Transcontinental Ins. Co. v. JL Manta, Inc.

• Decision Date: 24 August 1999
• Docket Number: No. 45A03-9811-CV-484.,45A03-9811-CV-484.
• Parties: TRANSCONTINENTAL INSURANCE CO., Appellant-Defendant, v. J.L. MANTA, INC. Appellee-Plaintiff.
• Court: Indiana Appellate Court

714 N.E.2d 1277

TRANSCONTINENTAL INSURANCE CO., Appellant-Defendant, v. J.L. MANTA, INC. Appellee-Plaintiff.

No. 45A03-9811-CV-484.

Court of Appeals of Indiana.

August 24, 1999.

Rehearing Denied October 4, 1999.

Philip E. Kalamaros, Thomas R. Hamilton, South Bend, Indiana, Attorneys for Appellant.

Shaun McParland Baldwin, Diane Karp Ehrhart, Chicago, Illinois, Martin Hoke, Schererville, Indiana, Attorneys for Appellee.

OPINION

RATLIFF, Senior Judge

STATEMENT OF THE CASE

Defendant-Appellant Transcontinental Insurance Company ("CNA") appeals the trial court's judgments in favor of Plaintiff-Appellee J.L. Manta, Inc. ("Manta").

We affirm.

ISSUES

CNA raises three issues for our review, which we restate as:

I. Whether the trial court erred in finding CNA was either estopped from denying coverage and raising policy defenses or impliedly waived such defenses where estoppel or implied waiver served to enlarge coverage.

II. Whether the trial court erred in holding, as a matter of law, that Manta was prejudiced by CNA's actions.

III. Whether the trial court erred in entering judgment in favor of Manta for money damages and costs.

FACTS AND PROCEDURAL HISTORY

In July, 1993, William Sult, Jr. ("Sult"), an employee of Cedar Lake Sheet Metals Company, was hired by Manta to work on an air conditioner located on the roof of a building leased by both Manta and Alpha Steel Corporation ("Alpha"). While on the roof, Sult fell through a skylight and was injured. He subsequently filed suit against both Manta and the owner of the building, the Lake County Trust Company.

At the time of Sult's accident, Manta was insured under a commercial general liability policy issued by Zurich Insurance Company ("Zurich") with a "per occurrence" limit of $1,000,000.00 and a retained limit of $300,000.00. Upon notice of the lawsuit filed against Manta by Sult, Zurich retained legal representation for Manta by the firm of Spangler, Jennings & Dougherty P.C. ("Spangler").

In April, 1993, CNA had issued a commercial general liability policy insuring Alpha, the Alpha Building Corporation, and the Lake County Trust Company. This policy pertained to the portion of the building leased to Alpha. In December, 1993, Manta was listed as an additional insured under the CNA policy, with coverage retroactive to April, 1993. The policy did not cover the portion of the building leased and occupied by Manta.

On July 13, 1994, CNA advised Spangler that "Manta is an additional insured under our policy, and we will be assuming the defense and liability of [Manta]." (R. 71). CNA retained Spangler as counsel. Once CNA accepted Manta's defense, it controlled all aspects of that defense, including discovery, litigation strategy, and settlement. CNA did not reserve a right to deny coverage or to raise policy defenses. Spangler sent an initial report to CNA by letter dated August 15, 1994. The letter first explained that Zurich, not Manta, had previously retained Spangler. The letter also advised that the accident took place on the Manta portion of the building. Specifically, the letter advised that "[t]here is no question that this accident took place on that portion of the premises leased to [Manta] by Lake County Trust." (R. 75). CNA continued to control all aspects of Manta's defense without any reservation of rights. Consequently, Zurich advised CNA that it was closing its file.

On October 28, 1994, Zurich sent Sult's amended complaint (which added the Lake County Trust ("the Trust") as a defendant), to CNA, noting that the Trust was also insured by CNA. Over a year after it had assumed control of Manta's defense without a reservation of rights and it had been informed that the accident occurred on a portion of the building not covered by its policy, CNA asked Spangler for a summary of the case. By letter of October 18, 1995, Spangler again explained the ownership of the property and, as in the August 1994 letter, advised CNA that the accident took place on that portion of the premises leased to Manta.

On November 27, 1995, sixteen months after it accepted Manta's defense without a reservation of rights, CNA informed Zurich that it was withdrawing from Manta's defense. In its withdrawal letter, CNA admitted that Manta was its additional insured, but claimed that its policy was not implicated because the incident "took place on a building leased to [Manta]." (R. 88).

After CNA withdrew, a settlement of the suit occurred whereby Sult was to receive $540,000.00. Manta filed a declaratory judgment action seeking declaration of CNA's duty to provide Manta with a defense and to reimburse Manta for the settlement amount and costs. In Count II of the complaint, Manta alleged both that CNA should be estopped from asserting any policy defenses or it impliedly waived the defenses by its decision to provide a defense for a period of sixteen months without a reservation of rights. After CNA's answer, Manta filed a motion for judgment on the pleadings under Ind.Trial Rule 12(C) pertaining to Count II. The trial court granted the motion, and subsequently entered a money judgment against CNA for damages and costs. CNA now appeals both the judgment on Count II of the pleadings and the trial court's subsequent award of damages and costs.

DISCUSSION AND DECISION

I. ESTOPPEL/IMPLIED WAIVER

CNA contends that the trial court erred in granting judgment on the pleadings on Count II of Manta's complaint. CNA further contends that the trial court should have allowed it to disclaim coverage. In support of its contentions, CNA argues that Manta should not be able to use the doctrines of estoppel and implied waiver to create coverage.

In reviewing a trial court's decision on a motion for judgment on the pleadings pursuant to T.R. 12(C), this court conducts a de novo review. National R.R. Passenger Corp. v. Everton by Everton, 655 N.E.2d 360, 363 (Ind.Ct.App.1995), trans. denied. We will affirm the trial court's grant of a T.R. 12(C) motion for judgment when it is clear from the face of the pleadings that one of the parties cannot in any way succeed under the operative facts and allegations made therein. Noblesville Redevelopment Commission v. Noblesville Associates Limited Partnership, 674 N.E.2d 558, 562 (Ind.1996). We will accept as true the well-pleaded material facts alleged, and we will not affirm if there are any genuine issues of material fact. Alonso v. City of Hammond, 648 N.E.2d 1221, 1224 (Ind.Ct.App.1995), reh'g denied, trans. denied, disapproved on other grounds in Budden v. Board of School Commissioners, 698 N.E.2d 1157 (Ind.1998). The moving party is deemed to have admitted well-pleaded facts in favor of the nonmovant, and this court will draw all reasonable inferences in favor of the non-movant. Beta Steel Corp. v. Porter County, Indiana, 695 N.E.2d 979, 981 (Ind. Ct.App.1998), trans. denied.

Indiana has for many years adhered to the general rule that the doctrines of estoppel and implied waiver are not available to create or extend the scope of coverage of an insurance contract. See Travelers Insurance Co. v. Eviston, 110 Ind.App. 143, 37 N.E.2d 310, 316 (1941); Kentucky Central Life & Accident Insurance Co. v. White, 106 Ind.App. 530, 19 N.E.2d 872, 875 (1939). The rule is not unique to Indiana. See e.g. Sellers v. Allstate Insurance Co., 82 F.3d 350, 353 (10th Cir.1996); Nationwide Mutual Insurance Co. v. Filos, 285 Ill.App.3d 528, 220 Ill.Dec. 678, 673 N.E.2d 1099, 1103 (1996),appeal denied, 172 Ill.2d 554, 223 Ill.Dec. 196, 679 N.E.2d 381 (1997); Mississippi Hospital & Medical Service v. Lumpkin, 229 So.2d 573, 576 (Miss.1969); State Farm Lloyds, Inc. v. Williams, 791 S.W.2d 542, 550 (Tex.App.1990),writ denied, reh'g on writ of error overruled. The rationale for the general rule is that an insurance company should not be made to pay the loss for which it has not charged a premium. See Kentucky Central, 19 N.E.2d at 875; Nationwide, 220 Ill. Dec. 678,673 N.E.2d at 1103. This court recently has reaffirmed the validity of the general rule. In Pekin Insurance Co. v. Wheeler, 493 N.E.2d 172, 174 (Ind.Ct.App. 1986), we stated the rule in holding that an insurer could not establish the existence of its insured's coverage with another insurer through estoppel or implied waiver where the contract with the other insurer was void due to forgery by the insurer's agent. Id. at 174. Also, in Egnatz v. Medical Protective Co., 581 N.E.2d 438, 441 ( Ind.Ct.App.1991), we recited the general rule in holding that the provider of medical malpractice coverage was not estopped by its past automatic renewals from timely denying renewal of coverage. Id. at 441. We also recited the rule in holding that the provider had not impliedly waived the termination clause in the insurance contract with the insured. Id.

Two exceptions to the general rule have been recognized in other jurisdictions. The first exception applies where an insurer misrepresents the extent of coverage to an insured, thereby inducing the insured to purchase coverage which does not in fact cover the disputed risk. See e.g., Crown Life Insurance v. McBride, 517 So.2d 660, 661-62 (Fla.1987) (citing a number of courts that have adopted this exception); Bucon, Inc. v. Pennsylvania Manufacturing Association Insurance Co., 151 A.D.2d 207, 547 N.Y.S.2d 925, 927 (1989). This exception has been a vehicle "to create insurance coverage where to refuse to do so would sanction fraud or other injustice." Nationwide, 220 Ill.Dec. 678, 673 N.E.2d at 1103 (quoting Crown Life, 517 So.2d at 662). The second exception applies where "an insurer defends an action on behalf of an insured, with knowledge that would provide a defense to coverage, but without a reservation of rights." Id. at 1103-04. This exception "is predicated upon the insurer's conflict of interest: it is too likely to be defending the insured in the lawsuit while at the same time formulating policy defenses to deny coverage." Id. at 1104 (quoting American...