FEDERATED RURAL ELEC. INS. v. NATIONAL FARMERS UNION PROPERTY …

• Decision Date: 30 March 2004
• Docket Number: No. 49A05-0305-CV-227.,49A05-0305-CV-227.
• Parties: FEDERATED RURAL ELECTRIC INSURANCE EXCHANGE, Appellant-Plaintiff, v. NATIONAL FARMERS UNION PROPERTY AND CASUALTY COMPANY, Appellee-Defendant.
• Court: Indiana Appellate Court

805 N.E.2d 456

FEDERATED RURAL ELECTRIC INSURANCE EXCHANGE, Appellant-Plaintiff, v. NATIONAL FARMERS UNION PROPERTY AND CASUALTY COMPANY, Appellee-Defendant.

No. 49A05-0305-CV-227.

Court of Appeals of Indiana.

March 30, 2004.

Michael A. Wilkins, Brent W. Huber, Brian E. Bailey, Ice Miller, Indianapolis, IN, Attorneys for Appellant.

Laura S. Reed, Riley Bennett & Egloff, Indianapolis, IN, Attorney for Appellee.

OPINION

NAJAM, Judge.

STATEMENT OF THE CASE

In 1992, Gregg and Susan Fischer sued Tipmont Rural Electric Membership Corporation ("REMC") alleging damages caused by stray voltage on their dairy farm. During the eleven-year period that damages occurred, REMC was insured first by National Farmers Union Property and Casualty Company ("NFU"), and thereafter by Federated Rural Electric Insurance Exchange ("Federated"). Federated and NFU's policies shared similar coverage provisions, but only Federated defended the Fischers' claim against REMC. Following two trials, the Fischers were awarded a judgment against REMC in December 1995, and Federated paid that judgment, which totaled $2,204,681.85, in October 1999.¹ But before Federated paid the judgment, REMC executed an Indemnity Agreement in which it assigned to Federated any policy-based claims it had against NFU.

In March 2000, Federated filed a Complaint against NFU seeking to recover the entire amount of the judgment it paid on REMC's behalf, plus defense costs. Federated filed a motion for summary judgment, which the trial court denied. Federated now appeals, and NFU cross-appeals from the trial court's summary judgment order. We address the following issues for review:

1. Whether the trial court erred when it determined that neither party was entitled to summary judgment based on the "all sums" provisions in NFU and Federated's policies.

2. Whether Federated is entitled to summary judgment based on NFU's alleged repudiation of its policies.

We affirm.

FACTS AND PROCEDURAL HISTORY

REMC supplied electricity to the Fischers' dairy farm. In 1992, the Fischers sued REMC alleging, among other things, that from approximately April 1980 through 1991, stray voltage had reduced the milk production of their dairy cows. From 1975 through May 1, 1985, NFU provided liability insurance coverage to REMC. Those policies covered REMC's liability for property damage, including liability for stray voltage. In addition, NFU's policies contained an "all sums" provision, which provides in relevant part:

The Company [NFU] will pay on behalf of the Insured all sums which the Insured shall become legally obligated to pay as damages, including punitive damages because of personal injury or property damage to which this insurance applies, caused by an occurrence, and the Company shall have the right and duty to defend any suit against the Insured seeking damages on account of such personal injury or property damage, even if any of the allegations of the suit are groundless, false or fraudulent, and may make such investigation and settlement of any claim or suit as it deems expedient, but the Company shall not be obligated to pay any claim or judgement [sic] or to defend any suit after the applicable limit of the Company's liability has been exhausted by payment of judgements [sic] or settlement.

(Emphasis added). The policies define "occurrence" as follows:

The word "occurrence" means either an accident or happening during the policy period or a continuous or repeated exposure to conditions, neither expected nor intended from the standpoint of the Insured which causes ... injury to ... tangible property during the policy period. All injury or damage arising of such exposure to substantially the same general conditions shall be considered as arising out of one occurrence.

NFU's policies also contained an "other insurance" clause, which provides in part:

P. Other Insurance: This insurance is primary insurance, except when stated to apply in excess of or contingent upon the absence of other insurance. When this insurance is primary and the Insured has other insurance which is stated to be applicable to the loss on an excess or contingent basis, the amount of the Company's liability under this policy shall not be reduced by the existence of such other insurance.

When both this insurance and other insurance apply to the loss on the same basis, whether primary, excess or contingent, the Company shall not be liable under this policy, for a greater proportion of the loss than that stated in the applicable contribution provision below[.]

From May 1, 1985, through July 1991, Federated provided liability insurance coverage to REMC. Federated's policies provided general liability coverage for property damage, including liability for stray voltage. Federated's policies also contained an "all sums" provision, a definition of "occurrence," and an "other insurance" provision, all of which are similar to NFU's corresponding provisions.²

After the Fischers filed their complaint against REMC, Federated sent NFU a letter in November 1992 regarding the suit. Specifically, the letter confirmed that Federated had "coverage from May 1, 1985, to present" and requested that NFU confirm its coverage dates. Federated also informed NFU that "[d]efense of [the] matter [had] been assigned to Peter L. Obremskey, an attorney located in Lebanon, Indiana." NFU did not respond to Federated's letter.

In February 1994, Federated sent another letter to NFU, which provided in relevant part:

Attached is a copy of a letter forwarded to your attention in late 1992, along with an additional copy of the Complaint served against our insured. Our file does not reflect any response from your end.

In any event, this case has not made a great deal of progress to date. Our information is that your company had the coverage prior to our first policy, which issued May 1, 1985. I would appreciate your confirming this and getting back to me so we can coordinate future handling of the defense.

NFU did not respond to Federated's second letter. In October 1994, Federated defended REMC in a trial that resulted in a hung jury. In July 1995, REMC's general counsel sent NFU a letter, which provided in part:

We are currently involved in stray voltage litigation and the claimant alleges damages from 1980 through 1991. Our records indicate that your company handled insurance coverage for Tipmont REMC for the years 1980 through 1985. Therefore, I would appreciate your extending coverage for this claim and immediately assisting with the defense.

Defense counsel is Pete Obremskey whose offices are in Lebanon, Indiana and his phone is XXX-XXX-XXXX. The case is scheduled for trial October 24, 1995 and is scheduled for mediation August 18, 1995 in Terre Haute, Indiana.

Please contact Mr. Obremskey immediately to make necessary arrangements to assist in the defense of this claim.

NFU responded to REMC in August 1995 and confirmed coverage dates from December 1975 until May 1985. NFU also stated that it would "be in contact with Mr. Obremskey and Mr. Connor to make arrangements to participate in the defense of this matter."

REMC's second trial occurred in December 1995 and, despite NFU's stated intention to assist, only Federated defended REMC. A jury entered a verdict in favor of the Fischers and awarded them $1,683,800 in compensatory damages. In January 1996, Attorney Obremskey sent NFU a letter, which provided in part:

By now I am sure you have heard from John Connor the bad news concerning the above captioned case. After an eight week trial, the jury found in favor of the Plaintiffs [and] against Tipmont REMC and assessed the Plaintiffs[] damages in the amount of $1,683,800. I am enclosing a copy of the Judgment Entry herein.

We have made the decision to appeal the judgment of the trial court and I am enclosing herein the Praecipe of the Record which starts the appeal process here in Indiana. I will forward to you copies of briefs, etc. as they are filed. I would anticipate that it would take a significant amount of time to transcribe the record as it will consist of approximately 5,000 pages. If it is filed before the end of the year, I will be surprised. Then comes the briefing that will probably take the majority of 1997 so I doubt if we have a decision from the Court of Appeals much before 1998.

If you have any questions, please give me a call.

Federated paid a supersedeas bond, and proceeded with the appeal.

After this court affirmed the trial court's judgment, see Tipmont, 697 N.E.2d at 94, and while Federated's petition for transfer was pending, Federated sent NFU a letter in which Federated raised the issue of allocation of the judgment and costs as follows:

The plaintiffs have calculated the value of the judgment plus accrued interest at slightly over $2.1 million. They indicate that post-judgment interest is accruing at slightly over $11,000 per month. They indicate they would take $2 million even if we withdrew our petition for review [with the Indiana Supreme Court].

I do not recall if we ever agreed on an allocation in this case. I have not yet reviewed our file in its entirety. If you have some thoughts or record of this, please give me a call. You may recall that the plaintiff's economist calculated damages beginning in the early 1980s. The occurrence allegedly took place from 1980, when the plaintiff began operating at this farm, until June, 1991, when an isolation device was installed at the transformer pole.

There is no designated evidence regarding NFU's response, if any, to that letter.

In September 1999, our supreme court affirmed the trial court's judgment. See Tipmont, 716 N.E.2d at 358. At the conclusion of the appeals, REMC owed the Fischers, including interest and costs, a total of $2,204,681.85.

On October 26, 1999, REMC executed an Indemnity Agreement, in which it assigned to Federated "all rights, title and interest in any contract of liability insurance applicable to the underlying...