ALLSTATE INSURANCE COMPANY v. PREFERRED FINANCIAL SOLUTIONS, INC. et al

Filing 61

ORDER granting Plaintiff's 34 Motion for Summary Judgment; denying Defendants' 39 Cross-Motion for Summary Judgment (see Order for details). Signed by Magistrate Judge Debra McVicker Lynch on 3/24/2014. (SWM)

UNITED STATES DISTRICT COURT
SOUTHERN DISTRICT OF INDIANA
INDIANAPOLIS DIVISION
ALLSTATE INSURANCE COMPANY,
Plaintiff,
vs.
PREFERRED FINANCIAL
SOLUTIONS, INC.,
JEFFREY BROOKS,
CREDIT CARD RELIEF, INC.,
THOMAS P. DAKICH doing business as
DAKICH & ASSOCIATES,
Defendants.

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Case No. 1:12-cv-00649-DML-JMS

Order on Cross-Motions for Summary Judgment
This lawsuit concerns Allstate Insurance Company’s obligations to the
defendants with respect to a class action lawsuit filed in Georgia against the
defendants and others (the “Underlying Litigation”). Allstate has moved for
judgment as a matter of law that its insurance policies do not provide coverage for
the class action claims and that it therefore has no duty to provide a defense in the
Underlying Litigation and no duty to indemnify any of the defendants against any
judgment that may be entered against them. Allstate also argues that defendants
Credit Card Relief, Inc. and Thomas P. Dakich d/b/a Dakich & Associates are not
within the class of insureds under the policies. Three of the defendants have crossmoved for summary judgment. Preferred Financial Solutions, Inc., Jeffrey Brooks,
and Credit Card Relief, Inc. argue that they are entitled to judgment that they are

insureds and that Allstate owes a duty to defend them. They do not maintain,
however, that the court can determine as a matter of law Allstate’s indemnity
obligations at this juncture. Defendant Thomas P. Dakich d/b/a Dakich &
Associates has not responded to Allstate’s summary judgment motion or filed a
cross-motion, even though he is represented by the same counsel who represents the
other defendants.
Summary Judgment Standard
Summary judgment is appropriate 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). Substantive law determines the facts that are material. Anderson
v. Liberty Lobby, Inc., 477 U.S. 242, 251 (1986). A genuine issue of material fact
exists if “there is sufficient evidence favoring the nonmoving party for a jury to
return a verdict for that party.” Id. at 249. The court construes the evidence in the
light most favorable to the nonmoving party and draws all reasonable inferences
from the evidence in favor of the nonmoving party. Zerante v. DeLuca, 555 F.3d
582, 584 (7th Cir. 2009). When evaluating cross-motions for summary judgment,
therefore, the court construes the evidence and its reasonable inferences in favor of
the party against which the particular motion under consideration is made. Metro
Life Ins. Co. v. Johnson, 297 F.3d 558, 561-62 (7th Cir. 2002). “[I]f genuine doubts
remain and a reasonable fact-finder could find for the party opposing the motion,
summary judgment is inappropriate.” Olayan v. Holder, 2011 WL 6300615 at *5
(S.D. Ind. Dec. 15, 2011).

2

Preliminary Matters
The Policies at Issue
Allstate issued yearly Business Insurance Policies to “Preferred Leads”1 that
were in effect from July 20, 2002 to July 20, 2012. The first three annual policies
(commencing July 20, 2002, July 20, 2003, and July 20, 2004) covered business
premises in Indiana and Illinois. Beginning July 20, 2005, separate policies were
issued for the Indiana premises and the Illinois premises.
Allstate contends that because the Underlying Litigation concerns activities
associated only with the Indiana premises, then only the three early policies that
covered both Indiana and Illinois premises and the 2005 through 2012 Indiana
Policies (“Indiana Business Policies”) could possibly provide coverage. Allstate
argues it is thus entitled to summary judgment that there is no coverage, and no
duty to defend or to indemnify, with respect to the separate Illinois Policies issued
annually from July 20, 2005 through July 20, 2012 (the “Illinois Policies”). The
defendants did not respond to Allstate’s argument regarding the Illinois Policies
and did not identify any factual disputes precluding judgment in Allstate’s favor
that there is no coverage under the Illinois Policies. The court therefore enters a
declaratory judgment in favor of Allstate and against all defendants that no
coverage exists, and no duty to defend or to indemnify arises, under the Illinois
Policies as to any defendants with respect to the Underlying Litigation.

1

The parties agree that this refers to defendant Preferred Financial Solutions,

Inc.
3

The parties agree that the relevant language in all the Indiana Business
Policies is materially identical. The court’s rulings thus apply identically for all the
Indiana Business Policies.
Governing Law
The parties also agree that Indiana substantive law governs coverage
obligations and duties to defend arising from the Indiana Business Policies. An
insurance policy is a contract and its construction and interpretation is generally a
question of law resolved by the same principles applicable to other contracts. Dunn
v. Meridian Mut. Ins. Co., 836 N.E.2d 249, 251 (Ind. 2005); Colonial Penn Ins. Co. v.
Guzorek, 690 N.E.2d 664, 667 (Ind. 1997). The court’s objective is to ascertain and
enforce the parties’ intent as manifested by the contract language. Cotton v. AutoOwners Ins. Co., 937 N.E.2d 414, 416 (Ind. Ct. App. 2010). If the contract language
is ambiguous—meaning that the language is susceptible to more than
interpretation and reasonably intelligent persons could honestly take different sides
as to its meaning—then the court must construe that language against the insurer
and in favor of its insured. E.g., State Farm Mut. Ins. Co. v. D’Angelo, 875 N.E.2d
789, 796 (Ind. Ct. App. 2007).
The Indiana Business Policies require Allstate to defend any lawsuit
“brought against persons insured seeking damages to which [the comprehensive
liability insurance] applies even if the allegations in the suit are groundless, false or
fraudulent.” (See Exemplar Policy, Dkt. 1-2 at p. 38). If the claims against the
defendants in the Underlying Litigation potentially fall within indemnity coverage

4

provided by the Policies, then Allstate’s duty to defend is triggered. Newman Mfg.,
Inc. v. Transcontinental Ins. Co., 871 N.E.2d 396, 401-02 (Ind. Ct. App. 2007) (a
duty to defend arises when there is the possibility of indemnity coverage under the
policy). On the other hand, if it is clear that the claims against the insured are
“patently outside the risks” for which coverage is afforded by the Policies, then
Allstate has no duty to defend the claims or, of course, to indemnify its insureds in
the event that the claims are decided against them. Id. See also West Bend Mut.
Ins. Co. v. U.S. Fidelity and Guaranty Co., 598 F.3d 918, 922 (7th Cir. 2010)
(applying Indiana law) (where claim is patently outside the risks covered by the
policy, the insurer has no duty to defend).
The court now turns to the parties’ disputes regarding Allstate’s coverage
obligations. We first describe the Underlying Litigation. We then address who is
an insured under the Indiana Business Policies. Finally, we consider whether the
claims in the Underlying Litigation could possibly fall within Allstate’s coverage
obligations and thus trigger Allstate’s duty to defend.
The Underlying Litigation
The Underlying Litigation is a putative class action filed in the Middle
District of Georgia (Case No. 5:11-cv-00422) by Tina M. Gregory and Eddie James
Wells against the defendants in this case (Preferred Financial Solutions, Credit
Card Relief, Thomas P. Dakich d/b/a Dakich & Associates, Jeffrey Brooks) and
seven other individuals. The operative complaint is a Third Amended Complaint

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(“TAC”) for Damages in Class Action, filed August 13, 2013, as docket no. 77 in the
Underlying Litigation.2
The plaintiffs are a class of Georgia residents who purchased “debt adjusting”
services. They claim that the defendants “conspired together to comprise a debt
adjustment services operation targeting financially-troubled consumers [and]
extracting exorbitant fees for worthless services from individuals least able to afford
it.” (TAC, ¶ 2). They assert that the defendants are jointly and severally liable to
the plaintiffs either as conspirators, joint venturers, as alter egos of each other,
aiders and abettors, or under a piercing the corporate veil theory. (TAC, ¶¶ 3, 4, 5,
6).
The complaint in the Underlying Litigation describes the roles of the
defendants as follows: Preferred Financial Solutions (“PFS”) and Credit Card Relief
are the entities with which and through which the individual defendants
participated in the debt adjustment services advertised and sold to Georgia
residents. Thomas P. Dakich and Jeff Whitehead are attorneys who acted as PFS’s
“national mediation counsel” and communicated with Georgia debtors and their
creditors. Rhoda Roell-Taylor and Laquetta Pearson are attorneys licensed to
practice law in Georgia who ostensibly acted as attorneys for Georgia debtors who
contracted for the debt services. Jeffrey Brooks, Larry D. Wilson, Steve Mylinski,

During briefing of the cross-motions for summary judgment, the plaintiffs in
the Underlying Litigation were granted leave to file a Third Amended Complaint.
The parties’ briefing addressed the allegations of the Third Amended Complaint
and their effect on the coverage disputes. The court takes judicial notice of the
contents of the Third Amended Complaint.
2

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Daniel Yuska, and Rod Miller are principals or employees of PFS who participated
in the creation, marketing, or operations of the debt service business.
The roles of PFS and Credit Card Relief are also described in an affidavit by
Jeffrey Brooks submitted in support of the defendants’ motion for summary
judgment. (Dkt. 39-1). According to the affidavit, Mr. Brooks is the president of
both PFS and Credit Card Relief. Credit Card Relief’s business is marketing the
services of attorneys to negotiate debt relief for consumers. PFS is the “back-office
service provider” to law firms that negotiate debt relief. Together and “as joint
venturers,” PFS and Credit Card Relief ran a “marketing operation to advertise and
promote the services of attorneys who negotiate and settle consumers’ credit card
debt.” (Dkt. 39-1, ¶ 5).
Debt adjustment services are regulated by a Georgia statute, the Georgia
Debt Adjustment Act, OCGA 18-5-1 et seq. Among other requirements, the Georgia
Act limits the maximum fees that may be charged by a debt adjuster, requires each
debtor’s funds to be maintained in a separate trust account, and requires the
disbursement of a debtor’s funds (less authorized fees) within 30 days of their
receipt. The Act excludes from its purview “those situations involving debt
adjusting incurred in the practice of law in this state.” OCGA 18-5-3.
According to the TAC in the Underlying Litigation, the defendants offered a
Debt Settlement Plan and a client selected credit card debts to “enroll” in the Plan.
A total monthly payment was then determined and the client was responsible for
paying this amount to a trust controlled by one or more of the defendants for the

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benefit of the client’s creditors. The client then would stop making payments
directly to her creditors, and an attorney affiliated with the defendants (but whom
the client purportedly retained separately) would use “technology and negotiating
skills” to settle the debts at a steep discount from the amount the client owed when
she enrolled the debts in the Plan. The client agreed to the following fees: (a) a 7%
enrollment fee measured on the total debt the client enrolled in the Plan, (b) a
$49.95 monthly maintenance fee, (c) a 25% settlement fee measured on the amount
“saved” on a debt, and (d) a $120.00 Local Participating Program Attorney fee. The
Program Attorney fee ostensibly paid for the services of a Georgia-licensed attorney
to prepare an attorney engagement letter, review the client’s enrollment forms, and
conduct an “initial telephone consultation” with the client.
The class plaintiffs contend that they enrolled debts in the Plan and made
monthly payments as directed, and the defendants collected the enrollment fee,
monthly maintenance fee, and attorney fee, but that none of the plaintiffs’ debts
were ever settled. Plaintiff Gregory—whose experience is alleged to be typical of
the putative class members—never spoke to anyone who purported to be her Plan
lawyer. She enrolled $26,210 of debt in the Plan, paid the $120 attorney fee, and
made $250 bi-monthly electronic funds transfers to the Plan for six months, from
February 2008 through July 2008. Ms. Gregory cancelled her enrollment in July
2008, by which time no payments had been made to her creditors, none of her debts
had been settled, and no attempts were ever made to settle her debts. At
cancellation, the defendants sent Ms. Gregory a check for $849.59 and claimed that

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the remaining funds she had paid to the trust were earned by the defendants as
their enrollment fee ($1,830.76), monthly maintenance fees ($49.95 for six months,
or a total of $299.70), and attorney fee ($120).
Plaintiff Gregory and the putative class contend that the defendants’ conduct
(a) violated the Georgia Act; (b) was grounded in fraudulent representations
regarding their debt services; (c) was grounded in negligent representations or
“unintentional false representations” regarding their debt services; and (d) was in
breach of fiduciary duties to the plaintiff clients.
Analysis of Coverage Obligations
The parties’ cross-motions for summary judgment raise three main
interpretative issues, which the court addresses in order below. The first issue is
whether Credit Card Relief, Inc. and Thomas P. Dakich are insureds. The second
issue is whether the claims against the insureds in the Underlying Litigation
potentially fall within the “accidental event” or “advertising injury” coverages under
the Indiana Business Policies. The third issue is whether, even if there is potential
accidental event or advertising injury coverage, any exclusions in the Policies apply.
I.

Who is an insured
The court first addresses whether Credit Card Relief, Inc. and Thomas P.

Dakich d/b/a Dakich & Associates are insureds under the commercial general
liability (CGL) Part of the Indiana Business Policies. The parties agree that
defendants PFS and Jeffrey Brooks are insureds. The CGL Part, which extends
coverage for an “accidental event” or “advertising injury”—the only two sources of

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coverage that the defendants allege—defines the class of insureds by reference to
classifications on the Declarations page of the Indiana Business Policies. The
relevant provision states:
“The following people and organizations are persons insured under this
[comprehensive liability] Part [of the policy]:
1. If you are shown in the Declarations as an Individual, you and your
spouse for activities related to your business.
2. If you are shown in the Declarations as a partnership or joint venture:
The partners and joint venturers as long as their liability arises out of
their activities as a partner or joint venture. We will also cover the spouse
of any partner or joint venture for activities related to your business.
3. If you are shown in the Declarations as any organization other than an
individual, partnership or joint venture: Executive officers, stockholders,
members of the board of trustees, and directors or governors while they
are acting within the course and scope of their duties.
4. Your employees while acting within the course and scope of their
employment.
5. Any person or organization acting as your real estate manager.
6. Any organization you acquire or form during the policy period and in
which you have at least a majority interest, except for joint ventures. We
will not provide coverage for that organization if it is covered under any
other policy, even if you cannot collect because you have exhausted that
policy’s limits of liability. Coverage for an organization you acquire or
form will end 90 days after you acquire or form it, unless specifically
added to the policy by endorsement.
.....
(the “Persons Insured” provision).
Paragraph 1 on the Declarations page identifies “The Insured” as “Preferred Leads,
Preferred,” with a mailing address of 5656 W. 74th Street, Indianapolis, IN. (Dkt. 12 at p. 3). The parties agree that this reference is to defendant Preferred Financial
Solutions, Inc. The Declarations page classifies PFS as a corporation, and states:
“The Insured is a CORPORATION.” (Dkt. 1-2 at p. 3). The plain language of
paragraph 3 of the Persons Insured provision applies because a corporation is “any
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organization” that is not an individual, partnership, or joint venture. When the
insured is the type of entity described in paragraph 3, then the class of insureds is
made up of “Executive officers, stockholders, members of the board of trustees, and
directors or governors while they are acting within the course and scope of their
duties.” Mr. Brooks, the parties agree, is also an insured because he is the
president of PFS and is being sued in the Underlying Litigation for actions taken in
that capacity. See paragraph 3. Mr. Dakich and Credit Card Relief, Inc. do not
contend that they fall into any of these categories” 3
PFS and Credit Card Relief assert, however, that under paragraph 2 of the
Insured Persons provision, the class of insureds also encompasses those identified
by reference to PFS’s status as a “joint venture.” Based on Mr. Brooks’s affidavit
and the allegations in the Underlying Litigation, PFS states that it is a joint
venture, and not just a corporation. It further states that the joint venture includes
Credit Card Relief, Inc., thus making Credit Card Relief an insured under the
language of paragraph 2. Paragraph 2’s coverage for a joint venture is limited to
those instances, however, where the insured is “shown in the Declarations as a
. . . joint venture.” (Emphasis added.) As noted above, PFS is shown on the
Declarations as a “corporation.” PFS counters that it is both a corporation and a

Paragraphs 4 (employees), 5 (real estate manager), and 6 (newly acquired or
formed organizations) of the Persons Insured provision augment the classes of
insured as well. These paragraphs contain no language limiting their applicability
across the four types of insureds described in paragraphs 1, 2, and 3: (a) individual,
(b) partnership, (c) joint venture, and (d) any organization that is not an individual,
partnership, or joint venture. No argument has been made that Mr. Dakich or
Credit Card Relief, Inc. is afforded coverage by virtue of paragraphs 4, 5, or 6.
3

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joint venture, and the Declarations’ showing of PFS as a corporation should not be
read to eliminate coverage with respect to PFS’s status as a joint venture. The
court disagrees. Even if it were possible for PFS to be both a corporation and a joint
venture with one or more other entities (and the court will accept for purposes of
coverage analysis that PFS is both a corporation and a joint venturer with Credit
Card Relief),4 the Declarations page does not show PFS as anything except a
corporation. The Persons Insured provision of the Policies specifically references
how an insured is “shown” on the Declarations page, and thus the court must define
the insured by reference to the type of entity it is “shown” to be on that page. PFS
is not shown as a joint venture, and thus neither it nor its alleged joint venturers
may claim coverage by virtue of paragraph 2.5

PFS and Credit Card Relief cite Abbott Laboratories v. Takeda
Pharmaceutical Co., Ltd., 476 F.3d 421 (7th Cir. 2007), for the proposition that a
business entity can be a corporation and a joint venture at the same time. Though
inapposite to the coverage issue in this case, Abbott does not in fact stand for that
proposition. Abbott was a dispute between companies that had formed a joint
venture, but later converted the joint venture into a corporation in which they had
equal share ownership. The parties’ status as “joint venturers” as opposed to “equal
shareholders” was immaterial to the issues before the court, which involved
interpretation of a contractual forum selection clause.
4

The Indiana Business Policies classify the insured for a reason, the most
obvious being that entity type affects perceived risk and premium. The language of
paragraph 6 of the Persons Insured provision reinforces the importance of the
insurer’s knowledge of the type of organization it is insuring. It extends coverage
for a limited period of 90 days to organizations that an insured acquires or forms
during the policy period. That limited coverage specifically excludes a newlyacquired or newly-formed joint venture. The General Conditions section of the
Policies also makes clear that the nature of the insured’s business or its operations
is material to the setting of premiums. It provides, in part, “we may require
additional premiums if any of the following happens: There is a change in the
nature of your business or in your operations or we learn of an additional risk
related to your business.” See Dkt. 1-2, at p. 51.
5

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PFS bought a policy that covered it as a corporation only, and because Credit
Card Relief fits none of the categories of insureds stemming from PFS’s status as a
corporation, the court finds as a matter of law that Credit Card Relief is not an
insured to which Allstate owes a duty to defend or duty to indemnify under the
Indiana Business Policies. And although the Underlying Litigation alleges that
attorney Dakich served in some sort of executive capacity for PFS, the defendants
do not contend that he is an insured. The court therefore finds that Mr. Dakich also
is not an insured to whom Allstate owes a duty to defend or duty to indemnify under
the Indiana Business Policies. See Allstate’s Brief in Support of Motion for
Summary Judgment, Dkt. 35, at pp. 13-14 (citing a lack of evidence that Mr. Dakich
is an “employee, officer, stockholder, or board member of PFS”).
To summarize, defendants PFS and Jeffrey Brooks are insureds under the
Indiana Business Policies. Defendants Credit Card Relief, Inc. and Thomas Dakich
are not. The court will now turn to the coverage obligations to PFS and Mr. Brooks.
II.

Coverage for “Personal Injury,” “Accidental Event,” and
“Advertising Injury”
The commercial general liability portion of the Indiana Business Policies

provides that Allstate “will pay on behalf of persons insured all sums which they
become legally obligated to pay as damages arising out of an accidental event,
personal injury or advertising injury that occurs while this policy is in effect. (Dkt.
1-2 at p. 37).
PFS and Mr. Brooks contend that the claims in the Underlying Litigation
trigger potential coverage under the “accidental event” and “advertising injury”
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provisions of the insurance contracts. They do not contest Allstate’s showing that
the “personal injury” provision of the Indiana Business Policies does not afford
coverage. We find, therefore, that Allstate is entitled to judgment as a matter of
law that the claims in the Underlying Litigation are clearly outside the “personal
injury” coverage of the policy. See, e.g., Defendants’ Reply in Support of CrossMotion for Summary Judgment, Dkt. 46, at p. 5. We limit our analysis to the
parties’ disputes regarding accidental event and advertising injury coverage.
A. Accidental Event
Accidental event is defined in the Indiana Business Policies as “an accident,
including continuous or repeated exposure to the same conditions, resulting in
bodily injury or property damage. An accident cannot be intended or expected by
any persons insured, except for use of reasonable force to protect persons or
property.”
Two issues arise in evaluating coverage under this provision: (1) whether the
Underlying Litigation involves an “accident” not “intended or expected by any
persons insured” and (2) whether, even if the Underlying Litigation alleges an
accident not intended or expected by any persons insured, the accident “resulted” in
bodily injury or property damage.
1. “Accident”
Allstate argues that the Underlying Litigation is not based on any “accident”
or “unforeseen” occurrence. The class plaintiffs allege injury from the defendants’
promotion and operation of a debt-relief program in a manner inconsistent with

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representations and promises made to the plaintiffs, either because of fraud or
negligence,6 and in violation of the defendants’ fiduciary duties to the plaintiffs and
Georgia law. In other words, as described in the TAC, the claims against the
defendants are based on their inducement of the plaintiffs to enter into business
contracts for the reduction of the plaintiffs’ debts and on their failure to perform—
because of either negligence or fraudulent design—as promised.
PFS and Mr. Brooks contend that the Underlying Litigation involves an
“accident” within the meaning of the Policies because the defendants’ failures to
provide what they promised (settlement of the plaintiffs’ debts) “were not intended
and, rather, were the unforeseen result of Defendants’ efforts to enroll clients into
the program.” (Dkt. 39-1, ¶ 8). They argue that under Indiana insurance law
principles, an “accident” occurs whenever a person is charged with negligence or
when a person’s conduct, though intentional, has “accidental consequences” that he
did not intend. Dkt. 46 at p. 6.
The court’s resolution of this issue is guided by two recent decisions of the
Indiana Supreme Court.7 They are Tri-Etch, Inc. v. Cincinnati Ins. Co., 909 N.E.2d
997 (Ind. 2009), and Auto-Owners Ins. Co. v. Harvey, 842 N.E.2d 1279 (Ind. 2006).

In the TAC, the plaintiffs allege that even if the defendants’ representations
regarding their program were not deliberately false, they were “negligently” or
“unintentionally” false and induced the plaintiffs to pay for debt relief services they
never actually received.
6

When a state’s substantive law applies to claims, the court must apply the
state’s laws “as the state’s highest court would.” Bogie v. Rosenberg, 705 F.3d 603,
609 (7th Cir. 2013).
7

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Allstate stresses the principles addressed in Tri-Etch, while the defendants argue
that Auto-Owners is analogous and supports their coverage contentions.
In Auto-Owners, a woman lost her balance, fell off the edge of a boat ramp,
slipped down a rocky embankment, and landed in the river where she drowned.
This series of events was triggered when her boyfriend pushed her, although he
never expected that she would lose her balance or fall down the embankment or
land in the river or drown. The subject liability policy covered all sums an insured
“becomes legally obligated to pay as damages because of or arising out of bodily
injury . . . caused by an occurrence.” Id. at 1282-83. “Occurrence” was defined as an
“accident,” id. at 1283, and an accident was construed by the court to mean at the
very least something that happens without intention. Id. (“We agree with AutoOwners that implicit in the meaning of ‘accident’ is the lack of intentionality.”)
The Supreme Court determined that under the facts alleged in the
underlying suit by the woman’s family against the boyfriend, “occurrence” was an
ambiguous term. The court found that “occurrence” could mean the boyfriend’s
push or the woman’s drowning, and the policy language did not require defining
“occurrence” or “accident” solely based on the actions of the insured boyfriend. Id.
at 1284. If the bodily injury—the woman’s death—were considered to have been
caused by the boyfriend’s pushing, then there was no “accident” because his push
did not occur “unexpectedly or unintentionally.” Id. But if the bodily injury were
framed by the woman’s actions—her slipping, then falling, then drowning—then it
could be deemed to have occurred unexpectedly and unintentionally, and thus was

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an accidental “occurrence.” Id. The court concluded that “we thus find the policy
language ambiguous and must construe it against Auto-Owners, holding that the
term ‘occurrence’ applies to [the woman’s] slip, fall and drowning, and not to [the
boyfriend’s] push.” Id. at 1285.
Auto-Owners does not hold, as PFS and Mr. Brooks urge, that actions that
have unintended consequences from the insured’s standpoint are “accidents” within
the meaning of insurance policies that use the term. Their argument is grounded in
the court’s discussion of an exclusion in the Auto-Owners policy that eliminated
coverage (even if there had been an occurrence from an accident) for any injury that
was intentional or reasonably expected by the insured. Exclusions in insurance
policies are narrowly construed (see American States Ins. Co. v. Kiger, 662 N.E.2d
945, 949 (Ind. 1996)), and the court ruled that there was a question of fact whether
the boyfriend intended to harm his girlfriend. Auto-Owners, 842 N.E.2d at 1289-90.
The court emphasized that the boyfriend testified that he had not intended to harm
his girlfriend and had not intended or expected that she would fall into the water or
suffer physical injury at all, and found that the evidence on summary judgment was
“not so overwhelming as to mandate us to conclude that [the boyfriend] intended to
harm [the woman],” for purposes of applying the exclusion. Id. at 1291.
The court was careful to note that its interpretation of the policy exclusion
raised a question separate from its interpretation of the general indemnity
language of the policy. Essential to the court’s interpretation of the indemnity
language was that the policy provided coverage where bodily injury was caused by

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an “occurrence,” defined as an accident, and that the occurrence/accident language
was not limited to the actions of the insured. Id. at 1284-85. The meaning of the
exclusionary language was a different issue altogether, and the court’s discussion of
the exclusion for injuries the insured reasonably expects or intends is not germane
to construing the term accident within the indemnity language of a policy. See id.
at 1288 (emphasis in original) (“In contrast to the insurance policy’s insuring
agreement that requires the occurrence to be accidental, [the] exclusion more
narrowly considers whether the resulting injury or damage was intentional or
reasonably expected by the insured.”)
Auto-Owners does not hold, as the defendants argue, that an event or series
of events is an “accident” whenever the insured does not intend his actions to cause
harm.
In Tri-Etch, Inc. v. Cincinnati Ins. Co., 909 N.E.2d 997 (Ind. 2009), the
Indiana Supreme Court construed the term “occurrence,” defined as an “accident”
in the insurance policy, and applied it to a claim of injury arising from a business’s
negligence in the performance of its services. The defendant, Tri-Etch, provided
alarm security services to a liquor store business. Those services included
monitoring to ensure that the store’s night alarm had been set after the store closed
at midnight. One night Tri-Etch waited until 3:00 a.m. (instead of no later than
12:30 a.m.) to notify the store’s owner that the alarm had not been set at midnight.
The owner went to the store; his employee who had worked the closing shift and the
store’s money were missing. The employee was found at 6:00 a.m., beaten and tied

18

to a tree in a local park, though still alive. He died later that day from his injuries,
and his family sued Tri-Etch, claiming that if Tri-Etch had properly monitored the
setting of the alarm and promptly notified the owner by 12:30 a.m. that the alarm
had not been set, the employee could have survived his injuries. Tri-Etch sought
coverage under the provision of its commercial general liability policy for bodily
injury caused by an “occurrence,” which was defined as an “accident.” Id. at 1001.
Tri-Etch argued that there was no intentional wrongdoing on its part—that
its failure to make the 12:30 a.m. call was an “unintentional oversight”—and that it,
of course, did not intend any harm to result from that conduct. The Indiana Court
of Appeals had agreed with Tri-Etch that the claim against Tri-Etch was an
“occurrence” because it was the result of unintentional conduct. See id. at 1001.
The Supreme Court reversed.
The court ruled that “[l]ack of intentional wrongdoing does not convert every
business error into an accident.” Id. at 1001. Instead, a business’s failure to
perform its services in the manner that it had promised is an “error or omission” but
not by any stretch an “accident.” Id. The court emphasized that a commercial
general liability policy does not guarantee the quality of services (or products)
provided. Id. In this vein, the court cited several decisions holding that businesses’
failures to deliver the quality of services they had promised are not accidental
occurrences under CGL policies. See id. at 1002, citing Transamerica Ins. Servs. v.
Kopko, 570 N.E.2d 1283, 1284-85 (Ind. 1991) (claim against home builder for
property damage because of settled soil did not arise from an “accident”); Erie Ins.

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Co. v. American Painting Co., 678 N.E.2d 844 (Ind. Ct. App. 1997) (no coverage for
property damage alleged to have arisen from negligent hiring and retention of
employee); Terre Haute First Nat’l Bank v. Pacific Employers Ins. Co., 634 N.E.2d
1336, 1338 (Ind. Ct. App. 1993) (bank’s negligent administration of a guardianship
was a “professional relationship,” not an “accident”).
The plaintiff estate protested that its claim was different from an “errors or
omissions”-type defalcation claim. The estate emphasized that it had not sued
based on a contractual relationship with Tri-Etch and was not claiming that TriEtch failed to live up to a contractual obligation to it, but was pursuing a tort theory
that Tri-Etch’s negligence had led to unintended injuries. The Supreme Court
found that distinction made no difference; the essential point was that the claim
was based on Tri-Etch’s simple failure to do its 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 quoted approvingly from Couch on
Insurance:
It is important to note . . . that there is a difference between risks that
arise out of a business and business risks. While the former may be
covered under a commercial general liability insurance policy, the
latter is not. Business risk occurs as a consequence of the insured not
performing well and is a component of every business relationship that
is necessarily borne by the insured in order to satisfy its customers.
Id. at 1003 (quoting 9A Couch on Insurance § 129:1 (3d ed. 2005)).
The court finds that the claims in the Underlying Litigation against Allstate’s
insureds are akin to the claims in Tri-Etch. The plaintiffs’ injuries arise from the
defendants’ failure (whether negligent or not) to deliver debt-reduction services in
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the manner promised or as otherwise required by Georgia law. Those are business
errors or omissions, not an “accidental event” covered by the CGL policies.8
2. “Resulting in Bodily Injury or Property Damage”
The conclusion that the claims in the Underlying Litigation do not trigger
“accidental event” coverage is bolstered by the corresponding conclusion that the
Underlying Litigation does not allege resulting “bodily injury” or “property
damage.” As noted previously, “accidental event” coverage is limited to an accident
“resulting in bodily injury or property damage.” No one suggests that the
Underlying Litigation includes claims for bodily injury. Allstate argues that the
Underlying Litigation does not seek relief for “property damage” either, which is
defined in the policies as “physical damage to, or the destruction of tangible
property. . . “ (Dkt. 11-3, pp. 57, 59). The Underlying Litigation seeks economic loss
damages and does not assert claims that any tangible property was destroyed or
physically damaged because of the defendants’ failure to provide the debt reduction
services they had promised the class plaintiffs.

The court of appeals’ opinion in Indiana Farmers Mut. Ins. Co. v. North
Vernon Drop Forge, Inc., 917 N.E.2d 1258 (Ind. Ct. App. 2009), trans. denied, does
not water down Tri-Etch. In ruling that the insured’s delivery of contaminated filldirt could be deemed an “occurrence” (which was defined as an “accident”), the
North Vernon court recognized that the Supreme Court “recently explained that the
term ‘occurrence’ does not contemplate . . . poor business performance. . . .” Id. at
1272 (citing Tri-Etch). The court of appeals decided that because the insured was
not in the fill-dirt business and had made a “gift” of the dirt, then “[i]n short,” it was
“not a case of poor business performance, professional error, or breach of contract.”
Id. In this case, the Underlying Litigation alleges that the defendants were in the
business of promoting and selling debt-reduction services but failed to deliver those
services as promised. The Underlying Litigation alleges poor business performance
(as well as allegations of fraudulent business performance).
8

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The defendants’ opposing argument is relegated to a footnote. (Dkt. 46 at p. 5
n.4). They cite cases—outside the insurance coverage context—for the principle
that “money” can qualify as “tangible property.” These cases concern money in the
form of tangible currency—dollar bills or coins or even bank notes. See, e.g., Levin
v. Dare, 203 B.R. 137 (S.D. Ind. Bankr. 1996) (“pieces of paper” used as United
States currency are tangible personal property for purposes of applying Indiana’s
debtor exemptions); Beery v. Los Angeles County, 253 P.2d 1005 (Cal. App. 1953)
(characterizing reserve notes and national bank notes physically located in a safe
deposit box as tangible property under tax law); Blodgett v. Silberman, 277 U.S. 1,
18, 48 S.Ct. 410, 417 (1928) (coins and bank notes sitting in a deposit box classified
as tangible property taxable based on its situs in the state where the deposit box is
located).
The court agrees with Allstate that the Underlying Litigation does not claim
“property damage” as defined by the policies. The injured debtors seek to recover
for economic losses they suffered because of the defendants’ conduct; they do not
claim that tangible pieces of paper currency were destroyed or physically damaged.
For this reason too, therefore, the court determines that Allstate is entitled to
judgment that the claims in the Underlying Litigation do not potentially trigger
“accidental event” coverage in the Indiana Business Policies.

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B. “Advertising Injury”
We now turn to the parties’ arguments about whether the Underlying
Litigation makes claims against the insured potentially within the policies’ coverage
for “advertising injury.” The Indiana Business Policies define advertising injury as
follows:
“Advertising injury” means the action of calling something to the
attention of the public by means of printed or broadcast paid
announcement for the sale of goods, products or services.
“Advertising injury” means injury arising out of one or more of the
following offenses:
1.
Oral or written publication of advertising material that slanders
or libels a person or organization or disparages a person’s or
organization’s goods, products or services;
2.
Oral or written publication of advertising material that violates
a person’s right to privacy;
3.

Misappropriation of advertising ideas or style of business;

4.
Infringement of copyright, title or slogan as a result of your
advertising.
(Dkt. No. 11-12, pp. 39, 55-56).
The problem here, according to the defendants, is that the Policies have two
paragraphs with definitions of advertising injury. The parties agree that the claims
in the Underlying Litigation do not fall within the second paragraph above (the one
that lists four offenses from which an advertising injury must arise), but they do fall
within the first paragraph (the one that describes media of advertising and its
subject matter). Allstate argues that for coverage to exist, the requirements of both
paragraphs must be met because advertising injury has two components. The
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defendants argue that for coverage to exist, the requirements of only one of the
paragraphs must be met. They contend that the absence of the word “and” between
the two paragraphs makes Allstate’s argument untenable or, at best, creates an
ambiguity that must be construed against Allstate.
Neither party cites any case law where courts were faced with policy
language regarding advertising injury in the same format as the Indiana Business
Policies—that is, in a way in which the “advertising injury” is defined in two
separate paragraphs.
Thus, the court turns to general principles of contract interpretation. As
noted previously, insurance contracts are subject to the same rules of contract
interpretation as other contracts, except there is a special rule if an ambiguity
exists. In that case, the contract is construed against the insurer and the policy’s
language is viewed from the insured’s perspective. Bosecker v. Westfield Ins. Co.,
724 N.E.2d 241, 244 (Ind. 2000). An ambiguity “does not exist simply because a
controversy exists between the parties, each favoring an interpretation contrary to
the other.” Linder v. Ticor Title Ins. Co., 647 N.E.2d 37, 39 (Ind. Ct. App. 1995).
The court must determine whether reasonable persons can honestly differ as to the
meaning. Id.
Here, a cardinal principle of contract interpretation convinces the court that
“advertising injury” under the Policies necessarily includes both paragraphs and the
lack of an “and” between them does not render the contract ambiguous. In
interpreting insurance contracts, as well as any other contracts, the court should

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“not . . . render any words, phrases, or terms ineffective or meaningless.” State
Farm Mut. Auto. Ins. Co. v. D’Angelo, 875 N.E.2d 789, 796 (Ind. Ct. App. 2007). The
defendants’ proposed interpretation does just that by eliminating the entire second
paragraph and the very concept of injury. Both paragraphs are clear complements
to one another, with the first paragraph capturing the type of action the insured
must have engaged in (announcing through print or broadcast the sale of goods or
services) and the second paragraph capturing the type of offense that the insured
must have engaged in (slander, invasion of privacy, misappropriation of trade
secrets, copyright infringement) that gives rise to the injury claimed by the alleged
victim of the insured’s action. The absence of an “and” between the two paragraphs
would not cause a reasonable reader of the Policies to interpret the language in a
way that wholly ignores and eliminates the concept of injury, which is clearly
expressed by the second paragraph. It is illogical to write out of the contract the
notion of injury and render its expression in the language of the contract ineffective.
Because the claims in the Underlying Litigation do not involve injury arising
out of slander or libel, invasion of privacy, misappropriation of trade secrets, or
copyright infringement (which none of the parties disputes), the court finds as a
matter of law that no coverage is available based on assertion of “advertising
injury.”
III.

Exclusions

Allstate’s motion for summary judgment also addresses three exclusions in
the Indiana Business Policies. It raises (1) the exclusion from advertising injury for

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(a) injury arising from activities of any partnership or joint venture not shown in
the Declarations and (b) injury arising out of an incorrect description of or mistake
in advertised price of services; and (2) the exclusion from personal injury, accidental
event, and advertising injury for injury arising out of the rendering or failure to
render “scientific or professional services, or consulting business or technical
services. . . .” See Allstate Brief in Support of Motion for Summary Judgment, Dkt.
35 at pp. 19-23; Reply Brief, Dkt. 43, at pp. 14-17. It is not necessary for the court
to adjudicate the interpretation or applicability of these exclusions.
Exclusions operate to preclude coverage otherwise afforded by the indemnity
provisions of the contract. Keckler v. Meridian Sec. Ins. Co., 967 N.E.2d 18, 22 (Ind.
Ct. App. 2012) (an exclusionary clause expresses a particular act, event, or omission
that negates coverage); PSI Energy, Inc. v. Home Ins. Co., 801 N.E.2d 705, 727 (Ind.
Ct. App. 2004) (in insurance policy, “coverage language defines the set of all claims
that are covered [and] exclusions define subsets of claims that, although within the
main set, are nevertheless excluded”). They are akin to affirmative defenses: when
coverage is found to exist under the general terms of the policy, the insurer may
then demonstrate that an exclusion operates to eliminate that coverage. Keckler,
967 N.E.2d at 23 (“Generally, when an insurer wishes to rely upon an exclusionary
clause in its policy, it is raising an affirmative defense to coverage and it bears the
burden of proving its applicability.”); Walker v. Employers Ins. of Wausau, 846
N.E.2d 1098, 1103 (Ind. Ct. App. 2006) (an exclusion is an affirmative defense to
coverage).

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Because we have already determined that the claims in the Underlying
Litigation against the insureds are clearly outside the coverage afforded for an
“accidental event” and “advertising injury”—the only two provisions under which
the defendants argue coverage is possible—it is unnecessary to address the
exclusions raised by Allstate.
Conclusion
For the foregoing reasons, the court determines as a matter of law and
declares that:
1. No coverage exists, and no duty to defend or to indemnify arises, as to any
defendants under the Illinois Policies.
2. Defendants Preferred Financial Solutions, Inc. and Jeffrey Brooks are
Persons Insureds under the Indiana Business Policies.
3. Defendants Credit Card Relief, Inc. and Thomas P. Dakich d/b/a Dakich &
Associates are not Persons Insureds under the Indiana Business Policies.
4. Because the claims against Preferred Financial Solutions, Inc. and Jeffrey
Brooks in the Underlying Litigation are patently outside the coverage
under the Indiana Business Policies afforded for “personal injury,”
“accidental event,” and “advertising injury,” Allstate has no duty to defend
or to indemnify Preferred Financial Solutions, Inc. or Jeffrey Brooks with
respect to the claims in the Underlying Litigation.

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Accordingly, the court GRANTS Allstate’s motion for summary judgment
(Dkt. 34) and DENIES the defendants’ cross-motion for summary judgment (Dkt.
39).
So ORDERED.
03/24/2014
Date: _________________

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

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