City of Lawrence v. Western World Ins. Co., Inc., 30A05-9211-CV-407

• Decision Date: 20 December 1993
• Docket Number: No. 30A05-9211-CV-407,30A05-9211-CV-407
• Citation: 626 N.E.2d 477
• Parties: CITY OF LAWRENCE and City of Lawrence Volunteer Fire Department, Inc., On Behalf of Themselves and All Others Similarly Situated, Appellants-Plaintiffs, v. WESTERN WORLD INSURANCE COMPANY, INC., Appellee-Defendant.
• Court: Indiana Appellate Court

Page 477

626 N.E.2d 477

CITY OF LAWRENCE and City of Lawrence Volunteer Fire Department, Inc., On Behalf of Themselves and All Others Similarly Situated, Appellants-Plaintiffs, v. WESTERN WORLD INSURANCE COMPANY, INC., Appellee-Defendant.

No. 30A05-9211-CV-407.

Court of Appeals of Indiana Fifth District.

Dec. 20, 1993.

Steven H. Frank, Robert F. Ahlgrim, Jr., Carter & Leerkamp, Indianapolis, Michael J. Tosick, Greenfield, for appellants-plaintiffs.

Sharon L. Wright, Linder & Hollowell, Indianapolis, for appellee-defendant.

BARTEAU, Judge.

The primary question before us is the appropriateness of a grant of summary judgment in favor of defendant insurance company in a suit for return of premiums on a policy alleged to provide only illusory coverage.

We affirm.

FACTS

From 1984 through 1990, the City of Lawrence (City), on behalf of its Volunteer Fire Department, purchased an insurance policy from Western World Insurance Co., Inc. (Western). In 1990, City declined to renew the policy after questioning the coverage provided. No claims arose during the time periods covered by the policies. In 1992, City brought an action against Western for return of its premiums. The trial court granted Western's motion for summary judgment. City appeals.

STANDARD OF REVIEW

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. Ind. Trial Rule 56(C). The burden is on the moving party to prove there are no genuine issues of material fact and that judgment as a matter of law is appropriate. Once the movant has sustained this burden, the opponent must respond by setting forth specific facts showing a genuine issue for trial; the opponent may not simply rest on the allegations of his pleadings. Stephenson v. Ledbetter (1992), Ind., 596 N.E.2d 1369, 1371. When reviewing an entry of summary judgment, we stand in the shoes of the trial court. We do not weigh the evidence but will consider the facts in the light most favorable to the nonmoving party. Collins v. Covenant Mut. Ins. Co. (1992), Ind.App., 604 N.E.2d 1190, 1194.

ILLUSORY COVERAGE

City contends that the grant of summary judgment was erroneous because the policy excluded from coverage all injuries or harm which could possibly arise, making the purported coverage completely illusory.

According to the policy in question, it provides coverage for:

... [A]ll sums which the insured shall become legally obligated to pay as damages because of liability arising out of any negligent act, error or omission in rendering or failure to render professional services of the type described ...

However, Section II of the policy, entitled "EXCLUSIONS", contains the following provisions:

This policy shall not apply to liability of any kind based upon, involving or arising directly or indirectly out of:

* * * * * *

(1) liability assumed by the Insured under any contract or agreement, whether oral or written;

* * * * * *

(s) personal injury;

and Section II.2. provides:

Notwithstanding anything to the contrary, this policy shall not apply to any liability arising directly from:

(a) bodily injury;

(b) property damage.

The policy defines bodily injury as "bodily injury, sickness or disease sustained by any person which occurs during the policy period, including death at any time resulting therefrom." The policy defines property damage as "physical injury to or destruction of tangible property which occurs during the policy period, including the loss of use thereof at any time resulting therefrom, or (2) loss of use of tangible property which has not been physically injured or destroyed provided such loss of use is caused by an occurrence during the policy period."

City contends that given the exclusions for damages arising from bodily injury, property damage, personal injury and contract liability, the policy in reality provides no coverage for any conceivable loss. It argues that if a policy excludes from coverage all injuries or harm for which a policy holder would be legally obligated to pay damages, there can be no coverage, and the policy in question is illusory because no risk attaches to the insurance company.

Western responds that the policy does provide coverage for losses arising indirectly from bodily injury and property damage. Western's position is that the policy at issue is an errors and omissions policy (something akin to malpractice insurance), covering errors in professional judgment, and that bodily injury and property damage arising indirectly from errors or omissions in professional judgment are covered under the policy.

From an examination of the policy, we agree with Western that the policy can be construed to provide coverage for indirect bodily injury and property damage. While liability arising both directly and indirectly from such things as contract and personal injury is specifically excluded from coverage, conversely, only liability arising directly from bodily injury and property damage is excluded. Thus, we are unable to say, from the language in the policy, that there is no risk for which coverage is provided.

City argues that indirect bodily injury and property damage are non-existent risks. It is true that if provisions in an insurance policy provide only illusory coverage, they should be enforced to satisfy the expectations of the insured. Davidson v. Cincinnati Ins. Co. (1991), Ind.App., 572 N.E.2d 502, 508. What complicates this situation and distinguishes it from other cases is the fact that no loss was ever incurred and consequently no claim submitted under the policies. Thus, no opportunity ever arose for a determination of the viability of indirect liability coverage and without a claim to use as a guide, we also cannot examine its scope. Because coverage is provided on the face of the policy, summary judgment was appropriate on the claim of illusory coverage.

FRAUD

City contends that its representatives relied on misrepresentations contained in the policies and that those misrepresentations induced them to believe they were purchasing a general liability policy covering fire fighting activities instead of the errors and omissions policy they purchased.

Western responds that to avoid just such a situation, it does not market the coverage directly to the consumers. Rather, it offers it only through insurance specialty wholesalers who, in turn, execute and deliver policies in response to applications made by the prospective insured through the insured's own agent. Western also instructs the wholesalers that all applicants for the firemen's errors and omissions policy must also carry comprehensive general liability coverage.

City responds that even though Western does not sell the policy directly to consumers, the actions of the agents who procured the policy for City are attributable to Western.

An agent who operates an independent insurance agency representing several insurers is considered a broker. Callis v. State Auto. Ins. Co. (1991), Ind.App., 579 N.E.2d 129. A broker "is normally deemed to be an agent of the buyer, not the insurer, and the insurer is not liable for the broker's tortious conduct." Id. at 131. However, when the "broker makes application for insurance and the...