INS Investigations Bureau, Inc. v. Lee

• Decision Date: 10 March 2003
• Docket Number: No. 40A04-0108-CV-364.,40A04-0108-CV-364.
• Citation: 784 N.E.2d 566
• Parties: INS INVESTIGATIONS BUREAU, INC., Vernon Large, and Richard Murphy, Appellants-Defendants, v. Lester L. LEE, William R. Lee, Cubeco, Inc., and Lees Inns of America, Inc., as Assignees of the rights of The Home Indemnity Co., Appellees-Plaintiffs.
• Court: Indiana Appellate Court

784 N.E.2d 566

INS INVESTIGATIONS BUREAU, INC., Vernon Large, and Richard Murphy, Appellants-Defendants, v. Lester L. LEE, William R. Lee, Cubeco, Inc., and Lees Inns of America, Inc., as Assignees of the rights of The Home Indemnity Co., Appellees-Plaintiffs.

No. 40A04-0108-CV-364.

Court of Appeals of Indiana.

March 10, 2003.

Karl L. Mulvaney, Nana Quay-Smith, Candace L. Sage, Bingham McHale LLP, James W. Riley, Jr., Mary K. Reeder, Riley Bennett & Egloff, LLP, Indianapolis, IN, Attorneys for Appellants.

Corinne R. Finnerty, McConnell & Finnerty, North Vernon, IN, Attorney for Appellees.

OPINION

KIRSCH, Judge.

INS Investigations Bureau, Inc., Vernon Large, and Richard Murphy (collectively, "INS") appeal a jury verdict that awarded Lester L. Lee ("Lester"), William R. Lee ("Bill"), Cubeco, Inc. ("Cubeco"), and Lees Inns of America ("Lees Inns"), as assignees of the rights of The Home Indemnity Co. ("Home Indemnity"), $2,303,601 in compensatory damages for a breach of contract action, $2,546,404 in compensatory damages for a tort action, and $4,600,000 in punitive damages. The court's judgment also awarded the Lees the costs of the trial court action.

On appeal, INS raises a number of issues, which we consolidate, restate, and reorder as follows:

I. Whether the negligence claim raised by the Lees, as assignees of Home Indemnity's rights, is barred by the statute of limitations because Home Indemnity knew or should have known more than two years before this action was brought that it was injured by INS.

II. Whether the Lees, as assignees of Home Indemnity's rights, raise a claim of indemnity against INS that is barred both by Home Indemnity's voluntary payment to settle the federal litigation that arose out of the denial of the Lees' fire claim and because Home Indemnity's injury was due, in part, to its own negligent actions.

III. Whether the trial court erred in allowing the jury to return a verdict on the contract and tort claims, which arose from the same set of facts and resulted in a single injury.

IV. Whether the jury erred in concluding that INS's investigation report was the proximate cause of Home Indemnity's losses.

V. Whether there was sufficient evidence to support an award of punitive damages.

We affirm in part and reverse in part.

FACTS AND PROCEDURAL HISTORY¹

Lester and Bill are the founders and majority stockholders of Lees Inns. Lees Inns builds and operates limited-service hotels using modular units that in 1992 were constructed at Cubeco, a wholly owned subsidiary of Lees Inns. The Cubeco plant, located in Scipio, Indiana, was owned by Lester and Bill individually.

Home Indemnity insured the plant and its contents for approximately $1.4 million. The insurance policy contained an "arson defense clause," which permitted Home Indemnity to deny a claim if the Lees or someone at their direction committed arson at the Cubeco plant, but required Home Indemnity to pay the claim if someone other than the Lees committed the arson. Appellants' Appendix at 677.

On January 19, 1992, the Cubeco plant was partially destroyed by fire. Two days after the fire, Home Indemnity's adjuster, Richard Clasen, visited the scene and concluded that the fire looked suspicious and required further investigation as to its origin. By telephone, Clasen retained INS to perform the investigation, and INS proceeded without the benefit of a written contract. INS was instructed to report its findings to Michael Brown, an attorney with the Indianapolis law firm of Kightlinger and Gray, who had been hired by Home Indemnity in connection with the investigation. INS immediately began the fire investigation under the direction of its chief investigator, Vernon Large. Richard Murphy, who worked for INS until June of 1997, was also involved in the investigation. At first, INS's investigation was limited to determining the cause of the fire. Later, Home Indemnity expanded INS's assignment "to include a `full investigation' with background information on the insureds." INS Investigations Bureau, Inc. v. Lee, 709 N.E.2d 736, 738 (Ind.Ct.App. 1999),trans. denied. Based upon his investigation, "Large concluded that the fire was intentionally set." Id.

During the summer of 1992, Home Indemnity pursued an independent investigation of the Lees' financial condition as a possible motive for arson. Id. In connection with this investigation, Home Indemnity hired the accounting firm of Campos & Stratis, which concluded, "the insureds were under severe financial stress, that the [Cubeco] building was on unproductive property with lease payments of $180,000 per year, and that the insureds had a substantial investment in an inventory of materials that depreciated in value." INS Investigations Bureau, 709 N.E.2d at 738; see Appellants' Brief at 29. The accountants told Brown that the Cubeco building was a detriment to Cubeco's ability to operate. Appellants' Brief at 29. "In short, the fire was a financial benefit to the Lees." Appellants' Brief at 30.

In the meantime, the Lees hired their own investigator, John Yust, and their own forensic engineer, William Hoffman. After investigating the fire, both of these experts concluded that the fire was started in an electric furnace that lacked an air filter. It was their theory that sawdust from the cabinet-making operation blocked the airflow to the furnace, which, in turn, caused the furnace elements to overheat and ignite the sawdust.

Brown, Clasen, and three other adjusters for Home Indemnity determined that the Lees' claim should be denied. INS Investigations Bureau, 709 N.E.2d at 738. The adjusters did not claim any particular expertise in fire investigation, but based their decision upon discussions of various reports. Id. In a letter dated November 25, 1992, Clasen informed the Lees that Home Indemnity denied their claim on the following grounds:

"[T]he fire was attributable to an intentional act by someone in authority and responsible for the insureds, that false or misleading information was provided by representatives of the insureds, and that the insureds refused to 1) provide material information regarding financial records of affiliates, and 2) allow contact with a lender-investor in the business."

Id.

On December 29, 1992, the Lees filed suit in Jennings Circuit Court against Home Indemnity. In the complaint, the Lees claimed they were entitled to the $1.4 million insurance policy coverage, consequential damages for Home Indemnity's breach of the contract, and punitive damages because Home Indemnity acted oppressively and in bad faith in denying their claim. On February 1, 1993, Home Indemnity removed the case to federal court on the basis of diversity jurisdiction and subsequently moved for summary judgment. Judge Hugh Dillin denied the motion on December 15, 1994. Appellants' Appendix at 517-25.

In January of 1995, on the first day of trial, the federal suit was settled when Home Indemnity agreed to pay the Lees $3.5 million. As part of the settlement, Home Indemnity assigned any claims it had against INS to the Lees and also gave the Lees a letter apologizing for its conduct and that of its agents. Trial Exhibits, Vol. 18, Plaintiffs' Exhibits 21-22. On July 7, 1995, the Lees instituted this action. Acting pursuant to their assigned rights, the Lees sued INS alleging that the fire investigation performed by INS and its employees, Large and Murphy, caused Home Indemnity to erroneously deny the Lees coverage. The complaint included the following three counts: (1) that INS breached its contract with Home Indemnity by failing to perform its obligations in a skillful, careful, diligent, and workmanlike manner, which caused the denial of the Lees' claim and a subsequent settlement greatly in excess of the policy limits; (2) that INS and its employees owed Home Indemnity a duty of care to perform services in a skillful, careful, diligent, and workmanlike manner, and that INS's breach of that duty was a proximate cause of the erroneous denial of the Lees' claim and the subsequent litigation; and (3) that INS and its employees acted fraudulently, oppressively, maliciously, and outrageously toward Home Indemnity and the Lees and were thus liable for punitive damages. Appellants' Appendix at 33-41.

On December 22, 1997, INS moved for summary judgment. On May 18, 1998, after "review[ing] the extensive briefs ... and having heard argument," the trial court denied INS's motion. Appellants' Appendix at 608-09. INS sought an interlocutory appeal, which the trial court granted. On appeal, INS argued that summary judgment was warranted on the Lees' claim because: (1) Home Indemnity could not validly assign its claim to the Lees; and (2) the assigned claim was properly characterized as a negligence action, and the applicable two-year statute of limitations had run. INS Investigations Bureau, 709 N.E.2d at 737. Finding that Home Indemnity's claim was assignable and that it was a question of fact whether the statute of limitations had run on the Lees' claim, our court affirmed the trial court's denial of summary judgment. Id. at 744.

On February 22, 2001, after a three-week trial, the jury rendered three verdicts in favor of the Lees and ordered INS to pay the following: (1) $2,303,601 in compensatory damages on Count I's contract claim; (2) $2,546,404 in compensatory damages on Count II's negligence claim;² and (3) $4,600,000 in punitive damages under Count III. Appellants' Appendix at 27, 29, 31. The trial court entered judgment on all three verdicts on February 26, 2001. Appellants' Appendix at 25-26.

INS objected to the Lees' request for judgment on all three verdicts because Count I and Count II were alternate bases of relief, as both arose from the same alleged conduct and resulted in the same alleged damages. Appellants' Appendix at 856. On March 28, 2001, INS filed a motion to correct errors contending, inter alia, that: (1) INS did not cause Home Indemnity's...