Opinion
Cause No. IP99-1286-C-T/G
October 13, 2000
ENTRY ON MOTIONS FOR SUMMARY JUDGMENT
Plaintiff, American National Fire Insurance Company ("American"), brought this declaratory judgment action against Defendant, Alberto Berrones, seeking a declaration of the parties' rights under a certain lawyers professional liability policy of insurance.
Defendant Richard Vaughn intervened, and Mr. Berrones brought a counterclaim against American and Tamarack American Division of Great American Insurance Company ("Tamarack"). American and Tamarack filed a motion for summary judgment as to all claims, including the claims in American's Complaint and Mr. Berrones' Counterclaim.
Both Intervening Defendant Vaughn and Mr. Berrones filed a cross-motion for summary judgment. Having considered the motions, the parties' briefs and evidentiary submissions and oral argument, the court makes the following ruling.
I. Statement of Material Facts
The following facts are undisputed and material to resolution of the summary judgment motions. American is an insurance company domiciled in the State of New York. Tamarack is a division of Great American Insurance Company, which is domiciled in the State of Ohio. Tamarack is not an insurance company and does not issue insurance policies, but rather serves as a claims handling entity on behalf of certain insurers, including American. Mr. Berrones is an attorney licensed to practice in the State of Indiana who has his office in Indianapolis, Indiana. From April 1993 through part of 1997, he worked as an employee of attorney R. Victor Stivers.
The court notes that Mr. Berrones did not dispute American and Tamarack's Statements of Material Fact ("SMF"), and Mr. Vaughn disputed only SMF Nos. 7 and 33, which assert that Mr. Vaughn retained Mr. Stivers to represent him in his personal injury action and that the malpractice action arose out of an act, error or omission of Mr. Stivers rather than Mr. Berrones.
On September 3, 1994, Richard Vaughn was involved in a motor vehicle accident. He retained Mr. Stivers to represent him in a potential personal injury action arising from that accident. Mr. Stivers instructed Mr. Berrones, an employee, to perform various duties with respect to Mr. Vaughn's personal injury claim, including the preparation of a complaint.
Mr. Berrones prepared a draft of a complaint and turned it over to Mr. Stivers several months before the statute of limitations was to run on Vaughn's personal injury claim. Mr. Stivers did not file the complaint within the applicable limitations period, which expired on September 3, 1996.
On October 24, 1997, James A. Mellowitz, an attorney, sent a letter to Mr. Stivers and Mr. Berrones, advising them that Mr. Vaughn was making a claim against them because they had allowed the statute of limitations to expire in his personal injury suit. On November 14, 1997, Mr. Mellowitz sent a letter to Mr. Berrones, in which he again asserted that Vaughn was making a claim against him based upon the missed statute of limitations.
After November 11, 1997, Amber Ritman, an insurance agent, worked with Mr. Berrones to help him obtain a professional liability insurance policy. She assisted him in submitting an application for professional liability insurance coverage to American. She elicited the information contained in the American application over the telephone, filled out the application and sent it to Mr. Berrones for his signature. He reviewed the application, signed it on December 2, 1997, and returned it to Ms. Ritman by facsimile transmission for submission to American.
American then issued to Mr. Berrones a lawyers professional liability policy, policy number TPL 268-02-31-00 (the "Policy"), effective December 16, 1997 through December 16, 1998, for a premium of $2,154.00. The Policy is a "claims made" policy which provided coverage for claims first made against Mr. Berrones during the Policy period and reported to American during that period. Section II of the Policy provides in pertinent part:
II. COVERAGE
A. Professional Liability and Claims Made Clause: This policy shall pay on behalf of each Insured all sums in excess of the deductible amount and up to the limits of liability stated in the Declarations which the Insured shall become legally obligated to pay as damages as a result of CLAIMS FIRST MADE AGAINST THE INSURED DURING THE POLICY PERIOD AND REPORTED TO THE COMPANY DURING THE POLICY PERIOD
(i) caused by any act, error or omission for which the Insured is legally responsible, and
(ii) because of personal injury and, in each case, arising out of the rendering or failure to render professional services for others in the Insured's capacity as a lawyer or notary public.
PROVIDED ALWAYS THAT such act, error or omission or personal injury happens:
1. during the policy period; or
2. prior to the policy period, provided that prior to the effective date of the first Lawyers Professional Liability Policy issued by the Company to the Named Insured and continuously renewed and maintained in effect to the inception of this policy period:
. . .
(b) the Insured had no reasonable basis to believe that the Insured had breached a professional duty or to foresee that a claim would be made against the Insured;. . . .
(American Policy, Ritman Dep., Ex. 13 at 1-2.)
Ms. Ritman advised Mr. Berrones that "any of Vic's clients, Vic Stivers' clients, would be excluded" under the Policy. (Berrones Dep. at 44.) She asked Mr. Berrones whether he represented Mr. Vaughn or whether he was one of Mr. Stivers' clients. Mr. Berrones advised her that Mr. Vaughn had been a client of Mr. Stivers. Ms. Ritman then notified Mr. Berrones that any claim made by Vaughn would not be covered and would be excluded. (Id. at 45.)
On April 20, 1998, Mr. Vaughn filed a legal malpractice action against Mr. Berrones in Marion County, Indiana (the "malpractice action"). He alleges that he retained Mr. Berrones to represent him with respect to the motor vehicle accident and that Mr. Berrones negligently breached a duty to Vaughn by failing to file suit within the applicable limitations period.
Tamarack did not issue the Policy and is not a party to the insurance contract. Tamarack has served as claims handler for American for the malpractice action.
II. Discussion
American seeks a declaration in this action that Mr. Berrones is not entitled to coverage or a defense under the Policy for Mr. Vaughn's malpractice action. Mr. Berrones counterclaims against American and Tamarack alleging breach of the duty of good faith and fair dealing, fraud and breach of contract. As this court is sitting in diversity, the substantive law of Indiana is applied. See Schenkel Shultz, Inc. v. Homestead Ins. Co., 119 F.3d 548, 550 (7th Cir. 1997); Worth v. Tamarack American, 47 F. Supp.2d 1087, 1094 (S.D.Ind. 1999), aff'd, 210 F.3d 377 (7th Cir. 2000).
American and Tamarack move for summary judgment contending that (1) Tamarack is improperly named a counterclaim defendant; (2) no coverage under the Policy exists because Mr. Berrones had actual knowledge prior to the Policy period that Mr. Vaughn would make a claim against him; (3) no coverage exists because the malpractice action is excluded under the "Specified Attorneys Exclusion"; (4) American was justified in denying coverage and thus cannot be found to have breached a duty of good faith and fair dealing; and (5) the record lacks any evidence of actual or constructive fraud. Mr. Berrones and Mr. Vaughn seek summary judgment that the Policy provides coverage for Mr. Vaughn's malpractice claim. Mr. Berrones also seeks summary judgment on his breach of the duty of good faith claim.
A. Summary Judgment Standard
Summary judgment should be granted "if the pleadings, depositions, answers to interrogatories, and admissions on file, together with the affidavits, if any, show that there is no genuine issue as to any material fact and that the moving party is entitled to a judgment as a matter of law." FED. R. CIV. P. 56(c). The party moving for summary judgment bears the burden of showing the absence of a genuine issue of material fact. See Adickes v. S.H. Kress Co., 398 U.S. 144 (1970). If the moving party carries this burden, then the nonmovant must "go beyond the pleadings" and present specific facts which show that a genuine issue exists for trial. See Celotex Corp. v. Catrett, 477 U.S. 317, 324 (1986).
B. Tamarack as a Defendant
American and Tamarack argue that Tamarack cannot be held liable to Mr. Berrones for breach of contract or breach of the duty of good faith and fair dealing because Tamarack was not a party to the insurance contract between American and Mr. Berrones.
Mr. Berrones challenges the summary judgment motion as to Tamarack; Mr. Vaughn does not. Mr. Berrones argues that a genuine issue as to whether American and Tamarack are separate legal entities precludes summary judgment in favor of Tamarack.
This argument fails for two reasons. First, Mr. Berrones has not responded to the Statement of Material Facts ("SMF") of Tamarack and American. Thus, the assertions of fact in their SMF, including the assertion that Tamarack did not issue the Policy and is not a party to the insurance contract, are admitted to exist without controversy. Second, Mr. Berrones has not provided any factual assertions in a separate Statement of Additional Material Facts addressing this issue. Factual assertions in a brief not properly made in compliance with Local Rule 56.1 fail to create a genuine issue of fact for purposes of summary judgment. See Pike v. Caldera, 188 F.R.D. 519, 525 n. 8 (S.D.Ind. 1999) (noting "that a narrative factual statement in the brief does not satisfy a litigant's requirement under L.R. 56.1.") Moreover, though Mr. Berrones refers to "evidence" in his brief which he claims creates a genuine issue, (see Br. Berrones Resp. Mot. Summ. J. Pl. Supp. Cross Mot. Summ. J. at 4-6), none of it raises a reasonable inference that Tamarack and American are not separate legal entities. Thus, Mr. Berrones has not raised a genuine issue as to whether American and Tamarack are separate legal entities.
These are: (1) the same law firm represents both American and Tamarack; (2) in a September 1, 1998, letter Carol Ho-Rezvani, Assistant Vice President, Claims Division, Tamarack "claims ownership of the policy"; (3) in an August 6, 1999, letter, Ms. Ho-Rezvani advised that Tamarack agreed to provide a defense to the Vaughn malpractice action but disputed coverage under the Policy; and (4) Ms. Ho-Rezvani is the same person who submitted a sworn affidavit stating that Tamarack was not a party to the insurance contract with Mr. Berrones.
The existence of a contract is an essential element of a breach of contract claim, see, e.g., Fowler v. Campbell, 612 N.E.2d 596, 600 (Ind.Ct.App. 1993); and, an insurer's duty of good faith and fair dealing toward its insured is implied by the insurance contract, see Erie Ins. Co. v. Hickman by Smith, 622 N.E.2d 515, 518 (Ind. 1993). The court finds no evidence in the record of a contract between Mr. Berrones and Tamarack. Therefore, summary judgment should be granted Tamarack on Mr. Berrones' claims for breach of contract and breach of the duty of good faith and fair dealing.
Even if the court were wrong about Tamarack's status as a defendant to these claims, Tamarack would nevertheless be entitled to summary judgment on these claims for the same reasons American is entitled to summary judgment on them, see infra.
C. Coverage Under the Policy for the Malpractice Claim
American argues that no coverage exists under the Policy for two reasons: (1) Mr. Berrones had actual knowledge prior to the policy period that Vaughn had a claim against him; and (2) by operation of the "Specified Attorney Exclusion" provision. In interpreting an insurance policy under Indiana law, the court applies the same rules of construction that apply to any other contract. See USA Life One Ins. Co. v. Nuckolls, 682 N.E.2d 534, 537-38 (Ind. 1997). The interpretation of an insurance policy is "`primarily a question of law for the court. . . .'" Id. (quoting Tate v. Secura Ins., 587 N.E.2d 665, 668 (Ind. 1992)). Clear, unambiguous policy language must be enforced. See id.; see also Schenkel Shultz, Inc. v. Homestead Ins. Co., 119 F.3d 548, 550 (7th Cir. 1997). Language is ambiguous only if "`susceptible to more than one interpretation and reasonably intelligent persons would differ as to its meaning.'" USA Life One Ins., 682 N.E.2d at 538 (quoting Commercial Union Ins. v. Moore, 663 N.E.2d 179, 181 (Ind.Ct.App. 1996)).Mr. Berrones and Mr. Vaughn argue that since American knew of the Vaughn claim before the Policy was issued and failed to draft an exclusion that applied to a claim by Vaughn against Berrones independent of Stivers, American waived its right to deny coverage under the Policy. Mr. Berrones cites no authority to support this waiver argument. In his brief responding to Plaintiff's summary judgment motion and supporting his cross-motion for summary judgment, Mr. Vaughn relies solely on State Farm Mut. Automobile Ins. Co. v. Price, 396 N.E.2d 134 (Ind.Ct.App. 1979), and Johnson v. Payne, 549 N.E.2d 48 (Ind.Ct.App. 1990). These cases, however, are inapposite. They address an insurer's duty to investigate material misrepresentations made in the insured's application for insurance and the insurer's waiver of the right to rescind a policy because of those misrepresentations where the insurer fails to undertake a reasonable investigation into the representations. See Price, 396 N.E.2d at 137; Johnson, 549 N.E.2d at 51-52.
That is not the situation here. American does not allege that Mr. Berrones made any misrepresentations on the insurance application. Nor does it seek to rescind the Policy. Thus, Price and Johnson do not support the waiver argument of Mr. Berrones and Mr. Vaughn. Furthermore, evidence regarding what American knew about Mr. Vaughn's claim and when simply is not relevant. Under the provision upon which American relies in denying coverage for the malpractice action, coverage turns not on American's knowledge but rather on Mr. Berrones' knowledge.
It is noted that Mr. Vaughn's Statement of Additional Material Facts Nos. 47, 48 and 49 are not factual assertions but legal conclusions. They therefore do not raise a genuine issue of fact regarding the waiver issue.
In his reply brief, Mr. Vaughn cites to Huff v. Travelers Indem. Co., 363 N.E.2d 985, 991 (Ind. 1977), Auto-Owners Ins. Co. v. Cox, 731 N.E.2d 465, 467 (Ind.Ct.App. 2000), National Mut. Ins. Co. v. Fincher, 428 N.E.2d 1386 (Ind.Ct.App. 1981), and American Family Mut. Ins. Co. v. Kivela, 408 N.E.2d 805, 811 (Ind.Ct.App. 1980), in support of his waiver argument. Huff is cited for the proposition that "an insurer waives its ability to enforce a policy provision when its conduct, or acts done on the part of the insurer or its authorized agents, are `sufficient to justify a reasonable belief on the part of the insured that the company will not insist on compliance with the policy provision.'" (Vaughn's Reply Br. at 3) (citing Huff, 363 N.E.2d at 991). This language comes from the court's discussion of a contractual limitations provision. See id. The Cox decision likewise involved a contractual limitations provision. See Cox, 731 N.E.2d at 467-68. The instant dispute does not involve a contractual limitations provision, thus distinguishing Cox and Huff on this basis.
Moreover, both Huff and Cox state that the court's inquiry is on the relationship between the insurer and insured, specifically "whether anything has been done . . . which would cause the insured to reasonably believe the limitation period will not be insisted upon." Cox, 731 N.E.2d at 468; Huff, 363 N.E.2d at 991. Neither Mr. Vaughn nor Mr. Berrones has produced any evidence which would raise a reasonable inference that Mr. Berrones had reason to believe American would not enforce the provision precluding coverage for claims arising out of an act, error or omission occurring prior to the policy period and for which he had a reasonable basis to believe that he had breached a professional duty or to foresee that a claim would be made against him.
Fincher is cited for the proposition that "the doctrines of waiver and estoppel extend to any ground upon which liability can be denied by an insurer." Fincher, 428 N.E.2d at 1389-90. In that case, the evidence supported a reasonable inference that the insurer induced the insured to settle with a third-party and then categorically denied the insured's claim for medical and expenses because an opportunity for settlement existed. Id. at 1389. The appellate court held that given this evidence, the insurer was estopped from asserting its subrogation right. Id. The instant action does not involve an insurer's subrogation rights, and further, there is no evidence to suggest that American induced Mr. Berrones to give up any rights existing under the Policy. Thus, Fincher is distinguishable.
Mr. Vaughn quotes the following language from Kivela: "a distinct act of affirmance of a contract of insurance, made with knowledge of facts which would create grounds for avoidance, constitutes a waiver of the right to avoid the contract." Kivela, 408 N.E.2d at 811. As should be apparent from this quote, the insurer in Kivela sought to avoid the insurance contract. In the instant case, American is not seeking to avoid the Policy. Thus, Kivela is inapposite.
In that case, a policy of automobile liability insurance was issued to the insured. By letter, the insurer informed the insured that the policy would be cancelled effective on a future date due to her husband's driving record. Before the policy was cancelled, the insured's husband was involved in a collision while driving the insured vehicle. Id. at 806. The insurer attempted to cancel the policy ab initio based on misrepresentations in the insurance application, including that the insured would be driving the insured vehicle 100 percent of the time. Id. at 806-07. The court held that the insurer waived its right to avoid the policy ab initio because it had knowledge of facts which would have been grounds for avoiding the policy on date of plaintiffs' injury, but chose to provide coverage beyond the date of the injury and cancel the policy prospectively. Id. at 811.
Mr. Berrones claims he reasonably relied on the representations of American's alleged agent, Ms. Ritman, "to the effect that" his work on the Vaughn file "did not expose him to a claim because Mr. Vaughn was the client of R. Victor Stivers," (Berrones' Br. Resp. Mot. Summ. J. at 9); "he was not covered for the duties he performed for his boss, Vic Stivers, on the Vaughn matter;" (id.) and he had coverage for any claim made against him. (Id.) Mr. Berrones has not raised a genuine issue regarding these alleged representations, however. As support for these statements, Mr. Berrones cites to pages 67-68 of his deposition and his own affidavit. The court has scoured the record and pages 67-68 were not submitted by any party. Nothing in Mr. Berrones' affidavit addresses these statements attributed to Ms. Ritman. Thus, Mr. Berrones has not provided any evidentiary support for his claims that Ms. Ritman made such assurances to him. Even assuming that Ms. Ritman was American's agent, there is no evidence in the record to raise an inference that she told Mr. Berrones the Policy would provide coverage for Mr. Vaughn's claim.
Rather, the uncontradicted evidence is that Ms. Ritman advised Mr. Berrones as follows: "any of Vic's clients, Vic Stivers' clients, would be excluded" under the Policy, (Berrones Dep. at 44); and any claim made by Vaughn would not be covered and would be excluded, (id. at 45.)
The court finds that the Policy provisions concerning coverage are unambiguous and provide coverage for claims first made against Mr. Berrones and reported to American during the policy period for acts, errors or omissions occurring prior to the policy period "provided that prior to the effective date of the . . . Policy . . ." "[Mr. Berrones] had no reasonable basis to believe that [he] had breached a professional duty or to foresee that a claim would be made against [him]. . . ." The reasonableness of an insured's belief should be assessed under an objective standard, that is, whether a reasonable attorney in Mr. Berrones' position would have believed that he had breached a professional duty or foreseen that a claim would be made against him. See Worth v. Tamarack American, 47 F. Supp.2d 1087, 1096 (S.D.Ind. 1999), aff'd, 210 F.3d 377 (7th Cir. 2000). Mr. Vaughn's malpractice action alleges that Mr. Berrones negligently failed to timely file a personal injury action arising out of a September 3, 1994 motor vehicle accident and that the applicable limitations period ran on September 3, 1996. Thus, the evidence establishes that the acts, errors or omissions giving rise to Mr. Vaughn's malpractice action occurred no later than September 1996, which is before the effective date of the Policy. The undisputed evidence further establishes that on October 24, 1997 (and again on November 14, 1997), Mr. Vaughn's attorney advised Mr. Berrones that Mr. Vaughn would be making a claim against him. In addition, in his brief, Mr. Berrones acknowledges that "he foresaw that Vaughn would make a claim against him," (Berrones' Br. at 14), and that "Berrones knew that the Vaughn claim was coming in October of 1997." (Id.) Thus, the record establishes that Mr. Berrones had actual knowledge before the effective date of the Policy, December 16, 1997, that Mr. Vaughn would be making a claim against him. Given this evidence, the court finds that a reasonable attorney in Mr. Berrones' position would have foreseen prior to the effective date of the Policy that a claim would be made against him by Mr. Vaughn.
The court therefore concludes that the Policy provides no coverage for the claims made in Mr. Vaughn's malpractice action against Mr. Berrones because Mr. Berrones had a reasonable basis to believe and foresee that a claim would be made against him by Mr. Vaughn. American should be granted summary judgment on its Complaint and on Mr. Berrones' breach of contract claim, and the cross-motions for summary judgment of Mr. Berrones and Mr. Vaughn on the coverage issue should be denied. The court declares that the Policy does not provide coverage for Mr. Vaughn's malpractice action, and American owes Mr. Berrones neither a defense nor indemnification under the Policy for Mr. Vaughn's malpractice action.
Given this conclusion, it is not necessary to address whether Mr. Vaughn's malpractice claim is barred by the "Specified Attorneys Exclusion." Nor is it necessary to address any counter-arguments on this point. Besides, FED. R. EVID. 408 would not bar admission of the pre-litigation letters from Mr. Vaughn's counsel to Mr. Berrones because those letters would not be offered to prove statements made in compromise negotiations, but rather to prove Mr. Berrones' knowledge prior to the Policy's inception of Mr. Vaughn's claim against him.
D. Breach of Duty of Good Faith Claim
American moves for summary judgment on Mr. Berrones' claim that American breached its duty of good faith and fair dealing. In Erie Ins. Co. v. Hickman by Smith, 622 N.E.2d 515 (Ind. 1993), the Indiana Supreme Court recognized a cause of action for the breach of an insurer's duty of good faith and fair dealing to its insured with respect to the discharge of the insurer's contractual obligations. See id. at 519. Mr. Berrones argues that summary judgment on his breach of duty of good faith claim is precluded by the existence of a factual issue regarding whether Ms. Ritman and American deceitfully promised him coverage that was nonexistent. But as already noted, Mr. Berrones has not complied with Local Rule 56.1's requirements regarding factual assertions. Nor has he provided evidentiary materials to support his claim of a factual dispute regarding a promise of nonexistent coverage. Thus, Mr. Berrones has not created a factual dispute on this matter. Rather, the uncontradicted evidence establishes that Ms. Ritman advised him that "any of Vic's clients, Vic Stivers' clients, would be excluded" under the Policy, (Berrones Dep. at 43-44); and any claim made by Vaughn would not be covered and would be excluded, (id. at 45.)
Because American was not contractually obligated under the Policy to provide coverage for the claims made in Mr. Vaughn's malpractice action, it could not have breached a duty of good faith and fair dealing to Mr. Berrones with respect to the malpractice action. Summary judgment should be granted American on Mr. Berrones' claim for breach of the duty of good faith and fair dealing, and Mr. Berrones' motion on this claim is denied.
E. Fraud Claims
American seeks summary judgment on Mr. Berrones' fraud claims. Mr. Berrones does not directly respond to the motion as to these claims. A material misrepresentation of fact is an essential element of both constructive fraud, see, e.g., Orem v. Ivy Tech State College, 711 N.E.2d 864, 868 (Ind.Ct.App. 1999), trans. denied; and actual fraud, see, e.g., Rice v. Strunk, 670 N.E.2d 1280, 1289 (Ind. 1996). Mr. Berrones argues that the misrepresentation was that American would provide coverage in exchange for his premium payments. The court finds that the record contains no evidence which would support a reasonable inference that American made any material misrepresentation of fact to Mr. Berrones. He has not pointed to any evidence to establish that coverage was not provided under the Policy. Instead, American simply denied coverage for the malpractice action, which it was entitled to do under the Policy's express terms. Thus, American should be granted summary judgment on Mr. Berrones' claims for actual fraud and constructive fraud.
III. Conclusion
The motion for summary judgment of Tamarack and American should be GRANTED on American's Complaint and Mr. Berrones' Counterclaim. The cross-motions for summary judgment of Mr. Berrones and Mr. Vaughn are DENIED. Judgment will be issued accordingly.
ALL OF WHICH IS ORDERED this 13th day of October 2000.