Tri-Etch, Inc. v. Cincinnati Ins. Co.

• Decision Date: 21 July 2009
• Docket Number: No. 49S02-0901-CV-8.,49S02-0901-CV-8.
• Citation: 909 N.E.2d 997
• Parties: TRI-ETCH, INC., d/b/a Sonitrol Security Systems of Muncie; Jan Etchison; Nancy Etchison; Ruby Young, as Personal Representative of the Estate of Michael Young, Deceased; and Scottsdale Insurance Company, Appellants/Cross-Appellees (Plaintiffs below), v. CINCINNATI INSURANCE COMPANY, Appellee/Cross-Appellant (Defendant below).
• Court: Indiana Supreme Court

909 N.E.2d 997

TRI-ETCH, INC., d/b/a Sonitrol Security Systems of Muncie; Jan Etchison; Nancy Etchison; Ruby Young, as Personal Representative of the Estate of Michael Young, Deceased; and Scottsdale Insurance Company, Appellants/Cross-Appellees (Plaintiffs below), v. CINCINNATI INSURANCE COMPANY, Appellee/Cross-Appellant (Defendant below).

No. 49S02-0901-CV-8.

Supreme Court of Indiana.

July 21, 2009.

James R. Fisher, Debra H. Miller, Lloyd H. Milliken, Lucy R. Dollens, Indianapolis, IN, Stacy M. Broman, Jacob S. Woodard, Minneapolis, MN, Attorneys for Appellants.

Richard R. Skiles, Janet M. Prather, Indianapolis, IN, Attorneys for Appellee.

Karl L. Mulvaney, Martha S. Hollingsworth, Barry C. Cope, Indianapolis, IN, Attorneys for Amicus Curiae Property Casualty Insurers Association of America.

John C. Trimble, Richard K. Shoultz, Indianapolis, IN, Attorneys for Amicus Curiae, Insurance Institute of Indiana, Inc.

Laura A. Foggan, Benjamin J. Theisman, Washington, DC, Michael A. Dorelli, Patrick J. Olmstead, Jr., Jason L. Fulk, Indianapolis, IN, Attorneys for Amicus Curiae, Complex Insurance Claims Litigation Association.

On Petition to Transfer from the Indiana Court of Appeals, No. 49A02-0709-CV-827

BOEHM, Justice.

We hold that an alarm company's commercial general liability and umbrella insurance policies do not cover a claim against the alarm company for delays in observing or reacting to a failure of the retailer to make a scheduled setting of a night alarm. The claim does not arise from an "occurrence" as defined by the policy, and is also within an exclusion for "alarm services."

We also hold that, standing alone, the fact that an insurer also denies coverage on other issues does not preclude the insurer from raising failure to give timely notice of a claim, and does not conclusively rebut the presumption that untimely notice of a claim prejudices the insurer.

Facts and Procedural History

On August 12, 1997, Michael Young was employed as a clerk in a liquor store in Muncie, Indiana. Shortly before the store's midnight closing time, Young was abducted by a robber, tied to a tree in a local park, and beaten. At 3:00 a.m. the next morning, the store's security service generated a report showing that the store's night alarm had not been set at midnight as scheduled. The store's general manager was called and arrived at the store at about 3:30 a.m. to find that money and Young were missing. Young was located at 6:00 a.m., still alive and tied to the tree, but he died of his injuries later that day.

In August 1999, Young's Estate brought a wrongful death action against Tri-Etch, Inc., the operator of the store's security service under the brand name Sonitrol. The complaint alleged that Tri-Etch breached a duty to notify the store's manager within thirty minutes of closing if the night alarm had not been set, and that if Tri-Etch had acted promptly, Young would have been found earlier and would have survived. After extensive procedural skirmishing, the case was dismissed based on a contractual one-year limitations provision in the agreement between Tri-Etch and the store. We ultimately reversed that judgment and remanded for trial. Young v. Tri-Etch, Inc., 790 N.E.2d 456, 459 (Ind.2003). After a mistrial, a $2.5 million jury verdict was entered against Tri-Etch, Inc. in December 2004.

This case addresses the coverage of the Estate's claim under three insurance policies Tri-Etch held at the time of Young's death. Scottsdale Insurance Company had issued a commercial general liability (CGL) policy through the Sonitrol Dealers Association of which Tri-Etch was a member. This policy included errors and omissions coverage for "Alarm Installation and Monitoring" with a $1 million limit of liability. Tri-Etch had a second CGL policy from Cincinnati Insurance Company, also with a $1 million limit, but without an errors and omissions rider. An umbrella or excess policy from Cincinnati had an added $2 million limit above "underlying policies."

One issue in this coverage dispute is whether Tri-Etch gave Cincinnati timely notice of the claim. Tri-Etch notified Scottsdale promptly after the wrongful death suit was filed, and Scottsdale undertook Tri-Etch's defense in 1999. The parties dispute when and how Tri-Etch notified Cincinnati. The documentary evidence does not establish notice to Cincinnati until March 2004, but some of the designated deposition and interrogatory answers claimed earlier notice and denial of coverage. In April 2004, Cincinnati filed a declaratory judgment action in federal court that ultimately was dismissed for lack of diversity jurisdiction. After the verdict in the wrongful death case in December 2004, Scottsdale tendered its $1 million policy limits, and in January 2005 Tri-Etch settled with the Estate by assigning its claims against Cincinnati to the Estate. In February 2005, Cincinnati attempted to intervene in the wrongful death case to file a motion to correct errors and appeal the judgment, but that effort was unsuccessful. Cincinnati Ins. Co. v. Young, 852 N.E.2d 8, 17 (Ind.Ct. App.2006), trans. denied, In May 2005, the Estate, Tri-Etch,¹ and Scottsdale filed this action against Cincinnati. The Estate sought the unpaid $1.5 million balance of the wrongful death judgment plus post-judgment interest. Scottsdale requested a declaratory judgment that under both of Cincinnati's policies, Cincinnati owed Tri-Etch a defense and coverage for the wrongful death judgment. Scottsdale sought contribution from Cincinnati for Scottsdale's costs of Tri-Etch's defense and the $1 million judgment it had paid.

Cincinnati answered and counterclaimed, seeking a declaratory judgment that it owed no duty to defend or indemnify Tri-Etch against the wrongful death claim because (1) Young did not die as a result of an "occurrence" covered by its CGL or umbrella policy, (2) the umbrella policy excluded claims based on Tri-Etch's alarm services, and (3) Tri-Etch failed to provide timely notice as required by both policies.

All parties moved for summary judgment. The trial court first granted partial summary judgment in favor of the Estate and Scottsdale. The trial court ruled that the Estate's claim against Tri-Etch was covered by Cincinnati's CGL and umbrella policies, but there were genuine issues of material fact as to whether Tri-Etch had provided timely notice and whether Cincinnati suffered any prejudice from delayed notice. After that ruling, the Estate and Scottsdale moved for partial summary judgment to eliminate Cincinnati's defense based on failure to give notice of the claim. Cincinnati responded with a cross-motion for summary judgment that it had no liability under either of its policies because of late notice. The trial court granted summary judgment in favor of Cincinnati, concluding that Tri-Etch's notice to Cincinnati was unreasonably late, Cincinnati was prejudiced by the late notice, and Cincinnati therefore owed no coverage, indemnity, or defense obligation under either its CGL or umbrella policy.

The Estate and Scottsdale appealed the grant of summary judgment to Cincinnati, and Cincinnati cross-appealed the partial summary judgment to the Estate and Scottsdale. The Court of Appeals reversed summary judgment in favor of Cincinnati and remanded with instructions to enter summary judgment in favor of the Estate and Scottsdale and order Cincinnati to indemnify Tri-Etch for the remaining $1.5 million. Tri-Etch, Inc. v. Cincinnati Ins. Co., 891 N.E.2d 563, 572-73, 577 (Ind. Ct.App.2008). The Court of Appeals held that the wrongful death claim arose from an "occurrence" under Cincinnati's policies. The Court of Appeals reasoned that Tri-Etch's failure to give prompt notice to the store manager was not intentional, and therefore was an "accident" which under the definition in the policy became an insured "occurrence." Id. at 574. The Court of Appeals also concluded that even if Tri-Etch provided untimely notice, Cincinnati was not prejudiced as a matter of law because it had also denied coverage for reasons other than late notice. Id. at 572. The Court of Appeals also ruled that Scottsdale was entitled to one half of its defense costs from the time Cincinnati was given notice of the claim. Id. at 577. This issue was remanded for resolution of the dispute as to when Cincinnati was given notice of Tri-Etch's claim. There was no explicit ruling on Scottsdale's claim for contribution to the amounts it paid to Tri-Etch or on Cincinnati's claim that an exclusion of coverage defeated Tri-Etch's claim as to the umbrella policy. We granted transfer.

Standard of Review

Each party challenges a summary judgment order, which this Court reviews de novo. Lean v. Reed, 876 N.E.2d 1104, 1107 (Ind.2007). Summary judgment is appropriate when there is no genuine issue of material fact and the moving party is entitled to judgment as a matter of law. Ind. Trial Rule 56(C).

I. "Accident" or Commercial Error

Cincinnati's CGL and umbrella policies both insure against liability for "bodily injury" caused by an "occurrence." The policies follow the widely used CGL form defining "occurrence" as "an accident, including continuous or repeated exposure to substantially the same general harmful conditions." The parties dispute whether Michael Young's death resulted from an "accident."² The Court of Appeals held that the Estate's claim for liability arising from the loss was an "occurrence" because it was caused by Tri-Etch's unintentional oversight in failing to make the 12:30 a.m. call. Tri-Etch v. Cincinnati Ins. Co., 891 N.E.2d 563, 574 (Ind. Ct.App.2008).

The complaint in the wrongful death action was for Tri-Etch's failure to call within a short time after it recorded the failure to set the alarm at midnight. The Estate argues that Tri-Etch's failure was an "accident," noting that no one claims that Tri-Etch intentionally delayed its call with the expectation that Young would be killed. Lack of...