Grеgory Smith, As Assignee of Nolan Clayton, Appellant-Plaintiff, v. Progressive Southeastern Insurance Company, Appellee-Defendant
No. 19A-PL-1959
Court of Appeals of Indiana
June 10, 2020
Robb, Judge.
Appeal from the Marion Superior Court, The Honorable James A. Joven, Judge, Trial Court Cause No. 49D13-1809-PL-35757
ATTORNEYS FOR APPELLANT
Ann Marie Waldron
Waldron Law
Indianapolis, Indiana
Michael E. Simmons
Hume Smith Geddes Green &
Simmons, LLP
Indianapolis, Indiana
Robert P. Thomas
Thomas Law Office
Indianapolis, Indiana
ATTORNEYS FOR APPELLEE
J. Blake Hike
Larry L. Barnard
Carson LLP
Fort Wayne, Indiana
[1] This action arises from a single-vehicle accident involving Gregory Smith and Nolan Clayton, who was driving Smith‘s vehicle. Smith sued Clayton to recover for his personal injuries and property damage and Smith‘s insurer, Progressive Southeastern Insurance Company (“Progressive“), arranged for legal counsel to defend Clayton pursuant to a reservation of rights. After a verdict was entered against Clayton for $21 million, Clayton irrevocably аssigned to Smith any legal rights, claims, and causes of actions that Clayton may have against Progressive and the attorneys who represented him, Metzger Rosta, LLC (“Metzger“). Subsequently, Smith sued Progressive for bad faith. This case is before us because the trial court dismissed Smith‘s second amended complaint (“Second Complaint“) against Progressive and denied his motion for joinder of parties or consolidation of actions. Smith now appeals, raising several issues for our review which we consolidate and restate as: 1) whether the trial court erred in dismissing Smith‘s Second Complaint and 2) whether the trial court erred in denying Smith‘s motion for joinder of parties or consolidation of actions. Concluding the trial court did not err in either respect, we affirm.
Facts and Procedural History
[2] Smith and Clayton were co-workers at the Stacked Pickle and eventually became friends. On February 17, 2016, Smith drove his truck, with Clayton as a passenger, to a company event at the Stacked Pickle. The two spent several hours drinking. In the early morning hours on February 18, Smith gave Clayton permission to drive Smith‘s truck. Clayton lost control of the truck and ran into a tree. Smith was ejected from the truck, suffered a broken neck, and was rendered a quadriplegic. As discussed below, multiple lawsuits have resulted from the accident.
Tort Action
[3] On June 15, 2016, Smith filed a complaint against Clayton to reсover for personal injury and property damage. Progressive intervened to provide legal representation to Clayton pursuant to a reservation of rights1 and arranged for Metzger to provide a defense for Clayton. Progressive also filed a Declaratory Judgment Action regarding coverage questions (discussed below) and moved to stay the Tort Action pending the resolution of the Declaratory Judgment Action. The trial court denied the motion to stay and the Tort Action proceeded. On December 11, 2017, a jury found in favor of Smith in the amount of $35 million, found Clayton sixty percent at fault, and therefore awarded Smith a judgment of $21 milliоn
[4] On July 31, 2018, Clayton executed an Assignment of Legal Rights and Causes of Action (“the Assignment“), pursuant to which Clayton irrevocably assigned to Smith any legal rights, claims, causes of action and legal theories and recoveries against Progressive and Metzger to the extent that the rights and claims were assignable. See Appellant‘s Appendix, Volume 2 at 185. Clayton executed the Assignment so he could satisfy part of the judgment that he owed Smith. In exchange for the Assignment, Smith agreed not to pursue recovery from any of Clayton‘s рersonal assets.
Declaratory Judgment Action
[5] At the time of the accident, Progressive insured Smith under a policy which provided coverage for liability, medical payments, underinsured motorists, damage to the covered vehicle, and roadside-assistance. “Insured person” under the policy included anyone who had permission to use the covered vehicle. Id., Vol. 4 at 140. A provision of the policy also stated that Progressive did not have a duty to defend an insured person for bodily injury to Smith. In January 2017, while the Tort Action was pending, Progressive filed a Complaint for Declaratory Judgment against Smith and Clayton requesting a determination that, according to the terms of the рolicy, Smith was not entitled to coverage under the policy‘s underinsured motorist or bodily injury provisions for injuries sustained in the accident and that Progressive was not obligated to defend or indemnify Clayton as a permissive driver of Smith‘s truck because Smith could not recover under the policy for Clayton‘s negligence. See id., Vol. 3 at 21.
[6] Ultimately, the case came before this court on Progressive‘s appeal arguing that Smith was not entitled to bodily injury liability coverage and that it had no duty to defend or indemnify Clayton. The Duty to Defend Declaration in the policy stated, “Coverage under this Part I, including our duty to defend, will not apply to any insured person for . . . bodily injury to [Smith] or a relative[.]” Id., Vol. 4 at 141 (emphasis added). We concluded that Smith was not entitled to bodily injury coverage and that Progressive did not have (and has never had) a duty to defend Clayton. Progressive Se. Ins. Co. v. Smith, 140 N.E.3d 292, 298 (Ind. Ct. App. 2020).
Malpractice Action
[7] In October 2018, after Clayton executed the Assignment, he filed a Malpractice Action against Progressive and Metzger. See Appellant‘s App., Vol. 7 at 87. In July 2019, the trial court granted Progressive‘s motion to dismiss Clayton‘s complaint against it, finding that “[a]n insurer such as Progressive cannot practice law or be liable for legal malpractice by attorneys” and “Progressive cannot be liable for a claim of improper legal services, whether to Clayton or Smith.” Id. at 93. At Clayton‘s request, the trial court certified its order of dismissal, but we denied Clayton‘s motion for leave to bring a permissive interlocutory appeal. At all times relevant to this litigation, the Malpractice Action has remained pending as to Metzger.
The Current Bad Faith Action3
[8] In September 2018, pursuant to the Assignment, Smith filed a complaint
[9] Smith then filed the Second Complaint on January 21, 2019, which alleged, in relevаnt part:
49. Progressive is liable for the actions and inactions of the attorneys hired by it because it directed those actions by and through its oversight of the case and the Policy Manual.
50. Progressive is liable for the actions and inactions of the attorneys hired by it because it admitted it had a duty to defend Clayton and such duty is a non-delegable, contractual duty making it liable for the actions of any independent contractors.
51. The acts, omissions, conduct and activities of Progressive, directly and/or by and through its agents, servants and/or selected independent contractors in conjunction with and under the control and direction of Progressivе, in handling, processing and conducting the contractual and non-delegable and/or voluntarily assumed duties and responsibilities of Progressive related to the claims of [Smith] against Clayton and/or as assignee of Clayton were negligent, grossly negligent, oppressive, willful and wanton, performed in bad faith, conducted for improper reasons and purposes and for the benefit of Progressive at the expense of Clayton, and for purposes of obstruction, delay and concealment from [Smith] as Clayton‘s assignee, and constitute a contractual breach of the duty of good faith and fair dealing, a tortious breach of the duty of good faith and fair dealing, negligent claim file handling, negligent hiring and retention, and bad faith.
52. The acts, omissions, conduct and activities of Progressive in handling, processing and conducting the contractual and non-delegable and/or voluntarily assumed duties and responsibilities of Progressive related to the claims of [Smith] against Clayton and/or as assignee of Clayton were performed and occurred, in part, upon advice of counsel.
53. As a direct and proximate result of the aforementioned actions, omissions, activities and conduct on the part of
Progressive, its agents, servants and/or selected independent contractоrs, a judgment was rendered against Clayton in the [Tort Action] in the amount of Twenty-One Million Dollars ($21,000,000.00), together with pre-judgment interest in the amount of $714,574.35, all
of which continues to accrue post-judgment interest at the rate of 8% per annum as Progressive, by and through its agents, servants and/or selected independent contractors continue to wrongfully obstruct and impede Clayton‘s rights and/or the rights of [Smith] as assignee of Clayton to pursue available remedies against Progressive and/or its agents, servants and/or independent contractors under the control and direction of Progressive. 54. Progressive, in addition to its own direct liability, is also vicariously liable for the acts, omissions, conduct and activities of its agents, servants and/or selected independent contractors including . . . Metzger Rosta . . . which resulted in the [Tort Action] Judgment, pre-judgment interest thereon, post-judgment interest thereon, post-judgment obstruction actions and delays, and all other damages which have been incurred by Clayton and/or [Smith] as the assignee of Clayton.
Id. at 126-27.6 Again, Progressive filed a motion to dismiss, arguing that Smith‘s Second Complaint raised no new issues or causes of action, and essentially sought to re-litigate the same issues as the dismissed complaint. See id., Vol. 5 at 39-40. The trial court held a hearing on the motion to dismiss after which it
granted Progressive‘s motion and dismissed the Second Complaint. The trial court found, in relevant part:
Paragraphs 49 through 54 of Smith‘s [Second Complaint] set forth why Smith believes Progressive is liable to Smith. The Court restates and reformulates the contentions of those paragraphs in this manner: Progressive is (allegedly) liable to Smith for the negligent and improper acts and omissions of the attorneys Progressive provided to Clayton for his defense in [the Tort Action] against Clayton. . . . Smith seeks recovery of damages from Progressive due to the representation Clayton‘s attorneys provided in defense of Smith‘s lawsuit against Clayton.
Under the assignment of rights from Clayton to Smith, Smith might have been able to recover against Progressive for Smith‘s personal injuries sustained in the truck crash. But, because the insurance policy . . . Progressive issued to Smith contained specific terms that excluded Smith from coverage for his own bodily injuries under that policy, Smith could not. That policy exclusion was partly the reason why the Court dismissed Smith‘s First Amended Complaint. With his [Second] Complaint, Smith attempts recovery from Progressive by asserting what amounts to a claim of improper legal services provided to Clayton.
But Smith cannot assert such a claim. Under Indiana law, negligence claims involving legal malpractice are not assignable. Moreover, because legal malpractice claims are not assignable, Indiana‘s courts have found that a non-client may not sue an insurer for vicarious liability for the conduct of lawyers hired to defend an insured, even when the non-client has obtained an assignment. See Querrey & Harrow, Ltd. v. Transcontinental Ins. Co., 885 N.E.2d 1235[, 1236] (Ind. 2008).7 Smith does
not have any direct claim for negligence against Progressive or the lawyers that Progressive hired to defend Clayton. He cannot bring such an action, as he does with his [Second] Complaint, because Clayton could not assign his rights to bring such claims to Smith. Furthermore, Smith had already [made] the same or similar claims in paragraphs 42 through 45 of his First Amended Complaint, a complaint that this Court has already considered and dismissed.
Appealed Order at 5-7 (some citations omitted).8 Smith now appeals.
Discussion and Decision
I. Dismissal
A. Standard of Review
[10] The trial court granted Progressive‘s motion to dismiss Smith‘s Second Complaint for failure to state a claim upon which relief could be granted. See
B. Second Complaint
[11] Smith argues that the trial court erroneously dismissed his Second Complaint. Specifically, he contends that the trial court mischaracterized the nature of his claims against Progressive as attorney malpractice, rather than claims for vicarious liability, breach of duty to defend, and bad faith.9 We will discuss each in turn.
1. Vicarious Liability
[12] Smith first contends that the trial court incorrectly dismissed his Second Complaint because the complaint alleged sufficient facts to show that Progressive is vicariously liable for Metzger‘s actions or inactions that contributed to a personal injury judgment against Clayton.
[13] Generally, a plaintiff claiming negligence must show a duty owed to the plaintiff by the defendant, a breach of that duty, and a compensable injury proximately caused by the breach. Smith v. Walsh Constr. Co. II, LLC, 95 N.E.3d 78, 84 (Ind. Ct. App. 2018), trans. denied.
[14] Smith‘s vicarious liability claim in his Second Complaint against Progressive contends that but for Metzger‘s actions or inactions, Clayton would not have incurred a substantial personal injury judgment. However, Smith did not plead specific facts to support his assertion and show how a smaller judgment would have resulted if Metzger had represented Clayton differently. Smith‘s contention, without more, is not sufficient at the pleading stage to state a claim for any relief. See Hoosier Ins. Co., 92 N.E.3d at 687. Regardless, the nature of Smith‘s complaint against Progressive for vicarious liability is nothing more than a negligence claim that involves alleged legal malpractice by Metzger – a claim that is not assignable under Indiana law. See Rosby Corp. v. Townsend, Yosha, Cline & Price, 800 N.E.2d 661, 665 (Ind. Ct. App. 2003) (discussing the bright-line rule drawn by our supreme court holding that “legal malpractice claims are not assignable“) (quoting Picadilly, Inc. v. Raikos, 582 N.E.2d 338, 339 (Ind. 1991)), trans. denied.
[15] In Picadilly, a bar owed a judgment to Charles Colvin, who was injured by another patron of the bar. The bar filеd a claim against its attorneys, Raikos and Thomas, alleging that the attorneys’ negligence resulted in the judgment against them. Raikos and Thomas moved for, and were granted, summary judgment. The bar thereafter assigned to Colvin its legal malpractice claim against Raikos and Thomas. Colvin immediately filed a motion to correct error with the trial court, challenging the grant of summary judgment to Raikos and Thomas. Raikos and Thomas opposed the motion on the grounds that the assignment of the legal malpractice claim was invalid. The trial court denied the motion to correct error and, on appeal, we affirmed the trial court‘s grant of summаry judgment. Picadilly, Inc. v. Raikos, 555 N.E.2d 167, 170 (Ind. Ct. App. 1990). On transfer, our supreme court also affirmed the trial court, concluding that legal malpractice claims are not assignable. Picadilly, 582 N.E.2d at 339. In addressing this new question of law, our supreme court agreed with a California Court of Appeal decision describing the public policy issues involved:
The assignment of such claims could relegate the legal malpractice action to the market place and convert it to a commodity to be exploited and transferred to economic bidders who have never had a professional relationship with the attorney and to whom the attorney has never owed a legal duty, and whо have never had any prior connection with the assignor or his rights. . . . The almost certain end result of merchandizing such
causes of action is the lucrative business of factoring malpractice claims which would encourage unjustified lawsuits against members of the legal profession, generate an increase in legal malpractice litigation, promote champerty and force attorneys to defend themselves against strangers. The endless complications and litigious intricacies arising out of such commercial activities would place an undue burden on not only the legal profession but the already overburdened judiсial system, restrict the availability of competent
legal services, embarrass the attorney-client relationship and imperil the sanctity of the highly confidential and fiduciary relationship existing between attorney and client.
Id. at 342 (quoting Goodley v. Wank & Wank, Inc., 62 Cal.App.3d 389, 397, 133 Cal.Rptr. 83, 87 (1976)).
[16] Although the Picadilly court discussed the assignment of a legal malpractice claim directly against attorneys and not against an insurer that hired the attorneys, the principle is the same. The court was mainly concerned with the impact of assigning any legal malpractice claims – “the need to preserve the sanctity of the client-lawyer relationship, and the disreputable public role reversal that would result during the trial оf assigned malpractice claims” – not how legal malpractice claims were assigned or who would be subject to litigation from the assignment. Picadilly, 582 N.E.2d at 342. Applying the above principle to the facts here, we see no reason for a different result. The nature of the vicarious liability claim in Smith‘s Second Complaint still served as a legal malpractice claim against Metzger; that is, it alleged that Progressive is liable for Metzger‘s actions or inactions in litigating the Tort Action, contributing to a substantial judgment against Clayton. Indiana law might support a respondeat superior claim by the insured – in this case, Clayton – against the insurer in this context, but it does not support such a claim being assigned to and litigated by Smith. Because Smith‘s vicarious liability claim against Progressive stemmed from Metzger‘s alleged legal malpractice, the trial court did not err in dismissing his Second Complaint on this issue.
2. Breach of Duty to Defend
[17] Smith next contends that the trial court erroneously dismissed his Second Complaint because he made multiple allegations that Progressive breached its contractual duty to defend Clayton. In Indiana, the duty to defend is broader than coverage liability. Trisler v. Indiana Ins. Co., 575 N.E.2d 1021, 1023 (Ind. Ct. App. 1991). Consequently, if it is determined that an insurer has a contractual duty to defend, the insurer will not be relieved of that obligation, regardless of the claim. Id. After an insurer has made an indepеndent determination that it has no duty to defend, it must either clarify its obligation to defend the insured through a declaratory judgment action or defend its insured under a reservation of rights. Liberty Mut. Ins. Co. v. Metzler, 586 N.E.2d 897, 902 (Ind. Ct. App. 1992), trans. denied.
[18] When determining whether a duty to defend exists, the insurer must look to the allegations in the complaint coupled with the facts known to the insurer after reasonable investigation. American States Ins. Co. v. Aetna Life & Cas. Co., 177 Ind. App. 299, 311, 379 N.E.2d 510, 518 (1978). Accordingly, we may consider the evidentiary materials offered by the parties to show coverage or exclusion. Trisler, 575 N.E.2d at 1023. No defense is required if the pleadings or investigation indicate that a claim is outside coverage limits or excluded under the policy. Id. Although ambiguities are construed in favor of the insured, clear and unambiguous policy terms will be given their ordinary meaning. Id.
[19] The issue of Progressive‘s duty to defend has already been resolved in the Declaratory Judgment Action. Progressive Se. Ins. Co., 140 N.E.3d at 298. A provision of Smith‘s policy stated, “Coverage under this Part I, including our duty to defend, will not apply to any insured person for . . . bodily injury to [Smith] or a relative.” Appellant‘s App., Vol. 4 at 141 (emphasis added). Progressive‘s Declaratory Judgment Action sought a declaration that,
[20] Smith argues that even if Progressive did not have a duty to defend, it chose to hire attorneys to defend Clayton and therefore, it was required to proceed in good faith by providing competent defense counsel for Clayton. However, our supreme court has noted, “To judicially impose liability under a theory of gratuitously assumed duty is unwise policy and should be cautiously invoked only in extreme circumstances involving a negligently performed assumed undertaking[.]” Yost v. Wabash College, 3 N.E.3d 509, 518 (Ind. 2014). Smith has not shown in his Second Complaint how Clayton‘s defense attorneys were incompetent or negligent in conducting Clayton‘s defense. And we will not speculate as to the quality of Metzger‘s representation of Clayton in the absence of specific allegations. Because Progressive did not have a contractual duty to defend Clayton, the trial court did not err in dismissing Smith Secоnd Complaint on this issue.
3. Bad Faith
[21] Next, Smith argues that the trial court erred in dismissing his Second Complaint because he made numerous allegations that Progressive acted in bad faith beyond issues of coverage. Specifically, Smith alleges that Progressive “directed the actions of the attorneys, failed to cooperate in the production of documents to Clayton, acted in its own best interests at the expense of Clayton, and acted with improper purposes.” Appellant‘s Br. at 30. Progressive contends, and we agree, that Smith did not plead any facts that would support his claim that Progressive acted in bad faith. Indiana has long recоgnized that there is a legal duty implied in all insurance contracts that the insurer deal in good faith with its insured. Erie Ins. Co. v. Hickman by Smith, 622 N.E.2d 515, 518 (Ind. 1993).
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.
Id. at 519. Proving bad faith amounts to showing more than bad judgment or negligence: “it implies the conscious doing of a wrong because of dishonest purpose or moral obliquity. . . . [I]t contemplаtes a state of mind affirmatively operating with furtive design or ill will.” Oxendine v. Pub. Serv. Co. of Ind., Inc., 423 N.E.2d 612, 620 (Ind. Ct. App. 1980).
[22] Smith‘s Second Complaint does not present any facts that would indicate that Progressive failed to meet the obligation of good faith and fair dealing in any of the four ways described in Erie. Nor does it designate any evidence that would suggest that Progressive acted with a dishonest purpose, ill will, or engaged in any conscious wrongdoing. Therefore, Smith‘s allegations
II. Joinder of Parties or Consolidation of Actions
A. Joinder
[23] Smith argues that the trial court erred when it denied his motion for joinder of parties. The determination of whether parties should be joined rests within the trial court‘s discretion, and we will reverse a trial court‘s decision only for an abuse of that discretion. McCoy v. Like, 511 N.E.2d 501, 504 (Ind. Ct. App. 1987), trans. denied. An abuse of discretion occurs when the trial court‘s decision is clearly against the logic and effect of the facts and circumstances before it. Brademas v. S. Bend Cmty. Sch. Corp., 783 N.E.2d 745, 750 (Ind. Ct. App. 2003), trans. denied.
[24] Indiana Trial Rules 19 and 20 govern the joinder of parties.
A person who is subject to service of process shall be joined as a party in the action if:
(1) in his absence complete relief cannot be accorded among those already parties; or
(2) he claims an interest relating to the subject of the action and is so situated that the disposition of the action in his absence may:
(a) as a practical matter impair or impede his ability to protect that interest, or
(b) leave any of the persons already parties subject to a substantial risk of incurring double, multiple, or otherwise inconsistent obligations by reason of his claimed interest.
[25] Smith also sought to join Clayton as a permissive party-plaintiff and Metzger as permissive party-defendants to the Bad Faith Action pursuant to
(1) All persons may join in one [1] action as plaintiffs if they assert any right to relief jointly, severally, or in the alternative in respect of or arising out of the same transaction, occurrence, or series of transactions or occurrences and if any
question of law or fact common to all these persons will arise in the action. (2) All persons may be joined in one [1] action as defendants if there is asserted against them jointly, severally, or in the alternative, any right to relief in respect of, or arising out of, the same transaction, occurrence, or series of transactions or occurrences and if any
question of law or fact common to all defendants will arise in the action.
[26] It was not error for the trial court to deny joinder of either party under
B. Consolidation
[27] Smith next argues that the trial court erred by denying his request for consolidation of his Bad Faith Action and Clayton‘s Malpractice Action.
[28] Smith requested the trial court consolidate the Bad Faith Action and the Malpractice Action against Progressive and Metzger because the cases involved common questions of law and fact. But whether or not common questions of law or fact exist, Smith failed to demonstrate that he suffered prejudice as a result of the trial court‘s denial of his motion. Smith now argues that he was prejudiced because Progressive took contradictory positions that resulted in the dismissal of Smith‘s claim against Progressive in this action and Clayton‘s claim against Progressive in the Malpractice Action; namely, asserting in this action that Clayton‘s claims were not assignable and asserting in the Malpractice Action that Clayton assigned his claims to Smith. However, Progressive‘s assertions were not contradictory, but consistent. First, in the Bad Faith Action, Progressive correctly stated that Smith‘s negligence claims based on legal malpractice were not assignable. See Appellant‘s App., Vol. 5 at 40 (Progressive noting in its motion to dismiss that “Indiana law does not recognize claims brought by third parties for vicarious liability for the conduct of counsel hired to defend the insured. Because
Conclusion
[29] Smith‘s Second Complaint on its face does not support the relief he seeks and therefore, the trial court did not err in dismissing Smith‘s Second Complaint. We also conclude that the trial court did not err when it denied Smith‘s motion for joinder of parties or consolidation of actions. Accordingly, the decision of the trial court is affirmed.
[30] Affirmed.
Bradford, C.J., and Altice, J., concur.