McDaniel v. Shepherd

• Decision Date: 27 August 1991
• Docket Number: No. 22A04-9001-CV-38,22A04-9001-CV-38
• Citation: 577 N.E.2d 239
• Parties: Clara McDANIEL, as Personal Representative of the Estate of Laura Catherine McDaniel, deceased, and Clara McDaniel, individually, Appellant-Plaintiff, v. Catherine L. SHEPHERD and Randall Collins, Appellees-Defendants.
• Court: Indiana Appellate Court

Page 239

577 N.E.2d 239

Clara McDANIEL, as Personal Representative of the Estate of Laura Catherine McDaniel, deceased, and Clara McDaniel, individually, Appellant-Plaintiff, v. Catherine L. SHEPHERD and Randall Collins, Appellees-Defendants.

No. 22A04-9001-CV-38.

Court of Appeals of Indiana,

Fourth District.

Aug. 27, 1991.

Michael F. Ward, Ward & Bolin, Albany, for appellant-plaintiff.

James E. Bourne, Susan K. Lemay, Wyatt, Tarrant, Combs & New Orbison, New Albany, for appellees-defendants.

CONOVER, Judge.

Plaintiff-Appellant Clara McDaniel appeals a judgment entered against her in favor of Defendants-Appellees Catherine L. Shepherd and Randall Collins in a negligence action for emotional distress.

We reverse.

We restate Clara's issues as:

1. whether the trial court erred in determining there was insufficient evidence to warrant the giving of Clara's tendered instruction regarding constructive fraud,

2. whether the trial court erred in determining there was insufficient evidence to warrant the giving of Clara's tendered instructions regarding assumption of duty,

3. whether the trial court erred in determining the evidence was insufficient to warrant the giving of Clara's proposed instruction regarding mutuality of understanding of the release's content, and

4. whether the trial court erred by refusing to let Clara refer to certain portions of some witnesses depositions. ¹

Collins drove Shepherd's automobile through the wall of Clara's residence. ² It struck both Clara and her daughter, Laura. While Clara suffered only minor injuries, her daughter was killed as Clara watched. Clara's medical bills amounted to $140. At trial, Collins' liability was stipulated.

A few days after Laura's funeral, John Apeinis, a United Farm Bureau insurance agent, contacted Clara regarding her possible claims against Collins. ³ When Apeinis talked to Clara, he did not record her statement because he saw she was "in shock". (R. 629). Apeinis told Clara not to get an attorney, because she would come out ahead if she didn't. He also offered to get her an attorney if she needed one. He further advised her that she could consult Farm Bureau's attorney for any legal advice she might need. (R. 685-687, 709). ⁴ Shortly thereafter, Apeinis, acting for Farm Bureau, paid Clara $1,000 in exchange for a release of liability for all Clara's "known and unknown" personal injuries. Later, Clara talked to an attorney who advised her she had a potential emotional distress claim. She then filed this action seeking damages for emotional distress. ⁵

At trial, Collins raised Farm Bureau's release as a defense. Clara claimed she was not bound by the release because it had been obtained by either actual or constructive fraud. She further contended the release was never intended to prohibit her claim for emotional distress. She presented evidence concerning both fraud theories and whether there had been a "meeting of the minds" as to what the release meant, then tendered instructions on constructive fraud, assumption of duty, and the lack of a meeting of the minds at the trial's conclusion. The trial court refused Clara's tendered instructions on these points, believing the evidence thereon was insufficient to warrant their being given to the jury. The jury was left with only the factual question of whether the release had been obtained by actual fraud. It answered the question in the negative. Accordingly, Clara's emotional distress claim was denied. Clara appeals.

Additional facts are given below as necessary.

Clara first contends the trial court erred when it refused to give Proposed Instruction 6 on constructive fraud. We agree.

A party is entitled to an instruction on a proposition of law if there is evidence in the record, or an inference therefrom, to support the giving of such an instruction. Mullins v. Bunch (1981), Ind., 425 N.E.2d 164, 165; Sullivan v. Fairmont Homes, Inc. (1989), Ind.App., 543 N.E.2d 1130, 1137, trans. denied. It is reversible error for a trial court to refuse to give instructions covering essential elements of the case when such instructions are supported by some evidence, are consistent with the theory of the case, and there are no other instructions covering that area of law. Burkett v. Crulo Trucking Co. (1976), 171 Ind.App. 166, 355 N.E.2d 253, 261-262. The proposed instructions must correctly state and cover law not discussed in the instructions actually given by the trial court. The sole question is whether Clara presented evidence sufficient to warrant the giving of her proposed instructions.

Constructive fraud is defined as fraud which arises by operation of law from a course of conduct which, if sanctioned by law, would "secure an unconscionable advantage, irrespective of the existence or evidence of actual intent to defraud." Paramo v. Edwards (1990), Ind., 563 N.E.2d 595, 598 (citing Marcum v. Richmond Auto Parts Co. (1971), 149 Ind.App. 120, 270 N.E.2d 884, 887). An action or course of conduct is fraudulent if it tends to deceive others, to violate a public or private trust, or to injure public interests. Sanders v. Townsend (1987), Ind.App., 509 N.E.2d 860, 865, reh. denied, trans. denied.

The elements of constructive fraud are 1) the existence of a duty due to a relationship between the parties; 2) violation of the duty by making deceptive material representations of past or existing facts or remaining silent when a duty to speak exists; 3) reliance thereon by the complaining party; 4) injury to the complaining party as a proximate cause thereof; and 5) the gaining of an advantage by the party to be charged at the expense of the complaining party. Pugh's IGA, Inc. v. Super Food Services, Inc. (1988), Ind.App., 531 N.E.2d 1194, 1197. We have recently emphasized concerning the first element that a confidential relationship between the parties is not essential to the finding of constructive fraud, as Indiana recognizes the concept of "fraud in law" or "legal fraud" wherein the key emphasis is the inherent likeliness of conduct to create an injustice. Scott v. Bodor (1991), Ind.App., 571 N.E.2d 313, 324. Conduct is likely to create an injustice when actions or statements mislead the complaining party, and the actions or statements are of a character which would prevent inquiry. See, Paramo, supra, at 599.

In the present case, three of the elements of constructive fraud require examination. Collins contends (a) Farm Bureau had no duty to insure that Clara was not misled in her negotiations with Apeinis, (b) Apeinis made no deceptive representations, and (c) Clara had no right to rely on Apeinis' representations.

The crux of Collins' argument is his apparent assumption that an insurer never has a duty to an injured party to insure the party is not misled. In Collins' opinion, an insurer's only duty is to abstain from intentional fraud. Collins cites Martin v. Levinson (1980), Ind.App., 409 N.E.2d 1239, and Travelers Indemnity Co. v. Armstrong (1982), Ind., 442 N.E.2d 349, in support of this argument. In Martin, we held an insurance agent has no duty to disclose information to an injured third party in negotiations leading to settlement and release of claims. 409 N.E.2d, at 1244. In Travelers, our supreme court held that after a dispute has risen, an insurance agent must act in good faith, but is not bound to be correct. 442 N.E.2d, at 364.

Martin is clearly distinguishable from this case. Unlike this case, the injured party in Martin was represented by an attorney. As our supreme court noted in Paramo, supra, our state courts are reluctant to find fault in the way insurance companies negotiate with injured parties because injured third parties are usually represented by attorneys. These attorneys will presumably insure that injured parties will not be misled. 563 N.E.2d, at 595. Here, the insurance company's agent advised an elderly, uneducated, and acutely disturbed woman not to hire an attorney. Thus, the Paramo/ Martin safeguards against her being misled are absent. ⁶

Furthermore, in light of our supreme court's discussion in Paramo, Travelers cannot be read as holding that a tort-feasor's insurance agent is never guilty of constructive fraud. The distinguishing factors present in Travelers were that (a) the parties were involved in an obvious dispute, and (b) the injured party was at all critical times represented by an attorney. Here, Clara did not understand that the insurer's interest was not the same as hers. Because of Apeinis' advice, she had no counsel to tell her otherwise.

In the present case, there is substantial evidence indicating that although Apeinis did not know the exact diagnosis of Clara's mental condition at their initial meeting, he did observe she was suffering from severe mental distress. He also knew from the initial interview that after the accident Clara had almost no money for support, had to move in with relatives, and was threatened with the loss of her Social Security benefits if she did not move out into a place of her own. Nevertheless, Apeinis voluntarily (a) advised Clara not to hire an attorney, (b) indicated his company would provide any legal advice needed, thereby assuring her she would not be misled, and (c) soon thereafter gave her an incomplete explanation of the content of the release. This evidence is sufficient to create a fact question for the jury regarding the legal effect of the parties' course of conduct with reference to the first element of constructive fraud. The important factor in this case is not the existence of a confidential relationship but whether the confluence of conduct by the Collins' insurer with reasonable reliance and detriment by Clara resulted in an advantage which the law cannot condone.

Collins further argues Clara was not misled since Apeinis made no deceptive representations. He opines that Apeinis fully informed Clara regarding the extent of the release. Collins, citing New York, Chicago and St. Louis...