BENBENEK v. FIDELITY NATIONAL PROPERTY AND CASUALTY INSURANCE COMPANY et al

Filing 34

Order on Defendants' Motions for Leave to Assert Nonparty Defense (Dkts. 25 and 28) - For the foregoing reasons, the court GRANTS the defendants' motions (Dkt. 25 and 28) for leave to file amended answers to assert a nonparty defense naming Richard Schulte as a nonparty. (See Order for details.) Signed by Magistrate Judge Debra McVicker Lynch on 10/29/2012. (TMA)

UNITED STATES DISTRICT COURT
SOUTHERN DISTRICT OF INDIANA
INDIANAPOLIS DIVISION
MICHAEL BENBENEK,
Plaintiff,
v.
FIDELITY NATIONAL PROPERTY AND
CASUALTY INSURANCE COMPANY,
TERRI PRYOR-YOUNG, FARM BUREAU
INSURANCE COMPANY, and
RURAL INSURANCE AGENCY, INC.,
Defendants.

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) CASE NO.: 1:12-cv-0591-JMS-DML
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Order on Defendants’ Motions for Leave
to Assert Nonparty Defense (Dkts. 25 and 28)
This matter is before the court on a motion (Dkt. 25) by defendants Terri-Pryor Young,
Farm Bureau Insurance Company, and Rural Insurance Agency, Inc. and a separate motion (Dkt.
28) by defendant Fidelity National Property and Casualty Insurance Company1 for leave to file
amended answers to add an affirmative defense that names Richard Schulte as a nonparty whose
fault caused or contributed to the plaintiff’s injury for purposes of Indiana’s Comparative Fault
Act.
Allegations in the Plaintiff’s Complaint
Michael Benbenek’s complaint, filed May 3, 2012, alleges that each defendant was
involved in assisting him to obtain a flood insurance policy for a home he bought or in handling
claims he made against the policy. Defendant Pryor-Young was Mr. Benbenek’s longtime
insurance agent and held herself out as an agent of defendant Farm Bureau or, alternatively,
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The court notes that Fidelity has not yet filed its reply brief, which is unnecessary in light
of the court’s resolution of its motion.

defendant Rural Insurance Agency. (Complaint, Dkt. ¶¶1, 8-9 and 77-78). Agent Pryor-Young
placed the flood policy with Fidelity. (Pryor-Young told Mr. Benbenek that Farm Bureau did
not write flood insurance policies). (Id. ¶¶10-12). Mr. Benbenek agreed to the policy and in
February 2003, he purchased the home believing that the flood policy’s coverage of the “two
floors” of the home included the finished lower floor. (Id. ¶¶13-14). In September 2003, the
home flooded, with the primary damages suffered on the lower floor. Fidelity covered nearly all
the losses from this flood. (Id. ¶20).
In 2010, Mr. Benbenek learned, in conjunction with his investigation of the reason for a
massive increase in his flood insurance premium, that the Federal Emergency Management
Agency (FEMA) had in 2001 (before he bought his home) classified the area where his home
was located as an “AE” flood zone, a higher risk zone than the one the defendants had used when
they initially set the premium and sold the policy to the plaintiff. (Id. ¶¶28-29). The new flood
policy continued to state that it provided coverage for “two floors” of the plaintiff’s home, and
Mr. Benbenek paid the new premium. (Id. ¶34).
Mr. Benebeck later suffered flood damage to his home in February and June 2011, and he
made claims against the flood policy. In adjusting the February 2011 claim, Fidelity determined
based on an engineer’s study of the home that the lower floor was actually a basement for which
coverage was limited. Most of the claim was denied on this basis. (Id. ¶¶37-39). Fidelity made
the same determination in adjusting the June 2011 flood claim, denying most of the claim. (Id.
¶40). Mr. Benbenek seeks damages based on his ownership of a home whose lower floor has
been rendered nearly useless and valueless because he cannot reasonably insure it. (Id. ¶¶41-42).
The plaintiff’s legal theories for relief include that Fidelity and Ms. Young each acted
negligently in its or her determination of, or failure to determine, the home’s proper flood

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coverage requirements and the cost for that coverage. The plaintiff alleges that Farm Bureau and
Rural Insurance Agency are vicariously liable for Ms. Young’s negligence.
Defendants’ Motions for Leave to Amend
Defendants Pryor-Young, Farm Bureau, and Rural Insurance jointly answered the
complaint on June 29, 2012. On September 4, 2012, they filed the present motion for leave to
amend their answer to name Richard Schulte as a nonparty whose fault caused or contributed to
the plaintiff’s alleged injury and damages. Mr. Schulte was the plaintiff’s realtor and provided
information to defendant Pryor-Young that she used in arranging insurance for the plaintiff.
Counsel for these defendants assert that counsel learned of Richard Schulte’s status as a potential
nonparty in the course of gathering information from Pryor-Young after she was sued and in
preparing initial disclosures which were served on September 4, 2012.
Defendant Fidelity filed its answer on June 25, 2012, and an amended answer on August
1, 2012. Its motion for leave to amend to name Mr. Schulte as a nonparty was filed October 3,
2012. Fidelity suggests that it learned of Mr. Schulte’s identity and his possible status as a
nonparty when the other defendants served their initial disclosures and filed their motion for
leave to amend on September 4, 2012. Fidelity also notes that the plaintiff did not identify Mr.
Schulte in his initial disclosures.
The plaintiff opposes the motions on the ground that the nonparty defense has not been
timely raised by any of the defendants as required under Indiana’s Comparative Fault Act, Ind.
Code. ch. 34-51-2.
Analysis
Under Indiana’s Comparative Fault Act, the jury must assess the percentage of fault of
each party and “nonparty” that caused or contributed to the plaintiff’s injury or damages, and a

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defendant is responsible for damages only to the extent of the percentage of fault attributed to it.
See Ind. Code §§ 34-51-2-8 and 34-51-2-11. See Owens-Corning Fiberglass Corp. v. Cobb, 754
N.E.2d 905, 913 (Ind. 2001) (overall theme of the Comparative Fault Act is proportional
allocation of fault). “Nonparty” is a term of art under the statute, and is a person a defendant
identifies in an affirmative defense of her answer as one who—though not named by the
plaintiff—caused the plaintiff’s damages in full or in part. Ind. Code § 34-51-2-14. The Act
imposes time limits for raising a nonparty defense, as provided in Ind. Code § 34-51-2-16.
Section 16 states that a nonparty defense “known” by a defendant when she files her first answer
“shall be pleaded as part of the first answer.” If a defendant “gains actual knowledge” of a
nonparty defense after filing her first answer, she must plead the defense with “reasonable
promptness.” In cases where the defendant is served with the complaint and summons more than
150 days before the statute of limitations would expire on a claim by the plaintiff against the
nonparty, then the nonparty defense must be pleaded no later than 45 days before the limitations
period expires. These time limits may be altered by the court where its decision is consistent
with “giving the defendant a reasonable opportunity to discover the existence of a nonparty
defense” and giving the plaintiff a reasonable opportunity to add the nonparty as a defendant
before his claim against the nonparty expires. See id.2

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The defendants contend that these time parameters for raising a nonparty defense are not
binding in federal court under Erie principles. The court does not reach and resolve that issue
because even if the court ignored the Comparative Fault Act provisions and relied only on the
amendment principles under Fed. R. Civ. P. 15 and 16, its decision would be the same. The
court notes, however, that strong arguments could be made that the timing rules under the
Comparative Fault Act are integral to the Act, are substantive and not merely procedural, and are
therefore governing in federal court. Decisions in this district court reflect the assumption that
the deadlines in the Act for naming nonparties are applicable in federal court. See, e.g., Parker
v. Rockies Express Pipeline, LLC, 2012 WL 4481976 (S.D. Ind. Sept. 28, 2012); Custer v.
Schumacher Racing Corp., 2007 WL 2902047 (S.D. Ind. Aug. 14, 2007).
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It appears from Mr. Benbenek’s complaint that any negligence claims accrued in May or
June 2010 when he learned he had been given and had relied on incorrect information regarding
the flood insurance requirements for his home. His oppositions to the defendants’ motions state
his belief that the statute of limitations on any claim he might have against the realtor expired in
May 2012. (Dkt. 26 at p. 2) (asserting a statute of limitations end date of May 10, 2012). See
Ind. Code § 34-11-2-4 (statute of limitations for action for injury to person or personal property
is two years).
Mr. Benbenek argues that defendant Pryor-Young (and thus Farm Bureau and Rural
Insurance Agency because she is alleged to have been their agent) should have known that Mr.
Schulte was a potential nonparty when the first answer was filed on June 29, 2012, and they were
therefore required to raise the defense then. Mr. Benbenek, through counsel, sent a demand
letter to Farm Bureau in December 2011 asserting Farm Bureau’s liability because he allegedly
had been given incorrect information regarding flood insurance requirements. Apparently this
caused Ms. Pryor-Young to submit a notice of claim to her errors and omissions carrier on
January 3, 2012, that explained her role with respect to the flood insurance, including that she
had “gathered all the necessary information needed from Mr. Benbenek as well as his Realtor to
provide [to the insurance company to] provide the Flood quote.” (Dkt. 26-3). Mr. Benbenek
argues that this document, as well as his counsel’s letter demands to Farm Bureau, is evidence
that Pryor-Young, Farm Bureau, and Rural Insurance Agency knew as early as January or
February 2012 that the realtor “could potentially be involved in the dispute” or at least that their
knowledge then should have triggered a duty to investigate further the realtor’s identity and role,
which would have led to their knowledge of Mr. Schulte as a potential nonparty. (See Dkt. 26 at
pp. 3 and 4).

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Regarding Fidelity, Mr. Benbenek does not point to anything that suggests Fidelity knew
about Mr. Schulte or his potential status as a nonparty before filing its July 2012 answer. He
argues only that Fidelity could have uncovered information about Mr. Schulte had it more
thoroughly investigated Mr. Benbenek’s claims sooner. (Dkt. 33 at p. 3).
The court is not convinced that a nonparty defense as to Mr. Schulte was known by any
of the defendants at the time they filed their first answers. The statute’s language speaks of
“actual knowledge,” and not the type of inquiry knowledge argued by the plaintiff. The statute
also speaks of knowledge of a nonparty defense, and not merely knowledge that persons other
than named defendants had roles in a transaction or event underlying a lawsuit. This language
suggests to the court that the Act contemplates a party’s having the benefit of her lawyer’s
analysis about whether any particular person not included as a defendant may be at legal fault for
the plaintiff’s injuries or damages as described in the plaintiff’s complaint. According to Ms.
Pryor-Young’s counsel, its investigation—after the complaint was filed—led it to actual
knowledge of the nonparty defense sometime in August 2012 after meeting with Ms. PryorYoung and reviewing documents. Fidelity suggests it gained actual knowledge in September
2012 when the other defendants served their initial disclosures and moved to amend their
answer.
Because there is no showing that any of the defendants knew of the nonparty defense at
the time of their first answers, the court next determines whether the defendants acted
“reasonably promptly” to plead the defense later than their first answers. The statute
contemplates that a defendant should have “a reasonable opportunity to discover the existence of
a nonparty defense.” Ind. Code § 34-51-2-16(1).

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A defendant’s diligence is measured from the time he is served with the complaint. Kelly
v. Bennett, 792 N.E.2d 584, 587 (Ind. Ct. App. 2003). From that point forward, a defendant is
expected to investigate and take steps, through discovery or otherwise, to determine the existence
of a nonparty defense. Id. Thus, the defendant must act “reasonably promptly” from the date of
service to raise the defense and it is not enough to act “reasonably promptly” from the date of
discovering the defense to bring a motion to add a nonparty defense. Id. See also Parker, 2012
WL 4481976 at *2 (citing Kelly, 792 N.E.2d at 587, and Custer, 2007 WL 2902047 at *2)
(“reasonable promptness” is measured within the time period between service of complaint and
asserting the nonparty defense, and not the time period between learning of the defense and
asserting it). Here, the defendants are seeking to assert the defense approximately four to five
months after they were served with the complaint. It is thus early in the case, and their assertion
of the defense at this stage of the proceedings likely will not affect case management deadlines.
The plaintiff argues that allowing the defense unfairly prejudices him because the statute
of limitations has run on his claim against Mr. Schulte, and the court should not permit a
nonparty defense later than the first answer when the statute of limitations has expired on the
plaintiff’s claim against the nonparty. Mr. Benbenek does not dispute, however, that the statute
of limitations on a claim by him against Mr. Schulte had run before the defendants were required
to file their first answers to the complaint. Nor does he dispute that the defendants properly could
have named Mr. Schulte as a nonparty in their original answers even though his claim against
Mr. Schulte was time-barred at that point. In these circumstances, the court’s consideration of
whether the defendants acted with reasonable promptness after their original answers cannot turn

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on the fact that Mr. Benbenek can no longer bring a claim against the nonparty. That would have
been true even if the defendants had raised the defense at their first opportunity.3
The court finds that all defendants acted “reasonably promptly” to assert the nonparty
defense. They acted within four or five months of the commencement of this case, before the
deadline under the case management order to amend pleadings, and before case management
deadlines would be substantially affected. Moreover, the timing of the defendants’ assertion did
not negatively affect Mr. Benbenek’s ability to bring a claim against the nonparty, because it was
time-barred before their original answers were due. Finally, Mr. Benbenek remains free to
advance arguments against any attribution of fault to Mr. Schulte, including, for example, the
argument that nothing Mr. Schulte did or failed to do could excuse the defendants from their
duties to exercise reasonable care to Mr. Benbenek. (Dkt. 26 at pp. 5-6; Dkt. 33 at p. 4). The
court expresses no view on that matter, which will be determined, if necessary, on an appropriate
record. It is not, however, a basis upon which the court can find at this stage that amendment
would be futile.
Conclusion
For the foregoing reasons, the court GRANTS the defendants’ motions (Dkt. 25 and 28)
for leave to file amended answers to assert a nonparty defense naming Richard Schulte as a
nonparty.
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The statute provides a way normally to avoid this problem. A plaintiff can file his
complaint at least 150 days before the statute of limitations would run, in which case a defendant
“shall plead any nonparty defense not later than 45 days before the expiration of that limitation.”
Ind. Code § 34-51-2-16. Mr. Benbenek filed his complaint just days or a few weeks before the
statute of limitations would run, which made him vulnerable to a nonparty defense identifying a
person from whom he could not seek affirmative relief. And Mr. Benbenek could have
determined—before he filed suit—the role his realtor played in procuring the flood policy and
could have named him as a defendant to the extent he had a viable claim.

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The court directs the clerk to docket the amended answers at both Dkt. 25-1 and 28-1.
So ORDERED.
10/29/2012
Date: ________________________

____________________________________
Debra McVicker Lynch
United States Magistrate Judge
Southern District of Indiana

Distribution: All ECF-registered counsel of record

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