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Frye v. Auto-Owners Insurance Co.

United States Court of Appeals, Seventh Circuit

January 3, 2017

Dee Frye and Lanhui Frye, Plaintiffs-Appellants,
v.
Auto-Owners Insurance Co., Defendant-Appellee.

          Argued September 21, 2016

         Appeal from the United States District Court for the Northern District of Indiana, South Bend Division. No. 3:13-CV-113 - Rudy Lozano, Judge.

          Before Flaum, Kanne, and Williams, Circuit Judges.

          FLAUM, CIRCUIT JUDGE.

         Dee Frye was injured in a car accident caused by an underinsured driver. Frye sued his insurance company for coverage, and the parties reached a partial settlement, but Frye thought he was entitled to additional payments under the policy. The district court disagreed, and awarded summary judgment to the insurer. Frye appeals, and for the reasons that follow, we reverse the decision of the district court.

         I. Background

         In January 2011, Dee Frye was seriously injured in a car accident while driving for his job. The other driver admitted responsibility for the collision, and the latter's insurance company agreed to pay Frye $100, 000, the applicable per-person limit. Frye accepted the payment and offered to assign it to his lawyer and to his employer's insurer, Auto-Owners Insurance Company, from which Frye had already received $692, 895.79 in workers'-compensation benefits. Auto-Owners took $75, 000 of the third-party payment (in partial satisfaction of a statutory lien), and the remaining $25, 000 went to Frye's attorney. See Ind. Code § 22-3-2-13.

         Frye's injuries were also covered by two other insurance policies-a commercial automobile policy, and a commercial umbrella policy-issued by Auto-Owners to Frye's employer. The former policy required Auto-Owners to pay any compensatory damages Frye was legally entitled to recover for bodily injuries caused by an underinsured motorist, and defined the insurer's per-occurrence limit of liability as the lesser of:

(1) the difference between:
(a) the amount paid in compensatory damages ... to the injured person by or for any person ... who may be liable for the injured person's bodily injury; and
(b)the "each person" limit for ... Under-insured Motorist Coverage stated in the Declarations [i.e., $1 million]; [and]
(2) the difference between:
(a) the total amount of compensatory damages ... incurred by the injured person; and
(b)the amount paid by or for any person ... liable for the injured person's bodily injury.[1]

         The latter policy afforded follow-on coverage to the automobile policy, and stated with respect to the insurer's limit of (excess) liability:

The most we shall pay under this [umbrella policy] in any one occurrence shall not exceed the Limit of Liability shown in the Declarations for ... [t]he combined coverages of Uninsured Motorist and Underinsured Motorist....

         The declarations reflected an uninsured-and-underinsured-motorist liability limit of $1 million. (The general limit for bodily injury was also $1 million when the umbrella policy was first issued in November 2007. Beginning in May 2010, however, the general limit was increased to $5 million per occurrence.) As to underinsured-motorist (or UIM) coverage in particular, the umbrella policy stated:

For [such] coverage, our Limit of Liability shall be reduced by any amounts:
. . .
2) Paid or payable for the same bodily injury covered under any workers compensation or similar law; and
3) Paid by or on behalf of any person ... who may be legally responsible for ...

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