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TIG Ins. Co. v. City of Elkhart

United States District Court, N.D. Indiana, South Bend Division

August 17, 2015

TIG INSURANCE COMPANY, Plaintiff,
v.
CITY OF ELKHART, NATIONAL CASUALTY COMPANY, STEVE REZUTKO, STEVE AMBROSE, TOM CUTLER, JOHN DOES 1-12, CHRISTOPHER PARISH, LETISHA GARY, KYLUP PARISH, KHADIJAH PARISH, CHRISTOPHER PARISH, JR., and GLORIA PARISH, Defendants. GEMINI INSURANCE COMPANY and SWISS RE INTERNATIONAL SE, Plaintiffs,
v.
NATIONAL CASUALTY COMPANY, CITY OF ELKHART, STEVE REZUTKO, CHRISTOPHER PARISH, ST. PAUL FIRE AND MARINE INSURANCE COMPANY and NORTHFIELD INSURANCE COMPANY, Defendants. NATIONAL CASUALTY COMPANY, Counterclaimant/Third-Party Plaintiff,
v.
GEMINI INSURANCE COMPANY, SWISS RE INTERNATIONAL SE, ZURICH SPECIALTIES LONDON LIMITED, TIG INSURANCE COMPANY, ST. PAUL FIRE AND MARINE INSURANCE COMPANY, NORTHFIELD INSURANCE COMPANY, SELECTIVE INSURANCE COMPANY OF SOUTH CAROLINA, MARKEL AMERICAN INSURANCE COMPANY, and CLARENDON AMERICA INSURANCE COMPANY, Counterclaim Defendants and Third-Party Defendants

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[Copyrighted Material Omitted]

Page 797

          For TIG Insurance Company, Plaintiff, Counter Defendant (3:13-cv-00902-PPS-CAN): Bethanie L Berube, Clay H Phillips, Timothy J Fagan, Smith Amundsen LLC - Chi/IL, Chicago, IL; Joseph P Carlasare, Smith Amundsen LLC, Chicago, IL.

         For Gemini Insurance Company, Swiss Re International SE, Plaintiffs, Counter Defendants (3:13-cv-00902-PPS-CAN): David S Osborne PHV, Justin K Seigler PHV, Le G Trieu PHV, PRO HAC VICE, Lindsay Rappaport & Postell LLC, Chicago, IL; Patrick David Murphy, Boveri Murphy Rice LLP, South Bend, IN.

         For Northfield Insurance Company, St Paul Fire and Marine Insurance Company, Defendants (3:13-cv-00902-PPS-CAN): Brandon J Kroft, Cassiday Schade LLP - CP/IN, Crown Point, IN.

         For National Casualty Company, Defendant, Third-Party Plaintiff, Counter Claimant (3:13-cv-00902-PPS-CAN): Andrew S Williams, Hunt Suedhoff Kalamaros LLP - FW/IN, Fort Wayne, IN; Patrick B Omilian, Goldberg Segalla LLP - Buf/NY, Buffalo, NY.

         For Selective Insurance Company of South Carolina, Third-Party Defendant (3:13-cv-00902-PPS-CAN): Kimberly E Howard, LEAD ATTORNEY, Smith Fisher Maas & Howard PC, Indianapolis, IN; R Andrew Hahn, LEAD ATTORNEY, Smith Fisher Maas Howard & Lloyd PC, Indianapolis, IN.

         For Clarendon America Insurance Company, Third-Party Defendant (3:13-cv-00902-PPS-CAN): Edward F Harney, Jr, William D Beyers, Hume Smith Geddes Green & Simmons LLP, Indianapolis, IN.

         For Northfield Insurance Company, St Paul Fire and Marine Insurance Company, Third-Party Defendants (3:13-cv-00902-PPS-CAN): Brandon J Kroft, Cassiday Schade LLP - CP/IN, Crown Point, IN; Jean M Golden, Cassiday Schade LLP - Chi/IL, Chicago, IL.

         For Gemini Insurance Company, Swiss Re International SE, UK Branch, Plaintiff (3:13-cv-00992-PPS-CAN): David S Osborne PHV, Justin K Seigler PHV, Le G Trieu PHV, LEAD ATTORNEYS, PRO HAC VICE, Lindsay Rappaport & Postell LLC, Chicago, IL; Patrick David Murphy, LEAD ATTORNEY, Boveri Murphy Rice LLP, South Bend, IN.

         For National Casualty Company, Defendant (3:13-cv-00992-PPS-CAN): Patrick B Omilian, LEAD ATTORNEY, Goldberg Segalla LLP - Buf/NY, Buffalo, NY; Andrew S Williams, Hunt Suedhoff Kalamaros LLP & FW/IN, Fort Wayne, IN.

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         OPINION AND ORDER

         Philip P. Simon, CHIEF UNITED STATES DISTRICT JUDGE.

         These consolidated cases represent a dispute among insurance companies about who ends up holding the bag for a five million-dollar settlement of the City of Elkhart's civil rights liability to Christopher Parish. The wrongful arrest and prosecution of Mr. Parish has caused a deluge of litigation. It began in November 1996, when Parish was charged with armed robbery and attempted murder based on the report of a home invasion and shooting of Elkhart, Indiana resident Michael Kershner. Elkhart Police Department Detective Steve Rezutko was the principal investigating officer. Parish was convicted in June 1998, but in December 2005, an Indiana appellate court overturned the conviction and ordered a new trial, after which the criminal case was dismissed in December 2006. See Parish v. State of Indiana, 838 N.E.2d 495 (Ind.App. 2005). Parish was released from custody in July 2006, after spending eight years in jail.

         In September 2007, Parish brought a civil action in federal court asserting federal and state law claims for relief. In the first count under 42 U.S.C. § 1983, he alleged that the City of Elkhart and its police had violated his constitutional rights to a fair trial and due process, resulting in Parish's wrongful arrest, prosecution and conviction. In the second count, Parish contended that the city and county were liable under the Indiana Tort Claims Act for false arrest, false imprisonment and intentional infliction of emotional harm. Parish's complaint also alleged that Rezutko falsely implicated him by staging a phony crime scene, fabricating and tampering with evidence, manipulating and coercing witnesses, and giving perjured testimony.

         The case against Elkhart and Rezutko proceeded to trial before Judge Lozano. Parish prevailed, but the jury's award of only $73,125 in compensatory damages and $5,000 in punitive damages was " astoundingly low for cases of wrongful conviction." Parish v. City of Elkhart, 702 F.3d 997, 999 (7th Cir. 2012). On appeal, the Seventh Circuit affirmed the jury's determination of liability but remanded for a new trial on the issue of damages. Id. at 1003. Parish ultimately settled his suit for a total of $5 million, dismissing the civil case in January 2014. At the time the case was settled, the sole remaining claim was that Parish's due process rights were violated by a wrongful conviction.

         One of the defendants in this case, National Casualty Company, had issued Elkhart a Law Enforcement Liability policy for the period from 1996 through 2000. The limits of liability under those policies were $1 million. NCC defended Elkhart and Rezutko in the civil case before Judge Lozano but it did so under a reservation of rights. No other insurer contributed to Elkhart's defense. Ultimately, NCC coughed up the entire $5 million settlement amount plus all of the cost of the defense. This is one of the curious features of this case. Why did NCC pay $5 million when its yearly policy limits were $1 million? When asked at oral argument why NCC would pay $5 million to settle a case where the yearly limits of liability were only $1 million, it had no good answer

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other than to say that NCC insured Elkhart for five years -- hence they forked over $1 million for each policy year. But if there is only one trigger date for insurance coverage (more on that in a moment), this may have been a questionable decision. What is equally perplexing is why the excess insurer for the year 1996 -- the crucial year when the majority of the bad deeds were done to Mr. Parish -- wasn't sued at all in this case. As we'll soon see, NCC has sued the excess carriers for all other potentially relevant years -- 1997 - 2008. Perhaps NCC settled with the excess carrier for the year 1996 or perhaps Elkhart had no excess coverage that year. These questions are somewhat beside the point for our present purposes but they remain a curiosity.

         In this consolidated case, NCC seeks contribution toward the cost of defending the Parish suit and toward the settlement from other insurers who issued policies to Elkhart at various times. This case is greatly complicated by the number of years Mr. Parish's nightmarish odyssey took to resolve and the number of different insurance companies that insured Elkhart during all those years. The simplest way to understand the intersection between when things happened to Mr. Parish and which company was providing the insurance at the time is through a chart. Here it is:

Insurer

Type of Insurance

Term

Events

National Cas.

Primary LEL

3/1/1996 - 1/1/2001

Nov. '96 Parish charged

Company

TIG

Excess/Umbrella

6/1/1997 - 3/1/2000

June '98 Parish convicted

Insurance

Co.

Markel

Excess/Umbrella

3/1/2000 - 1/1/2001

Insurance Co.

Zurich

Primary LEL

1/1/2001-1/1/2003

Specialties/

Swiss Re

International

Selective

Excess/Umbrella

1/1/2001 - 1/1/2005

Insurance Co.

Northfield

Primary LEL

1/1/2003 - 1/1/2004

Insurance Co.

Gemini

Primary LEL

1/1/2004 - 1/1/2005

Dec. '06 Criminal case

Insurance Co.

dismissed

St. Paul Fire

Primary LEL

1/1/2005 - 1/1/2008

Sept. '07 § 1983 action

and Marine

filed

Clarendon

Excess/Umbrella

1/1/2005 - 1/1/2008

American

Insurance Co.

         This consolidated litigation involves three separate pleadings: a first amended complaint by TIG which seeks a declaratory judgment, a counterclaim and third-party complaint by NCC, and an amended complaint by Gemini and Swiss Re also seeking declaratory relief. Now before me are three motions for judgment on the pleadings -- one from TIG Insurance, one from Gemini Insurance Company and Swiss Re International, and the third from St. Paul Fire and Marine Insurance Company and Northfield Insurance Company, in which Clarendon America Insurance Company has joined. A hearing on the motions was held on May 29, 2015.

         Legal Standards

         A motion for judgment on the pleadings is filed under Fed.R.Civ.P. 12(c) but is " governed by the same standards as a motion to dismiss for failure to state a claim under Rule 12(b)(6)." Lodholtz v. York Risk Services Group, Inc., 778 F.3d 635, 639 (7th Cir. 2015). To survive such a motion, the complaint must state a claim that is plausible on its face, when the well-pleaded

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facts are accepted as true and all inferences are drawn in the non-movant's favor. ProLink Holdings Corp. v. Federal Ins. Co., 688 F.3d 828, 830 (7th Cir. 2012). In evaluating a defendant's motion for judgment on the pleadings, I " must determine whether 'the complaint sets forth facts sufficient to support a cognizable legal theory.'" Laborers Local 236 v. Walker, 749 F.3d 628, 632 (7th Cir. 2014), quoting Scherr v. Marriott Int'l, Inc., 703 F.3d 1069, 1073 (7th Cir. 2013).

         These standards are generally articulated where a Rule 12(c) motion is brought by a defendant seeking the dismissal of a claim asserted against him. Here the motions are brought by third-party defendants St. Paul, Northfield and Clarendon, but also by declaratory judgment plaintiffs Gemini, Swiss Re and TIG. These latter movants seek not mere dismissal of an opposing pleading but an affirmative judgment in their favor declaring that they had no duty to defend or indemnify Elkhart as to the Parish lawsuit. In this procedural posture, the analysis more closely resembles the summary judgment standard: " the motion may be helpful in disposing of cases in which there is no substantive dispute that warrants the litigants and the court proceeding further," and where " the movant clearly establishes that no material issue of fact remains to be resolved and that he is entitled to judgment as a matter of law." Wright & Miller, Federal Practice and Procedure: Civil 3d § 1368, p.222-23 (3rd Ed. 2004). Wright and Miller further distinguish motions under Rule 12(b) and 12(c):

The granting of a Rule 12(b) motion typically merely means that the plaintiff has failed to satisfy one of the procedural prerequisites for asserting his claim for relief. A motion for judgment on the pleadings, however, theoretically is directed towards a determination of the substantive merits of the controversy; thus, federal courts are unwilling to grant a judgment under Rule 12(c) unless it is clear that the merits of the controversy can be fairly and fully decided in this summary manner.

Id. at § 1369 (p. 259).

         There is no dispute that Indiana law governs the construction of the insurance policies at issue here. Insurance policies are contracts, and the coverage is created by the language used to define the policy's scope. As with other contracts, interpretation of the terms of an insurance policy is a matter of law for the court to decide. Home Federal Savings Bank v. Ticor Title Ins. Co., 695 F.3d 725, 729 (7th Cir. 2012); Cinergy Corp. v. Associated Elec. & Gas Ins. Services, Ltd., 865 N.E.2d 571, 574 (Ind. 2007) (" Generally, the interpretation of an insurance policy presents a question of law[.]" ). And if an insurance contract is ambiguous, the policy ...


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