Rick Shoultz | LewisWagner LLPAmy L. Beard | IDOI

Richard Zeller, Jr. v. AAA Ins. Co., 2015 Ind. App. LEXIS 544 (Ind. Ct. App. 2015)

Seeber v. General Fire & Cas. Co., 19 N.E.3d 402 (Ind. Ct. App. 2014)

LBM Realty, LLC v. Mannia, 19 N.E.3d 379 (Ind.Ct.App. 2014)

Richard Zeller, Jr. v. AAA Ins. Co.

2015 Ind. App. LEXIS 544 (Ind. Ct. App. 2015)

Insured’s policy provided for reinstatement if insured paid a premium installment after the cancellation date

Reinstatement would be void and the policy would remain cancelled if:

(1) the premium payment was not honored for any reason; or

(2) a claim under the policy arose from an event that occurred between the cancellation date and the date that insurer

received the payment

Insured failed to pay a premium installment by the cancellation date

Insured mailed a payment that insured later accepted

Two days after insured accepted payment, insured’s garage was damaged by fire

Insured submitted a claim to insurer

Insurer denied coverage on basis that policy was “not in force” on the day of the fire

Insured filed a complaint against insurer alleging breach of contract and bad faith

Trial court found in favor of insurer • Policy was not in effect on the date of the fire• No evidence insurer reinstated the policy 

Court of Appeals reversed and determined policy was reinstated

Insured’s tender of the payment was an offer for insurer to reinstate the policy

Insurer accepted the offer by accepting the payment

“[O]nce [an offer] is accepted, a contract is formed.” 

Insurer could have protected itself

•Drafting more specific deadlines and requirements for reinstatement in its policy

•Refusing to accept insurer’s payment

Insured owned a commercial building Leased to tenant operating pet shop,

“Delilah’s Pet Shop”

Insured’s building destroyed by fire

Submitted insurance claim

Actual cash value: $512,418.12

Replacement Cost: $650,812.70

Received actual cash value of $512,418.12

Purpose to make insured whole

Pure indemnity contract

Fair market value less depreciation

Reimburse insured for full cost of repairs

Could result in putting insured in better position than before loss

We will not pay more for loss or damage on a replacement cost basis than the least of . . . [(1)] The cost to replace the lost or damaged property with other property:

(a) Of comparable material and quality; and (b) Used for the same purpose; or

[(2)]The amount actually spent that is necessary to repair or replace the lost or damaged property

Insured purchased two properties

1. Purchased 25% interest in another commercial property for $422,118

2. Purchased four condominiums used as residential property for $355,000

Insured Property Destroyed by Fire • Actual Cash Value $512,418.12• Commercial

“Proposed Replacement Property 1”• $422,118• Commercial retail space

“Proposed Replacement Property 2”• $365,000• Residential condominiums

Insurer obligated to pay amount spent to replace the destroyed property

(Actual Cash Value) – (Replacement Property 1 Cost)

($512,418.12) – ($422,118) = $90,300.12

Insurer paid ~$90,000 greater than amount obligated to pay under the policy for replacement cost coverage

Actual Cash Value Paid > Proposed Replacement Property Cost

Insured not owed additional funds for purchase of “Proposed Replacement Property 1”

Insured purchased four condominiums as proposed replacement property

Policy stated that a replacement property must be “[u]sed for the same purpose” as the original property

Insured argued that the building destroyed by fire and the condominiums were used for the same purpose

Investment properties leased to tenants

Insurer argued condominiums were used for residential purposes

Original property destroyed by fire used for commercial purposes

Condominiums not used for same purpose as the insured building destroyed by fire

Court determined the proposed replacement property would not be used for the same purpose as the original property

Not replacement property

LBM Realty, LLC v. Mannia 19 N.E.3d 379 (Ind. Ct. App.

2014)

Tenant accused of starting fire in leased apartment

Property damage to other apartments

Landlord’s insurer filed subrogation action against tenant in the name of property owner

Tenant filed motion to dismiss

Trial court initially granted the tenant’s motion to dismiss, the case was appealed and remanded by Court of Appeals

On remand, the trial court granted summary judgment in favor of the tenant

Three approaches to subrogation claims against tenants

1. No Subrogation

2. Pro-subrogation

3. Case by Case

Landlord and tenant are co-insureds under the landlord’s fire policy

Insurer has no right of subrogation against tenant to recover payments made due to fire loss, even if due to the tenant’s negligence

Tenant argued for “No Subrogation”

Court examines the lease to determine parties’ expectations as to which party should bear the risk of loss when a tenant negligently damages leased premises

Insurer argued for “Case by Case”

Court of Appeals adopts case-by-case approach

A “tenant’s liability to the landlord’s insurer for damage-causing negligence depends on the reasonable expectations of the parties to the lease as ascertained from the lease as a whole and any other admissible evidence.”

Indiana Restorative Dentistry, P.C. v. Laven Ins. Agency, 27 N.E.3d 260 (Ind. 2015)

Indiana Restorative Dentistry, P.C. v. Laven Ins. Agency, 27 N.E.3d 260 (Ind. 2015)

Dental practice sustained a fire loss in excess of its insurance coverage

“Special relationship” between an insurance agent and insured creates duty to advise about the adequacy of coverage or any alternative coverage

Special factors Indiana courts consider, which are not exhaustive or any one dispositive:• (1) Exercise broad discretion to meet the

insured’s need; • (2) Counsels the insured concerning

specialized insurance; • (3) Holds oneself out as an insurance

expert, which the insured relies on; and • (4) Is paid a premium for this expert advice

Insured and Agent had a long-term

relationship (30 years)

It is the nature of the agent-insured relationship

When the dentist first opened it purchased all insurance coverage from the Agent

Dentist called Agent three or four times a year

Mailed one-page coverage summary every year

Quarterly newsletter outlining risks

Supreme Court of Indiana held that there were conflicting inferences surrounding the existence of a “special relationship” between the insured and its insurance agent

Summary judgment inappropriate on insured’s claims that insurance agent should be held liable for failure to procedure adequate coverage for the insured

State Farm Mut. Auto Ins. Co. v. Earl, 33 N.E.3d 337 (Ind. 2015)

Central Mut. Auto. Ins. Co. v. Motorists Mut. Ins. Co., 23 N.E.3d 18 (Ind.Ct.App. 2014)

GEICO Ins. Co. v. Graham, 14 N.E.3d 854 (Ind.Ct.App. 2014)

Justice v. American Family Mut. Ins. Co.,4 N.E.3d 1171 (Ind. 2014)

An insured brought a lawsuit against his insurer to recover uninsured motorist (“UM”) benefits

At trial and over the objection of the insurer, the court allowed the jury to hear evidence that the UM policy limits were $250,000

The jury returned a verdict in favor of the insureds for $250,000

On appeal, the insurer argued that the evidence of the UM limits should have been excluded because it was irrelevant to the issue of deciding the insured’s damages

The insurer requested that the Supreme Court to establish a bright line rule that evidence of an insured’s policy limits were irrelevant and inadmissible when the focus of a UM case is the extent of the insured’s damages. The insured asked the Court to rule the exact opposite.

The Supreme Court refused to create a bright-line rule and instead concluded:

We decline either side’s invitation to take such a rigid approach; instead, we think it more appropriate to rely on our trial courts to exercise their discretion in determining what evidence probative in the particular case before them. And, on these facts, we find the court was within that discretion.

In this case, the Supreme Court determined that the admission of the UM coverage limits was relevant background information that could help the jury understand the relationship between the insured and the insurer and the basis for the lawsuit itself.

Although the Court ruled in favor of the insured on the admissibility issue, it also observed that the insurance limits will not always be admissible. The court said “We can forsee instances where the insured’s injury is so minor and the coverage limit so large it gives rise to a legitimate concern that the jury will inflate its award.”

The Indiana General Assembly enacted statutes to determine which insurance policy is primary when multiple insurance policies apply to a covered scenario. These include:• I.C. 27-8-9-7 – Driver is not the owner of the vehicle

• I.C. 27-8-9-9 – Vehicle is operated under a lease

• I.C. 27-8-9-10 – Vehicle is operated as part of a fleet and covered under a garage liability policy

A driver was involved in an accident with an underinsured motorist (“UIM”)

The truck he was driving was insured by Central Mutual

The driver’s employer had a UIM policy through Motorists that also applied

In comparing the “Other Insurance” provisions of each policy, it was clear that the Central Mutual policy was primary, while the Motorists policy was considered excess

The driver filed a lawsuit against both insurers to recover UIM benefits

Central Mutual argued that the Garage Liability statute (I.C. 27-8-9-20) controlled in determining which policy was primary, instead of the “Other Insurance” clause

The trial court granted summary judgment to Motorists finding that its policy was excess

The Court of Appeals affirmed. While finding few cases addressed the application of the statutes, the court determined that the purpose of the statutes was to resolve conflicts that may exist from interpretation of the policy language that provided the same level of coverage (primary v. primary, excess v. excess).

In the present case, there was no dispute between the two insurers on which policy was primary when the “Other Insurance” clauses were interpreted. Thus, no need to rely upon the statutes

The insured was involved in an accident and was paid by his own insurer for property damage to his vehicle after application of his deductible.

The insured brought a small claims action against the alleged tortfeasor to collect the unreimbursed expenses.

A small claims trial occurred, and the tortfeasor was found to not be at fault.

The insurer brought its own subrogation lawsuit against the tortfeasor in a different county seeking to recover the amounts that it had paid the insured.

The tortfeasor, who was uninsured, sent a letter to the court in which the subrogation action was pending, advising the court of the outcome of the insureds’ small claims trial.

Despite receiving this notice, the insurer’s subrogation counsel filed a motion for summary judgment against the tortfeasor

The tortfeasor traveled to the motion hearing, but presented no additional evidence.

The trial court granted summary judgment to the insurer

The tortfeasor, with the assistance of counsel, filed a motion to set aside the judgment which the trial court granted. The trial court also dismissed the insurer’s subrogation lawsuit.

The insurer appealed claiming that the findings of the small claims court trial could not act as res judicata to bar the subrogated insurer’s lawsuit. The insurer relied upon Indiana Small Claims Rule 11(F) which states, “a judgment shall be res judicata only as to the amount involved in the particular action and shall not be considered an adjudication of any fact at issue in any other action or court.”

The Court of Appeals concluded that the Small Claims Rule was not applicable because the insurer’s claim was not a “separate claim” from the insured’s small claims action. Because the insurer stood in the shoes of the insured in bringing the action, the claims were the same.

The court also made an interesting observation relating to the recovery of an insured’s deductible in a subrogation action:

The concerns of insureds to recover their auto policy deductibles are a matter of everyday business for insurance companies like GEICO. The better practice would be for carriers like GEICO to expressly include their insured’s claims for deductibles in subrogation and share any recovery pro rata. In the alternative, carriers should clearly inform their insureds of the insureds’ responsibilities not to proceed in a legal forum to recover their deductibles incurred and cover claims without the clear permission of the carrier, permission that would include the opportunity for joinder of the carrier for its subrogated interests.

A city bus driver was involved in an accident with UIM

Bus driver received workers compensation benefits which totaled over $77,000

Bus driver presented claim against the UIM, and received his liability limits of $25,000

Bus driver possessed a personal policy that provided UIM coverage with American Family with UIM limits of $50,000

The American Family UIM policy contained a provision which stated:•The limits of liability of this [UIM] coverage will be reduced by: . . .

A payment made or amount payable because of bodily injury under any workers compensation or disability benefits law or similar law.

The bus driver sought to recover an additional $25,000 of UIM benefits from American Family after deducting the $25,000 received from the UIM.

American Family contended that no additional UIM coverage was available after it setoff the amount paid by the UIM ($25,000) and the amount received by the bus driver in worker’s compensation payments ($77,000), against the $50,000 of UIM limits.

The trial court granted summary judgment to American Family after applying the setoffs

The Court of Appeals reversed by concluding that American Family could take the setoff of the workers compensation payments, but only against the total value of the bus driver’s claim, not his policy limits.

The Supreme Court vacated the Court of Appeals’ decision. The Supreme Court concluded that the policy language “unambiguously” permitted a setoff against the policy limits.

However, even though a setoff was permitted, the Supreme Court found that applying the setoff in this situation, violated Indiana’s UIM statute, I.C. 27-7-5-2.

This statute requires UIM insurers to provide at least the statutory minimum amount of UIM coverage of $50,000. Applying the setoff of the worker’s compensation payments directly against the UIM limits, resulted in the bus driver not having access to collect a total of $50,000 in either liability or UIM coverage payments for the accident.

Thus, the insurer was permitted to setoff the $25,000 from the UIM, but had to pay an additional $25,000 in UIM coverage to meet the $50,000 statutory minimum. To the extent the workers’ compensation setoff provision reduced the recovery below the statutory minimum of $50,000, it was unenforceable.

If an insured gets $50,000 or above, from either the UIM or the UIM insurer, then the setoff provision is enforceable

While working for her employer, the insured was injured in accident when struck by tortfeasor

She received over $81,000 in workers compensation payments

The tortfeasor had policy limits of $25,000, which were offered and accepted by the injured insured.

The insured had UIM coverage under a personal auto policy with limits of $100,000

After submitting UIM claim, the insurer applied the setoff of the tortfeasors’s limits and the workers compensation payments to contend that no UIM coverage was available

The insurer relied upon policy language which provided:

LIMIT OF LIABILITY . . . . E. [The insurer] will not pay for

any element of loss if a person is entitled to receive payment for the same element of loss under any of the following or similar law:

1. Worker’s compensation law; or

2. Disability benefits law.

At the trial court level, summary judgment was granted in favor of the insurer

On appeal, the court found the policy language permitted the insurer to set off the worker’s compensation payments against the policy limits, rather than the extent of the insured’s damages

The court also applied the ruling in Justice that the insured was entitled to recover up the UIM statutory figure of $50,000 from either the tortfeasor or the UIM insurer.

Court found that insured could recover another $25,000 ($50,000 limits - $25,000 tortfeasor payment), but no more after setting off the worker’s compensation payments

Selective Ins. Co. v. Erie Ins. Exch., 14 N.E.3d 105 (Ind.Ct.App. 2014), trans. granted, 21 N.E.3d 838 (Ind. 2014), reinstated by trans. den., 2015 Ind. LEXIS 88 (Ind. 2015)

Nautilus Ins. Co. v. Sunset Strip, Inc., 2015 U.S. Dist. LEXIS 87946 (S. D. Ind. 2015)

Board of Commissioners v. Teton Corp., 30 N.E.3d 711 (Ind. 2015)

Lodholtz v. York Risk Services Group, Inc., 778 F.3d 635 (7th Cir. 2015)

• Rangeline purchases warehouse• Selective, after inspecting warehouse,

agreed to insure Rangeline and warehouse• Renter agreed to rent warehouse space to

store insulation• Rangeline vacated its occupancy of

warehouse so that Renter was only occupant

• Rangeline informed Renter that it was going to drain water from sprinkler and turn off heat, but advised that furnace could be activated if needed.

• Renter never activated heat

• At time of loss, Renter was insured by Erie for property coverage

• After Erie paid Renter’s loss, it filed subrogation action against Rangeline

• The Erie policy contained a provision which named Rangeline as insured and also included Additional Insured endorsement which named managers of premises as insureds

• Rangeline sought insurance coverage under the Erie policy, and Erie instituted a declaratory judgment action with Rangeline and Selective on whether it owed liability coverage

• Erie contended – 1) that its liability coverage for additional insured status only applied to

the limited area under the control of the Renter and that the sprinklers were not under the Renter’s control

– 2) that the “Care, Custody and Control” Exclusion applied

Trial Court granted summary judgment to Erie and denied Rangeline/Selective motion

Court of Appeals reversed.

As to whether the additional insured issue, the court concluded that the Renter was additional insured under the Erie policy. The Renter’s placement of the stored insulation within the warehouse was in an area under Renter’s control, such that it fit within the policy definition.

The “Care, Custody and Control” Exclusion provided

This insurance does not apply to: . . . .

j. Damage to Property

“Property damage” to . . .

4) Personal property in the care, custody or control of the insured

Erie argued that the insulation within the warehouse was within the “control” of both the Renter and Rangeline, such that the exclusion applied to prevent coverage for Rangeline

Court of Appeals disagreed. The undisputed facts demonstrated that the insulation was controlled by Renter, not Rangeline such that exclusion did not apply

• Customer of adult cabaret was shot in face while outside of building

• Customer filed a lawsuit for negligence against cabaret

• Cabaret sought insurance coverage under its CGL policy

• Regardless of culpability or intent of any person, this insurance does not apply to “bodily injury” . . . arising out of any:

1. Actual or alleged assault or battery2. Physical altercation; or 3. Any act or omission in connection with the prevention or suppression of such acts, including the alleged failure to provide adequate security. . . .

• This exclusion applies to:

1. All causes of action arising out of any assault or battery, or out of a physical altercation including, but not limited to, allegations of negligent hiring, placement, training, or supervision, or to any act, error or omission relating to such an assault or battery, or physical altercation;2. Any claims or “suits” brought by any person, firm or organization asserting rights derived from, contingent upon, or arising out of an assault or batter, or a physical alteration.

The cabaret’s acquisition of insurance coverage was significant in the decision

While searching for insurance, cabaret was given premium quotes that included coverage for “liquor liability” and “assault and battery.”

According to agent, cabaret decided to forego such coverage as they were considered too expensive by cabaret

After a declaratory judgment action was filed, the insurer sought summary judgment

In opposition, cabaret did not argue that the “assault and battery” exclusion was ambiguous

Instead, the cabaret attempted to argue that the policy provided “illusory” coverage, because of the inclusion of a “liquor Iiability” exclusion within the policy. 93% of cabaret’s revenue came from liquor sales

District Court granted summary judgment to insurer

Because the cabaret had decided not to purchase coverage which would have included claims for assault and battery, the court found that public policy concerns existed if an insured refused to acquire coverage because of costs, and then could successfully argue that the policy was illusory because it contained an exclusion for that specific coverage which was rejected.

• Jefferson County decided to remodel its courthouse

• It hired a contractor to do the work.• The contractor hired various

subcontractors to perform the work• Jefferson County, as owner, purchased

property insurance to cover the courthouse during construction

• During remodeling a fire destroyed much of the courthouse.

• Jefferson County submitted its property damage claim to its insurer, which issued payment for all damages that Jefferson County sustained from the fire.

• The insurer filed a subrogation lawsuit against the general contractor and its subcontractor.

• The contractor defendants sought summary judgment by relying upon the subrogation waiver

• The trial court granted summary judgment to the subcontractor defendants, and the Court of Appeals affirmed.

• The Supreme Court agreed to accept the case, because Indiana had cases offering two competing approaches to resolve this issue.

One approach was the “any insurance” approach which concluded that all damages coverered by insurance would be subject to the subrogation waiver

The second approach was called “work versus non-work damages” approach which provided that the subrogation waiver applied only to “work damages” such as only the construction costs.

The Supreme Court adopted the “any insurance” approach by finding that the subrogation waiver language was clear and unambiguous.

Thus, the insurer waived its subrogation claim because it supplied “all risk” property insurance that included both work and non-work damages.

The Court further stated that to the extent the parties wanted to restrict the scope of the subrogation waiver, they were free to do so by modifying the policy language.

This decision places Indiana in-line with the majority of jurisdictions that have adopted the “any insurance” approach on subrogation waiver cases

• A temporary employee working at an assembly plant was injured after a machine malfunctioned.

• He filed a lawsuit against the plant

• The plant’s representatives forwarded the lawsuit to its insurance company with a request for coverage

• The insured company hired York, an independent adjuster, to investigate the claim

• York secured an extension of time to answer the complaint from the employee’s attorney

• York reassigned the investigation to a number of different adjusters

• Eventually, the deadline to respond to the complaint passed without York or the insurer retaining counsel to defend the plant or responding to the complaint

• The employee obtained a default judgment against the plant for $3.8 million

• The plant’s attorney entered into an agreement with the employee to assign all rights against York and the insurer to the employee in exchange for a Covenant Not to Execute against the plant

• The insurer filed a declaratory judgment action contending that it did not owe coverage to the plant for the employee’s lawsuit

• The employee filed a separate lawsuit against the insurer alleging a number of theories including breach of duty of good faith and against York for negligence

• York filed a motion for summary judgment contending that it owed no legal duty to the employee.

• The trial court granted York’s motion

On appeal, the Seventh Circuit affirmed the grant of summary judgment to York

It concluded that York was “an agent of the insurer and therefore ha[d] no direct relationship with the insured.” Thus, an insurance claims adjuster does not owe a legal duty to a third party claimant.

If interested in receiving notice of new Indiana insurance related decisions, please provide email address to Rick Shoultz at rshoultz@lewiswagner.com

Rick Shoultz: rshoultz@lewiswagner.com

Amy L. Beard: ABeard@idoi.in.gov