In the
United States Court of Appeals
For the Seventh Circuit
No. 09-3613
T RINITY H OMES LLC and
B EAZER H OMES INVESTMENTS, LLC,
Plaintiffs-Appellants,
v.
O HIO C ASUALTY INSURANCE C OMPANY and
C INCINNATI INSURANCE C OMPANY,
Defendants-Appellees.
Appeal from the United States District Court
for the Southern District of Indiana, Indianapolis Division.
No. 1:04-cv-1920—Sarah Evans Barker, Judge.
A RGUED M ARCH 29, 2010—D ECIDED D ECEMBER 22, 2010
Before
C UDAHY and K ANNE, Circuit Judges, and
D ARRAH, District Judge.
The Honorable John W. Darrah, United States District
Judge for the Northern District of Illinois, sitting by designation.
2 No. 09-3613
K ANNE, Circuit Judge. Plaintiffs Trinity Homes and
Beazer Homes Investments (collectively referred to
as Beazer) were general contractors tasked with the
construction of multiple residences throughout Indiana.
Rather than build the homes itself, Beazer employed a
bevy of subcontractors to handle the home construc-
tion—construction that turned out to be defective.
After Beazer incurred significant liability related to the
defective work and its insurers failed to provide
coverage, it brought a claim against both its primary
insurers and its umbrella insurer in district court
alleging breach of contract and seeking a declaration
that all of the insurers had a duty to provide coverage.
While most of the primary insurers settled with
Beazer, Ohio Casualty Insurance Company stood resolute,
claiming its policy did not cover faulty subcontractor
work. The umbrella policy holder, Cincinnati Insurance
Company, also argued that its coverage was not trig-
gered because all of Beazer’s underlying policies were
not unavailable, as required by the umbrella policy.
The district court granted summary judgment in favor
of the insurers. We disagree with the district court’s
construction of both insurance policies and reverse the
grant of summary judgment in favor of the insurers
and remand for further proceedings.
I. B ACKGROUND
Beazer was in the business of new home construction.
To that end, it entered into thousands of contracts with
No. 09-3613 3
purchasers who wanted the classic American dream:
a home to call their own. Each contract provided that
Beazer would serve as general contractor and warranted
that the homes would be free of defects caused by
shoddy workmanship. Rather than build the homes
itself, Beazer used a number of subcontractors to take
care of the actual home construction.
To many homeowners’ disappointment, their dream
homes turned out to be lemons. Due to faulty work by
Beazer’s subcontractors, a number of the homes were
plagued with structural problems. These defects al-
lowed water to enter the homes, which in turn resulted
in physical damage to the residences and health prob-
lems for the occupants. Beginning in 2002, the home-
owners sued Beazer in Indiana state court for the costs
associated with remedying the subcontractors’ deficient
work. In all, Beazer faced thirteen lawsuits, including
multiple class actions.
Confronted with significant liability, Beazer sought
coverage for the liability associated with the under-
lying lawsuits. Beazer had multiple primary commercial
general liability (CGL) policies, which covered Beazer’s
liability resulting from “property damage” caused by an
“occurrence,” as those terms were defined in the policies.
Beazer also had an umbrella policy with Cincinnati In-
surance Company that covered liability in excess of or
not covered by its CGL policies. None of the insurers
recognized a duty to defend or indemnify Beazer.
To compel coverage, Beazer brought a diversity suit
in the United States District Court for the Southern
4 No. 09-3613
District of Indiana against the insurers. Beazer claimed
that the insurers breached the insurance contracts
when they denied coverage, and it also sought a declara-
tion that the insurance companies must provide cov-
erage for the liability incurred. During the pendency
of Beazer’s suit, nearly all of the CGL insurers settled.
Each of those insurers settled for at least seventy-
five percent of the relevant policy limit, and each settle-
ment agreement provided that Beazer would be responsi-
ble for the remainder of the limit, functionally ex-
hausting the CGL policy. But one of the front-line pro-
viders, Ohio Casualty Insurance Company, held its
ground, claiming that damage to a home arising from
faulty subcontractor work was not “property damage”
caused by an “occurrence” within the meaning of the
policy. The umbrella insurer, Cincinnati Insurance Com-
pany, also argued that its policy was not triggered, as a
number of the CGL policies were neither completely
exhausted nor otherwise unavailable.
The parties filed cross motions for summary judg-
ment. The district court granted summary judgment in
favor of Ohio Casualty on the grounds that the policy
language did not cover the underlying home damage,
and in favor of Cincinnati because some of Beazer’s
CGL policies were still available. Beazer timely ap-
pealed the grants of summary judgment in favor of both
insurers.
II. A NALYSIS
We review a district court’s grant of summary judg-
ment, along with its construction of an insurance policy,
No. 09-3613 5
de novo. ACE Am. Ins. Co. v. RC2 Corp., 600 F.3d 763, 766
(7th Cir. 2010). We view the record in the light most
favorable to the non-moving party and draw all reason-
able inferences in that party’s favor. Abstract & Title
Guar. Co. v. Chicago Ins. Co., 489 F.3d 808, 810 (7th Cir.
2007).
As the parties correctly agree, our inquiry is governed
by Indiana law. As such, we must apply Indiana law as
we predict the Indiana Supreme Court would apply
it. Clark v. State Farm Mut. Auto. Ins. Co., 473 F.3d 708,
712 (7th Cir. 2007). Under Indiana law, the interpreta-
tion of an insurance contract is a question of law. Tate v.
Secura Ins., 587 N.E.2d 665, 668 (Ind. 1992). To determine
whether an insurance policy provides coverage, we
must first determine whether the policy is clear or am-
biguous. If the grant of coverage is clear, we assign to it
its plain and ordinary meaning and enforce it accord-
ingly. Reuille v. E.E. Brandenberger Constr., Inc., 888
N.E.2d 770, 771 (Ind. 2008). If the language is ambiguous,
however, we must construe it in favor of the insured.
Tate, 587 N.E.2d at 668. Keeping these principles in
mind, we proceed to evaluate each grant of summary
judgment in turn.
A. The Ohio Casualty CGL Policy
Beazer sought coverage under the Ohio Casualty
policy for the liability from one of its thirteen lawsuits.
As part of that suit’s settlement, Beazer agreed to repair
water damage to a number of homes caused by faulty
6 No. 09-3613
subcontractor work. Ohio Casualty denied Beazer’s claim,
stating that the policy does not cover liability stemming
from that type of damage.
Ohio Casualty’s policy is a standard-form CGL policy.
In relevant part, the policy provides that Ohio Casualty
will cover “those sums that the insured becomes legally
obligated to pay as damages” due to “property damage”
caused by an “occurrence.” The policy goes on to define
“property damage” as “[p]hysical injury to tangible
property, including all resulting loss of use of that prop-
erty” and “[l]oss of use of tangible property that is not
physically injured.” The policy states that an “occurrence”
means “an accident, including continuous or repeated
exposure to substantially the same general harmful condi-
tions.” Notably, the policy does not define the word
“accident.”
In granting summary judgment in favor of Ohio Casu-
alty, the district court held that the faulty subcontractor
work was not “property damage” caused by an “occur-
rence.” The district court first held that the term
“property damage” did not include damage done to
the home itself. Relying on Indiana state court deci-
sions, including Sheehan Constr. Co. v. Cont’l Cas. Co.,
908 N.E.2d 305 (Ind. Ct. App. 2009), the court drew a
distinction between two types of damage caused by a
subcontractor’s work: damage to property distinct from
the home, which would typically be covered by a
standard CGL policy, and damage to the home’s
structure itself, which would not be covered. The district
court went on to hold that, even if there was “property
No. 09-3613 7
damage,” it was not caused by an “occurrence.” To be an
“occurrence” under the policy, the event must be an
“accident.” Again citing to Indiana case law, the
district court ruled that the ordinary consequences of
faulty workmanship did not constitute an “accident”
within the policy’s coverage.
After the district court granted summary judgment
for Ohio Casualty, the Indiana Supreme Court authorita-
tively weighed in on the Sheehan case. Sheehan Constr. Co.
v. Cont’l Cas. Co., 935 N.E.2d 160 (Ind. 2010). Similar to
the case at bar, Sheehan involved a homebuilder who
was sued for damages caused by faulty subcontractor
work and sought coverage under his CGL policy—
a policy identical in all relevant respects to Ohio Casu-
alty’s. The Indiana Supreme Court vacated the opinion
of the Indiana Court of Appeals and clarified that
a standard CGL policy does cover damage to a
home’s structure resulting from shoddy subcontractor
work unless the subcontractor work was intentionally
faulty. Id. at 170.
Because the precedential landscape has changed, the
district court’s grant of summary judgment in favor of
Ohio Casualty must be reversed, and the case remanded
for reconsideration in light of Sheehan. We leave the
application of any exclusions or limitations in the policy,
as well as any other state law doctrines, for the
district court on remand.
8 No. 09-3613
B. The Cincinnati Insurance Umbrella Policy
Beazer also sought coverage from Cincinnati Insurance,
its umbrella insurer, for the liability that exceeded the
limits of its CGL policies. Beazer claimed that its um-
brella coverage was triggered because no remaining
CGL coverage was available; some of its CGL insurers
denied coverage, while others entered into settlement
agreements that functionally exhausted the CGL policies.
Cincinnati declined to cover Beazer’s claim.
The insuring agreement of Cincinnati’s umbrella policy
provides:
We will pay on behalf of the insured the “ultimate
net loss” which the insured is legally obligated
to pay as damages in excess of the “underlying
insurance” or for an “occurrence” covered by this
policy which is either excluded or not covered by
“underlying insurance” because of:
1.“Bodily injury” or “property damage” covered
by this policy occurring during the policy period
and caused by an “occurrence”; or
2.“Personal injury” or “advertising injury” cov-
ered by this policy committed during the policy
period and caused by an “occurrence.”
The policy defines “underlying insurance” as “the
policies of the insurance listed in the Schedule of Under-
lying Policies and the insurance available to the
insured under all other insurance policies applicable
to the ‘occurrence.’ ” “Occurrence” is defined, in rele-
vant part, as “an accident, including continuous or re-
peated exposure to substantially the same general
No. 09-3613 9
harmful conditions, that results in ‘bodily injury’ or ‘prop-
erty damage.’ ”
The policy also includes a Limits of Insurance
clause, which states:
a. If the limits of “underlying insurance” have
been reduced by payment of claims, this
policy will continue in force as excess of the
reduced “underlying insurance”; or
b. If the limits of “underlying insurance” have
been exhausted by payment of claims, this
policy will continue in force as “underlying
insurance.”
Reading the limits of insurance together with the grant
of coverage, the district court held that all relevant
CGL policies must be unavailable—via exhaustion or a
denial of coverage—before Cincinnati’s policy is trig-
gered. The district court held that the settling insurers’
CGL policies were not exhausted, as the full limits were
not paid out by the actual CGL insurers. For two of the
remaining CGL insurers, the district court held that
Beazer did not offer sufficient evidence to show that the
policies were unavailable. As such, the district court
held that Cincinnati’s duties were not triggered.
We first address the district court’s holding that all of
Beazer’s CGL policies must be unavailable before the
umbrella policy is triggered. While the district court’s
statement is correct, some fleshing out is in order. The
umbrella policy does provide that “underlying insur-
ance” includes “all other insurance policies” held by
Beazer, in addition to the single CGL policy listed in the
10 No. 09-3613
Schedule of Underlying Policies. However, the contract
also states that other “underlying insurance” includes
only those policies “applicable” to an “occurrence.” As
such, only those additional CGL policies linked to
Beazer’s liability qualify as “underlying insurance” under
the umbrella policy terms.
We turn next to whether a settlement between Beazer
and its CGL insurers, where the insurer paid at least
seventy-five percent of the policy limit and Beazer made
up the difference, was sufficient to exhaust the CGL’s
policy coverage under the umbrella policy. The district
court held that the language of the umbrella policy
was clear and that only a full payout by the actual CGL
insurer could exhaust the relevant CGL policy.
Here, we disagree with the district court’s conclu-
sion that the umbrella policy clearly required exhaustion
of the CGL limit by insurer payout alone. The umbrella
policy is clear only insofar as it requires that the under-
lying CGL coverage be unavailable—either by exhaus-
tion or denial of coverage—before Cincinnati’s coverage
is triggered. While the umbrella agreement does state
that a CGL policy is exhausted when the policy limit
has been completely expended, it does not clearly
provide that the full limit must be paid out by the CGL
insurer alone. As such, the policy is ambiguous and
susceptible to the meaning put forth by Beazer—that a
CGL policy can be exhausted when an insured and a
CGL insurer enter into a settlement agreement where
the primary insurer will pay a large percentage of the
total limit and the insured takes responsibility for the
No. 09-3613 11
remainder. So long as an insurance term or condition
is ambiguous, Indiana law requires that we construe it
in favor of the insured—here, Beazer. See Tate, 587
N.E.2d at 668.
To counter this ambiguity, Cincinnati notes that other
courts dealing with similar umbrella policies have held
that the policies required a full payout by the CGL
insurer before the CGL policy was exhausted. These
cases, however, are not apposite to the contract here: in
each, the policy clearly stated that the coverage was not
triggered absent a payment of the full CGL policy limit
by the insurer. Comerica Inc. v . Zurich Am. Ins. Co., 498
F. Supp. 2d 1019, 1022 (E.D. Mich. 2007) (policy
required payment by the “applicable insurers” before
coverage was triggered); Qualcomm, Inc. v. Certain Under-
writers at Lloyd’s, London, 73 Cal. Rptr. 3d 770, 778 (Cal.
Ct. App. 2008) (CGL policy exhausted only after “the
insurers under each of the Underlying policies have
paid or have been held liable to pay the full amount of
the Underlying Limit”). Cincinnati could have used sim-
ilarly clear language in its policy, but it did not, and
it must now bear the burden of its ambiguity.
While the parties have not put forth any Indiana prece-
dent directly on point, our sister circuits have dealt
with similar umbrella policies, and their holdings lend
further support to this interpretation of Cincinnati’s
policy. In Zeig, the Second Circuit held that exhaustion
of a primary policy limit could be accomplished by way
of a settlement agreement where the primary insurer
paid some of the limit and the insured paid the
12 No. 09-3613
remainder, so long as the contract did not provide other-
wise. Zeig v. Mass. Bonding & Ins. Co., 23 F.2d 665, 666
(2d Cir. 1928). The Third Circuit ruled similarly in
Koppers, holding that “settlement with the primary
insurer functionally ‘exhausts’ primary coverage and
therefore triggers the excess policy—though by settling
the policyholder loses any right to coverage of the dif-
ference between the settlement amount and the primary
policy’s limits.” Koppers Co. v. Aetna Cas. & Sur. Co., 98
F.3d 1440, 1454 (3d Cir. 1996). Although Indiana law
controls, there is no reason to suspect that it would
differ from these analogous holdings.
Our construction of the ambiguity in Cincinnati’s
policy is also reinforced by Indiana public policy
favoring out-of-court settlement. See Midwest Mut. Ins. Co.
v. Ind. Ins. Co., 412 N.E.2d 84, 89 (Ind. Ct. App. 1980).
Cincinnati’s reading of the policy would deter parties
who have both CGL and excess insurance from settling
with their CGL insurers. Rather than agree to a lower
payout by a CGL provider as part of a settlement, an
insured with an excess policy would be forced to fully
litigate each and every one of its CGL policy claims
before seeking recourse from its umbrella insurer.
Unless the clear language of the contract counsels other-
wise, Indiana public policy favors an interpretation
that encourages—not discourages—settlement.
Moreover, this construction of the policy neither has
a punitive effect on Cincinnati nor does it alter its under-
writing considerations. Beazer is not asking Cincinnati
to drop down and pay the remainder of the CGL limits
No. 09-3613 13
after its settlement with the CGL insurers. As required
by the CGL settlements, Beazer paid the remainder of the
CGL limits itself. Beazer only asks Cincinnati to cover
the liability Beazer is “legally obligated to pay as dam-
ages in excess of the ‘underlying insurance,’ ” as stated
in the umbrella policy.
We finally address whether Beazer put forth sufficient
evidence to show that all of the applicable CGL policies
were unavailable—by means of settlement or denial of
coverage. The district court held that Beazer failed to
show that two of the CGL policies, the FCCI policy and
the American Employers Policy, were unavailable. We
disagree. To show that both policies were unavailable,
Beazer offered a declaration from its Vice President of
Risk Management, W. Mark Berry. In his declaration,
Berry referred to the policies by name, discussed the
applicable period of coverage, and explained the circum-
stances leading up to the denial of coverage for one
policy and the settlement for another. This declaration,
while self-serving, was not conclusory: it was based
on Berry’s personal knowledge and provided suf-
ficient detail to show that the two policies were unavail-
able. Contrary to the district court’s holding, we believe
this evidence at least establishes a genuine issue of
material fact. See Berry v. Chicago Transit Auth., 618 F.3d
688, 691 (7th Cir. 2010) (“It is worth pointing out here
that we long ago buried—or at least tried to bury—the
misconception that uncorroborated testimony from the
non-movant cannot prevent summary judgment because
it is ‘self-serving.’ If based on personal knowledge or
14 No. 09-3613
firsthand experience, such testimony can be evidence
of disputed material facts.”).
Because the district court’s interpretation of the
contract was erroneous, we must reverse the grant of
summary judgment in favor of Cincinnati. Since the
matter was neither addressed by the district court nor
thoroughly briefed by the parties, we decline to reach
the question of whether any exclusions or limitations
in Cincinnati’s policy apply to Beazer’s claim, leaving
that for further proceedings on remand.
III. C ONCLUSION
Based on the foregoing reasons, we R EVERSE the grant
of summary judgment in favor of Ohio Casualty, we
R EVERSE the grant of summary judgment in favor of
Cincinnati Insurance, and we R EMAND the case to the
district court for further proceedings.
12-22-10