaning of that provision. Unfortunately, our task is made more difficult by our inability to find any Indiana cases construing it. indeed, the only relevant case that the parties have cited is Stewart Warner Corp. v. Burns International Security Services, Inc., 353 F. Supp. 1387 (N.D. Ill. 1973), which interprets a similar provision of an Illinois statute.
In Stewart Warner, as in this case, a security guard was accused of starting a fire on a customer's premises while he was on duty, and the customer sued the company that employed the guard for the value of the goods destroyed. Two of the counts in that case were based on a theory of negligent hiring, and one other was premised on statutory liability. The statutory section at issue, ILL. REV. STAT. ch. 38, § 201-10(b)(10), provided that a detective agency employer "shall at all times during such employment be legally responsible for the good conduct in the business" of each person it employed.*fn1 The defendant there contended that the statute did not create any sort of liability over and above the existing at common law. The court held, however, that the purpose of the section was rather to impose on detective agencies liability for loss arising form intentional acts of their employees. Without the statute, liability for such intentional acts could not be premised on a theory of respondeat superior, but could only be established by proving negligent hiring. The court stated that the "good conduct" provision extended liability "to all wrongful acts of employees of detective agencies, regardless of whether they were negligently hired and whether the acts are negligent or intentional, so long as they were committed while the employee was actually on the job." 353 F. Supp. at 1387.
Pinkerton's has attempted to distinguish Stewart-Warner on several grounds, in order to avoid the conclusion that the Indiana provision, which is almost identical to the Illinois statute construed in that case, imposes similarly broad liability. First, defendant contends that in Stewart-Warner the statute was applicable only because the plaintiff had stated a cause of action for negligent hiring, whereas in this case Simmons cannot claim negligent hiring because of a peculiarity of Indiana law that we discuss at some length in Part III. Assuming for the moment that this limitation on Simmon's claim based on Indiana law is well founded, the suggested distinction still fails. As noted, the opinion in Stewart-Warner makes its clear that the statutory liability for wrongful conduct exists regardless whether the employee was negligently hired. Thus, if Pinkerton's is correct that Simmons may not predicate liability on wrongful hiring, application of the statute would be clearly meaningful in that it might provide for liability where there otherwise would be none.
Pinkerton's also argues that the expansive interpretation of the Illinois good conduct provision in Stewart-Warner is inappropriate with respect to the Indiana provision because the Illinois statute includes many sections relating to employee qualifications and procedures tha are absent in the Indiana Detective Act; hence presumably the intended focus of the Illinois Act is different form the Indiana statute. We do not find this argument persuasive. any additional standards governing employees of licensees in the Illinois Act-which indeed could possibly create additional bases for liability not present in the Indiana scheme-do not affect the basic point that the only provision on which statutory liability was predicated in Stewart-Warner was the good conduct provision also at issue here. We see no evidence in Stewart-Warner that the court's interpretation of the good conduct section was affected by its awareness of the other employee qualification sections or by some construction of the general purpose of the Illinois Act that might not be applicable to the Indiana statute. Rather, the court's analysis was essentially a plain meaning interpretation of the words of the good conduct provision, one we find fully applicable to the virtually identical section here. The meaning of a statutory rule that an employer is civilly responsible for its employees' good conduct in this context seems pretty clearly to be that the employer is liable when an employee engages in bade conduct. Except for this meaning, we see no purpose to be served by including such a provision in the statute, given the liability already established under various more restrictive common law theories.
Our view that section 25-30-1-11 of the Indiana Detective License Law imposes liability on detective agencies for the wrongful conduct of their employees does not necessarily lead to the conclusion that the instruction on that section given here was proper. To the contrary, the form of the instruction seems unnecessarily confusing. As we have noted, section 25-30-1-11 is apparently intended to impose liability for an employee's intentional torts. The effect of the section thus differs from the impact of respondent superior. And an instruction that merely recited this section (presumably with any appropriate supplemental definitions of terms or explanations) would be appropriate. But the addition of language purporting to make a violation of the section equivalent to negligence makes no sense, since the good conduct provision does not set forth any standard of care. Thus we do not understand how a detective agency can be thought to "violate" a statute establishing its liability for the wrongful (and presumably intentional) acts of its employees; that liability simply exists if an employee's actions do not constitute "good conduct." Hence we think that the form the instruction took was erroneous.
We note, however, that the error with respect to the "good conduct" section is subject to examination under Rule 61 of the FEDERAL RULES OF CIVIL PROCEDURE and should be disregarded if it does not affect the substantial rights of the parties. See Alloy International Co. v. Hoover-NSK Bearing Co., 635 F.2d 1222, 1226-28 (7th Cir. 1980). An error in giving (or refusing to give) a particular instruction will not be considered reversible error unless, considering all the instructions, the evidence and the arguments that the jury heard, it appears that the jury was misled or did not have a sufficient understanding of the issues and its duty to determine them. See Qasem v. Kozarek, 716 F.2d 1172, 1180 (7th Cir. 1983); Alloy International, 635 F.2d at 1226-27. The instructions must be evaluated "as a whole, in a common sense manner, avoiding fastidiousness, inquiring whether the correct message was conveyed to the jury reasonably well." Reversal is inappropriate unless the jury's understanding of the issues was seriously affected to the prejudice of the complaining party. Wilk v. American Medical Association, 719 F.2d 207, 218-19 (7th Cir. 1983), cert. denied,467 U.S. 1210, 81 L. Ed. 2d 355, 104 S. Ct. 2399 (1984).
Under these standards,*fn2 we do not think that the form of the instruction given here constitutes reversible error. The trial court gave a number of other (correct) instructions as to Pinkerton's liability for Hayne's wrongful conduct in negligently or intentionally setting the fire, among other theories, and we think the jury was sure to understand that the additional instruction that Pinkerton's was civilly liable for the good conduct of Hayne did not impose any liability unless Hayne had acted wrongfully. Indeed, Pinkerton's does not seriously contend otherwise, but merely argues that the recitation of section 25-30-1-11 was "unnecessary" (as well as confusing in the sense discussed above) since Pinkerton's "did not deny legal responsibility for any wrongful act that William Hayne had committed for any wrongful act that William ...