Ky. Nat. Ins. v. Empire Fire Marine Ins.

• Decision Date: 07 January 2010
• Docket Number: No. 22A04-0810-CV-616.,22A04-0810-CV-616.
• Citation: 919 N.E.2d 565
• Parties: KENTUCKY NATIONAL INSURANCE COMPANY, Appellant, v. EMPIRE FIRE AND MARINE INSURANCE COMPANY, Alpha Leasing Co., Inc., Todd Royse, Julie Speakes, Huntington National Bank, Huntington LT, and Unknown Insurance Co., William "Bill" Ward, and Ronald J. Carney, Appellees. Empire Fire and Marine Insurance Company, Cross-Appellant, v. Kentucky National Insurance Company and Alpha Leasing Co., Inc., Cross-Appellees.
• Court: Indiana Appellate Court

919 N.E.2d 565

KENTUCKY NATIONAL INSURANCE COMPANY, Appellant, v.EMPIRE FIRE AND MARINE INSURANCE COMPANY, Alpha Leasing Co., Inc., Todd Royse, Julie Speakes, Huntington National Bank, Huntington LT, and Unknown Insurance Co., William "Bill"Ward, and Ronald J. Carney, Appellees.

Empire Fire and Marine Insurance Company, Cross-Appellant, v.Kentucky National Insurance Company and Alpha Leasing Co., Inc., Cross-Appellees.

No. 22A04-0810-CV-616.

Court of Appeals of Indiana.

January 7, 2010.

Galen L. Clark, Travis & Herbert, PLLC, Louisville, KY, Attorney for Appellant and Cross-AppelleeKentucky National Insurance Company.

Angela S. Cash, R. Jay Taylor Jr., Scopelitis, Garvin, Light, Hanson & Feary, Indianapolis, IN, Attorneys for Appellee and Cross-Appellant Empire Fire and Marine Insurance Co.

David L. Sage, Hummel Coan Miller & Sage, Louisville, KY, Attorney for Appellee and Cross-AppelleeAlpha Leasing Co., Inc.

Garret B. Hannegan, Morgan & Pottinger, P.S.C., Louisville, KY, Attorney for Appellees Huntington National Bank and Huntington LT.

OPINION

BROWN, Judge.

Kentucky National Insurance Company("Kentucky National") appeals the trial court's denial of its motion for summary judgment and partial grant of summary judgment in favor of Empire Fire and Marine Insurance Co.("Empire Fire"), Alpha Leasing Co., Inc.("Alpha Leasing")Todd Royse, Bill Ward, and Huntington National Bank and Huntington LT (together, "Huntington").Kentucky National raises four issues, which we consolidate and restate as whether the trial court erred in denying its motion for summary judgment and granting partial summary judgment to Empire Fire and Alpha Leasing.On cross-appeal, Empire Fire raises two issues, which we consolidate and restate as whether the trial court erred by denying in part its motion for summary judgment.We affirm in part, reverse in part, and remand.¹

The relevant facts follow.Alpha Leasing, a Kentucky corporation, is a company which is engaged in the business of arranging and making leases of motor vehicles.²In December 1997, Alpha Leasing and Huntington entered into an Operating Agreement.The Operating Agreement set forth the terms under which Huntington acquired motor vehicles from Alpha Leasing for the purpose of leasing the vehicles to individuals or business entities.According to the Operating Agreement, written motor vehicle leases would be entered into by Huntington as lessor and the individual customers as lessees.Alpha Leasing was authorized to enter into the vehicle leases on behalf of Huntington.Alpha Leasing was required to procure and deliver to the lessees any vehicles to be leased, and Alpha Leasing was required to obtain all available warranties and guarantees applicable to the vehicles.Under Section II.C. of the Operating Agreement, Alpha Leasing was required to cause the motor vehicles to be registered, licensed, and titled solely in Huntington's name.Pursuant to Section II.D., Alpha Leasing was required, prior to delivery of a vehicle to a lessee, to verify that the lessee had insurance in effect for the motor vehicle.Alpha Leasing was also required to notify Huntington of any loss or damage sustained by the motor vehicle.Pursuant to Section K of the Operating Agreement, Alpha Leasing had the sole responsibility for the condition and performance of all leased vehicles, any actions or omissions in connection with the leases, any failure to deliver the vehicle or to perform services, and any failure to sell or dispose of any trade-in or any failure to pay in full the prior financing obligation on the trade-in.

Huntington also had a vehicle return policy pertaining to the vehicles leased pursuant to the Operating Agreement and arranged by Alpha Leasing.The return policy stated: "Alpha Leasing may only return vehicles on behalf of the lessee, as outlined in the provisions below, provided the lease has reached maturity.This policy does not apply to vehicles being returned by lessees prior to lease maturity."Appellant's Supplemental Appendixat 73;Appellant's Appendixat 181.The policy permitted Alpha Leasing to pick up a vehicle from a lessee, obtain documentation,³ and return the vehicle by appointment to Huntington's designated return location.The policy provided: "Alpha Leasing will be responsible for ensuring the vehicle is returned within (5) business days of pick up and that adequate insurance coverage is carried to cover the care and custody of the vehicle while in their possession."Appellant's Supplemental Appendixat 73;Appellant's Appendixat 181.As part of its business operations, Alpha Leasing would transport vehicles leased pursuant to its Operating Agreement with Huntington from the individual lessee to the auto auction site designated by Huntington.Huntington also maintained inspection procedures which set forth the return center for each of Huntington's operating areas.⁴Huntington's return center for its Louisville, Kentucky operating area was the Louisville Auto Auction.

Two commercial insurance policies were issued to Alpha Leasing covering July 2004.First, Kentucky National issued a Commercial Auto Policy (the "Kentucky Policy") to Alpha Leasing.⁵Second, Empire Fire issued a Business Auto Policy (the "Empire Policy") to Alpha Leasing.

In March 1998, Alpha Leasing facilitated a lease between Huntington and Ronald Carney.⁶Pursuant to a vehicle lease agreement arranged by Alpha Leasing, Huntington leased a Toyota Celica (the "Vehicle") to Carney.As required by the Operating Agreement between Alpha Leasing and Huntington, the Vehicle was titled to and registered in the name of Huntington.

On July 31, 2001, Carney executed a second lease agreement extending the Vehicle's lease for an additional three years.Section 14 of the lease shows that Alpha Leasing, as required by its Operating Agreement with Huntington, verified that Carney obtained insurance coverage for the vehicle during the term of the lease.Section 18 of the Vehicle's lease required Carney to maintain insurance coverage until he returned the vehicle.Pursuant to Section 24 of the lease, Carney was permitted to terminate the lease prior to its scheduled expiration/maturity provided he was not in default at the time of such termination.If Carney terminated the lease prior to its scheduled expiration/maturity he would be required to pay an early termination fee.For purposes of determining the early termination fee, the lease would be considered terminated during the month during which Huntington obtained possession of the Vehicle through repossession or return, or Huntington received the proceeds of the insurance Carney obtained to cover the Vehicle if the Vehicle were to become a total loss due to collision, destruction or theft.⁷

In December 2003, prior to the scheduled expiration/maturity of the lease term for the Vehicle, Carney returned the Vehicle to Bill Ward, a sales agent with Alpha Leasing, and leased a new vehicle through Alpha Leasing.⁸Alpha Leasing attempted to sell the Vehicle and made the lease payments until the scheduled lease expiration/maturity.

On July 13, 2004, during the last month of the Vehicle's lease term, Alpha Leasing hired Todd Royse⁹ to drive the Vehicle from Alpha Leasing's office located in Louisville, Kentucky, to the Louisville Auto Auction located at 5425 Highway 32E, Clarksville, Indiana.Later that day, the Vehicle, driven by Royse, was involved in an automobile accident in southern Indiana with a vehicle driven by Julie Speakes.¹⁰On May 23, 2006, Speakes filed a lawsuit against Royse and Alpha Leasing under CauseNo. 22C-01-0605-CT-316(the "Speakes Lawsuit").

At some point, Alpha Leasing or its insurance agent notified Empire Fire of the accident involving the Vehicle, and Empire Fire sent a payment by check to Speakes for property damage to her vehicle.However, Speakes did not cash the check, but returned it to Empire Fire.¹¹Empire Fire also sent a check to Speakes for reimbursement of her insurance deductible and her rental car expense incurred as a result of the accident, and Speakes cashed that check.¹²

On March 9, 2005, Alpha Leasing sent an automobile loss notice to Kentucky National regarding the accident involving the Vehicle.The automobile loss notice stated that "[Empire Fire] is claiming that they are not liable for this claim."Appellant's Appendixat 159;Appellant's Supplemental Appendixat 75.On March 23, 2006, Empire Fire sent a letter to Kentucky National stating that the coverage provided by the Empire Policy was excess/contingent and requested Kentucky National to advise as to whether the Kentucky Policy provided coverage for Alpha Leasing.On May 30, 2006, Alpha Leasing sent a letter by its attorney to Kentucky National together with a copy of the complaint and related documents with respect to the Speakes Lawsuit.On June 6, 2006, Kentucky National responded to Alpha Leasing by letter and stated that Kentucky National acknowledged no obligation to defend and indemnify Alpha Leasing because the Vehicle was not an insured vehicle under the Kentucky Policy and because Kentucky National did not receive timely notice of Alpha Leasing's claim.¹³

In August 2006, Empire Fire filed a lawsuit under CauseNo. 22C-01-0608-MR-518, the case from which this appeal arises, against Kentucky National, Alpha Leasing, Royse, and Speakes, requesting the court for declaratory relief related to the insurance coverage provided by the Empire Policy in connection with the accident between Royse and Speakes.In September 2006, Kentucky National filed an answer, counterclaim and cross-claim asking the court for declaratory relief related to the insurance coverage provided by the Kentucky Policy in connection with the accident.In November 2006, Kentucky National filed a third party complaint against Huntington National Bank.In February 2007, Huntington National Bank filed a motion to dismiss Kentucky National's third party...