504 F.Supp.3d 913
S.D. Ind.2020Background
- On October 16, 2016 Danny Cope, a laborer hired for a Kentucky project, fell and was seriously injured while working for Custom Mechanical Construction, Inc. (CMC).
- CMC obtained workers' compensation coverage through agent Lee Sublett of Schultheis Insurance; Accident Fund issued a policy (Second Policy) effective May 13, 2016 that listed Indiana as the primary state.
- The Second Policy included an "other states" provision that required notice to Accident Fund within 30 days of the policy effective date if insured had work in another state, or "at once" when it begins work in another state, as condition for coverage outside Indiana.
- Sublett completed both applications for Accident Fund and answered that CMC employees did not travel out of state; neither CMC nor Sublett notified Accident Fund that CMC was working in Kentucky despite numerous Kentucky workdays between May and October 2016.
- After the accident Accident Fund denied coverage citing the notice-condition in the policy and filed for declaratory judgment; CMC counterclaimed for breach of contract and bad faith and asserted third-party claims against Schultheis for negligent procurement and failure to advise.
- The court granted summary judgment to Accident Fund that the Second Policy did not cover the Kentucky accident (primary or other-states coverage), granted summary judgment to Schultheis on negligent misrepresentation and negligent supervision, but left negligent procurement/failure-to-advise claims for the jury.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether the Second Policy provides primary coverage for the Kentucky accident | Accident Fund: primary coverage is limited to Indiana; no primary coverage for Kentucky | CMC: (does not dispute) primary covers only Indiana | No primary coverage — policy expressly limits primary coverage to Indiana |
| Whether the Second Policy's "other states" provision covers the Kentucky accident despite lack of notice | CMC: other-states clause applies to work begun after effective date so policy terms should operate to cover KY | Accident Fund: other-states coverage conditioned on notice within 30 days or "at once"; no notice was given | No other-states coverage — CMC never satisfied the policy's notice conditions |
| Whether Accident Fund breached the policy / acted in bad faith by denying coverage | CMC: denial breached policy and was in bad faith | Accident Fund: denial followed clear policy conditions; no coverage existed | Judgment for Accident Fund on breach and bad-faith counterclaims (no coverage exists) |
| Whether Schultheis (agent Sublett) was negligent in procuring coverage / failing to advise | CMC: Sublett knew CMC worked in KY, misrepresented applications, should have obtained KY primary or notified the insurer, and failed to advise new owners | Schultheis: obtained the coverage requested; CMC principals failed to ask for KY coverage or read the policy; no special relationship as a matter of law | Questions of fact remain; negligent-procurement and failure-to-advise claims survive for jury trial; negligent misrepresentation and negligent supervision dismissed |
Key Cases Cited
- Markel Ins. Co. v. Rau, 954 F.3d 1012 (7th Cir. 2020) (summary-judgment standard and construing factual disputes)
- E.T. Products, LLC v. D.E. Miller Holdings, 872 F.3d 464 (7th Cir. 2017) (summary judgment appropriate for contract interpretation)
- Empire Fire v. Frierson, 49 N.E.3d 1075 (Ind. Ct. App. 2016) (contract interpretation—ascertaining parties' intent)
- Franke Plating Works, Inc. v. Cincinnati Ins. Co., 113 N.E.3d 357 (Ind. Ct. App. 2018) (insurance contract construction principles)
- Bosecker v. Westfield Ins. Co., 724 N.E.2d 241 (Ind. 2000) (ambiguity construed against drafter/insurer)
- Myers v. Yoder, 921 N.E.2d 880 (Ind. 2010) (agent duty to advise when a special, long-term relationship exists)
- Hill v. Gephart, 54 N.E.3d 402 (Ind. Ct. App. 2016) (negligence cases are fact sensitive; summary judgment rare)
- Filip v. Block, 879 N.E.2d 1076 (Ind. 2008) (statute-of-limitations principles for agency/insurance claims)