Accident Fund Insurance C O. of America v. Custom Mechanical Construction , Inc .

In the
United States Court of Appeals
For the Seventh Circuit
____________________
Nos. 21-2548, 21-2549, & 21-2560
A CCIDENT F UND I NSURANCE C O. OF A MERICA,
Plaintiff-Appellee,
v.
C USTOM M ECHANICAL C ONSTRUCTION , I NC .,
Defendant-Appellant,
and
LIBERTY M UTUAL I NSURANCE C O.,
Intervenor-Appellant,
and
S CHULTHEIS I NSURANCE A GENCY , I NC . and
JAMES LEE S UBLETT,
Third-Party Defendants-Appellants.
____________________
Appeals from the United States District Court for the
Southern District of Indiana, Evansville Division.
No. 3:16-cv-00251 — Richard L. Young, Judge.
____________________
A RGUED S EPTEMBER 8, 2022 — DECIDED S EPTEMBER 27, 2022

-- 1 of 15 --

2 Nos. 21-2548, 21-2549, & 21-2560
____________________
Before W OOD, S T. EVE, and JACKSON -A KIWUMI , Circuit
Judges.
S T. EVE, Circuit Judge. Danny Cope was injured on a job site
in Kentucky and filed a workers’ compensation claim. The
subcontractor who hired him for the project, Custom Mechan-
ical Construction, Inc. (“CMC”), is based in southern Indiana
and had an insurance policy with Accident Fund Insurance
Co. of America (“AFICA”) at the time of the accident. Schul-
theis Insurance Agency and Lee Sublett (collectively, “Schul-
theis”) procured the policy for CMC, but Schultheis failed to
inform AFICA that CMC did business in Kentucky.
AFICA filed suit in federal court, seeking a declaration
that its policy does not cover Cope’s claim. The district court
granted summary judgment in favor of AFICA and entered
partial final judgment under Fed. R. Civ. P. 54(b). The dispos-
itive question in this appeal is whether CMC’s insurance pol-
icy with AFICA covers workers’ compensation claims for
workers who are injured outside of Indiana. Because CMC in-
disputably never notified AFICA that it had work (or began
work) in Kentucky, we affirm.
I. Background
A. Factual Background
CMC is a mechanical contractor incorporated in Indiana
with its principal place of business in Evansville, Indiana. Alt-
hough most of its jobs are in Indiana, CMC has been regis-
tered to do business in Kentucky since 2009. CMC contracted
with Schultheis to procure insurance coverage on its behalf.

-- 2 of 15 --

Nos. 21-2548, 21-2549, & 21-2560 3
Lee Sublett, one of Schultheis’s agents, has worked with CMC
since it opened in 2005. Sublett claims he was not aware that
CMC performed work in Kentucky until the accident at the
center of this litigation, but it is undisputed that CMC com-
pleted jobs in Kentucky over the years.
Prior to 2015, CMC had a workers’ compensation policy
with Midwestern Insurance Alliance (“Midwestern”). The
Midwestern policy provided two types of coverage: “primary
coverage” for Indiana, and “other states coverage” for tempo-
rary or incidental work performed in other states. In 2015,
when the Midwestern policy was up for renewal, Sublett ob-
tained quotes from Midwestern and AFICA. CMC decided to
switch to AFICA, and Sublett prepared an application. In re-
sponse to the question, “Do employees travel out of state?”
Sublett wrote “no.” AFICA issued a policy (the “First Policy”)
for workers’ compensation coverage between October 24,
2015, and October 24, 2016.
On May 13, 2016, CMC’s original owners sold the com-
pany to new owners. The new owners were aware that CMC
performed work in Kentucky, and they met with Sublett to
discuss CMC’s insurance needs prior to taking over. Sublett
notified AFICA of the change in ownership, and AFICA in-
formed him that its practice was to issue a new policy instead
of transferring the old policy. On June 1, 2016, when Sublett
prepared an application for a new policy, he again responded
“no” when asked if CMC’s employees travel out of state.
AFICA issued a short-term policy that day (the “Second Pol-
icy”) and backdated it from June 1 to May 13. The Second Pol-
icy, like the First Policy, was scheduled to end on October 24,
2016.

-- 3 of 15 --

4 Nos. 21-2548, 21-2549, & 21-2560
Other than the change in ownership, the First and Second
Policies are functionally the same. Both provide primary cov-
erage in Indiana and other states coverage—subject to certain
notice requirements. On the “Information Page” of the Second
Policy, Item 3 (“Coverage”) states in relevant part:
A. Workers Compensation Insurance: Part One of the
policy applies to the Workers Compensation Law of
the states listed here: IN
...
C. Other States Insurance: Part Three of the policy ap-
plies to the states, if any, listed here: All states and
U.S. territories except monopolistic states, Puerto
Rico, the U.S. Virgin Islands, and states designated in
Item 3.A. of the Information Page.
The crux of this suit is the proper interpretation of the Second
Policy’s other states coverage. Part Three provides:
A. How This Insurance Applies
1. This other states insurance applies only if
one or more states are shown in Item 3.C.
of the Information Page.
2. If you begin work in any of those states after
the effective date of this policy and are not
insured or are not self-insured for such
work, all provisions of the policy will apply
as though that state were listed in Item 3.A.
of the Information Page.

-- 4 of 15 --

Nos. 21-2548, 21-2549, & 21-2560 5
3. We will reimburse you for the benefits re-
quired by the workers compensation law of
that state if we are not permitted to pay the
benefits directly to persons entitled to
them.
4. If you have work on the effective date of this
policy in any state not listed in Item 3.A. of
the Information Page, coverage will not be
afforded for that state unless we are notified
within thirty days.
B. Notice
Tell us at once if you begin work in any state listed in
Item 3.C. of the Information Page.
(emphases added).
On October 16, 2016, Danny Cope was working on a CMC
job site in Kentucky when he fell and suffered serious injuries.
CMC hired Cope along with other Kentucky union members
to work on a job known as “the Pilgrim’s Pride project.” Sub-
lett reported the claim to AFICA the next day, and AFICA be-
gan investigating the incident. On November 11, AFICA de-
nied coverage because CMC failed to notify AFICA of its
work in Kentucky. During 2016, CMC worked on twelve dif-
ferent jobs in Kentucky—in May, June, July, August, Septem-
ber, and October. All of those jobs were performed with Indi-
ana workers except for the Pilgrim’s Pride project. That pro-
ject involved Kentucky workers from the local union hall.

-- 5 of 15 --

6 Nos. 21-2548, 21-2549, & 21-2560
B. Procedural Background
AFICA sued CMC and Cope in the Southern District of In-
diana, seeking a declaratory judgment that the Second Policy
does not provide coverage for Cope’s accident.1 CMC filed
counterclaims for breach of contract and bad-faith denial of
coverage. CMC also filed a third-party complaint against
Schultheis and Sublett, alleging they negligently failed to pro-
cure adequate insurance coverage and failed to properly ad-
vise CMC.2 All parties filed cross-motions for summary judg-
ment. Liberty Mutual Insurance Co. intervened because, if
CMC does not have adequate coverage, Liberty Mutual may
be liable as the insurer for the general contractor that oversaw
the Pilgrim’s Pride project.
The district court granted summary judgment in favor of
AFICA and against CMC, Cope, and Liberty Mutual. First, the
court concluded that the Second Policy’s primary coverage
did not apply because the accident occurred in Kentucky, not
Indiana. (No one disputes this conclusion on appeal.) Second,
the court held that the Policy’s other states coverage also did
not apply because CMC failed to notify AFICA prior to the
accident that it performed work in Kentucky. The court
reasoned that Part Three’s section A.2 did not apply because
CMC did not inform AFICA “at once” that it had begun work
in Kentucky, as required by section B. Similarly, section A.4
did not apply because CMC “had work” in Kentucky on the
1 The parties are diverse (AFICA is a citizen of Michigan, CMC is a citizen
of Indiana, and Cope is a citizen of Kentucky), and the amount in contro-
versy exceeds $75,000. See 28 U.S.C. § 1332.
2 Schultheis is an Indiana corporation, but the district court had supple-
mental jurisdiction over the third-party claims. See 28 U.S.C. § 1367.

-- 6 of 15 --

Nos. 21-2548, 21-2549, & 21-2560 7
effective date of the policy (May 13, 2016), but it failed to
notify AFICA within thirty days. The district court rejected
many of the arguments that CMC reprises on appeal, noting:
“[T]he problem is not that Custom Mechanical provided
notice late; the problem is that it never provided notice.”
Accident Fund Ins. Co. of Am. v. Custom Mech. Constr., Inc., 504
F. Supp. 3d 913, 923 (S.D. Ind. 2020). The court therefore
rejected CMC’s counterclaims for breach of contract and bad-
faith denial of coverage.
Although the district court granted summary judgment in
AFICA’s favor as to the proper interpretation of the Policy,
disputed facts precluded summary judgment as to CMC’s
third-party claims against Schultheis. The court granted the
parties’ joint request for partial final judgment under Fed. R.
Civ. P. 54(b), and this appeal followed.
II. Discussion
We review de novo the district court’s grant of summary
judgment. Legend’s Creek Homeowners Ass’n, Inc. v. Travelers
Indem. Co. of Am., 33 F.4th 932, 934 (7th Cir. 2022). Summary
judgment is appropriate if the moving party shows there is no
genuine dispute as to any material fact and the moving party
is entitled to judgment as a matter of law. Fed. R. Civ. P. 56(a).
“Where, as here, the case comes to us from a decision on cross-
motions for summary judgment, we review the evidence and
draw all reasonable inferences ‘in favor of the party against
whom the motion under consideration [was] made.’” N.J. ex
rel. Jacob v. Sonnabend, 37 F.4th 412, 420 (7th Cir. 2022) (quoting
Dunnet Bay Constr. Co. v. Borggren, 799 F.3d 676, 688 (7th Cir.
2015)). “Proper interpretation of an insurance policy, even if
it is ambiguous, generally presents a question of law that is
appropriate for summary judgment.” USA Gymnastics v.

-- 7 of 15 --

8 Nos. 21-2548, 21-2549, & 21-2560
Liberty Ins. Underwriters, Inc., 27 F.4th 499, 512 (7th Cir. 2022)
(quoting Am. Home Assur. Co. v. Allen, 814 N.E.2d 662, 666
(Ind. Ct. App. 2004)).
The parties agree that Indiana law applies to this diversity
suit. “Under Indiana law, insurance policies are interpreted
‘from the perspective of an ordinary policyholder of average
intelligence.’” USA Gymnastics, 27 F.4th at 511 (quoting Brad-
shaw v. Chandler, 916 N.E.2d 163, 166 (Ind. 2009)). “Although
special rules of construction have developed for interpreting
insurance policies as a result of the disparity in bargaining
power between insurers and insureds, insurance contracts are
generally governed by the same rules of construction as other
contracts.” USA Gymnastics, 27 F.4th at 511 (quoting Everett
Cash Mut. Ins. Co. v. Taylor, 926 N.E.2d 1008, 1012 (Ind. 2010)).
“[C]lear and unambiguous language in an insurance policy
should be given its plain and ordinary meaning,” but “where
policy language is ambiguous, it is to be construed strictly
against the insurer and in favor of the insured.” Taylor, 926
N.E.2d at 1012. “Ambiguity exists when a policy is susceptible
to two or more reasonable interpretations.” Id. (citing Beam v.
Wausau Ins. Co., 765 N.E.2d 524, 528 (Ind. 2002)). In other
words, “an insurance policy will be found to be ambiguous in
cases where reasonable people would differ as to the meaning
of its terms.” Taylor, 926 N.E.2d. at 1013. At the same time,
“[t]he fact that the parties disagree over the meaning of the
contract does not, in and of itself, establish an ambiguity.” Id.
We begin by addressing whether Schultheis has standing
to join this appeal, even though the district court did not enter
partial final judgment against it. We then turn to the interpre-
tation of CMC’s insurance policy with AFICA.

-- 8 of 15 --

Nos. 21-2548, 21-2549, & 21-2560 9
A. Schultheis’s Standing to Appeal
The district court entered partial final judgment in favor
of AFICA and against CMC, Cope, and Liberty Mutual pur-
suant to Rule 54(b). CMC’s third-party claims against Schul-
theis (for negligent procurement and failure to advise) could
not be resolved on summary judgment, so those claims re-
main pending in the district court. Schultheis nonetheless
seeks to join this appeal because it believes AFICA’s policy
provides coverage for Cope’s workers’ compensation claim.
If Schultheis is correct, then it will have a complete defense
against CMC’s negligence claims. For its part, AFICA does
not dispute that Schultheis has standing to appeal.
Even though Schultheis was not bound to the Rule 54(b)
judgment, we conclude it has a sufficient stake in the resolu-
tion of this declaratory judgment action to participate in this
appeal. Standing to appeal “requires an injury caused by the
judgment rather than injury caused by the underlying facts.”
Wachovia Sec., LLC v. Loop Corp., 726 F.3d 899, 907 (7th Cir.
2013) (internal quotation marks omitted). Ordinarily, courts
of appeals “lack authority to consider an appeal from a party
not subject to the order sought to be challenged.” Fischer v.
Magyar Államvasutak Zrt., 892 F.3d 915, 916 (7th Cir. 2018); see
also Raley v. Hyundai Motor Co., 642 F.3d 1271, 1274 (10th Cir.
2011) (Gorsuch, J.) (“[I]t is usually only parties who are suffi-
ciently aggrieved by a district court’s decision that they pos-
sess Article III and prudential standing to be able to pursue
an appeal of it.”). But as a third-party defendant, Schultheis
was injured by the district court’s no-coverage determination
in favor of AFICA. See Fed. R. Civ. P. 14(a)(2)(C) (third-party
defendants “may assert against the plaintiff any defense that
the third-party plaintiff has to the plaintiff’s claim”).

-- 9 of 15 --

10 Nos. 21-2548, 21-2549, & 21-2560
Nonparties who are affected by a judgment may appeal “if
the would-be appellant can show significant involvement
with the judgment, … a risk that its interests will not be
adequately protected by the parties, and a lack of untoward
interference in the affairs of the parties.” 15A Charles Alan
Wright & Edward H. Cooper, Federal Practice & Procedure
§ 3902.1 (2d ed. 2022). Schultheis satisfies these criteria: it was
significantly involved in the litigation below; its interests may
not be adequately protected by CMC (which is agnostic as to
whether AFICA, Schultheis, or Liberty Mutual pays Cope’s
workers’ compensation claim); and allowing Schultheis to
appeal jointly with CMC and Liberty Mutual will not unduly
interfere with our resolution of the merits. See also Kicklighter
v. Nails by Jannee, Inc., 616 F.2d 734, 738 n.1 (5th Cir. 1980)
(holding that a “third-party defendant can assert on appeal
errors in the main case”); United States v. Lumbermens Mut.
Cas. Co., 917 F.2d 654, 658 n.5 (1st Cir. 1990). Given the nature
of Schultheis’s primary defense to CMC’s third-party claims,
it follows that Schultheis has standing to join this appeal.
B. The AFICA Policy Does Not Cover Cope’s Workers’
Compensation Claim
The plain text of the Second Policy is unambiguous:
because CMC failed to notify AFICA until after Cope’s
accident that it was working in Kentucky, AFICA is not liable
for Cope’s workers’ compensation claim. As explained below,
the Appellants’ attempts to circumvent this result are
unpersuasive.
1. Section A.2 Does Not Provide Coverage
To recap, Part Three, section A.2 provides: “If you begin
work in [states other than Indiana] after [May 13, 2016] … , all

-- 10 of 15 --

Nos. 21-2548, 21-2549, & 21-2560 11
provisions of the policy will apply ….” The Appellants argue
that this provision means AFICA will cover claims for work-
ers’ compensation in other states, regardless of whether CMC
provides notice of such work. As the district court observed,
however, section A.2 cannot be read in isolation. Section B
provides: “Tell us at once if you begin work in any state listed
in Item 3.C. of the Information Page.” (emphasis added). Set-
ting aside whether the meaning of “at once” is ambiguous, it
is undisputed that CMC never notified AFICA that it was per-
forming work in Kentucky until after the Cope accident.
If the Appellants had their way and notice was not re-
quired in order for “other states coverage” to apply, then
AFICA would be on the hook for claims in any state at any
time. That is not a sensible way to read the Policy, which iden-
tifies just one state, Indiana, as the “primary coverage” state.
Notice is a condition precedent to coverage in another state.
See Koransky, Bouwer & Poracky P.C. v. Bar Plan Mut. Ins. Co.,
712 F.3d 336, 342 (7th Cir. 2013) (“[An insurance policy’s] no-
tice requirement … ‘defines the limits of the insurer’s obliga-
tion.’”) (quoting Paint Shuttle, Inc. v. Cont’l Cas. Co., 733 N.E.2d
513, 522 (Ind. Ct. App. 2000)); see also Ashby v. Bar Plan Mut.
Ins. Co., 949 N.E.2d 307, 312 (Ind. 2011).
Perhaps recognizing that they have a notice problem, the
Appellants contend that Sublett was acting as an agent of
AFICA (not CMC), and therefore his knowledge of CMC’s
work in Kentucky should be imputed to AFICA. The Appel-
lants concede that Sublett denies knowing of CMC’s work in
Kentucky before the accident, but supposedly this factual dis-
pute is sufficient to proceed to trial. It may be true that, under
Indiana law, “[a]n intermediary in the insurance business is
the agent of the insured while shopping for a policy, and the

-- 11 of 15 --

12 Nos. 21-2548, 21-2549, & 21-2560
agent of the insurer after a policy issues.” Fid. & Cas. Co. of
N.Y. v. Tillman Corp., 112 F.3d 302, 304 (7th Cir. 1997). That
does not mean, however, that an insurance broker automati-
cally becomes an agent of the insurer. See id. at 304–06 (ex-
plaining that “[a]gency is a voluntary relation” and a cus-
tomer’s insurance broker was not acting as an insurer’s agent
when it applied to Indiana’s assigned-risk pool on the cus-
tomer’s behalf).
The Indiana Supreme Court has clarified that there is an
important distinction between an insurance broker, who acts
as an agent of the insured, and an insurance agent, who rep-
resents an insurer under an employment agreement. Est. of
Mintz v. Conn. Gen. Life Ins. Co., 905 N.E.2d 994, 1001 (Ind.
2009). While the “acts of an [insurance] agent are imputable
to the insurer,” a broker’s actions are not. Id. In an opinion
resolving AFICA’s motion to dismiss CMC’s counterclaims,
the district court concluded CMC failed to allege sufficient
facts that Schultheis was acting as AFICA’s agent. The Appel-
lants did not challenge that decision in their opening brief on
appeal, so even if this argument had merit, we would deem it
waived. See, e.g., Williams v. Bd. of Educ. of City of Chi., 982 F.3d
495, 507 n.30 (7th Cir. 2020) (“arguments raised for the first
time in a reply brief are waived”).
2. Section A.4 Does Not Provide Coverage
The Appellants fare no better under section A.4, which
provides: “If you have work on the effective date of this policy
in any state [other than Indiana], coverage will not be
afforded for that state unless we are notified within thirty days.”
(emphasis added). One of the new owners conceded during
his deposition that CMC was working on a project in
Kentucky on May 13, 2016—the effective date of the Second

-- 12 of 15 --

Nos. 21-2548, 21-2549, & 21-2560 13
Policy. In its counterclaim against Schultheis, CMC even
alleged that Schultheis “was aware, or should have been
aware that CMC consistently worked on projects in
Kentucky.” And CMC’s Answer to AFICA’s complaint
admitted that “CMC was performing work in Kentucky prior
to May 13, 2016,” but ironically blamed AFICA for failing to
incorporate that fact into the Second Policy.3 In short, CMC
cannot seriously dispute that it had work in Kentucky on the
effective date of the policy.
Well over thirty days passed between May 13 and October
17, when CMC filed a claim for Cope’s accident. The fact that
the new owners failed to read the policy, and therefore were
unaware of the notice requirement, is irrelevant. See Ohio Cas.
Ins. Co. v. Rynearson, 507 F.2d 573, 577 (7th Cir. 1974)
(“[A]lthough late notice has been excused where the insured
was unaware of the existence of a policy, … it is not excused
where the insured alleges that he was unaware of coverage
simply because he failed to read his policy.”) (citing Metro.
Life Ins. Co. v. Peoples Trust Co., 98 N.E. 513, 515 (Ind. 1912));
see also 27 Williston on Contracts § 70:114 (4th ed. 2022) (“One
who signs or accepts a written contract, in the absence of
fraud or other wrongful act on the part of another contracting
party, is conclusively presumed to know its contents and to
assent to them.”).
Undeterred, the Appellants argue that CMC did not really
“have work” in Kentucky until October 2016 because the
3 The Appellants go so far as to argue that “AFICA’s own workers’ com-
pensation audit failed to reveal ‘ongoing’ work in Kentucky prior to the
[Second] Policy.” But the policy plainly puts the burden on the insured to
notify the insurer that it is performing work in another state.

-- 13 of 15 --

14 Nos. 21-2548, 21-2549, & 21-2560
Pilgrim’s Pride project was the only CMC project in 2016 that
employed Kentucky-based workers. Yet nothing in the Policy
indicates that the residency of CMC’s workers affects the cov-
erage analysis. The only relevant factors are the time work be-
gins (relative to the effective date of the Policy), the state
where the work is performed, and whether CMC provided
notice. CMC had work in Kentucky months before the acci-
dent, yet it failed to notify AFICA until October 17, 2016.
The Appellants make much of the fact that AFICA back-
dated coverage of the Second Policy from June 1 to May 13.
But as AFICA notes, Schultheis requested backdating on be-
half of CMC due to the change in ownership. AFICA had no
incentive to backdate the policy maliciously months before
the accident, precisely because it was unaware that CMC was
working on projects in Kentucky. The Appellants’ strongest
argument, perhaps, is that “CMC’s Kentucky work has al-
ways been sporadic, and made up less than 5% of its total
work.” Even so, the Second Policy does not condition the no-
tice requirement on the sporadic nature of an insured’s work
in another state. It simply says: “If you have work on the effec-
tive date of this policy in any state [other than Indiana], cov-
erage will not be afforded for that state unless we are notified
within thirty days.” In light of CMC’s own admissions and the
fact that CMC has been registered to do business in Kentucky
since 2009, the Policy’s notice requirement applied.
Finally, because the plain language of the Policy precludes
coverage under section A.4, the court will not consider the
Appellants’ extrinsic evidence to the contrary. See Vesuvius
USA Corp. v. Am. Com. Lines LLC, 910 F.3d 331, 333 (7th Cir.
2018) (applying Indiana law) (“Clear and unambiguous terms
in a contract are deemed conclusive, and we will not construe

-- 14 of 15 --

Nos. 21-2548, 21-2549, & 21-2560 15
an unambiguous contract or look to extrinsic evidence, but
will merely apply the contractual provisions.”).
III. Conclusion
For the foregoing reasons, the district court’s partial final
judgment in favor of AFICA is
A FFIRMED.

-- 15 of 15 --