COAST TO COAST AUTO SALES, INC. v. SECURA INSURANCE, INC.
Entry on Cross Motions for Summary Judgment. For the reasons stated above, Secura's Motion for Summary Judgment (Dkt. 40 ) is GRANTED in part and DENIED in part. It is GRANTED on Coast to Coast's bad faith claim. It is DENIED on Coast to Coast's declaratory judgment and breach of contract claims. The bad faith claim is DISMISSMED. Coast to Coast's Motion for Summary Judgment (Dkt. 44 ) is GRANTED on its declaratory judgment and breach of contract claims. The final pret rial scheduled June 4, 2014 is VACATED. The bench trial scheduled June 30, 2014 at 9:00 a.m. in Courtroom 344, Birch Bayh Federal Building and United States Courthouse, Indianapolis, Indiana is converted to a damages hearing to determine the amount owed to Coast to Coast for its loss. (See Order) Signed by Judge Tanya Walton Pratt on 4/11/2014.(MAC)
UNITED STATES DISTRICT COURT
SOUTHERN DISTRICT OF INDIANA
COAST TO COAST AUTO SALES, INC.,
SECURA INSURANCE, INC.,
Case No. 1:13-cv-00011-TWP-DKL
ENTRY ON CROSS-MOTIONS FOR SUMMARY JUDGMENT
This matter is before the Court on the parties’ cross-motions for summary judgment.
Defendant Secura Insurance, Inc. (“Secura”) moved for summary judgment (Dkt. 40) on
Plaintiff’s declaratory judgment, breach of contract, and bad faith claims. Plaintiff Coast to
Coast Auto Sales, Inc. (“Coast to Coast”) moved for summary judgment (Dkt. 44) only on its
declaratory judgment and breach of contract claims. For the reasons set forth below, the Court
GRANTS Coast to Coast’s motion and GRANTS in part and DENIES in part Secura’s
The following facts are considered undisputed for the purposes of summary judgment.
Coast to Coast is a business located in Fishers, Indiana that is engaged in the selling of motor
vehicles. It is the named insured of a policy of insurance issued by Secura (“the Policy”). The
Policy is a garage policy1, which includes both liability and physical damage coverage. Coast to
Coast also purchased a False Pretense Endorsement, which provides physical damage coverage
for a “loss” to an “auto” caused by “[s]omeone causing you to voluntarily part with a covered
A commercial auto policy designed to address the needs of auto dealers. Coverages include garage liability,
garagekeepers, and auto physical damage; other coverages are available by endorsement. http://www.irmi.com/
‘auto’ by trick, scheme, or under false pretenses.” Dkt. 42-3 at 56. The false pretense coverage
would not apply “to a loss in which for any reason a bank or any other drawee fails to pay.” Dkt.
42-3 at 56. Under the Policy, the term “loss” is defined as “direct and accidental loss or
damage.” Dkt. 42-3 at 50.
The Liability Coverage portion of the Policy covers the insured’s liabilities to third
parties. It includes an exclusion for loss caused by “delay or failure by you or anyone acting on
your behalf to perform a contract or agreement in accordance with its terms.” Dkt. 42-3 at 41.
On December 1, 2011, Coast to Coast sold a Mercedes Benz S550 (“the Mercedes”) to
Timothy Dunn (“Mr. Dunn”) pursuant to an installment sales contract. Mr. Dunn signed the
necessary paperwork and provided proof of identity and place of residence.
Agreement included a clause that for every installment sales contract which Coast to Coast sold
to The Huntington National Bank (“Huntington Bank”), Coast to Coast represented and
warranted that the vehicle sold was “delivered to the Customer at the dealer’s place of business
unless another place for delivery is approved in advance by Huntington [Bank].” Dkt. 42-1 at
16. Mr. Dunn did not secure the vehicle at the Coast to Coast dealership in Indiana; instead,
Coast to Coast shipped the Mercedes to Mr. Dunn at an address that he provided in the state of
Georgia. Coast to Coast also arranged financing for Mr. Dunn’s purchase of the Mercedes with
Huntington Bank pursuant to a Dealer Agreement between Coast to Coast and Huntington Bank.
The Dealer Agreement further provided that if Coast to Coast breached the agreement with
respect to an installment sales contract, Coast to Coast was obligated to repurchase that
installment sales contract.
On December 15, 2011, Mr. Dunn also purchased a 2002 Lexus SC430 (“the Lexus”)
from Coast to Coast pursuant to an installment sales contract. Again, Mr. Dunn signed the
necessary paperwork and provided proof of his identity and place of residence. Coast to Coast
shipped the Lexus to the same address in Georgia. Coast to Coast arranged financing for the
Lexus through Wells Fargo Dealer Services (“Wells Fargo”) pursuant to a Dealer Agreement
between Coast to Coast and Wells Fargo. The Dealer Agreement provided that for every
installment sales contract sold to Wells Fargo by Coast to Coast, Coast to Coast represented and
warranted that it would perfect Wells Fargo’s security interest in the motor vehicle within 30
days of the date of the installment sales contract. It further provided that if Coast to Coast
breached the Dealer Agreement with respect to an installment sales contract, Coast to Coast was
obligated to repurchase that installment sales contract.
Thereafter, Mr. Dunn failed to make payments on the loans to either Huntington Bank or
Wells Fargo and Coast to Coast had failed to perfect Wells Fargo’s security interest in the Lexus
within 30 days, as required by the Dealer Agreement. As a result, on April 11, 2012, Wells
Fargo sent Coast to Coast a letter requesting that it repurchase the installment sales contract for
the Lexus. On April 25, 2012, Huntington Bank sent Coast to Coast a letter requesting that
Coast to Coast repurchase the installment sales contract for the Mercedes because Coast to Coast
did not deliver the Mercedes at its place of business or a location approved by Huntington Bank.
As required, Coast to Coast repurchased both installment sales contracts according to the terms
of the respective Dealer Agreements. Coast to Coast then tried to contact and locate Mr. Dunn,
but was unsuccessful.
On May 1, 2012, Coast to Coast filed a police report with the Fishers Police Department.
An investigation revealed that there was no Georgia resident named “Timothy Dunn” and the
driver’s license provided to Coast to Coast was fraudulent. Coast to Coast has not been able to
locate the person purporting to be Timothy Dunn, nor has it located or recovered the Mercedes
On June 5, 2012, Coast to Coast submitted claims to Secura for coverage under the False
Pretense Endorsement of the Policy for the loss of both the Mercedes and Lexus. Coast to
Coast’s claims were for the actual cash value of the vehicles. On September 10, 2012, Secura
denied Coast to Coast’s claims in writing, citing Coast to Coast’s breach of the Dealer
Agreements and the exclusion that false pretense coverage does not apply “to a loss in which for
any reason a bank or any other drawee fails to pay.” Dkt. 42-10 at 2; Dkt. 42-11 at 2. Although
the exclusion was cited, Secura acknowledges that this exception does not apply under the facts
of this case.
Coast to Coast filed this suit in state court and it was removed to federal court on January
3, 2013. Coast to Coast seeks declaratory judgment that Secura is obligated to provide coverage
and damages for Secura’s breach of contract when it denied Coast to Coast’s claims, and
damages for bad faith denial of the claims. On November 4, 2013 Secura moved the Court to
enter summary judgment in its favor on all counts. Exactly one month later, on December 4,
2013, Coast to Coast filed its cross-motion for partial summary judgment.
II. LEGAL STANDARD
Summary judgment is only appropriate by the terms of Rule 56 where there exists “no
genuine issue as to any material facts and . . . the moving party is entitled to judgment as a matter
of law.” Fed. R. Civ. P. 56. This notion applies equally where, as here, opposing parties each
move for summary judgment in their favor pursuant to Rule 56. I.A.E., Inc. v. Shaver, 74 F.3d
768, 774 (7th Cir. 1996). Indeed, the existence of cross-motions for summary judgment does not
necessarily mean that there are no genuine issues of material fact. R.J. Corman Derailment
Serv., Inc. v. Int’l Union of Operating Eng’rs., 335 F.3d 643, 647 (7th Cir. 2003). Rather, the
process of taking the facts in the light most favorable to the nonmovant, first for one side and
then for the other, may reveal that neither side has enough to prevail without a trial. Id. at 648.
“With cross-motions, [the Court’s] review of the record requires that [the Court] construe all
inferences in favor of the party against whom the motion under consideration is made.”
O’Regan v. Arbitration Forums, Ins., 246 F.3d 975, 983 (7th Cir. 2001) (quoting Hendricks–
Robinson v. Excel Corp., 154 F.3d 685, 692 (7th Cir. 1998)).
Secura admits that Mr. Dunn bought the Mercedes and Lexus under false pretenses, but
denies that Coast to Coast suffered a covered loss as a result. Rather, Secura contends that the
loss suffered by Coast to Coast results from its breach of the Dealer Agreements. It further
contends it did not act in bad faith when it denied Coast to Coast’s claims. As will be discussed
below, the Court is not persuaded by Secura’s argument that Coast to Coast did not suffer a
covered loss under the False Pretense Endorsement. However, the Court agrees that Secura did
not act in bad faith.
Interpretation of Insurance Contracts
Under Indiana law, the interpretation of an insurance policy is a question of law
appropriate for summary judgment. Nat’l Athletics Sportswear, Inc. v. Westfield Ins. Co., 528
F.3d 508, 512 (7th Cir. 2008). “If the language in the insurance policy is clear and unambiguous,
then it should be given its plain and ordinary meaning[.]” Id. Ambiguous language in insurance
policies, however, will be “strictly construed” against the insurance company. USA Life One Ins.
Co. v. Nuckolls, 682 N.E.2d 534, 538 (Ind. 1997). “Construction of an insurance policy which
both parties assert is unambiguous is a judicial function.” Davidson v. Cincinnati Ins. Co., 572
N.E.2d 502, 505 (Ind. Ct. App. 1991).
Declaratory Judgment and Breach of Contract Claims
The facts are undisputed that Mr. Dunn used false pretenses to purchase the Mercedes
and Lexus from Coast to Coast. Coast to Coast purchased additional coverage from Secura to
protect itself from such losses. Secura argues that there is no loss due to false pretenses, despite
Mr. Dunn’s fraud, because Coast to Coast was “made whole” when it sold the installment sales
contracts to Huntington Bank and Wells Fargo. In other words, because Coast to Coast was
initially paid in full for the sales price of the vehicles obtained by Mr. Dunn under false
pretenses, Secura argues that Coast to Coast cannot have suffered a loss from the false pretenses.
It is further undisputed that Coast to Coast breached the Dealer Agreements in connection
with the sale of the Mercedes and Lexus to Mr. Dunn. Secura argues that Coast to Coast only
suffered a loss in this case because it breached its contracts with Huntington Bank and Wells
Fargo, requiring Coast to Coast to repurchase the installment sales contracts. At that point, Coast
to Coast suffered a loss of the value of the installment sales contracts. However, this sort of loss
is not covered in the Policy.
Coast to Coast argues that it has made a claim only under the physical damage portion of
the Policy, and seeks only the loss of the actual cash value of the Mercedes and Lexus, which
occurred when Coast to Coast sold the vehicles to Mr. Dunn. The physical damage portion of
the Policy does not have any exclusion applicable to these facts, unlike the liability portion
which excludes coverage of losses caused by the insured’s breach of a contract. Further, Coast
to Coast argues that repurchasing the loans from Huntington Bank and Wells Fargo was not a
loss, but simply resulted in a change of creditor.
While Secura’s arguments are well taken, resolving the question of whether Coast to
Coast has suffered a covered loss under the False Pretenses coverage requires examination of the
definition of “loss”: “direct and accidental loss or damage.” Dkt. 42-3 at 50. Coast to Coast
asserts that the modifier “direct” is ambiguous, as stated in Farmers Mut. Aid. Ass’n v. Williams,
386 N.E.2d 950, 952 (Ind. Ct. App. 1979) (“‘Direct’ is therefore an ambiguous term, as
reasonably intelligent men might honestly differ as to its meaning.”).
Secura argues that
Williams is readily distinguishable, specifically because the court mentioned the appellant’s
former insurance claims manager’s inability to define the meaning of the term “direct” as used to
describe “loss” in the insurance policy. Yet the Court reads the Williams’ court mention of the
former claims manager’s inability to define the term as persuasive to the court, but not
determinative. Rather, the court noted, “it is not surprising that a layman such as Williams might
entertain a definition at variance with that of the company.” Id. In other words, the court
acknowledged that the term “direct” was susceptible to reasonable and different interpretations.
Like in Williams, the term “direct” is not defined by the Policy. “A policy is ambiguous
if it is susceptible to two or more reasonable interpretations such that reasonable people would
differ as to its meaning.” Justice v. Am. Family Mut. Ins. Co., __ N.E.3d __, No. 49S02-1303PL-221, 2014 WL 983009, at * 4 (Ind. March 13, 2014). When a policy is deemed ambiguous, it
is construed against the drafter, or insurance company. In Williams, after finding the term
“direct” ambiguous, the court held that damage to Williams’ cattle as a result of a tornado could
be considered a direct loss, even if the loss was not one immediately caused by the tornado.
Here, Coast to Coast suffered a loss at the moment it sold the vehicles to Mr. Dunn. When Coast
to Coast then sold its installment sales contracts to Huntington Bank and Wells Fargo, it
transferred all interest in the vehicles to the banks. However, because any loss suffered by Coast
to Coast is for the actual cash value of the vehicles, it is possible that even after transferring its
interest to the banks, Coast to Coast could still suffer a loss brought on by Mr. Dunn’s false
pretenses. The Court finds that it is the actual cash value of the vehicles, not sale price, that
determines the payment under the Policy. Thus, in spite of Coast to Coast’s breach of the Dealer
Agreements and subsequent repurchasing of the installment sales contracts, a loss could still
exist as a direct loss of Mr. Dunn’s false pretenses.
It remains to be seen if Coast to Coast could recover more than the difference between
the sale price and actual cash value—assuming there is a difference—once it became creditor of
Mr. Dunn’s installment sales contracts as the result of its own breach of the Dealer Agreements.
Coast to Coast now faces a greater loss; Mr. Dunn does not exist and the vehicles cannot be
recovered. This loss was caused by Mr. Dunn’s false pretenses. Given Secura’s and the Policy’s
lack of specification defining the modifier “direct”—which in its plain and ordinary meaning in
this context means “a cause”2—the Court will apply the standard definition, which encompasses
the interpretation applied in Williams. Coast to Coast’s inability to recover the vehicles was
caused by Mr. Dunn’s false pretenses. The False Pretenses coverage does not contain a breach
of contract exclusion. Thus, Secura’s policy should extend to cover the total actual cash value of
the vehicles. This is further consistent with Secura’s prior coverage of a similar claim by Coast
to Coast in 2008. In that claim, Coast to Coast sold a vehicle under false pretenses, sold the
installment sales contract to a bank, breached the dealer agreement with that bank, repurchased
the installment sales contract, filed a claim for a loss, and was covered under the False Pretense
Endorsement. See Dkt. 45-10; Dkt. 45-11; Dkt. 45-12; Dkt. 45-13. Given this backdrop,
Secura’s motion on the declaratory judgment and breach of contract claims is DENIED and
Black’s Law Dictionary defines “direct” as used in this context as “to aim” or “to cause.” Black’s Law Dictionary
209 (3d pocket ed. 2006). Merriam Webster employs a substantially similar definition. See http://www.merriamwebster.com/dictionary/direct.
Coast to Coast’s motion on these claims is GRANTED.
Bad Faith Claim
With respect to the bad faith claim, Secura contends that the undisputed facts establish it
did not act in bad faith when it denied Coast to Coast’s insurance claims. Coast to Coast argues
that this issue requires the weighing of evidence and should not be decided on summary
judgment. However, given that the facts are undisputed, the Court finds that it can rule at this
stage of the proceedings.
“Indiana has long recognized that there is a legal duty implied in all insurance contracts
that the insurer deal in good faith with its insured.” Erie Ins. Co. v. Hickman by Smith, 622
N.E.2d 515, 518 (Ind. 1993). A claim of bad faith, also called a breach of the duty of good faith,
exists when the insurer breaches this duty by denying a claim when it knows there is no rational,
principled basis for doing so. Freidline v. Shelby Ins. Co., 774 N.E.2d 37, 40 (Ind. 2002). Bad
faith must be proved by clear and convincing evidence. Id. A finding of bad faith requires
evidence of a state of mind “reflecting dishonest purpose, moral obliquity, furtive design, or ill
will.” Monroe Guar. Ins. Co. v. Magwerks Corp., 829 N.E.2d 968, 977 (Ind. 2005).
Coast to Coast argues that at the time Secura denied its claim, Secura relied on the
exclusion that false pretense coverage would not apply “to a loss in which for any reason a bank
or any other drawee fails to pay.” Dkt. 42-3 at 56. Coast to Coast references a 2008 false
pretenses claim, which during the course of investigating, Secura determined the same exclusion
did not apply to Coast to Coast’s repurchase of a loan. Thus, Coast to Coast argues, Secura had
no reasonable basis to believe it could deny Coast to Coast’s claim on that basis. Secura argues
that the exclusion was not the sole reason for denial, noting that the denial letters reference Coast
to Coast’s breach of the Dealer Agreements as factoring into its decision to deny coverage. The
Court agrees with Secura that it had a good faith reason to contest coverage, and even though the
Court finds the reason invalid, Coast to Coast has not established a genuine issue of material fact
that Secura harbored dishonest purpose, moral obliquity, furtive design, or ill will. Therefore,
Secura’s motion on Coast to Coast’s bad faith claim is GRANTED.
For the reasons stated above, Secura’s Motion for Summary Judgment (Dkt. 40) is
GRANTED in part and DENIED in part. It is GRANTED on Coast to Coast’s bad faith
claim. It is DENIED on Coast to Coast’s declaratory judgment and breach of contract claims.
The bad faith claim is DISMISSMED. Coast to Coast’s Motion for Summary Judgment (Dkt.
44) is GRANTED on its declaratory judgment and breach of contract claims.
The final pretrial scheduled June 4, 2014 is VACATED. The bench trial scheduled June
30, 2014 at 9:00 a.m. in Courtroom 344, Birch Bayh Federal Building and United States
Courthouse, Indianapolis, Indiana is converted to a damages hearing to determine the amount
owed to Coast to Coast for its loss
Hon. Tanya Walton Pratt, Judge
United States District Court
Southern District of Indiana
Nicholas K. Gahl
KATZ & KORIN P.C.
Marc Andrew Menkveld
KATZ & KORIN P.C.
John Carl Trimble
LEWIS WAGNER LLP
Joseph Neal Bowling
LEWIS WAGNER LLP
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