American Nat. Fire Ins. Co. v. Rose Acre Farms, Inc.

• Decision Date: 11 December 1995
• Docket Number: No. IP93-0085-C-B/S.,IP93-0085-C-B/S.
• Citation: 911 F. Supp. 366
• Parties: AMERICAN NATIONAL FIRE INSURANCE CO., Plaintiff, v. ROSE ACRE FARMS INC., Wilson, Cynthia L., as Personal Representative of the Estate of Jeffrey L. Wilson, Garland, Robert, Defendants.
• Court: U.S. District Court — Southern District of Indiana

911 F. Supp. 366

AMERICAN NATIONAL FIRE INSURANCE CO., Plaintiff, v. ROSE ACRE FARMS INC., Wilson, Cynthia L., as Personal Representative of the Estate of Jeffrey L. Wilson,^* Garland, Robert, Defendants.

No. IP93-0085-C-B/S.

United States District Court, S.D. Indiana, Indianapolis Division.

December 11, 1995.

Richard R. McDowell, Hill Fulwider McDowell Funk & Matthews, P.C., Indianapolis, Indiana, for plaintiff.

Brian K. Burke, Baker & Daniels, Indianapolis, Indiana, for defendants.

ENTRY

BARKER, Chief Judge.

I. BACKGROUND and STANDARDS

A. Procedural History

This declaratory judgment action was initially brought by plaintiff American National Fire Insurance Company ("ANFI") in January, 1993, seeking a declaration that defendant Rose Acre Farms ("Rose Acre") is not entitled to insurance coverage under ANFI Policy No. UMB2-64-81-35-00 ("the Policy") with respect to death and injury claims against Rose Acre arising out of the December 10, 1991 crash of Rose Acre's Beechcraft airplane. In an entry dated March 7, 1994, this Court granted summary judgment for Rose Acre, holding that Rose Acre is entitled to coverage according to the terms of the Policy. On May 12, 1994, we granted ANFI's motion to alter or amend judgment and for leave to conduct discovery. The sole basis for this motion was ANFI's discovery of new evidence regarding Rose Acre's possible ownership of an airplane in Paraguay ("Paraguay airplane").

The matter is now before the court on cross motions for summary judgment. ANFI argues that Rose Acre owned the Paraguay airplane and misrepresented this fact in its application for insurance submitted to ANFI. This misrepresentation, claims ANFI, was material, and thus invalidates the Policy insofar as coverage for the 1991 Beechcraft airplane crash is concerned.¹

Rose Acre makes the following arguments in support of its motion:

1) James Rust, not Rose Acre, was the owner of the Paraguay airplane at the time the application was filed in November, 1990; or

2) the ANFI umbrella policy only provided coverage within North America and thus Rose Acre was under no obligation to divulge the existence of any aircraft in South America; or

3) even if Rose Acre's representation on the application that it did not own, lease or operate any aircraft was a misrepresentation, ANFI and not Rose Acre is responsible for the misrepresentation because the form was prepared and submitted by ANFI's agent; or

4) any misrepresentations on Rose Acre's application were not material to ANFI's decision to issue the Policy; or

5) ANFI has waived its ability to rescind the Policy or to deny coverage by continuing to accept premiums and keeping the Policy in full force after it became aware of the Paraguay airplane.

For the reasons stated below, Rose Acre's motion is GRANTED and ANFI's motion is DENIED.

B. Summary Judgment Standards

"Summary judgment is designed to head off a trial if the opposing party does not have a reasonable prospect of prevailing before a reasonable jury — that is, a jury that will base its decision on facts and the law, rather than on sympathy or antipathy or private notions of justice." Karazanos v. Navistar International Transp. Corp., 948 F.2d 332, 338 (7th Cir.1991). Rule 56(c) of the Federal Rules of Civil Procedure provides that a motion for summary judgment shall be granted "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.Pro. 56(c).

A genuine issue of material fact exists if there is sufficient evidence for a jury to return a verdict in favor of the non-moving party on the particular issue. Methodist Medical Center v. American Medical Sec., Inc., 38 F.3d 316, 319 (7th Cir.1994). In considering a summary judgment motion, a court must draw all justifiable inferences in the light most favorable to the opposing party, and must resolve any doubt against the moving party. Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 255, 106 S.Ct. 2505, 2513, 91 L.Ed.2d 202 (1986); Bank Leumi Le-Israel, B.M. v. Lee, 928 F.2d 232, 236 (7th Cir.1991). While the burden rests squarely on the party moving for summary judgment to show "that there is an absence of evidence to support the nonmoving party's case", Celotex Corp. v. Catrett, 477 U.S. 317, 325, 106 S.Ct. 2548, 2554, 91 L.Ed.2d 265 (1986), the nonmoving party may not simply rest on the pleadings, but must affirmatively demonstrate by specific factual allegations that a genuine issue of material fact exists for trial. Billups v. Methodist Hosp. of Chicago, 922 F.2d 1300, 1302 (7th Cir.1991). Conclusory allegations by a party opposing a motion for summary judgment cannot defeat the motion. Smith v. Shawnee Library System, 60 F.3d 317, 320 (7th Cir.1995). "The moving party is `entitled to a judgment as a matter of law' if the nonmoving party has failed to make a sufficient showing on an essential element of her case with respect to which she has the burden of proof." Celotex, 477 U.S. at 323, 106 S.Ct. at 2553. If doubts remain, however, as to the existence of a material fact, then those doubts should be resolved in favor of the nonmoving party and summary judgment denied. See, Wolf v. City of Fitchburg, 870 F.2d 1327, 1330 (7th Cir.1989).

C. Declaratory Judgment Standards

Some confusion about which party bears the burden of persuasion, or risk of non-persuasion, has been generated in the declaratory judgment context, largely because a declaratory judgment usually transposes the parties. See 10A Charles A. Wright, Arthur R. Miller & Mary Kay Kane, Federal Practice & Proc. § 2770 (1983). When, as here, the basis of jurisdiction is diversity, most courts rely on the applicable state law to determine which party shoulders the burden of proving the facts. See, e.g., Auburndale State Bank v. Dairy Farm Leasing Corp., 890 F.2d 888, 893 (7th Cir. 1989) (relying on Wisconsin law to decide which party bore burden of proof in declaratory judgment action based on diversity jurisdiction); Spraying Systems Co. v. William G. Smart Co., Inc., 816 F.Supp. 465, 467 (N.D.Ill.1993) (relying on Illinois law to decide plaintiff bears burden of proof in declaratory judgment action based on diversity jurisdiction); Metropolitan Life Ins. Co. v. Estate of Cammon, 929 F.2d 1220, 1222 (7th Cir.1991) (remarking that plaintiff-insurance company bore burden of proof in declaratory judgment action to establish lack of coverage of insured under insurance policy).

Accepting this as the rule, ANFI bears the burden of persuasion in the present case because, under Indiana law,² "in an action for declaratory judgment the party who seeks the judgment must carry the burden of proving its propriety." South Bend Community Sch. v. National Ed. Ass'n, 444 N.E.2d 348, 352 (Ind.App.1983) (citing Rosenbaum Bros. v. Nowak Milling Corp., 222 Ind. 108, 51 N.E.2d 623 (1943)).

In order to prevail on its summary judgment motion, ANFI must show that the facts support findings as a matter of law that: 1) Rose Acre owned the plane, 2) Rose Acre had an obligation to divulge its ownership of the Paraguay airplane; 3) Rose Acre misrepresented its ownership of the Paraguay plane and is responsible for such misrepresentation; 4) the misrepresentation was material; and 5) ANFI has not waived its right to rescind or deny coverage. If, on the other hand, the undisputed facts support a finding as a matter of law in Rose Acre's favor as to any one of these five questions, then summary judgment must be denied ANFI and granted for Rose Acre.

D. Facts

This matter is resolved by the conclusion that any misrepresentation in Rose Acre's insurance application was not material. As a result, we need not and will not address on the merits the numerous other interesting and complex questions raised by the parties. See, Watson v. Golden Rule Ins. Co., 564 N.E.2d 302, 306 (Ind.App.1990) ("Despite conflicting facts and inferences on some elements of a claim, summary judgment may be proper where there is no dispute regarding facts which are dispositive of the matter."). Facts material to our resolution of these summary judgment motions are not disputed and are presented below:

On or about November 1, 1990, Jan Bednarz, Vice-President of M-J Insurance ("M-J"), prepared and submitted to ANFI Rose Acre's application for umbrella liability coverage.³ Bednarz Aff., at ¶ 2. Rose Acre's insurance administrator Scott Brewer supplied information for the application to Bednarz, who in turn submitted the application to the Marion Agency, ANFI's underwriter in Indiana. Bednarz Dep., at 4, 8-9 & ex. 15; Fish Dep., at 15-16. The completed application was neither sent to nor reviewed by Rose Acre. Bednarz Aff., at ¶ 4. Bednarz' understanding at the time he prepared and submitted the application was that Rose Acre did not own, lease or operate any aircraft. Bednarz Dep., at 12.

Kevin Culley, an underwriter at the Marion Agency, reviewed Rose Acre's application and caused ANFI to issue a policy for the policy period of January 1, 1991, to January 1, 1992. At no time during this policy period was Culley or M-J aware of the existence of the Paraguay airplane. Culley Dep., at 145-47; Bednarz Dep., at 13; Bednarz Aff., at ¶ 11. Culley has testified that had he known about the Paraguay airplane, he would have issued the Policy with an endorsement deleting Exclusion 5(c)⁴, and replacing it with an "aircraft exclusion" stating:

This policy does not apply to "injury" arising out of the ownership, maintenance, operation, use, loading or unloading of any aircraft.

Culley Dep., at 148-9; Culley Supp.Aff., at ¶ 3.

On or about July 18, 1991, Rose Acre purchased the Beechcraft aircraft which was later involved in the crash for which coverage is disputed. Fish Aff., at ¶ 3. As early as July, 1991, M-J was aware that Rose Acre was contemplating...