City of South Bend v. Century Indem. Co.

• Decision Date: 18 January 2005
• Docket Number: No. 49A02-0403-CV-201.,49A02-0403-CV-201.
• Parties: The CITY OF SOUTH BEND, Indiana, et al., Appellants-Plaintiffs, v. CENTURY INDEMNITY COMPANY, et al., Appellees-Defendants.
• Court: Indiana Appellate Court

821 N.E.2d 5

The CITY OF SOUTH BEND, Indiana, et al., Appellants-Plaintiffs, v. CENTURY INDEMNITY COMPANY, et al., Appellees-Defendants.

No. 49A02-0403-CV-201.

Court of Appeals of Indiana.

January 18, 2005.

George M. Plews, Jeffrey D. Featherstun, Donald P. Bogard, Plews, Shadley, Racher & Braun, Indianapolis, IN, Cheryl A. Greene, Assistant City Attorney, South Bend, IN, Attorneys for Appellant.

Anthony W. Overholt, Office of Corporation Counsel, Indianapolis, IN, Timothy A. Manges, Fort Wayne, IN, James B. Meyer, Meyer & Wyatt, P.C., Gary, IN, John P. Gourley, Corporation Counsel, Mishawaka, IN, Matthew W. Cockrell, Matthew W. Cockrell & Associates Kenilworth, IL, Attorneys for Amici Curiae the Cities of Indianapolis, Fort Wayne, Gary, Mishawaka, and Jeffersonville, Indiana.

Mark E. Shere, Indianapolis, IN, Dale E. Stephenson, Allen A. Kacenjar, Squire, Sanders & Dempsey, L.L.P. Cleveland, OH, Attorneys for Appellees McGraw-Edison Company.

Bruce L. Kamplain, Norris, Choplin & Schroder. L.L.P., Indianapolis, IN, Terry M. Cosgrove, Arthur J. McColgan, Lord, Bissell & Brook, L.L.P., Steven D. Pearson, Brent J. Graber, Meckler, Bulger & Tilson, L.L.P., Chicago, IL, Brian C. Coffey, Cohn, Baughman & Martin, Chicago, IL, Martha S. Hollingsworth, Bingham McHale, L.L.P., Indianapolis, IN, Stephen J. Peters, Stewart & Irwin, P.C., Indianapolis, IN, Attorneys for Appellees Century Indemnity Company Zurich American Insurance and Certain Underwriters at Lloyd's, London and Certain London Market Insurance Companies.

Steven M. Badger, Michael R. Limrick, McTurnan & Turner, Indianapolis, IN, Laura A. Foggan, John C. Yang, Paul J. Haase, Wiley, Rein & Fielding, L.L.P, Washington, D.C., Attorneys for Amici Curiae Complex Insurance Claims Litigation Association.

Laura S. Reed, Riley, Bennett & Egloff, L.L.P., Indianapolis, IN, Attorney for Amici Curiae the Insurance Institute of Indiana and Property Casualty Insurers Association of America.

OPINION

ROBB, Judge.

The City of South Bend, Indiana and the South Bend Redevelopment Commission (collectively, the "City") appeal from the trial court's orders granting motions by Certain Underwriters at Lloyd's, London, and Certain London Market Insurance Companies ("London"), Century Indemnity Company, and Zurich American Insurance Company (collectively, the "Insurers") to dismiss the City's amended complaint and denying the City's motion for appointment of receiver. We affirm in part and reverse and remand in part.

Issues

The City raises two issues for our review, which we restate as follows:

1. Whether the trial court properly dismissed its complaint against the Insurers upon finding that the suit was barred by the "direct action" rule; and

2. Whether the trial court properly denied its request for appointment of a receiver to act on behalf of a dissolved company.

Facts and Procedural History

Beginning in the 1850s, Studebaker Corporation, a Michigan corporation, manufactured first wagons and then automobiles in the City. Studebaker's facilities in the City ultimately covered 104 acres and approximately 3.65 million square feet under roof. Studebaker discontinued manufacturing automobiles in December 1963, and over the next year, divested its automotive operations in the City. In October 1967, Studebaker combined with Worthington Corporation to form a new company, Studebaker-Worthington Inc. As part of that transaction, Studebaker was reincorporated as Hallpark Enterprises, Inc. and transferred its assets and business to Saraband Properties, Inc., a wholly-owned subsidiary of Studebaker-Worthington Inc. Also as part of the transaction, Saraband assumed "all of the liabilities and obligations of [Studebaker] existing on [November 22, 1967]." Appellants' Appendix at 900. On January 9, 1968, Hallpark Enterprises, Inc. sent a notice to creditors pursuant to Michigan statute advising that

the corporate existence of Hallpark Enterprises, Inc., a Michigan corporation, formerly known as Studebaker Corporation (the "Corporation"), terminated on November 30, 1967. On November 22, 1967 substantially all of the assets of the Corporation were transferred to a wholly-owned subsidiary of Studebaker-Worthington, Inc., a Delaware corporation, in a tax-free reorganization pursuant to an Agreement and Plan of Reorganization made as of October 4, 1967 under which substantially all of the liabilities of the Corporation were assumed by said wholly-owned subsidiary.

Appellants' Appendix at 956. A similar notice was published once each week for three weeks in the Detroit Legal News. Id. at 960, 963. On January 26, 1968, a Certificate of Termination was filed with the Michigan Department of Treasury pursuant to which a majority of the remaining members of the last board of directors of Hallpark Enterprises certified that the corporation had been terminated by expiration of term on November 30, 1967. Id. at 961-62.

Following Studebaker's divestiture of its automotive facilities in the City, the facilities were used for a variety of other operations. In the early 1990s, the City conducted an environmental evaluation of the former Studebaker facilities and determined that there were significant environmental releases impacting the soil and groundwater at those facilities and surrounding areas. The City is now the owner of significant portions of the former Studebaker facilities.

In March of 2003, the City filed a complaint for damages and declaratory relief¹ against the Insurers and McGraw-Edison, the company alleged to be the successor to Studebaker.² With respect to the insurers, the City sought a declaration that the Insurers "are obligated to provide insurance coverage, subject to their respective policy limits, for the environmental liabilities [the City] asserts against Studebaker." Appellants' Appendix at 830. Thereafter, the Insurers filed motions to dismiss the complaint for failure to state a claim upon which relief may be granted. The City filed a motion for appointment of receiver to "represent Studebaker's interests, particularly with respect to the pursuit of coverage under the company's insurance policies for the claims at issue in this matter." Appellants' Appendix at 903. The Insurers' motions to dismiss were granted, with prejudice, and the City's motion for appointment of a receiver was denied. This appeal ensued.³

Discussion and Decision

I. Motion to Dismiss

A. Standard of Review

This case is before us on appeal from the trial court's dismissal of the City's complaint against the Insurers pursuant to Indiana Trial Rule 12(B)(6). A 12(B)(6) motion to dismiss for failure to state a claim upon which relief can be granted tests the legal sufficiency of a claim, not the facts supporting it. Lawson v. First Union Mortgage Co., 786 N.E.2d 279, 281 (Ind.Ct.App.2003). On review, we view the complaint in the light most favorable to the non-moving party, drawing every reasonable inference in favor of that party. Id. We stand in the shoes of the trial court and must determine if the trial court erred in its application of the law. Id. The trial court's grant of the motion to dismiss is proper if it is apparent that the facts alleged in the complaint are incapable of supporting relief under any set of circumstances. Id. We may sustain the trial court's ruling if we can affirm on any basis found in the record. Williams v. Cingular Wireless, 809 N.E.2d 473, 476 (Ind.Ct.App.2004), trans. denied. In making this determination, we look only to the complaint and may not resort to any other evidence in the record. Id.

B. Dismissal of Action Against Insurers

The City sought a declaratory judgment that the Insurers, "subject to their respective policy limits, ... are obligated to provide insurance coverage for Studebaker's environmental liabilities...." Appellants' Appendix at 831. The Insurers filed motions to dismiss, which the trial court granted upon finding that the City's declaratory judgment action against the Insurers "is barred by the direct action rule and falls outside the limited exception [to that rule] created by the courts in Community Action of Greater Indianapolis, Inc. v. Indiana Farmers Mut. Ins. Co., 708 N.E.2d 882 (Ind.Ct.App.1999) and Wilson [v. Continental Cas. Co.], 778 N.E.2d 849 (Ind.Ct.App.2002). Without any dispute between the parties to the insurance contract as to the rights and obligations deriving thereunder, the exception to the direct action rule does not apply." Appellants' Appendix at 35. See also id. at 44 and 50.

The "direct action rule" bars a party from pursuing a claim based on the actions of an insured directly against the insurer. See Menefee v. Schurr, 751 N.E.2d 757, 761 (Ind.Ct.App.2001),

trans. denied. The direct action rule in Indiana originated in Bennett v. Slater, 154 Ind.App. 67, 289 N.E.2d 144 (1972). In Bennett, the plaintiff received a $20,000.00 judgment for injuries received in an automobile accident involving the defendant-insured. The insurer previously had offered the plaintiff $1,500.00 in settlement of her claim, but the plaintiff refused the offer. Instead, she offered to settle for $10,000.00, the limit of liability under the defendant's policy with the insurer. The insurer refused. After obtaining the judgment against the defendant, the plaintiff sued the insurer for its alleged failure to reasonably attempt to settle her claim against the defendant and for its failure to consider the interest of the defendant in light of the risk of recovery beyond the policy limits. The defendant refused to join as a party plaintiff. The insurer's motion to dismiss for failure of the plaintiff to state a claim in her complaint was granted by the trial court. On appeal, we held that an injured party has no standing to directly sue the insurer for its negligence where the insured refuses himself to sue. Id. at 149. We noted that the insurer owed no duty to the plaintiff, that she was not a third party beneficiary of the duty owed by...