Midwestern Indem. Co. v. Laikin

• Decision Date: 16 August 2000
• Docket Number: No. IP 96-0830-C H/G.,IP 96-0830-C H/G.
• Citation: 119 F.Supp.2d 831
• Parties: The MIDWESTERN INDEMNITY COMPANY, Plaintiff, v. Daniel LAIKIN d/b/a Garden City Group d/b/a Flora Group, Flora Estate, Shady Pines, Cossell Group, Pat Skaggs and Lorrie Skaggs as next friends of Amber Nicole Mitchell and Patricia Skaggs, Defendants.
• Court: U.S. District Court — Southern District of Indiana

119 F.Supp.2d 831

The MIDWESTERN INDEMNITY COMPANY, Plaintiff, v. Daniel LAIKIN d/b/a Garden City Group d/b/a Flora Group, Flora Estate, Shady Pines, Cossell Group, Pat Skaggs and Lorrie Skaggs as next friends of Amber Nicole Mitchell and Patricia Skaggs, Defendants.

No. IP 96-0830-C H/G.

United States District Court, S.D. Indiana, Indianapolis Division.

August 16, 2000.

Jeffrey A. Doty, Kightlinger & Gray, Indianapolis, IN, for plaintiff.

James A. Mellowitz, Price Potter Jackson & Mellowitz, Indianapolis, IN, for defendants.

ENTRY ON CROSS-MOTIONS FOR SUMMARY JUDGMENT

HAMILTON, District Judge.

After a deadly fire in a mobile home, plaintiff Midwestern Indemnity Company sued here for a declaratory judgment that it owed no duty of coverage or defense for the loss. Defendants here are the owners and managers of the mobile home in which the fire occurred, Daniel Laikin and businesses he operates (collectively, "the Cossell Group"), and the Skaggs family, who were renting the mobile home from the Cossell Group and who were injured in the fire. While this declaratory judgment action has been pending, the Cossell Group and the Skaggs family settled their dispute through a consent judgment in state court. The Cossell Group paid $300,000 to the Skaggs family, which was less than the consent judgment's face amount of $1.6 million. The Skaggs family agreed to collect the difference only from the insurer Midwestern, not from the assets of the Cossell Group.

The parties in this case have filed cross-motions for summary judgment that present the following principal issues: (a) assuming coverage is eventually established at trial, whether the consent judgment will have any binding effect on the insurer as to issues of its insured's liability or the injured family's damages; (b) whether the consent judgment was the product of bad faith or collusion or was unreasonable in its terms; and (c) whether the covenant not to execute relieves the insurer of all liability here on the theory that its insured is not "legally obligated to pay" any amount now being sought from the insurer.

As explained below, this court predicts the Indiana courts would hold that: (a) the consent judgment is binding on the insurer as to issues of the insured's liability and damages; (b) as a matter of law, the consent judgment was reasonable and was not the product of bad faith or collusion; and (c) the covenant not to execute does not relieve the insurer of any obligation to pay up to its policy limits toward the consent judgment. On a separate issue, the court also holds that any possible consequences of the Skaggs' failure to list their personal injury claims as assets in a bankruptcy filing have been cured by later ratification by the bankruptcy trustee. Accordingly, this case shall proceed to trial on the contested coverage issues, which turn on disputed issues of fact.

Undisputed Facts Relevant to the Consent Judgment

This entry addresses the second round of summary judgment motions in a long fought insurance dispute arising out of a deadly fire on October 7, 1989. The purpose of summary judgment is to "pierce the pleadings and to assess the proof in order to see whether there is a genuine need for trial." Matsushita Elec. Indus. Co. v. Zenith Radio Corp., 475 U.S. 574, 587, 106 S.Ct. 1348, 89 L.Ed.2d 538 (1986). Under Rule 56(c) of the Federal Rules of Civil Procedure, the court should grant summary judgment if and only if the record shows there is no genuine issue as to any material fact, and the moving party is entitled to judgment as a matter of law. See Fed.R.Civ.P. 56(c); Pafford v. Herman, 148 F.3d 658, 665 (7th Cir.1998). The fact that the parties have filed cross-motions for summary judgment does not alter the standard. When considering the plaintiff's motion for summary judgment, the court must consider the evidence in the light reasonably most favorable to the defendants, and vice versa.

The facts material to the pending motions are undisputed, at least for purposes of the motions. The court has included as background to the issues here some facts established by the first round of summary judgment motions in this case. (References to "Laikin Ex. __" refer to exhibits filed in support of the defendants' response to plaintiff's first motion for summary judgment.)

On October 7, 1989, Patrick and Lorrie Skaggs, Amber Nicole Mitchell, and Patricia Skaggs were all living in a rented mobile home in the Shady Pines mobile home park, which was owned and operated by Laikin and/or the Cossell Group. A fire began in the mobile home that morning. The fire killed Amber, who was five years old. Patricia, who was three years old, and Lorrie both suffered smoke inhalation and other injuries. Patrick suffered extensive burn injuries.

The back door of the mobile home had been chained and wired shut from the outside by a property manager for the Cossell Group. Both the Wayne Township Fire Department and the Marion County Sheriff investigated the fire and issued reports. Laikin Exs. 7, 8. The fire department concluded that the fire began in the lounge area of the mobile home as a result of a faulty outlet. Laikin Ex. 8 (Structure Fire Investigation Report).

In June 1989, plaintiff Midwestern Indemnity Company had received a request for liability coverage of Laikin's mobile home parks from Paul Nelson, an insurance agent with the Landmark Insurance agency. Midwestern underwriter Jan McWhirter denied that application. On October 4, 1989, three days before the fire, Nelson issued an insurance binder to Laikin for general liability insurance coverage by Midwestern of the Shady Pines mobile home park. Laikin Ex. 6. The effective date of the binder was backdated to August 27, 1989. Id. The record contains no actual insurance policy issued by Midwestern pursuant to the binder. Midwestern issued a later policy that McWhirter approved covering Laikin's mobile home parks, including Shady Pines, effective September 1, 1990. Cplt. Ex. A. That policy provides that Midwestern "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." Id.

On March 31, 1995, the Skaggs filed suit in the Marion Superior Court against the owners and managers of Shady Pines for the death of Amber Nicole Mitchell and injuries to Patrick, Patricia, and Lorrie caused by the fire. The Cossell Group was added as a defendant in that lawsuit on June 2, 1995. The Skaggs alleged that the defendants had breached the implied warranty of habitability, resulting in the wrongful death of Amber Nicole Mitchell, severe burn injuries to Patrick Skaggs resulting in a 10 percent permanent partial impairment, psychological injuries to Lorrie Skaggs and Patricia Skaggs, as well as other injuries and damages. Def. Ex. 3.

On November 1, 1995, the Cossell Group moved to dismiss the Skaggs' suit in the Marion Superior Court. The motion argued that the applicable statute of limitations was the two-year statute for a personal injury claim rather than the six-year statute for breach of an implied warranty of habitability. Def. Resp. Ex. 11. The trial court denied the motion on February 27, 1996. Def. Resp. Ex. 10.

On March 1, 1996, the Cossell Group formally demanded that Midwestern provide indemnification and defend it against the Skaggs' suit. Midwestern denied coverage, claiming that the Cossell Group's insurance policy provided coverage only after September 1, 1990, after the fire and the loss had occurred. Laikin Aff. ¶ 3. Midwestern filed its Complaint for Declaratory Judgment in this court on June 10, 1996, seeking a declaration that it owed no duty of defense or indemnification to the Cossell Group for damages arising from the Skaggs' lawsuit. The Cossell Group answered and filed a counterclaim against Midwestern for bad faith denial of coverage.

On April 27, 1998, this court denied Midwestern's motion for summary judgment on the issue of insurance coverage. The court found that factual disputes as to Nelson's authority to issue the insurance binder in 1989, the timing of Laikin's notice of the fire, and whether Midwestern was actually prejudiced by the long delay in notice of the fire all barred summary judgment on the issue of coverage. For purposes of the present motions, the court must assume that those issues will ultimately be resolved in favor of finding coverage.¹ In the same entry, however, the court granted summary judgment to Midwestern on Laikin's counterclaim for bad faith denial of coverage.

On November 13, 1998, the Cossell Group and the other state court defendants in the Skaggs' lawsuit filed a motion for judgment on the pleadings based again on a statute of limitations defense. While the motion was pending, all parties attended a mediation in December 1998. Although Midwestern attended the mediation, it left before the mediation ended. Laikin Aff. ¶ 6.

During the mediation, the Skaggs and the Cossell Group reached a settlement. The settlement agreement stated that "Cossell agrees that all statute of limitation defenses are waived" and provided for a cash payment of $300,000 to the Skaggs family by the general partners of the Cossell Group. Def. Ex. 2. As part of the settlement, the Cossell Group also assigned all its rights and claims against Midwestern Indemnity to the Skaggs family. Id. To implement the settlement, the Cossell Group submitted to the Marion Superior Court a confession of judgment against the Cossell Group in the amount of $1.6 million for actual and compensatory damages. However, the Skaggs agreed not to execute the judgment against any asset other than the (putative) Midwestern insurance policy. The state court approved the confession of judgment on February 19, 1999. Def. Ex. 1. The Cossell Group paid in excess of $62,000 in legal fees and costs in its defense against the Skaggs litigation. Laikin Aff. ¶ 5.

At the same time the Skaggs settled with...