Opinion
No. 1:03-CV-01208-SEB-VSS.
January 26, 2005
ENTRY DENYING PLAINTIFF'S MOTION FOR SUMMARY JUDGMENT AND GRANTING DEFENDANT'S CROSS MOTION FOR PARTIAL SUMMARY JUDGMENT
This matter comes before the Court on Plaintiff's Motion for Summary Judgment and Defendant's Cross Motion for Partial Summary Judgment. This is an insurance dispute in which the insured, Carol Davis ("Ms. Davis"), alleges the insurer, State Farm Fire and Casualty Company ("State Farm"), breached its duty to defend and indemnify her under the terms of her homeowner's insurance policy. For the reasons given below, we DENY Plaintiff's Motion for Summary Judgment and GRANT Defendant's Motion for Partial Summary Judgment .
Factual Background
Ms. Davis received $167,000.00 from the Metropolitan Life Insurance Company ("MetLife") on January 25, 2002 as the sole beneficiary of her deceased brother's group life insurance policy. MetLife paid the amount on the instructions of the brother's employer, Ingersoll Rand. After Ingersoll Rand discovered it had made an error in evaluating the insurance coverage — presumably only $50,000.00 in benefits were due Ms. Davis — MetLife asked the plaintiff to return the overpayment, a total of $117,000. Pl.'s Br. in Supp. of Mot. for Summ. J., ("Pl.'s Br.") ¶¶ 1-5; see also Def.'s Resp. Br. and Cross Mot. for Partial Summ. J. ("Def.'s Resp."), Ex. 1 (May 20, 2002 letter to Davis from Metlife). Ms. Davis did not return the money, and on November 7, 2002, MetLife sued her for restitution in the amount of the alleged overpayment. Pl.'s Br., Ex. 2.
Metro. Life Ins. Co. v. Davis, 1:02-CV-1728-DFH-TAB, dismissed with prejudice.
On the belief that her homeowner's insurance policy applied to this type of lawsuit, Ms. Davis submitted a claim on January 23, 2003, asking State Farm to defend and indemnify her in accordance with the personal liability provisions of her homeowner's policy 14-BC-8407-9 ("Policy"). Pl.'s Br., Ex. 4. The terms of the Policy which provide for defense and indemnity state, in pertinent part:
COVERAGE L — PERSONAL LIABILITY.
If a claim is made or a suit is brought against an insured for damages because of bodily injury or property damage to which this coverage applies, caused by an occurrence, we will:
1. pay up to our limit of liability for the damages for which the insured is legally liable; and
2. provide a defense at our expense by counsel of our choice. We may make any investigation and settle any claim or suit that we decide is appropriate. Our obligation to defend any claim or suit ends when the amount we pay for damages, to effect settlement or satisfy judgment resulting from the occurrence, equals our limit of liability.
Pl.'s Br. at 5, Ex. 3; Def.'s Resp. at 6.
The Policy defines the following terms:
7. "occurrence," when used in Section II of this policy, means an accident, including exposure to conditions, which results in:
a. bodily injury; or
b. property damage;
during the policy period. Repeated or continuous exposure to the same general conditions is considered to be one occurrence.
8. "property damage" means physical damage to or destruction of tangible property, including loss of use of this property. Theft or conversion of property by an insured is not property damage.
Pl.'s Br., Ex. 3.
Moreover, the Policy contains exclusion from Coverage in Section II:
Coverage L [does] not apply to:
a. bodily injury or property damage:
(1) which is expected or intended by the insured; or
(2) which is the result of willful or malicious acts of the insured.
Id.
State Farm responded to Ms. Davis' claim on February 6, 2003, indicating the following: (1) it reserved its right to deny coverage following the investigation of the claim; and (2) offered to "reimburse [Ms. Davis] for the reasonable cost incurred in [counsel's] defense of this action on [Davis'] behalf from the date [State Farm was] notified of the lawsuit until such time that it may be determined there is no duty to defend or duty to indemnify." Id., Ex. 5. On March 17, 2003, State Farm informed Ms. Davis that defense and indemnification under the Policy were denied because the allegations against her "do not fall within the definitions of occurrence, bodily injury, or property damage." (emphasis in original). However, it reiterated its offer to reimburse plaintiff's counsel for reasonable defense costs incurred between February 4, 2003 and April 17, 2003, or thirty (30) days from the letter. Id., Ex. 6.
In the meantime, Ms. Davis defended the MetLife lawsuit. She engaged the Indianapolis law firm of Plews Shadley Racher Braun ("Plews Shadley") and entered into a contingency fee arrangement whereby Ms. Davis would pay: (1) hourly fees and expenses at ordinary rates, not to exceed $5,000.00; and, (2) if the parties reached a settlement before trial, 40% of the portion of the disputed sum ($117,000.00) which Davis would not have to return to MetLife. Def.'s App., Ex. B (Engagement Letter). Ms. Davis and MetLife settled the claim on June 16, 2003, and the lawsuit was dismissed. The terms of the settlement agreement called for Ms. Davis to return $55,453.24 but keep $61,547.00, plus the interest on the $117,000.00 from the date it had been paid. Pl.'s Br. at 4; Ex. 7.
Ms. Davis sent State Farm an itemized bill on July 2, 2003 for $16,768.58, a sum representing "all expenses incurred" between January 23, 2003 — the day Davis sent State Farm notice of the lawsuit — and April 17, 2003, the date proposed by State Farm for termination of defense costs. Pl.'s Br. ¶ 17; Ex. 9 (Itemized Bill). State Farm paid Ms. Davis $14,678.38 after recalculating the hourly rate for two of the plaintiff's attorneys. Def.'s Resp. at 5; Mullins Aff. ¶ 4.
State Farm claims that the parties had agreed to hourly fees between $110.00 and $150.00 in a conversation on February 4, 2003 about defense costs. In that conversation, State Farm Claims Representative, Yolanda Hutton ("Hutton"), offered to pay $110.00 per hour and Plews Shadley attorney, Brett Nelson ("Nelson") informed her that his billing rate was $150.00 per hour. The remainder of the facts concerning the discussion of hourly rates is disputed: State Farm asserts that Nelson represented $150.00 as the law firm's normal rate and never mentioned higher rates while Nelson testifies that he merely stated his personal billing rate and told Hutton he had no authority to negotiate the rate. Def.'s App. Ex D; Hutton Aff. ¶¶ 6, 8; Pl.'s Resp. in Opp'n to Def.'s Cross Mot. for Summ. J., ("Pl.'s Resp."), Ex. 1, Nelson Aff. ¶ 5. In arriving at what it believed to be "reasonable rates" for Davis' defense costs, State Farm unilaterally adjusted attorney F. Ronalds Walker's billable hourly rate from $200.00 to $150.00 and attorney George M. Plews' billable hourly rate from $365.00 to $183.00. Def.'s Resp. Br. at 5, 32; Ex. C, Mullins Aff. ¶ 5.
In addition to the above defense costs for the period ending April 17, 2003, Ms. Davis also argues that State Farm actually owes her the total amount of legal fees — $45,351.14 — which she incurred in defending the MetLife lawsuit. Pl.'s Br. ¶ 16; Ex. 1, Davis Aff. ¶ 6; Ex. 10 (Billing Statement). Plaintiff's expert, attorney Steven Shockley ("Shockley"), testified that the MetLife lawsuit "presented uncommon and difficult issues of law, fact and procedure" and "the services performed by Plews Shadley . . . in representing Davis . . . were both reasonable and reasonably necessary to an effective representation." Pl.'s Ex. 11; Shockley Aff. ¶¶ 7-8.
In this action, Ms. Davis seeks indemnification for the money she returned to MetLife in the settlement ($55, 453.24), the costs she incurred in defending the MetLife lawsuit ($45,351.25), and pre-judgment interest on these costs ($3,601.33). Pl.'s Mot. for SJ, ¶ 6. The case was originally brought in state court and removed to federal court on diversity of citizenship grounds. State Farm opposes summary judgment on both the defense and indemnity claims and also moves for partial summary judgment on the indemnity issue, arguing that the indemnity claim is not covered by Davis' homeowner's policy because the MetLife lawsuit was not brought against Davis for damages because of "property damage" caused by an unintentional "occurrence."
Legal Analysis Standard for Summary Judgment
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. See Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 248 (1986). In considering a motion for summary judgment, a court must draw all reasonable inferences in the light most favorable to the non-movant. See Bellaver v. Quanex Corp., 200 F.3d 485, 491-92 (7th Cir. 2000) (citingAnderson, 477 U.S. at 255).
Thus, if genuine doubts remain, and a reasonable fact-finder could find for the party opposing the motion, summary judgment is inappropriate. See Shields Enters., Inc. v. First Chicago Corp., 975 F.2d 1290, 1294 (7th Cir. 1992). Yet, if it is clear that a plaintiff will be unable to satisfy the legal requirements necessary to establish her case, summary judgment is not only appropriate, but also required. See Celotex Corp. v. Catrett, 477 U.S. 317, 322 (1986).
The Interpretation of Insurance Policies
The issues presented by the motions — the insurer's duty to defend and to indemnify require us to analyze the language of the Policy. "The construction of an insurance contract is a question of law for which summary judgment is particularly appropriate."State Farm Mut. Auto. Ins. Co. v. Gonterman, 637 N.E.2d 811, 813 (Ind.Ct.App. 1994); Jim Barna Log Systems Midwest, Inc. v. General Cas. Ins. Co. of Wisconsin, 791 N.E.2d 816, 823 (Ind.Ct.App. 2003). When the policy language of an insurance contract is clear and unambiguous, the rule of construction is to give the language its plain and ordinary meaning. Jim Barna, 791 N.E. 2d at 823. We interpret policy terms from the perspective of an ordinary policyholder of average intelligence. Asbury v. Ind. Union Mut. Ins. Co., 441 N.E.2d 232, 237 (Ind.Ct.App. 1982). Policy terms are ambiguous only if reasonable persons may honestly differ as to the meaning of the policy language and, where there is ambiguity, we must adopt a construction most favorable to the insured. This is particularly true where a policy excludes coverage. Jim Barna, 791 N.E. 2d at 823. While it is the insured, Ms. Davis in this case, who is required to prove that her claims come within the scope of the policy's coverage, the insurer, State Farm, bears the burden of proving specific exclusions or limitations to the policy coverage. See Worth v. Tamarack American, 47 F.Supp.2d 1087, 1095 (S.D. Ind. 1999) (Barker, J).
A. The Policy Term, "Occurrence."
According to Section II of the Policy, State Farm owes Ms. Davis the duty to defend and indemnify under the following circumstances:
If a claim is made or a suit is brought against an insured for damages because of bodily injury or property damage to which this coverage applies, caused by an occurrence [. . .].
Policy, Section II, Coverage L-Personal Liability.
Plaintiff characterizes the MetLife lawsuit as one for "damages" because of "property damage" caused by an "occurrence." Specifically, she alleges that the requisite "occurrence" was her conduct in receiving and retaining the payment which led to MetLife's lawsuit against her and the "property damage" suffered was MetLife's loss of use of the insurance money (measured in the form of interest) it had overpaid her. Pl.'s Mot. for Summ. J. ¶¶ 3-4; Pl.'s Br. at 9, 11.
The Policy defines "occurrence" as "an accident, including exposure to conditions, which results in bodily injury or property damage." Ms. Davis asks us to find that her conduct namely, refusing to return the $117,000 to MetLife which resulted in the lawsuit for restitution was "accidental," and thus an "occurrence" for the following reasons: (1) the receipt of the extra money placed her in a situation she never sought; (2) MetLife's demand that she return the money after she had already spent a portion of it placed her in a situation she never sought; (3) because MetLife allegedly failed to justify why Davis needed to return the overpayment and because she "rightfully believed the money to be hers," she did not return the money when it was demanded of her and this caused MetLife to sue her. Pl.'s Br. at 11. In other words, although she "accidentally" received money from MetLife, she kept the money intentionally because she believed it was hers and because MetLife had not adequately convinced her otherwise, and the result of this conduct was the "accidental" lawsuit. Thus, to determine whether Plaintiff's claim comes within the scope of her policy coverage, we must first find that coverage was triggered by an "occurrence." Only if there was such an "occurrence" need we extend this analysis to the nature of the resulting property damage, as defined by the Policy.
"The first term that requires analysis is `accident,' because in order to be an `occurrence,' the action must be an `accident.'" Fidelity and Guar. Ins. Underwriters, Inc. v. Everett I. Brown Co., L.P. 25 F.3d 484, 487 (7th Cir. 1994);City of Jasper, Indiana v. Employers Ins. of Wausau, 987 F.2d 453, 457 (7th Cir. 1993); Red Ball Leasing, Inc. v. Hartford Acc. and Indem. Co., 915 F.2d 306, 309 (7th Cir. 1990).
Defendant states that under Indiana law, an "accident" in the context of an insurance policy is "an unexpected happening without an intention or design" and, as a corollary, the "natural and ordinary consequences of an act are not an `accident'." See Def.'s Resp. at 10, citing R.N. Thompson Assocs. v. Monroe Guar. Ins. Co., 686 N.E.2d 160, 164-165 (Ind.Ct.App. 1997);see also Terre Haute First National Bank v. Pacific Employers, 634 N.E.2d at 1336, 1338 (In. Ct. App. 1993) (holding that in "the context of insurance coverage, an accident means an unexpected happening without an intention or design). Defendant argues that the claim at issue did not arise from an "accident" but was the result of intentional, though mistaken actions. Clearly MetLife's action in paying $167,000.00 to Ms. Davis on the instructions of Ingersoll-Rand is best described as intentional, though mistaken, and indeed, only partly in error. The payment of $50,000.00 was both intentional and correct. The cases summarized below, as cited by Defendant, support the view that intentional, if mistaken, acts do not automatically give rise to "occurrences" under insurance policies.
In Red Ball Leasing, the insured mistakenly repossessed some trucks in which he retained a security interest and the injured truck owner sued the insured for conversion. The district court rejected characterizing the repossession of the trucks as an "accident," and therefore an "occurrence," finding that the truck owner's injury was "the natural result of the voluntary and intentional act of repossession." In affirming, the Seventh Circuit stated that "[e]ven if the mistake in Red Ball's accounting procedures triggered the chain of events that ultimately led to the repossession, the decision to take the trucks — an intentional act of Red Ball — is not an "accident" under the terms of the insurance policy." Id. at 312. See also, id. fn.1 (collecting cases holding that "a volitional act does not constitute an accident"); City of Jasper, 987 F.2d 453 (finding that an insurance company had no duty to defend the City against a suit alleging that the City negligently issued two building permits, because issuing the permits was an intentional act and thus not an "accident" covered by the policy).
915 F.2d 306, 309 (7th Cir. 1990), see supra.
Plaintiff agrees that an accident is "an unexpected happening without an intention or design." Pl.'s Reply at 8, citing Jim Barna at 824. However, she asks us to refine the meaning of unintentional conduct by declaring that: "it is the subjective, unintentional nature of the consequences of an act that determines whether it [the act] is an accident." PSI v. Home Ins., 801 N.E.2d 705, 728 (Ind.Ct.App. 2004). In that light, Ms. Davis argues that her conduct was accidental because it was not her subjective intent to take or keep anything that did not belong to her, just as it was never her intention to be a defendant in a lawsuit because of her receipt of life insurance proceeds. Pl.'s Reply at 8-9. This argument fails, however, under both an objective and subjective analysis of her intent. From an objective standpoint, although Ms. Davis contends that she kept the money because she believed it to be hers and so could not have intended to cause damage, the evidence indicates otherwise. The May 20, 2002 letter from MetLife explained that Davis' brother had enrolled for $50,000.00 of basic life insurance coverage, not for $117,000.00 of optional life insurance. Even without further investigation, it seems reasonable to infer that Davis had at least an inkling at that point that, by keeping the disputed $117,000.00, she was depriving MetLife of the use of that money, which was the very "property damage" she alleges gave rise to the "occurrence" that would trigger liability coverage. From a subjective standpoint, it is unclear to us what evidence she relies upon, other than the argument she poses in her brief.
Davis alleges MetLife did not document its claim of overpayment (Pl.'s Br., Statement of Material Facts ¶ 5), failing to acknowledge the letter submitted by State Farm from MetLife to Davis explaining in some detail the circumstances of the overpayment. See Def.'s Ex. B, Letter of May 20, 2002.
We conclude, therefore, that Plaintiff's construction of "accident" does not conform to the definition of that term as used in the Policy, and thus no "occurrence" resulted as well. As noted above, without a finding of an "occurrence," there is no need to determine whether the loss of use of MetLife's money met the definition of "property damage" under the Policy.
Plaintiff's conduct did not trigger a duty to indemnify on the part of State Farm under the Policy, and State Farm is entitled to partial summary judgment on the issue of indemnity.
B. The Duty to Defend.
"Typically, an insurer has a duty to defend its insured against suits alleging facts that might fall within the coverage. While the insurer does not have an unconditional duty to defend, the insurer's duty is expansive, since the duty to defend is considerably broader than the duty to indemnify." Federal Ins. Co. v. Stroh Brewing Co., 127 F.3d 563, 566 (7th Cir. 1997) (citing Seymour Mfg. Co., Inc. v. Commercial Union Ins. Co., 665 N.E.2d 891, 892 (Ind. 1996). Moreover, the duty to defend is determined from the allegations contained in the initial complaint against the insured and from those facts known or ascertainable by the insurer after reasonable investigation. Jim Barna, 791 N.E.2d at 823. In the event that an insurer disputes an insured's demand to defend and indemnify, as in the case at bar, Indiana law permits the insurer to defend under a reservation of rights (or non-waiver agreement). Wilson v. Continental Cas. Co., 778 N.E.2d 849, 852 (Ind.Ct.App. 2002) (holding that a reservation of rights allows the insurer to fulfill the broad duty to defend while at the same time investigating and pursuing the narrower issue of whether indemnification will result).
Here, State Farm undertook such a reservation of rights which neither party disputes. The plaintiff's claim that State Farm breached its duty to defend appears to stem from the fact that, at the time she filed her motion for summary judgment, State Farm had not paid her any money. Pl.'s Br. ¶ 18. Thereafter, State Farm paid the July 2, 2003 itemized bill, after it recalculated certain hourly billing rates to amounts it deemed more "reasonable."
We thus are left with two issues relating to State Farm's duty to defend, neither of which is appropriately resolved by summary judgment due to the presence of disputed facts: first, the reasonableness of the July 2, 2003 statement for legal fees incurred through April 17, 2003; and second, the reasonableness of the total amount for legal fees incurred by Ms. Davis in defending the MetLife lawsuit. The burden of establishing reasonableness lies with Ms. Davis. See Employers Ins. of Wausau v. Recticel Foam Corp., 716 N.E.2d 1015, 1027 (Ind.Ct.App. 1999).
State Farm states that it offered to pay Plaintiff her reasonable attorney fees during the period in which it made a coverage determination but the plaintiff disregarded their oral agreement by: (1) seeking payment for legal fees generated by hourly rates in excess of $150.00 per hour, the rate the parties allegedly had agreed upon; and (2) seeking payment for the costs of the entire defense, including hourly fees incurred before State Farm received notice of the claim and through the time of the settlement of the lawsuit, which fell well after the April 17th cutoff date proposed by State Farm on March 17, 2003. Ms. Hutton and Attorney Brett Nelson agree that they spoke about defense costs on February 4, 2003. Hutton Aff. ¶ 4; Nelson Aff. ¶ 4. However, Hutton attests that she offered $110.00 per hour to which Nelson stated that the "firm's normal rate was $150.00 an hour" and then no mention was ever made of rates higher than $150.00 per hour, leaving Hutton with the understanding that they had agreed on a rate between $110.00 and $150.00. Hutton Aff. ¶¶ 5-6, 8. Instead, Nelson testifies that he and Hutton did not agree to any fee agreement regarding hourly rates; he simply stated his hourly rate was $150.00 and he had no authority to negotiate it. Nelson Aff. ¶¶ 5-6.
State Farm paid the July 2, 2003 itemized bill, but only after recalculating the hourly rates of Attorney Walker from $200.00 per hour to $150.00 per hour and Attorney Plew's time from $365.00 per hour to "what State Farm considers to be a more reasonable rate of $183.00 per hour, which is still in excess of the range agreed to by State Farm and Davis's counsel in February 2003." Mullins Aff. ¶¶ 2-5.
Plaintiff seeks to extend the "coverage period" for the defense costs beyond the April 17, 2003 date offered by State Farm, proffering the affidavit of Attorney Steven Shockley who testifies that her request for attorney fees was reasonable in light of the complexity of the underlying lawsuit and the expertise of Plews Shadley. State Farm does not refute Shockley's expert testimony that $45,351.14 for defense of Ms. Davis is the reasonable value of the services rendered; rather, State Farm reasserts that it agreed to pay the defense costs only through April 17, 2003.
Genuine issues of fact exist, obviously, which preclude summary judgment on the issue of reasonableness of defense costs. In addition, it is unsettled whether "reasonable" defense costs refers to or includes fees incurred rather than paid. There is evidence for both: (1) Plews Shadley billed Davis $45,239.54 for fees and expenses incurred in defending her in the MetLife lawsuit, a sum deemed "reasonable" by the unrefuted expert testimony of Attorney Shockley, and Plews Shadley; and (2) Davis entered into a contingency agreement with Plews Shadley whereby she would pay no more than $5,000.00 in hourly fees and expenses, plus 40% of the portion of the disputed $117,000.00 which Davis would not have to return to MetLife, as the result of a pretrial negotiated settlement agreement. We cannot — and should not — attempt to resolve those disputes at this juncture. Evidence of the reasonableness of the hours and rates for the legal fees incurred by Ms. Davis creates disputed facts relating to the issue of defense costs, which must be resolved at trial.
CONCLUSION
Accordingly, we DENY Ms. Davis's motion for summary judgment, finding: (1) State Farm had no duty to indemnify under the terms of her homeowner's insurance policy; and (2) genuine issues of material fact preclude a finding that State Farm had a duty to defend under the Policy which it breached. Further, we GRANT State Farm's Cross Motion for Partial Summary Judgment on the indemnity issue.
It is so ORDERED.