Appeal from the United States District Court for the Southern District of Indiana, Indianapolis Division.
No. IP94-1438-C John Daniel Tinder, Judge.
Before POSNER, FLAUM, and EVANS, Circuit Judges.
On June 19, 1992, 9-year-old Candace Herbert was badly burned in a freak accident while playing in a neighbor's yard. She and her family sued the neighbors, the Brumleys. In turn, the Brumleys' insurer, the Westfield Insurance Company, brought this suit in federal court seeking declaratory judgments as to coverage under the Brumleys' homeowners policy and its duty to defend the Herberts' lawsuit, then pending in the circuit court for Decatur County, Indiana. Ours is a diversity suit, and Indiana law applies.
Both sides moved for summary judgment. The district court found for Westfield, holding that it had no obligation to defend the case nor to discharge any potential judgment. Upon reconsideration, however, the court did an about face. The second time around the court entered judgment ordering Westfield to continue the defense of the state case and finding that Westfield was obligated to pay any judgment which might be entered. Westfield appeals.
Donald Brumley is the son of the homeowner Lucy Brumley and her late husband. At the time of the accident Donald was 16 years old. He bought a 1985 Mercury Lynx, which sat in the family garage for about a month from the time he bought it until the day little Candace was injured. Because it was not being driven, Donald had not obtained license plates or automobile liability insurance coverage for the car.
Early in the morning of the fateful day, Donald was working on the Merc. Apparently oil was leaking through a valve cover, so Donald removed it in preparation for installing a new one he had purchased a day or two earlier. Later that evening, thinking he could sell the old valve cover, he decided to try to clean it up. To do that, he bought a half-gallon of gasoline. Working in the yard, he soaked the valve cover in gasoline in an attempt to loosen a gasket. He was not able to remove the gasket this way so he decided to burn it off the valve cover. Bad idea.
Predictably (to anyone perhaps but a 16-year-old), Donald's right hand caught on fire. As he tried to extinguish the fire, flames leaped to the open pan of gasoline, causing an explosion. Little Candace had the misfortune to be playing with other children in the Brumley backyard at the time. She was severely burned in the explosion.
The Brumleys were insured under a homeowners policy through Westfield, but as we mentioned, there was no automobile insurance on the Lynx. The homeowners policy contains a clause excluding insurance coverage for bodily injuries arising out of the maintenance of motor vehicles. Coverage is excluded for damage:
(1) The ownership, maintenance, use, loading or unloading of motor vehicles or other motorized land conveyances, including trailers, owned or operated by or rented or loaned to an insured.
Westfield undertook the defense of the state court action but then filed this suit seeking a determination of coverage and its duty to defend ...