Adkins et al v. Will et al

Filing 288

OPINION AND ORDER DENYING 273 MOTION for Partial Summary Judgment filed by Carmine Greene. Signed by Judge Philip P Simon on 4/26/18. (ksp) (cc: Kenneth Will)

UNITED STATES DISTRICT COURT
NORTHERN DISTRICT OF INDIANA
SOUTH BEND DIVISION
CARMINE GREENE, et al.,
Plaintiffs,
v.
KENNETH R. WILL, et al.,
Defendants,
and
WESTFIELD INSURANCE COMPANY,
Garnishee Defendant.

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No. 3:09CV510-PPS

OPINION AND ORDER
This case is about environmental contamination by a wood waste processing
facility in Elkhart, Indiana. The plaintiffs, a class of individuals who lived in the area
neighboring the facility, hold a whopping default judgment against defendants VIM
Recycling, Inc. and K.C. Industries, LLC jointly and severally for damages exceeding
$50 million on a claim for nuisance. [DE 226 at 20, 228.] The Class also has a default
judgment against those same defendants plus an individual defendant Kenneth Will
jointly and severally under the federal Resource Conservation and Recovery Act for
litigation costs of approximately $275,000. [DE 227 at 9, 228.] For simplicity sake I will
refer to all defendants in this opinion as the “VIM Defendants.”

In proceedings supplemental the Class is trying to execute on these two
judgments based on commercial liability insurance policies issued to the VIM
Defendants by Garnishee Defendant Westfield Insurance Company. [DE 235.] Now
before me is the Class’s motion for partial summary judgment, in which they seek a
determination as a matter of law that Westfield had a duty to defend the VIM
Defendants in this action, and that Westfield’s breach of that duty equitably estops
Westfield from raising policy defenses against the Class’s claim for indemnification
now. [DE 273 at 2.]
Summary judgment is proper “if the movant shows that 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 party opposing summary judgment may not rely on
allegations or denials in his or her own pleading, but rather must “marshal and present
the court with the evidence she contends will prove her case.” Goodman v. Nat’l Sec.
Agency, Inc., 621 F.3d 651, 654 (7th Cir. 2010). Summary judgment “is the put up or shut
up moment in a lawsuit, when a party must show what evidence it has that would
convince a trier of fact to accept its version of the events.” Springer v. Durflinger, 518
F.3d 479, 484 (7th Cir. 2008). Beyond the showing of undisputed material facts, in order
to win, the summary judgment movant must demonstrate that on those facts “the law
provides him with relief.” Glass v. Dachel, 2 F.3d 733, 739 (7th Cir. 1993).

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Undisputed Material Facts
This case is a procedural tangle involving three separate lawsuits and an appeal
of one of those cases. No one disputes the following facts most of which arise from the
prior proceedings in this case and the two related cases. Here’s what happened:
Westfield issued a Commercial Insurance Coverage Policy to VIM and K.C. as the
named insureds, with effective coverage dates from January 1, 2004 to January 1, 2005.
The policy was renewed three times and thereby ultimately covered the period from
January 1, 2004 to January 1, 2008. Kenneth Will was also an insured under the policy
as an executive officer of VIM. The policy provided that Westfield “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,” and that Westfield “will have the
right and duty to defend the insured against any ‘suit’ seeking those damages.” [DE
242-19 at 26.]
“Bodily injury” and “property damage” within the meaning of the policy must
be caused by an “occurrence” within the coverage territory and during the policy
period. The policy defined “occurrence” as “an accident, including continuous or
repeated exposure to substantially the same general harmful conditions.” [Id. at 39.]
The term “accident” was not otherwise defined in the policy. “Bodily injury” was
defined in the policy as “bodily injury, sickness or disease sustained by a person,
including death resulting from any of these at any time.” [Id. at 37.] “Property

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damage” was defined as “[p]hysical injury to tangible property, including all resulting
loss of use of that property.” [Id. at 40.]
This lawsuit was filed on October 27, 2009, asserting claims under the Resource
Conservation and Recovery Act and state common law, based on the VIM Defendants’
operation of their wood waste recycling business. I dismissed the complaint on April
21, 2010, and the plaintiffs appealed the dismissal to the Seventh Circuit. Shortly
thereafter, those plaintiffs plus 10 additional persons filed a state lawsuit against the
VIM Defendants in Elkhart County Superior Court, from which the RCRA claims were
omitted. The VIM Defendants tendered the defense of the Elkhart suit to Westfield,
which undertook the defense under reservation of rights, pending an investigation into
coverage. For whatever reason, it appears that VIM did not tender the defense of this
lawsuit when they tendered the defense of the state court matter.
Westfield received notice of the Elkhart action on or about October 1, 2010. At
that time, as noted, this action was on appeal to the Seventh Circuit. This was
Westfield’s first notice of VIM’s history of issues with environmental regulators in the
operation of its wood waste facility. In a letter to the VIM Defendants dated February 4,
2011, counsel for Westfield expressed the conclusion that Westfield had no duty to
defend or indemnify in connection with the Elkhart lawsuit, setting forth its bases for
the denial of coverage and a number of defenses Westfield believed to be applicable.
Notwithstanding this letter, Westfield continued to defend the VIM Defendants in the
Elkhart action under a reservation of rights.
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Even as it continued to defend the VIM Defendants in the Elkhart case,
Westfield filed an action in this court before Judge Joseph Van Bokkelen on April 18,
2011, seeking a declaratory judgment that it had no duty to defend or indemnify the
VIM Defendants against the Elkhart action. In its complaint, Westfield acknowledged
that it had also received the federal complaint from this case, as to which the appeal to
the Seventh Circuit was still pending. The following month, on May 25, 2011, the
Seventh Circuit reversed and remanded this case back to this court. But for reasons that
are entirely unclear, it appears that Westfield made no effort to amend its complaint in
the Judge Van Bokkelen case to add a request for a declaratory judgment of no duty to
defend or indemnify in this case.
Ultimately, Westfield’s declaratory judgment action before Judge Van Bokkelen
ended with default judgments against the VIM Defendants on September 1, 2011, and
an agreed judgment between Westfield and the Class members on October 25, 2011,
both declaring that Westfield had no duty to defend or indemnify the VIM defendants
in the Elkhart suit. To repeat, by that time, this case had been reanimated on the docket
by virtue of the reversal in the Seventh Circuit. Given this fact, the absence of any
reference to a duty to defend in the present case is especially notable. In any event, after
the judgments in Judge Van Bokkelen’s case, Westfield stopped defending the VIM
Defendants in the Elkhart action.
After reversal of this case by the Seventh Circuit, the action resumed here in the
district court. Counsel for the VIM Defendants withdrew, and no other counsel entered
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an appearance in their place. The plaintiff Class was later certified. The default
judgments against the VIM Defendants were entered in this action on November 24,
2015. It is unclear whether any of the VIM defendants or their prior lawyers thought to
notify Westfield while all of this was going on.
Earlier in these proceedings supplemental, Westfield moved for summary
judgment invoking res judicata based on the dispositions before Judge Van Bokkelen,
but I determined that “the scope of Westfield’s declaratory judgment action, and the
Agreed Judgment there that disposed of its limited claim against the Class, do not
support preclusive effect here against the Class’s assertions of insurance coverage
applicable to this action.” [DE 270 at 14.]
Discussion
The parties agree that Indiana law governs the issues raised in the summary
judgment motion. [DE 274 at 6; DE 275 at 7, 21, 24.] Under Indiana law, “[i]n
proceedings supplemental to recover from a liability insurer, the judgment creditor
bears the burden of showing a judgment, the insurance policy, and facial coverage
under the policy.” Gallant Ins. Co. v. Oswalt, 762 N.E.2d 1254, 1258 (Ind.Ct.App. 2002).
“Once the judgment creditor establishes this prima facie case, the liability insurer must
go forward with evidence creating a genuine issue of fact.” Gallant Ins. Co. v. Allstate
Ins. Co., 723 N.E.2d 452, 454-55 (Ind.Ct.App. 2000).
First, the Class cites the principle that an insurer’s duty to defend its insured is
broader than its duty to indemnify. Allstate Insurance Company v. McColly Realtors, Inc.,
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F.Supp.3d

, 2017 WL 4938154 at *5 (N.D.Ind. 2017), citing 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.” Newnam Mfg., 871 N.E.2d at 401. The Class contends that the complaint
in this case “included allegations that, if proved true, fell squarely within the indemnity
coverage provided by Westfield’s policies.” [DE 274 at 10.] After this attempt to
establish that their claims supported a duty to defend the VIM defendants in this case,
the Class argues that “Indiana courts have long held that an insurer that breaches its
duty to defend its insured is equitably estopped from raising policy defenses when
faced with a claim for indemnification of a judgment against the insured.” [DE 274 at
13.] The Class suggests that as a judgment creditor, it stands in the shoes of the VIM
Defendants and can invoke against Westfield the estoppel of defenses to coverage that
the VIM Defendants would have as insureds. [DE 274 at 14-15.]
Westfield (unhelpfully) has not specifically addressed but “does not concede”
the argument that it breached its duty to defend. [DE 275 at 29, n.9.] If the breach of the
duty to defend were an issue of fact, Westfield’s failure to directly dispute it would
permit me to “consider the fact undisputed for purposes of the motion.” Fed.R.Civ.P.
56(e)(2). But the posture is different concerning an issue of law. When seeking
summary judgment, the Class has the burden to demonstrate that it is entitled to
judgment as a matter of law. Even without argument to the contrary from Westfield, I
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cannot grant summary judgment on the basis of an unopposed legal analysis that is
faulty. This provides a segue to my misgivings about the Class’s duty to defend
analysis. Because they concern a threshold matter within the Class’s argument, I do not
address or analyze the later steps in the Class’s reasoning as outlined above.
The Class has blurred a critical step in its duty to defend argument. As the
Indiana Supreme Court has pointed out, “an insurer cannot defend a claim of which it
has no knowledge.” Dreaded, Inc. v. St. Paul Guardian Ins. Co., 904 N.E.2d 1267, 1273
(2009). As a result, “[t]he insurer’s duty to defend simply does not arise until it receives
the foundational information designated in the notice requirement,” and “[u]ntil an
insurer receives such enabling information, it cannot be held accountable for breaching
this duty.” Id. Because I have concerns that the Class’s analysis skips these potentially
essential steps, I am not persuaded that they have demonstrated an entitlement to
judgment as a matter of law. My misgivings stem from the lack of facts and analysis in
the present record concerning whether and when the VIM Defendants tendered this
litigation to Westfield for a defense, and, if they never did, whether and when Westfield
received constructive notice sufficient to trigger the duty to defend.
The Class points out that at least as of April 18, 2011, when Westfield filed its
declaratory judgment action before Judge Van Bokkelen concerning the Elkhart suit,
Westfield was aware of this separate litigation. That’s true. But it is also true that, at that
juncture, this case had been dismissed and was on appeal. [DE 274 at 5.] Westfield’s
answers to interrogatories indicate that “it first received notice of the matters giving rise
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to this action on or about October 1, 2010, when the VIM Defendants notified Westfield
of the State Court Action.” [DE 274-1 at 6.] The complaint filed in the Elkhart action on
May 24, 2010 referenced this lawsuit and the fact that it had been dismissed “for lack of
federal supplemental jurisdiction without prejudice on April 22, 2010,” with no
reference to the pendency of the appeal. [DE 259-2 at 5.] On its face and without more,
the state court complaint suggested that this federal case was finished, though it was
not.
The Class merely cites one case, Frankenmuth Mutual Ins. Co. v. Williams, 645
N.E.2d 605 (Ind. 1995), in support of its assertion that Westfield received sufficient
notice to trigger a duty to defend. Frankenmuth Mutual is a collateral estoppel case,
addressing the question “How much notice must an insurer receive concerning
litigation against one of its policyholders to bind it to the resolution of litigation in
which it did not participate?” Id. at 606. Because the insurer there had received a
subpoena duces tecum and a non-party request for production of documents in the
lawsuit against its insured, and had investigated the claims enough to issue a letter to
its insureds about the matter, the insurer was “bound at least to the matters necessarily
determined in the lawsuit.” Id. at 607. This collateral estoppel holding does not appear
to support the Class’s assertion of a broader equitable estoppel against all policy
defenses based on a breach of the duty to defend. And on the present question of
notice, I believe that the unique facts of the separate federal and state lawsuits here are
distinguishable from those in Frankenmuth.
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The Class has not adduced evidence of how and when Westfield first learned of
this federal action, and whether and when its insureds, the VIM defendants, ever
tendered this action to Westfield for a defense. And the Class’s argument fails to
address the legal significance, or insignificance, of those facts (whatever they are). “In
Indiana, the notice requirement of an insurance policy is ‘material, and of the essence of
the contract.’” Wolf Lake Terminals, Inc. v. Mutual Marine Ins. Co., 433 F.Supp.2d 933, 950
(N.D.Ind. 2005), quoting Miller v. Dilts, 463 N.E.2d 257, 265 (Ind. 1984). “Without notice,
the insurance company has no liability to the insured.” Id., citing PSI Energy, Inc. v. The
Home Insurance Company, 801 N.E.2d 705, 715-16 (Ind.Ct.App. 2004). The Class’s blithe
reliance on Frankenmuth Mutual is not persuasive on the critical question whether
Westfield “had sufficient constructive notice from other sources to trigger its duty to
defend notwithstanding a lack of notice directly from” the insureds. Dreaded, Inc., 904
N.E.2d at 1273.
Because it appears likely that Westfield learned of this case against its insureds
after final judgment in the district court and while the matter was pending on appeal,
the impact (if any) of that timing on the duty to defend also needs to be considered.
What difference does it make if Westfield believed the federal action was all over at the
time Westfield first learned of it? What is the impact on Westfield’s duties that this
lawsuit was revived on appeal, after Westfield previously had no knowledge of the case
or role in its defense in the district court? Does it make any difference if the insureds
never advised Westfield of the case or invoked coverage or a defense? Late notice raises
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questions of prejudice to the insurer, on which the Indiana Supreme Court
acknowledges Indiana law has been uncertain – “Indiana case law is inconclusive
regarding the necessity and function of prejudice in evaluating an insurer’s alleged
failure to perform when its insured fails to comply with a policy notice requirement.”
Id. at 1271. The record before me does not address these matters.
One final issue warrants comment. Obviously, equitable estoppel is a doctrine
of equity. Estoppel “springs from equitable principles, and is designed to aid the law in
the administration of justice where without its aid injustice might result.” State v.
Mutual Life Ins. Co. of New York, 93 N.E. 213, 222 (1910). If it would not be equitable in
the circumstances, estoppel should not be applied. Westfield contends that, in view of
the manner in which it behaved as the VIM Defendants’ insurer, the interests of equity
are not well served by applying estoppel here in the manner advocated by the Class.
Westfield argues that, upon first learning of the environmental claims against its
insureds by the Class, Westfield acted as a responsible insurer in two ways. First, it
assumed a defense of the VIM Defendants in the Elkhart action, subject to a reservation
of rights. Second, it filed the federal action before Judge Van Bokkelen to obtain a
declaration as to its duties to defend and indemnify the VIM Defendants. There
Westfield obtained a default judgment against each of the VIM Defendants, as well as
an “Agreed Judgment” with the Class, all declaring that Westfield had no duty to
defend or indemnify the VIM Defendants in the Elkhart lawsuit. [DE 259-6; DE 259-4 at
9; DE 259-5 at 9.]
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Because Westfield did not abandon the VIM Defendants or otherwise act
irresponsibly as their insurer, Westfield suggests it would be inequitable to estop them
from their policy defenses merely due to their mistaken belief that the judgment they
obtained from Judge Van Bokkelen was applicable to both the federal and state lawsuits
by the Class. This argument has some appeal, particularly as the Class has not offered
any evidence that the VIM Defendants ever requested a defense or indemnity from
Westfield with respect to this federal action, either before or after the appeal, and may
have shared Westfield’s understanding of the effect of Judge Van Bokkelen’s
judgments. The Class suggests this type of error on Westfield’s part does not militate
against equitable estoppel any more than an insurer’s erroneous view of its coverage
would. I find these circumstances distinguishable. The latter is the mistake that causes
a breach of the duty to defend in the first place. Westfield claims an erroneous belief
about the results of the steps it took to assure it did not breach the duty to defend. I
think the latter is appropriately taken into account in determining the equitable impact
of a breach of the duty, if it is ultimately found.
In the absence of a fuller factual record and more in-depth analysis of the issues
I’ve raised, I am not persuaded that the Class has demonstrated an entitlement to
judgment as a matter of law based on their contentions about Westfield’s breach of the
duty to defend. Furthermore, a trial court may “deny summary judgment in a case
where there is reason to believe that the better course would be to proceed to a full
trial.” Id. at 255. See also Firman v. Life Ins. Co. of North America, 684 F.3d 533, 538 (5th
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Cir. 2012). “[E]ven where the summary-judgment standard appears to have been met,
the court should have the freedom to allow the case to continue when it has any doubt
as to the wisdom of terminating the action prior to a full trial.” 10A Wright, Miller and
Kane, Federal Practice and Procedure, §2728 (2016). “Although complex or novel issues of
law do not preclude summary judgment, their presence in the action may suggest that a
fuller development of the facts would be helpful to their resolution. In those
circumstances, the court may deny summary judgment.” Id. at §2725.3.
I have identified a number of factual and legal questions that cannot be resolved
on the present record. Even if these matters had been fully addressed by the present
motion, I am uncomfortable with the resolution of this proceeding supplemental on less
than a full exploration of all the facts and legal arguments relative to Westfield’s
liability under the policies. Both sides have now attempted a short-cut win by
summary judgment. Neither has succeeded. This litigation has already dragged on for
too long. Repeated failures to dispose of the case by dispositive motion suggest that the
parties should proceed quickly through discovery and prepare to submit their dispute
for a decision on the basis of a full factual record and argument on all legal issues.
On that subject, in passing Westfield bemoans its loss of a right to jury trial in
proceedings supplemental as a reason not to permit the Class to make its argument
about breach of a duty to defend. [DE 275 at 18; DE 283 at 5.] Citing Rose v. Mercantile
National Bank of Hammond, 868 N.E.2d 772, 776 (Ind. 2007), the Class correctly points out
in response that “[w]hile juries are disfavored in proceedings supplemental..., where the
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pleadings form issues of fact that a jury could reasonably decide, the parties may
demand a jury trial,” but that Westfield failed to demand a jury in its answer or timely
within 14 days thereafter as required by Fed.R.Civ.P. 38(b). [DE 284 at 6.] So it appears
that the ultimate decision in these proceedings supplemental will be made by the court
whether or not it is by motion or trial.
Conclusion
For the reasons explained here, I am not persuaded that the Class has
conclusively demonstrated that Westfield breached its duty to defend the VIM
Defendants in this case, or that as a result, Westfield is estopped from invoking policy
defenses to coverage for the liability that is the subject of these proceedings
supplemental.
ACCORDINGLY:
Plaintiffs’ Motion for Partial Summary Judgment [DE 273] is DENIED.
SO ORDERED.
ENTERED: April 26, 2018
/s/ Philip P. Simon
PHILIP P. SIMON, JUDGE

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