City of Gary v. Auto-Owners Ins. Co.

• Decision Date: 20 December 2018
• Docket Number: Court of Appeals Case No. 18A-CT-68
• Citation: 116 N.E.3d 1116
• Parties: CITY OF GARY, Indiana and Gary/Chicago International Airport Authority, Appellants-Plaintiffs, v. AUTO-OWNERS INSURANCE COMPANY, Appellee-Garnishee Defendant and Counterclaimant
• Court: Indiana Appellate Court

116 N.E.3d 1116

CITY OF GARY, Indiana and Gary/Chicago International Airport Authority, Appellants-Plaintiffs,

v.AUTO-OWNERS INSURANCE COMPANY, Appellee-Garnishee Defendant and Counterclaimant

Court of Appeals Case No. 18A-CT-68

Court of Appeals of Indiana.

Filed December 20, 2018

Attorneys for Appellants: Frank J. Deveau, Donald C. Biggs, Taft Stettinius & Hollister LLP, Indianapolis, Indiana

Attorneys for Appellee: David L. Taylor, Misti Presnell DeVore, Audrey L. Smith, Taylor DeVore P.C., Indianapolis, Indiana

Vaidik, Chief Judge.

Case Summary

[1] The City of Gary ("the City") and the Gary/Chicago International Airport Authority ("the Airport"), plaintiffs in this case relating to environmental contamination in an area near the airport, appeal the trial court's summary-judgment rulings in favor of Auto-Owners Insurance Company, a liability insurer for one of the defendants in the case. Because the City's complaint did not allege facts that might have fallen within the coverage provided by Auto-Owners, Auto-Owners had no duty to defend, and therefore no duty to indemnify, its insured. In addition, Auto-Owners designated sufficient evidence to make a prima facie showing negating the Airport's contamination claim, and the Airport failed to respond with evidence establishing a genuine issue of material fact. We therefore affirm the judgment of the trial court in all respects.¹

Facts and Procedural History

[2] Since the 1970s, the Coulopoulos family has operated a variety of businesses at the southwest corner of the intersection of Chicago Avenue and Industrial Highway/Airport Road in Gary, just north of the Gary/Chicago International Airport. The address of the property is 6901 Chicago Avenue (sometimes referred to as 6901 West Chicago Avenue). One such business was a car-crushing operation that was called Western Scrap from 1976 until 2002, when the name was changed to Summit Inc. Peter Coulas was in charge of that operation. (Coulas's actual name is Peter Coulopoulos, but he now goes by "Coulas" and "Coules." We will use "Coulas," as the trial court did.)

[3] In the mid-1990s, Coulas started a business called Recycle West with another man named Jim Wuolukka. Recycle West, which went out of business in 1996 or 1997, collected and baled paper for shipment to recyclers. There is conflicting evidence about where exactly Recycle West's operations took place. According to Coulas, it was at 6901 Chicago Avenue, in a building "[r]ight behind" Western Scrap's office building. Appellants' App. Vol. IV p. 134. Wuolukka, on the other hand, has said that it was in a building "on the north side of Chicago Ave," i.e., across Chicago Avenue from Western Scrap. Appellee's App. Vol. IV pp. 143-44.

[4] In March 2003, the Indiana Department of Environmental Management (IDEM) sent a "Notice of Violation" to Coulas, alleging that a petroleum spill had occurred at Western Scrap in September 2002 and recommending settlement discussions. Appellee's App. Vol. II pp. 146-48. The parties do not tell us how that IDEM matter was resolved, but in May 2004, the City filed suit against Coulas and Western Scrap Corporation in Lake County Superior Court. The City alleged that "Western Scrap has, at all relevant times, operated the property located at 6901 W. Chicago, Gary, Indiana (‘the Property’) as a scrap yard and for other purposes." Appellants' App. Vol. II p. 44. The City further claimed that Coulas, "at all relevant times, has been in charge of the operations of Western Scrap on the Property." Id. at 45. The City alleged that the "Defendants' decades of operations on the Property" caused the property and its surroundings to be contaminated with "hazardous substances and petroleum." Id. at 45-46. The complaint asserted claims of public and private nuisance and an Environmental Legal Action under Indiana Code section 13-30-9-2. In March 2005, the City filed an amended complaint that added Constance Coulopoulos (Coulas's aunt) and Lake County Trust Company as defendants, alleging that they were the owners of the Western Scrap property.

[5] Neither the City's original complaint nor its amended complaint made any mention of Recycle West. Nonetheless, in December 2006—thirty-one months after the original complaint was filed—Coulas sent notice of the lawsuit to Auto-Owners, which in 1995 and 1996 had issued commercial general liability insurance policies for Recycle West's operations. The 1995 policy insured "PETER COULES & JIM WUOLUKKU DBA RECYCLE WEST," and the 1996 policy insured "PETER COULES DBA RECYCLE WEST." Appellants' App. Vol. III pp. 29-30, 75-76. Both policies had a "General Aggregate Limit" of $2,000,000 and listed the "BUSINESS DESCRIPTION" as "Pick-Up Recycle Prod" and the "LOCATION OF PREMISES YOU OWN, RENT OR OCCUPY" as "6901 Chicago Ave" in Gary. Id. Coulas's December 2006 notice to Auto-Owners stated that "[i]t appears that during the time frame alleged in the Complaint, the property located at 6901 Chicago Avenue, Gary, Indiana, was covered" under the two policies. Appellants' App. Vol. IV p. 126. Coulas requested "a position statement from Auto-Owners as to the coverage under this policy." Id.

[6] In July 2007, Auto-Owners sent Coulas's attorney a letter stating that the City's complaint did not appear to involve "our insured as an individual with respect to the conduct of a business of which he is the sole owner" or "the insured, in his capacity as officer or director of Recycle West." Id. at 151. Rather, Auto-Owners said, the complaint involved "Peter Coules and Western Scrap." Id. Auto-Owners wrote that, as a result, it "will not pay for a defense of the Complaint[.]" Id. Within two weeks of this denial, Coulas and the City reached a settlement under which Coulas agreed to pay $200,000 a year for ten years to fund the cleanup of the contamination. The trial court then entered a judgment incorporating the parties' settlement ("Consent Judgment"). (The parties do not tell us whether Western Scrap was insured or, if so, whether Coulas tendered the City's lawsuit to the insurer(s).)

[7] More than seven years later, in November 2014, the City re-opened the case by filing a motion for a proceeding supplemental against Coulas under Indiana Trial Rule 69(E), claiming that he had failed to comply with the Consent Judgment. After a few months, the City filed a second such motion, this time naming Auto-Owners and two other insurance companies as garnishee defendants and alleging that Auto-Owners was obligated to Coulas under the two Recycle West policies.

[8] The City's proceeding supplemental against Coulas and Auto-Owners was still pending when, in April 2015, the Airport filed a motion to intervene in the case. The Airport alleged that contamination from 6901 Chicago Avenue had migrated onto the Airport's property and asked for permission to file its own complaint for damages against Coulas and Summit Inc. The trial court granted the Airport's motion in May 2015. The Airport's complaint, like the City's complaint, made no mention of Recycle West.

[9] In February 2016, Auto-Owners filed its own claims against the City, the Airport, Coulas, and Recycle West, seeking a declaratory judgment that it did not owe and does not owe a duty to defend or a duty to indemnify with regard to any of the claims made by the City or the Airport. Auto-Owners alleged, among other things, that no allegation had been made "against Recycle West or that Recycle West's business activities in any way contributed to the contamination" and that "[t]here is no coverage under the Policies due to untimely notice." Appellee's App. Vol. II pp. 24, 37; Appellee's App. Vol. III pp. 12, 27.

[10] Shortly after Auto-Owners filed its claims, the Airport amended its own complaint to include allegations implicating Recycle West. Specifically, the Airport alleged that "Western Scrap, Summit and Recycle West are each alter egos of Coulas" and that "Coulas released hazardous substances at the Site throughout the 1990's and later while doing business as an individual and as Summit, Western Scrap and/or Recycle West ." Appellants' App. Vol. IV pp. 7, 9 (emphasis added). Coulas then asked Auto-Owners to defend him against the Airport's claims, and Auto-Owners agreed to do so under a reservation of rights.

[11] In June 2016, the City (along with Coulas and the Airport) filed a motion for partial summary judgment. The City asked the trial court to rule that Auto-Owners had a duty to defend Coulas against the City's 2006 amended complaint and that because it failed to do so it is estopped from asserting policy defenses to oppose the City's garnishment claim (including the defense that Coulas waited too long to notify Auto-Owners of the City's lawsuit). In April 2017, Auto-Owners filed a cross-motion for summary judgment on its complaints for declaratory judgment. After a hearing, the trial court issued an order denying Coulas's motion and granting Auto-Owners' motion, without explanation.

[12] The City and the Airport (but not Coulas) now appeal both rulings.

Discussion and Decision

[13] "When reviewing the grant or denial of summary judgment, we apply the same test as the trial court: Summary judgment is appropriate only when there is no genuine issue of material fact, and the moving party is entitled to judgment as a matter of law." Sedam v. 2JR Pizza Enters., LLC , 84 N.E.3d 1174, 1176 (Ind. 2017) ; see also Ind. Trial Rule 56(C).

[14] We begin by addressing the trial court's denial of the City's motion for partial summary judgment, in which the City (along with Coulas and the Airport) sought a ruling that (1) Auto-Owners had a duty to defend Coulas against the City's lawsuit and (2) because Auto-Owners failed to do so, it is estopped from asserting policy defenses (such as late notice) in response to the City's garnishment claim. The City relies primarily on our statement in Employers Insurance of Wausau v. Recticel Foam Corp. that "[i]f an insurer fails to defend under a reservation of...