Indiana Law Review


1999 Survey of Indiana Contract Law

Jana K. Strain*

Introduction

Contract law is generally a well-settled area of law in Indiana. In this area,

many ofthe principles taught to first-year law students hold true. For example,
it is well-known that courts do not inquire into the adequacy of consideration,

and the parties' judgment will not be disturbed by the courts.' Even though the
principle is well-settled, challenges to the adequacy ofconsideration continue to

be litigated. In our increasingly complex society, novel scenarios arise in which

these solidly established principles of law must be applied. When faced with
such situations, the courts must be guided by the policy underlying Indiana

contract law. As the Indiana Court of Appeals explained, "Our Supreme Court
has recently confirmed its commitment to advancing the public policy in favor
of enforcing contracts."^ In keeping with this laissez-faire approach to contract

law, the Indiana courts hold a strong presumption of enforceability and will

generally refuse to enforce a contract only in limited circumstances, such as

when the contract contravenes a statute, clearly injures the public, or is otherwise
contrary to the declared public policy of Indiana.^ Application of such policies

guides the courts when a seemingly common issue arises in a novel context.
This Article addresses Indiana contract law cases during the survey period

with a focus upon the application of these and other well-established principles

in different circumstances. During the survey period, the Indiana Supreme Court
handed down 293 wiitten opinions,'* covering the full spectrum of Indiana law,
including attorney discipline cases. However, many ofthese opinions fell within
the supreme court's mandatory jurisdiction over criminal appeals involving

sentences in excess offifty years. Ofthe civil transfer cases accepted during this
period, only five pertained substantially to the question of contracts. The court
of appeals, which published 2166 opinions during the survey period, published

only forty-four that addressed contract-related issues.^ This Article does not

* Law Clerk to the Honorable Brent E. Dickson, Justice, Indiana Supreme Court. J.D.,
1997, Indiana University School ofLaw—Indianapolis; M.S., 1990, Butler University; B.A., 1986,
Indiana State University. The opinions expressed are those of the author.

1. See Tanton v. Grochow, 707 N.E.2d 1010, 1013 (Ind. Ct. App. 1999).

2. Town & Country Ford, Inc. v. Busch, 709 N.E.2d 1030, 1032 (Ind. Ct. App. 1999)
(citing Trimble v. Ameritech PubPg, Inc., 700 N.E.2d 1 128, 1 129 (Ind. 1998) (citing Fresh Cut,

Inc. V. Fazli, 650 N.E.2d 1 126, 1 129 (Ind. 1995))).

3. See Continental Basketball Ass'n, Inc. v. Ellenstein Enters., Inc., 669 N.E.2d 1 34, 1 39

(Ind. 1 996) (citing Fresh Cut, 650 N.E.2d at 1 1 30).

4. This figure reflects the actual published opinions October 1, 1998 through September

30, 1999, the dates of the survey period. This figure does not include the large number of cases

considered by the court for which transfer was denied.

5. The case statistics used in this survey were derived from electronic searches of head

notes and topics. There were 16 reported cases combined from both the supreme court and the

court of appeals that had contracts head notes and 49 reported cases with contracts as a topic.



1 1 80 INDIANA LAW REVIEW [Vol. 33 : 1 1 79

attempt to detail all of the reported cases, but instead focuses upon new
statements oflaw or upon significant cases to which the practitioner's eye should
be cast.

I. Enforceability

The question of contract enforceability arises in a variety of contexts.
During the survey period, the supreme court and court of appeals addressed

enforceability in three significant areas: settlement agreements, exculpatory

clauses, and non-compete agreements.

A. Settlement Agreements

Contract law governs construction of settlement agreements.^ When a
settlement agreement contains a condition precedent, the contract is not binding

and the parties have no obligation to perform under it unless and until the

condition precedent occurs.^ In Indiana State Highway Commission v. Curtis,
the supreme court reviewed a settlement agreement reached between property

owners and the Indiana Department ofTransportation ("INDOP')-* The property
owners, having previously granted the State an easement on their property for

highway purposes, brought suit claiming that the State had caused property

damage and loss ofbusiness by its work in the easement area. INDOT's attorney
participated in settlement negotiations and signed an agreement presented in

writing by the plaintiffs. The agreement included a clause that provided that the
agreement was subject to INDOT approval. INDOT took no further action.
Forty-five days after the attorney signed the agreement, the plaintiffs filed a

motion to enforce the agreement. The trial court found the agreement to be
binding, and the court of appeals affirmed.^

The supreme court found that INDOT's approval ofthe settlement agreement
was a condition precedent.'^ Further, it explained that when an express condition
is part of an agreement between the parties, that "condition must be fiilfilled or
no liability can arise on the promise that the condition qualifies."^ ^ However, the

court also noted that performance ofa condition precedent may be waived if the
waiver is a "voluntary and intentional relinquishment ofa known right." '^ In this
case, the supreme court found that failure to gain the requisite approval did not

meet the requirements to find the term waived or excused.'^ It explained that a
condition is excused only when the requirement "will involve extreme forfeiture

6. See Indiana State Highway Comm'n v. Curtis, 704 N.E.2d 1015, 1018 (Ind. 1998)

(citing 5 I.L.E. COMPROMISE & SETTLEMENTS § 21 (1958)).
7. See id

8. See id.

9. SeeiddX\{)\l.

10. 5ee/c?. at 1018.

11. Id. (citations omitted).

12. Id at 1019 (quoting 6 WiLLlSTON, CONTRACTS § 678 (3rd ed. 1961)).

13. See id.



2000] CONTRACT LAW 1181

or penalty and its existence or occurrence forms no essential part ofthe exchange

for the promisor's performance."''* Because the condition precedent in this case

was essential to the exchange and no evidence of extreme forfeiture or penalty
existed, the supreme court held that the condition should not be excused.'^

The supreme court also addressed the plaintiffs' claim that the State's failure
to approve the agreement after forty-five days created an estoppel against

asserting the condition precedent as a proper reason to avoid the contract. The

court held that when the condition is the approval by some party, the party's
obligation to make a reasonable and good faith effort to satisfy the condition
requires simply that it consider the contract in good faith. '^ The passage oftime
does not create an inference ofbad faith. Rather, when INDOT did not approve
the settlement agreement in a timely manner, the plaintiffs were entitled to

proceed with their suit against the State.
'^

B, Exculpatory Clauses

In 1994, the court of appeals reached conflicting decisions regarding the

enforceability of exculpatory clauses in advertising contracts. In Pigman v.
Ameritech Publishing, Inc.,^^ the court of appeals found that the exculpatory

clause contained in Ameritech's Yellow Pages advertising contract was
unconscionable and void as against public policy. Shortly thereafter, a different

panel of the court of appeals in Pinnacle Computer Services, Inc. v. Ameritech

Publishing Inc.,^^ held that the exculpatory clause was valid and enforceable.
During this survey period, the supreme court granted transfer in Trimble v.

Ameritech Publishing, Inc}^ to resolve the problem.

The exculpatory clauses in each of the cases limited the liability of the

publisher to an amount equal to the contract price or the sum of money actually
paid by the customer, whichever is less, as liquidated damages.^* The supreme
court held that such clauses are enforceable based upon the court's long-

expressed position that it is in the best interest of the parties not to restrict

unnecessarily their fi°eedom ofcontract.^^ The supreme court then looked to five
factors that might indicate that a contract is against public policy:

(1 ) the nature ofthe subject matter ofthe contract; (2) the strength ofthe

public policy underlying any relevant statute; (3) the likelihood that

14. Id. (quoting 5 WiLLlSTON, CONTRACTS § 769 n.2 (3rd ed. 1 96 1 ) (quoting RESTATEMENT

OF Contracts § 302 (1932))).

15. See id.

16. See id. (quoting Hamlin v. Steward, 622 N.E.2d 535, 540 (Ind. Ct App. 1993)).

17. See id.

18. 64l'N.E.2d 1026 (Ind. Ct. App. 1994).

19. 642 N.E.2d 101 1 (Ind. Ct. App. 1994).

20. 700 N.E.2d 1 128 (Ind. 1998).

21. See id. at 1128-29 & 1129 n.2 (noting that the exculpatory clauses in Pigman and
Pinnacle Computer Servs. were similar to the clause in this case).

22. See id at \\29.



1182 INDIANA LAW REVIEW [Vol. 33:1 179

refusal to enforce the bargain or term will further any such policy; (4)
how serious or deserved would be the forfeiture suffered by the party
attempting to enforce the bargain; and (5) the parties' relative bargaining

power and [their respective] freedom to contract.^^

The court found that the second and third factors did not apply to this dispute.^'*
As to the other three factors, the court adopted, without discussion, the reasoning
of the court of appeals in Pinnacle, in favor of enforceability of the contract.^

In Pinnacle, the plaintiff-appellant. Pinnacle Computer Services, engaged in
the business of sale, repair, and installation of computer-related equipment.^^

Pinnacle's president met with an Ameritech Yellow Pages sales representative
to order advertising. The two reviewed changes to Pinnacle's prior advertising,
and, when the changes were satisfactory, Pinnacle's president signed the order
form. When the Yellow Pages was published. Pinnacle's advertisement was
mistakenly placed in the wrong section. Pinnacle filed suit for damages, and the
trial court granted summaryjudgment to Ameritech based upon the exculpatory
clause on the reverse side of the advertising order form.^^ Pinnacle appealed,

claiming that the exculpatory clause was unenforceable for three reasons: "(0
the parties had unequal bargaining power; (2) the clause was unconscionable; and

(3) the transaction affected the public interest."^^

On appeal. Pinnacle first argued that the provision was unenforceable
because it was pre-printed on a form contract and that the parties had unequal
bargaining power. The court of appeals rejected the argument that a form
contract was per se unenforceable, instead requiring the challenger to establish
that the contract is against public policy because one party's limited bargaining

power puts him at the mercy of the other's negligence.^^ Although the court of
appeals agreed that Ameritech was the only supplier ofthe service that Pinnacle
sought, it held that Pinnacle was not an uninformed consumer coerced by a
fraudulent company.^^

The court of appeals also rejected Pinnacle's argument that it was unaware

of the clause.^^ Specifically, it noted that Pinnacle's president had signed the

order form directly under text that said: "I have read and understand the terms

and conditions on the face and reverse side, particularly the paragraph which

limits my remedies andpublisher's maximum liability in the event of error or

23. Mat 1130.
24. See id.

25. See id.

26. See Pinnacle Computer Servs. Inc. V. Ameritech Publ ginc. 642 N.E.2d 1011, 1012

(Ind .Ct.

27.

28.

29.

30.

31.

App. 1994).

See id.

Id at 1016.

See id.

See id.

SeeidzXXOXl.

^1



2000] CONTRACT LAW 1 1 83

omission.'^^^ The court of appeals found that Ameritech had not denied

Pinnacle's president the opportunity to read the contract and that Pinnacle did not

claim that it even attempted to read or discuss the terms of the order." As a
result, the court ofappeals refused to relieve Pinnacle of its agreement under the

contract based upon an argument that it had not read the agreement.^^

Next, the court ofappeals reviewed Pinnacle's claim ofunconscionability in

light ofthe seminal case of Weaver v. American Oil?^ Pinnacle argued that the
exculpatory clause in this case was like the clause in Weaver in that it was
printed on the reverse ofa pre-printed form contract prepared by Ameritech. The
court ofappeals rejected this argument based upon the distinctive facts in Weaver

that demonstrated the unconscionability of that agreement.^^ As the court of
appeals explained, the plaintiff in Weaver was a man with less than a high school
education who signed a contract with American Oil for the operation ofa service
station. The contract contained an exculpatory clause on the reverse of the
agreement in small print, blended into text in such a manner that the reader might

not even notice it. In addition, the plaintiff in Weaver never read the clause and
no one ever explained it to him. Further, the clause limited American Oil's

liability for its own negligence and required Weaver to indemnify American Oil
for damages resulting from American Oil's negligence.^^ Distinguishing the facts

in this case, the court of appeals noted that Pinnacle's president ran a

sophisticated business, had the ability to read the agreement, and was not
compelled by the contract to indemnify Ameritech for damages caused by its own
negligence.^* As such, the agreement was not unconscionable.^^

Pinnacle's third argument, that the transaction affected the public interest,

was likewise rejected.^ While generally public policy does not prohibit
contracts with exculpatory clauses. Pinnacle argued that the contract fell within

an exception for transactions that affect the public interest. Such exceptions

include public utilities, common carriers, innkeepers, and public warehousemen,
as well as situations when one party's indispensable need for the services of
another deprives the customer of all real bargaining power.^^ Under these
exceptions, courts have held that exculpatory clauses are unconscionable when
the provider of an indispensable service revises to serve a customer unless he

agrees to limit the service provider's liability for its own negligence/^ The court

32. A/, at 1013 (emphasis added).

33. SeeidzmOM.
34. See id.

35. 276N.E.2dl44, 146 (Ind. 1971).

36. See id.

37. See id.

38. See id.

39. See id.

40. 5ee/</. at 1018-19.

41. Seeid2X\0\lA%.

42. Seeid.?Li\0\%.

.11

;ll

fill -



1184 INDIANA LAW REVIEW [Vol. 33:1179

of appeals, however, found that the Yellow Pages is not a public utility/^ It

acknowledged that the Yellow Pages was a subsidiary ofAmeritech, Inc., which
also owned Indiana Bell Telephone Co., and, that, as a result, Ameritech was
subject to regulation.'^ However, it found the Yellow Pages was a separate legal
entity ."^^ The court ofappeals concluded that the publication ofthe Yellow Pages
was a wholly private concern, not within the exception for indispensable
services."*^ Although the Yellow Pages might be the preferred advertising mode,
there were other alternatives available that would have provided a similar service.

The court of appeals also noted that the failure to enforce the exculpatory
clause would subject Ameritech to potentially unlimited consequential damages

that would be disproportionately high in comparison to the contract price paid for
the advertising."*^ Significantly, however, the court of appeals also "cautioned"

Ameritech that there are limits to the enforceability of exculpatory clauses and

circumstances may occur in which unequal bargaining power between the parties
or misrepresentation ofthe terms would support a finding ofunconscionability.'^^

By adopting Pinnacle in Trimble, the supreme court held the parties to the
terms oftheir freely-bargained contract, including its exculpatory clause."*^ The
court stated that the fact that the clause is a "boilerplate" is not dispositive, so

long as the facts show that the accepting party had the opportunity to review and
accept the terms. The cautionary language ofPinnacle should remind parties to

be aware that when there is a challenge to an exculpatory clause, the court will
look beyond the face of the agreement to assure that the facts surrounding the

contract formation are consistent with public policy.

C Non-Compete Agreements
Covenants not to compete, or non-compete agreements, are disfavored by law

because they are a restrain on trade. Such agreements, however, will be enforced

when they meet certain requirements. In McGlothen v. Heritage Environmental
Services, L,L.C.^^ the court of appeals affirmed the trial court's grant of a

preliminary injunction to the former employer.^^ In McGlothen, the employer

required its employee to sign a non-compete agreement as a condition of

employment. The agreement prohibited the employee from soliciting business
from the employer's customers within twelve months of the termination of his

employment, engaging in direct competition with the employer within twelve

months oftermination within the principal places of his employment (including

43. See id.

44. See id.

45. See id.

46. See id

47. See id.

48. Id at 1019.

49. See Trimble v. Ameritech Publ'g, Inc., 700 N.E.2d 1 128, 1 130 (Ind. 1998).

50. 705 N.E.2d 1069 (Ind. Ct. App. 1999).

51. Seeid.?A\015.



2000] CONTRACT LAW 1 1 85

the entire state in which he regularly worked for the employer), and disclosing

any "trade secret, plan or method of operation, or special or confidential
information employed in and conducive to" the employer's business.^^ The
employee left the business and was subsequently employed by two of the
employer's competitors. The employer sought a temporary restraining order and

preliminary injunction based upon the non-compete agreement. The preliminary
injunction was granted, and the employee's request for certification of an
interlocutory appeal was granted.^^

The court ofappeals set forth the requirements for the enforcement ofa non-
compete agreement: "(1) the restraint is reasonably necessary to protect the

employer's business; (2) it is not unreasonably restrictive of the employee; and

(3) the covenant is not antagonistic to the general public."^"* It also noted that the

employer must demonstrate some unique facts that give the former employee
some special advantage or ability to harm the employer, such as trade secrets,
confidential information like customer lists, or the existence of a confidential

relationship.^^ The employer is not entitled to protection for an employee's

knowledge, skill, or general information acquired as a result ofthe employment.^^

Further, an employer may have a protectable interest in information that is
gleaned from public sources if that information is the result of extensive

compiling efforts.^^

The facts in this case demonstrated that although all project managers were
provided with the information the employee retained and used, they were all

required to sign confidentiality and non-compete agreements. The employer
considered the information "absolutely confidential." In addition, one of the

documents recovered from the employee was stamped "confidential."^* As a
result of this evidence, the court of appeals upheld the trial court's conclusion

that the employer had a protectable interest in the information held by the

employee.^^

The employee next argued that the employer had no protectable interest in
the good will ofthe company that would prevent him from contacting his former
customers or using his relationship with them to his own advantage.^ The court
ofappeals found that the exclusivity ofthe employee's contact with the customer

went to the extent and degree of the good will, not to whether the employer is

52. M. at 1071.

53. See id.

54. Id. at 1071-72 (citing Slisz v. Munzenreider Corp., 41 1 N.E.2d 700, 704 (Ind. Ct. App.

1980)).

55. See id. at 1072 (citing Slisz, 41 1 N.E.2d at 704).

56. See id (citing Century Personnel, Inc. v. Brummett, 499 N.E.2d 1 160, 1 163 (Ind. Ct.

App. 1986)).

57. See id (citing Amoco Prod. Co. v. Laird, 622 N.E.2d 912 (Ind. 1993)).
58. Id

59. See id. at 1073.

60. See id.



1 1 86 INDIANA LAW REVIEW [Vol. 33 : 1 1 79

entitled to protection.^^ Thus, evidence that the employee had been involved in

direct contact with the employer's customer and garnered repeat business (a

source ofprotectable good will) was sufficient to establish that the employer had
a protectable interest in its good will."

Having concluded that the employer had a protectable interest, the court of
appeals reviewed whether the trial court correctly granted the preliminary

injunction.^^ The employee asserted that the employer had failed to meet its
burden on three of the four elements required for the grant of a preliminary
injunction, namely: (1) an inadequate remedy at law, causing irreparable harm
pending resolution of the substantive action; (2) a reasonable likelihood of

success at trial; and (3) that the threatened injury to the employer outweighing

the potential harm to the employee.^ The employee did not challenge whether
the public interest would be disserved by the injunction.^^

The court of appeals rejected the employee's claim that economic injury
alone may not serve as the basis for injunctive relief.^ Rather, the court of
appeals found that the employer would suffer irreparable harm to its reputation,
damage to its good will, and potential downsizing and reduction in force as a
result of these losses that were sufficient to support the injunction.^^ Next, the

court of appeals concluded that because the employer was successful on appeal
regarding the question ofa protectable interest, there was a reasonable likelihood
of success on the merits to support the preliminary injunction.^* Finally,
balancing the competing harms, the court determined that the clause did not

prevent the employee from obtaining employment outside the territory specified
in the agreement or with one of the employer's customers.*^ Thus, despite the

employee's difficulty finding and keeping employment because of the non-

compete agreement, the harm to the employer outweighed the harm to the
employee.^^

Although the employee did not contend that the public interest would be
disserved by enforcing the agreement, and it was accordingly not addressed, it
is significant to note that the agreement defined the restrictions as:

Employee further agrees that he will not at any time . . . within twelve

(12) months after leaving or termination of said services ... for himself

or any other person, firm, or corporation, engage in the business of

61. See id.

62. See id.

63. See id.

64. See id. at 1074 (citing Jay County Rural Elec. Membership Corp. v. Wabash Valley

Power Ass'n, Inc., 692 N.E.2d 905, 908-09 (Ind. Ct. App. 1998)).

65. See id.

66. See id.

67. See id at 1074-75.

68. Seeid.?X\015.

69. See id.

70. See id.



2000] CONTRACT LAW 1187

industrial waste management or any other business that is in competition
with Employer (a) within the principal State of his employment, or (b)

within any other city, county or state where Employee had, within twelve

(12) months prior to his leaving . . . rendered services for or on behalf of

the Employer.^'

Thus, the agreement did not preclude all employment. However, it prohibited the

employee from activities that conflict not only with the specific type ofbusiness

in which the employee was engaged by the employer, but also with any other
business that competes with the employer. This certainly raises the question

whether such broad language should be enforced if the employer is a subsidiary

of a large, multi-industry conglomerate. Such an agreement may effectively
create an ever-increasing list of industries in which the employee might be
prohibited from working because the other, seemingly unrelated, businesses

conflict with some other subsidiary of the employer.
Further, this particular agreement restricted the employee's job market

throughout the entire state in which the employer conducted its primary business,

apparently without regard to the breadth of the employee's actual territory. It

also restricted the employee in the localities in which the employee actually had
servedthe employer. Presumably then, these might be different areas or different

states. Under such circumstances, if the employer's primary business was in
Indiana, but the employee's territory covered only one county, this agreement

ostensibly could require the employee to leave the state in order to continue his

career. Even though this does not appear to have been at issue in the instant case,

it does present a question whether the public's interest is disserved by an '|l
agreement that could require tax paying citizens to leave Indiana in order to

I,

*

obtain employment.
If

III

II. Interpretation I!» •

Although Indiana courts enforce agreements in accordance with the parties'

intent, the dispute sometimes requires the courts to determine the parties' intent '"

by first interpreting the terms in the agreement itself. During the survey period,

the supreme court provided guidance in interpreting marital agreements and

terms of uninsured/underinsured motorist liability coverage. Additionally, the

court of appeals provided guidance in interpreting employment agreements and

policy language coordinating insurance coverage.

A. Marital Agreements

One ofthe more significant developments from the Indiana Supreme Court
during the survey period clarified the treatment ofagreements between spouses.

In Pond V. PondJ^ a husband and wife executed an agreement during the
marriage, but after the husband filed a petition for legal separation. The couple

71. M at 1 07 1 (emphasis added).
72. 700 N.E.2d 11 30, 11 32 (Ind. 1 998).



1 1 88 INDIANA LAW REVIEW [Vol. 33 : 11 79

subsequently divorced. The husband claimed that the agreement should be
construed the same as an antenuptial agreement.^^ The supreme court, noting that
it had never directly addressed such a claim, considered the case ofFlansburg v.
Flansburg^^ in which the court of appeals addressed the question of
interpretation ofan agreement entered during marriage. In Flansburg, the couple

had separated at the time the agreement v^as signed, but reconciled as a result of

the agreement. The supreme court explained that the court of appeals in
Flansburg had found:

While the property settlement labeled a "Post Nuptial Agreement" was
negotiated by the parties well into their marriage, it primarily concerned
the distribution ofproperty interests acquired prior to the marriage. Just

as marriage is, in and of itself, valued and respected by the law as
adequate consideration to support an antenuptial agreement, the

extension ofa marriage that would have otherwise been dissolved but

for the execution of an agreement to reconcile has been deemed
adequate consideration.^^

The supreme court concluded that the construction ofthe spousal agreement was
an issue of law requiring a review of the facts surrounding the formation ofthe

agreement.^^

The court found significant the content ofthe agreement, as well as its timing
in relation to the dissolution ofthe marriage.^^ The negotiation ofthe agreement
was initiated by the husband shortly before he filed a Petition for Legal
Separation. The negotiation continued after the petition was filed. When the
agreement was finally signed by the parties, without the assistance ofcounsel, it
was expressly limited to two years from the date the husband tiled the separation
petition.^* The terms of the agreement detailed the division of the marital
property in the event ofdissolution, relinquished claims for temporary or spousal

support and all statutory inheritance rights, and allocated attorney fees in the

event of a challenge to the agreement. It also included a severability clause that

declared the remainder ofthe agreement valid in the event any portion was found
to be invalid, unlawful, or void. The only term in the agreement addressing the

children was a term for support during the period prior to dissolution.^^
Immediately after signing the agreement, the parties began dividing and

73. As the supreme court explained, agreements entered in contemplation of marriage are

often referred to as prenuptial, premarital, or antenuptial agreements. See id. When such

agreements are valid, they must be enforced as written. See id. However, such agreements may

become voidable as unconscionable due to circumstances existing at the time of the dissolution.

Seeid. ail 133 n.3.

74. 581 N.E.2d 430 (Ind. Ct. App. 1991).

75. Pond, 700 N.E.2d at 1 1 33 (quoting Flansburg, 58 1 N.E.2d at 433-34).

76. See id.

77. See id 2A 1134.

78. See id at 1133.

79. SeeidatU34.



2000] CONTRACT LAW 1 1 89

distributing the marital property in accordance with its terms, which required

distribution to occur within ten days of signing. The husband's attorney began
preparing a qualified domestic relations order that divided the husband's pension

and retirement benefits as of the date of the filing of the separation petition.

Shortly thereafter, the wife filed a petition for dissolution.*^ The supreme court
concluded that these events suggested that the parties entered the agreement in

anticipation of dissolution, and therefore the agreement should be treated under

the Dissolution of Marriage Act rather than as a reconciliation agreement.*'

The court also addressed the enforceability ofthe provision shifting attorney
fees.*^ The court explained that settlement agreements are encouraged under the
Indiana Dissolution ofMarriage Act and declined to construe narrowly the terms

ofthe Act to limit the parties from contracting regarding attorney fees.*^ Under

the Act, a court is not bound to accept every proffered settlement. Instead the

court should concern itself only with fraud, duress, and other imperfections of

consent, or with manifest inequities, particularly those deriving from great

disparities in bargaining power.*^ Because the parties are free to make whatever
financial arrangements they wish, and a contract for attorney fees is enforceable

according to its terms unless contrary to law or public policy, the trial court

should exercise its power to disapprove of such an agreement with great
restraint.*^ The trial court did not find that the agreement was a result of fraud,
duress, or misrepresentation.*^ Rather, it found the contract valid, but chose not

to enforce the attorney fee provision because it was written to allow only the
husband, a wealthy doctor, the power to challenge the agreement, while the wife,
who had very little income, would be unable to afford the cost ofthe challenge.*^
The supreme court found that the terms ofthe provision were far narrower than
the trial court had considered and applied only to attorney fees "incurred in the

prosecution or defense of 'an attack by one party as to the validity of [the]

agreement'"** and did not apply to "attorney fees relating to the resolution of

property division, maintenance, custody, visitation, support, or other issues often

incidental to dissolution proceedings."*^ Thus, the wife could seek attorney fees

pursuant to section 3 1-1-1 1 .5-16 of the Indiana Code for her fees related to all
issues except the validity of the agreement.^

This case demonstrates that although the supreme court will give great
deference and respect to the judgment of the parties in the formation of their

80. See id.

81. See /V/. at 1135.

82. 5eeiW. at 1135-36.

83. See id. dX me.
84. See id (citing Voight v. Voight, 670 N.E.2d 1271, 1278 (Ind. 1996)).

85. Se^ id. (quoting Voight, 670 N.E.2d at 1277).

86. See id.

87. See id.

88. Id at 1 137 (quoting Ind. Code § 31-M 1.5-16 (1998)).
89. Id

90. See id



1190 INDIANA LAW REVIEW [Vol. 33:1179

contract, it will look beyond labels to the purpose and effect ofthe agreement to
determine how it should be enforced.

B. Employment Agreements

A frequent issue in Indiana law is the interpretation ofemployment contracts
upon termination ofemployment. During the survey period, the court ofappeals
addressed a breach ofcontract claim based upon an employment contract.^' The
trial court concluded that the employment contract was terminable at will
because there was no termination date in the contract.^^ On appeal, the employee
argued that the trial court's grant of summary judgment was erroneous due to a
security provision in the contract. The employee argued that the parties had
modified the standard employment contract to permit termination only for just
cause and, although the contract contained no express time limits, the

discontinuation ofsales to the specific company identified in the contract would
terminate the employer's obligation under the contract.

^^

In contrast, the standard contract provided for termination by either party
with sixty days written notice, with or without cause. It also allowed the

employer to change the employee's responsibilities as it deemed advisable.
However, the employee negotiated these terms and the employer agreed to

provisions that provided, among other things, that the employment "shall
continue indefinitely, unless and until terminated by either party as hereinafter

provided" and "this agreement may be terminated by either partyforjust cause,
upon sixty (60) days written notice."^"*

The court of appeals noted that the determination of whether a party is
employed at will is a legal question.^^ Further, it stated the doctrine of
employment at will is a rule of contract construction, not a rule imposing
substantive limitations on the parties' freedom to contract.^^ Thus, the

presumption of at-will employment may be negated when the parties include a
clearjob security provision in the employment contract.^^ The court ofappeals
concluded that the parties had freely negotiated the security provisions in the

contract, and it could not change its terms through interpretation.^* Accordingly,

the agreement to add the just cause provision rebutted whatever presumption of

at-will employment might be raised by the use of the term "indefinitely" in the

91

.

See Eck& Assoc, Inc. v. Alusuisse Flexible Packaging, Inc., 700 N.E.2d 1 163 (Ind. Ct.
App. 1998), trans, denied, 714 N.E.2d 167 (Ind. 1999) (mem.).

92. See id at 1166.

93. See id

94. Id. at 1 168 (emphasis added).

95. See id

96. See id at 1 1 67 (citing Orr v. Westminster Village North, Inc., 689 N.E.2d 7 1 2, 7 1 7 (Ind.

1997) (citing Streckfus v. Gardenside Terrace Co-op, Inc., 504 N.E.2d 273, 275 (Ind. 1987))).

97. See id

98. See id at U69.



2000] CONTRACT LAW 1191

contract.^

The court of appeals also rejected the employer's argument that the job
security provision required adequate independent consideration to rebut the

presumption of at-will employment.'^ In doing so, it explained that the cases

requiring adequate independent consideration were not applicable in this case,
not due to the lack ofwritten contracts, but because they lacked explicit, freely

bargained-for "just cause" provisions. '°' According to the court ofappeals, those

cases presented employees arguing that some consideration transformed a clearly
at-will employment situation into one that could be terminated only for cause. '^^

In this case, the court ofappeals found the at-will employment was transformed
by the freely-bargained-for, express just cause provision and thus, no additional
consideration was necessary to transform the employment term.'°^

C Insurance Contracts
An insurance contract is subject to the same rules of interpretation as other

contracts under Indiana law and its interpretation is primarily a question of law

for the court. '^ Clear and unambiguous policy language is given its plain and

ordinary meaning, but ambiguities are construed in favor of the insured.
'^^

7. Uninsured/underinsured Motorist Coverage.—In some cases, the terms
ofa contract are supplemented by statutory requirements for coverage. Recently,

the Seventh Circuit Court ofAppeals certified a question to the Indiana Supreme
Court, asking the court to evaluate an umbrella or excess liability policy in light

of Indiana's uninsured/underinsured motorist statute.'^

In UnitedNationalInsurance Co. v. DePrizio, the supreme court determined

that interpretation of such insurance policies requires consideration of the

uninsured/underinsured motorist statute's objectives. '^^ An umbrella or excess
liability insurance policy is an insurance contract that affords coverage to the

insured in excess of the underlying policy's limits for liability to third persons.

In this case, the court was asked to determine whether such a policy is an
"automobile liability or a motor vehicle liability policy" that would be required
by statute to include uninsured or underinsured coverage. '°* The court
specifically noted that there was no dispute that the umbrella policy covered the

99. Id

100. See id

101. Id

102. See id &t U69-70.

103. SeeidsAUlO.

104. See American Family Life Assurance Co. v. Russell, 700 N.E.2d 1 174, 1 174 (Ind. Ct.

App. 1998), trans, denied, 714 N.E.2d 168 (Ind. 1999) (mem.).

105. See id

1 06. See United Nat1 Ins. Co, v. DePrizio, 705 N.E.2d 455, 457 (Ind. 1 999).

107. See id 2Lt 459.

108. A/, at 458.



I III I

1 192 INDIANA LAW REVIEW [Vol. 33:1 179

insured for liability to third persons.'^^ One of the policy's provisions covered
automobile liability, clearly including liability arising out of the ownership,

maintenance, or use of a motor vehicle by or on behalf of the insured."^

The supreme court noted that, in contrast to uninsured/underinsured motorist
statutes in other states, Indiana's statute is a "mandatory coverage, full-recovery,

remedial statute""^ that is "considered a part ofevery automobile liability policy

the same as if written therein.""^ As a result, even when an insurance contract
fails to provide such coverage, the beneficiary is entitled to it unless it is

expressly waived in accordance with the law."^ After reviewing the statute's

history, the supreme court concluded that the legislature intended to give insured
motorists the opportunity for full compensation when injuries were caused by
financially irresponsible motorists.'^'* Thus, the court concluded that legislative

intent compelled a finding that an umbrella policy falls within the scope of the

uninsured/underinsured motorist statute when the umbrella policy by its terms
covers risks above those insured in an underlying automobile policy."^

In reaching its decision, the supreme court noted that the cases relied upon
by the insurance company, notably Marshall v. Universal Underwriters^^^ and
Hastings MutualInsurance Co. v. Webb * '^ relied upon the supreme court' s earlier
interpretation of the uninsured/underinsured motorist statute in City ofGary v.
Allstate Insurance Co.,"* construing the 1986 version of the statute."^ The
supreme court noted that City ofGary accurately reflected the language of the
statute in effect in 1986, but also that significant subsequent legislation modified

the statute. ^^° Accordingly, the supreme court disapproved the court ofappeals'

decisions that failed to make this distinction, including the two cases cited by the
insurance company.*^'

2. Coordination ofInsurance Policies.—^The court of appeals addressed a
question that could be likened to coordination of benefits under automobile

policies. In General Accident Insurance Co. ofAmerica v. Hughes, ^^^ a driver
was permitted to test drive a vehicle from a dealer lot. While on the test, the
driver was involved in an accident resulting in her injury and the death ofone of
the passengers in the other car, as well as an injury to a second passenger in that

109. Seeid.2LiA51.

110. Seeid.2XA5%.

111. /flf. at 460 (citing IND. CODE § 27-7-5-2).

112. Id. (quoting Indiana Ins. Co. v. Noble, 265 N.E.2d 419, 425 (1970)).

113. See id (quoting Noble, 265 N.E.2d at 425).

114. Seeid?iXA6\.

115. See id,

116. 673 N.E.2d 5 1 3 (Ind. Ct. App. 1 996).

117. 659 N.E.2d 1049 (Ind. Ct. App. 1995).

118. 612N.E.2d 115 (Ind. 1993).

1 19. See DePrizio, 705 N.E.2d at 461.

120. See id.

121. See id

122. 706N.E.2d208(Ind. Ct. App. 1999), trans, denied, 726N.E.2d299(Ind. 1 999) (mem.).



2000] CONTRACT LAW 1 1 93

car. The driver carried insurance at the minimum levels required by Indiana law
and the dealership maintained a "garage general liability" policy on the
permissive driver ofthe vehicle. *^^ Under the terms ofthe respective policies, it
was unclear which policy would cover the passengers and to what extent.'^'*

The driver's personal policy provided that if other liability insurance was
responsible for payment, the driver's insurance provider would pay only its share
of liability. It also provided that when the driver did not own the vehicle, any
collectible insurance on the vehicle would be the primary insurance, and the
driver's policy would provide excess coverage. Likewise, the garage policy
provided that when a vehicle was operated by a customer ofthe dealership with
other coverage, the driver's individual coverage would be primary and the garage
policy would provide excess coverage. *^^ The garage policy also provided that
it would cover such an individual only up to the statutory minimum in the event
that primary coverage failed to meet those minimums.

After reviewing the text ofboth policies, the court ofappeals concluded that

Indiana law requires that "[r]ecovery may not be made under the garage liability
policy until the limits of all coverage available to the [driver] have been

exhausted."^^^ Thus, the driver's policy was primary. '^^ In addition, limiting the
coverage to the gap between the primary insurance and the statutory minimum
was valid and did not violate public policy because it met the legislative policy
of assuring minimum levels of uninsured motorist coverage. '^^

The court ofappeals addressed similar difficulties in coordinating insurance
payments in Wildman v. NationalFire andMarine Insurance Co. ^^^ In Wildman,
the plaintiffwas injured in an automobile-motorcycle collision while on the job
and subsequently received worker's compensation benefits. Ultimately, he

reached a settlement agreement with the driver ofthe other vehicle for $1 00,000
and the worker's compensation carrier enforced a lien in excess of $31,000
against the settlement. The plaintiffthen sought underinsured motorist coverage
from the defendant. National, which provided underinsured motorist liability
coverage for the plaintiffs employer with a policy limit of $300,000. National

claimed that it should be able to set offthe total worker's compensation benefit

paid to the plaintiff, without adjusting the amount repaid under the lien.'^°
The contract language provided "[a]ny amount payable under this coverage

shall be reduced by all sums paid or payable under any worker's compensation
disability benefits or similar law."*^' The court of appeals found the phrase

123. Id at 209.

124. See id

125. See id

1 26. M at 2 1 1 (quoting IND. CODE Ann. § 27-8-9- 1 (Michie 1 994)).
127. See'id

128. See id (citing Harden v. Monroe Guar. Ins. Co., 626N.E.2d 814 (Ind. Ct. App. 1993)).
129. 703 N.E.2nd 683 (Ind. Ct. App. 1998), trans, denied, 714 N.E.2d 173 (Ind. 1999)

(mem.).

130. See id at 6S5.

131. /^. at 686.

Ill: .

IIP •



1 194 INDIANA LAW REVIEW [Vol. 33:1 179

"sums paid or payable" ambiguous and construed the contract in favor of the
insured, permitting a set-off of only the benefits received that were not subject
to a repayment obligation. *^^ The court of appeals noted that this construction
was consistent with public policy concerns because it reduced the insurer's
liability only to the extent that the plaintiff actually received other

compensation.'^^

3. Exclusionary Clauses.—^Also during the survey period, the court of
appeals considered the question of an exclusionary clause denying insurance

coverage in American Family Life Assurance Co. v. Russell}^^ An exclusionary
clause is ordinarily entitled to enforcement, but it must clearly and unmistakably

bring within its scope the particular act or omission that will bring the exclusion

into play.'" Any doubts regarding coverage must be construed against the
insurer to further the policy's primary purpose of indemnity.

'^^

In American Family Life Assurance Co. v. Rtdssell,^^^ the court of appeals
applied these standards to an exclusionary clause that provided, in part: "We will
not pay benefits for an accident that is caused by or occurs as a result of a

covered person . . . [pjarticipating in any activity or event, including the
operation of a [motor] vehicle, while intoxicated."'^* The decedent was legally
intoxicated at the time of his death and was struck by a train while lying
unconscious on the tracks. The court of appeals found that the evidence
designated by the insurer did not demonstrate that the decedent was participating

in any activity or event at the time of his death. '^^ In its response to an

interrogatory asking what activity or event the insurer found the decedent had

engaged in causing his death, the insurer responded that "the fact that [the

decedent] was intoxicated . . . satisfies the exclusion ofcoverage under its policy
and prohibits payment to any beneficiary

."'*°

The court ofappeals, applying the plain meaning ofthe terms "participate,"
"activity," and "event," concluded that the decedent was not participating in any
activity or event when he was lying unconscious on the tracks.'^' Thus, the
exclusion did not apply.

'^^

132. See id. at 687 (quoting ALAN I. WiDIS, UNINSURED AND UNDERINSURED MOTORIST

Insurance § 41.7, at 304-05 (2d ed. 1995)).

133. See id

134. 700 N.E.2d 1174 (Ind. Ct. App. 1998), trans, denied, 714 N.E.2d 168 (Ind. 1999)

(mem.).

135. SeeidaX\\17.

136. See id.

137. A/, at 1174.

138. Mat 1176.
139. Seeid?Ltn7S.

140. Id

141. Id

142. See id



2000] CONTRACT LAW 1 1 95

III. Sanctions

In a recent case involving the release of one tortfeasor and her insurance

company, the court of appeals took the extraordinary step of awarding, sua
sponte, appellate attorney fees as a sanction for the bad faith actions of another

insurance company's counsel. In GEICOInsurance Co. v. Rowell,^*^ the plaintiff
was injured in an automobile accident involving two other vehicles and their
drivers. Rowell subsequently settled her claim against one driver and her

insurance carrier and executed a release provided by that insurance company.
When Rowell's attorney reviewed the release prior to submitting it, she
discovered it incorrectly purported to release all other parties.*'*^ Rowell'

s

attorney called this to the attention of the two insurance companies, and both
companies' attorneys agreed to allow Rowell to correct the release by attaching

a stipulation to be signed by all parties, clarifying that the release would
discharge only the first driver and her carrier, American States.**^ Rowell's
attorney submitted the agreed stipulation and it was signed by all parties. After
Rowell dismissed American States and its insured from the action, GEICO filed
a motion for summary judgment based upon the release. In order to adequately
respond to the motion, Rowell was forced to obtain several time extensions
because she was unable to depose the attorney from American States to establish
that all parties had agreed that only American States and its insured would be
released and dismissed from the action.*"*^

The court of appeals reviewed the history of the summary judgment action
and found that, although the release itselfpurported to release all parties, it must

be interpreted in accordance with the intent of the parties at the time it was
signed.''*^ Accordingly, the court found that the stipulation limiting the release

was executed as part ofthe transaction.^^* As a result, the court agreed with the
trial court that the stipulation should be considered a contemporaneous document

and that GEICO's motion for summary judgment should be denied.^'*^ In
reaching this decision, the court ofappeals noted that GEICO asked the court to
"close its eyes" to the stipulation it signed. *^° Addressing this, the court said:

"There was a time in the practice of law when an attorney's word was
his bond GEICO 'knew full well that the release was specifically directed [at
the other driver and her insurance carrier].

"'^^'

However, GEICO also sought sanctions against Rowell and her attorney,
alleging they had taken a "course of conduct for no good purpose other than to

143. 705 N.E.2d 476 (Ind. Ct. App. 1999).

144. Seeidai41S.

145. See id.

146. See U at 479.
147. Seeidsii4S0'^\.

148. See id. Sit 4S2.

149. See id

150. Mat 481.
151. Id. (quoting the trial court's findings of fact) (footnotes omitted).



1 1 96 INDIANA LAW REVIEW [Vol. 33 : 1 1 79

obfiiscate the issues, delay the proceedings and circumvent the meaning and
intent of the Rules of Appellate Procedure."'^^ Although the court of appeals

acknowledged it had rejected two motions filed by Rowell, it denied GEICO's
motion for sanctions. '^^ The court of appeals did not simply reject GEICO's
claim, but instead made the following comment:

Furthermore, we find it ironic that GEICO is requesting the imposition
of sanctions against Rowell. In light ofthe actions ofGEICO's counsel
and pursuant to our authority under App. R. 1 5 (G), we find sua sponte
that damages should be assessed against GEICO's counsel in the amount
of Rowell's appellate attorney fees.'^*

This action by the court ofappeals is a strong reminder that the courts expect
forthright behavior from parties in the creation and enforcement of contracts.

Further, when read in conjunction with the court's statement regarding an
attorney's word being his bond, this should serve as a strong reminder that
attorneys are expected to perform within the fiiU letter of the professional rules

when making representations to the parties and to the court.

Conclusion

Indiana contract law during the survey period demonstrates that Indiana's

appellate courts practice what they preach—^they accord great respect to the
parties who crafted their contracts and generally enforce the terms as written, so
long as the facts surrounding the agreement support enforcement. Although the

cases reviewed in this survey set precedent that will guide litigants in specific

new areas of law, the rules espoused are clearly in line with Indiana contract
policy. This policy—^and the stability that such consistent contract law
provides—creates a solid foundation for the application ofthese principles in the
novel circumstances we may expect as the social landscape and the citizens'
needs change with the advent of more sophisticated technology.

152. Id.dXAZl.

153. See id.

1 54. Id. at 483 (footnotes omitted).