Allstate Insurance Company v. McColly Realtors Inc et al

Filing 36

OPINION AND ORDER: Allstate's motion for summary judgment 26 is GRANTED. Defendants' cross motion for summary judgment 30 is DENIED. The Clerk of Court is DIRECTED to enter a DECLARATORY JUDGMENT in favor of Allstate declaring that under insurance policy number 648550390, Allstate has no duty to defend or indemnify McColly Realtors, Inc. and/or Ruth Lockhart against claims asserted by Rosemary Purnell in case number 45D01-1503-CT-50 in Lake Superior Court. Signed by Judge Rudy Lozano on 10/31/2017. (jss)

IN THE UNITED STATES DISTRICT COURT
FOR THE NORTHERN DISTRICT OF INDIANA
HAMMOND DIVISION
ALLSTATE INSURANCE COMPANY,

)
)
)
)
)
)
)
)
)
)
)
)
)

Plaintiff,
vs.
MCCOLLY REALTORS, INC.,
RUTH LOCKHART, and
ROSEMARY PURNELL, AS
ADMINSTRATRIX OF THE ESTATE OF
KENNETHA PURNELL, DECEASED,
Defendants.

NO. 2:16-cv-00142

OPINION AND ORDER
This

matter

is

before

the

Court

on

Allstate

Insurance

Company’s (“Allstate”) Motion for Summary Judgment, filed on April
7, 2017 (DE #26), and Cross Motion for Summary Judgment by McColly
Realtors, Inc. and Ruth Lockhart filed on May 19, 2017 (DE #30).
For the reasons set forth below, Allstate’s motion for summary
judgment (DE #26) is GRANTED. Defendants’ cross motion for summary
judgment (DE #30) is DENIED.

The Clerk of the Court is DIRECTED

to enter a DECLARATORY JUDGMENT in favor of Allstate declaring
that under insurance policy number 648550390, Allstate has no duty
to defend or indemnify McColly Realtors, Inc. and/or Ruth Lockhart
against claims asserted by Rosemary Purnell in case number 45D011503-CT-50 in Lake Superior Court.

‐1‐ 

BACKGROUND
On

October

12,

2013,

Kennetha

Purnell

(“Kennetha”),

her

husband and two children died when carbon monoxide gas infiltrated
the home they were leasing from a generator operating in the
garage.

Kennetha’s mother, Rosemary Purnell (“Purnell”), filed a

wrongful death suit against the homeowner.

Purnell later amended

her complaint (“Underlying Complaint”) to include a wrongful death
claim against McColly Realtors, Inc. and Ruth Lockhart (together,
“Defendants”), asserting that the homeowner had contracted with
Defendants for the purpose of leasing the home.
Defendants requested that Allstate defend and indemnify them
against the Underlying Complaint pursuant to an Allstate insurance
policy held by McColly Realtors, Inc. (“McColly”). Allstate agreed
to defend the Defendants under a reservation of rights, and filed
the instant declaratory judgment action against Defendants and
Purnell.1

Allstate now moves for summary judgment, asking the

Court to find that the insurance policy does not provide coverage
for the claim in the Underlying Complaint, and that Allstate has
no duty to defend or indemnify the Defendants in that action.

The

Defendants oppose this motion and filed a cross motion for summary
judgment.

The motions have been fully briefed and are ripe for

adjudication.

1

 The Court granted default judgment against Purnell and the Clerk
entered judgment on October 5, 2016. (DE #20, #21.) 

‐2‐ 

SUMMARY JUDGMENT STANDARD
Summary judgment must be granted when “there is no genuine
dispute as to any material fact and the movant is entitled to
judgment as a matter of law.”

Fed. R. Civ. P. 56(a).

A genuine

dispute of material fact exists when “the evidence is such that a
reasonable jury could return a verdict for the nonmoving party.”
Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 248, 106 S. Ct.
2505, 91 L. Ed. 2d 202 (1986).

Not every dispute between the

parties makes summary judgment inappropriate; “[o]nly disputes
over facts that might affect the outcome of the suit under the
governing

law

judgment.”

will

Id.

properly

preclude

the

entry

of

summary

In determining whether summary judgment is

appropriate, the court must construe all facts in the light most
favorable to the nonmoving party and draw all reasonable inferences
in that party’s favor.
Cir. 2010).

Ogden v. Atterholt, 606 F.3d 355, 358 (7th

“However, our favor toward the nonmoving party does

not extend to drawing inferences that are supported by only
speculation or conjecture.”

Fitzgerald v. Santoro, 707 F.3d 725,

730 (7th Cir. 2013) (citation omitted).
While the movant bears the initial burden of production to
inform the district court why a trial is not necessary, these
requirements “are not onerous” where the nonmoving party “bears
the

ultimate

burden

of

persuasion

on

a

particular

issue.”

Modrowski v. Pigatto, 712 F.3d 1166, 1168 (7th Cir. 2013). A party
‐3‐ 

may move for summary judgment based on either “affirmative evidence
that negates an essential element of the nonmoving party’s claim”
or

by

“asserting

that

the

nonmoving

party’s

evidence

[is]

insufficient to establish an essential element of the nonmoving
party’s claim.”
omitted).

Id. at 1169 (citation and internal quotations

A party opposing a properly supported summary judgment

motion may not rely on allegations or denials in his own pleading,
but rather, must “marshal and present the court with the evidence
[he] contends will prove [his] case.”

Goodman v. Nat'l Sec.

Agency, Inc., 621 F.3d 651, 654 (7th Cir. 2010).

If the nonmoving

party fails to establish the existence of an essential element on
which he bears the burden of proof at trial, summary judgment is
proper.

Massey v. Johnson, 457 F.3d 711, 716 (7th Cir. 2006).

“Interpretation of a written contract, including a contract
of insurance, typically presents a question of law suitable for
resolution on motions for summary judgment.”

Royer v. USAA Cas.

Ins. Co., 781 F. Supp. 2d 767, 770 (N.D. Ind. 2011) (citation
omitted).

“When the question presented is whether an insurance

policy provides liability coverage for a particular claim or
lawsuit, the central material facts are ordinarily the terms of
the

written

allegations

contract
in

the

and

the

underlying

omitted).

‐4‐ 

contents

of

litigation.”

the
Id.

plaintiff's
(citation

FACTS
The Court finds the following undisputed facts to be supported
by admissible evidence in the record:2
The Underlying Complaint
Purnell, as administratrix of Kennetha’s estate, filed a
lawsuit against Madeline Chale (“Chale”) in Lake County Superior
Court entitled Purnell v. Chale, No. 45D01-1503-CT-50 (“Underlying
Lawsuit”).

Purnell’s

Second

Amended

Complaint

(“Underlying

Complaint”) asserts claims against Chale and Defendants.

The

Underlying Complaint alleges that Chale was the owner of premises
located

in

Merrillville,

Indiana

(“premises”

or

“property”).

Count I alleges that as of October 1, 20l3, Kennetha leased the
property

from

Chale,

and

that

Chale

owed

a

duty

to

follow

applicable law in leasing the premises, and a duty to warn of
latent or concealed dangers, to the residents of the premises.

It

alleges

to

that

Chale

negligently

and/or

recklessly

failed

register the premises as a rental as required by law, thereby
causing the premises to be leased without proper inspection.
According to the Underlying Complaint, an inspection would have
revealed that the property was not fit for habitation,  including
insufficient barrier protection against infiltration of harmful

2

 The parties also address minor issues of fact in their briefing
on the motions for summary judgment. The Court finds that those
issues are not material to ruling on the motions. 

‐5‐ 

gases from the garage to the living quarters of the premises.
Count I alleges that Chale’s violation of law, failure to warn
and/or concealment of a latent and dangerous condition wrongfully
caused the deaths of Kennetha, her husband and two minor children
(together, “Kennetha’s family”) on October 12, 2013, when carbon
monoxide infiltrated the living quarters of the premises from a
generator operating in the garage.
Count II asserts a similar wrongful death claim against
McColly and Ruth Lockhart (“Lockhart”), who was allegedly working
in her capacity as an agent and/or employee of McColly.
1, Ex. A at ¶13.)

(DE #1-

Count II states in part:



“Chale hired, contracted with and/or otherwise engaged
McColly Real Estate by and through its agent and/or
employee Lockhart for purposes of leasing the premises.
. . . As a result, [Defendants] had a duty to follow
applicable law, including local codes and/or ordinances,
in leasing the premises, as well as a duty to warn of
latent or concealed dangers to residents.” (Id. at ¶¶1516.)



Defendants “negligently and/or recklessly failed to
register the premises as a rental as required by
applicable
law,
including
local
codes
and/or
ordinances.” (Id., ¶17.)



Defendants’ “violation of law . . . caused the property
to be leased without proper inspection which would have 
revealed that it was not fit for habitation and/or was
otherwise in violation of applicable law, including
local codes and/or ordinances, including . . .
insufficient barrier protection against infiltration of
harmful gases such as carbon monoxide from the garage to
the living quarters of the premises.” (Id., ¶18.)

‐6‐ 

Count II alleges that Defendants’ violation of law, failure to
warn, and/or concealment of a latent and dangerous condition
wrongfully caused the deaths of Kennetha’s family.
The Policy
Allstate issued Commercial Package Policy number 648550390 to
McColly

effective

(“Policy”).

December

15,

2012

to

December

15,

2013

The Policy includes commercial general liability

(“CGL”) bodily injury and property damage coverage (“Coverage A”).
Coverage A states in part:
We will pay those sums that the insured becomes
legally obligated to pay as damages because of
“bodily injury” or “property damage” to which this
insurance applies. We will have the right and duty
to defend the insured against any "suit" seeking
those damages. However, we will have no duty to
defend the insured against any "suit" seeking
damages for "bodily injury" or "property damage" to
which this insurance does not apply. . . .
(DE #1-1 at 101.) 

Coverage A only applies if “[t]he ‘bodily

injury’ or ‘property damage’ is caused by an ‘occurrence’. . . .”
(Id.)

The Policy defines “occurrence” as “an accident, including

continuous or repeated exposure to substantially the same general
harmful conditions.”

(Id. at 114.)

The term “bodily injury” is

defined as “bodily injury, sickness or disease sustained by a
person, including death resulting from any of these at any time.”
(Id. at 113.)

The term “suit” is defined as “a civil proceeding

in which damages because of ‘bodily injury,’ ‘property damage’ or

‐7‐ 

‘personal and advertising injury’ to which this insurance applies
are alleged.”

(Id. at 115.)

The Policy includes personal and advertising injury liability
coverage (“Coverage B”), which states in part:
We will pay those sums that the insured becomes legally
obligated to pay as damages because of “personal and
advertising injury” to which this insurance applies. We
will have the right and duty to defend the insured
against any "suit" seeking those damages. However, we
will have no duty to defend the insured against any
"suit" seeking damages for "personal and advertising
injury" to which this insurance does not apply.
(Id. at 106.)

“Personal and advertising injury” is defined in

part as “injury, including consequential ‘bodily injury’, arising
out of one or more of the following offenses: . . . The wrongful
eviction from, wrongful entry into, or invasion of the right of
private occupancy of a room, dwelling or premises that a person
occupies, committed by or on behalf of its owner, landlord or
lessor.”

(Id. at 114.)

The Policy also includes a Real Estate Agents or Brokers
Errors or Omissions Exclusion (“Realtor E&O Exclusion”), which
states

that

the

Policy

“does

not

apply

to

‘bodily

injury,’

‘property damage’ or ‘personal and advertising injury’ arising out
of any misrepresentation, error or omission by you or any real
estate agent or broker who is either employed by you or performing
work on your behalf in such capacity.”

‐8‐ 

(Id. at 132.)

Defendants requested that Allstate defend and indemnify them
under the Policy against the Underlying Lawsuit.

Allstate agreed

to defend under a reservation of rights, and commenced this
declaratory judgment action.
Complaint for Declaratory Judgment and Additional Facts
Allstate’s Complaint for Declaratory Judgment alleges three
counts seeking declarations that: (1) Lockhart does not qualify as
an insured under the Policy; (2) the Underlying Complaint does not
allege an “occurrence” under the Policy; and (3) the Realtor E&O
Exclusion applies to exclude coverage.3

(DE #1.)

The complaint

attaches a contract between Chale and McColly for the lease or
sale

of

Chale’s

Contract”).

property

dated

September

9,

2013

(“Listing

The Listing Contract provides that Chale appoints

McColly as Chale’s broker with the exclusive right to sell,
exchange, or lease the property, and was executed by Chale,
McColly, and Lockhart as “salesperson/agent.” (DE #1-1 at 14.)
The Lake County Coroner’s autopsy reports of Kennetha and her
children state that the manner of death was “ACCIDENT,” and the
cause of death was carbon monoxide poisoning.

(See, e.g., DE #32

at 12, 66.)

3

 In the instant motions, the parties do not address the issue of
whether Lockhart qualifies as an insured under the Policy. 

‐9‐ 

In an April 2016 email regarding the Underlying Complaint, an
Allstate Commercial Claims adjuster (“Allstate adjuster”) stated
in part:
Allegations in the complaint: Failure to follow
applicable law, including local codes and/or ordinances,
in leasing a premises and listing it as rental property
and failure to warn and/or concealment of a latent and
dangerous condition, allegedly resulting in the death of
4 individuals by carbon monoxide poisoning. McColly is
being sued for all damages attributable to Lockhart's
actions through the doctrine of respondeat superior.
Liability - at this time it is our understanding the
local code and/or ordinances referenced in the complaint
applies to the owner of the property, not to the real
estate agent or broker. . . .
(DE #32-1 at 96-97.)
DISCUSSION
The parties do not dispute that Indiana law governs the
coverage obligations and duties to defend arising from the Policy.
In

Indiana,

“[t]he

interpretation

of

an

insurance

policy

is

primarily a question of law for the court, and it is therefore a
question
Wagner

which

v.

is

Yates,

particularly
912

N.E.2d

suited

805,

808

for

summary

(Ind.

2009)

judgment.”
(citation

omitted). In an insurance policy dispute under Indiana law, “[t]he
insured is required to prove that its claims fall within the
coverage provision of its policy, but the insurance provider bears
the burden of proving specific exclusions or limitations to policy
coverage.”

Ind. Funeral Dirs. Ins. Tr. v. Trustmark Ins. Corp.,

347 F.3d 652, 654 (7th Cir. 2003) (citation omitted).
‐10‐ 

“Under

Indiana law, insurance contracts are governed by the same rules of
construction

as

other

contracts.”

Id.

(citation

omitted).

“[C]lear and unambiguous language in an insurance policy should be
given its plain and ordinary meaning, even if those terms limit an
insurer’s liability.”

Everett Cash Mut. Ins. Co. v. Taylor, 926

N.E.2d 1008, 1012 (Ind. 2010) (internal citation omitted).

Where

policy language is ambiguous, Indiana courts generally construe it
strictly against the insurer and in favor of the insured.

Id.

“[A]n ambiguity does not exist simply because an insured and an
insurer disagree about the meaning of a provision, but only if
reasonable

people

contract’s terms.”

could

disagree

about

the

meaning

of

the

Empire Fire v. Frierson, 49 N.E.3d 1075, 1079

(Ind. Ct. App. 2016) (citations omitted).
Allstate argues that it has no duty under the Policy to defend
or indemnify Defendants for the claim made against them in the
Underlying Complaint.

An insurer’s duty to defend is broader than

its duty to indemnify.

Newnam Mfg., Inc. v. Transcontinental Ins.

Co., 871 N.E.2d 396, 401 (Ind. Ct. App. 2007).

Indiana courts

“determine the insurer’s duty to defend from the allegations
contained within the complaint and from those facts known or
ascertainable by the insurer after reasonable investigation.”
(citation omitted).

Id.

“Typically, an insurer has a duty to defend

its insured against suits alleging facts that might fall within
the coverage.”

Federal Ins. Co. v. Stroh Brewing Co., 127 F.3d
‐11‐ 

563, 566 (7th Cir. 1997).

If the pleadings demonstrate that “a

claim is clearly excluded under the policy, then no defense is
required.”

Newnam, 871 N.E.2d at 401.

“It is the nature of the

claim, not its merit, which establishes the insurer's duty to
defend.”

Trisler v. Indiana Ins. Co., 575 N.E.2d 1021, 1023 (Ind.

Ct. App. 1991).

“[A]n insurer who has no duty to defend has no

duty to indemnify its insured either.

Conversely, where there is

a duty to defend, the duty to indemnify must await resolution of
the underlying suits.”

Pekin Ins. Co. v. Main St. Cons't., Inc.,

No. 106-CV-0961-TAB-DFH, 2007 WL 1597924, at *4 (S.D. Ind. June 1,
2007) (citing United Nat. Ins. Co. v. Dunbar & Sullivan Dredging
Co., 953 F.2d 334, 338 (7th Cir. 1992)).
“Occurrence” under Coverage A
Allstate

asserts

that

the

Underlying

Complaint

does

not

allege an “occurrence” as required by Coverage A of the Policy.
Coverage

A

provides

coverage

for

damages

for

including death, caused by an occurrence.

bodily

injury,

The Policy defines

“occurrence” as “an accident, including continuous or repeated
exposure to substantially the same general harmful conditions.”
(DE

#1-1

at

114.)

Defendants

argue

that

because

the

term

“accident” is not defined in the Policy, it should be construed
against Allstate.

But the Indiana Supreme Court has “reaffirmed

that an accident means an unexpected happening without an intention
or design.”

Tri-Etch, Inc. v. Cincinnati Ins. Co., 909 N.E.2d
‐12‐ 

997, 1002 (Ind. 2009) (citing Auto–Owners Ins. Co. v. Harvey, 842
N.E.2d 1279, 1283 (Ind. 2006)).
deaths

of

Coverage

Kennetha’s

A,

and

thus,

family

Defendants maintain that the

constitute

Coverage

A

an

applies

“accident”
to

the

under

Underlying

Complaint. In support, they cite the Lake County Coroner’s reports
stating

that

the

manner

of

their

deaths

was

an

“accident.”

Allstate does not dispute that the deaths were accidental.
Allstate argues that the claim alleged against Defendants is
not based on an occurrence or accident covered by Coverage A, but
rather, is based on a professional error or omission.

“[A]lthough

‘accident’ is broadly construed,” the Indiana Supreme Court has
noted the “distinction between an ‘occurrence’ as the term is used
in CGL policies, and claims based on ‘commercial or professional
conduct.’”

Id. (citation omitted).

“Claims based on negligent

performance of commercial or professional services are ordinarily
insured under ‘errors and omissions’ or malpractice policies.”
Id.

While it is undisputed the deaths of Kennetha’s family were

accidental, “[l]ack of intentional wrongdoing does not convert
every business error into an ‘accident.’”

Id. at 1001; see U.S.

Liab. Ins. Co. v. Parchman, No. 1:11-CV-01244-TWP, 2013 WL 2600406,
at *5 (S.D. Ind. June 11, 2013) (although the insured “did not
intentionally commit wrongdoing, this failure does not convert his
actions into an ‘accident’”).

‐13‐ 

Here, the Underlying Complaint alleges that Chale contracted
with Defendants “for purposes of leasing the premises,” and that
“[a]s a result” of this contractual relationship, Defendants “had
a duty to follow applicable law” in leasing the premises, and a
duty to warn residents of latent or concealed dangers.
Ex. A, ¶¶15, 16.)

(DE #1-1,

It alleges that Defendants “negligently and/or

recklessly failed to register the premises as a rental property as
required by applicable law,” and that the violation of such law
caused the property to be leased without proper inspection.
¶17; see id. ¶18.)
and/or

the

absence

(Id.

Defendants’ alleged “violation of the law
of

a

proper

inspection

.

.

.

wrongfully

concealed a latent and dangerous condition,” which allegedly led
to the belief that a generator could be operated in the garage
without risk of harm to the residents in the house, and allegedly
caused the deaths of Kennetha’s family.

(Id. ¶¶19-20.)

The parties rely upon several Indiana court opinions that
address whether a claim is based on an “occurrence” or “accident”
for the purpose of determining insurance coverage.
Insurance

Company

v.

American

Painting

Company,

In

Erie

American’s

employee burglarized and set fire to the home of its customer.
678 N.E.2d 844, 845 (Ind. Ct. App. 1997).

The homeowner sued

American, alleging that its negligent hiring and retention of the
employee caused the property damage.

American’s insurer sought a

declaration of no liability insurance coverage for those claims.
‐14‐ 

The policy defined “occurrence” as “an accident.”

Id. at 846.

The court noted that “[i]n the context of insurance coverage,
[Indiana courts] have held that an accident means ‘an unexpected
happening

without

an

intention

or

design.’”

Id.

(citation

omitted). The court held that even if American’s actions of hiring
and

retaining

the

employee

were

proven

to

be

careless

negligent, they “were intentional, not accidental.”
omitted).

and

Id. (citation

As such, the homeowner’s “action against American did

not arise from an ‘accident’ and, thus, was not the result of an
‘occurrence’” as defined by the policy.

Id.

Defendants attempt to distinguish Erie from the instant case
by

contrasting

retaining

the

American’s
employee

intentional

with

conduct

Defendants’

in

lack

regarding Kennetha’s family’s use of the generator.
is

unpersuasive.

In

both

Erie

and

the

instant

hiring

of

and

knowledge

This argument
matter,

the

insured’s alleged liability is based on the insured’s alleged
conduct.

American was allegedly liable based on its negligent

hiring and retention of its employee; the Underlying Complaint
alleges

that

Defendants

are

liable

for

negligently

and/or

recklessly failing in duties that arose as a result of their
contract with Chale for purposes of leasing the property. In Erie,
the court found that even if American’s hiring or retention of the
employee was proven to be negligent, it was not accidental.

Here,

Defendants do not assert that their alleged failure to perform the
‐15‐ 

alleged duties was an accident; rather, they maintain that such
duties do not apply to them.
In Auto-Owners Insurance Company v. Harvey, the issue was
whether an insurance policy provided coverage for the harm caused
by the insured who had pushed his girlfriend, who slipped, fell
into a river and drowned.

842 N.E.2d at 1281.

The policy provided

coverage for an “occurrence,” which the policy defined as “an
accident that results in bodily injury. . . .”

Id. at 1283.

The

question was whether the push was an “accident” under the policy,
because while the push was intentional, it possibly had unintended
consequences.

The Indiana Supreme Court found the policy language

ambiguous and construed it against the insurer, holding that the
term “occurrence” applied to the girlfriend’s slip, fall, and
drowning, and not to the insured’s push.
distinguished

Erie

and

other

cases

Id. at 1286.
as

involving

The court
“whether

‘occurrence’ applies to circumstances remote from instances of
specific personal physical conduct, but rather arising from claims
based

on

(emphasis

commercial
added);

or
see

professional
Parchman,

conduct.”

2013

WL

Id.
2600406

at
at

1284
*5

(distinguishing Harvey because it “did not involve a commercial
general liability policy, but a homeowner's insurance policy, and
further included direct physical conduct with the deceased”).
Here, there are no allegations that Defendants had any direct
personal

physical

conduct

with
‐16‐ 

Kennetha’s

family.

Rather,

Defendants’ alleged liability is based on their contract with
Chale, and the duties that allegedly arose as a result of that
contract.
In Tri-Etch, Inc. v. Cincinnati Insurance Company, a robber
had abducted a liquor store employee before the store closed at
midnight, tied him to a tree, and beat him.

909 N.E.2d at 999.

The store’s security service, which was to call the store manager
within thirty minutes if the alarm was not set at closing, failed
to call the manager until after 3:00 a.m.

Id.

found alive, but later died from his injuries.

The employee was

Id. The employee’s

estate filed a wrongful death action alleging that the security
service was negligent in failing to call the manager within thirty
minutes.

Id.

In the related insurance coverage action, the

Indiana Supreme Court held that the security service’s failure was
not an “occurrence” covered by the CGL and umbrella policies, but
rather, was a professional “error or omission” analogous to lawyer
malpractice.

Id. at 1001.

The CGL policy does not guarantee the quality of work or
products of its insureds. To the extent Tri–Etch had a
duty to [the employee], it arose from its contract with
[his] employer. This may give rise to tort liability.
See Restatement (Second) of Torts § 324A (1965). But it
does not convert a failure to meet a standard of care
under a contractually assumed duty into an “accident.”
Id.; see Allstate Ins. Co. v. Preferred Fin. Sols., Inc., 8 F.
Supp. 3d 1039, 1050-51 (S.D. Ind. 2014) (“the essential point was
that the claim was based on Tri–Etch’s simple failure to do its
‐17‐ 

job

as

promised,

a

risk

that's

involved

in

every

business

relationship, but which is not an accident covered under a general
liability insurance policy”).
The Court finds Tri–Etch to be the relevant authority guiding
its decision.

Here, the Underlying Complaint alleges the Chale

entered into a contract with Defendants to perform the service of
leasing Chale’s property.

To the extent Defendants had duties to

register the property as a rental and warn of latent dangers, they
arose from Defendants’ contract with Chale.

Defendants’ alleged

negligence and/or recklessness in failing to perform those legal
duties is “based on the failure of the insured, in his or her
professional status, to comply with . . . the standard of care for
that profession,” which is the type of liability covered by errors
and omissions insurance. Id. at 1001 (quoting 1 Couch on Insurance
§ 1:35); see id. at 1002 (“Claims based on negligent performance
of commercial or professional services are ordinarily insured
under ‘errors and omissions’ or malpractice policies.”).

The fact

that the deaths of Kennetha’s family were accidental does not alter
the analysis because “[l]ack of intentional wrongdoing does not
convert every business error into an ‘accident.’”

Id. at 1001.

As in Tri-Etch, Defendants’ alleged negligent performance of their
commercial or professional services is not an accident, and for
that reason it is not an “occurrence” covered by Coverage A.

See

id.; Allstate, 8 F. Supp. 3d at 1050 (“a business’s failure to
‐18‐ 

perform its services in the manner that it had promised is an
‘error or omission’ but not by any stretch an ‘accident’”).
Defendants attempt to distinguish Tri-Etch by asserting that
the Underlying Complaint only alleges the duties of Chale.

A

cursory review of the Underlying Complaint demonstrates otherwise:
“As a result [of the contract between Chale and Defendants],
Defendants McColly Real Estate and its agent and/or employee
Lockhart had a duty to follow applicable law, including local codes
and/or ordinances, in leasing the premises, as well as a duty to
warn of latent or concealed dangers to residents.”
A at ¶16.)

(DE #1-1, Ex.

Defendants insist that the alleged duties do not apply

to real estate agents or brokers.

In support, they rely upon an

Allstate adjuster’s email which states in part that “at this time
it is our understanding the local code and/or ordinances referenced
in the complaint applies to the owner of the property, not to the
real estate agent or broker.”

(DE #32-1 at 97.)

Defendants

maintain that the Allstate adjuster’s investigation and opinion
must be considered in determining the duty to defend.

See Newnam,

871 N.E.2d at 401 (an insurer’s duty to defend is based on the
complaint allegations and “those facts known or ascertainable by
the

insurer

after

reasonable

investigation”).

According

to

Defendants, the Allstate adjustor’s understanding that they “are
being sued for owner breaches and responsibilities and not for
broker

or

agent

responsibilities”
‐19‐ 

means

that

Defendants

may

possibly be held liable for conduct “that is not a broker or agent
error or omission.” (DE #35 at 12.) But Defendants do not identify
any claim under which they could be held liable for Chale’s
breaches and responsibilities.

See Trustmark, 347 F.3d at 654

(the insured bears the burden to prove that claims fall within the
coverage provision of its policy).
The

sole

claim

against

Defendants

is

based

on

their

contractual relationship with Chale to lease the property, which
allegedly resulted in legal duties to register the property as a
rental and to warn residents of latent or concealed dangers.

(See

DE #1-1, Ex. A ¶16.) While the Allstate adjuster opines that these
obligations do not apply to real estate agents or brokers, her
opinion goes to the merits of the claim against Defendants.
Indiana courts have held that the Court must consider “the nature
of the claim, not its merit,” in determining whether an insurer
has a duty to defend an insured.

Terre Haute First Nat'l Bank v.

Pac. Employers Ins. Co., 634 N.E.2d 1336, 1339 (Ind. Ct. App.
1993); see Trisler, 575 N.E.2d at 1023; Home Fed. Sav. Bank v.
Ticor Title Ins. Co., 695 F.3d 725, 731 (7th Cir. 2012) (“The duty
to defend depends on what the claimant alleges, not the ultimate
merit or lack of merit of the claim.”) (applying Indiana law).
Assuming the allegations in the Amended Complaint are proved true,
Defendants failed in duties that arose from their contract with
Chale for the purpose of leasing the property.
‐20‐ 

See Stroh Brewing

Co., 127 F.3d at 566 (stating that “there is essentially only one
standard—that the allegations of the complaint, including the
facts alleged, give rise to a duty to defend whenever, if proved
true, coverage would attach.”).

This claim alleges a professional

error or omission, rather than an accident or occurrence under
Coverage A.
Coverage B
Coverage B of the Policy provides that Allstate has the duty
to defend the insured against any suit seeking personal and
advertising injury damages.

Coverage B provides coverage for

bodily injury arising out of one or more enumerated offenses,
including the following offense:

“The wrongful eviction from,

wrongful entry into, or invasion of the right of private occupancy
of a room, dwelling or premises that a person occupies, committed
by or on behalf of its owner, landlord or lessor.”
114.)

(DE #1-1 at

Defendants contend that Coverage B applies to the claim

against them based on this invasion offense.

In support, they

cite the Underlying Complaint’s allegations that “Kennetha leased
the premises from Defendant Chale” (DE #1-1, Ex. A ¶3), the
property “was not fit for habitation” (id., ¶6, ¶18), and “carbon
monoxide gas was allowed to infiltrate the living quarters of the
premises from a generator operating in the garage” (id., ¶8, ¶20).
They do not cite any allegations that Defendant committed wrongful
entry or invasion of the property.
‐21‐ 

Allstate maintains that Coverage B does not apply because
Defendants rely upon an offense that must be “committed by or on
behalf of the owner, landlord, or lessor.”

(DE #1-1 at 114.)

“The

‘committed by’ language makes clear that the policy coverage
extends only to wrongful entry, eviction, or invasion committed by
or on behalf of the owner of the land.” Cont'l Cas. Co. v. Sycamore
Springs Homeowners Ass'n, Inc., No. 1:09-CV-0007-LMJ-DML, 2010 WL
3522955, at *7 (S.D. Ind. Aug. 31, 2010).

Here, the Underlying

Complaint does not allege that Defendants are an owner, landlord
or lessor of the property; rather, Chale is indisputably the owner
and lessor of the property.
Defendants respond that the invasion of carbon monoxide was
committed on behalf of the property owner, i.e., Chale.

In

support, they cite the Allstate adjuster’s opinion that the local
code and/or ordinances referenced in the Underlying Complaint
apply “to the owner of the property, not to the real estate agent
or broker.”

(DE #32-1 at 97.)

While Defendants insist that the

Allstate adjuster’s opinion constitutes an admission by Allstate,
they do not explain how the adjuster’s opinion affects Allstate’s
duty to defend Defendants under Coverage B, nor do they cite any
legal authority supporting their position.4

Moreover, they do not

4

  The Court notes that Defendants gave their argument regarding
Coverage B little attention, addressing the issue in less than a
page in each of their briefs. (See DE #31 at 20; DE #35 at 7.) 

‐22‐ 

explain how an alleged invasion of the property committed by or on
behalf of Chale supports such a claim against Defendants.

See

generally Pekin Ins. Co. v. Barber, No. 1:09-CV-0521-TAB-TWP, 2011
WL 1258063, at *7 (S.D. Ind. Mar. 31, 2011) (holding lawsuits did
not allege “the personal injury offense of ‘wrongful entry’” under
a similar coverage provision where the insured “was not the owner,
landlord or lessor of the Real Estate”).

Because the Underlying

Complaint does not allege a wrongful entry or invasion of property
committed by or on behalf of Defendants as owners, landlords or
lessors of the property, Coverage B does not apply here.
The Court holds that the claim against Defendants in the
Underlying Complaint is not covered by Coverage A or Coverage B of
the Policy, and therefore, need not address whether coverage is
excluded by the Realtor E&O Exclusion.

The Court further holds

that under the Policy, Allstate has no duty to defend the claim
against Defendants in the Underlying Complaint.

Because Allstate

has no duty to defend Defendants, it also has no duty to indemnify
Defendants.

See Pekin, 2007 WL 1597924, at *4.

CONCLUSION
For the reasons set forth above, Allstate’s motion for summary
judgment (DE #26) is GRANTED. Defendants’ cross motion for summary
judgment (DE #30) is DENIED.

The Clerk of the Court is DIRECTED

to enter a DECLARATORY JUDGMENT in favor of Allstate declaring
that under insurance policy number 648550390, Allstate has no duty
‐23‐ 

to defend or indemnify McColly Realtors, Inc. and/or Ruth Lockhart
against claims asserted by Rosemary Purnell in case number 45D011503-CT-50 in Lake Superior Court.

DATED:

October 31, 2017

/s/ RUDY LOZANO, Judge
United States District Court

‐24‐