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Selective Insurance Co. of America v. Smiley Body Shop, Inc.

United States District Court, S.D. Indiana, Indianapolis Division

May 26, 2017

Selective Insurance Company of America, Plaintiff,
v.
Smiley Body Shop, Inc., Jeffrey Smiley, and Greg Callahan, Defendants, Cincinnati Insurance Company, Intervenor Plaintiff,
v.
Selective Insurance Company of America, Smiley Body Shop, Inc., Jeffrey Smiley, and Greg Callahan, Intervenor Defendants.

          ORDER

          Hon. Jane Magnus-Stinson, Chief Judge

         On February 26, 2015, Defendants Jeffrey Smiley and Greg Callahan were riding in a pickup truck owned by Defendant Smiley Body Shop, Inc. (“SBS”) when they were involved in a single car accident. Mr. Callahan was injured in the accident, and filed a lawsuit in Indiana State Court against Mr. Smiley, SBS, and General Motors, LLC (the “Underlying Lawsuit”). Plaintiff Selective Insurance Company of America (“Selective”) agreed to defend Mr. Smiley and SBS in the Underlying Lawsuit pursuant to an insurance policy it had issued to SBS, although it did so under a reservation of rights. In January 2016, Selective initiated this litigation seeking a declaration that it does not owe a duty to defend or any coverage to Mr. Smiley or SBS in connection with the Underlying Lawsuit. Additionally, Cincinnati Insurance Company (“Cincinnati”), which issued an automobile insurance policy and an umbrella liability policy to Mr. Smiley and his wife, has intervened in this litigation and requests a declaration that neither policy provides coverage for the Underlying Lawsuit. All parties have moved for summary judgment, [Filing No. 88; Filing No. 90; Filing No. 93], and the motions are now ripe for the Court's decision.

         I.

         Standard of Review

         A motion for summary judgment asks the Court to find that a trial is unnecessary because there is no genuine dispute as to any material fact and, instead, the movant is entitled to judgment as a matter of law. See Fed.R.Civ.P. 56(a). As the current version of Rule 56 makes clear, whether a party asserts that a fact is undisputed or genuinely disputed, the party must support the asserted fact by citing to particular parts of the record, including depositions, documents, or affidavits. Fed.R.Civ.P. 56(c)(1)(A). A party can also support a fact by showing that the materials cited do not establish the absence or presence of a genuine dispute or that the adverse party cannot produce admissible evidence to support the fact. Fed.R.Civ.P. 56(c)(1)(B). Affidavits or declarations must be made on personal knowledge, set out facts that would be admissible in evidence, and show that the affiant is competent to testify on matters stated. Fed.R.Civ.P. 56(c)(4). Failure to properly support a fact in opposition to a movant's factual assertion can result in the movant's fact being considered undisputed, and potentially in the grant of summary judgment. Fed.R.Civ.P. 56(e).

         In deciding a motion for summary judgment, the Court need only consider disputed facts that are material to the decision. A disputed fact is material if it might affect the outcome of the suit under the governing law. Hampton v. Ford Motor Co., 561 F.3d 709, 713 (7th Cir. 2009). In other words, while there may be facts that are in dispute, summary judgment is appropriate if those facts are not outcome determinative. Harper v. Vigilant Ins. Co., 433 F.3d 521, 525 (7th Cir. 2005). Fact disputes that are irrelevant to the legal question will not be considered. Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 248 (1986).

         On summary judgment, a party must show the Court what evidence it has that would convince a trier of fact to accept its version of the events. Johnson v. Cambridge Indus., 325 F.3d 892, 901 (7th Cir. 2003). The moving party is entitled to summary judgment if no reasonable fact-finder could return a verdict for the non-moving party. Nelson v. Miller, 570 F.3d 868, 875 (7th Cir. 2009). The Court views the record in the light most favorable to the non-moving party and draws all reasonable inferences in that party's favor. Darst v. Interstate Brands Corp., 512 F.3d 903, 907 (7th Cir. 2008). It cannot weigh evidence or make credibility determinations on summary judgment because those tasks are left to the fact-finder. O'Leary v. Accretive Health, Inc., 657 F.3d 625, 630 (7th Cir. 2011). The Court need only consider the cited materials, Fed.R.Civ.P. 56(c)(3), and the Seventh Circuit Court of Appeals has “repeatedly assured the district courts that they are not required to scour every inch of the record for evidence that is potentially relevant to the summary judgment motion before them, ” Johnson, 325 F.3d at 898. Any doubt as to the existence of a genuine issue for trial is resolved against the moving party. Ponsetti v. GE Pension Plan, 614 F.3d 684, 691 (7th Cir. 2010).

         “The existence of cross-motions for summary judgment does not, however, imply that there are no genuine issues or material fact.” R.J. Corman Derailment Servs., LLC v. Int'l Union of Operating Engineers, 335 F.3d 643, 647 (7th Cir. 2003). Specifically, “[p]arties have different burdens of proof with respect to particular facts; different legal theories will have an effect on which facts are material; and the process of taking the facts in the light most favorable to the non-movant, first for one side and then for the other, may highlight the point that neither side has enough to prevail without a trial.” Id. at 648.

         II.

         Statement of Facts

         A. The Selective Policy

         Selective issued Policy No. S 103647007 to SBS, doing business as Chameleon Carts, with a policy period of January 31, 2015 to January 31, 2016 (the “Selective Policy”). [Filing No. 88-2.] Subject to several exclusions, the Selective Policy provides:

• “Business Auto Coverage, ” which provides that “[Selective] will pay all sums an ‘insured' legally must pay as damages because of ‘bodily injury' or ‘property damage' to which this insurance applies, caused by an ‘accident' and resulting from the ownership, maintenance or use of a covered ‘auto'.” [Filing No. 88-2 at 32.]
• “Commercial Umbrella Liability Coverage, ” which provides that “[Selective] will pay on behalf of the insured the ‘ultimate net loss' in excess of the ‘retained limit' that the insured becomes legally obligated to pay as damages because of ‘bodily injury', ‘property damage' or ‘personal and advertising injury' to which this insurance applies….” [Filing No. 88-2 at 53.][1]

         B. The Cincinnati Policies

         Cincinnati issued Automobile Policy No. A01 0637093 to Mr. Smiley and his wife, Mary Smiley, with a policy period of August 1, 2014 to August 1, 2015 (the “Cincinnati Auto Policy”). [Filing No. 93-3.] Subject to exclusions, the Cincinnati Auto Policy provides coverage “[w]hen a ‘covered person' becomes legally responsible because of an auto accident or for physical damage to a ‘nonowned auto'….” [Filing No. 93-3 at 9.]

         Cincinnati also issued Personal Umbrella Liability Policy No. U01-0637093 to Mr. and Mrs. Smiley with a policy period of August 1, 2014 to August 1, 2015 (the “Cincinnati Umbrella Policy”). [Filing No. 93-5.] The Cincinnati Umbrella Policy provides coverage, subject to policy exclusions, for “‘ultimate net loss' which the ‘insured' is legally obligated to pay as damages for ‘bodily injury' arising out of an ‘occurrence' to which this insurance applies…[w]hich is in excess of the ‘underlying insurance'; or…[w]hich is either excluded or not covered by ‘underlying insurance.'” [Filing No. 93-5 at 12.]

         C. The Accident, the Insurance Claims, and the Underlying Lawsuit

         On February 26, 2015, Mr. Smiley was driving a 2006 Chevy Silverado, which was owned by SBS, and Mr. Callahan was a passenger. [Filing No. 88-3 at 47-48; Filing No. 88-10 at 14.] They were travelling to a Recreational Vehicle (“RV”) parts store in Elkhart, Indiana to pick up parts that Mr. Smiley had ordered the month before, when they were involved in a single-car accident. [Filing No. 88-3 at 49; Filing No. 88-10 at 14.]

         Mr. Smiley reported the accident to Selective on March 2, 2015, and initiated a claim for coverage under the Selective Policy. [Filing No. 88-2; Filing No. 88-18.] On March 4, 2015, SBS reported Mr. Callahan's injuries to its workers' compensation carrier, NorGUARD Insurance Company (“NorGUARD”). [Filing No. 88-12.] NorGUARD denied coverage, after a brief investigation, on April 16, 2015. [Filing No. 88-19.] Its explanation for the denial stated “NO EMPLOYEE, EMPLOYER RELATIONSHIP, AND/OR INJURY DID NOT ARISE OUT OF AND IN THE COURSE OF EMPLOYMENT WITH SMILEY BODY SHOP, LLC.” [Filing No. 88-19 at 2.]

         In the meantime, Mr. Callahan initiated the Underlying Lawsuit against SBS and Mr. Smiley and Selective provided a defense for both under a reservation of rights. [Filing No. 88- 18.] SBS obtained summary judgment in the Underlying Lawsuit on November 29, 2016, and is no longer a party to the Underlying Lawsuit. Mr. Smiley, however, remains a defendant in the Underlying Lawsuit.

         D. The Coverage Lawsuit

         Selective filed its Complaint for Declaratory Judgment on January 6, 2016, [Filing No. 1], and filed the operative First Amended Complaint for Declaratory Judgment against SBS, Mr. Smiley, and Mr. Callahan on January 13, 2016, [Filing No. 10]. In its Amended Complaint, Selective points to several exclusions in the Selective Policy that it alleges preclude coverage, and seeks declarations that the Selective Policy does not provide coverage for either SBS or Mr. Smiley for the Underlying Lawsuit, that it may withdraw from providing a defense for either SBS or Mr. Smiley in the Underlying Lawsuit, and that SBS and Mr. Smiley must reimburse Selective for fees and costs Selective has paid for their defense in the Underlying Lawsuit. [Filing No. 10.]

         On February 18, 2016, Cincinnati moved to intervene in this lawsuit, [Filing No. 22], the Court granted the motion, [Filing No. 24], and Cincinnati filed a Complaint for Declaratory Judgment on February 26, 2016, [Filing No. 29]. Cincinnati notes several exclusions in the Cincinnati Auto Policy and the Cincinnati Umbrella Policy, and requests: (1) a declaration that the Cincinnati Auto Policy does not provide coverage for Mr. Smiley and/or SBS for claims being asserted by Mr. Callahan in the Underlying Lawsuit; (2) a declaration stating whether the Cincinnati Umbrella Policy provides coverage to Mr. Smiley and/or SBS for claims asserted by Mr. Callahan in the Underlying Lawsuit; and (3) a declaration stating whether the Cincinnati Umbrella Policy is an excess policy such that any duty of Cincinnati to defend or indemnify Mr. Smiley and/or SBS for claims asserted by Mr. Callahan in the Underlying Lawsuit is triggered only after coverage under the Selective Policy has been exhausted. [Filing No. 29 at 19.]

         All parties filed summary judgment motions on December 2, 2016, and the motions are now fully briefed and ripe for the Court's decision. [Filing No. 88; Filing No. 90; Filing No. 93.] The Court notes at the outset that Selective, SBS, and Mr. Smiley have not complied with the Court's Practices and Procedures, which specifically state that:

If a party plans to file a motion for summary judgment, counsel for that party shall contact counsel for the other parties to the action to determine if any other party also plans to file a motion for summary judgment. In the event that more than one party plans to file a motion for summary judgment, Judge Magnus-Stinson prefers to avoid simultaneous briefs on “mirror image” motions. Rather than the normal brief, response, and reply for each motion, she prefers four briefs as follows on cross motions for summary judgment:
1. Motion and Brief in Support by Party A (limited to 35 pages);
2. Cross-Motion, Brief in Support and Response in Opposition by Party B (limited to 55 pages);
3. Reply in Support of Motion and Response in Opposition to Cross-Motion by Party A (limited to 40 pages);
4. Reply in Support of Cross-Motion by Party B (limited to 20 pages).

[Filing No. 7 at 2-3.] Instead of following this procedure, Selective on the one hand and SBS and Mr. Smiley on the other filed Motions for Summary Judgment on the same day and, subsequently, responses and replies with each motion. The briefs are lengthy, and there is significant duplication of arguments. This has made the Court's review of the motions unnecessarily burdensome. The parties and counsel should ensure that they comply with the Court's Practices and Procedures going forward in this and other cases. In any event, the Court has done its best to parse through the briefs and match up arguments and responses.

         III.

         Generally Applicable Insurance Law

         When the Court exercises diversity jurisdiction over an action, it is “obliged to apply state law to the substantive issues in the case.” Lodholtz v. York Risk Servs. Grp., Inc., 778 F.3d 635, 639 (7th Cir. 2015) (citing Erie RR. Co. v. Tompkins, 304 U.S. 64, 78 (1938)). The parties do not dispute that Indiana law governs this action. Accordingly, this Court must “apply the law that would be applied by the Indiana Supreme Court.” Lodholtz, 778 F.3d at 639. “If the Indiana Supreme Court has not spoken on the issue, [the Court] generally treat[s] decisions by the state's intermediate appellate courts as authoritative, unless there is a compelling reason to think that the state supreme court would decide the issue differently.” Id.

         The Indiana Supreme Court has summarized the well-established standards for interpreting insurance policies in Indiana as follows:

Interpretation of an insurance policy presents a question of law that is particularly suitable for summary judgment. It is well settled that where there is ambiguity, insurance policies are to be construed strictly against the insurer and the policy language is viewed from the standpoint of the insured. This is especially true where the language in question purports to exclude coverage. Insurers are free to limit the coverage of their policies, but such limitations must be clearly expressed to be enforceable. Where provisions limiting coverage are not clearly and plainly expressed, the policy will be construed most favorably to the insured, to further the policy's basic purpose of indemnity. Where ambiguity exists not because of extrinsic facts but by reason of the language used, the ambiguous terms will be construed in favor of the insured for purposes of summary judgment.

State Auto. Mut. Ins. Co. v. Flexdar, Inc., 964 N.E.2d 845, 848 (Ind. 2012) (citations and quotations omitted).

         The Court will “construe the insurance policy as a whole and consider all of the provisions of the contract and not just the individual words, phrases, or paragraphs.” West Bend Mut. Ins. Co. v. U.S. Fid. & Guar. Co., 598 F.3d 918, 921 (7th Cir. 2010) (applying Indiana law). Words are given their ordinary meaning, though where ambiguity exists the policy is read “strictly against the insurer.” Id.Ambiguous language in the policy is resolved in favor of the insured as long as such an interpretation harmonizes the provisions of the contract as a whole. Holiday Hospitality Franchising, Inc. v. AMCO Ins. Co., 983 N.E.2d 574, 578 (Ind. 2013). Failure to define a term in the policy “does not necessarily make that term ambiguous, nor does a simple disagreement about the term's meaning.” Id. (citation omitted). “Rather, an ambiguity exists where the provision is susceptible to more than reasonable interpretation.” Id. (citation and quotation omitted). Where the terms of an insurance policy are clear and unambiguous, the Court “will apply the plain and ordinary meaning of the terms and enforce the contract according to its terms….[T]he parties' intent is to be determined by reviewing the language contained within the ‘four corners' of the contract, and ‘parol or extrinsic evidence is inadmissible to expand, vary, or explain the instrument unless there has been a showing of fraud, mistake, ambiguity, illegality, duress or undue influence.' Extrinsic evidence cannot be used to create an ambiguity.” Bar Plan Mut. Ins. Co. v. Likes Law Office, LLC, 44 N.E.3d 1279, 1285 (Ind.Ct.App. 2015) (citations omitted).

         IV.

         Coverage Under the ...


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