State Farm Mut. Auto. Ins. Co. v. Estep

• Decision Date: 25 September 2007
• Docket Number: No. 03S01-0505-CV-255.,03S01-0505-CV-255.
• Citation: 873 N.E.2d 1021
• Parties: STATE FARM MUTUAL AUTOMOBILE INSURANCE COMPANY, Appellant (Proposed Intervenor below), v. Ruth ESTEP, Personal Representative of the Estate of Ewing Dan Estep, and Assignee of Rights of James D. Perkins, Appellee (Plaintiff below).
• Court: Indiana Supreme Court

873 N.E.2d 1021

STATE FARM MUTUAL AUTOMOBILE INSURANCE COMPANY, Appellant (Proposed Intervenor below), v. Ruth ESTEP, Personal Representative of the Estate of Ewing Dan Estep, and Assignee of Rights of James D. Perkins, Appellee (Plaintiff below).

No. 03S01-0505-CV-255.

Supreme Court of Indiana.

September 25, 2007.

Karl L. Mulvaney, Dennis F. Cantrell, Nana Quay-Smith, Candace L. Sage, Indianapolis, IN, Attorneys for Appellant.

Peter Campbell King, J. Kevin King, Columbus, IN, Attorneys for Appellee.

On Petition To Transfer from the Indiana Court of Appeals, No. 03A01-0401-CV-30.

SHEPARD, Chief Justice.

In this motor vehicle collision case, defendant's insurance carrier offered to pay policy limits even as it continued to defend its insured. Plaintiff refused the offer. A jury awarded damages above policy limits, and the carrier immediately paid on its policy.

In proceedings supplemental, the trial court ordered the insured to assign any cause of action he might have against his insurer and directed plaintiff's counsel to prepare the assignment. The assignment became a global one, which plaintiff deployed to sue both the carrier and defendant's personal attorney. We held fifteen years ago, however, that assigning claims against lawyers is impermissible. Most of the reasons for that rule also pertain to involuntary assignments such as the one before us.

Facts and Procedural History

James Perkins was driving his pickup truck through Columbus, Indiana, when he hit the rear of Dan Estep's motorcycle. Estep suffered devastating injuries.¹ In August 2000, Estep filed a personal injury action against Perkins.

Perkins' insurer, State Farm Mutual Automobile Insurance Company, retained attorney Michael Stephenson to defend him. Perkins also retained his personal attorney, Jerry L. Susong, as Stephenson's co-counsel. Estep died before trial, and his Estate was substituted as plaintiff.

Perkins' automobile policy with State Farm had a $50,000 per person policy limit. State Farm repeatedly offered to pay Estep the $50,000 policy limit, but Estep refused to accept the offer or submit a demand.

Estep's claim went to trial, and in March 2002 the jury awarded Estep's Estate $650,000 in compensatory damages and $15,000 in punitive damages. The day after the verdict, State Farm paid Perkins' full policy limit of $50,000 to the Estate.

In April 2002, pursuant to Trial Rule 69(E), the Estate initiated proceedings supplemental to execution against Perkins, seeking satisfaction of the $615,000 that remained unpaid.²

Stephenson withdrew in July 2002, concluding he had completed his defense obligations under Perkins' insurance policy. Susong continued to represent Perkins. Subsequent to Stephenson's withdrawal, the Estate sought an order directing Perkins to assign to it any cause of action Perkins might have against State Farm. State Farm was not a party to the proceedings supplemental and did not receive notice that the Estate was seeking the assignment.³

When requested to assign any potential bad faith claim he might have against State Farm, Perkins refused and denied that there was any basis for such a claim. Susong said on Perkins' behalf that State Farm

defended [Perkins] all the way through. I personally would not . . . open[ ] the insurance company up to defending another case that their own insured does not wish to bring, without some showing of fact that they did do something. . . . I'm not aware of any bad faith dealing on [State Farm's] part[ ].

(Hr'g Tr. at 7.)

Over Perkins' objection, the court ordered Perkins to assign to the Estate any potential bad faith claim Perkins might have against State Farm. The assignment Perkins presented turned out to be even broader. It assigned to the Estate all potential "claims, demands, and cause or causes of action" arising out of the Estate's personal injury action against Perkins, including a specific assignment of any potential cause of action against State Farm.

State Farm first received notice of the assignment in September 2003, when the Estate, as Perkins' assignee, sued State Farm in an Illinois state court asking $615,000 in damages — the amount by which the Indiana judgment against Perkins exceeded his insurance coverage.⁴ The complaint alleged that State Farm breached its duty of good faith owed to Perkins by failing to provide Perkins with a conflict-free defense. Asked at oral argument what indication there was that State Farm had acted in bad faith, counsel replied that there was an insurance policy, that it facially covered the claim, and that a judgment was entered against the insured.⁵

The Estate also sued Perkins' personal attorney Susong in the Illinois complaint, claiming Susong "actively participated" in Perkins' defense and should have alleged to Perkins that Stephenson had a conflict of interest. Stephenson was not named as a defendant.

State Farm then moved to intervene in the Indiana proceedings supplemental and asked that the order compelling Perkins' assignment be vacated. The trial court denied both motions without comment or findings. State Farm appealed from these denials.

The Court of Appeals held that State Farm was entitled to notice and an opportunity to intervene in the proceedings supplemental. State Farm Mut. Auto. Ins. Co. v. Estep, 818 N.E.2d 114, 125-26 (Ind.Ct.App.2004).⁶ The Court of Appeals further held that a court hearing a proceeding supplemental could force assignment of any claim Perkins had against State Farm, but only if the court first determined that a viable claim existed. Id. We granted transfer. State Farm Mut. Auto. Ins. Co. v. Estep, 831 N.E.2d 748 (Ind.2005).

I. Assignability in General

Under early common law, hardly any chose in action was assignable. 3 Samuel Williston, A Treatise on the Law of Contracts § 405, at 7 (3d ed.1960). Both Lord Coke and Blackstone argued that assignment constituted champerty and maintenance, which were discouraged by the "`wisdom and policy of the sages and founders of our law.'" Id. (quoting Lampet's Case (Eng.) 10 Coke, 46a, 48a). See also Draper v. Zebec, 219 Ind. 362, 372, 37 N.E.2d 952, 956 (1941) ("In Blackstone's time it was thought that many, for the furtherance of pretended rights, conveyed some interest therein to great men in order to gain their support and influence over the courts in the interests of their cause.").⁷ Discounting the fear of maintenance, others argued that assignment was barred by the doctrine of privity. J.B. Ames, The Disseisin of Chattels: Inalienability of Choses in Action, 3 Harv. L.Rev. 337, 339 & n. 2 (1890) (noting that rule barring assignments predated laws against maintenance and was justified in other European countries on grounds that such personal rights were non-transferable). The intangible nature of a chose in action and the lack of commercial necessity are also credited as contributing to the non-assignment rule. 4 Arthur Corbin, Corbin on Contracts: A Comprehensive Treatise on the Rules of Contract Law § 856, at 403 (1963).

Whatever the reason for this rule, a variety of forces combined over the centuries to work its slow reversal. The chose in action based on contract was the first to become assignable, primarily out of economic necessity. Next, with the de-emphasis of privity, the passage of English statutes, and the demise of laws against champerty, choses in action for torts against personal property slowly gained the power of assignment. The assignment of tort suits growing out of an injury to the person, however, or for wrongs done to the person, reputation, or feelings of the injured party, remained unassignable.

The common law in most states today, including Indiana, teaches that any chose in action that survives the death of the assignor may be assigned. "`[A]ny cause or right of action may be assigned that, in accordance with the rules relating to the survivability of causes of action . . . would, on the death of the assignor, survive to his legal representative.'" Armstrong v. Ill. Bankers Life Ass'n, 217 Ind. 601, 619, 29 N.E.2d 415, 422 (1940) (quoting 6 C.J.S. Assignments § 30). An English statute on the survival of actions enacted in 1330 is responsible for this connection between survival and assignment.⁸ As one might expect, this rule derived from an English statute enacted more than a century before the invention of movable type is not tightly enforced.

It seems anachronistic today to resolve the issue of assignability of a chose in action by deciding whether such a claim would survive the client's death. Instead, as we said in Picadilly, Inc. v. Raikos, 582 N.E.2d 338, 341 (Ind.1991), "Assignment should be permitted or prohibited based on the effect it will likely have on modern society, and the legal system in particular." This is a question properly within our purview as common law judges.

II. Legal Malpractice Chose in Action

In Picadilly, we held that legal malpractice claims are not assignable. Two primary policy concerns drove that conclusion: "the need to preserve the sanctity of the client-lawyer relationship, and the disreputable public role reversal that would result during the trial of assigned malpractice claims." Id. at 342. We observed that assigning such claims would almost certainly result in the "merchandizing [of] such causes of action . . . which would encourage unjustified lawsuits against members of the legal profession, generate an increase in legal malpractice litigation, promote champerty and force attorneys to defend themselves against strangers." Id. Balancing the advantages and disadvantages of such assignments, we barred assignment of legal malpractice claims, noting clients may still make these claims directly against their attorneys, but they cannot assign their choses in action. Id. at 345.

Perkins signed a general assignment to the Estate that included an assignment of any claim Perkins might have against his personal attorney Susong. The Estate then used the...