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

• Decision Date: 24 November 2004
• Docket Number: No. 03A01-0401-CV-30.,03A01-0401-CV-30.
• Citation: 818 N.E.2d 114
• Parties: STATE FARM MUTUAL AUTOMOBILE INSURANCE COMPANY, Appellant-Proposed Intervener, v. Ruth ESTEP, Personal Representative of the Estate of Ewing Dan Estep and Assignee of Rights of James D. Perkins, Appellee-Plaintiff.
• Court: Indiana Appellate Court

818 N.E.2d 114

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

No. 03A01-0401-CV-30.

Court of Appeals of Indiana.

November 24, 2004.

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

Peter Campbell King, J. Kevin King, Cline King & King, P.C., Columbus, IN, Attorneys for Appellee.

OPINION

FRIEDLANDER, Judge.

While operating his motorcycle, Dan Estep (Estep) was struck by a truck being driven by James D. Perkins. Estep suffered devastating injuries that rendered him quadriplegic. At the time of the accident, Perkins was covered by an auto insurance policy issued by State Farm Insurance Company. Estep filed a personal injury lawsuit against Perkins seeking compensatory and punitive damages. Estep died before the matter came to trial almost two years later.¹ After Estep's death, his Estate was substituted as the plaintiff. Estep's widow, Ruth Estep, acted as personal representative for the Estate. Following a trial, a jury returned a verdict in favor of the Estate and against Perkins, in the amount of $650,000 in compensatory damages and $15,000 in punitive damages. State Farm paid the limits of its policy, which was $50,000, to the Estate. Thereafter, in proceedings supplemental initiated by the Estate, the Estate asked Perkins to assign his rights to the Estate for any bad faith claim he may have against State Farm. Perkins refused and the Estate petitioned the court to order Perkins to make the assignment. The trial court granted the Estate's request and ordered Perkins to assign the aforementioned rights to the Estate. State Farm appeals that ruling, presenting the following consolidated, restated issues for review:

1. Is an insurer entitled to intervene in proceedings supplemental to defend itself against the involuntary assignment of a bad-faith claim against the insurer?

2. Did the trial court err in forcing Perkins, against Perkins's wishes, in a proceeding supplemental, to assign any claim he might have against State Farm for refusing to defend him in good faith?

3. Did the trial court err in ordering the assignment of rights without affording State Farm the opportunity to appear at a hearing and defend its interests in a proceeding supplemental?

In addition to the issues presented by State Farm, we raise the following issue sua sponte:

4. May State Farm's liability to Perkins for bad faith representation be determined in a proceeding other than the instant proceeding supplemental filed by the Estate?

We affirm in part, reverse in part, and remand.

The facts favorable to the ruling are that on April 26, 2000, Estep was operating a motorcycle westbound on 25th Street in Columbus, Indiana at the same time that Perkins was operating a pickup truck eastbound on the same street. Apparently, Perkins turned left at or near the intersection of 25th Street and Fairlawn Drive. In so doing, Perkins failed to yield the right-of-way to Estep and struck the left rear portion of Estep's motorcycle. At the time, Perkins was under the influence of marijuana. Estep suffered catastrophic injuries from which he had not recovered at the time of his death more than fourteen months later.

On August 3, 2000, Estep filed a personal injury lawsuit against Perkins. In his complaint, Estep sought compensatory and punitive damages. State Farm retained Michael Stephenson of the law firm of McNeely, Stephenson, Thopy & Harrold to represent Perkins, and Stephenson entered his appearance in the case on August 11, 2000. On September 22, 2000, Stephenson filed an answer on Perkins's behalf. Perkins retained a second attorney — Jerry L. Susong — to represent him, and Susong entered his appearance on November 13, 2000. A trial date was set and the lawsuit proceeded toward trial. On September 10, 2001, the trial court imposed sanctions against Perkins and attorney Stephenson's law firm based upon Perkins's failure to appear at a hearing. On September 27, 2001, Stephenson filed a motion entitle "Motion to Stay Proceedings," Appellant's Appendix at 35, requesting a stay on the following grounds:

[U]ndersigned counsel has diligently complied with the Court's orders but has not received the necessary cooperation from his client to properly represent him in this matter. Further, there has been a breakdown in communications between counsel and his client which has reached the point where the undersigned counsel cannot continue representation of the client.

Appellant's Brief at 35. The prayer for relief in the motion to stay was "that the Court enter a stay of proceedings regarding further discovery and proceedings for a period of thirty (30) days to allow the defendant to retain replacement counsel[.]" Id. at 36 [emphasis supplied]. The court denied that motion on October 8, 2001. On March 7, 2002, a jury awarded the Estate $650,000 in compensatory damages and $15,000 in punitive damages. The next day, March 8, 2002, State Farm presented a $50,000 check — the limits of Perkins's insurance policy — to the Bartholomew County Clerk's Office.

On April 24, 2002, the Estate filed Plaintiff's Verified Motion for Proceeding Supplemental to facilitate satisfaction of the excess judgment (viz., that which was not covered by the State Farm insurance policy) against Perkins. The court granted that motion on April 25 and ordered Perkins to appear at a May 20 hearing to testify about his financial situation. At the May 20 hearing, the Estate learned that Perkins had filed tax returns. The court ordered Perkins to provide copies of those returns for the Estate's review. On July 11, 2002, the Estate filed a motion asking the court to find Perkins in contempt because he had failed to comply with the court's order and provide copies of his tax returns to the Estate. On July 12, 2002, Stephenson filed a Motion for Leave to Withdraw Appearance. The trial court granted Stephenson's motion to withdraw on July 16, 2002.

On August 19, 2002, the court conducted a hearing on the Estate's motion for contempt. Perkins appeared at that hearing with his counsel, Susong. At the hearing, the Estate asked Perkins to assign any rights he might have to proceed against State Farm for bad faith representation. Perkins refused to do so, primarily because he and Susong believed that State Farm had ably represented Perkins in defending the Estate's lawsuit, and thus did not believe there were any such rights to assign. Susong explained Perkins's refusal as follows:

Yeah, I would object to that because to my knowledge and his nothing [sic] there's nothing to assign. He has no cause of action, so we would object to any assignment of a non-existing item. If you know of a specific action ... I'm not aware of him being in any accidents, of him being a potential heir to any estate or having no potential action. So consequently I wouldn't have him just sign a blank assignment. If he has something I'm advising him to assign you something he had. I have no idea what you're referring to.

* * * * *

I was just saying that I would not have Mr. Perkins voluntarily agree to an assignment to bring in a third party on the basis that there may be some reason that they owe something that he have no objection to. They defended him. We discussed that considerably as far as they defended him far beyond and they had a suit separate which the court here can take notice of, as far as bringing them into the suit. They defended it all the way through. I personally would not be party to opening 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 (wrong). Because I'm not aware of any bad faith dealing on their parts [sic]. Failure to offer anything less than limits at any point [sic]. If that's what you're driving at I mean. [sic]. If the court orders him I'm going to direct him to follow the Court's directions. But personally on his behalf I would not advise him nor have him voluntarily grant an assignment that would open up a third party to a law suit.

Transcript at 4, 7.

The Estate asked the court to order Perkins to assign his rights. State Farm did not receive notice of that request. Following that hearing, the court granted the Estate's request and ordered Perkins to assign his rights to proceed against State Farm. Perkins initially failed to comply with the order and the Estate filed a motion for contempt seeking to compel Perkins to execute the assignment and to pay the Estate's attorney fees. Again, that motion was not served upon State Farm. Finally, on January 27, 2003, Perkins executed the involuntary assignment. It is undisputed that State Farm was not served with any of the foregoing motions or orders and was unaware of anything that occurred in the proceedings supplemental after Stephenson withdrew his appearance, until September 25, 2003. On that day, State Farm was served with a complaint for damages filed by the Estate in an Illinois court. The complaint, based upon the assignment of rights executed by Perkins, sought recovery of the amount by which the jury verdict exceeded the insurance policy proceeds paid by State Farm. The complaint alleged three theories of recovery against State Farm:² fraud, constructive fraud, and breach of contract.

On November 10, 2003, State Farm filed a motion to intervene in the proceeding supplemental action for the purpose of filing a Trial Rule 60(B) motion to set aside the order compelling Perkins to assign his rights against State Farm. State Farm argued it had a right to intervene, as explained in the following paragraph of the motion to intervene:

State Farm was not named as a party defendant in the Proceeding Supplemental or notified of the request for assignment, despite the

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