Liberty Mut. Ins. Co. v. Osi Industries

• Decision Date: 21 July 2005
• Docket Number: No. 49A02-0405-CV-449.,49A02-0405-CV-449.
• Citation: Liberty Mut. Ins. Co. v. Osi Industries, 831 N.E.2d 192 (Ind. 2005)
• Parties: LIBERTY MUTUAL INSURANCE COMPANY, Appellant/Cross-Appellee-Defendant, v. OSI INDUSTRIES, INC., and Beltec International, Appellees/Cross-Appellants-Plaintiffs.
• Court: Indiana Supreme Court

831 N.E.2d 192

LIBERTY MUTUAL INSURANCE COMPANY, Appellant/Cross-Appellee-Defendant, v.OSI INDUSTRIES, INC., and Beltec International, Appellees/Cross-Appellants-Plaintiffs.

No. 49A02-0405-CV-449.

Court of Appeals of Indiana.

July 21, 2005.

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Steven B. Belgrade, John A. O'Donnell, Belgrade & O'Donnell, P.C., Chicago, IL, David L. Taylor, Jennings Taylor Wheeler & Boukamp, P.C., Carmel, for Appellant.

John W. Roberts, Barack Ferrazzano Kirschbaum Perlman & Nagelberg, LLC, Chicago, IL, Robert B. Clemens, George T. Patton, Jr., Beth L. Riga, Bose McKinney & Evans LLP, Indianapolis, for Appellees.

OPINION

VAIDIK, Judge.

Case Summary

Liberty Mutual Insurance Company("Liberty Mutual") appeals from the grant of summary judgment in favor of OSI Industries, Inc., ("OSI") and Beltec International ("Beltec") in their declaratory judgment action alleging that Liberty Mutual breached its duty to defend OSI and Beltec in an underlying lawsuit.OSI cross-appeals the trial court's order that Liberty Mutual pay only half of OSI's legal fees and expenses because OSI was insured by another insurance company.We affirm the grant of summary judgment in favor of OSI and Beltec and in so doing conclude that Liberty Mutual had a duty to defend them in the underlying lawsuit.We also conclude that Liberty Mutual has waived, for failure to make a cogent argument, its argument that OSI and Beltec are precluded from coverage for the underlying complaint's two counts of willful violations of penal statutes; moreover, such argument fails on the merits because other counts in the complaint were for causes of action that would have been covered by the insurance policy, and the duty to defend is broader than the duty to indemnify.On the issue of Liberty Mutual's liability for defense costs prior to the date that OSI and Beltec gave notice of the underlying lawsuit to Liberty Mutual, we find that the trial court erred in awarding these costs.Moreover, we find that public policy does not prevent OSI's and Beltec's recovery against Liberty Mutual and that the pleadings in the underlying lawsuit did not clearly exclude the finding that the events for which OSI sought coverage occurred before OSI's policy had expired with Liberty Mutual.We reverse the trial court's award of OSI's and Beltec's attorneys' fees in the declaratory judgment action because Indiana adheres to the "American Rule" for the allocation of attorneys' fees.We affirm the trial court's award to OSI of 50% of its Thermodyne litigation legal fees and expenses from Liberty Mutual because OSI has been partially compensated for those costs by another insurance company.

Facts and Procedural History¹

OSI is a company that processes meat and is the exclusive provider of meat products for McDonald's Corporation("McDonald's").²Beltec developed and licensed the "Temperfect Oven" for manufacture by Taylor Manufacturing ("Taylor"), a food equipment manufacturer.The "Temperfect Oven" was sold for use by fast food restaurants and contained flat, solid aluminum plate shelving for the cooking and holding of food items.

In 1995, OSI, Beltec, and McDonald's, among others, were sued by Thermodyne and AFTEC (collectively "Thermodyne").³Thermodyne, an Indiana corporation with its principal place of business in Fort Wayne, developed, manufactured, and sold the "Thermodyne Oven" to fast food restaurants beginning in May 1987.The oven contained flat, solid aluminum plate shelving, which Thermodyne claimed was unique and a trade secret.The amended complaint reveals the following eight counts: (I)Illinois Consumer Fraud and Deceptive Business Practices Act...; (II)Illinois Trade Secrets Act...; (III) Unfair Competition; (IV) Breach of Confidence; (V) Interference with Contractual Relations; (VI) Breach of Fiduciary Duty; (VII) Breach of Contract; and (VIII) Conspiracy.Appellant's App.p. 387-93.

Benno Liebermann, the founder of Beltec, worked for Thermodyne at one time and served as its Vice President of Engineering and Senior Vice President of Science and Technology.According to Thermodyne, Liebermann secretly met with OSI, and OSI subsequently recruited and hired Liebermann to work for OSI to develop the "Temperfect Oven" similar to and based upon the "Thermodyne Oven."Also, Thermodyne alleged that OSI and Beltec advertised and promoted the "Temperfect Oven" in the marketplace.

On January 20, 1997, OSI and Beltec requested that their respective insurance companies defend the lawsuit.⁴OSI and Beltec were both insured by Liberty Mutual; OSI was insured from January 1, 1990, until December 31, 1991, and Beltec was insured from July 24, 1990, to July 24, 1993.Liberty Mutual declined to defend OSI and Beltec via letter on April 24, 1997.Id. at 417.

On February 5, 1999, the complaint in this case was filed in Marion Superior Court, id. at 2; OSI and Beltec brought suit against Liberty Mutual alleging that Liberty Mutual had a duty to defend in the underlying Thermodyne suit under the "advertising injury" and "personal injury" provisions of their insurance policies.⁵Liberty Mutual denied coverage, claiming that it had no duty to defend OSI and Beltec because Thermodyne's claims did not trigger advertising injury or personal injury coverage.

Both sides filed Motions for Summary Judgment.The trial court granted OSI and Beltec's Joint Motion for Summary Judgment against Liberty Mutual.The trial court ordered that Liberty Mutual must pay: (1) half of the cost in defending the Thermodyne litigation to OSI, a total of $514,320.62, because OSI was also insured by another insurance company; (2) Beltec's costs in defending the Thermodyne litigation; and (3) OSI and Beltec's attorneys' fees in prosecuting the declaratory judgment against Liberty Mutual.Id. at 36-37.Liberty Mutual has appealed the judgment, the award of the costs in defending the Thermodyne litigation, and the award of attorneys' fees for the declaratory judgment action; OSI cross-appeals the trial court's order that Liberty Mutual pay only half of OSI's legal fees and expenses from the Thermodyne litigation.

Discussion and Decision

Liberty Mutual makes three arguments on appeal: (1)the trial court erred in granting summary judgment when it concluded that the advertising injury and personal injury provisions of OSI's and Beltec's policies⁶ triggered Liberty Mutual's duty to defend; (2) it has viable contractual and public policy defenses that preclude imposition of liability on the part of Liberty Mutual; and (3)the trial court erred in ordering Liberty Mutual to pay OSI and Beltec's attorneys' fees in prosecuting the declaratory judgment action.On cross-appeal, OSI alleges that the trial court erred in deciding that because OSI had collected from its other insurance company in the Thermodyne lawsuit, Federal Insurance Company, Liberty Mutual was only required to pay half of OSI attorneys' fees in the Thermodyne lawsuit.We address each issue in turn.

Before reaching the substantive issues, we address the choice of law issue in this case.Liberty Mutual argued before the trial court that the law of Illinois should apply to this case because, as the parties agree, the principal place of business for both OSI and Beltec is Illinois.Id. at 18.OSI and Beltec contended that Indiana law applied.The trial court concluded, "Because there is no actual difference between [Illinois' and Indiana's] laws, Indiana law applies to the duty to defend and bad faith denial of coverage claims of Plaintiffs[OSI and Beltec] against Defendants, Federal Insurance Company and Liberty Mutual Insurance Company."Id. at 20-21.On appeal, Liberty Mutual asserts:

In its pleadings below, Liberty Mutual maintained that under Indiana choice-of-law rules, Illinois law should be held to control all issues in this case.However, as the trial court noted in its ruling on the parties' motions for summary judgment, there are few actual differences between the relevant laws of Indiana and Illinois.Accordingly, for purposes of this appeal, Liberty Mutual will rely on the law of both states.

Appellant's Br.p. 14.

Liberty Mutual's Brief on appeal misstates the trial court's actual decision below.While the trial court did acknowledge that there was no actual difference between the law of Indiana and the law of Illinois, the trial court found that because there was no difference the law of Indiana would apply, not that the law of both states applies.SeeAppellant's App.p. 20-21.This is consistent with Indiana precedent.SeeHartford Accident & Indem. Co. v. Dana Corp.,690 N.E.2d 285, 291(Ind.Ct.App.1997)("If the purposes and policies of two potential rules are the same, the forum should apply the forum law."), trans. denied.Thus, to the extent that Liberty Mutual's Brief and its use of the laws of both states is an attempt to argue that the trial court erred in applying Indiana law, this argument is not supported by cogent reasoning or authority and is therefore waived.SeeInd. AppellateRule 46(A)(8)(a).We will apply Indiana law throughout our opinion because the trial court based its decision on Indiana law.As a practical matter, however, the choice of Indiana or Illinois law does not change the ultimate outcome of this case because the law of both states on the issues presented in this appeal is the same.

I.Summary Judgment

Liberty Mutual's first contention on appeal is that the trial court erred in granting summary judgment to OSI and Beltec because Liberty Mutual did not have a duty to defend OSI and Beltec.More specifically, Liberty Mutual claims that the acts alleged to have been committed in the underlying Thermodyne lawsuit were not covered by OSI's and Beltec's insurance policies issued by Liberty Mutual.

Our standard of review when considering a ruling on a motion for summary judgment is well settled, and it is the same standard used by the trial court.Union Sec....