Cincinnati Ins. Co. v. Mallon

• Decision Date: 19 May 1980
• Docket Number: No. 2-1078A362,2-1078A362
• Citation: 409 N.E.2d 1100
• Parties: CINCINNATI INSURANCE COMPANY, Appellant, v. John M. MALLON, Jr., and Ronald Mitulla, et al., Appellees.
• Court: Indiana Appellate Court

Page 1100

409 N.E.2d 1100

CINCINNATI INSURANCE COMPANY, Appellant, v. John M. MALLON, Jr., and Ronald Mitulla, et al., Appellees.

No. 2-1078A362.

Court of Appeals of Indiana, Second District.

May 19, 1980.

Peter B. Stewart, Indianapolis, for appellant.

Marc A. Bleecker, Indianapolis, for appellees.

BUCHANAN, Chief Judge.

MEMORANDUM DECISION

Cincinnati Insurance Company (Cincinnati) appeals the trial court's judgment finding coverage under an insurance policy issued for Frame Designs II (Frame Designs) We reverse and remand.

on a claim by Harrison Eiteljorg (Eiteljorg), a customer.

On July 22, 1974, Eiteljorg brought a number of paintings to Frame Designs, a business operated by John M. Mallon, Jr. (Mallon) and Ronald Mitulla, to have the paintings framed.

During the frame selection process, Mallon made a longhand inventory list of each picture and the type frame selected. When frame selection had been completed, Mallon stated that Eiteljorg had brought in 22 pictures, to which Eiteljorg responded "correct." Neither man actually counted the paintings at that time.

Mallon left the paintings and the longhand inventory list on the side of a counter in Frame Designs' showroom, intending to complete the work tickets for each item the following day.

After returning from an out-of-town trip the next day, Mallon went to the showroom. He prepared the workshop tickets for framing Eiteljorg's pictures. Upon recounting his longhand inventory list, the work tickets, and the paintings themselves, Mallon discovered he had only 21 paintings.

After searching the showroom and the workroom of Frame Designs, Mallon notified Eiteljorg that he had only brought in 21 paintings. Eiteljorg, however, insisted that he had brought in 22 paintings. An exhaustive search to discover the missing painting proved fruitless.

At this time, Frame Designs had in effect a multi-peril insurance policy with Cincinnati (the Policy). The Policy basically provided four separate types of coverage: property, liability, automobile, and plate glass. Mallon notified Cincinnati's agent as to Eiteljorg's claim for the missing painting.

Cincinnati's insurance adjuster contacted Frame Designs and took a recorded statement from Mallon and Mitulla. Cincinnati subsequently denied the claim of Eiteljorg, and advised Frame Designs that Cincinnati would not furnish a defense.

On February 27, 1975, Eiteljorg filed suit against Frame Designs. Frame Designs responded on May 20, 1975, by filing its answer and a third party complaint against Cincinnati for defense and indemnification under the Policy.

The third party complaint, which is the subject of this appeal, was tried separately on June 1, 1977. The trial court issued its Findings of Fact and Judgment on April 18, 1978. ¹ From this judgment, Cincinnati appeals.

Cincinnati's allegations of error may be condensed into a single issue:

Did the trial court erroneously ignore and fail to give effect to exclusions contained in the Policy?

Cincinnati asserts that the trial court in effect rewrote the contract between the parties by ignoring specific exclusions in both the property coverage and the liability coverage, while inappropriately blending together other provisions in order to find coverage. Frame Designs contends that in reading the Policy as a whole, coverage for this type of loss is provided.

DECISION

The trial court erred in ignoring the exclusions in the Policy, and therefore its judgment must be reversed, and this cause remanded for further proceedings.

Two specific exclusions in the Policy are in question.

In the Property Coverage section of the Policy, the following exclusion was clearly set forth:

8. PERILS EXCLUDED

This policy does not insure against loss or damage:

(g) caused by mysterious disappearance; nor loss or shortage disclosed upon taking inventory;

The second exclusion in question is contained in the Liability Coverage section of the Policy, and states:

EXCLUSIONS

This insurance does not apply:

(j) to property damage

(2) except with respect to liability under a written sidetrack agreement or the use of elevators to

(i) property while on premises owned by or rented to the insured for the purpose of having operations performed on such property by or on behalf of the insured,

An insurance policy is a contract between the parties; in determining policy liabilities, the law of contract applies. American States Ins. Co. v. Aetna Life & Casualty Co. (1978), Ind.App., 379 N.E.2d 510. Courts are not unmindful of the great disparity in bargaining power between insurance companies and their insureds, which has resulted in special rules of construction concerning insurance policies. See, e. g., Taylor v. American Underwriters, Inc. (1976), Ind.App., 352 N.E.2d 86; United Farm Bureau Ins. Co. v. Pierce (1972), 152 Ind.App. 387, 283 N.E.2d 788 (ambiguous clauses are construed in favor of the insured); Utica Mutual Ins. Co. v. Ueding (1977), Ind.App., 370 N.E.2d 373, 376 (insured entitled to most favorable reading of conflicting clauses). Nevertheless, a court cannot rewrite an insurance contract for the parties. American States Ins. Co. v. Aetna Life & Casualty Co., supra; Home Insurance Co. v. Neilsen (1975), 165 Ind.App. 445, 332 N.E.2d 240; Ely v. State Farm Mutual Automobile Ins. Co. (1971), 148 Ind.App. 586, 268 N.E.2d 316.

An insurance company is free to determine by its contract what risks it is undertaking to insure, provided policy provisions do not violate statutory mandates or are not against public policy. As summarized in 43 Am.Jur.2d, Insurance § 279:

(S)ince the parties to an insurance contract may make the contract in any legal form they desire, insurance companies have, in the absence of statutory provisions to the contrary, the same right as individuals to limit their liability and to impose whatever conditions they please upon their obligations, not inconsistent with public policy. Consequently, if such exceptions, exclusions and limitations are plainly expressed, insurers are entitled to have them construed and enforced as expressed.

It is true that an ambiguous insurance contract must be construed liberally in favor of the insured. Taylor v. American Underwriters, Inc., supra. It is also true that if a contract is clear and unambiguous it must be given its plain meaning. Vernon Fire & Casualty Ins. Co. v. American Underwriters, Inc. (1976), Ind.App., 356 N.E.2d 693. See Continental Life Insurance Co. v. Malott, 89 Ind.App. 263, 166 N.E. 15. The policy before us is clear and unambiguous and therefore is not in need of liberal construction. It appears exclusions in the Policy were not given consideration.

Among the perils excluded is one "caused by mysterious disappearance." Property is also excluded which is damaged "while on premises owned by or rented to the insured for the purpose of having operations performed on such property ...."

Neither Frame Designs nor the trial court has directed us to any persuasive reason why these provisions should not be given effect. Nor has our reading of the Policy indicated any other provisions inconsistent therewith nor any reason why these apparently applicable exclusions should not be given due consideration by the trial court.

Frame Designs points to three provisions in the property coverage and argues these Frame Designs first points to the following provision:

provisions somehow nullify the exclusion in the property coverage.

4. PERILS INSURED AGAINST

This policy insures against all risks of direct physical loss of or damages to the Insured property from any external cause except as hereinafter excluded. (emphasis supplied)

As is apparent from even a cursory reading, this provision gives specific warning that certain perils will be excluded at later points in the Policy.

Frame Designs next points to the property covered provision:

6. PROPERTY COVERED

The policy covers:

A. Personal property usual to the conduct of the Insured's business, consisting principally of Picture Frame assembly and Store the property of the Insured, or similar property of others held by the Insured, except as provided elsewhere in this policy ;

B. Tenants Improvements and Betterments (meaning the Insured's use interest in fixtures, alterations, installments or additions comprising a part of a building occupied but not owned by the Insured and made at the expense of the Insured, but which are not legally subject to removal by the Insured). (emphasis supplied)

This has no effect on exclusion for two reasons. First, Cincinnati does not contend that the property of others was not to some extent covered by the Property Coverage. Rather, Cincinnati claims that the peril which resulted in the claim was excluded. Additionally, there is also the caveat that the property of others held by the insured is not insured in all cases, but rather there are exceptions elsewhere in the Policy.

Finally, Frame Design latches on to the following provision for support:

14. PROPERTY OF OTHERS

In case of loss of or damage to property of others, for which claim is made upon the Company, the right to adjust such loss or damage with the owners of the property is reserved to the Company and the receipt of such owner or owners in satisfaction thereof shall be in full satisfaction of any claim of the Insured for which such payment has been made. If legal proceeding be taken to enforce a claim against the Insured as respects any such loss or damage, the Company reserves the right at its option without expense to the Insured to conduct and control the defense on behalf of and in the name of the Insured. No action of the Company in such regard shall increase the liability of the Company under this policy, nor increase the limits of liability provided herein.

This language in no way attempts to limit or expand coverage under the Policy. Rather, it delineates the company's rights in dealing with and settling property claims with third persons.

As to the Liability...