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Utica Mutual Insurance Company v. Vigo Coal Company, Inc.

United States Court of Appeals for the Seventh Circuit
393 F.3d 707 (7th Cir. 2004)


Facts

In 1991, Vigo Coal Company, Inc. (Vigo) (defendant) purchased Buck Creek Coal, a coal mining operation. Buck Creek Coal was required by law to post reclamation bonds in order to operate the mines. Utica Mutual Insurance Company (Utica) (plaintiff) issued the bonds on condition that it be indemnified for any losses incurred as a result of issuing the bonds. Utica had Vigo, Atlas Minerals (Atlas) (defendant), and their respective owners sign an indemnity agreement to that effect. In 1992, a second indemnity agreement was signed by Charles Schulties, who had not signed the 1991 agreement, and Atlas. Buck Creek Coal was later unable to reclaim the land and the State of Indiana required Utica to perform the reclamation work. Utica then brought suit for indemnification in the amount of $400,000.00 against the signers of both the first and second agreements. The district court found that the second agreement constituted a novation. Consequently, the district court found the signers of the first agreement were not liable. In reaching this conclusion, the district court considered evidence that, in 1992, Vigo sold the coal mine to Atlas and Schulties, who agreed to obtain a release of Vigo’s liability under the first agreement. The evidence further showed that Schulties and Atlas together had enough assets to persuade Utica to accept an indemnity agreement signed only by them. Utica attempted to recover its losses from Atlas and Schulties. However, Schulties had gone bankrupt and Atlas was unable to recover the entire amount. Utica therefore brought suit to challenge the district court’s finding that the 1992 agreement was a novation.

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Holding and Reasoning (Posner, J.)

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