American Family Mutual Insurance Company v. McCowan et al

Filing 65

OPINION AND ORDER: GRANTS 60 MOTION to Transfer Case BY CERTIFYING QUESTION OF STATE LAW TO THE INDIANA SUPREME COURT by Defendant Joseph Elliott McCowan, as outlined. The Clerk is DIRECTED to forward the itemized list of documents indicated in the Order to the Clerk of the Indiana Supreme Court. Signed by Senior Judge James T Moody on 3/30/2018. (Copy mailed as directed in Order)(lhc)

UNITED STATES DISTRICT COURT
NORTHERN DISTRICT OF INDIANA
HAMMOND DIVISION
AMERICAN FAMILY MUTUAL
INSURANCE COMPANY,
Plaintiff,
v.
DUSTIN McCOWAN, et al.,
Defendants.

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No. 2:14 CV 46

OPINION and ORDER
This matter is before the court on Defendant Joseph McCowan’s motion to certify
a question of state law to the Indiana Supreme Court. (DE # 60.) Defendants William
and Sandra Bach (the “Bachs”) join McCowan’s motion and provide their own response
in support of the motion to certify. (DE # 63.) Plaintiff American Family Mutual
Insurance Company (“American Family”) opposes the motion. (DE # 62.) For the
reasons stated below, the motion to certify will be granted and this court will certify a
question to the Indiana Supreme Court.
I.

BACKGROUND
A.

Procedural Background

The Bachs were the parents of Amanda Bach. Amanda died on September 16,
2011, as a result of a gunshot wound. (DE ## 12 at 3, 46-5 at 2.) On February 26, 2013,
Defendant Dustin McCowan was convicted of the murder of Amanda. (DE # 46-3.)
On March 28, 2013, the Bachs filed a lawsuit against Dustin and his father,
Defendant Joseph McCowan, in the Porter County Superior Court. (DE # 46-5.) In the

lawsuit, the Bachs allege that Dustin McCowan negligently, carelessly, recklessly,
and/or intentionally shot Amanda Bach. (Id. at 3.) They also allege Joseph McCowan
negligently failed to secure his firearms, one of which was used to shoot Amanda Bach.
(Id. at 4.)
At the time of Amanda’s death, Dustin resided at the household of his parents:
Amy and Joseph McCowan. (DE # 46-7 at 6.) American Family issued a homeowners
policy of insurance (the “Policy”) to Amy and Joseph McCowan for their residence in
Valparaiso, Indiana. (DE # 46-1.) The Policy was in force on the date of the Amanda’s
death. (Id.) Notably, the Policy—written by American Family—contains certain
exclusions from liability coverage:
Coverage D— Personal Liability and Coverage E— Medical
Expense do not apply to:
10. Intentional Injury. We will not cover bodily injury or
property damage caused intentionally by or at the direction of
any insured even if the actual bodily injury or property
damage is different than that which was expected or intended
from the standpoint of the insured.
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17. Violation of Law. We will not cover bodily injury or
property damage arising out of . . . violation of any criminal
law for which any insured is convicted.
(DE # 46-1 at 14.)
On February 14, 2014, American Family filed a complaint against Dustin
McCowan, Joseph McCowan, and the Bachs in this court. (DE # 1.) American Family
seeks a declaratory judgment stating, in essence, that it has no obligations under the

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Policy as to the actions of Dustin and Joseph McCowan which are the subject of the
lawsuit filed by the Bachs. (See id.)
B.

Summary Judgment

On July 31, 2015, American Family moved for summary judgment in this court.
(DE # 44.) In an order dated February 16, 2017, the court granted summary judgment as
to Dustin McCowan, based on the finding that liability coverage for Dustin was
excluded under the violation of law exclusion. (DE # 59 at 6.) Therefore, the remaining
issues in this matter relate only to liability coverage for Joseph McCowan.
As to Joseph McCowan, American Family argued, in sum, that even if Joseph did
cause an injury through his own negligent actions, his liability coverage would be
excluded under the Policy as a matter of law, due to Dustin’s actions. (See DE # 45 at
10–20.) The Bachs disagreed and specifically cited the Indiana Supreme Court’s holding
in Frankenmuth Mutual Insurance, Co. v. William, 690 N.E.2d 675 (Ind. 1997) in support of
their argument. In Frankenmuth, the Indiana Supreme Court specifically examined
whether the intentional acts of one insured preclude coverage for the negligent acts of a
co-insured. Id. The facts of that case involved a man who intentionally molested a child,
while his wife committed only negligence. Id. at 676, 679. Although the husband and
wife were co-insureds under the same policy, the Indiana Supreme Court concluded
that the policy’s “intentional act exclusion” did not apply to her negligence. Id. at 677,
679.

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In its order on the motion for summary judgment, this court applied the holding
of Frankenmuth while discussing the Policy's intentional injury exclusion and whether it
should apply to bar coverage for Joseph McCowan. The court concluded that “[a]t the
very least, Frankenmuth . . . support[s] the Bachs’ assertion . . . that the intentional injury
exclusion would not preclude coverage” as to Joseph McCowan. (DE # 59 at 9.)
The court also discussed whether it should apply the holding of Frankenmuth to
also bar the applicability of the violation of law exclusion, as to Joseph McCowan. (See
id. at 8–9.) In referencing conflicting District Court opinions, the court noted that the
exact scope of Frankenmuth’s holding appeared to be unsettled. (See id. at 9–10.) Thus,
the court ultimately chose not to apply Frankenmuth’s holding to the violation of law
exclusion, at that time. (Id.)
As a result, the court denied the motion for summary judgment as to Joseph
McCowan. (Id. at 10.) But, in the same order, the court also moved for summary
judgment, sua sponte, “on the question of whether summary judgment is appropriate as
to Joseph McCowan under the violation of law exclusion.” (Id.) This was done, in part,
to give the parties a further opportunity to provide briefing on the scope of the holding
of Frankenmuth.
On March 5, 2017, rather that filing a brief regarding the sua sponte motion,
Joseph McCowan filed a new motion to certify a question of state law to the Indiana
Supreme Court. (DE # 60.) The court previously stayed the briefing deadlines on the
motion for summary judgment and will now address the motion to certify.

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II.

CERTIFICATION
The Indiana Rules of Appellate Procedure allow “any federal district court”1 to

“certify a question of Indiana law to the Supreme Court when it appears that a
proceeding presents an issue of state law that is determinative of the case and on which
there is no clear controlling Indiana precedent.” Ind. R. App. P. 64(A). Either party may
request that a federal court certify a question of state law, and the decision to grant or
deny a motion to certify is discretionary with the district court. United Farm Bureau Mut.
Ins. Co. v. Metro Human Relations Comm’n, 24 F.3d 1008, 1015, n.10 (7th Cir. 1994).
Joseph McCowan proposes that the court pose the following question to the
Indiana Supreme Court:
Does an insurance policy liability exclusion denying coverage
for “bodily injury . . . arising out of . . . violation of any
criminal law for which any insured is convicted” preclude the
duty to defend and indemnify a co-insured who was not
convicted, and is only sued for negligence?
(DE # 60 at 1.) Meanwhile, the Bachs propose a broader, but similar, question covering
both the intentional injury and violation of law exclusions:
[W]hether the severability provision in [the Policy] serves to
provide a duty to defend and indemnify an insured being sued
only for negligence, notwithstanding the intentional or
criminal act of another insured.

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American Family argues that this district court lacks the power to certify
questions to the Indiana Supreme Court because Indiana Code 33-24-3-6(1) does not
explicitly provide such a power to the district courts. (DE # 62 at 2.) Although that
specific statute does not provide the power to district courts, Indiana Rule of Appellate
Procedure 64 clearly provides such a power, and American Family has provided no
reason for the court to disregard that rule.
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(DE # 63 at 4.) The Bachs, unlike McCowan, mention the Policy’s severability clause in
their proposed question. The severability clause in the Policy says “[t]he insurance
applies separately to each insured.” (DE # 1-1 at 15.) According to the defendants, this
severability clause is the underlying reason why the court must determine the
applicability of each exclusion as to the first insured (Joseph McCowan) completely
independently from the actions of his co-insured (Dustin McCowan).
Regardless, although these questions are worded differently, they both ask
essentially the same question: whether the intentional or criminal acts of Dustin
McCowan should be considered when determining whether the policy’s exclusions
apply to the coverage of Joseph McCowan. In order to determine whether such a
question should be submitted to the Indiana Supreme Court, the court will first look to
see if there is any clear controlling Indiana precedent.
Frankenmuth is the Indiana Supreme Court precedent most closely related to this
issue. The insurance policy in Frankenmuth, contained an exclusion for personal injuries
“caused intentionally by or at the discretion of any insured.” 690 N.E.2d at 678. As
stated above, the court in Frankenmuth concluded that the intentional act exclusion did
not apply to the negligent co-insured’s conduct. Id. The Frankenmuth decision, itself,
does not discuss any severability clause in reaching its conclusion. Rather it supports its
holdings by reasoning that the one insured’s “negligence caused an injury—exposure to
[risk]—that must be considered separately from the injuries resulting from the
[intentional act] itself.” Frankenmuth, at 690 N.E.2d at 679. Thus, despite not mentioning

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a severability clause, Frankenmuth also supports the notion that courts should look at
each co-insureds’ conduct separately when analyzing a policy’s exclusions.
Although Frankenmuth’s holding only explicitly applies to intentional act/injury
exclusions, its holding has been extended to cover other exclusions by another judge in
this district. See American Family Mut. Ins. Co. v. Bower, 752 F. Supp. 2d 957, 960 (N.D.
Ind. 2010). In Bower, the relevant insurance policy was an American Family policy
containing the exact same language as the McCowans’ Policy in the sections outlining
personal liability coverage, the intentional injury exclusion, and the violation of law
exclusion. Id. at 962, 965. Both the policy in Bower and the Policy in the case at hand also
contain identical “sexual molestation exclusions.” (DE # 46-1 at 13); Bower, 752 F. Supp.
2d at 965. After analyzing the Frankenmuth opinion, the court in Bower found no reason
why Frankenmuth’s reasoning should not be extended to also cover the violation of law
exclusion and the sexual molestation exclusion. Bower, 752 F. Supp. 2d at 970 (“Indeed,
it would make little sense to delineate among the three exclusions . . . .”). All together,
the court held “under Indiana law the sexual molestation, the criminal law, or the
intentional acts exclusions in American Family’s policies do not apply to preclude
coverage for the alleged negligent acts of a co-insured.” Id. The Bower decision is not
itself a statement of Indiana law, but it does serve as a useful interpretation of the scope
of the Frankenmuth decision.

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The other pertinent Indiana case cited by the parties2 is Holiday Hospitality
Franchising, Inc. v. AMCO Ins. Co., 983 N.E.2d 574 (Ind. 2013). In that case, a victim was
in the care of one co-insured while abuse or molestation occurred. See id. at 580. The
policy in that case contained an exclusion barring coverage for abuse or molestation of
someone in the care of “any insured.” Id. at 581. The Indiana Supreme Court noted that
the word “any” appeared in the policy's molestation exclusion, but not in certain other
exclusions in the policy. Id. at 581, n.10. The court reasoned that distinction in wording
must mean something with respect to the molestation exclusion. Thus, since one
insured had the victim in its care, it meant that coverage was excluded as to all
insureds. Id.
The Holiday Hospitality decision does not mention Frankenmuth. However, their
holdings seem to be potentially inconsistent. Both cases involve exclusions with the
language “any insured” yet in one case the exclusion was read separately as to each
co-insured and in the other it was not. Perhaps significantly, Holiday Hospitality does not
specifically relate to intentional act exclusions. It is also possible that one of these
decisions could be distinguished from the other based on some specific facts from the
respective cases. However, since the decisions do not specifically address one another,
and because the reasoning provided in each opinion regarding these issues is relatively

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American Family also cites Deeter v. Ind. Farmers Mut. Ins. Co., 999 N.E.2d 82, 86
(Ind. Ct. App. 2013). However, Joseph McCowan correctly points out that Deeter
involved a first-party insurance claim, rather than a third-party claim. See id.; (see also
DE # 64 at 2.).
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brief, it is difficult for to this court to determine where such factual distinctions should
be drawn.3
Certifying a question would allow the Indiana Supreme Court to clarify the
holding of Frankenmuth, limit it, distinguish it from Holiday Hospitality, or expand upon
it as it sees fit; for instance, the court could articulate whether Frankenmuth is limited to
cases involving certain facts, whether it applies to all intentional act/injury exclusions,
or whether it applies to other types of exclusions, as well. Without such clarification,
this court would be forced to rule on an issue of Indiana state law that is defined by two
seemingly divergent opinions, neither of which address the other. Accordingly, the
court finds there to be no clear controlling Indiana precedent.
Having concluded there is no clear precedent, the court will now examine the
other relevant factors to the certification decision. Certification “may be appropriate
where [1] the case concerns a matter of vital public concern, [2] where the issue will
likely recur in other cases, [3] where resolution of the question to be certified is outcome
determinative of the case, and [4] where the state supreme court has yet to have an
opportunity to decide . . . the issue.” Robertson v. The Med. Assurance Co., Inc., No. 2:13CV-107 JD, 2014 WL 2556236, at * 6 (N.D. Ind. June 5, 2014) (citing Rain v. Rolls-Royce
Corp., 626 F.3d 372, 378 (7th Cir. 2010) (internal quotation marks omitted).

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American Family argues that Frankenmuth can be distinguished because it is a
case involving issues of collateral estoppel. This is possible, however, the underlying
reasoning for the ultimate conclusions in Frankenmuth are not clear enough for this
court to make such a determination with certainty.
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As to the first of these factors, American Family argues that this is not a matter of
public concern because “[t]here is no recognizable public class that would be affected by
this question of liability coverage to a person who provided the gun to a murderer.”
(DE # 62 at 8.) American Family views this issue too narrowly. Although the case at
hand has facts involving guns, the question to be certified is broader since it relates to
the interpretation of any exclusion clause in light of the conduct of a co-insured. The
question here is a matter of vital public concern, as it is important to the public’s
understanding of common clauses in insurance policies.
Second, this issue is likely to recur in other cases. In its order on summary
judgment, the court noted three prior decisions involving exclusion clauses and the
conduct of co-insureds: Frankenmuth, Bower, and Westfield Ins. Co. v. Hill, 790 F. Supp. 2d
855 (N.D. Ind. 2011). In particular, Bower featured not only the same issue but also the
same plaintiff and identical insurance policy language.
Given the similarity of this case to Bower, it is noteworthy that the judge in that
case considered certifying the same issue to the Indiana Supreme Court that this court
does here. 752 F. Supp. 2d at 969, n.9 (“The undersigned contemplated at great length
certifying these issues to the Indiana Supreme Court.”) The only reason the court did
not ultimately certify in Bower is because the court determined that resolution of the
certified questions would not be outcome determinative, due to remaining genuine
issues of material fact. (Id.) Here, there are no such remaining issues of fact and the
certified questions will determine the outcome of the case.

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On the last factor, American Family says that the Indiana Supreme Court had an
opportunity to address this issue in Holiday Hospitality. (DE # 62 at 9–10.) While the
Indiana Supreme Court took its opportunity in Holiday Hospitality to address
severability and molestation exclusions, that case did not involve the exact exclusions
which are relevant to the case at hand. In particular, this means the Indiana Supreme
Court was not obligated to address its decision’s apparent contradiction with
Frankenmuth as it relates to intentional act exclusions. Certifying the question will give
the court the opportunity to address this conflict and clarify an unclear area of law, thus
contributing to the development of the state law of Indiana.
III.

CONCLUSION
For the foregoing reasons, the court GRANTS the motion to certify (DE # 60)

and certifies the following question to the Indiana Supreme Court:
Under Indiana law, does the American Family Policy serve to
provide a duty to defend and indemnify an insured being sued
only for negligence, notwithstanding any intentional or
criminal acts of a co-insured which result in the exclusion of
coverage for that co-insured, in light of the severability clause
in the Policy?
Should the Indiana Supreme Court accept the certification of this question, it of
course has the discretion to reformulate the question as it sees fit, and nothing in this
opinion is meant to limit the scope of the inquiry undertaken by the Indiana Supreme
Court. See Craig v. FedEx Ground Package Sys., Inc., 686 F.3d 423, 431 (7th Cir. 2012).
Consistent with Indiana Rule of Appellate Procedure 64(B) the Clerk is
DIRECTED to forward the following to the Clerk of the Indiana Supreme Court: (1) a
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copy of this order; (2) a copy of the case docket, including the names of the parties and
their counsel; (3) the complaint (DE # 1); (4) the motion for summary judgment and
related briefing (DE ## 44–46, 50–51, 54); and (5) this court’s February 16, 2017, order
(DE # 59).
SO ORDERED.
Date: March 30, 2018
s/James T. Moody
JUDGE JAMES T. MOODY
UNITED STATES DISTRICT COURT

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