Opinion
IP 99-1188-C-B/S/.
January 4, 2001.
ENTRY ON PARTIES' CROSS MOTIONS FOR SUMMARY JUDGMENT
Plaintiff, Tom Raper, Inc. ("Raper"), has filed a two-count Complaint against Defendant, Safari Motor Coaches, Inc. ("Safari"). Count I alleges that Safari breached its duty to defend and indemnify Raper in a lawsuit filed in the Summit County Court of Common Pleas, Akron, Ohio, entitled Merle Gill and C. Robert Gill v. Safari Motor Coaches, Inc., and Tom Raper, Inc., Civil Case No. CV-1997-01-1913 (1997) ("Gill litigation"). Count II alleges that Safari breached a duty to represent its interests and those of Raper equally throughout all aspects of the Gill litigation, including, but not limited to, settlement negotiations. The parties have filed cross-motions for summary judgment on Count I. For the reasons explicated below, we GRANT Plaintiff's Motion for Partial Summary Judgment and DENY Defendant's Motion for Partial Summary Judgment.
Plaintiff informs us that Count II of the Complaint has been withdrawn, so the cross-motions for summary judgment are now entirely dispositive of this matter. See Docket No. 53, Notice of Withdrawal of Count II of Plaintiff's Complaint.
Facts
Raper, an Indiana corporation based in Richmond, Indiana, is a dealer and servicer of recreational vehicles. See Pl.'s Br. in Supp. of Mot. for Partial Summ. J. ("Pl.'s Br. in Supp."), Statement of Undisputed Facts ("Pl.'s Facts"), ¶¶ 1-2, 9. Safari, based in Harrisburg, Oregon, is an Oregon corporation (and a subsidiary of Safari Motor Coach, Corporation, Inc., one of the largest manufacturers of high-line motor coaches in the United States) engaged in the business of manufacturing, marketing, and distributing recreational vehicles. Id. ¶¶ 3-5. On or about December 15, 1995, Merle and C. Robert Gill (collectively "Gills") purchased a Safari-manufactured recreational vehicle from Raper in Richmond, Indiana, where they occasionally had it serviced as well. See id. ¶¶ 8, 9; Am. Resp. to Pl.'s Mot. For Summ. J. ("Def.'s Am. Resp. to Pl.'s Mot."), Statement of Additional Facts ("Def.'s Additional Facts") ¶ 38.
The parties' Local Rule 56.1(f) factual submissions for the two motions contain identical factual allegations. To avoid confusion, we refer herein only to the factual submissions made with respect to Plaintiff's motion. The facts are uncontested except to the extent noted.
On January 24, 1997, the Gill litigation was filed in the Court of Common Pleas in Summit County, Ohio, alleging violations of Ohio law by Safari and Raper. Id. ¶ 7. Count One of the Gill litigation alleged that Safari and Raper had violated Ohio's "Lemon Law;" Count Two alleged that the defendants had committed unfair, deceptive, and unconscionable practices, in violation of the Ohio Consumer Practices Act ("OCPA"); and Count Three alleged that Safari and Raper made false representations with knowledge of their falsity or with such utter disregard and recklessness as to whether the representations were true or false that such knowledge may be inferred. Id. ¶ 10.
There is no dispute that at some point after the Gill complaint was filed, Safari orally agreed to indemnify Raper as to all three counts in the Gill litigation and that Safari engaged Russell Bruzzelli ("Bruzzelli") to defend both Safari and Raper in the Gill litigation. Def.'s Additional Facts ¶¶ 44, 46. However, Safari contends that no written indemnity agreement was ever reached and that neither party requested the execution of a formal, written agreement specifying the scope of the indemnification. Id. ¶ 45.
In contrast, Raper asserts that the parties reduced the agreement to writing, as evidenced by an April 4, 1997, letter from Bruzzelli to a Safari representative (and copied to Raper), which states in relevant part: "Of course, I have filed the motion on behalf of Raper [in addition to Safari] insofar as you had previously advised that we were assuming their defense and indemnifying them in this action." Pl.'s Facts ¶ 11; Pl.'s Facts, Ex. 3, April 4, 1997, letter from Russell A. Bruzzelli to Barbara Roman, SMC Corporation ("Bruzzelli letter"). Raper argues that this letter is a written confirmation of Safari's agreement to defend and indemnify Raper, unlimited in scope, without any reservation of rights, and without any basis for cancellation or modification. Pl.'s Facts ¶¶ 11-12. No matter how the parties' agreement is characterized, on April 4, 1997, Safari assumed the defense of, and indemnified Raper for, the Gill litigation. Id. ¶ 13.
Relying on its understanding of the agreement, Raper contends that it chose not to engage its own counsel for the Gill litigation. Id. ¶ 14. Moreover, Raper asserts that prior to reaching its agreement with Safari, it had intended to remove the Gill action to federal court and assert that Indiana law should apply in resolving the claims, a course of action that Raper did not pursue once Safari agreed to defend and indemnify Raper in the action. Id. ¶¶ 15, 17.
Safari chose not to remove the case to federal court and failed to timely raise the choice of law issue in the state court proceedings. Id. ¶¶ 18-19. The Ohio court ruled that Ohio law applied to the Gills' claims. Id. ¶ 18. The parties are in agreement that Gills' claims would have failed had Indiana law been applied. Id. ¶ 16.
Safari asserts that the Gill litigation was subject to Ohio law and properly venued there because the Gills were consumers who resided in that state and the motor coach was registered there as well. Def.'s Additional Facts ¶ 49.
For example, the parties agree that Indiana's Lemon Law does not include a motor home within the definition of "vehicle" (Ind. Code. § 24-5-13-5), while it is included in the comparable Ohio Lemon Law definition (Ohio Rev. Code Ann. § 1345.71(D)), and that the Gills' claim based upon repair invoices was premised upon an Ohio administrative regulation (Ohio Admin. Code § 109:4-4-05) to which Indiana has no counterpart. Pl.'s Facts ¶¶ 20-21.
For approximately the next two years, Safari defended and indemnified Raper, controlling all aspects of the defense in the Gill litigation, including discovery, litigation strategy and settlement. Id. ¶ 22. However, on May 18, 1999, Safari notified Raper that despite having initially indemnified Raper for all of the Gill litigation claims, it was withdrawing its prior agreement with respect to Counts Two and Three (the alleged violations of the OCPA and making false representations). Id. ¶¶ 25-26. According to Safari, it withdrew its offer to defend and indemnify Raper after it first learned of information during the depositions of several Raper employees taken on August 20, 1998, for which Safari had not met with or prepared the Raper employees until five minutes prior. Id. ¶¶ 23, 24, 27; Def.'s Additional Facts ¶¶ 50, 61-62.
We are confused by Plaintiff's counsel's simultaneous citation to the fact that several Raper employees were deposed in August of 1998 and its objection to Safari's description of the same events as an "immaterial background fact." Compare Pl.'s Fact ¶ 23 with Pl.'s Reply to Def.'s Amended Resp. to Statement of Material Facts ("Pl.'s Reply to Def.'s Facts") ¶ 50. Plaintiff's objection to these facts is made more confusing in light of certain of Plaintiff's asserted "material" facts, such as "SMC [Safari's parent company] is publicly traded at NASDAQ, and it had sales during the trailing 12 months of $211.8 million," which clearly seems immaterial to this litigation. Pl.'s Facts ¶ 6.
For reasons that are not entirely clear to us, Safari provides detailed excerpts from the deposition testimony of Paul E. Stickel ("Stickel"), a Raper salesperson, Patrick Dargie ("Dargie") (who's position is not identified for us) and Rick Bargo ("Bargo"), service manager at Raper. See Def.'s Additional Facts ¶¶ 51-56: Stickel testified that he considered it normal to need to bring a new motor home in for service up to six times in the first year of ownership, but that he did not tell potential customers of this possibility; he told them only that service was available because "it is a negative thing." Def.'s Additional Facts ¶ 51 (emphasis by Defendant). Dargie testified that rust had been found on the tailpipe of the motor home purchased by the Gills in February of 1995 (ten months prior to the Gills' purchase) and that it had been painted, even though a warranty history provided no indication that any undercoating was ever applied to the vehicle. Id. ¶ 53. Dargie further testified that to his knowledge the Gills had not been informed of this prior condition before purchasing the vehicle; (they were informed of it well after the fact). Id. ¶ 54. Finally, Bargo testified that if he were purchasing a vehicle, he would want to know if it had a prior problem with rust or corrosion or with the electrical or charging system while in stock at Raper's. Id. ¶ 56.
It is not clear about which document Dargie is testifying, as it is not included in the submissions provided to us. The cited Deposition testimony refers to exhibit 2 to the Deposition of Rick Bargo, see Def.'s Resp. to Pl.'s Mot. for Summ. J., Ex. C, Deposition of Patrick J. Dargie ("Dargie Dep.") at 32. However, only exhibit 1 of the Bargo deposition has been provided to us. Def.'s Resp. to Pl.'s Mot. for Summ. J., Ex. E, Warranty History Report, at 1. According to Dargie's earlier deposition testimony, the Warranty History Report submitted by Safari is an overview of the exhibit that is the subject of the testimony cited in Defendant's Additional Fact ¶ 53. Although the relevance of this discrepancy is not immediately clear, we will not speculate as to the contents of documents which the parties have not provided to us.
Although not disputing the accuracy with which Safari has described the deposition testimony, Raper objects to these factual assertions as containing immaterial background facts. Pl.'s Reply to Def.'s Facts ¶¶ 51-56.
Safari claims that its May 18, 1999, decision to substantially withdraw the agreement to indemnify and defend Raper was due in part to the deposition testimony cited above, also citing the warranty history report outlining "an extensive service history" (Def.'s Additional Facts ¶ 59) and a repair order showing that the motor vehicle in question had rust removed and was undercoated prior to its sale to the Gills (Def.'s Additional Facts ¶¶ 57-58). Raper objects to Safari's attempts to include these documents for consideration in this matter, arguing first that the repair order was never previously produced by Safari. In addition, Raper maintains that the warranty history report constitutes an immaterial background fact. In any event, Safari knew of this service history and the allegations of fraud by the Gills prior to disclosure of these documents. Pl.'s Reply to Def.'s Facts ¶¶ 57-59.
Raper's objection to Safari's reliance on the repair order is well-taken; Safari not only failed to cite to specific record evidence in support of its assertion, in violation of Local Rule 56.1, but our review confirms that it neglected to produce the document in question. While we are foreclosed from considering unsupported assertions in conjunction with a summary judgment motion, we have been able to verify that the warranty history report, properly cited by Defendant's Additional Facts ¶ 59 and submitted to the court as plaintiff's exhibit one to the Bargo deposition, references the servicing in question, to wit: on February 2, 1995, the tail pipe of the vehicle was painted and rust was removed. See Def.'s Resp. to Pl.'s Mot. for Summ. J., Ex. E, Warranty History Report, at 1. Thus, to the extent that it is relevant to this motion, we will consider it undisputed that the vehicle had been treated for rust prior to the Gills' purchase.
On May 18, 1999, counsel for Safari informed Raper by letter that its previous offer to defend and indemnify Raper was being "partially withdraw[n]." App. in Supp. of Pl.'s Br. in Supp. of Mot. for Summ. J., Ex. 6, May 18, 1999, Letter from Dean Passodelis, attorney at Meyer Darragh Bruckler Bebenek Eck, to Tom Raper, Inc. ("Withdrawal Letter"). The letter from Safari's counsel stated that:
[We are] partially withdrawing [our] prior agreement to indemnify and defend you and your company for the allegations set forth in the plaintiffs' Complaint in [the Gill litigation] . . . based upon evidence that is now of record relative to your company's sale of the vehicle. . . .
Although indemnity was initially provided for all claims, the testimony of [Raper employees] may provide the plaintiffs with independent claims against your entity for negligence, fraud, misrepresentation, concealment and violation of the [OCPA]. Although Safari is still in agreement to provide you with indemnity for the allegations in Count I. . . ., any claim or recovery based upon your negligence in the sale or service of the motor home or for fraud, misrepresentation, concealment or violation of the [OCPA] will not be indemnified. Under Ohio law, there is no obligation to defend or indemnify a dealer for independent acts of negligence, fraud or misrepresentation as alleged in the Complaint and now established of record through your employees' testimony.
(Withdrawal Letter.)
Raper contends that despite Safari's claims to the contrary, Safari was aware of the allegations of fraud and other violations of Ohio laws made against Raper prior to the depositions of the Raper employees; not only did the allegations appear on the face of the Gill litigation complaint, but Safari was also the warranty provider for the motor vehicle in question and had paid for the warranty work from 1995 and 1996 cited in the deposition testimony. Pl.'s Reply to Def.'s Facts ¶ 61. Despite Raper's protests, Safari did not provide any defense or indemnification for Raper after May 26, 1999, with respect to Counts Two or Three in the Gill litigation. Pl.'s Facts ¶ 29. Thereafter, Safari took no steps to protect itself or to clarify the rights of the parties, by securing a declaratory judgment that Safari was not obligated to defend and indemnify Raper or by continuing its defense and indemnification under a reservation of rights. As a result of Safari's actions, after May 26, 1999, Raper retained separate counsel to defend itself in the Gill litigation.
In January of 2000, the Court of Common Pleas for Summit County conducted a jury trial in the Gill litigation and the jury returned a verdict in favor of the Gills and against Safari on the Ohio Lemon Law claim (Count One), in the amount of $225,000, and in favor of the Gills and against Raper on the OCPA claim (Count Two), in the amount of $1,600. Pl.'s Facts ¶¶ 32-34. The judgment against Raper on the OCPA claim was based on the jury's finding that Raper failed to provide the Gills with an itemized list of repairs performed on the vehicle at the time such repairs were made; the jury did not find that Raper had committed any act of fraud, did not find that Raper had committed any deceptive sales practices, and did not award punitive damages against Raper. Id. ¶ 35; Def.'s Additional Facts ¶ 64. It is undisputed that Raper incurred $135,000 in fees and expenses for the Gill defense and has incurred in excess of $10,000 in additional fees and expenses in bringing the case at bar. Pl.'s Facts ¶¶ 30-31. Raper seeks to recover these amounts against Safari.
Discussion Summary Judgment Standards
Summary judgment is appropriate 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). A genuine issue of material fact exists if there is sufficient evidence for a reasonable jury to return a verdict in favor of the non-moving party on the particular issue. Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 248 (1986); Eiland v. Trinity Hosp., 150 F.3d 747, 750 (7th Cir. 1998).
With a motion for summary judgment, the burden rests on the moving party to demonstrate "that there is an absence of evidence to support the nonmoving party's case." Celotex Corp. v. Catrett, 477 U.S. 317, 325 (1986). After the moving party demonstrates the absence of a genuine issue for trial, the responsibility shifts to the non-movant to "go beyond the pleadings" to cite evidence of a genuine factual dispute precluding summary judgment. Id. at 322-23. However, mere "[c]onclusory allegations by the party opposing the motion cannot defeat the motion." Hedberg v. Ind. Bell Tel. Co., Inc., 47 F.3d 928, 931 (7th Cir. 1995). "If the non-movant does not come forward with evidence that would reasonably permit the finder of fact to find in [his] favor on a material question, then the court must enter summary judgment against [him]." Waldridge v. American Hoechst Corp., 24 F.3d 918, 920 (7th Cir. 1994) (citing Matsushita Elec. Indus. Co. v. Zenith Radio Corp., 475 U.S. 574, 585-87 (1986); Celotex, 477 U.S. at 322-24; Anderson, 477 U.S. at 249-52).
In considering a motion for summary judgment, a court must draw all reasonable inferences in a light most favorable to the non-movant. Spraying Sys. Co. v. Delavan, Inc., 975 F.2d 387, 392 (7th Cir. 1992). Thus, if genuine doubts remain, and a reasonable fact-finder could find for the party opposing the motion, summary judgment is inappropriate. Shields Enters., Inc. v. First Chicago Corp., 975 F.2d 1290, 1294 (7th Cir. 1992); Wolf v. City of Fitchburg, 870 F.2d 1327, 1330 (7th Cir. 1989). However, if it is clear that a plaintiff will be unable to satisfy the legal requirements necessary to establish his case, summary judgment is not only appropriate, but also required. Celotex, 477 U.S. at 322; Herman v. City of Chicago, 870 F.2d 400, 404 (7th Cir. 1989).
Raper alleges that Safari is liable on three separate theories: breach of contract, estoppel/waiver, and promissory estoppel. We will now proceed to discuss each of these theories in turn.
Breach of Contract
Raper first alleges that Safari breached an express contractual obligation to defend and indemnify Raper in the Gill litigation. In Indiana, the elements for breach of contract are: (1) the existence of a contract; (2) the defendant's breach thereof; and (3) damages. J.S. Sweet Co. v. White County Bridge Comm'n, 714 N.E.2d 219, 228 (Ind.Ct.App. 1999). Safari admits that prior to April 4, 1997, it entered into an oral contract with Raper agreeing to defend and indemnify Raper in the Gill litigation. Def.'s Additional Facts ¶ 44. Raper alleges that the April 4, 1997, letter between Bruzzelli and Safari constitutes a written expression of that agreement by Safari to defend and indemnify Raper in that action. Pl.'s Facts ¶¶ 11-12. Safari denies that the oral contract was ever sufficiently reduced to writing to satisfy Indiana's requirements to create an enforceable duty to indemnify. Def.'s Br. in Resp. to Pl.'s Mot. at 12. In so arguing, Safari contends that even if we consider this letter to be a written memorial of the parties' contract, the terms are too vague to allow us to construe them in a manner consistent with Raper's legal position.
The parties are in agreement that Indiana law applies to this declaratory judgment action. Pl.'s Br. in Supp. at 7 n. 4; Def.'s Additional Facts ¶ 48.
It is a heavy burden that obligates one party to bear the costs of the negligence of another party, a burden that normally a party would not assume lightly. Ogilve v. Steele, 452 N.E.2d 167, 170 (Ind.Ct.App. 1983). Thus, under Indiana law, contracts to provide indemnification for one's own negligence are valid only if they are "knowingly and willingly" made. Ctr. Township v. City of Valparaiso, 420 N.E.2d 1272, 1274 (Ind.Ct.App. 1981) (citing Weaver v. American Oil Co., 276 N.E.2d 144 (Ind. 1971)). For this reason, when Indiana courts are faced with a typical indemnification dispute, "in order for an indemnitor to be liable for the indemnitee's own negligence, there must be a written contract between the parties which contains a clear and unequivocal provision by which the alleged indemnitor knowingly and willingly assumes the onerous burden of indemnification for the indemnitee's negligence." State v. Thompson, 385 N.E.2d 198, 216 (Ind.Ct.App. 1979).
In typical indemnification or duty-to-defend cases, such "clear and unequivocal" language provides a necessary safeguard for the indemnitor. Because most cases involve an indemnification agreement that provides coverage prospectively and an indemnitee who is seeking a declaration that such agreement covers a loss due to the indemnitee's own negligence subsequent to reaching the agreement, in the absence of such clear and unequivocal language, there is simply no way for a court to protect the indemnitor and to be assured that it "knowingly and willingly" accepted such an otherwise "onerous" burden.
While the April 4, 1997, letter does not contain any "clear and unequivocal" language referring to Raper's own negligence in the discussion of indemnification, we do not view the case at bar as presenting the "typical" fact pattern. Unlike an agreement in the "typical" case, made prior to the incident giving rise to the claimed indemnification, the evidence in this case shows that the parties reached an indemnification and defense agreement after the incident which allegedly gave rise to the coverage. Although we find no Indiana cases with facts similar to ours, we are convinced that if the Indiana Supreme Court were faced with similar facts, it would look for other indicators to determine whether Safari "knowingly and willingly" accepted the burden of defending and indemnifying Raper even for its own negligence or misrepresentations.
We have no difficulty identifying such indicators in this case. A simple examination of the complaint in the Gill litigation clearly discloses that Counts Two and Three were predicated upon allegations of negligence or fraud committed by Raper. Count Two asserts:
15. In connection with said transaction, and throughout the course of dealing with Plaintiffs, Defendants Safari and Raper committed unfair, deceptive, and unconscionable practices in violation of the [OSCPA] and other state and federal laws. Such violations include, but are not limited to, failure to provide Plaintiffs with itemized lists of repairs performed on the vehicle at the time such services were rendered; misrepresentation of the history and quality of the vehicle; failure to disclose prior defects and/or damage to the vehicle; and other unfair and deceptive acts.
App. in Supp. of Pl.'s Br. in Supp. of Mot. for Summ. J., Ex. 2, Gill v. Safari, et al. Complaint for Damages ("Gill complaint"). Count Three of the Gill complaint further alleges that:
23. Defendants intentionally took affirmative steps to conceal from Plaintiffs the damage and defects existing in the motor home prior to and at the time of sale.
. . .
25. Defendants' representations were false, and were made with knowledge of such falsity or with such utter disregard and recklessness as to whether the representations were true or false that knowledge may be inferred.
Id.
These allegations make it clear that the Gills were asserting liability based upon intentional misrepresentations and negligent behavior of Raper employees; (while these allegations are advanced against both defendants, Safari had no direct communications with the Gills with respect to the purchase of the vehicle in question). Safari's contentions to the contrary notwithstanding, the Gills were not suing Raper in Counts Two and Three in a derivative capacity as the distributor of a Safari vehicle, but as a primary tortfeasor committing, at least, negligence and, perhaps, intentional misrepresentation. The undisputed evidence makes clear that the agreement to defend and indemnify Raper on these two counts necessarily included indemnity and defense of Raper for its own negligence.
Moreover, Safari's actions subsequent to reaching this agreement were consistent with this obligation. Safari undertook to defend the matter in its entirety, controlling discovery, settlement discussions, and all aspects of litigation strategy. This defense continued, even after learning of information during the depositions of Raper employees that was consistent with the Gills' allegations. It was not until the eve of trial that Safari made its claim to Raper that it was not required under Ohio law to indemnify Raper in the Gill litigation due to the uncovering of "fraud and potential violations of the [OSCPA]" at the depositions. While the issue of whether this is an accurate description of controlling Ohio law has not been briefed, it is irrelevant to our consideration since Indiana law, which allows a party to contract to be defended and indemnified for its own negligence, is controlling. E.g., Weaver v. American Oil Co., 276 N.E.2d 144 (Ind. 1971).
Thus, we conclude that the parties reached a binding, oral contract requiring Safari to defend and indemnify Raper as to all counts of the Gill litigation, which contract was substantially reduced to writing in the April 4, 1997, letter from Safari's counsel, Bruzzelli, to Safari and copied to a Raper representative. Safari breached this contract when it withdrew its defense and indemnification on May 26, 1999 and, as a result of the breach: (1) Raper was required to incur expenses and attorney's fees in the amount of $135,000 during the defense of the Gill litigation; (2) suffer an adverse judgment on Count Two of the Gill litigation in the amount of $1,600; and (3) expend in excess of $10,000 prosecuting this case. Raper is entitled to summary judgment on its breach of contract claim.
Estoppel
A finding that Safari breached an express contract to indemnify and defend Raper in the Gill litigation, including protecting Raper's own acts of negligence and misrepresentation, would be sufficient to allow full relief in favor of Raper and against Safari in this case. However, we additionally hold that the requirements of estoppel have been met, so that even if no express contract to defend and indemnify Raper for its own negligence and misrepresentations existed, the doctrine of equitable estoppel prevents Safari from withdrawing its defense and indemnification in the Gill litigation.
In the insurance context, estoppel refers to a preclusion from asserting rights by an insurance company or an abatement of rights and privileges of the insurance company where it would be inequitable to permit the assertion of rights. Employers Ins. Co. of Wausau v. Recticel Foam Corp, 716 N.E.2d 1015, 1028 (Ind.Ct.App. 1999), trans. denied 735 N.E.2d 235 (Ind. 2000) (citing 46 C.J.S. Ins. § 824 (1993)). As a general rule under Indiana law, the doctrine of estoppel cannot create or extend the scope of coverage of an insurance contract. Id.; Transcon. Ins. Co. v. Manta, 714 N.E.2d 1277, 1280 (Ind.Ct.App. 1999). This rule protects an insurance company from being required to pay out on a loss for which it has not contracted to accept the risk, such as by charging and receiving a premium. See Manta, 714 N.E.2d at 1281.
Although the case at bar does not involve a suit by the insured against its insurance company, the positioning of the parties here is substantially similar to such a case: Safari contracted to provide Raper the defense of and indemnify for the claims in the Gill litigation, thus insuring Raper against any loss stemming from that litigation.
However, an exception to this general rule holds that an insurer who defends an action against its insured, without reservation of rights, and with knowledge of facts that would have permitted it to deny coverage, may be estopped from subsequently raising the defense of noncoverage. Id.; accord Employers Ins. Co. of Wausau, 716 N.E.2d at 1028; Hermitage Ins. Co. v. Salts, 698 N.E.2d 856, 859 (Ind.Ct.App. 1998). A contrary view would give rise to a potential conflict of interest — where the insurer simultaneously maintains the defense of, and seeks a way to be absolved from responsibility for an action against the insured; moreover, by allowing the insurer to control the defense of an action, the insured is deprived of the right to control its own defense. Employers Ins. Co. of Wausau, 716 N.E.2d at 1028; Manta, 714 N.E.2d at 1281. Equity requires that the insurer be estopped from withdrawing its coverage where the insured has suffered prejudice as a result of the insurer's actions, prejudice which exists, as a matter of law, when the insurer, without reserving its rights and giving the insured an opportunity to determine whether to accept the tender of defense, assumes a complete defense of the underlying suit against the insured and controls the litigation for an extended period of time, thereby depriving the insured of its right to control the course of its own litigation. Manta, 714 N.E.2d at 1282; see also United Servs. Auto. Ass'n v. Caplin, 656 N.E.2d 1159, 1162 (Ind.Ct.App. 1995) (finding estoppel or waiver did not serve to prevent insurer from withdrawing defense of insured when initial decision to defend was made under a reservation of rights and insured was therefore not prejudiced by this decision).
Although Safari acknowledges that Indiana law allows for this exception to the general rule, it contends, first, that it did not undertake the defense of Raper with knowledge of facts that would have permitted it to deny coverage (it claims that it first learned of the potential misrepresentations of Raper's employees during the depositions), and, secondly, that Raper suffered no prejudice from Safari's withdrawal of its defense to the Gill litigation, as evidenced by the fact that Safari bore the cost of developing the case for trial, the value of which is reflected in the fact that Raper's own expenses in defending the Gill litigation after May of 1999 were in excess of $100,000, and that Raper was ultimately found liable in the amount of only $1,600. Safari asserts that it, in fact, is the aggrieved party, having borne the expense of Raper's defense when it was not contractually obligated to do so. Def.'s Am. Resp. to Pl.'s Mot. at 21.
Even if we assume that the contractual obligation undertaken by Safari did not include indemnification and defense for negligence or misrepresentations by Raper employees, no reasonable factfinder could conclude that Safari was unaware that Raper was accused of negligence and intentional misrepresentation by the Gills. The allegations of negligence and misrepresentation against Raper are conspicuous on the face of the Gill complaint. Gill Complaint ¶¶ 15, 23, 25. Accepting Safari's argument that it was unaware that Raper's employees had allegedly been negligent and made misrepresentations, even so, the very latest that Safari became aware of those facts was at the time of the depositions of those employees.
Safari's own evidence shows that at the August 20, 1998, depositions it was disclosed that Raper had failed to provide the Gills with the necessary paperwork or to disclose the necessary information prior to the sale of the recreational vehicle. Safari contends that this information triggered its change in position. However, not until May 18, 1999, approximately nine months later, did Safari "determine" that it was not required to defend or indemnify Raper allegedly based on the revelations in the deposition testimony.
Manta is instructive here. In Manta, the insurer assumed the defense of the defendant, a secondary-insured on a policy, in July of 1994. At the time it undertook the defense, it was unclear whether the loss was covered under the terms of the policy; however, one month later, the insurance company definitively learned that the loss involved was not covered. Despite this knowledge, the insurer continued to control all aspects of the defense over the ensuing fifteen months, without any reservation of rights under the policy to assert a coverage defense. The appellate court held that the insured had relied upon the insurer's agreement to defend and indemnify it and that the estoppel exception applied. Manta, 714 N.E.2d at 1282-83.
Manta is factually and legally indistinguishable from the case at bar. Accordingly, we conclude that the same result should pertain. Whether this is a case in which Safari was initially aware of the basis for noncoverage, or one in which Safari became aware of these facts after agreeing to provide the defense and indemnification, the result is the same. Safari controlled the defense of the claims, making important strategic decisions, defining the settlement posture and conducting discovery for an extensive period of time after it had become aware of its possible defense to coverage. So long as Raper suffered prejudice as a result of Safari's continued defense and indemnification while Safari had the (alleged) knowledge that such defense and indemnification was not contractually required, estoppel is appropriate.
Safari contends that Manta is distinguishable because the insurance company was receiving premiums in that case whereas Safari was not paid any premium by Raper to support the obligation to defend. We view this as a distinction without a difference. The payment of the premium was irrelevant to the Indiana appellate court's holding; it was the actions of the insurer upon finding out that the loss involved was beyond the scope of the agreement that defined the obligation to defend and indemnify the insured.
Safari's protests notwithstanding, the evidence directs a finding that Raper did suffer significant prejudice due to Safari's actions. Again, Manta, is instructive, holding that, as a matter of law, the insurer's control of the insured's defense, discovery, settlement, and all aspects of the defense, without a reservation of rights, prejudiced the insured. Id. at 1282-83; see also Knox-Tenn Rental Co. v. Home Ins. Co., 2 F.3d 678, 682 (6th Cir. 1993) (holding that under Tennessee law, prejudice is conclusively determined when there is no reservation of rights by an insurer and it defends a case resulting in a finding of liability entered against the insured); Braun v. Annesley, 936 F.2d 1105, 1110 n. 5 (10th Cir. 1991) (holding that under Oklahoma law, "[p]rejudice to the insured is presumed by virtue of the insurer's assumption of the defense"); Royal Ins. Co. v. Process Design Assocs., Inc., 582 N.E.2d 1234, 1241 (Ill.App. 1991) (finding prejudice under Illinois law where insurer controlled litigation for three years); Hartford Ins. Group v. Mello, 437 N.Y.S.2d 433, 434-35 (N.Y. A.D. 198 1) (same result under New York law where control lasted two years); cf. Miller v. Dilts, 463 N.E.2d 257, 265-66 (Ind. 1984) (finding that a delay of six months between the time of the event giving rise to coverage under the insurance policy and notification of the incident by the insured to the insurer was unreasonable as a matter of law, giving a presumption of prejudice because it infringed upon the insurer's ability to make a timely and adequate investigation and to prepare an adequate defense).
We repeat: Raper was unable to control the course of the litigation from April 4, 1997, until May 18, 1999, more than two years during which Safari made all of the decisions regarding the choice of forum, the choice of law, the preparation of witnesses for deposition, the course of discovery and the settlement posture. Under such circumstances, Indiana law directs a finding of prejudice as a matter of law.
Finally, it deserves to be noted that Safari was not without options if it believed that the evidence uncovered during depositions created a defense of noncoverage under the agreement between the parties.
When an insurer questions whether the insured party's claim falls within the scope of the policy coverage or raises a defense that its insured has breached a policy condition, the insurer essentially has two options: (1) file a declaratory judgment for a declaration of its obligations under the policy; or (2) hire independent counsel and defend its insured under a reservation of rights.
Gallant Ins. Co. v. Wilkerson, 720 N.E.2d 1223, 1227 (Ind.Ct.App. 1999) (citing Liberty Mut., Ins. Co. v. Metzler, 586 N.E.2d 897, 902 (Ind.Ct.App. 1992) and State Farm Ins. Co. v. Glasgow, 478 N.E.2d 918, 923 (Ind.Ct.App. 1985)); accord State Farm Fire and Cas. Co. v. T.B., 728 N.E.2d 919, 922 (Ind.Ct.App. 2000). An insurer who believes it has no duty to defend and refuses to do so without exercising either of these options "does so at its peril." Wilkerson, 720 N.E.2d at 1227. Accepting Safari's version of the facts, Safari's decision to withdraw its defense was made at its own peril, when it neither sought a declaratory judgment as to the rights under the agreement nor continued to defend under a reservation of rights. Safari now must face the consequences of its decision.
Safari's withdrawal of its defense and indemnification of Raper in the Gill litigation caused Raper to have to expend $135,000 in fees and expenses in defending the matter and incur liability of $1,600. In addition, Raper was required to expend in excess of $10,000 in fees and expenses in prosecuting the case at bar. This is prejudice as a matter of law, and Safari is thus estopped from asserting noncoverage under its agreement to defend and indemnify Raper for the Gill litigation.
Safari also asserts that the equitable doctrine of "unclean hands" prevents Raper from being able to assert estoppel on these facts. However, this doctrine "is not favored by the Indiana courts and is applied with reluctance." Foursquare Tabernacle Church of God in Christ v. Dep't of Metro. Dev., 630 N.E.2d 1381, 1385 (Ind.Ct.App. 1994) (citing Tomahawk Vill. Apartments v. Farren, 571 N.E.2d 1286 (Ind.Ct.App. 1991)). We will not invoke this rarely used doctrine to foreclose relief to Raper in this case.
Damages
Having found in favor of Raper under both the breach of contract and estoppel theories, we turn to the issue of damages. Regardless of whether Safari is deemed to have breached a contractual obligation to defend and indemnify Raper or whether it is estopped from asserting noncoverage for the Gill litigation, our calculation of damages is the same: because Safari had a duty to defend Raper, it is liable for the reasonable and necessary expenses incurred by Raper in defending the Gill litigation and the consequential damages flowing from Safari's failure to perform this duty. Employers Ins. of Wausau, 716 N.E.2d at 1027; see also Manta, 714 N.E.2d at 1283 (awarding damages for the settlement amount of $540,000 and defense costs of $50,081.30 where insurer was found to have breached a duty to defend the insured and alternatively was estopped from asserting noncoverage). While Raper bears the burden of establishing the specific nature of the attorney services rendered and the reasonableness of the fees, Indiana law allows judicial notice to be taken of the reasonableness of professional legal fees in routine cases or in those involving small rewards. Employers Ins. of Wausau, 716 N.E.2d at 1027; Loudermilk v. Casey, 441 N.E.2d 1379, 1387 (Ind.Ct.App. 1982).Raper asserts that it spent more than $135,000 in fees and expenses in defending the claims against it in Gill and that it was found liable in Gill for $1,600, amounts that are not disputed by Safari. Pl.'s Facts ¶ 31. (Safari itself invokes the costs borne by Raper in the Gill litigation as examples of how much Safari had to spend prior to withdraw its defense. Def.'s Am. Resp. to Pl.'s Mot. at 21.) We therefore take judicial notice of these amounts and their reasonableness and award Raper damages for the full $136,600. In addition, we award to Raper the reasonable costs and fees generated to prosecute this action, which we have been informed approximates $10,000.
Conclusion
For the reasons explicated above, we GRANT Plaintiff's motion for partial summary judgment and DENY Defendant's motion for partial summary judgment.
It is so ORDERED.
JUDGMENT
In accordance with the Court's Entry of this date, Judgment is hereby entered in favor of the Plaintiff, Tom Raper, Inc. ("Raper"), and against the Defendant, Safari Motor Coaches, Inc. ("Safari") and damages consistent therewith as more fully explicated in the accompanying Entry.
It is so ORDERED.