Indiana Law Review


Survey of Recent Developments in Insurance Law

Richard K. Shoultz*

During this survey period/ the appellate courts of Indiana addressed a

number of cases involving automobile, general liability, homeowners, and
commercial liability insurance questions. The most controversial cases focused
upon whether insurance coverage existed for the diminished value of an
automobile after it has been damaged from an accident and then repaired. This
Article addresses the decisions of the past year, and analyzes their effect on the

practice of insurance law.^

I. Automobile Cases

A. Automobile Policy CoveredDiminished Value of Vehicle

After Repairfrom Accident

When an automobile has been involved in an accident, the insured and the
insurer must decide whether it should be repaired or considered a total loss (i.e.,

whether the costs to repair are more than the car's fair market value). Most
standard insurance policies generally provide that the insurer is responsible for

the lesser amount needed to repair the automobile or its fair market value. ^ After
an insured has repaired his or her vehicle, the insured often contends that the

vehicle has sustained a diminished value fi'om its pre-accident condition."^ Until

recently, no Indiana case had addressed whether a vehicle's diminished value is

recoverable under an automobile insurance policy. During this survey period, the

issue was addressed with three published decisions.
In Allgood V. Meridian Security Insurance Co., the insured's vehicle was

* Partner, Lewis Wagner, LLP. B.A., 1987, Hanover College; J.D., 1990, Indiana

University School of Law—Indianapolis.
1. The survey period for this Article is approximately October 1, 2003, to September 30,

2004.

2. Other cases during the survey period, but not addressed in this Article include Westfield

Insurance Co. v. Yaste, Zent & Rye Agency, 806 N.E.2d 25 (Ind. Ct. App. 2004) (involving action
by insurer against broker for negligence and fraud) and Dunaway v. Allstate Insurance Co., 813

N.E.2d 376 (Ind. Ct. App. 2004) (deciding whether an insurer waived a one-year policy limitation

on actions against insurer).

3. One version provides:

A. Our Limit of liability for loss will be the lesser of the:

1. Actual cash value of the stolen or damaged property; or

2. Amount necessary to repair or replace the property with other property of like

kind and quality.

Allgood V. Meridian Sec. Ins. Co., 807 N.E.2d 131, 132 (Ind. Ct. App.), reh 'g denied, 812 N.E.2d

1065 (Ind. Ct. App. 2004).

4. See Lee R. Russ & THOMAS F. Segalla, Couch on Insurance § 1 75 :47 (3d ed. 1 998)
("A vehicle is not restored to substantially the same condition if repairs leave the market value of

the vehicle substantially less than the value immediately before the collision."); see also id. §

175.54 (providing examples ofpolicy limitations that do not allow depreciation to be deducted).



1 164 INDIANA LAW REVIEW [Vol. 38: 1 163

damaged in an automobile accident.^ Her insurance company paid for the costs
to repair the vehicle, but did not pay for any diminished value. The insured filed
a class action lawsuit against her insurance company contending that diminished
value of the vehicle was a recoverable element of loss under the policy.^

The insurer filed a motion to dismiss, and the insured countered with a
motion for summaryjudgment. The trial court granted the insurer's motion, and
an appeal ensued.^ On appeal, the court observed that other jurisdictions were
split on whether the diminished value of the vehicle was recoverable under an
automobile policy.^

The court ultimately concluded that the policy language was ambiguous and
that the vehicle's diminished value after repairs was a recoverable loss element.^
The court construed the ambiguous policy to include an obligation ofthe insurer
"to restore to the insured a vehicle similar in appearance, ftinction a«<i value" as

it existed at the time of the loss.'^

After the court's ruling, the insurer requested a rehearing, and was joined by
various insurance trade organizations as amici curiae.^' The insurer and amici
curiae suggested that the appellate court's present ruling adversely raised public

policy concerns.'^ These concerns included that the extent of the diminished

value could not be adequately determined until the vehicle was sold. Thus, there
was no reasonable manner to calculate an insured's damages. ^^ However, the
court rejected that argument by stating that personal property is valued in a
number of situations without resorting to actual sale of the property.

^"^

Nevertheless, the court placed the burden ofproving diminished value upon the
insured.

^^

The court also rejected the notions that a flood of class action lawsuits
against insurers would likely occur, and that all insureds' policy premiums would

be increased. ^^ However, the court did observe that insurers are free to include

an exclusion for diminution in value of vehicles in their policies to avoid the

risk.^^

In Dunn v. Meridian Mutual Insurance Co.,'^ a different district of the
Indiana Court ofAppeals was also asked to interpret whether diminution in value

5. Allgood, 807 N.E.2d at 132.

6. Id.

7. Mat 133.
8. See id. at 134n.l.

9. Mat 136.
10. Id.

11. Allgood V. Meridian Sec. Ins. Co., 812 N.E.2d 1065, 1065 (Ind. Ct. App. 2004).

12. Id

13. Id.

14. M. at 1065-66.

15. Mat 1066.
16. Id

17. Id

18. 810N.E.2d739(Ind.Ct. App. 2004).



2005] INSURANCE LAW 1 1 65

for repaired vehicles was a recoverable element ofdamages under the uninsured
motorist coverage in a policy. The insured's vehicle was repaired after being
involved in an accident with an uninsured motorist. ^^ The insured alleged that
the policy language, identical to the language ofthe policy mAllgood,^^ provided

coverage for the diminished value of the vehicle following repairs.^'

The Dunn court relied upon the ruling in Allgood to fmd that diminution in
value was a recoverable loss under an uninsured motorist policy.^^ Consequently,
the court reversed the trial court's dismissal of the insured's action.^^

As a result of these cases, insureds may seek to recover for the diminished
value of their vehicle following repairs. However, insurance companies will

probably add an exclusion to the policy which will eliminate the coverage, or

raise rates to reflect the increased risk of damages.

B, " Willful Conduct " Is Not Automatically "Intentional " Conductfor
Insurance Policy Construction

The case of Integon v. Singleton^^ presented an interesting question of
whether an insurer must defend its insured against allegations of willful and

wanton misconduct. The wife ofan insured sustained personal injuries after an
accident while she was a passenger on a motorcycle being operated by the
insured.^^ The wife filed a lawsuit against her husband, and alleged that his
conduct was willful and wanton, as opposed to negligent, in causing the accident.
She made this allegation to avoid the lawsuit's prohibition under Lidiana's Guest
Statute.^^

The sole basis ofthe wife's complaint against her husband was for "willful
and wanton" conduct. Consequently, the liability insurer for the husband

contended that no coverage was owed because the husband's conduct was
"intentional" rather than "accidental."^^ The insurer argued that "intentional"
conduct did not trigger coverage under the insuring agreement,^^ and was also

19. Mat 740.
20. Compare id. with Allgood v. Meridian Ins. Co., 807 N.E.2d 131, 132 (Ind. Ct. App.

2004).

21. Z)m«/7, 810N.E.2dat740.

22. /J. at 741.

23. Id.

24. 795 N.E.2d 511 (Ind. Ct. App. 2003).

25. Mat 512.
26. M. at 515. Indiana's Guest Statute establishes that operators of motor vehicles are not

liable for their operation ofthe vehicle that results in injuries to certain, specified classes including

spouses. iND. Code § 34-30-11-1 (2004).

27. /«?ego«, 795N.E.2dat514.

28. Id. The policy indicated the insurer would provide coverage as follows: "We will pay
damages, except punitive or exemplary damages, for bodily injury or property damage for which

any insured becomes legally responsible because of an auto accident." Id. at 512. It defined

"accident" to mean "a sudden, unexpected, and unintended occurrence." Id.



1 166 INDIANA LAW REVIEW [Vol. 38: 1 163

excluded under a different provision.^^ The insurer brought a declaratory
judgment lawsuit, and eventually asked the court to grant it summaryjudgment.
The trial court denied the summaryjudgment request, prompting an appeal by the
insurer.^°

The court ofappeals rej ected the insurer' s contention that willful and wanton
misconduct was the same as intentional conduct.^* While the court did not
foreclose the possibility that willful and wanton misconduct may also be
intentional, the court refused to find, as a matter of law, that the two types of
conduct were synonymous.^^ Instead, the insurer must present evidence showing

the intentions of the insured to cause the damage in order to disclaim coverage.
This decision appears to be a sound one concerning intentional conduct of

an insured. Many policies also exclude coverage for damages "expected" by the
insured, which has a lesser standard.^^ An insurer may be more successfiil in
arguing that willful and wanton misconduct is synonymous with expected
conduct. This decision did not address those standards.

C A Driver with a SuspendedLicense DidNot Have Permissive Use to Drive
Even Though He Was Attempting to Escape a Knife-Wielding Attacker

The facts ofMroz v. Indiana Insurance Co?"^ present an interesting coverage
question. The named insured allowed his teenage son to drive a van to and from
school and work.^^ However, due to excessive school absences, the son's license

was suspended by the Bureau of Motor Vehicles. Nevertheless, the father still
allowed the son to drive, but required the son to obtain permission from the

father on each occasion. The father and son knew that it was illegal for the son
to drive on the suspended license.^^

One evening the father gave a family friend permission to drive the van to
take the son bowling. The father told the son that he did not have permission to
drive that evening. As the group attempted to depart the bowling alley, the
family friend engaged in a violent confrontation with another person who threw
a baseball bat at the van. The family friend stopped the van, and exited the van

29. The exclusion stated that no coverage was provided for "[bjodily injury or property

damage caused intentionally by or at the direction of an insured." Id.

30. Mat 513.
31. Id. at 516. See also Nati Mut. Ins. Co. v. Eward, 517 N.E.2d 95, 101 (Ind. Ct. App.

1987) (intoxicated driver's actions may have been "willful and wanton," but were not established

by the evidence as "intentional").

32. Id

33. "Expected" injury which is excluded under a liability policy focuses upon when the

insured is consciously aware that injury is practically certain to occur. See Bolin v. State Farm Fire

and Cas. Co., 557 N.E.2d 1084, 1086 (Ind. Ct. App. 1990).

34. 796 N.E.2d 830 (Ind. Ct. App. 2003).

35. Mat 831.
36. Id



2005] INSURANCE LAW 1 1 67

to chase the perpetrator.^^

As the son waited in the van, another individual approached the son with a
knife raised above his head in a threatening gesture. Fearing the attacker, the son

jumped into the driver's seat, and drove the van to get away. However, the van's
brakes failed, and the son struck and injured a pedestrian.

^^

The insurer for the van filed a complaint for declaratory judgment, arguing
that no liability insurance coverage existed because of an exclusion for any

insured "[u]sing a vehicle without a reasonable belief that that 'insured' is

entitled to do so."^^ Li response, the son argued that he had a reasonable belief

he was entitled to use the van under the circumstances where he was attempting
to escape his attacker."^^

The trial court granted summaryjudgment to the insurer."^* This decision was
affirmed on appeal."^^ The court acknowledged supreme court precedent outlining
a five part test to determine a driver's "reasonable belief of entitlement to

operate an automobile:

(1) whether the driver has the express permission to use the vehicle; (2)
whether the driver's use ofthe vehicle exceeded the permission granted;

(3) whether the driver was legally entitled to drive under the laws ofthe
applicable state; (4) whether the driver had any ownership or possessory

right to the vehicle; and (5) whether there was some form ofrelationship
between the driver and the insured, or one authorized to act on behalfof

the insured, that would have caused the driver to believe that she was
entitled to drive.

"^^

The appellate court concluded that the son did not have a reasonable belief
to operate the car because his license was suspended, and he was not entitled to
drive under the laws of Indiana."^ The court also rejected an "extreme
emergency" defense"*^ offered by the son in his effort to escape the attacker."^^

The courts appear to be strictly construing the facts to determine whether a
driver has a reasonable beliefto operate the car. Li assessing these situations, the

courts rejected self-defense and intoxication of the owner as justifiable excuses

III

37. Id. (Ii

38. Mat 831-32. "'«

39. Id. at 832 (alteration in original).

40. Id

41. Id.

42. Id

43. Id. at 833 (quoting Smith v. Cincinnati Ins. Co., 790 N.E.2d 460, 461 (Ind. 2003)). The

Smith court indicated that a driver with only a learner's permit, who drove a car because of the

owner's intoxication, did not have a reasonable beliefto operate the car. Smith, 790 N.E.2d at 462.

44. Mroz, 796 N.E.2d at 833.

45. Id. The son relied upon Indiana Code section 9-30-10-18, which suggests that in a

criminal action, a driver's actions may be excused if done to save life or limb in an emergency.

Ind. Code § 9-30-10-18 (2004).

46. Mroz, 796 N.E.2d at 834.



1 1 68 INDIANA LAW REVIEW [Vol. 3 8 : 11 63

for drivers without licenses to drive and expect to be afforded insurance
coverage."^^

D. Uninsured Motorist Coverage Is Not Available, Even ifDriver Is
Uninsured, if There Is Insurance Coveragefor the Vehicle

The case of Greenfield v. Allstate Personal Property and Casualty"^^

presented an interesting policy interpretation on the availability of uninsured
motorist coverage. In supplying her daughter with an automobile, a mother gave

clear instructions that no one, other than the daughter, was to drive the vehicle."^^

The daughter allowed another individual to drive the vehicle, and an accident
occurred resulting in the death of the daughter. The driver was uninsured at the
time of the accident.^^

The daughter's estate sought uninsured motorist coverage from the mother's
policy. The insurer argued that no coverage was available because the vehicle
involved was not an "uninsured auto."^' While the driver was uninsured, the
vehicle in which the daughter was riding, was insured.^^

Both the trial court and the court of appeals agreed with the interpretation

offered by the insurer and affirmed the summary judgment in favor of the
insurer.^^ The court relied upon earlier decisions where an insured sought to
assert a claim for incidents involving his own vehicle and uninsured drivers.^"*

The court also rejected the suggestion that the insurer's policy violated the
public policy of Indiana's Uninsured Motorist Statute. ^^ However, the court

observed that Indiana's legislature had not addressed the earlier court decisions

on this issue.^^ Because the statute had been amended a number oftimes, without
any provisions which disapproved the earlier court decisions, the court concluded

47. Smith, 790 N.E.2d at 462; Mroz, 796 N.E.2d at 834.

48. 806 N.E.2d 856 (Ind. Ct. App. 2004).

49. Mat 857.
50. Id

5 1

.

See id at 857-58. The policy noted that coverage was owed for damages that the insured

is "entitled to recover from the owner or operator of an uninsured auto.'' Id. at 858 (emphasis

added). It further defined "uninsured auto" as "a motor vehicle which has no bodily injury or

property damage liability bond or insurance policy in effect at the time of the accident." Id. The

policy further stated that an uninsured auto is not "a motor vehicle which is insured under . . . this

policy." Id.

52. Id.

53. Mat 861.
54. See Jones v. State Farm Mut. Auto. Ins. Co., 635 N.E.2d 200 (Ind. Ct. App. 1994)

(insured was passenger ofown vehicle that was operated by underinsured motorist); Whitledge v.

Jordan, 586 N.E.2d 884 (Ind. Ct. App. 1992) (uninsured thief who was stealing a car injured the

insured who was trying to prevent theft).

55. iND. Code § 27-7-5-2 (2003).

56. Greenfield, 806 N.E.2d at 860.



2005] INSURANCE LAW 1 1 69

that the legislature tacitly approved the court's earlier rulings.
57

E. Newly Acquired Vehicle Qualifiedfor Coverage Under Personal Auto

Policy Even Though Vehicle Was Purchasedfor Unstarted Business

The case oiAmerican Family Mutual Insurance Co. v. Ginther^^ contains a

number of interesting issues applicable to insurance practitioners. The insured
purchased a truck which he intended to eventually use for a construction business

that he had not yet started. On his way home after completing the purchase, the
insured was involved in an automobile accident with other motorists who
sustained personal injuries. ^^ At the time ofthe accident, the insured possessed

a personal automobile policy with American Family on his only other operable

vehicle.^^

Two days later, the insured's wife visited their insurance agency requesting
insurance coverage on the new truck. The insured advised that the new truck was
to be used in his commercial business that had not been started. With respect to

the accident, the agent notified the insured that because the new truck was to be
used for a commercial business, there was no coverage to the insured under the
personal liability policy.^

^

The insured filed a declaratory judgment action against American Family,

but not against the injured motorists, to determine whether the new truck satisfied
the "newly acquired vehicle" portion of the policy.^^ However, after the

insured's counsel withdrew, the insured and American Family executed a

stipulation of dismissal, with prejudice, of the declaratory judgment action.

The injured motorists submitted claims to their uninsured motorist carrier,
Safeco. Eventually, Safeco and the injured motorists settled the uninsured

motorists claims. A second lawsuit was filed by the injured motorists on behalf
of Safeco to recover from the insured for the amounts paid by Safeco.^^ A
defaultjudgmentwas obtained against the insured, and proceedings supplemental

57. /J. at 861.
.

58. 803 N.E.2d 224 (Ind. Ct. App. 2004).

59. Id. at 226.

60. Id.

61. Id.

62. The policy provided that "your insured car" meant

[a]ny additional private passenger car or utility car of which you acquire ownership

during the policy period, provided:

(1) If it is a private passenger car, we insure all of your other private passenger

cars; or

(2) If it is a utility car, we insure all ofyour other private passenger cars and utility

cars.

You must tell us within 30 days of its acquisition that you want us to insure the

additional car.

Id. at 232.

63. Mat 228.



1 1 70 INDIANA LAW REVIEW [Vol. 38: 1 1 63

to collect on the judgment were pursued against American Family.^"^
American Family pursued a number of legal attacks on the action, by filing

multiple dispositive motions which were denied; appellate proceedings were also
pursued. First, American Family argued that the injured motorists were
collaterally estopped from bringing the action because of the earlier litigation
between the insured and American Family.^^ American Family suggested that the
injured motorists failed to intervene in the proceedings, and were therefore bound
by the outcome. However, the appellate court rejected that argument by noting
that because the injured motorists were not parties to the earlier declaratory

judgment action, they were not bound by the ruling.^^ The court further observed
that the party bringing the declaratoryjudgment action must include all affected
parties in order to have a binding effect.^^

The court also affirmed the trial court's conclusion that coverage for the new
truck existed under the American Family policy because it was a newly acquired
vehicle. American Family argued that because the new truck was purchased for
the insured to use in a commercial business, no coverage existed. The court
rejected this contention as well by observing that because the business was not
in operation at the time of the accident, the truck was a personal auto that
satisfied the definition of a newly acquired vehicle.^^

The final legal issue focused upon whether the injured motorists were
judicially estopped from arguing that American Family owed coverage because
they sought and received uninsured motorist coverage.^^ The court rejected this
argument as well for a number ofreasons. The most significant reason was based
upon the fact that when American Family denied coverage to the insured, the
injured motorists qualified to seek uninsured motorist coverage under the Safeco

policy.^^

F. An Insured's Accident with Uninsured and Underinsured Motorists
DidNot Permit a Claimfor the Policy Limits ofEach Coverage

In Imre v. Lake States Insurance Co. ,^* the insured was a passenger on an all-
terrain vehicle ("ATV"). As the operator of the ATV suddenly turned left, the
ATV was struck by a car that was attempting to pass in a no-passing zone. As

64. Mat 229.
65. /J. at 230.

66. Mat 230-31.
67. Id. The court specifically looked to Indiana Code section 34- 1 4- 1 - 1 1 which provides in

pertinent part, that for declaratory judgment actions, "all persons shall be made parties who have

or claim any interest that will be affected by the declaration, and no declaration shall prejudice the

rights of persons not parties to the proceeding." IND. Code § 34-14-1-1 1 (2004).

68. Ginther, 803 N.E.2d at 233.

69. Mat 235.
70. Id.

71. 803 N.E.2d 1 126 (Ind. Ct. App. 2004).



2005] INSURANCE LAW 1171

a result of the accident, the insured sustained serious personal injuries.
^^

The insured possessed a policy that provided uninsured and underinsured
motorist coverage of $100,000.^^ The operator ofthe ATV was uninsured. The
driver of the car possessed liability limits of $50,000, which were paid to the

insured. The insured made an unusual request to its insurer contending that,
because there was both an uninsured and underinsured motorist, $100,000 of
policy limits applied to each claim for a total of $200,000.^"^

The insurer countered that only $100,000 of coverage was available for all
claims, and that it was entitled to a setoff for the $50,000 paid by the
underinsured motorist.^^ The trial court agreed, and granted summaryjudgment
to the insurer. On appeal, the court agreed with the insurer and found that no
reasonable policyholder would expect to have coverage of $200,000, instead of
$100,000.^^ Furthermore, the court concluded that the insurer was entitled to a
setoff for the $50,000 paid by the driver of the vehicle.^^

G. Uninsured Motorist Coverage Under Personal Policy Was Not Available
to Police Officer Injured While Riding Motorcycle

The facts and ultimate conclusion in Jackson v. Jones^^ provide an excellent
reminder of why insureds may wish to periodically review the extent of
coverages available to them. The insured was a motorcycle police officer who
was involved in an accident with an uninsured motorist. The municipality that
employed the police officer did not offer uninsured motorist coverage on the

motorcycle involved in the accident, and the police officer sought coverage from

his own personal insurance policy.^^ The personal insurer denied coverage by
relying upon policy language that excluded uninsured motorist coverage for
incidents involving the use of vehicles, not identified in the policy, which were
available for the regular use of the insured.^^ The parties agreed that the
motorcycle involved in the accident was provided for the regular use ofthe police

72. /J. at 1128.

73. Id.

74. Id.

75. Id Qi 1129.

76. /J. at 1131.

77. Id. Specifically, the applicable language provided that the insurer would "not make a

duplicate pa3mient under this coverage for any element of loss for which payment has been made

by or on behalf of persons or organizations who may be legally responsible." Id.

78. 804 N.E.2d 155 (Ind. Ct. App. 2004).

79. Id.

80. The exact language provided:

It is agreed that the following exclusion is added to the Exclusions under part 11 ofyour

policy. Uninsured Motorist coverage . . . does not apply to damages arising out ofthe

ownership, maintenance, or use ofany vehicle other than your insured car . . . , which

is owned by orfurnished or availablefor the regular use by you or a family member.

Id. at 159.



1 172 INDIANA LAW REVIEW [Vol. 38: 1 163

officer. The police officer argued that such an exclusion violated Indiana's
public policy as outlined under the Uninsured Motorist Statute.

^^

The trial court and appellate court rejected the police officer's contention.
The appellate court concluded that as long as the liability coverage afforded
under the policy includes the same exclusion at issue in the uninsured motorist
coverage section, then public policy is not violated.

^^

As many insureds utilize vehicles supplied by their employers, they should
check the available coverages under the employer's and their personal policies.

As existed in this case, the police officer lacked any uninsured motorist coverage
to compensate for his personal injuries when he was using an employer's
motorcycle. To avoid this uninsured risk, insureds should perform a comparison
of the available coverages.

H. An Uninsured Motorist Claim Is a Breach ofContract Action Where
Damages Are Determined upon Tort Principles

In Malott V. State Farm MutualAutomobile Insurance Co. ,^^ the insured and
insurer disagreed on the value of the insured's uninsured motorist claim. The
insurer paid the medical bills submitted by the insured, but contended that the
insured was entitled to no additional compensation.^"^ The case proceeded to trial
where the jury was instructed that, in order to find in favor ofthe insured, it must
conclude the insurer breached the policy and that damages were limited to the

limits of coverage available under the policy.^^ The jury also was instructed on
the manner of calculating the insured's damages that would be available under
a tort theory. The jury concluded that the insurer was only entitled to an
additional $ 1 4,000 in damages, and the insured appealed, contending that thejury

was improperly instructed.^^

On appeal, the jury's verdict was affirmed.^^ The court enunciated the
manner in which a uninsured motorist claim is to be assessed by the trier of fact

as follows:

Thus, as with all [uninsured motorist] insurance recovery cases, this case

was a hybrid between a contract case and a tort case. Technically, it was
an action to recover for a breach of contract, but in order to do so, [the

insured] was required to demonstrate [the uninsured motorist's]
negligence and a causal link from the accident to her claimed damages

and that those damages exceeded the amount [the insurer] had already

paid. ... In other words, in the present case the jury was required first

to assess the damages [the insured] suffered in the accident in

8 1

.

IND. Code § 27-7-5-2 (2003).

82. Jackson, 804 N.E.2d at 161.

83. 798 N.E.2d 924 (Ind. Ct. App. 2004).

84. Id. 2A 925.

85. Id. The policy limits were $100,000.

86. Id. 2X926.

87. Id. at 921.



2005] INSURANCE LAW 1 1 73

accordance with tort law principles, and then it was required to compare
this amount with the amount [the insurer] had actually paid and

determine, under contract law principles, whether [the insurer] breached

its contractual obligation to pay [uninsured motorist] benefits.
^^

The court also concluded that the jury was properly instructed that the damages
for the breach of contact claim could not exceed the insured's policy limits.^^

Because no claim for bad faith was filed by the insured, the extent of damages
available was the policy limits.^^

/. Chiropractor Entitled to Enforce Assignment ofProceeds Against

Negligent Driver 's Liability Insurer

In Midtown Chiropractic v. Illinois Farmers Insurance Co.^^ a decision of
first impression in Indiana, the Indiana Court ofAppeals recognized as valid an

assignment by a patient to a chiropractor of proceeds for any recovery from
negligent parties arising from an auto accident. The court also allowed the
chiropractor to enforce the assignment by bringing an action directly against the
negligent party's insurer.^^

The patient was injured in an auto accident and sought chiropractic
treatment.^^ In obtaining the chiropractic treatment, the patient executed an

assignment of benefits or proceeds he may receive from a settlement or verdict
from any responsible party for the accident. The patient and the insurer for the
other party involved in the accident reached a settlement, but the settlement draft

did not include the chiropractor, and the patient did not pay the chiropractor.

After the patient executed a release of all claims against the other driver, the

chiropractor brought a lawsuit against the driver's insurer, but not the driver, to

recover for providing services rendered.^"*

The insurer initially contended that the assignment was improper as an
attempt to assign the patient's personal injury claim.^^ The appellate court agreed
that personal injury claims remain unassignable,^^ but the court determined that

the patient's assignment was confined to proceeds and not the patient's entire
cause of action.^^ The court stated that allowing a patient to assign proceeds to
the chiropractor relieved the patient from having a financial burden before a

settlement is reached.^^

88. Id. at 926 (internal citations omitted).

89. Id. at 921.

90. Id.

91. 812 N.E.2d 85 1 (Ind. Ct. App. 2004), petitionfor trans, pending.

92. Mat 857.
93. Id. at S53.

94. Id.

95. Id.

96. See Allstate Ins. Co. v. Axsom, 696 N.E.2d 482 (Ind. Ct. App. 1998).

97. Midtown Chiropractic, 812 N.E.2d at 854.

98. /J. at 854-55.



1 174 INDIANA LAW FIEVIEW [Vol. 38:1 163

The insurer also argued that even if the assignment was valid, the
chiropractor could not bring an action against the other driver's insurance

company to recover the amounts.^^ The appellate court concluded that if a
liability insurer for a negligent driver fails to pay the chiropractor holding the
assignment, the chiropractor then may bring a direct action against the insurer to
enforce the assignment. ^^^ The court's recognition of a chiropractor's right to
bring a direct action against the insurer of an alleged tortfeasor appears to be in

direct conflict with law that prohibits such actions. ^^^ Furthermore, this case

could lead plaintiffs ofpersonal injury claims to assign their right to proceeds to

any creditor, with the result that the creditor may enforce the assignment against
an insurer, even if the insurer lacks any knowledge ofthe creditor's rights when
a settlement is reached with the injured plaintiff.

II. Commercial Policies

A. IfPolicy Requires a Party to Have a Written Contract to Be an
Additional Insured, Then an Oral Contract Is Insufficient

In construction projects, the allocation of risks for injuries to persons

working at the site is often litigated. The decision oiLiberty Insurance Corp. v.
Ferguson Steel Co}^^ focused on efforts to include a party as an additional
insured to another's policy. Pursuant to an informal, oral agreement between the

subcontactor and the general contractor to perform work and to name the general
contractor as an insured on the subcontractor's policy, the subcontractor started
working at the construction site.^^^ One of the subcontractor's employees
sustained injuries from an accident and brought a lawsuit against the general

contractor.
^^'^

Shortly after the accident, the general contractor and the subcontractor

entered into a written contract which included a provision requiring the
subcontractor to purchase and maintain liability insurance that included the

general contractor as an additional insured. The contract also incorporated all
prior negotiations between the parties.

^^^

As a result of the injured employee's lawsuit, the general contractor sought
insurance under the subcontractor' s policy. The insurer denied coverage because
the additional insured endorsement required that the named insured and the
proposed additional insured must have "agreed in writing in a contract or

agreement that such person or organization [will] be added as an additional

99. Mat 856.
100. /J. at 857.

lOL See Winchell v. Aetna Life and Cas. Ins. Co., 394 N.E.2d 1 1 14 (Ind. App. 1979).

102. 812 N.E.2d 228 (Ind. Ct. App. 2004).

103. 5ee /J. at 229-30.

104. Id.

105. Mat 230.



2005] INSURANCE LAW 1 1 75

insured on your policy."^^^ Because there was no written contract calling for the
general contractor to be included as an additional insured on the subcontractor's

policy, the insurer argued that no coverage was owed.^^^
The court of appeals agreed with the insurer, and reversed the trial court's

grant of summary judgment to the general contractor. The court rejected the
general contractor's arguments that the endorsement did not require the written

contract to exist before the work began or the accident occurred, and that the
execution of the contract after the work began was a common course of dealing
between the parties. ^^^ The court found that the insurer was only bound to insure

parties based on the written contracts in existence at the time ofthe accident, and

that because the insurer was not part of the "course of dealing" between the
contractor and subcontractor, it lacked knowledge ofthose dealings to be bound
bythem.^''

B. With Respect to a Lost Policy, the Insured Bears the Burden to

Demonstrate the Coverage Available

The decision oiPSI Energy, Inc. v. Home Insurance Co}^^ focused upon a
number of issues in a complex environmental lawsuit. However, the court

addressed one matter of first impression: what an insured is required to

demonstrate to obtain coverage when the insurance policy cannot be located.
The insured was a utility company that operated a number of gas

manufacturing facilities from the mid- 1800s to 1950.'^^ As a result of the
manufacturing process during the utility's ownership, groundwater was
contaminated from by-products resulting in a need for costly remediation. The
utility sought insurance coverage for environmental claims from various insurers

who provided policies to the utility during that time frame. ^^^ Unfortunately,
neither the utility nor the insurers could locate actual or exemplar copies of

certain excess policies that were in place at the time of loss to determine the

scope of coverage that may be available. ^^^

After a declaratory judgment action was brought to establish coverage, the

106. Id. at 229. The exact language identified an insured as

[a]ny person or organization for whom you are performing operations when you and
such person or organization have agreed in writing in a contract or agreement that such

person or organization be added as an additional insured on your policy. Such person

or organization is an additional insured only with respect to liability arising out ofyour

ongoing operations performed for that insured.

Id. at 229.

107. /J. at 230.

108. Mat 231.
109. Id.

1 10. 801 N.E.2d 705 (Ind. Ct. App.), trans, denied, 812 N.E.2d 85 (Ind. 2004).

111. Mat 710-11.
112. Mat 711.
113. See id.



1176 INDIANA LAW REVIEW [Vol. 38:1163

insurers sought summaryjudgment by contending that the utility failed to present
evidence of the coverages provided to them because the policies were
unavailable. ^ '"^ The utility presented various records to show the existence ofthe
policies, and also a report and deposition testimony of an insurance expert who
attempted to establish the terms ofcoverage by reference to other policies. While
the expert was able to offer testimony ofwhat he believed the scope ofcoverage
to be under the missing policies, he also admitted an inability to describe the

coverages with any degree of certainty.
^^^

The trial court granted summary judgment to the insurers, and determined
that the evidence was insufficient for the trier offact to determine what coverage
existed. *^^ The court of appeals reversed the trial court, and concluded that a
question offact existed.

^^^ The court found it most significant that the polices at
issue were excess policies, and the terms and conditions of the excess policies

were most likely the same as the primary policies, which were part of the
appellate record. The court placed the burden to prove the substance ofcoverage
on the utility company, such that the trier of fact could still determine that the
utility company did not present sufficient evidence. ^^^

III. Homeowner's Liability Policy

A. Coverage Under a Farmer 's Liability Policy Was Not Availablefor
Claims ofInjured Farm Worker, Struck by a Truck While on the Farm

In most circumstances, a homeowner' s policy will explicitly exclude liability
coverage for claims arising from motor vehicle accidents. In Westfield Cos. v.

Knapp,^^^ the exclusion was addressed in the context of a farm liability policy
when a farm worker was struck by a truck while employed at the farm. The
liability insurer filed a declaratoryjudgment claiming, in part,^^^ that no liability

coverage was available to the farm because ofapplication ofthe "motor vehicle"
exclusion.

^^^

The injured worker apparently conceded that he was struck by a "motor
vehicle," which made the exclusion applicable, but contended that an exception

114. Id.

115. /J. at 721.

116. Mat 710.
117. Id. 3X722.

118. Id. Another important holding from this decision was that a continual release of

contaminants into the ground water during each policy period triggered each policy that was

affected. Id at 738.

1 19. 804 N.E.2d 1270 (Ind. Ct. App. 2004).

120. Another issue addressed was whether medical payments coverage was available to the

injured worker. Id. at 1272.

121. Id. That policy provision excluded coverage for any bodily injury arising out of the

"maintenance, use, operation, or 'loading or unloading' of any 'motor vehicle' ... by any

'insured.'" Id. at 1274.



2005] INSURANCE LAW 1 1 77

to the definition of "motor vehicle" appUed to afford coverage. ^^^ Specifically,

the exception applied to "mobile equipment," which included "vehicles while

used on premises [the insured] own[ed] or rent[ed]."^^^ Thus, the injured worker

contended that because he was struck by a "vehicle" which was undefined within

the policy, it satisfied the definition of "mobile equipmenf and should be
excepted from the policy exclusion.

^^"^

The trial court agreed with the injured worker and granted summary
judgment finding coverage. ^^^ However, the court of appeals reversed the trial

court, finding the evidence designated showed that the truck was a "motor
vehicle."^^^ The court observed that the truck was "registered, insured, designed
for and licensed for use on public roads" such that it satisfied the exclusion, but

not the exception.
^^^

A similar question was also addressed in Illinois Farmers Insurance Co. v.
Wiegand}^^ A young girl visiting the insured's daughter was severely injured
when involved in an accident while operating the insured's ATV.^^^ The injured
girl filed a lawsuit against the daughter's parents alleging that they were liable

for negligently entrusting the ATV to the girl.^^^ The parents sought liability
coverage under their homeowners policy. That insurer argued that coverage was
excluded because the injuries to the girl occurred from the use and entrustment^^^

of a "motor vehicle."^^^ The parents argued that coverage existed because the
ATV fit within an exception to the definition of "motor vehicle" as a

122. Mat 1274-75.
123. Mat 1275.
124. Id.

125. Mat 1273.
126. M. at 1276.

127. Id.

128. 808 N.E.2d 180 (Ind. Ct. App. 2004).

129. M. at 182.

130. Id.

131. The exclusions provided that no coverage was available when the claim

7. results from the ownership, maintenance, use, loading or unloading of: . .

.

b. motor vehicles.

8. results from the entrustment of . . . motor vehicles. . . . Entrustment means the

permission you give to any person other than you to use any . . . motor vehicles . . .

owned or controlled by you.

M. at 183.

1 32. "Motor vehicle" was defined, in pertinent part, as:

a. a motorized land vehicle, including a frailer, semi-trailer or motorized bicycle,

designed for travel on public roads. . .

.

c. Any other motorized land vehicle designed for recreational use offpublic roads.

None of the following is [sic] a motor vehicle. . .

.

b. A motorized land vehicle, not subject to motor vehicle registration, used only on an
insured location.

Id.



1 178 INDIANA LAW REVIEW [Vol. 38: 1 163

nonregistered vehicle used only on the named insured's premises. ^^^

The trial court granted summary judgment to the insurer in finding that the
ATV was a "motor vehicle" as defined by the policy, and that it was not excepted
from the definition. ^^"^ The court denied the insurer's request for summary
judgment concerning coverage for the negligent entrustment claim.

^^^

On appeal, the court of appeals addressed each of the trial court's
conclusions. As to the determination that the ATV was a "motor vehicle," the
court observed that this question was one of first impression in Indiana. *^^

Relying upon decisions from other jurisdictions that addressed this issue,^^^ the
court concluded that the ATV was a recreational vehicle designed for use off of
public roads. ^^^ The court also found that the exception to the definition of
"motor vehicle" did not apply, because the ATV was used at the time of the
accident and on other occasions away from the "insured location."'^^ As a result,
the homeowner's policy did not apply.

The court also reviewed the trial court's decision that coverage was afforded
for the negligent entrustment claim against the parents. The court concluded that
because the girl's injuries were caused from the "immediate and efficient" use

ofthe ATV, no coverage was afforded. ^"^^ The court summarized its position by
stating "a negligent supervision claim, like the one here, is excluded from

coverage where the injury would not have resulted but for the use of the motor
vehicle.

"^"^^ Because the policy at issue was a homeowner's policy, no coverage
was afforded for an accident that arose solely out of the use of a motor vehicle,

even for a negligent entrustment claim.

B. Accident Occurring on Public Road, Was Not Within Insured
"Premises" to be Afforded Liability Coverage

\n Indiana Insurance Co. v. Dreiman, ^"^^ two brothers owned adjoining farms
that were separated by a public road. One of the brothers had a farm liability
policy for his farm, and also identified the other brother as an additional insured

and his farm as a "designated premises."^"^^ The grandson ofthe named insured
was operating a motor bike with a passenger for recreation. As the grandson was
driving on the public road separating the properties, he was involved in an

133. /^. at 182.

134. /J. at 183.

135. Mat 184.
136. Mat 187.
137. Farm Family Mut. Ins. Co. v. Whelpley, 767N.E.2d 1101 (Mass. App. Ct. 2002); DeWitt

V. Nationwide Mut. Fire Ins. Co., 672 N.E.2d 1 104 (Ohio Ct. App. 1996).

138. Wiegand, 808 N.E.2d at 187.

139. Id.

140. Id. at 190.

141. Mat 191.
142. 804 N.E.2d 815 (Ind. Ct. App. 2004).

143. M. at 817.



2005] INSURANCE LAW 1 1 79

accident that injured the passenger. The passenger brought a lawsuit against the
named insureds and the grandson for neghgence.^'^'^

The named insureds sought coverage under the Habihty policy. While the
policy generally excluded coverage for accidents involving a "motor vehicle," it

did provide coverage for injuries involving a motor vehicle if"use[d] exclusively

at the 'insured location.
'"^"^^ The named insureds contended, and the trial court

agreed, that the county road was a part of the "insured location"^"*^ under the
policy because it divided the two insured property locations and was used by the
named and additional insureds for their farming operations.

^"^^

The court ofappeals disagreed with the trial court and reversed the summary
judgment order that found the existence of coverage. ^"^^ The court focused upon
the meaning of"premises."^"^^ The court found this term to be unambiguous and
that it did not include a public roadway. ^^'^ Even though use ofthe road may have
been part of the farming operations, the court found that because the insureds

lacked any control over the county road, the road cannot be considered part ofthe

insured's property for coverage purposes.
^^^

C A Minor 's Sexual Molestation ofAnother Did Present an "Occurrence " to
Trigger Coverage Under a Homeowner 's Policy

Indiana law has clearly established that no insurance coverage is available

to an adult sexual molester.^" In State Farm Fire and Casualty Co. v. CF.}^^ the
court addressed and concluded that liability insurance coverage is also

unavailable when the molester is a minor.
A twelve-year-old insured molested a six-year-old victim. The insured

admitted in juvenile criminal proceedings to committing the acts.^^"^ The victim
and her parents filed a lawsuit against the perpetrator and his parents. ^^^ The
homeowner's insurer for the parents and perpetrator provided a defense under a
reservation ofrights. The victim filed a declaratoryjudgment contending that the
victim's alleged injuries did not arise fi"om an "occurrence" as the actions were

144. Id.

145. Mat 818.
146. The "insured location" was defined in the policy as "(a) The farm premises (including

grounds and private approaches) and 'residence premises' shown in the Declarations. . . . [and] (c)

Premises used by you in conjunction with the [farm and residence] premises." Id. at 819.

147. Id.

148. Mat 816.
149. M. at 820.

150. Mat 821.
151. Id.

152. Wiseman v. Leming, 574 N.E.2d 327 (Ind. Ct. App. 1991).

153. 812 N.E.2d 181 (Ind. Ct. App. 2004).

154. Id.

155. M. at 183.



1180 INDIANA LAW REVIEW [Vol. 38:1163

intentional rather than accidental. ^^^ The victim argued that her injuries arose
from an "occurrence" because the perpetrator was not able to form the necessary
intent for his actions to be considered anything other an accidental.

^^^
In other

words, the victim argued that intent could not be inferred from the molester's

admissions, because a juvenile could not form the mens rea or necessary mental
element of a crime.

The appellate court concluded that no "occurrence" existed, and reversed the
trial court's denial of summary judgment to the insurer.^^^ The court found that
a juvenile is treated differently in juvenile court proceedings, because of the

juvenile's lack of maturity and unique circumstances.'^^ The court rejected the
argument that minors cannot form the necessary mental element of a crime by
observing that, if that was true, no minor could ever commit a crime because the
mental element is part of the crime. '^^ Thus, the perpetrator's admissions

established that his conduct was not accidental and therefore did not constitute
an "occurrence," and that no liability coverage was available.'^'

156. Id. "Occurrence" was defined by the policy as "an accident, including exposure to

conditions, which results in: a. bodily injury; or b. property damage; during the policy period."

Id.

157. /c^. at 184.

158. Id.

159. /J. at 184-85.

160. Mat 185.
161. Id.