In the
United States Court of Appeals
For the Seventh Circuit
No. 11-3510
F RONTIER INSURANCE C OMPANY,
Plaintiff-Appellee,
v.
J. R OE H ITCHCOCK, T IMOTHY S. D URHAM, and
T ERRY G. W HITESELL,
Defendants-Appellants.
Appeal from the United States District Court
for the Southern District of Indiana, Indianapolis Division.
No. 1:08-cv-00531-TWP-DML—Tanya Walton Pratt, Judge.
A RGUED S EPTEMBER 17, 2012—D ECIDED M ARCH 19, 2013
Before E ASTERBROOK, Chief Judge, and B AUER and
W OOD , Circuit Judges.
E ASTERBROOK, Chief Judge. In 1999 Thomas Spencer,
Curtis Spencer, and Cameron Evans (the Sellers)
conveyed Evans Trailers and John Evans Sales Co. to CT
Acquisition Corp. The price was to be paid over time. The
Sellers wanted assurance of payment, so they insisted
not only on a surety bond (put up by Frontier Insurance
Co.) but also on personal guarantees by J. Roe Hitchcock,
2 No. 11-3510
Timothy Durham, and Terry Whitesell (the Guarantors),
the principals of CT Acquisition. Frontier Insurance
likewise wanted protection. The Guarantors promised to
indemnify Frontier, should it be called on to pay; they
also promised to post collateral on Frontier’s demand.
CT Acquisition did not pay, the Guarantors failed to
keep their promise, and the Sellers turned to Frontier. It
did not pay either, because it was in financial distress. In
2001 New York’s Superintendent of Financial Services
placed Frontier in “rehabilitation” (the insurance busi-
ness’s version of bankruptcy), where it has remained.
Frontier sought to acquire from the Guarantors the
funds to honor its commitment to the Sellers. It de-
manded that the Guarantors post collateral under ¶3
of their agreement with it. This paragraph reads:
Upon written demand from the Company
[Frontier], to deposit with the Company funds to
meet all its liability under said bond or bonds
promptly on request and before it may be
required to make any payment thereunder and
that any voucher or other evidence of payment
by the Company of any such loss, damage, costs
and expense shall be prima facie evidence of
the fact and amount of the Undersigned’s [the
Guarantors’] liability to the Company under
this Agreement.
The Guarantors balked. In 2004 Frontier sued the Guar-
antors, but the district court read ¶3 to require collateral
only after Frontier’s obligation to the Sellers had been
satisfied, or at least quantified. The suit was dismissed
as unripe.
No. 11-3510 3
Meanwhile the Sellers had sued Frontier. That action
ended with a decision that it owes the Sellers more
than $1.5 million, plus post-judgment interest. Spencer v.
Frontier Insurance Co., 290 Fed. App’x 571 (4th Cir.
2008). Frontier then filed another suit against the Guaran-
tors. The district court concluded that, Frontier’s obliga-
tion having been quantified, the Guarantors now must
post collateral. 2010 U.S. Dist. L EXIS 30782 (S.D. Ind.
Mar. 30, 2010). But the court neglected to say how much.
The absence of a final decision led us to dismiss the Guar-
antors’ appeal. 406 Fed. App’x 78 (7th Cir. 2011). After
the case had been reassigned (the three decisions have
been rendered by different judges), the district court
ordered the Guarantors to deposit with the Clerk
$1,559,256.78—the amount the fourth circuit had set,
though without interest. 2011 U.S. Dist. L EXIS 48127 (S.D.
Ind. May 4, 2011).
In this appeal, the Guarantors insist that they need not
post collateral until Frontier has paid the Sellers. They
hope that the ongoing rehabilitation will either prevent
Frontier from paying or reduce the amount it owes. In
other words, they contend that their only obligation is
to indemnify Frontier after the fact. Yet the agreement
between the Guarantors and Frontier has separate in-
demnity and security clauses. Paragraph 1 calls for indem-
nity; ¶3, on which this proceeding turns, calls for col-
lateral “[u]pon written demand” from Frontier—which
it may make “before it may be required to make any
payment thereunder”. Paragraph 3 is straightforward.
The point of collateral is to provide assurance of pay-
ment, should the need arise. If Frontier had to pay first,
4 No. 11-3510
before turning to the Guarantors, there would be no
role for collateral; the contract would provide only in-
demnity. For more than a decade, the Guarantors
have failed to pay the Sellers or post collateral for
Frontier’s benefit. No wonder Frontier deems itself
insecure and fears that the Guarantors will fail to indem-
nify it following its payment to the Sellers.
The Guarantors rely on the second half of ¶3: “any
voucher or other evidence of payment by the Company
of any such loss, damage, costs and expense shall
be prima facie evidence of the fact and amount of
the Undersigned’s [the Guarantors’] liability to the Com-
pany under this Agreement.” This, they insist, delays
the need to post collateral until Frontier supplies
“evidence of payment.” Yet this language does not say
that only evidence of payment suffices to quantify the
Guarantors’ obligation. There are other ways to do it.
The district court concluded that the judgment in the
Sellers’ action had quantified the obligation. Perhaps a
written estimate from Frontier would have been
enough. Had an appeal been taken from the district
court’s 2006 order dismissing Frontier’s first suit, that
question would have been important. It does not
matter now, given the fourth circuit’s 2008 decision. All
we need say is that the second half of ¶3 does not
cancel out the first half, which states that the
Guarantors must post collateral on Frontier’s de-
mand—and that demand may come “before [Frontier]
may be required to make any payment thereunder”.
The Guarantors’ current argument would turn ¶3, the
collateral requirement, into an echo of ¶1, the indem-
No. 11-3510 5
nity requirement. They are distinct, and each has
an independent function.
The Guarantors insist that ¶3 is ambiguous, and they
want us to construe it against the insurer. The contra
proferentum principle of insurance law is a tie-breaker,
see Great West Casualty Co. v. Mayorga, 342 F.3d 816
(7th Cir. 2003), and there’s no tie here. Paragraph 3
says that a demand for collateral may occur “before
[Frontier] may be required to make any payment there-
under”. The Guarantors must keep their promise to
post collateral.
If the existence of a fund in the registry of the
district court permits Frontier to pay the Sellers 100¢
on the dollar, the Guarantors have no legitimate com-
plaint. There is no reason why Frontier’s financial
troubles should benefit the Guarantors at the ex-
pense of the Sellers. If, however, New York’s insurance
authorities instruct or permit Frontier to pay the
Sellers less than the face value of the surety bond, then
the Clerk of the district court will return the excess to
the Guarantors. The final disposition of these funds
thus depends on the outcome of Frontier’s rehabilitation.
Until then, however, Frontier is entitled to the security
that the Guarantors promised to provide.
A FFIRMED
3-19-13