MONROE GUARANTY INSURANCE COMPANY, Appellant (Defendant below), v. MAGWERKS CORPORATION, Appellee (Plaintiff below).
No. 49S02-0402-CV-81
Supreme Court of Indiana
June 29, 2005.
829 N.E.2d 968
I respectfully contend that the Court today employs unnecessary draconian methodologies to provide protection for landowners and other entities that employ independent contractors to eliminate or ameliorate dangerous conditions. Except for genuine intrinsically dangerous activities, such interests already receive significant protection under the “due precautions” exception and
Notwithstanding my disagreements with much of the Court‘s discussion today regarding liability for injuries to employees of independent contractors, I concur with its conclusion that the evidence in this case was sufficient under the instructions to sustain the jury‘s verdict and the trial court‘s judgment. For these reasons, I concur in result.
RUCKER, J., concurs.
Steve Carter, Attorney General of Indiana, Scott A. Kreider, Deputy Attorney General, Indianapolis, for Intervenor.
William E. Winingham, Wilson Kehoe & Winingham, Frank D. Otte, Indianapolis, for Appellee.
Henry Price, Price Jackson Waicukauski & Mellowitz, P.C., Indianapolis, Amicus Curiae Brief of the Indiana Trial Lawyers Association.
ON PETITION TO TRANSFER FROM THE INDIANA COURT OF APPEALS, NO. 49A02-0208-CV-622.
RUCKER, Justice.
This case presents the question of whether a good faith dispute concerning insurance coverage automatically precludes a punitive damages claim for bad faith when coverage is denied. We conclude it does not.
Magwerks Corporation (“Magwerks“) sells manufactured camshafts from its one-story, flat-roofed building in Indianapolis. Constructed of tar and asphalt with individual sections measuring 4’ x 8‘, the roof has no separate suspended ceiling. After a period of heavy rain and snow in February 1997, several of the roof sections began falling to the floor. The resultant water and moisture caused damage to several pieces of Magwerks’ equipment.
Monroe Guaranty Insurance Company (“Monroe Guaranty“) issued an insurance policy to Magwerks in 1996, which included coverage for certain types of damage to its building and equipment. One provision of the policy excluded payment for such things as “wear and tear” and loss or damage “caused by or resulting from rain [or] snow.” Appellant‘s App. at A052. Although not defining the term, one section of the policy excluded coverage for “collapse” but then another section of the policy specifically included such coverage under certain circumstances. More particularly the policy provided in relevant part:
We will pay for loss or damage caused by or resulting from risks of direct physical loss involving collapse of a building or any part of a building caused only by one or more of the following: . . . Weight of rain that collects on a roof . . .
Id. at A053 (emphasis added). The policy was in effect in February 1997. Patrick Jenkins, president of Magwerks, submitted a “Property Loss Notice” to Monroe Guaranty describing the loss as follows: “Continuous rain had caused damage to roof, actual [sic] has collapsed in several areas.” Appellant‘s App. at A085. Paul Kelker, a Monroe Guaranty adjuster, observed “[r]oof damage and collapsed interior ceiling panels.” Supp.App. to Br. of Appellee at S147. At Kelker‘s request, Tim Moehl of McComas Engineering inspected the roof and concluded that ponding on the roof, caused by poor design, had occurred over a long period of time resulting in a number of small roof leaks that affected the structural integrity of the roof deck. Moehl added, “At the time of our inspection two sections of the roof were collapsed. Several sections of the roof deck have been temporarily braced to prevent further collapse.” Appellant‘s App. at A088.
Monroe Guaranty ultimately forwarded Magwerks a denial letter rejecting Magwerks’ claim of loss. The letter cited several exclusions and limitations in the insurance policy which, according to Monroe Guaranty, justified its refusal to pay for the loss. These included damage caused by wear and tear, decay, deterioration, and defective design. The denial letter did not mention the provisions in the policy concerning collapse coverage.
Magwerks filed a complaint against Monroe Guaranty for breach of the insurance contract. Seeking punitive damages Magwerks also included a claim for lack of good faith and fair dealing. After conducting discovery, both sides filed cross motions for summary judgment on the breach of contract claim. The primary issue in dispute was whether Magwerks’ loss was due to a “collapse” of the roof. Because of a lack of Indiana precedent, Monroe Guaranty cited authority from foreign jurisdictions to support its position. The trial court granted summary judgment in favor of Magwerks and the matter proceeded to trial on the issue of contract damages and on Magwerks’ claim of lack of good faith and fair dealing. The jury returned a verdict for Magwerks in the amount of 5.1 million dollars, which included 4 million dollars in punitive damages.
With the exception of that portion of the Court of Appeals’ opinion adopting the modern definition of collapse, Magwerks sought transfer challenging the Court of Appeals’ determinations. Having previously granted transfer, we now summarily affirm the opinion of the Court of Appeals in all respects except for its treatment of Magwerks’ punitive damages claim. See
Discussion
I.
What constitutes a collapse has been the subject of a number of articles and treatises.1 Under the traditional definition, a “collapse” is limited to an event that occurs suddenly and results in complete disintegration. 43 Am.Jur.2d Insurance § 1282 (2004). This definition typically disallows coverage under an insurance policy where only a “part of a part” of a building falls. Monroe Guaranty v. Magwerks, 796 N.E.2d 326, 332 (Ind.Ct.App.2003). In short, under the traditional view, collapse coverage applies only if an insured building is reduced to flattened form or rubble. By contrast, the broader and so-called modern definition, which is followed by a majority of jurisdictions,2 defines “collapse” as a “substantial impairment of the structural integrity of the building or any part of a building.” 43 Am.Jur.2d § 1282.
On transfer neither party challenges the Court of Appeals’ adoption of the modern view of collapse coverage. We agree with this view as well. However, Magwerks contends that even under the modern view the Court of Appeals improperly reversed the trial court‘s grant of summary judgment. Magwerks faults the court for what it characterizes as the court‘s reliance on “Monroe‘s waived arguments and untimely evidence.” Appellee‘s Pet. To Trans. at 11. Magwerks’ claim is premised on the notion that (i) Monroe Guaranty advanced arguments on appeal justifying its denial of coverage that were not presented to the trial court in response to Magwerks’ motion for summary judgment, and (ii) Monroe Guaranty‘s designated evidence in response to Magwerks’ motion for summary judgment was not timely filed.
When reviewing a grant or denial of summary judgment our well-settled standard of review is the same as it is for the trial court: whether there is a genuine issue of material fact, and whether the moving party is entitled to judgment as a matter of law. Indiana Univ. Med. Ctr., Riley Hosp. for Children v. Logan, 728 N.E.2d 855, 858 (Ind.2000). Summary judgment should be granted only if the evidence sanctioned by
Magwerks’ claim that Monroe Guaranty advanced arguments on appeal that were not presented to the trial court is of no moment in this case. Rather, the question is whether the designated evidence and all inferences derived from that evidence demonstrate there is no genuine issue of material fact and that Magwerks
However, there is nothing in this record showing when Monroe Guaranty “served” its response on Magwerks. The record merely shows the date on which Monroe Guaranty‘s response was filed with the trial court. We thus cannot say as a matter of fact Monroe Guaranty‘s response was late at all. More importantly, the record does not show that Magwerks objected to the alleged untimely submissions, either by a motion to strike or otherwise. See, e.g., Logan, 728 N.E.2d at 858 (rejecting claim that trial court erred in failing to strike untimely affidavit filed in opposition to motion for summary judgment). Failure to object waives the issue for review. Francies v. Francies, 759 N.E.2d 1106, 1113 (Ind.Ct.App.2001).
Waiver notwithstanding, and even assuming Monroe Guaranty‘s submissions were untimely and thus inadmissible, Magwerks still cannot prevail on this issue. The record shows that in support of its motion for summary judgment Magwerks submitted, among other things, an engineering report compiled by Tim Moehl of McComas Engineering, Inc. The report says in part:
The building was constructed with inadequate roof slope to properly relieve rainwater from the structure. Although the roof was maintained annually, the lack of roof slope has caused rainwater to pond on the roof covering. The long-term ponding conditions, eventually affected the structural integrity of the roof deck. Rainwater infiltrates the underlying structure when it is allowed to pond . . . . Due to the extent of damage to the existing deck, the removal of the existing deck is warranted. Any repairs to the existing deck cannot be accomplished due to the extent of existing damage.
Appellant‘s App. at A088 (emphasis added). On the other hand Magwerks submitted a portion of a deposition of Paul A. Kelker, a Monroe Guaranty adjuster. When asked whether he agreed or disagreed that the “roof collapsed in several areas,” Kelker responded, “I would say it [the roof] sagged in some areas, but we wouldn‘t consider it a collapse.” Id. at A022. Kelker also testified that after receiving the engineering report he conducted his own investigation of the building which included climbing onto the roof to
A party moving for summary judgment bears the initial burden of showing no genuine issue of material fact and the appropriateness of judgment as a matter of law. If the movant fails to make this prima facie showing, then summary judgment is precluded regardless of whether the non-movant designates facts and evidence in response to the movant‘s motion. Tankersley v. Parkview Hosp., Inc., 791 N.E.2d 201, 203-04 (Ind.2003). In this case, even if Monroe Guaranty‘s designated materials were excluded from consideration, Magwerks’ failure to carry its initial burden of showing that the structural integrity to its building or any part thereof suffered substantial impairment is fatal to Magwerks’ coverage claim. We therefore summarily affirm the opinion of the Court of Appeals reversing the trial court‘s grant of summary judgment in Magwerks’ favor.
II.
Monroe Guaranty contends that Freidline v. Shelby Ins. Co., 774 N.E.2d 37 (Ind.2002) controls the outcome of this case supporting the proposition that Magwerks should not be allowed to pursue a claim for punitive damages on remand. In Freidline, several employees who worked in a building owned by Joan and Donna Freidline complained that fumes from carpet glue made them sick. The employees sued the Freidlines who in turn contacted their insurance carrier, Shelby Insurance Company. Citing a pollution exclusion in the insurance policy, Shelby denied the claim and refused to defend the Freidlines in the underlying action. The Freidlines contended that Shelby had no legitimate basis for denying coverage and thus acted in bad faith. And this was so, according to the Freidlines, because existing Indiana case authority had found the definition of pollutants ambiguous and thus had consistently construed the pollution exclusion against insurance companies. Id. at 40. We agreed with the Freidlines that precisely because of existing authority, Shelby was in breach of the insurance contract by failing to pay for the coverage and in failing to provide the Freidlines with a defense to the lawsuit that the employees had filed against them. Id. at 42. However, we noted that Shelby had distinguished the existing case authority, and we observed that the scope of the pollution exclusion was an evolving area of the law subject to differing interpretations.
Affirming the trial court‘s grant of summary judgment in Shelby‘s favor we concluded, “Inasmuch as we find there is a rational basis for Shelby‘s actions, and Shelby supports its position with good faith legal argument, the Freidlines have failed to establish by clear and convincing evidence that Shelby breached its duty to act in ‘good faith.‘” Id. Before reaching this conclusion we articulated the long recognized rule that insurers have a duty to deal in good faith with their insureds. Id. at 40 (citing Erie Ins. Co. v. Hickman, 622 N.E.2d 515, 518 (Ind.1993)). We emphasized that a good faith dispute over whether an insured has a valid claim will not support the grounds for recovery in tort for the breach of the obligation to exercise good faith. Freidline, 774 N.E.2d at 40. We then said, “To prove bad faith, the
If the allegations of bad faith in this case rested solely on a dispute about coverage then Monroe Guaranty would be correct. We reaffirm that a good faith dispute concerning insurance coverage cannot provide the basis for a claim in tort that the insurer breached its duty to deal in good faith with its insured. See Hickman, 622 N.E.2d at 520; Hoosier Ins. Co. v. Audiology Found. of America, 745 N.E.2d 300, 310 (Ind.Ct.App.2001), trans. denied; Becker v. American Family Ins. Group, 697 N.E.2d 106, 108 (Ind.Ct.App. 1998). And “[t]his is so even if it is ultimately determined that the insurer breached its contract. That insurance companies may, in good faith, dispute claims, has long been the rule in Indiana.” Hickman, 622 N.E.2d at 520. But an insurer‘s duty to deal in good faith with its insured encompasses more than a bad faith coverage claim. And Freidline should not be read to suggest otherwise. In that case the only dispute at issue concerned a good faith difference of opinion over whether a claim was or was not covered. As a result we said “To prove bad faith” etc. the plaintiff must establish “that the insurer had knowledge that there was no legitimate basis for denying liability.” Freidline, 774 N.E.2d at 40. This was not meant however to suggest that this is the only way to demonstrate bad faith.
In Hickman we specifically declined to determine the precise extent of an insurer‘s duty to deal in good faith. Instead we made a few general observations as follows:
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.
622 N.E.2d at 519. In this case Magwerks asserts that the duty to deal in good faith includes also the “manner of handling the claim.” Pet. to Trans. at 4. Magwerks does not elaborate on the contours of this duty. And because neither party provides us with much guidance on the issue, we decline at this time to expand on the extent of the duty an insurer owes its insured beyond those we have already expressed in Hickman.
Nonetheless, from our review of the record, it appears that Magwerks’ claim is that from the very beginning Monroe Guaranty knew that the roof had collapsed. According to Magwerks, there was never any dispute on this point. In support of its contention Magwerks points out, for example, that: (i) it submitted a loss of claim notice identifying the problem
As a general proposition, “[a] finding of bad faith requires evidence of a state of mind reflecting dishonest purpose, moral obliquity, furtive design, or ill will.” Colley v. Indiana Farmers Mut. Ins. Group, 691 N.E.2d 1259, 1261 (Ind.Ct.App.1998), trans. denied. Here, apart from Monroe Guaranty‘s denial of Magwerks’ claim based on a good faith dispute over whether coverage did or did not exist, the question is whether Monroe Guaranty‘s conduct leading up to and including the issuance of the denial letter rose to the level of bad faith. Stated somewhat differently, before Magwerks filed its complaint, did Monroe Guaranty essentially acknowledge that the cause of Magwerks’ loss was a “collapse of a building or any part of a building caused [by the] [w]eight of rain that collects on a roof“? Appellant‘s App. at 53. If so, then a jury could reasonably have reached the conclusion that Monroe Guaranty‘s conduct amounted to “an unfounded refusal to pay policy proceeds.” Hickman, 622 N.E.2d at 519. In the end this is the jury‘s call. And the jury has already decided this issue in Magwerks’ favor. We find no error.
III.
Finally, before the Court of Appeals, Monroe Guaranty also argued that the amount of punitive damages was excessive. In support, Monroe Guaranty cited State Farm Mut. Auto. Ins. Co. v. Campbell, 538 U.S. 408, 123 S.Ct. 1513, 155 L.Ed.2d 585 (2003) (reversing a decision of the Utah Supreme Court, which upheld a jury award of $145 million in punitive damages upon an award of $1 million in compensatory damages). Because the Court of Appeals reversed the judgment of the trial court on other grounds, it did not address this issue. We do so here but only to note that this issue is waived because Monroe Guaranty made this claim for the first time in its reply brief. The law is well settled that grounds for error may only be framed in an appellant‘s initial brief and if addressed for the first time in the reply brief, they are waived. See French v. State, 778 N.E.2d 816, 826 (Ind.2002) (holding that the appellant waived an issue by not raising it in his principal brief); Crossmann Communities, Inc. v. Dean, 767 N.E.2d 1035, 1044 (Ind.Ct.App. 2002) (issues raised for the first time in a reply brief are deemed waived); see also
Monroe Guaranty counters that Campbell, which was handed down April 7, 2003, over three months after Monroe Guaranty filed its initial brief, “provides new guidance in the evaluation of punitive awards” and therefore Monroe Guaranty‘s “failure to raise this constitutional issue in its initial brief should not constitute a waiver of the issue . . . .” Reply Br. of Appellant at 47. We observe that although Campbell may very well have provided additional guidance on the subject of punitive damages awards, it certainly did not announce a new rule of constitutional law. In fact the Campbell Court cited extensively from BMW of North America, Inc. v. Gore, 517 U.S. 559, 116 S.Ct. 1589, 134 L.Ed.2d 809 (1996), a case in which the Court refused on due process grounds to sustain a $2 million punitive damages award which accompanied a jury verdict of only $4,000 in compensatory damages. As the Campbell Court declared, “[u]nder the principles outlined in [Gore] this case is neither close nor difficult.” Id. at 418, 123 S.Ct. 1513. In sum, the Court in Campbell merely reaffirmed what it had already declared in Gore. As such, Monroe Guaranty‘s attempt to avoid waiver on the ground that Campbell announced a new rule of constitutional law is unavailing.
Conclusion
We hold that a good faith dispute concerning insurance coverage does not automatically preclude a punitive damages claim for bad faith when coverage is denied. We therefore vacate that portion of the Court of Appeals opinion holding to the contrary. In all other respects we summarily affirm the opinion of the Court of Appeals, under which the judgment of the trial court is reversed and this cause remanded for further proceedings.
DICKSON and BOEHM, JJ., concur.
SHEPARD, C.J., concurs in result with separate opinion.
SULLIVAN, J., dissents with separate opinion.
SHEPARD, Chief Justice, concurring in result.
I join in the decision to reverse and remand for a new trial, including Magwerks’ claim for breach of contract.
I do not embrace what my colleagues have to say about the standard under which a party may be sanctioned for raising novel legal claims during the course of a dispute. Here, the central legal issue has been: “What‘s the Indiana definition of the word ‘collapse’ in an insurance contract?” Our Court of Appeals called this a “question of first impression” and our Court acknowledges “a lack of Indiana precedent” and examines at some length both decisions in other jurisdictions and various scholarly works in the search for useful analysis.
In the end, the Court holds that sanctioning the party that raised this question of first impression is appropriate for two reasons: the participants to the dispute frequently used the word “collapse” and the jury found that the party who advanced the claim had no good faith reason for doing so. This merely declares a legal answer by repeating the question.
It also moves us some distance away from our previous position that courts ought not impose sanctions on litigants who advance novel and plausible legal contentions.
SULLIVAN, Justice, dissenting.
I respectfully dissent from the Court‘s conclusion that the trial court improperly granted summary judgment to Magwerks on the question of whether Magwerks’ building‘s roof had suffered a “collapse.” In my view, the evidence designated by Magwerks in support of its motion for
The roof and ceiling in question consisted of approximately four foot-by-eight foot sections. Photographs in the record, the deposition testimony of Magwerks’ president, Patrick Jenkins, the deposition testimony of Monroe Guaranty‘s adjuster, Paul A. Kelker, and the written report of an engineering firm, McComas Engineering, Inc., engaged by Monroe Guaranty to inspect Magwerks’ building all indicate that at least two of the sections dropped all the way down to the ground from the ceiling. (App. at 148-154, 157-158, 35, and 88.) The McComas report actually says that “two sections of the roof were collapsed.” (App. at 88.) Kelker also used the word “collapse” in a Monroe Guaranty “Confidential Risk Report” (App. at 103; “collapsed interior ceiling panels“), but later testified in his deposition that this “was a poor, improper use of the word it appears” (App. at 34). Reviewing this evidence in the light most favorable to Monroe Guaranty, the material fact of the roof‘s condition simply was not in dispute and the legal question for the trial court was whether this condition constituted a collapse. A collapse, according to the Court, is “a substantial impairment of the structural integrity of the building or any part of the building.” I see no genuine issue of material fact but that there was a substantial impairment of the structural integrity of part of Magwerks’ building. I believe summary judgment was properly entered in Magwerks’ favor on that issue.
I would affirm the judgment of the trial court.