Veolia Water Indianapolis, LLC v. Nat'l Trust Ins. Co.

• Decision Date: 06 February 2014
• Docket Number: No. 49S04–1301–PL–00008.,49S04–1301–PL–00008.
• Citation: Veolia Water Indianapolis, LLC v. Nat'l Trust Ins. Co., 3 N.E.3d 1 (Ind. 2014)
• Parties: VEOLIA WATER INDIANAPOLIS, LLC, City of Indianapolis, Department of Waterworks, and City of Indianapolis, Appellants (Defendants below), v. NATIONAL TRUST INSURANCE COMPANY and FCCI Insurance Company a/s/o Ultra Steak, Inc. d/b/a Texas Roadhouse, Appellees (Plaintiffs below).
• Court: Indiana Supreme Court

3 N.E.3d 1

VEOLIA WATER INDIANAPOLIS, LLC, City of Indianapolis, Department of Waterworks, and City of Indianapolis, Appellants (Defendants below),

v.NATIONAL TRUST INSURANCE COMPANY and FCCI Insurance Company a/s/o Ultra Steak, Inc. d/b/a Texas Roadhouse, Appellees (Plaintiffs below).

No. 49S04–1301–PL–00008.

Supreme Court of Indiana.

Feb. 6, 2014.

Matthew W. Melton, Cynthia E. Lasher, Peter A. Schroeder, Karl L. Mulvaney, Brian W. Welch, Carl A. Hayes, Indianapolis, IN, for Attorneys for Appellant.

Robert A. Smith, Ary Avnet, Noblesville, IN, for Attorneys for Appellees.

On Petition to Transfer from the Indiana Court of Appeals, No. 49A04–1108–PL–412

DAVID, Justice.

In this case, appellants Veolia Water Indianapolis, LLC (“Veolia”); the City of Indianapolis, Department of Waterworks (the “Department”); and the City of Indianapolis (collectively with the Department, the “City”) claim sovereign immunity from liability for damages resulting from a fire that destroyed a Texas Roadhouse restaurant insured by appellees National Trust Insurance Company and FCCI Insurance Company a/s/o Ultra Steak, Inc. d/b/a Texas Roadhouse (the “Insurers”). This case is before us on appeal of the trial court's denial of Veolia's motion for judgment on the pleadings and the City's motion to dismiss. Finding that the trial court was correct in holding that Veolia cannot claim common law sovereign immunity and that the City cannot claim statutory sovereign immunity, we affirm the trial court in these regards but reverse the trial court's holding that the City is not entitled to common law sovereign immunity.

Facts and Procedural History

In the early hours of January 4, 2010, a fire started in a Texas Roadhouse restaurant located at 1405 Shadeland Avenue, Indianapolis, Indiana. Although the Indianapolis Fire Department responded promptly, its efforts were delayed because several of the nearby fire hydrants were frozen. As a result of the delay, the restaurant was a total loss. The Insurers made payments to the restaurant and stand in the shoes of the insured.

At the time of the fire, Veolia was responsible for operating the City's water utility pursuant to a Management Agreement with the Department. Under the Management Agreement, Veolia maintained the fire hydrants and licensed accessto the hydrants' water supply to private companies for commercial use.

Alleging that the fire hydrants froze because the private companies to whom Veolia licensed access failed to properly close the hydrants, thus diminishing the hydrants' water supply available to fight the fire and increasing their exposure to the restaurant, the Insurers brought suit against the City and Veolia. The City filed a motion to dismiss pursuant to Indiana Trial Rule 12(B)(6) and claimed sovereign immunity from liability under both the common law and the Indiana Tort Claims Act (“ITCA”). Also claiming common law sovereign immunity from liability, Veolia filed a motion for judgment on the pleadings pursuant to Indiana Trial Rule 12(C).¹

Denying both motions in part, the trial court found that (1) the City is not entitled to common law sovereign immunity or statutory sovereign immunity under the ITCA regarding the adequacy of the water supply; (2) Veolia is not entitled to common law sovereign immunity regarding the adequacy of the water supply; and (3) the Insurers are third-party beneficiaries to the Management Agreement between the City and Veolia.² The trial court certified its orders for interlocutory appeal, and the City and Veolia subsequently appealed.

After accepting jurisdiction, the Court of Appeals reversed the trial court and held that (1) the City and Veolia are entitled to common law sovereign immunity ³ on claims they failed to provide an adequate amount of water to fight the fire; and (2) the Insurers are not third-party beneficiaries to the Management Agreement. Veolia Water Indianapolis, LLC v. Nat'l Trust Ins. Co., 973 N.E.2d 3, 21–22 (Ind.Ct.App.2012). The Insurers sought transfer, which we granted, thereby vacating the opinion below. Ind. Appellate Rule 58(A).

The Insurers contend that the City and Veolia are not entitled to common law sovereign immunity. Further, the Insurers claim to be third-party beneficiaries to the Management Agreement between the City and Veolia. Our resolution of the immunity claim is dispositive and we thus decline to address the issue of the Insurers' third-party beneficiary status.

Standard of Review

This Court “review[s] de novo the trial court's grant or denial of a motion based on Indiana Trial Rule 12(B)(6).” Caesars Riverboat Casino, LLC v. Kephart, 934 N.E.2d 1120, 1122 (Ind.2010). “A motion to dismiss under Rule 12(b)(6) tests the legal sufficiency of a complaint: that is, whether the allegations in the complaint establish any set of circumstances under which a plaintiff would be entitled to relief.” Trail v. Boys and Girls Clubs of Northwest Indiana, 845 N.E.2d 130, 134 (Ind.2006). When evaluating the trial court's grant or denial of a Rule 12(B)(6) motion, this Court “accept[s] as true the facts alleged in the complaint,” and “should not only consider the pleadings in the light most favorable to the plaintiff, but also draw every reasonable inference in favor of the [non-moving] party.” Id. (internal citations omitted). We affirm the trial court's grant of the motion “only when it is apparent that the facts alleged in the challenged pleading are incapable of supporting relief under any set of circumstances.” Id. at 135 (internal citation omitted).

Similarly, we review de novo a trial court's ruling on an Indiana Trial Rule 12(C) motion. Murray v. City of Lawrenceburg, 925 N.E.2d 728, 731 (Ind.2010). In our de novo review, we accept as true the material facts alleged in the complaint and base our ruling solely on the pleadings. Id. (internal citation omitted). “A Rule 12(C) motion for judgment on the pleadings is to be granted only where it is clear from the face of the complaint that under no circumstances could relief be granted.” Id. (internal citation omitted).

Discussion

The Insurers contend that neither the City, a governmental unit, nor Veolia, a private company, is entitled to common law sovereign immunity on claims regarding the adequacy of the hydrants' water supply. Because these entities are different in nature, we will take each in turn.

I. The City is Not Entitled to Statutory Sovereign Immunity on Claims Regarding the Adequacy of the Water Supply

Before we reach the question of whether the City can successfully assert common law sovereign immunity, we must examine whether the City is entitled to statutory immunity under the ITCA.⁴ “In general, it is only after a determination is made that a governmental defendant is not immune under the ITCA that a court undertakes the analysis of whether a common law duty exists under the circumstances.” Benton v. City of Oakland City, 721 N.E.2d 224, 232 (Ind.1999). This is in recognition of “the principle that it is the legislature, and not the courts, that is in the best position to determine the nature and extent to which governmental units in Indiana should be insulated from tort liability.” Id.

Enacted after this Court abrogated the common law sovereign immunity of governmental units from tort liability, the ITCA governs tort claims against governmental entities and public employees. Harrison v. Veolia Water Indianapolis, LLC, 929 N.E.2d 247, 251 (Ind.Ct.App.2010) (“In response to Campbell [259 Ind. 55, 284 N.E.2d 733 (1972) ], the General Assembly enacted [the] ITCA in 1974”), trans. denied; Gary Cmty. School Corp. v. Boyd, 890 N.E.2d 794, 799 (Ind.Ct.App.2008), trans. denied. “Pursuant to the ITCA, ‘governmental entities can be subject to liability for tortious conduct unless the conduct is within an immunity granted by Section 3 of [the] ITCA.’ ” Id. (internal citation omitted). The party seeking immunity bears the burden of establishing that its conduct comes within the Act. Id. at 800.

Appealing the trial court's finding that it is not entitled to statutory immunity, the City contends that its provision of water for fire protection services is immune under Ind.Code § 34–13–3–3(7) (2008), which provides immunity for the “performance of a discretionary function.” In Peavler v. Bd. of Comm'rs of Monroe Cnty., we adopted the planning/operational test for determining whether an act is discretionary:

[u]nder the planning/operational dichotomy, the type of discretion which may be immunized from tort liability is generally that attributable to the essence of governing. Planning activities include acts or omissions in the exercise of a legislative, judicial, executive or planning function which involves formulation of basic policy decisions characterized by official judgment or discretion in weighing alternatives and choosing public policy. Government decisions about policy formation which involve assessment of competing priorities and a weighing of budgetary considerations or the allocation of scarce resources are also planning activities.

528 N.E.2d 40, 45 (Ind.1988) (internal citations omitted) (emphasis added). When applying this test, we “distinguish between decisions involving the formulation of basic policy, entitled to immunity, and decisions regarding only the execution or implementation of that policy, not entitled to immunity.” Boyd, 890 N.E.2d at 800 (internal citation omitted). “The critical inquiry is not merely whether judgment was exercised but whether the nature of the judgment called for policy considerations.” Peavler, 528 N.E.2d at 45 (internal citation omitted).

In support of its contention that the provision of water for fire protection services is a discretionary function under Ind.Code § 34–13–3–3(7), the City relies on Lamb v. City of Bloomington, 741 N.E.2d 436 (Ind.Ct.App.2001). In Lamb, a fire at a Bloomington apartment complex resulted in one fatality and extensive property damage. Id. at 438. Claiming negligence and...