951 F.Supp. 759 (N.D.Ind. 1996), 1 95-CV-101, Indiana Gas Co., Inc. v. Aetna Cas. & Sur. Co.

Docket Nº:1 95-CV-101
Citation:951 F.Supp. 759
Party Name:Indiana Gas Co., Inc. v. Aetna Cas. & Sur. Co.
Case Date:October 02, 1996
Court:United States District Courts, 7th Circuit, Northern District of Indiana

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951 F.Supp. 759 (N.D.Ind. 1996)

INDIANA GAS COMPANY, INC., Richmond Gas Corporation d/b/a Indiana Gas Company, Inc. and Terre Haute Gas Corporation d/b/a Indiana Gas Company, Inc., Plaintiffs,

v.

AETNA CASUALTY & SURETY COMPANY, Connie Lee Insurance Company, Continental Casualty Company, Continental Insurance Company, Greenwich Insurance Company, Home Insurance Company, Certain Underwriters at Lloyd's, London and Certain London Market Insurance Companies, North River Insurance Company, Ranger Insurance Company, St. Paul Fire & Marine Insurance Company, St. Paul Surplus Lines Insurance Company, and the Travelers Company, Defendants.

No. 1:95-CV-101.

United States District Court, N.D. Indiana, Fort Wayne Division.

Oct. 2, 1996

Page 760

Sherrill W. Colvin, Haller and Colvin, Fort Wayne, IN, Ronald E. Christian, Whitney E. Bakley, Indiana Gas Company, Indianapolis, IN, Edward P. Henneberry, Ezra C. Levine, Peter C. Condron, Howrey and Simon, Washington, DC, Charles H. Samel, Howrey and Simon, Los Angeles, CA, for Plaintiffs.

J. Frank Kimbrough, Wilks and Kimbrough, Fort Wayne, IN, Scott H. Sirich, Plunkett and Cooney, Detroit, MI, Charles W. Browning, Kenneth C. Newa, Stephen P. Brown, Richard G. Szymczak, Aetna Casualty and Surety Company, Detroit, MI, Thomas W. Yoder, Miller Carson Boxberger and Murphy, Fort Wayne, IN, Patrick Cremin, Michael J. Sehr, Audrey S. Hanrahan, Jerome J. Duchowicz, Haskell and Perrin, Chicago, IL, James S. Felt, Steptoe and Johnson, Washington, DC, David J. Bloss, Grand Rapids, MI, Dennis F. Cantrell, Bingham Summers Welsh and Spilman, Indianapolis, IN, Erik H. Aldeborgh, Boston, MA, Michael D. Ramsey, James E. Rocap, Jr., Rocap Witchger and Threlkeld, Indianapolis, IN, Thomas J. Quinn, Stephen Thomas Roberts, Robert J. Keane, Mendes and Mount, New York City, Kandice L. Kilkelly, Rocap Witchger and Threlkeld, Indianapolis, IN, William L. Sweet, Jr., Beckman Lawson Sandler Snyder and Federoff, Fort Wayne, IN, Kenneth W. Biermacher, Dallas, TX, William Anaya, James S. Stickles, Janet A. Kachoyeanos, Johnson and Bell LTD, Chicago, IL, Mary K. Reeder, Riley Bennett and Egloff, Indianapolis, IN, Kathy P. Waring, Sonia S. Waisman, Luce Forward Hamilton and Scripps, San Diego, CA, Arthur G. Surguine, Hunt Suedhoff Borror and Eilbacher, Fort Wayne, IN, Karen H. Flax, Robert C. Johnson, Sonnenschein Nath and Rosenthal, Chicago, IL, for Defendants.

MEMORANDUM OF DECISION AND ORDER

WILLIAM C. LEE, District Judge.

This matter is before the Court on Aetna Casualty and Surety Company's July 10, 1996 "Motion for Summary Judgment as to Plaintiff's Third Cause of Action Alleging Breach of the Covenant of Good Faith and Fair Dealing, or, alternatively, for Partial Summary Judgment as to Plaintiffs' Claim for Punitive Damages." Plaintiffs responded to that motion on July 31, 1996, to which Aetna responded on August 9, 1996. For the following reasons, the motion for summary judgment will be denied.

Factual Background

Believing that long-standing coal tar pits on Indiana Gas' property in Shelbyville,

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Indiana were causing water well contamination, Indiana Cities Water Corporation (ICWC), on June 3, 1988 notified Indiana Gas of its intent to file suit with respect to that site. On June 8, 1988, Indiana Gas retained the law firm of Hill, Fulwinder, McDowell, Funk & Matthews to assist it in assessing its potential liability at the site and, in the event of litigation, to prepare for suit. Shortly thereafter, the law firm of Ross & Hardies was hired by Indiana Gas. None of the insurers of Indiana Gas were involved in the decision to hire these law firms. 1 Anthony Ard, a Vice President of Indiana Gas, directed the activities of these law firms.

By June 16, 1988, Indiana Gas had established a deferred account for the expected litigation in the amount of one million dollars. 2 The deferred account was doubled by June 8, 1989, in part because Indiana Gas expected that it was going to incur additional legal and consulting expenses related to the litigation over the next twelve months. 3

By letter dated November 7, 1988, Indiana Gas tendered to Aetna for defense and indemnity the underlying ICWC lawsuit. Indiana Gas continued to press numerous carriers for defense of the underlying action, including excess carriers because Indiana Gas believed that they were "not automatically absolved from any duty to defend."

Aetna sent the claim to its Indianapolis office. It was assigned to Senior Claims Representative Teri Paul, n/k/a Teri Phillips. 4 By a reservation of rights letter dated April 5, 1989, Aetna advised Indiana Gas as follows regarding the ICWC lawsuit:

Although it is questionable if the damages sought fall within the terms and conditions of Aetna's comprehensive general liability policies, we agree to investigate and participate in the defense of this suit under a full reservation of rights to disclaim coverage at a later date. If you have not already done so, we would suggest that you urge the insurers covering you prior to and subsequent to Aetna's policies to join in the defense.

None of Indiana Gas' other insurance companies ever agreed to participate in the defense of the ICWC lawsuit under a full reservation of rights or otherwise. 5

By letter dated June 5, 1989, Indiana Gas submitted to Aetna "copies of all payments made to attorneys, consultants, etc." regarding the ICWC litigation. Indiana Gas requested Aetna to "review this documentation and advise ... on your position of reimbursement as well as the frequency at which you would prefer to receive this type of supporting documentation." The gross amount of the payments was then approximately $156,000.00. 6 In 1989, Linda Marshall, one of

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several Aetna claims handlers to which the Indiana Gas' claim had been assigned, promised that a review of the submitted bills would be made in depth. 7

By letter dated September 20, 1990, counsel for Indiana Gas requested Aetna to provide a "statement of your position regarding payment of Indiana Gas Company's defense fees and costs." The letter also pointed out that they had previously submitted the requested information and documentation and had not heard from Aetna in spite of promises that Aetna would review the submissions and get back to Indiana Gas. Linda Marshall who was then handling the claim did not respond to this letter either. 8

In late Spring of 1991, Aetna established a regional environmental claims office located in Indianapolis to handle all environmental claims within a fourteen state region including Indiana. As a result, the Shelbyville claim was reassigned from Marshall to Regional Environmental Claim Analyst Mallory A. Cherry. After reviewing the claim file, Ms. Cherry advised her supervisor in August 1991 that Indiana Gas had "submitted a total of $155,626.60 in costs which it believes to be related to defense of this matter. As yet, no formal request for contribution has been made. We do not know which other insurance carriers may be involved." Additional request were then sent to Indiana Gas requesting further information. Indiana Gas did not respond to those requests. 9

By letter dated November 13, 1992, Indiana Gas placed Aetna on notice of purported insurance claims arising from 29 MGP sites operated by Indiana Gas or previous owners. 10 The Indiana claims were assigned to Aetna Regional Analyst Sherri Sprinkle. She wrote Indiana Gas on April 1, 1993 attaching a reservation of rights letter addressing the policies Indiana Gas had with Aetna. She also wrote that she was then going on vacation but upon her return she would contact Indiana Gas regarding the claims made against it and establish a date for a review of Indiana Gas' records relating to the sites. Subsequently, Ms. Sprinkle had various conversations with Mr. Whiteside of Indiana Gas regarding the claims made against the various sites. On May 6, 1993, Mr. Whiteside wrote a letter to Aetna regarding the Shelbyville site 11 which among other things stated:

IGC again demands payment pursuant to the policy (or policies) of the amount of its losses. The amount of losses to date is approximately $1,731,908.50. This amount includes the $700,000 settlement paid by IGC to resolve the case that had been pending before the United States District Court for the Southern District of Indiana, Indiana Cities Water Corporation v. Knauf Fiber Glass, et al., Cause No. IP87-630C, payments to consultants, attorneys' fees and the like.

(Ind.Gas Res. ex. 5).

On April 14, 1995, Indiana Gas instituted this action against Aetna and certain other insurance companies seeking damages for breach of contract and declaratory relief from nine of the Indiana Gas MGP claims, including the Shelbyville claim. Indiana Gas

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amended its complaint on September 6, 1995, to add a "Third Cause of Action--Breach of the Covenant of Good Faith and Fair Dealing (Against Defendant Aetna Only), " asserting that Aetna acted in bad faith by not reimbursing Indiana Gas for expenses incurred in the defense of the ICWC lawsuit. 12 On June 11, 1996, Aetna paid Indiana Gas $151,073.92 towards the defense costs for the Shelbyville site. 13

Application of Law

As indicated at the outset, Aetna has moved for summary judgment with respect to Indiana Gas' claim for the breach of covenant of good faith and fair dealing. After a review of the standards governing summary judgment, the parties arguments will be considered.

A. Summary Judgment Standards

Summary judgment is proper "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). However, Rule 56(c) is not a requirement that the moving party negate his opponent's claim. Fitzpatrick v. Catholic Bishop of...

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