Opinion
Cause No. IP97-1808-C-T/G
May 24, 2000
I. Summary Judgment Standard
Summary judgment is appropriate where "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 judgment as a matter of law." Fed.R.Civ.P. 56(c); see Celotex Corp. v. Catrett, 477 U.S. 317, 322 (1986). The court construes the evidence and draw all reasonable inferences based on the evidence in the light most favorable to the nonmoving party. Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 255 (1986).
Once a properly supported summary judgment motion is made, the nonmovant must "go beyond the pleadings" and designate specific facts to support or defend each element of the claim, demonstrating a genuine issue for trial. Celotex, 477 U.S. at 322-23. The nonmovant must come forward with sufficient evidence supporting the claimed factual dispute in order to avoid summary judgment. Anderson, 477 U.S. at 249. "If the evidence is merely colorable, or is not significantly probative, summary judgment may be granted." Id. at 249-50.
II. Background
Plaintiff American Modern Home Insurance Company ("AMHIC") sold a Lenders Comprehensive Single Interest Insurance ("VSI") Policy, Policy No. CPP991200, effective October 1, 1996, to Defendant Tranex Credit Corporation ("Tranex"), a consumer sales finance company that purchases and services retail installment contracts secured by new and used automobiles and light duty trucks. This suit arises from that Policy.
The Policy is designated as a lender's single interest insurance policy, but the documents and testimony of witnesses refers to it as a "VSI" policy, and the court will do the same.
In December 1994, Tranex had a VSI policy issued by Northland Insurance Company ("Northland"). Around September 1996, that policy was terminated and Alex Gray of Tranex began seeking a replacement for the policy. Tranex contemplated that the replacement policy was going to "cover all loans in the [Tranex] portfolio." (Gray Dep. at 96.) At that time, all Tranex loan documents required VSI, and Tranex was insuring loans only in the states of Indiana, Illinois, Kentucky and Ohio. (Gray Aff. ¶ 6.) These states allowed Tranex to pass the VSI charge along to the customer. (Gray Dep. at 111.)
Gray came into contact with Dick Hankins, an insurance agent, regarding replacement of the Northland policy. Hankins contacted George Maley, who had prior experience with VSI insurance. Hankins and Maley had an initial meeting with Gray to discuss possible alternatives for insurance. Maley then contacted John Behringer, a field representative for the financial services division of AMHIC, who was primarily responsible for marketing blanket single interest insurance policies in the Indianapolis area. A meeting was held between Gray, Hankins, Maley and Behringer, in which AMHIC was introduced as a potential carrier for the VSI policy sought by Tranex. After that meeting, a proposal was prepared and presented to Gray. The "Tranex Credit Corporation [sic] Variable Single Interest Insurance Proposal," prepared by Hankins on or about September 18, 1996, proposes to "Provide you [Tranex] with a committed Insurance Carrier [AMHIC] that is willing to continue with you as you grow and seek out markets to securitize your portfolio of loans." (Hankins Dep., Ex. 6.)
During negotiations, Tranex requested that AMHIC provide coverage for the life of each loan. The proposal to Tranex was made with no "run-off" coverage, meaning there would be no coverage for any loans after cancellation of the Policy. (Behringer Dep. at 29 Ex. 16-A at 2.) As an alternative to coverage for the life of the loans, the proposal offered to provide an extended policy period of 36 months. Alex Gray, however, understood the proposal to be that AMHIC would provide coverage for a loan for 36 months. (Gray Dep. at 77.)
The Policy provides Tranex with protection against damage to, or loss of, covered vehicles. "Covered vehicles" include those that secure retail installment contracts purchased by Tranex after the Policy's inception as well as those purchased before the Policy's inception. The Policy period was from October 1, 1996, "until cancelled." The Policy contains the following conditions, inter alia:
1. POLICY PERIOD, TERRITORY — This Policy shall be effective from the date of inception as shown on the Declarations and shall remain continuously in effect until terminated as hereinafter provided. This policy applies only to loss during the policy period. . . .
. . .
INSPECTION OF NAMED INSURED'S RECORDS — The Company or its representatives may at any reasonable time during business hours inspect the Names Insured's records for the purpose of determining the amount of premium due the Company under this insurance.
. . .
REPORTS AND PREMIUM - The Named Insured agrees to keep accurate records of notes or instruments having collateral of a type covered herein normally processed, purchased or made by the Named Insured and shall render to the Company or its authorized representative, on forms provided by the Company, a statement of such transactions required for a determination of premiums not later than the fifteenth (15) day of the month following the close of each Audit Period as specified in Item 5 of the Declarations. On this date the premium is due and payable, premium for this policy shall be computed in accordance with the company's rules, rates and rating plans applicable to the insurance afforded herein.
(Compl., Ex. A) (emphasis added.) AMHIC's rules and rating plan for the VSI insurance policy are contained in a program booklet which states in pertinent part:
HOW IT IS WRITTEN:
The underwriting company issues one master policy naming you as the insured.
. . .
You insure either:
All new loans from the effective date of your policy or
Both all new loans and all existing loans from the effective date of your policy.
(Cobb Aff., Ex. 1.) The program booklet was not provided to Tranex at any time before AMHIC commenced this action. Maley testified that Tranex could elect not to insure loans in those states in which it could not pass through the cost of VSI to the customer, provided that AMHIC was notified at the Policy's inception. (Maley Dep. at 79.) The Policy contains no minimum premium amount or volume of loans that must be insured.
At the Policy's inception, Tranex was insuring loans in the states of Indiana, Illinois, Kentucky and Ohio. Thereafter, it began insuring loans in the states of Michigan, Georgia and Pennsylvania, which did not allow it to pass the VSI charge along to the customer. At Tranex's request, AMHIC deleted the states of Michigan, Georgia and Pennsylvania from coverage under the Policy, effective March 1, 1997. After March 1, 1997, Tranex insured loans in other states including Missouri, Maryland, New Jersey, Virginia, Kansas, Florida, South Carolina, Tennessee, North Carolina, Texas and Iowa, in which the loan documents did not require the borrower to purchase lender's single insurance. There is a dispute of material fact as to whether AMHIC agreed that these new states did not need to be included on the Policy and whether AMHIC required a premium to be paid on any loans in these states. ( See Cobb Aff. ¶ 5; Gray Aff. ¶¶ 6 and 7; see also App. Tranex's Reply Br. Supp. Mot. Summ. J., Ex. 9-George Maley's letter to Alex Gray of 8/7/97 stating that "coverage under said policy is for the following states: Indiana, Ohio, Illinois and Kentucky".))
It is not insignificant that Maley signed the letter to Tranex as "Agent, [AMHIC]." ( Id.)
The Policy states with respect to rate calculation that rate of premium calculation is "per loan" and "per vehicle." It further states: "All premiums shall be fully earned when paid and no refund of premium shall be made by the Company upon cancellation for any reason whatsoever." The Policy premium rate endorsement provides that:
The schedule of rates applicable per loan is as follows when the policy is used in conjunction with the program which requires the charge be applied to each eligible loan:
. . .
Rate — $57.00 per Loan
(Lenders Comprehensive Single Interest Rate Endorsement) (emphasis added). The term "eligible loan" is not defined anywhere in the Policy. Behringer testified that "each eligible loan" meant "each loan that is made" and "each loan in Tranex's portfolio." (Behringer Dep. at 69.) Maley testified that "eligible loan" referred to the types of covered collateral and limit of dollar amount of the loan contained in the rate endorsement. (Maley Dep. at 114-15.)
Gary Cobb, the manager of the AMHIC division marketing VSI products issued the Policy and set the premium. He calculated the initial rate of premium by adding the number of assumed loans to the number of loans estimated to be written by Tranex in the year following the Policy's inception (8,000). (Cobb Dep. at 53-54; Behringer Dep., Ex. 16.B.) The estimated number of loans came from Maley and Alex Gray. (Gray Dep. at 86.) Cobb then calculated a projected total loss, using the last year loss information and assuming that the loss rate would be the same for the upcoming year. He calculated the projected losses on the portfolio as a whole or blanket basis. (Cobb Dep. at 60-61.) He then calculated the initial premium rate. ( Id. at 54.) Hankins also made his own initial rate calculation which was based on the assumption that the premium charge would be made for every loan in Tranex's book of business. (Hankins Dep. at 90-91.)
Cobb did testify that he had not seen AMHIC's proposal to Tranex which stated the actual VSI loss ratio and that he was unaware that Tranex's loss history was sixty percent. (Cobb Dep. at 27-28.) Nothing in this testimony, however, contradicts Cobb's testimony that he calculated the projected losses based on the prior year's losses and entire loan portfolio.
At the Policy's inception, the premium per loan was $57. Tranex understood that AMHIC had the ability to raise the premium rates during the policy period. Under the terms of the Policy, premiums were due and payable on the 15th day of the month. The Policy required that not later than the 15th day of the month, Tranex provide to AMHIC a statement of transactions required for the determination of premiums.
There is a genuine issue of material fact as to whether Tranex and Alex Gray were advised prior to the Policy's inception that a premium charge was required to be paid on every loan in Tranex's portfolio. AMHIC claims that they were, (Pl.'s Br. Supp. Mot. Partial Summ. J. at 4), but all but one of the materials cited fail to provide evidentiary support. ( See Hankins Dep. at 61; Behringer Dep. at 32; Maley Dep. at 122 (stating he told Gray that Tranex had to pay a premium on "all qualified loans".)) Hankins, however, was asked whether, based on his dealings with Gray and Tranex, Tranex "understood the policy was being issued and being priced based on the fact that the per loan premium charge would be paid on [its] entire portfolio?" Hankins answered that although he could not testify as to Tranex's understanding, "It was all written and fairly presented to Tranex that would be what was anticipated." (Hankins Dep. at 111.) Hankins added that was what he tried to communicate to Tranex. ( Id. at 112.) AMHIC claims that Alex Gray does not deny that there were such discussions regarding the required premium on all loans in Tranex's portfolio. (Pl.'s Br. Supp. Mot. Partial Summ. J. at 4-5.) Gray initially did testify he could not recall such discussions, (Gray Dep. at 68-69), but AMHIC ignores his subsequent testimony that neither Hankins nor Maley ever told him prior to the Policy's inception that Tranex was expected to pay a premium on all loans in its portfolio. ( Id. at 95.) Thus, there is a genuine issue of fact as to whether Tranex was advised before the Policy's inception that a premium was required to be paid on all loans in Tranex's portfolio.
According to Cobb, a high loss ratio in some circumstances justifies cancellation of an insurance policy. (Cobb Dep. at 41.) Behringer states that a loss ratio in excess of 100% entitles an insurer to breach the insurance contract. He also believes that an insurer is justified in canceling a policy if an account is not profitable. (Behringer Dep. at 76-77.) The Tranex account was not profitable for AMHIC. Its targeted loss ratio for 1997 was in the area of 60% (Hurt. Dep. at 6); its actual loss ratio in June 1997 was 369%. (Cobb Dep. at 36, Ex. 10.)
Because of a continued increase in the level of Tranex's claims and loss ratio, AMHIC increased the premium rate to $80, effective April 1, 1997; to $100, effective May 1, 1997; to $250, effective October 1, 1997. Tranex consented to these rate increases by executing a consent to rate increase form. Hankins inferred that AMHIC was driving up the premium rate in an effort to cause Tranex to refuse the rate increase, thus allowing AMHIC to cancel the Policy. (Hankins Dep. at 75.) Gary Cobb did testify, however, that despite Tranex's 369% loss ratio, he was not looking for ways to discontinue the Tranex account. (Cobb Dep. at 35-36.)
Around July 1997, Gary Levine, President of Tranex, initiated an amendment to Tranex's agreement with GE Capital, its primary lender. Levine explains he did so because he "had no need for the VSI insurance at that point in time." (Levine Dep. at 39-40.) As a result of the amendment, Tranex was no longer required to provide VSI insurance on new loans originating in the states of Indiana, Ohio, Kentucky and Illinois. Tranex therefore reduced the volume of loans which it insured. Prior to July 1997, Tranex's retail installment contract and security agreement form included the following language: "I [borrower] must purchase Vender's Single Interest Insurance (VSI). I may purchase this insurance from anyone I choose that is acceptable to seller." (Gray Dep., Ex. S.)
On or about September 11, 1997, Alex Gray wrote to Gary Cobb: "There has been a change in our program that may affect the premium in the future. If you have any questions, please do not hesitate to call." (Gray Dep., Ex. D.) Around that time, Tranex began reporting a severely reduced number of loans upon which premium was paid. For the period of November 1996 through July 1997 Tranex had reported between 400 and 700 loans per month. However, it reported 136 loans in September 1997 and only 1 loan in October 1997.
Because of the drastic reduction in reported loans and premium paid, AMHIC attempted to perform an audit of Tranex's records to "insure that we [AMHIC] were receiving the proper premiums. . . ." (Dirksing Dep. at 9.) AMHIC auditor Tony Dirksing requested access to, for purposes of reviewing, "loan registers for every month from 9/30/96 (at inception of policy) to the present." ( Id., Ex. 22.) There is an issue of material fact as to whether Tranex provided all of its loan registers for the relevant time period. Though Gray testified that he refused to provide registers regarding all loans written by Tranex, (Gray Dep. at 149-50), Dirksing's audit report indicates that he "obtained the monthly loan registers (from October 1996 through September 1997) which listed all new loans originated during each month. . . ." (App. Tranex's Reply Br. Supp. Mot. Summ. J. Br. Opp'n Pl.'s Mot. Summ. J., Ex. 21.) Thus, there is an issue of fact whether Tranex provided loan registers for all loans written by Tranex.
Dirksing had a conversation with Gray in which Gray indicated that Tranex would pay no premium on "all GE Capital loans." (Dirksing Dep. at 23.) Dirksing determined that Tranex was not paying premiums on "all loans." ( Id. at 16.) Thereafter, Gary Cobb notified Tranex in writing that the policy was being cancelled "due to non-payment of premium." (Hankins Dep., Ex. 13.)
Prior to the audit, AMHIC increased the premium rate to $500, effective December 1, 1997. Tranex called this last premium rate "intolerable," (Gray Dep. at 136), and decided to stop paying premium on loans because the cost was "prohibitive." (Levine Dep. at 41.) Tranex did execute a consent to rate increase form regarding this last rate increase. AMHIC, however, did not sign the consent form.
The Policy's cancellation provision in paragraph 28 was replaced by the General Change Endorsement, dated September 30, 1996. The provision provides in pertinent part:
For the first forty-two months this Policy is in effect, the Company shall only cancel such Policy for the following reasons:
1). In the event that the Named Insured fails to discharge when due any of its obligations in connection with the payment of premium for this Policy or any installment thereof . . .
2). In the event that the Named Insured has concealed or misrepresented any material fact or circumstances concerning this insurance or the subject thereof or in case of any fraud attempted fraud or false swearing by the Named Insured touching any matter relating to this insurance or the subject thereof, whether before or after a loss; and
3). In the event that the Named Insured declines any rate increase implemented by the Company under the Policy due to poor loss experience.
In any such event the Company shall cancel such Policy by mailing notice to the Names Insured stating that not less than ten (10) days thereafter such cancellation shall become effective. The effective date of cancellation stated in the notice shall become the end of the policy period thus concluding coverage under this Policy.
(Compl., Ex. A) (emphasis added) On October 24, 1997, AMHIC threatened to cancel the Policy, effective November 7, 1997, for non-payment of premium. The Policy was cancelled without any other notice of any deficiency or delinquency.
On November 7, 1997, Plaintiff AMHIC filed its Complaint for Declaratory Judgment against Defendant Tranex. Count I seeks a declaration that the Policy is cancelled effective November 14, 1997 and for damages for premiums owed under the Policy but unpaid by Tranex, up to the effective date of cancellation of the Policy. Since filing this suit, AMHIC has not paid any claims submitted by Tranex.
The Complaint had contained a Count II, seeking damages for fraud and misrepresentation. On Plaintiff's motion, the court dismissed Count II with prejudice and struck paragraph 3 of the "WHEREFORE" clause from the Complaint.
On November 25, 1997, Tranex filed its Answer to Complaint, Affirmative Defenses and Counterclaim of Tranex. Count I of its Counterclaim alleges breach of contract in that AMHIC cancelled the policy before the expiration of 42 months and failure to pay claims on vehicles for which it accepted premiums. It alleges that AMHIC is obligated to pay claims occurring at least during the first forty-two months after the inception of the Policy on vehicles securing loans purchased by Tranex (1) after the inception of the Policy and (2) before the inception of the Policy, for which AMHIC agreed to provide coverage under the Policy. Count II of the Counterclaim alleges breach of the duty of good faith and fair dealing.
III. Discussion
AMHIC moves for summary judgment on Count I of its Complaint and on Tranex's counterclaim. Tranex moves for partial summary judgment on its breach of contract counterclaim.
The parties agree that Indiana substantive law governs this dispute. See Klaxon Co. v. Stentor Elec. Mfg. Co., 313 U.S. 487 (1941) (district court must apply choice of law rules of forum state); W.H. Barber Co. v. Hughes, 63 N.E.2d 417, 423 (Ind. 1945) (Indiana applies a "most intimate contacts" approach to contract claims); Dohm Nelke v. Wilson Foods Corp., 531 N.E.2d 512, 513 (Ind.Ct.App. 1988) (same). Under Indiana law, insurance contracts generally are governed by the same rules of construction as are other contracts. See Colonial Penn Ins. Co. v. Guzorek, 690 N.E.2d 664, 667 (Ind. 1997); Eli Lilly Co. v. Home Ins. Co., 482 N.E.2d 467, 470 (Ind. 1985); United Tech. Automotive Sys., Inc. v. Affiliated FM Ins. Co., 725 N.E.2d 871, 873 (Ind.Ct.App. 2000). If the policy language is clear and unambiguous, it should be given their plain and ordinary meaning. See Guzorek, 690 N.E.2d at 667; United Tech. Automotive Sys., Inc., 725 N.E.2d at 873. Application of clear and unambiguous policy language to undisputed facts is a question of law. Smith v. Allstate Ins. Co., 681 N.E.2d 220, 223 (Ind.Ct.App. 1997). If there is no ambiguity, then the court will not consider extrinsic evidence to determine the meaning of the policy language. See, e.g., Indiana Gaming Co., L.P. v. Blevins, 724 N.E.2d 274, 278 (Ind.Ct.App. 2000).
Policy language is ambiguous only if susceptible to more than one reasonable interpretation. See Eli Lilly Co., 482 N.E.2d at 470; United Tech. Automotive Sys., Inc., 725 N.E.2d at 873. A policy term is not ambiguous simply because it is not defined in the insurance policy. See Guzorek, 690 N.E.2d at 667. A policy is not ambiguous because there is a controversy between the parties as to its interpretation. See Smith, 618 N.E.2d at 223. Ambiguous provisions must be construed in favor of the insured. See Meridian Mut. Ins. Co. v. Auto-Owners Ins. Co., 698 N.E.2d 770, 773 (Ind. 1998); Guzorek, 690 N.E.2d at 667; Eli Lilly Co., 482 N.E.2d at 470. This is particularly true with unclear provisions that limit or exclude coverage in order to further the policy's basic purpose of indemnity. See Meridian Mut. Ins. Co., 698 N.E.2d at 773; Eli Lilly Co., 482 N.E.2d at 470.
"[T]he interpretation of an insurance policy is generally a question of law for the courts to decide, even if the policy contains an ambiguity needing resolution." Town of Orland v. National Fire Cas. Co., 726 N.E.2d 364, 369 (Ind.Ct.App. 2000) (citations omitted). This makes summary judgment particularly appropriate for the construction of an insurance policy. Id. But where the meaning of an ambiguous provision can be ascertained only with reference to extrinsic evidence, summary judgment is inappropriate. See Plumlee v. Monroe Guar. Ins. Co., 655 N.E.2d 350, 355 (Ind.Ct.App. 1995), trans. denied.
AMHIC maintains that under Indiana law, the court must ascertain the meaning of the policy based on the policy's language and not on extrinsic documents. Neither Eli Lilly nor Marshall v. Universal Underwriters Ins. Co., 673 N.E.2d 513, 517 (Ind.Ct.App. 1996), stands for such a proposition. In Eli Lilly, the court did not consider extrinsic evidence because it didn't have to: the insured's interpretation of the ambiguous policy language was a reasonable one. See Eli Lilly, 482 N.E.2d at 470. Marshall does not even address the appropriateness of considering extrinsic evidence.
A. AMHIC's Motion for Partial Summary Judgment
AMHIC contends it is entitled to summary judgment on Count I of the Complaint and Tranex's Counterclaim because the Policy and AMHIC's underwriting rules and rating plan require that a premium be paid on all loans in Tranex's portfolio and Tranex refused to pay a premium on all loans. In addition, AMHIC contends Tranex violated the Policy by refusing to provide AMHIC with loan records during an attempted audit. AMHIC argues that if there was a misunderstanding regarding the premium due under the Policy, that was due to Tranex's unilateral mistake. AMHIC argues to the extent there was no meeting of the minds, there was no valid contract and it has no further obligation to return any premium to Tranex. Lastly, AMHIC contends it is entitled to summary judgment on Tranex's bad faith claim because there is no evidence of wrongdoing necessary to support such a claim.1. AMHIC's Claim for Declaratory Judgment
AMHIC claims that the Policy requires the per loan premium charge be paid on all loans in Tranex's portfolio. In support, it relies on the policy premium rate endorsement which "requires the charge be applied to each eligible loan," and the provision stating that the Policy premium "shall be computed in accordance with the Company's rules, rates and rating plans. . . ." AMHIC's first problem is with what the Policy, and specifically the rate endorsement, fail to provide. No provision in the Policy expressly requires a premium to be paid on all loans in Tranex's portfolio. No provision requires a minimum number of loans or aggregate premium. The Policy does not state that Tranex is required to insure its "portfolio." Instead, the Policy requires a premium to be paid per each "eligible loan" insured. The term "eligible loan," however, is nowhere defined in the Policy.
AMHIC's second problem is that its rules, rates and rating plans are not clearly incorporated into the Policy. Though the Policy refers to the rules, rates and rating plans, it does not expressly incorporate them. In addition, when the evidence is viewed in the light most favorable to Tranex and all reasonable inferences are drawn in its favor, the record supports a finding that AMHIC did not follow the rules and rating plans contained in its program booklet: AMHIC did not require Tranex to insure and pay a premium on all new loans in its portfolio. Moreover, despite language in the program booklet, in a letter to Tranex, dated August 7, 1997, regarding a premium increase, Maley, as AMHIC's agent, advised Gray that coverage under the Policy was for Indiana, Ohio, Illinois and Kentucky.
AMHIC relies on two cases which it maintains applied policy language similar to that contained in the Policy, see Prudential Ins. Co. v. Miller Brewing Co., 789 F.2d 1269 (7th Cir. 1986), and Seeburg Corp. v. United Founders Life Ins. Co., 403 N.E.2d 503 (Ill.App. 1980). At issue in Miller Brewing was the meaning of the premium computation clause. The first sentence of the clause provided that the "premium due" was "the sum of the premium charges for the insurance then provided under the coverage of the group policy," which was determined by "the applicable premium rates then in effect" multiplied by "the employees insured". Id. at 1272, 1275. The second sentence of the clause stated: "Premiums may be computed by any other method mutually agreeable to the policyholder and Prudential which produces approximately the same amount." Id. The insured argued that the second sentence of the premium computation clause rendered the clause ambiguous with respect to the premium calculation. Id. at 1274-75. The court concluded that the provision for a second method of calculating the premium did not render the contract ambiguous. Id. at 1276. The court found that insured knew how the premium was to be calculated based on this language-based on the applicable rates and the employees insured. The court explained that the insured knew that if another method was used, it would produce approximately the same amount of premium due as computed by the method contained in the first sentence of the premium computation clause. Id. The insured did not claim any uncertainty as to which employees or the number of employees who were covered by the insurance and for whom a premium was to be paid. Thus, the alleged ambiguity in Miller Brewing is quite unlike the alleged ambiguity in the instant case. There is another difference between Miller Brewing and this case- Miller Brewing was decided following a trial on the merits. Id. at 1271.
In Seeburg, the language regarding premium calculation provided: "At the end of each policy year after the first, this policy shall be subject to experience rating in accordance with [United's] experience rating plan then in use." Seeburg, 403 N.E.2d at 506. The court held that the clause was clear and unambiguous and allowed the insurer to employ the experience rating plan then in use. Id. at 507. In determining the type of rating plan "then in use," however, the court relied on the testimony and other evidence presented at trial. Id. at 505, 507. Thus, rather than supporting a determination at the summary judgment stage, Seeburg supports the conclusion that the determination of whether a premium was to be paid for all loans in Tranex's portfolio is a matter appropriately left for trial.
AMHIC next contends that the premium rate calculation of "$57.00 per loan" demonstrates that a premium charge was to be paid on all loans. It claims there are two aspects to this: 1) the calculation was made on an estimated volume of Tranex's entire portfolio of prospective loans; and 2) the calculation was made to cover the risk of loss for 5,800 loans already in existence. Tranex attacks this contention on various grounds, for example, that it was impossible to predict Tranex's loan volume, but none of its arguments contradict AMHIC's position that the premium rate calculation supports the conclusion that the premium charge was to be made on all loans. The court, however, need not decide whether the rate calculation does or does not support such a finding. This is because AMHIC's claim about the rate calculation is based upon wholly extrinsic evidence, namely the testimony of Gary Cobb, who made the initial rate calculation, and Dick Hankins, who made his own rate calculation.
AMHIC next argues that Tranex sought a policy covering all loans in its portfolio and it adds that for nearly a year, Tranex paid premiums on all loans. Gray testified that in seeking to replace the Northland policy, he contemplated the new policy would "cover all loans in the [Tranex] portfolio." (Gray Dep. at 96.) However, the undisputed evidence establishes that at that time and the time of the Policy's inception, Tranex insured loans only in states which allowed it to pass the VSI charge along to the customer and all Tranex loan documents required VSI. The evidence supports two permissible and equally reasonable inferences: 1) Tranex sought coverage on all loans regardless of whether its loan documents required VSI and Tranex could pass the VSI charge along to the customer; and 2) Tranex sought coverage on all loans in its portfolio for which its loan documents required VSI and it could pass the VSI charge along to the customer, which happened to be the only loans in Tranex's portfolio at the time.
AMHIC says that Tranex was specifically advised before the Policy's inception of the requirement of a premium charge on all loans. But, as discussed, there is a genuine issue of material fact on this matter. Even assuming that Tranex was advised of such a requirement, the undisputed evidence demonstrates that AMHIC did not actually require a premium to be paid on all loans in Tranex's portfolio. AMHIC allowed Tranex to omit loans from several states from coverage and limited coverage to loans in Indiana, Illinois, Ohio and Kentucky. That loans in certain states were omitted from the Policy at Tranex's specific request, could support an inference that a premium was to be paid on such loans. But the parties' course of dealing could support an equally reasonable inference — that a premium simply was not required on all loans. There also is evidence that Tranex expanded its business into other states and there is evidence from which a reasonable trier of fact could find that AMHIC was aware that Tranex was making loans in these states and AMHIC did not require a premium on any loans in these states. Indeed, there is evidence from which a reasonable trier of fact could find that in August 1997, AMHIC limited coverage under the Policy to four states: Indiana, Ohio, Illinois and Kentucky.
AMHIC next argues that Tranex consciously decided to stop paying the premium under the Policy. This argument does nothing to advance AMHIC's claim that the premium was to be paid on all loans in Tranex's portfolio. AMHIC also claims that Tranex stopped paying the premium because it believed it to be "prohibitive" if required on all loans. This, AMHIC says, assumes that the premium was to be made on all loans. This argument is confusing and does nothing to advance AMHIC's claim. Even if it did, the evidence that Tranex considered the premium "prohibitive" if required on all loans is so far removed from the terms of the Policy that the court cannot properly consider it at this stage of the proceedings.
AMHIC contends that Tranex's failure to pay premium due warranted AMHIC's cancellation of the Policy. If Tranex failed to pay premiums when due, AMHIC could properly cancel the Policy. However, the court cannot determine whether Tranex failed to pay premiums due without first determining what premiums were due. This requires a determination as to whether the Policy required a premium charge to be paid on all loans in Tranex's portfolio. Because the court cannot make that determination at this stage of the proceedings, it cannot ascertain whether AMHIC's cancellation based on non-payment of premium was proper under the Policy.
AMHIC also argues that Tranex violated the conditions of the Policy by refusing a complete audit, thus justifying its cancellation of the Policy. There is a genuine issue of material fact as to whether Tranex provided the materials necessary for a complete audit. On the one hand, Alex Gray testified that he refused to provide all loan registers. On the other, the auditor's report states that Tranex "obtained the monthly loan registers (from October 1996 through September 1997) which listed all new loans originated during each month." (Ex. 21, Tony Dirksing's Report dated 10\28\97; see also Dirksing Dep. at 9, 16-17.) Furthermore, AMHIC cancelled the Policy for the stated reason of "due to non-payment of premium," (Hankins Dep., Ex. 13), not because of Tranex's failures to comply with the audit. The record before the court does not suggest that AMHIC cancelled the Policy because Tranex refused a complete audit.
AMHIC makes the alternative argument that there was no meeting of the minds on the amount of premium due and, therefore, there was no valid insurance contract. In order to create a valid and enforceable insurance contract, the parties must have a meeting of the minds on the following essential elements: 1) the subject of insurance; 2) the risk or peril insured against; 3) the amount of coverage; 4) the limit and duration of the risk; and 5) the amount of the premium to be paid. See Stockberger v. Meridian Mut. Ins. Co., 395 N.E.2d 1272, 1279 (Ind.App. 1979); Farmer's Mut. Ins. Co. v. Wolfe, 233 N.E.2d 690, 694 (Ind.App. 1968) (citing cases).
Tranex claims that the meeting of the minds argument fails because the Policy is attached to AMHIC's Complaint and, therefore, there is no question as to the existence of the Policy. The mere existence of a document does not prove that the Policy is a valid and enforceable contract. The Policy would not be enforceable, in spite of the document's existence, if the parties did not have a meeting of the minds on the essential elements. To determine that there was no meeting of the parties' minds as to the amount of premium to be paid would be premature at this stage of the proceedings. Such a determination can only be made after consideration is given to extrinsic evidence, including testimony as to the parties' intent regarding the premium to be paid.
Resolution of AMHIC's Count I turns on the determination of what premium is required to be paid under the Policy. As stated, the Policy requires a premium to be paid per each "eligible loan" insured, and the term "eligible loan," is not defined in the Policy. Tranex interprets the term "eligible loan" as meaning "a loan requiring the borrower to purchase [VSI] insurance." (Br. Supp. Tranex's Mot. Partial Summ. J. at 14.) AMHIC responds that Tranex's interpretation is unreasonable and contradicts its own concept of the Policy. The reason for this, AMHIC asserts, is because Tranex does not identify "who" requires the borrower to purchase the insurance and does not explain "why" or "how" the Policy incorporates the terms of the borrower's retail contract. AMHIC then argues that "there are no loans which require the borrower to purchase VSI insurance through Tranex." (Pl.'s Br. Opp'n Def.'s Mot. Partial Summ. J. at 9) (emphasis added). The court does not understand this argument because Tranex's interpretation of "eligible loan" does not include the requirement that the insurance be purchased "through Tranex." AMHIC contends that "eligible loan" means every loan in Tranex's portfolio.
Tranex also argues that the term "eligible" only refers to the calculation of premium amount for each loan and does not identify the loans for which premium was required, but the court is unpersuaded by this argument.
The court cannot resolve the parties' dispute on summary judgment. The court finds that the Policy is ambiguous with respect to the meaning of "eligible loan," and, therefore, also is ambiguous regarding the premium charge to be paid. The court further finds that a determination as to the meaning of "eligible loan" and, consequently, the premium to be paid can be made only with reference to extrinsic evidence. Therefore, summary judgment is inappropriate. See Plumlee, 655 N.E.2d at 355. Accordingly, AMHIC's motion for partial summary judgment should be DENIED as to Count I of the Complaint and Count I of Tranex's Counterclaim.
2. Tranex's Counterclaim for Breach of Duty of Good Faith and Fair Dealing
AMHIC also seeks summary judgment on Tranex's bad faith counterclaim. Erie Ins. Co. v. Hickman, 622 N.E.2d 515 (Ind. 1993), recognized a cause of action for an insurer's tortious breach of the duty to deal with its insured in good faith. The court said:
The obligation of good faith and fair dealing with respect to the discharge of the insurer's contractual obligation includes the obligation to refrain from (1) making an unfounded refusal to pay policy proceeds; (2) causing an unfounded delay in making payment; (3) deceiving the insured; and (4) exercising any unfair advantage to pressure an insured into a settlement of his claim.Erie Ins. Co., 622 N.E.2d at 519. This list was not intended to be exhaustive. Id. The standard for establishing a breach of an insured's duty of good faith is high. See Firstmark Standard Life Ins. Co. v. Goss, 699 N.E.2d 689, 696 (Ind.Ct.App. 1998), trans. denied. The "cause of action does not arise every time an insurance claim is erroneously denied." Erie Ins. Co., 622 N.E.2d at 520. An insurance company may in good faith dispute claims. Id. As Johnston v. State Farm Mut. Automobile Ins. Co., 667 N.E.2d 802 (Ind.Ct.App. 1996), explained, there must be conscious wrongdoing by the insurer:
Bad faith amounts to more than bad judgment or negligence. Bad faith involves the conscious doing of wrong because of dishonest purpose or moral obliquity. It contemplates a state of mind operating with furtive design or ill will. Since a bad faith determination inherently includes an element of culpability, a finding of bad faith requires more than the unsubstantiated allegations of an adverse party.Id. at 805. AMHIC contends there is no evidence that it acted with dishonest purpose, moral obliquity, furtive design or ill will. In addition, it argues that a good faith dispute over Tranex's non-payment of premium prevents a finding of bad faith.
AMHIC urges the court to give deference to the Indiana Department of Insurance's conclusion that it acted properly in cancelling the Policy. ( See Tompkins Dep., Ex. B.) The Department's conclusion is entitled to no deference because: (1) the letter from the Department is hearsay, and (2) the Department itself acknowledged it cannot resolve disputed issues of fact or law. ( See Tompkins Dep., Ex. B; Tranex's Reply Br. Supp. Mot. Summ. J. Br. Opp'n Pl.'s Mot. Summ. J., Ex. 42.) Ashlin Transp. Servs., Inc. v. Indiana Unemployment Ins. Bd., 637 N.E.2d 162, 165 (Ind.Ct.App. 1994), stands for the proposition that the court may defer to the Department's findings of fact if supported by substantial evidence. The Department made no factual findings in this case. Thus, deference is not appropriate.
Tranex has come forward with sufficient evidence supporting its bad faith claim to survive summary judgment. The initial rate of premium was $57 per loan. Within one year, that rate was increased to $80, $100, and then $250. Shortly thereafter, AMHIC increased the premium rate to $500, but although Tranex consented to this last increase, AMHIC never signed off on it. The evidence establishes that AMHIC was losing a lot of money on the Tranex account. Tranex's loss ratio was 369% and AMHIC's payment on claims exceeded the premiums paid. Though Cobb said he was not looking to cancel the Policy until he heard Tranex was not paying premiums, he also testified that a high loss ratio in some circumstances justifies cancellation of an insurance policy. Behringer agreed. From this evidence, a trier of fact could reasonably infer that AMHIC was driving up the premium rate in an effort to get Tranex to refuse the rate increases and thus allow AMHIC to cancel the Policy and avoid further losses. Hankins drew such an inference. Further, a trier of fact could reasonably find that AMHIC's conduct in driving up the premium rate at such an astronomical rate constituted conscious wrongdoing sufficient to establish a breach of its duty of good faith and fair dealing. Therefore, AMHIC's motion for partial summary judgment should be DENIED as to Tranex's counterclaim for breach of the duty of good faith and fair dealing.
B. Tranex's Motion for Partial Summary Judgment
Tranex claims that AMHIC remains obligated to pay claims on those loans or vehicles covered by the Policy, including vehicles securing loans purchased by Tranex after the inception of the Policy and for which a premium has already been paid and vehicles securing loans purchased before the Policy's inception for which AMHIC agreed to provide coverage. The essence of Tranex's claim is that AMHIC has a continuing obligation to pay such claims despite cancellation of the Policy. Tranex's claim is untenable.
Tranex points to policy language which provides that the premium is calculated "per loan," or "per vehicle," paid on an individual loan or transaction basis and is fully earned when paid. It also states that the Policy does not require continuing payment as to loans for which a premium has been paid and relies on Alex Gray's understanding, based on the proposal, that the Policy was to provide coverage for a loan for 36 months. None of this supports a reasonable conclusion that AMHIC remains obligated to pay claims on vehicles or loans covered by the Policy, provided the cancellation was proper. The Cancellation provision expressly provides that "[t]he effective date of cancellation [of the Policy] . . . shall become the end of the policy period thus concluding coverage under this Policy." The court finds that this Policy language is clear and unambiguous. Upon the effective date of cancellation, the Policy period is ended and there is no coverage under the Policy for losses occurring after that date. Provided the cancellation was proper, AMHIC would not liable to pay claims for any losses subsequent to the Policy period.
It is noted that most of the arguments that Tranex makes in support of its motion for summary judgment concern not whether coverage is available upon cancellation of the Policy, but whether AMHIC properly cancelled the Policy in the first instance.
The court, however, cannot determine at this stage of the proceedings whether AMHIC's cancellation of the Policy for non-payment of premium was proper. The determination of that issue turns on the resolution of the issue of what premium was required to be paid under the Policy. Because there are genuine issues of material fact as to that issue and the issue can be resolved only with reference to extrinsic evidence, this matter must be left to the trier of fact. Accordingly, Tranex's motion for partial summary judgment should be DENIED.
IV. Conclusion
For the foregoing reasons, the court DENIES both Tranex's motion for partial summary judgment and AMHIC's motion for partial summary judgment.
ALL OF WHICH IS ORDERED.