CONSOLIDATED INSURANCE COMPANY, Appellant, v. NATIONAL WATER SERVICES, LLC, Appellee.
No. 59A05-1212-PL-632
Court of Appeals of Indiana
Aug. 27, 2013.
OPINION
BROWN, Judge.
In this interlocutory appeal, Consolidated Insurance Company (CIC) appeals from the denial of its motion for judgment on the pleadings pursuant to
FACTS AND PROCEDURAL HISTORY
NWS obtained employee dishonesty coverage from CIC under Policy CBP8370511 (the Policy). The Policy contained the following provision as Section D, Paragraph 19 (Paragraph 19):
Transfer of Your Rights of Recovery Against Others to Us: You must transfer to us all your rights of recovery against any person or organization for any loss you sustained and for which we have paid or settled. You must also do everything necessary to secure those rights and do nothing after loss to impair them.
Appellant‘s Appendix at 20. NWS suffered losses which were covered by the Policy and submitted a claim to CIC, and CIC ultimately denied coverage to NWS.1
On October 11, 2011, NWS filed a complaint in the Orange Circuit Court stating that it was entitled to recover $497,500.00 plus interest from CIC under the Policy. NWS attached a copy of the Policy to its complaint. On December 19, 2011, CIC filed its answer and third party complaint. In its answer portion, CIC noted as a defense that NWS “is barred from recovery because . . . [NWS] may have failed to protect and preserve [CIC‘s] subrogation rights under the policy” and that accordingly NWS should “take nothing by way of its Complaint. . . .” Id. at 39. CIC also stated a third-party complaint against David Arnold noting that NWS‘s “claim arises out of its allegations that [Arnold] did certain things that are allegedly covered by the [Policy] and that [NWS] has suffered damages as a result of such action” and that CIC “is therefore subrogated to the rights of [NWS] and may be entitled to recover against [Arnold].” Id. at 40.
On February 17, 2012, Arnold filed his answer to third-party complaint and counterclaim against NWS. In his answer, Arnold stated that NWS previously filed suit against him in the same court, and the
On April 26, 2012, CIC filed its motion for judgment on the pleadings stating that NWS destroyed CIC‘s subrogation rights under Paragraph 19 when it settled with Arnold and, as a result, extinguished its right of action under the Policy. CIC also filed a document entitled “Materials in Support of Motion for Judgment on Pleadings” noting that, pursuant to
On September 18, 2012, the court held a hearing on CIC‘s motion, the parties presented their arguments, and the court asked the parties to submit proposed findings of fact and conclusions of law. CIC and NWS each filed proposed findings, and on October 31, 2012, the court entered its Findings of Fact, Conclusions of Law, and Rule (the “Order“) denying CIC‘s motion. CIC filed a motion for certification of interlocutory order to permit immediate appeal, and, on November 19, 2012, the trial court certified its Order for an interlocutory appeal. CIC filed its motion for interlocutory appeal in this court on December 15, 2012, which was granted on January 18, 2013.
ISSUE AND STANDARD OF REVIEW
The issue is whether the court erred in denying CIC‘s motion for judg-
When reviewing a
The provisions of an insurance contract are subject to the same rules of construction as are other contracts. Cincinnati Ins. Co. v. Adkins, 935 N.E.2d 190, 192 (Ind.Ct.App.2010). Thus, the construction of CIC‘s Policy presents a pure question of law that we review de novo. Id. If a contract‘s terms are clear and unambiguous, courts must give those terms their clear and ordinary meaning. Dunn v. Meridian Mut. Ins. Co., 836 N.E.2d 249, 252 (Ind.2005). Courts should interpret a contract so as to harmonize its provisions, rather than place them in conflict. Id. “We will make all attempts to construe the language of a contract so as not to render any words, phrases, or terms ineffective or meaningless.” Rogers v. Lockard, 767 N.E.2d 982, 992 (Ind.Ct.App.2002). “A contract will be found to be ambiguous only if reasonable persons
DISCUSSION
CIC argues that NWS admits that its claim against CIC is based upon the wrongful acts committed by Arnold and that NWS executed a release with Arnold, and “[i]t is crystal clear after looking at the ‘pertinent parts’ of the Policy and the Release that NWS ‘has destroyed [CIC‘s] subrogation rights, and therefore has extinguished their right of action against [CIC] under Indiana law.‘” Appellant‘s Brief at 8-9. CIC emphasizes that Paragraph 19 requires NWS to “do everything necessary to secure [its rights of recovery] and do nothing after loss to impair them.” Id. at 9 (emphasis omitted). CIC discusses specific examples in Indiana case law including Hockelberg and Adkins, cited above, as well as Allstate Ins. Co. v. Meek, 489 N.E.2d 530 (Ind.Ct.App.1986), and maintains that such examples make “abundantly clear” that NWS‘s right to recover under the Policy was extinguished when it executed the Release with Arnold. Id. at 10.
NWS argues that the cases cited by CIC are “clearly distinguishable from the instant matter,” noting specifically that Hockelberg is “factually distinguishable” because the claim here is one of “employee fraud and misconduct and not personal injury” and that the settlement in that case “encompassed all claims whereas the release of Arnold . . . did not address the claim against [CIC].” Appellee‘s Brief at 5-6. NWS cites to Capps v. Klebs, 178 Ind.App. 293, 382 N.E.2d 947 (1979), for the propositions that “subrogation was to be allowed only after the policyholder is fully compensated for his adjudged losses” and that the right to subrogation “does not exist unless the whole debt has been paid.” Id. at 6. NWS also argues that, under Capps, an “insurance company [is] not entitled to proceeds of the settlement unless the insurance policy clearly and unequivocally permitted such subrogation,” and the contract language here is not clear, unequivocal, or certain.5 Id. at 7.
In Hockelberg, plaintiff Hockelberg was involved in an automobile accident, sustaining personal injuries, and she sued the driver and the driver‘s employer, eventually settling the lawsuit for $15,000. 407 N.E.2d at 1161. As a part of the settlement, Hockelberg “entered into a release wherein [the defendants] were discharged from all liability arising out of the accident,” and “the cause was dismissed with prejudice to Hockelberg.” Id. Prior to the dismissal, Hockelberg filed a claim with her insurer, Farm Bureau, for $2,000 in medical expenses stemming from the accident, and Farm Bureau informed her that before it would tender payment she “would have to sign a medical subrogation receipt and trust agreement thereby assigning her right of recovery against” the defendants, basing its stance “on the subrogation clause contained in the policy.” Id. Specifically, the subrogation clause stated the following:
In the event of any payment under this policy, the company shall be subrogated to all the insured‘s rights of recovery therefor against any person or organization and the insured shall execute and deliver instruments and papers and do whatever else is necessary to secure such rights. The insured shall do nothing after loss to prejudice such rights.
Id. Hockelberg refused to sign the subrogation agreement and, following dismissal against the defendants, she renewed her demand against Farm Bureau in which the trial court ultimately granted summary judgment in Farm Bureau‘s favor. Id.
On appeal, Hockelberg argued that summary judgment was improper because there was no evidence that the release prejudiced Farm Bureau‘s subrogation rights, and she suggested that the defendants “might waive the affirmative defense of release in a separate suit brought by Farm Bureau against them, thus preserving the right of subrogation.” Id. The court disagreed, noting that “[w]hen the insurer is claiming a right through subrogation it stands in the shoes of the insured and takes no rights other than those which the insured had. Id. at 1162. The court discussed subrogation as follows:
“Literally, the word means the substitution of one person for another, and as applied in law, it means the substitution of some other person in the place of the creditor, so that the person for whom it is exercised will succeed to the rights of the creditor in relation to the debt. There has been some confusion in the decided cases by a failure to keep in mind the fundamental principle that the creditor for whom the substitution takes place must necessarily have had some right to which the substituted person can succeed. Equity will not do a useless thing, and unless there is thus some right to which the substituted person can succeed, the doctrine of subrogation will not be applied.” First & Tri-S.N.B. & T. Co. v. Mara, B. & L. Co., (1936), 102 Ind.App. 361, at 367, 200 N.E. 449, at 452.
Next, in Allstate Ins. Co. v. Meek, 489 N.E.2d 530 (Ind.Ct.App.1986), this court reversed the trial court‘s denial of insurer Allstate‘s summary judgment motion against Meek, the insured. 489 N.E.2d at 531. Meek had been involved in an automobile accident and sought compensation against the other driver, Bruce. Id. Meek settled with Bruce and executed a release barring further action by her against Bruce, and Allstate denied Meek coverage under her policy because her release prejudiced Allstate‘s right of subrogation. Id. Meek filed a lawsuit against Allstate, and Allstate filed a motion for summary judgment based in part on grounds that the release, as a matter of law, prejudiced its contractual right of subrogation, therefore releasing Allstate from its contractual obligations. Id.
After the trial court denied summary judgment, an interlocutory appeal ensued in which this court noted the subrogation provision in the insurance policy as follows: “Upon payment under [the policy], Allstate shall be subrogated to the extent of such payment to all of the insured‘s rights of recovery therefore. The insured shall do whatever is necessary to secure such rights and do nothing before or after the loss to prejudice such rights.” Id. at 532. We observed:
The policy imposes upon Allstate a duty to pay for damage to Meek‘s automobile, regardless of whether the insured or a third party causes the damage. However, if a third party causes the damage, the policy contract gives Allstate a right of subrogation after payment to the insured and also imposes a duty upon the insured to refrain from taking any action which prejudices that right. Finally, the insured cannot maintain an action against the insurer if the insured fails to comply with his obligations under the contract.
Id. (emphasis added). Allstate argued, and we agreed, that the matter was governed by Hockelberg, and we reversed and remanded with instructions to enter judgment in Allstate‘s favor. Id. at 532-533.
In reversing, we noted Meek‘s argument that Allstate‘s right of subrogation had not been prejudiced by the release because she “did not receive full compensation for her loss.” Id. at 532. Meek cited to Capps and Willard v. Auto. Underwriters Inc., 407 N.E.2d 1192 (Ind.Ct.App.1980), for the proposition that “until the insured receives full compensation any rights of subrogation are not prejudiced by the release,” and she argued that a factual dispute existed over whether the settlement she received from Bruce constituted payment in full for her loss, therefore precluding summary judgment. Id. In dismissing Meek‘s argument, we observed that ”Capps and Willard hold an insurer‘s right of action against its own insured to recover payments the insurer has made under its policy does not mature until and unless the insured‘s debt, i.e. loss, is paid in full” and that “[a] casual reading of these two cases would seem to contradict, if not overrule, Hockelberg . . . .” Id. at 532-533 (emphasis added). We then noted that “in fact, the cases are critically distinguishable” because “[i]n Capps and Willard, the insurer‘s contractual right of subrogation continued although it was held in abeyance until insured received full compensation” whereas “[i]n Hockelberg . . . the insurer‘s
Indeed, as noted by CIC, the rule expressed in Hockelberg and Meek was recently reaffirmed in Cincinnati Ins. Co. v. Adkins. Adkins involved an automobile accident between Anita Adkins and Emily Strack in which Adkins held, in addition to primary insurance through Safeco, an umbrella policy with Cincinnati which provided excess underinsured motorist protection. 935 N.E.2d at 191. The policy contained the following provision: “The ‘insured’ must do nothing after loss to impair [any rights held by the insured to recover a payment]. At [Cincinnati‘s] request, the ‘insured’ will bring ‘suit’ or transfer those rights to [Cincinnati] and help [Cincinnati] enforce them.” Id. at 191-192. Adkins and Strack settled for a sum of $100,000, and Adkins did not inform Cincinnati of the settlement until after the release had been executed. Id. at 192. After Adkins sought coverage from Cincinnati, Cincinnati asked for a declaratory judgment regarding whether she breached the policy by settling with Strack without informing Cincinnati or seeking its consent. Id. The parties filed cross-motions for summary judgment, and the court granted summary judgment in favor of Adkins, finding that she did not breach the terms of her insurance policy when she settled with Strack without notice or consent of Cincinnati. Id. at 191-192.
On appeal, we began by observing that Adkins‘s release of Strack was a breach of the insurance contract, citing the following language:
[A]n insured who destroys the insurer‘s contractual subrogation rights breaches the insurance contract and, as a result, extinguishes his right of action on the policy. An insured destroys the insurer‘s contractual subrogation right by releasing the tortfeasor prior to settling with the insurer because it is that very settlement which enables the insurer to protect its subrogation right by giving notice thereof to the tortfeasor.
Id. at 193 (quoting Tate v. Secura Ins., 587 N.E.2d 665, 670 (Ind.1992) (quoting Meek, 489 N.E.2d at 533)) (emphasis added). We held specifically:
The trial court interpreted the Cincinnati policy language that “[i]f the ‘insured’ has rights to recover all or part of any payment ‘we’ have made under this policy, those rights are transferred to ‘us,‘” . . . to mean “there must be a payment made under the policy that the Insured has a right to recover. Then, and only then, must the insured do nothing to impair subrogation rights.”
That interpretation is inconsistent with the plain language of the policy. The policy language is that “[r]he ‘insured’ must do nothing after loss to impair [Cincinnati‘s subrogation rights].” As “loss” must necessarily happen before an insurer makes a payment under its policy, it is apparent from the policy language that Adkins’ obligation to notify Cincinnati and obtain its consent before settling with the tortfeasor arose at the time of the accident, not at some later date after Cincinnati made a payment.
DECISION
The situation presented by the instant case is not unlike those in Hockelberg, Meek, and Adkins. Again, the relevant subrogation clause found in Paragraph 19 states: “You must transfer to us all your rights of recovery against any person or organization for any loss you sustained and for which we have paid or settled. You must also do everything necessary to secure those rights and do nothing after loss to impair them.” Appellant‘s Appendix at 20. This language is substantially similar to that in the cases discussed above. Also, just as in those cases, here NWS settled with Arnold and, in so doing, executed the Release which released Arnold “for all claims which [NWS] has or could have asserted, known and unknown, arising out of the employment of Arnold by NWS both as an employee and an independent contractor.” Id. at 49. This Release “after loss” destroyed CIC‘s right of subrogation and was a breach of contract on NWS‘s part, therefore discharging CIC from obligation under the Policy to provide coverage. Accordingly, we conclude that the court erred when it denied CIC‘s motion for judgment on the pleadings.
CONCLUSION
For the foregoing reasons, we reverse the trial court‘s denial of CIC‘s motion for judgment on the pleadings and remand with instructions to enter judgment for CIC.
Reversed and remanded.
RILEY, J., and BRADFORD, J., concur.
Notes
Matters outside the pleadings include materials such as depositions, answers to interrogatories, admissions, and affidavits. See Fox, 837 N.E.2d at 164. After reviewing the record, it is clear that the court did not consider matters outside of the pleadings, and on review we similarly consider only the pleadings and written instruments attached pursuant to
Further, we note that CIC in its reply brief makes several arguments that NWS‘s notice argument fails. First, CIC argues that the rules announced in Stewart and Noble “only apply to uninsured motorist claims.” Appellant‘s Reply Brief at 4. Second, regarding the letters themselves, CIC notes that the first letter was sent to a company who investigated the insurance claim for CIC and not CIC itself and that it dealt with an investigation rather than to provide notice of a pending action. CIC also notes that the second letter is dated September 29, 2011, which is after the Release was executed. Third, CIC notes, as we similarly observe above, that the letters “were clearly known to [NWS] at the time of the Motion for the Judgment on the Pleadings, and they were not introduced at the trial level” and that, in any event, they are inadmissible hearsay because they were not authenticated by affidavit under