Baxter v. ISTA Ins. Trust, 10A01-0009-CV-318.

Decision Date03 May 2001
Docket NumberNo. 10A01-0009-CV-318.,10A01-0009-CV-318.
Citation749 N.E.2d 47
PartiesCarolyn BAXTER and Eddy Baxter, Sr., Fraternal Ins. Co., Inc., and GAB Robins North America, Inc., Appellants-Defendants, v. I.S.T.A. INSURANCE TRUST, Appellee-Plaintiff.
CourtIndiana Appellate Court

Laura S. Reed, Riley Bennett & Egloff, Indianapolis, IN, Attorney for Appellant Fraternal Ins. Co., Inc.

Gene Lynn Humphreys, Ogden Newell & Welch, Louisville, KY, Attorney for Appellant GAB Robins North America, Inc.

Richard J. Darko, Christina D. Arvin, Lowe Gray Steele & Darko, Indianapolis, IN, Attorneys for Appellee.


BROOK, Judge.

Case Summary

Appellants-defendants Fraternal Insurance Company, Inc. ("Fraternal") and GAB Robins North America, Inc. ("GAB") appeal the trial court's order denying their respective motions for summary judgment. We affirm in part and reverse in part.


We restate the three issues presented for our review as follows:

I. whether the trial court erred in denying Fraternal's motion for summary judgment regarding whether appellee-plaintiff I.S.T.A. Insurance Trust ("ISTA") has a right to subrogation;

II. whether the trial court erred in denying Fraternal's and GAB's summary judgment motions on the fraud claim brought by ISTA; and

III. whether the trial court erred in denying Fraternal's motion for summary judgment on ISTA's breach of duty of subrogation claim.

Facts and Procedural History

On October 8, 1996, Eddy Baxter, Sr. ("Eddy") was severely burned by hot grease from a fryer in an accident at the Moose Lodge # 1757 ("Moose Lodge"). Fraternal, which insured Moose Lodge, hired GAB to provide limited services in adjusting Eddy's claim against Moose Lodge. ISTA is an employee benefit trust regulated by the Employee Retirement Income Security Act of 1974 ("ERISA"). See 29 U.S.C. § 1001 et seq. Eddy and his wife, Carolyn Baxter ("Carolyn"), (collectively, "the Baxters"), are beneficiaries of ISTA's group health benefit plan.

The Baxters submitted to GAB documents, which indicated that they had received $3,192.34 in benefits from ISTA. Consequently, Fraternal paid the Baxters $5,000 for medical expenses without requiring that they sign a release. Although the Baxters made a demand against the Moose Lodge for a far greater amount, Fraternal eventually paid them $50,000 for pain and suffering and required them to sign a release containing the following language:

In making this Release it is understood and agreed the undersigned relies wholly upon the undersigned's judgment, belief, and knowledge of the nature, extent, effect, and duration of said injuries and liability therefore and is made without reliance upon any statement or representation of the Lodge or its representatives or by any physician or surgeon by them employed.

ISTA eventually paid approximately $130,000 for Eddy's medical expenses arising from his injury at Moose Lodge. Despite the existence of a subrogation clause in ISTA's group health benefit plan, the Baxters have not reimbursed ISTA with any portion of the $55,000 received from Fraternal.

Upon learning of the $55,000 payment and the failure to reimburse ISTA for any amounts it had paid, ISTA sued the Baxters in March 1998. In an amended complaint, ISTA added Fraternal and GAB as defendants, alleged a theory of fraud and misrepresentation against both, and asserted breach of duty to protect subrogation interest against Fraternal. Fraternal and GAB filed motions for summary judgment. On June 13, 2000, the court held a hearing on the motions, and ISTA filed another amended complaint. In an order without explanation, the court denied summary judgment. Fraternal and GAB filed an interlocutory appeal of this order.

Discussion and Decision
I. Right of Subrogation

Fraternal asserts that the trial court erred by denying its motion for summary judgment regarding ISTA's claimed contractual right of subrogation. We address this issue first because if ISTA had no right to subrogation it would have no claim for fraud or breach of duty against Fraternal or GAB since it would have suffered no injury. See Gonderman v. State Exchange Bank, Roann, 166 Ind.App. 181, 191, 334 N.E.2d 724, 730 (1975)

(noting that fraud without injury does not give rise to cause of action); Fast Eddie's v. Hall, 688 N.E.2d 1270, 1272 (Ind.Ct.App.1997) ("absent a duty, there can be no negligence"), trans. denied.

We recently set forth the summary judgment standard of review:

The purpose of summary judgment is to end litigation where no factual dispute exists and which may be determined as a matter of law. On review of a trial court's decision to deny summary judgment, our standard of review is well settled. We apply the same standard of review as the trial court: we must decide whether there is a genuine issue of material fact and whether the moving party is entitled to judgment as a matter of law.

Summary judgment is appropriate only if "the evidence sanctioned by Ind.

Trial Rule 56(C) shows that there is no genuine issue of material fact and the moving party deserves judgment as a matter of law." The party moving for summary judgment has the burden of making a prima facie showing that there is no genuine issue of material fact and that the moving party is entitled to a judgment as a matter of law. Once these two requirements are met by the moving party, the burden then shifts to the non-moving party to show the existence of a genuine issue by setting forth specifically designated facts. Any doubts as to any facts or inferences to be drawn therefrom will be resolved in favor of the non-moving party.

Ling v. Stillwell, 732 N.E.2d 1270, 1273-74 (Ind.Ct.App.2000) (citations omitted), trans. denied.

We analyze insurance contracts as follows:

The interpretation of an insurance policy, as with other contracts, is primarily a question of law for the court, even if the policy contains an ambiguity needing resolution. A court may not rewrite an insurance contract. If an insurance contract is clear and unambiguous, the language must be given its plain meaning. However, if there is an ambiguity, the policy should be interpreted most favorably to the insured, and construed to further the policy's basic purpose of indemnity. Ambiguity in an insurance policy exists when the language is susceptible to more than one interpretation and reasonably intelligent persons could honestly differ as to the meaning of the policy language.

Estate of Eberhard v. Illinois Founders Ins. Co., 742 N.E.2d 1, 2 (Ind.Ct.App.2000) (citations omitted). "Courts will make all attempts to construe the language in a contract so as not to render any words, phrases, or terms ineffective or meaningless." Id. at 3.

ISTA's group health benefit plan contains the following provision:


In the event of any payment under the plan to any Covered Person, the Plan may, as set forth in the Schedule of Benefits, to the extent of such payment be subrogated, unless otherwise prohibited by law, to all the rights of recovery of the Covered Person arising out of any claim or cause of action which may accrue because of alleged negligent conduct of a third party. Any such Covered Person hereby agrees to reimburse the Plan for any payment so made, hereunder, out of any monies recovered from such third party as the result of such information and assistance, and to execute and deliver all necessary instruments as the Plan Administrator may require to facilitate the enforcement of the Plan's rights and not to prejudice such rights. Such subrogation rights shall extend only to the recovery by the Company of the benefits it has paid for such hospitalization and treatment, and the Company shall pay fees and costs associated with the enforcement of the Plan's rights.

In asserting that ISTA has no subrogation right, Fraternal1 focuses upon the word "may" and the placement of the clause thereafter. Fraternal argues:

the phrase "as set forth in the schedule of benefits," modifies the word "may." As written, the provision permits subrogation "as set forth in the schedule of benefits." ISTA has not pointed to anything in the schedule of benefits which requires or permits subrogation, and therefore ISTA had no right to subrogation and suffered no injury.

Fraternal's brief at 19.

We agree that the subrogation clause could have been written more clearly, for example using "shall" or "is" rather than "may." We also note that the remainder of the plan does not mention specifically subrogation. However, we do not view the contract as ambiguous in the sense that reasonable minds could honestly differ as to its meaning. Rather, we observe that the plan provides certain limits and sets out percentages that it will pay under various circumstances. The plain meaning of the subrogation clause in the context of the plan is that ISTA is entitled to subrogation in accordance with the amounts it pays out. Further, ISTA would never be entitled to subrogation under the interpretation advocated by Fraternal, thus rendering the subrogation clause meaningless. We are not inclined to read the contract in such a manner. See Eberhard, 742 N.E.2d at 3 (disagreeing with interpretation of contract that would render an exclusion meaningless). Therefore, we conclude that the trial court properly denied summary judgment on this issue.

II. Fraud Claim

Fraternal and GAB contend that the court erred in denying summary judgment on ISTA's fraud claim because none of the alleged misrepresentations were made to or relied upon by ISTA. ISTA argues that Fraternal and GAB made material representations to Eddy and Carolyn that created a reasonable belief on their part that they had no obligation to repay ISTA for medical expenses. ISTA does not dispute that the alleged misrepresentations were not made to or relied upon by ISTA. However, ISTA urges that it was damaged nonetheless and that a "fraud claim by a third person injured by the deceit should be recognized in Indiana."

The five elements of fraud are:


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