Klepper v. Ace Am. Ins. Co.
| Citation | 999 N.E.2d 86 |
| Decision Date | 19 February 2014 |
| Docket Number | No. 15A05–1212–CC–645.,15A05–1212–CC–645. |
| Parties | William KLEPPER, on behalf of himself and all others similarly situated, Appellants–Plaintiffs/Cross Appellees, v. ACE AMERICAN INSURANCE COMPANY, Appellee–Defendant/Cross Appellant. |
| Court | Court of Appeals of Indiana |
Crone, J., filed opinion concurring in part and dissenting in part. George M. Plews, F. Ronalds Walker, Amy E. Romig, Plews Shadley Racher & Braun, LLP, Stan B. Hirsch, Indianapolis, IN, Robert J. Ewbank, Ewbank & Kramer, Lawrenceburg, IN, Attorneys for Appellants.
E. Michael Ooley, Suzanne Abram, Boehl Stopher & Graves, LLP, New Albany, IN, Edward P. Gibbons, Christopher A. Wadley, Walker Wilcox Matousek, LLP, Chicago, IL, Attorneys for Appellee.
William Klepper, on behalf of himself and all others similarly situated (“the Class”), appeals the trial court's order adopting the special master's reports and entering partial final judgment in favor of ACE American Insurance, Inc., (“ACE”). ACE cross-appeals, challenging the special master's resolution of some of the issues and the entry of partial final judgment. This case also involves Pernod Ricard USA, LLC, d/b/a Seagram Lawrenceburg Distillery (“Pernod”), who was insured by ACE and XL Insurance America (“XL”). We affirm.
The Class and ACE raise several issues. We address the following dispositive issues:
I. whether the special master properly concluded that ACE was not bound by a settlement agreement between the Class, Pernod, and XL because Pernod breached its obligations under the ACE policy; and
II. whether ACE is entitled to final judgment on all outstanding claims.
Pernod owned and operated a distillery in Lawrenceburg from January 2002 until June 2007. With the exception of a major fire in 1933, the distillery has been operating since 1847. During the distillation process, ethanol was released into the air, causing mold to grow on the exterior of nearby buildings. Klepper owns property near the distillery that was damaged by the emissions. Pernod was insured by XL from January 1, 2001, to January 1, 2003, and by ACE under a commercial general liability policy (“the Policy”) from January 1, 2003, until January 1, 2004.
The Policy included a “legally obligated to pay” provision, which stated that ACE “will pay those sums that the insured becomes legally obligated to pay as damages because of ‘bodily injury’ or ‘property damage’ to which this insurance applies.” App. p. 394. The Policy also included a “voluntary payment” provision, which stated, “No insured will, except at the insured's own cost, voluntarily make a payment, assume any obligation, or incur any expense, other than for first aid, without our consent.” Id. at 404.
In 2005, Klepper brought a class action lawsuit against Pernod on behalf of similarly situated property owners. The second amended complaint alleged nuisance, negligence, trespass, and illegal dumping. The costs of remediation varied from Pernod's estimate of approximately $115,000 to the Class's estimate of $20,500,000.1
When Pernod tendered the claim to ACE in March 2005, “ACE mistakenly classified the claim as an underage drinking matter and closed its file.” Id. at 663. In October 2007, ACE was advised that it was not an underage drinking claim and that XL had been providing Pernod with a defense. XL sought contribution from ACE for the costs of the defense it had been providing. ACE agreed to contribute 49% of Pernod's defense costs under a full reservation of rights. In a May 2008 letter, Pernod's deputy general counsel recognized and acknowledged that ACE was agreeing to provide Pernod with a defense.
ACE reimbursed XL $40,857.44 for its portion of the previously-incurred defense costs. From the time ACE agreed to contribute to the defense until September 21, 2009, ACE paid an additional $44,232.60 to cover its share of the defense. On September 21, 2009, ACE received an email from Pernod's defense counsel explaining that ACE's billing system had unacceptably reduced the approved payment amounts. Defense counsel totaled the amounts owed by ACE for immediate full payment. On September 23, 2009, ACE issued payment for the full amount owed, $58,974.89. On September 25, 2009, ACE received an email from defense counsel's legal assistant thanking it for its “quick response” to the bills sent earlier in the week.2 Id. at 677. ACE later paid another $23,900.24 for its share of the defense. In total, ACE contributed $167,965.17 toward Pernod's defense.
The dispute was unsuccessfully mediated on August 19, 2008. In January 2009, the trial court granted summary judgment for Pernod on the illegal dumping claim. During settlement discussions, XL and Pernod asked ACE to contribute $1,000,000 toward a settlement agreement, but ACE refused and offered to contribute $250,000.
A second mediation was held on April 14, 2009. ACE attended the meditation but left before it was over. The Class, XL, and Pernod reached a settlement agreement. They agreed that judgment against Pernod would be entered in the amount of $5,200,000. Specially, Pernod would contribute $1,200,000 and XL would contribute $1,000,000 to a common fund for the immediate use and benefit of the Class. The remaining $3,000,000 was to be collected from ACE “to the extent the damages fall within the scope of ACE Commercial General Liability Policy....” Id. at 370. The settlement agreement provided that the litigation costs and expenses incurred by the Class “shall be paid from the Common Fund before any distributions to Class Members are made.” Id. at 371.
On May 11, 2009, the Class filed a third amended complaint, which included a claim for declaratory judgment regarding coverage under the Policy for the damages sought by the Class. In August 2009, the Class agreed to release Pernod and XL from any claims and to dismiss its claims against Pernod with prejudice upon the receipt of the $2,200,000 payment from Pernod and XL. The release specifically provided:
Effective upon the Class's and its counsels' receipt of the $2,200,000.00 Payment from Pernod identified in Paragraph C above, the Class for themselves individually and for their respective members, release Pernod ... and XL ... from any claims, demands, rights of actions or liabilities, known or unknown, arising from Pernod's acts or omissions during the Claim Period that were asserted or could have been asserted in this cause, except as required to effectuate the settlement. The parties represent and agree that this Release is not intended to, and does not, eliminate or compromise any claims, demands, rights of action or liabilities between and among the Class against [ACE] or any other insurer of Pernod (with the sole exception of XL) which may implicate any insurance policy or any other source of funds from which the Agreed Judgment or any part of it might be paid.
Id. at 775–76. The Class also agreed that, upon the receipt of the $2,200,000, it would not execute any unsatisfied portion of the agreed judgment against Pernod and XL.3 At some point, Pernod assigned its claims to the Class.
In September 2009, after a hearing to determine the fairness of the settlement agreement, the trial court approved it. The trial court also approved the payment of $733,333.33 in attorney fees and $106,909.87 in expenses incurred by the Class from the common fund.
On December 29, 2010, the Class filed a fourth amended complaint asking the trial court to declare that up to $3,000,000 in damages, attorney fees, and post-judgment interest may be collected from ACE under the Policy. The Class also made bad faith and unfair claims handling allegations against ACE.
Eventually, the case was assigned to a special master. In an August 6, 2012 letter to the special master, the parties identified the six issues to be presented to the special master and laid out the agreed upon briefing process, which included the parties simultaneously submitting opening briefs, statements of facts, and exhibits and then simultaneously submitting responses. On September 27, 2012, in his twenty-seven page report, the special master concluded that the “legally obligated to pay” and “voluntary payment” defenses were available to ACE because ACE provided a defense under a reservation of rights. The special master concluded, Id. at 44. The special master also resolved the remaining five issues, some favorably to the Class and some favorably to ACE.
The Class filed a motion to correct error, which the special master granted in part as it related to a factual finding that did not affect his ultimate conclusion regarding ACE's liability under the Policy. The special master overruled the Class's second specification of error.
On October 9, 2012, ACE asked the trial court to adopt the special master's report and to enter final judgment in its favor. On December 17, 2012, the trial court entered an order adopting the special master's reports and declining to enter final judgment on all issues. The trial court directed “entry of only the holdings on the six issues referred to the Special Master as a partial final judgment pursuant to Trial Rule 54(B)” and stayed the remaining issues. Id. at 78. The Class and ACE now appeal.
The parties agree that they presented questions of law for the special master's resolution. They also agree that the special master's legal conclusions are subject to de novo review. Siwinski v. Town of Ogden Dunes, 949 N.E.2d 825, 828 (Ind.2011) ().4
“Insurance policies are contracts that are subject to the same rules of construction as are...
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