PROASSURANCE INDEMNITY COMPANY, INC. v. WAGONER et al
ORDER - In the matter before the Court, Plaintiff ProAssurance Indemnity Company, Inc. ("ProAssurance") seeks to rescind and have the Court declare various professional medical liability insurance policies void ab initio under Indiana law. The policies span from 2001 to 2013, during which time ProAssurance alleges that several Defendants made material misrepresentations and omissions related to the illegal prescription of scheduled controlled substances. The Defendants consi st of physicians, physician assistants, a registered nurse, various medical centers, and the Administrator of the Indiana Patient's Compensation Fund. "The purpose of summary judgment is to 'pierce the pleadings and to assess the proof in order to see whether there is a genuine need for trial.'" In this case, the existence of several genuine issues of material fact demonstrates the genuine need for a trial. The Wagoner Defendants' Cross-Motion for Summary Ju dgment, [Filing No. 185 ], and Mr. Thomas' Cross-Motion for Summary Judgment, [Filing No. 187 ], are DENIED. ProAssurance's Motion for Summary Judgment, [Filing No. 174 ], is GRANTED in part and DENIED in part, with Summary Judgment b eing granted only on the limited issue of the effect of Defendants' guilty pleas. The Wagoner Defendants' and Mr. Thomas' objection to the admission of the Report from Dr. Timothy King, [Filing No. 186 at 6, n. 2], is OVERRULED. M r. Thomas' objection to the admission of the Recommendation of Plea Agreement concerning Mr. Thomas, [Filing No. 188 at 3, n.1], is SUSTAINED. ProAssurance's objections to various factual representations in the Cross-Motions for Summar y Judgment, [Filing No. 195 at 3-21], are DENIED as moot. ProAssurance's Motion to Strike, [Filing No. 200 ], is DENIED as moot. ProAssurance's Motion to Supplement Summary Judgment Exhibits and Evidence Designations, [Filing No. [2 04]], is DENIED as moot. (See Order). As a final matter, the Court requests that the Magistrate Judge set a settlement conference with the parties at his earliest convenience. Copies mailed to pro se litigants. Signed by Judge Jane Magnus-Stinson on 8/9/2017. (APD) Modified on 8/9/2017 (APD).
UNITED STATES DISTRICT COURT
SOUTHERN DISTRICT OF INDIANA
DONALD J. WAGONER,
MARILYN L. WAGONER,
WAGONER MEDICAL CENTER, LLC,
WAGONER MEDICAL CENTER, P.C.,
D.J. & M.L. WAGONER, INC.,
ROBERT A. BREWER,
GARY M. HARTMAN,
THOMAS K. HEWITT,
JOHN M. THOMAS,
STEPHEN ROBERTSON as the
Administrator of the Indiana Patient’s
LINDA S. RICHARDS LPN,
STEPHEN ROBERTSON as the
Administrator of the Indiana Patient’s
D.J. & M.L. WAGONER, INC.,
GARY M. HARTMAN,
JOHN M. THOMAS,
DONALD J. WAGONER,
MARILYN L. WAGONER,
WAGONER MEDICAL CENTER, LLC,
WAGONER MEDICAL CENTER, P.C.,
In the matter before the Court, Plaintiff ProAssurance Indemnity Company, Inc.
(“ProAssurance”) seeks to rescind and have the Court declare various professional medical
liability insurance policies void ab initio under Indiana law. The policies span from 2001 to 2013,
during which time ProAssurance alleges that several Defendants made material misrepresentations
and omissions related to the illegal prescription of scheduled controlled substances.
Defendants consist of physicians, physician assistants, a registered nurse, various medical centers,
and the Administrator of the Indiana Patient’s Compensation Fund.
ProAssurance filed a Motion for Summary Judgment on its rescission claim, seeking a
declaration that the policies are void and that ProAssurance has no obligation to defend against
pending and future claims or to pay judgments or damages that may be assessed against the named
defendants. [Filing No. 174.]
Two Cross-Motions for Summary Judgment were filed: the first by Defendants Donald
Wagoner, Marilyn Wagoner, Wagoner Medical Center, LLC, Wagoner Medical Center, P.C., D.J.
& M.L. Wagoner, Inc., and Linda Richards, (collectively, the “Wagoner Defendants”), [Filing No.
185]; and the second by Defendant John Thomas, [Filing No. 187].
ProAssurance also filed a Motion to Strike certain portions of the Wagoner Defendants’
and Mr. Thomas’ reply briefing, [Filing No. 200], and a Motion for Leave to Supplement its
Summary Judgment Exhibits, [Filing No. 204].
Each of the Motions is ripe for the Court’s review.
STANDARD OF REVIEW
A motion for summary judgment asks the Court to find that a trial is unnecessary because
there is no genuine dispute as to any material fact and, instead, the movant is entitled to judgment
as a matter of law. See Fed. R. Civ. P. 56(a). As the current version of Rule 56 makes clear,
whether a party asserts that a fact is undisputed or genuinely disputed, the party must support the
asserted fact by citing to particular parts of the record, including depositions, documents, or
affidavits. Fed. R. Civ. P. 56(c)(1)(A). A party can also support a fact by showing that the
materials cited do not establish the absence or presence of a genuine dispute or that the adverse
party cannot produce admissible evidence to support the fact. Fed. R. Civ. P. 56(c)(1)(B).
Affidavits or declarations must be made on personal knowledge, set out facts that would be
admissible in evidence, and show that the affiant is competent to testify on matters stated. Fed. R.
Civ. P. 56(c)(4). Failure to properly support a fact in opposition to a movant’s factual assertion
can result in the movant’s fact being considered undisputed, and potentially in the grant of
summary judgment. Fed. R. Civ. P. 56(e).
In deciding a motion for summary judgment, the Court need only consider disputed facts
that are material to the decision. A disputed fact is material if it might affect the outcome of the
suit under the governing law. Hampton v. Ford Motor Co., 561 F.3d 709, 713 (7th Cir. 2009). In
other words, while there may be facts that are in dispute, summary judgment is appropriate if those
facts are not outcome determinative. Harper v. Vigilant Ins. Co., 433 F.3d 521, 525 (7th Cir.
2005). Fact disputes that are irrelevant to the legal question will not be considered. Anderson v.
Liberty Lobby, Inc., 477 U.S. 242, 248 (1986).
On summary judgment, a party must show the Court what evidence it has that would
convince a trier of fact to accept its version of the events. Johnson v. Cambridge Indus., 325 F.3d
892, 901 (7th Cir. 2003). The moving party is entitled to summary judgment if no reasonable factfinder could return a verdict for the non-moving party. Nelson v. Miller, 570 F.3d 868, 875 (7th
Cir. 2009). The Court views the record in the light most favorable to the non-moving party and
draws all reasonable inferences in that party’s favor. Darst v. Interstate Brands Corp., 512 F.3d
903, 907 (7th Cir. 2008). It cannot weigh evidence or make credibility determinations on summary
judgment because those tasks are left to the fact-finder. O’Leary v. Accretive Health, Inc., 657
F.3d 625, 630 (7th Cir. 2011). The Court need only consider the cited materials, Fed. R. Civ. P.
56(c)(3), and the Seventh Circuit Court of Appeals has “repeatedly assured the district courts that
they are not required to scour every inch of the record for evidence that is potentially relevant to
the summary judgment motion before them,” Johnson, 325 F.3d at 898. Any doubt as to the
existence of a genuine issue for trial is resolved against the moving party. Ponsetti v. GE Pension
Plan, 614 F.3d 684, 691 (7th Cir. 2010).
“The existence of cross-motions for summary judgment does not . . . imply that there are
no genuine issues of material fact.” R.J. Corman Derailment Servs., LLC v. Int'l Union of
Operating Eng’rs, 335 F.3d 643, 647 (7th Cir. 2003). Specifically, “[p]arties have different
burdens of proof with respect to particular facts, different legal theories will have an effect on
which facts are material; and the process of taking the facts in the light most favorable to the nonmovant, first for one side and then for the other, may highlight the point that neither side has
enough to prevail without a trial.” Id. at 648.
The basic facts of this case are not in dispute and for the purposes of efficiency and clarity,
the Court will only discuss facts relevant to its decision. 1
Between 2001 and 2013, ProAssurance issued numerous medical professional liability
policies (the “Policies”) to various Defendants. [Filing No. 1-2; Filing No. 1-3; Filing No. 1-4;
Filing No. 1-5.] Each of the Policies contained a provision providing the following statement,
with minor modifications:
[Filing No. 1-2 at 8; Filing No. 1-2 at 24; Filing No. 1-2 at 43-44; Filing No. 1-3 at 9; Filing No.
1-3 at 33; Filing No. 1-3 at 63-64; Filing No. 1-3 at 90-91; Filing No. 1-4 at 13-14; Filing No. 1-4
Over forty pages of ProAssurance’s Motion for Summary Judgment and response briefs are
devoted to reciting the facts and refuting Defendants’ characterization of the facts. Although the
Court acknowledges ProAssurance’s extensive effort to cite to supporting facts, there is no need
to cite to each and every place in the record tangentially pertaining to a specific point. Per Local
Rule 56-1(e), the purpose of citing to supporting facts is to allow the Court to find relevant
information in the supporting evidence. In this case, the Court’s review of the briefing was made
unnecessarily cumbersome by reviewing citations to hundreds of pages of supporting evidence for
each factual assertion made. See, e.g., Filing No. 175 at 9 (containing 10 lines of citations citing
to nearly 150 different pages in the record for the proposition that “As part of his guilty plea,
Donald Wagoner also admitted the facts in the Affidavit For Probable Cause, which indicated that
his and WMC’s criminal distribution of scheduled controlled substances for non-medical purposes,
outside the bounds of legitimate medicine, had been taking place since as early as 2002.”).
The Wagoner Defendants, on the other hand, dispensed altogether with the proper citation format
set forth in the Court’s Practices and Procedures. [Filing No. 6 at 4.] This, too, caused unnecessary
delay in the Court’s review of the briefs Mr. Thomas adhered to the citation format set forth in
the Court’s Practices and Procedures at times, albeit inconsistently. Because the Court was able
to locate the relevant evidence after considerable effort, the Court will excuse the parties’
noncompliance in this instance.
at 41-42; Filing No. 1-4 at 67-68; Filing No. 1-4 at 105-106; Filing No. 1-5 at 13; Filing No. 1-5
In addition, each of the Policies contained the following provision, with minor variations:
[Filing No. 1-2 at 13; Filing No. 1-2 at 30; Filing No. 1-2 at 51; Filing No. 1-3 at 16; Filing No. 13 at 40; Filing No. 1-3 at 69; Filing No. 1-3 at 98; Filing No. 1-4 at 20; Filing No. 1-4 at 46; Filing
No. 1-4 at 73; Filing No. 1-4 at 114; Filing No. 1-5 at 22; Filing No. 1-5 at 71.]
On May 28, 2014, Defendant Donald Wagoner pled guilty to a number of Class A Felonies
and admitted to knowingly prescribing controlled substances outside the usual course of
professional practice, resulting in opiate overdoses, respiratory depression, and poly-pharmacy
overdoses. [Filing No. 1-9 at 2-6]. Mr. Wagoner admitted that he illegally prescribed controlled
substances to various individuals on the following dates:
January 10, 2010, [Filing No. 1-7 at 42];
October 1, 2010, [Filing No. 1-7 at 43];
February 2, 2010, [Filing No. 1-7 at 44];
March 12, 2010, [Filing No. 1-7 at 45];
August 18, 2010, [Filing No. 1-7 at 50];
January 26, 2011, [Filing No. 1-7 at 52]; and
January 11, 2013, [Filing No. 1-7 at 56].
In addition, Mr. Wagoner admitted to committing a Class B felony by conspiring with numerous
individuals – including Defendants Marilyn Wagoner, Gary Hartman, and Linda Richards – to
deal in narcotic drugs between April 2008 and February 7, 2013. [Filing No. 1-7 at 57]. As part
of the Judgment of Conviction, Mr. Wagoner stipulated to the factual allegations contained in the
Affidavit for Probable Cause. [Filing No. 1-9 at 12.]
Between January and July 2015, several other defendants pled guilty to related crimes,
including: Linda Richards, who pled guilty to conspiring with numerous individuals to deal in
narcotic drugs between April 2008 and February 7, 2013, [Filing No. 1-7 at 140; Filing No. 1-9 at
17]; Gary Hartman, who pled guilty to aiding, inducing or causing Mr. Wagoner to deal in a
narcotic drug on January 11, 2013, [Filing No. 1-7 at 97; Filing No. 1-9 at 33]; and Thomas Hewitt,
who pled guilty to conspiracy to deal in narcotic drugs between March 2010 and February 7, 2013,
[Filing No. 1-8 at 44; Filing No. 1-9 at 23]. Although several felony counts were brought against
Marilyn Wagoner, the case against her was dismissed with prejudice on November 8, 2016, due
to her medical inability to stand trial. [Filing No. 1-8 at 116-137; Filing No. 171-10 at 2-5.]
On or about April 26, 2013, prior to the entry of the guilty pleas, and simultaneous with
indicating it was cancelling the policies, ProAssurance offered a “tail” policy, which would
provide coverage for future claims involving the Wagoner Parties and Mr. Thomas involving
services rendered prior to the termination date and subsequent to the retroactive date on the
[Filing No. 186-1 at 49-62.]
In addition, between April 2013 and June 2015,
ProAssurance sent several Reservation of Rights letters to various Defendants, acknowledging that
there were criminal allegations against some of the Defendants and that certain policy provisions
prohibited coverage in the event that liability to the claimant arose from criminal conduct. [Filing
No. 186-1 at 8-45.]
On September 2, 2015, ProAssurance filed a Complaint for Declaratory Judgment, arguing
that the Policies are void ab initio “as a result of the Wagoner Defendants’ material omissions,
failures to disclose and false statements.” [Filing No. 1 at 19.] Specifically, ProAssurance
requested that the Court declare that: (1) all or some of the Wagoner Defendants made “material
misrepresentations and/or omissions” in conjunction with applying for and renewing the Policies;
(2) the Policies are void ab initio; (3) ProAssurance is under no obligation to defend the Wagoner
Defendants “with regard to any pending or future claims, Proposed Complaints filed with the
Indiana Department of Insurance, civil law suits or any other matters” arising under the Policies;
and (4) ProAssurance is under no obligation to pay “any judgments, damages, costs, or expenses”
associated with or arising out of pending or future claims. [Filing No. 1 at 20.] ProAssurance
further stated that it “stands ready to refund the premiums for its rescinded . . . Policies by paying
said premiums into Court upon the entry of an order of rescission.” [Filing No. 1 at 19.]
After ProAssurance filed a Motion for Summary Judgment, [Filing No. 174], the Wagoner
Defendants and John Thomas each filed a Cross-Motion for Summary Judgment, [Filing No. 185;
Filing No. 187].
OBJECTIONS TO ADMISSIBILITY OF EVIDENCE AND STATEMENTS AND MOTION TO
Throughout the filings, the parties objected to the admissibility of several pieces of
evidence, each of which the Court will discuss in turn.
A. Report from Dr. Timothy King [Filing No. 186 at 6]
The Wagoner Defendants object to “the submission of and the Court’s consideration of the
report from Dr. Timothy King submitted by ProAssurance” on the grounds of relevance, arguing
that the opinions cited therein are “simply irrelevant to the issues that need to be addressed by the
Court in determining whether ProAssurance is entitled to a rescission.” [Filing No. 186 at 6, n. 2.]
Mr. Thomas also objects to Dr. King’s report, similarly alleging that it is irrelevant and immaterial.
[Filing No. 188 at 3, n.2.]
In response, ProAssurance argues that the report “provides extensive independent evidence
of the scope of the Wagoner Defendants’ criminal sale of drugs outside the bounds of legitimate
medicine beyond: 1) their binding judicial and evidentiary admissions in the criminal cases; and
2) the Wagoner’s binding admissions in their State of Indiana Medical Licensing Board actions.”
[Filing No. 195 at 20.]
Under the Federal Rules of Evidence, all relevant evidence is admissible. Fed. R. Evid.
402. Relevant evidence is “evidence having any tendency to make the existence of any fact that
is of consequence to the determination of the action more probable or less probable than it is
without the evidence.” Fed. R. Evid. 401. “A party faces a significant obstacle in arguing that
evidence should be barred because it is not relevant, given that the Supreme Court has stated that
there is a ‘low threshold’ for establishing that evidence is relevant.” United States v. Boros, 668
F.3d 901, 907 (7th Cir. 2012) (quoting Tennard v. Dretke, 542 U.S. 274, 285 (2004)).
The Court was able to review and render judgment on the parties’ Cross-Motions for
Summary Judgement without reviewing Dr. King’s report. However, ProAssurance seeks to
rescind insurance Policies dating back to 2001 on the basis of guilty pleas for crimes dating back
to 2008. Given the expansive amount of time at issue in this case, and the low threshold for
establishing that evidence is relevant, the Court is not prepared to make a finding that Dr. King’s
report is not relevant.
The Wagoner Defendants and Mr. Thomas’ objection to the Court’s consideration of this
evidence is OVERRULED.
B. Recommendation of Plea Agreement concerning Mr. Thomas [Filing No. 188 at 3]
Mr. Thomas also objects to ProAssurance’s submission of a Recommendation of Plea
Agreement, which he argues “has no probative value, it is hearsay, it is not the statement of
Defendant Thomas, and should not be considered in any way by the Court in these proceedings.”
[Filing No. 188 at 3, n.1.]
In response, ProAssurance asserts that the plea agreement constitutes “uncontested and
material evidence” which was “offered to explain the basis for ProAssurance’s inability to provide
substantive testimony from Thomas regarding his conduct and the charges against him, as well as
to prevent him from implying that the lack of a criminal conviction against him is evidence that he
committed no criminal conduct.” [Filing No. 195 at 21.]
To the extent that Mr. Thomas’ objection is based on hearsay, the Seventh Circuit has ruled
that admissions in a plea agreement may be admissible under Rule 803(22). See Scholes v.
Lehmann, 56 F.3d 750, 762 (7th Cir. 1995). However, the Recommendation of Plea Agreement
contains no admissions and is not itself a plea agreement. Even considering the low threshold for
establishing that evidence is relevant,” Boros, 668 F.3d at 907, the Recommendation of Plea
Agreement does not pass muster under Fed. R. Evid. 401.
Mr. Thomas’ objection to the Court’s consideration of this evidence is SUSTAINED.
C. Various Factual Representations in the Cross-Motions for Summary Judgment
[Filing No. 195 at 3-21]
ProAssurance’s response to the Cross-Motions for Summary Judgment, [Filing No. 195],
contains numerous objections to factual allegations set forth by the Wagoner Defendants’ and Mr.
Thomas. ProAssurance requests that this Court strike, reject, or otherwise disregard twenty-five
different statements contained in the Wagoner Defendants’ and Mr. Thomas’ respective motions.
[Filing No. 195 at 3-21.] As set forth in Part V of this Court’s Order, there is no basis for the Court
to grant the Wagoner Defendants or Mr. Thomas’ Cross-Motions for Summary Judgment.
Accordingly, there is no need for the Court to strike specific factual allegations contained therein.
As such, the objections contained in ProAssurance’s response to the Cross-Motions for Summary
Judgment, [Filing No. 195 at 3-21], are DENIED as moot.
D. Motion to Strike Replies in Support of the Cross-Motions for Summary Judgment
[Filing No. 200]
After the Motion for Summary Judgment, [Filing No. 174], and Cross-Motions for
Summary Judgment, [Filing No. 185; Filing No. 187], were fully briefed, ProAssurance filed a
Motion to Strike certain portions of the Replies to the Cross-Motions for Summary Judgment,
[Filing No. 197; Filing No. 199]. In their Motion to Strike, ProAssurance alleges that the Wagoner
Defendants’ and Mr. Thomas’ reply briefs assert the presence of genuine issues of material fact.
[Filing No. 200 at 2.] ProAssurance argues that this warrants the summary denial of the CrossMotions For Summary Judgment, or, “at the very least, the Court should strike any content”
therein. [Filing No. 200 at 2.]
Here again, the Wagoner Defendants’ and Mr. Thomas’ Cross-Motions for Summary
Judgment fail on the merits. Therefore, ProAssurance’s Motion to Strike, [Filing No. 200], is
DENIED as moot.
E. Motion to Supplement Summary Judgment Exhibits and Evidence Designations
[Filing No. 204]
Finally, ProAssurance filed a Motion to Supplement Summary Judgment Exhibits, in
which it seeks to amend its Motion for Summary Judgment to incorporate the recent guilty plea
and criminal conviction of Mr. Thomas. [Filing No. 204 at 3.]
Mr. Thomas objects to ProAssurance’s Motion to Supplement, arguing that allowing
ProAssurance to supplement at this time would not allow Defendants the opportunity to respond.
[Filing No. 205.]
ProAssurance’s Motion for Summary Judgment fails on the merits.
ProAssurance’s Motion to Supplement, [Filing No. 204], is DENIED as moot.
GENERALLY APPLICABLE INSURANCE LAW
When the Court exercises diversity jurisdiction over an action, it is “obliged to apply state
law to the substantive issues in the case.” Lodholtz v. York Risk Servs. Grp., Inc., 778 F.3d 635,
639 (7th Cir. 2015) (citing Erie RR. Co. v. Tompkins, 304 U.S. 64, 78 (1938)). The parties do not
dispute that Indiana law governs this action. Accordingly, this Court must “apply the law that
would be applied by the Indiana Supreme Court.” Lodholtz, 778 F.3d at 639. “If the Indiana
Supreme Court has not spoken on the issue, [the Court] generally treat[s] decisions by the state’s
intermediate appellate courts as authoritative, unless there is a compelling reason to think that the
state supreme court would decide the issue differently.” Id.
Turning to the merits, in its Motion for Summary Judgment, ProAssurance asks this Court
to declare the following:
a.) That all or some of the Wagoner Defendants have made material
misrepresentations and/or omissions in conjunction with the application for
and renewals of the Wagoner Policies;
b.) That the Wagoner Policies are void ab initio;
c.) That ProAssurance is under no obligation to defend the Wagoner Defendants
with regard to any pending or future claims, Proposed Complaints filed with
the Indiana Department of Insurance, civil law suits or any other matters
arising or purporting to arise under any of the Wagoner Policies, (“Wagoner
d.) That ProAssurance is under no obligation to pay any judgments, damages,
costs and/or expenses which are associated with or arise out of any Wagoner
Claim, or to indemnify any of the Wagoner Defendants for any such amounts;
e.) That ProAssurance is entitled to an award of costs of this action; and
f.) That ProAssurance is entitled to a judgment which grants all other appropriate
relief in its favor.
[Filing No. 174 at 6.]
The Wagoner Defendants and Mr. Thomas, on the other hand, request that this Court grant
summary judgment in their favor, arguing that there are no genuine issues of material fact with
respect to any of ProAssurance’s claims, and that they are entitled to judgment as a matter of law.
[Filing No. 185; Filing No. 187.]
The issue of contract rescission is central to the parties’ respective Motions. Therefore, in
order to determine whether summary judgment in favor of any party is appropriate, the Court will,
in turn, consider the procedural and substantive arguments underlying rescission of the Policies.
A. Is Rescission Procedurally Available to ProAssurance?
Under Indiana law, “[r]escission can arise under two circumstances: (1) it may be effected
by mutual agreement and (2) it may be granted unilaterally because of fraud, illegality, mutual
mistake or a contract provision providing for rescission.” Deckard v. Gen. Motors Corp., 307 F.3d
556, 561 (7th Cir. 2002) (citing Econ. Leasing Co. v. Wood, 427 N.E.2d 483, 486 (Ind. Ct. App.
1981)). In the insurance context, “[t]he right to void coverage due to fraud in the making of the
policy is well established in the common law,” Colonial Penn Ins. Co. v. Guzorek, 690 N.E.2d
664, 672 (Ind. 1997), because fraud “prevents a ‘meeting of the minds’ as to the risk to be insured.”
Foster v. Auto-Owners Ins., Co., 703 N.E.2d 657, 659 (Ind. 1998). Accordingly, “an insurance
company may void coverage based on a material misrepresentation in the application.” Foster,
703 N.E.2d at 658; see also Colonial Penn, 690 N.E.2d at 672; Brunnemer v. Metro. Life Ins. Co.,
14 N.E.2d 97, 100 (Ind. 1938) (setting forth a scenario in which “the insurer in the application asks
the prospective applicant about a fact that is within his knowledge, and he answers falsely”). A
representation is “material” if “the fact omitted or misstated, if truly stated, might reasonably have
influenced the insurer in deciding whether to reject or accept the risk or charge a higher premium.”
French v. State Farm Fire & Cas. Co., 950 N.E.2d 303, 312 (Ind. Ct. App. 2011) (citations
However, Indiana courts have set forth time-honored procedural requirements for
rescission. Where an insurer desires to rescind a contract on the ground of fraud, it must return,
or offer to return, the premiums received as consideration “within a reasonable time after acquiring
knowledge of the fraud.” Prudential Ins. Co. of Am. v. Smith, 108 N.E.2d 61, 65 (Ind. 1952)
(quoting National Council, etc., v. Walton, 136 N.E. 25, 26 (Ind. App. 1922)). The Indiana
Supreme Court reaffirmed this rule most recently in 2013 in Dodd v. Am. Family Mut. Ins. Co.,
983 N.E.2d 568 (Ind. 2013), where the Court stated that “[f]ailure to offer such return of premiums,
or if refused, to pay it into court, constitutes a waiver of the alleged fraud.” Dodd, 983 N.E.2d at
570–71 (citing Prudential, 108 N.E. 2d at 65; Grand Lodge of Bhd. of R.R. Trainmen v. Clark, 127
N.E. 280, 282 (Ind. 1920)). However, the Dodd Court also set forth an exception to the
requirement that an insurer tender a return of the premiums in order to rescind a contract. “Under
this exception, ‘such a tender is not necessary where . . . the insurer has paid a claim thereon which
is greater in amount than the premiums paid.’” Dodd, 983 N.E.2d at 570 (quoting Am. Standard
Ins. Co. v. Durham, 403 N.E.2d 879, 881 (Ind. Ct. App. 1980)).
Based on the foregoing, two questions bear on whether ProAssurance has complied with
the procedural requirements for rescission under Indiana law: (1) was ProAssurance required to
tender premiums it received in consideration for the Policies back to the insured?; and (2) if so,
did ProAssurance wait too long to do so?
In their Cross-Motion for Summary Judgment, the Wagoner Defendants argue that
ProAssurance waited too long to seek rescission of the policies and was required to “immediately
tender back the premiums the Wagoner Parties paid for the policies.” [Filing No. 186 at 8.]
Similarly, Mr. Thomas argues that ProAssurance affirmed the policies “by failing to act promptly
to claim rescission or return the premiums paid.” [Filing No. 188 at 7-8.]
In response, ProAssurance appears to admit that it has not tendered premiums back to the
insured for the Policies that it now seeks to rescind, and instead alleges that it “sensibly offered to
tender into the Court whatever currently unknown amount is eventually determined by the Court
to be the proper amount.” [Filing No. 195 at 38.] In addition, ProAssurance alleges it was not
obligated to return the premiums received “because it is undisputed that ProAssurance has already
performed under the Wagoner Policies by paying for the defense of the Wagoner Defendants in a
variety of actions, some of which are on-going.” [Filing No. 195 at 2.] ProAssurance cites Hitt v.
Githens, 509 N.E.2d 210 (Ind. Ct. App. 1987), for the proposition that it does not “have to show a
dollar for dollar set-off . . . where its incurred defense costs did not exceed the amount of the
premiums paid, because the Court will not weigh the cost of the premiums for the worth received
by the insured.” [Filing No. 195 at 37.]
As a preliminary matter, the Court notes that ProAssurance’s reliance on Hitt is misplaced.
In Hitt, the Indiana Court of Appeals addressed an argument that an insurance company’s refusal
to tender back premiums estopped the company from denying liability under the policy. Hitt, 509
N.E.2d at 211. During the policy period at issue, the insured sold two vehicles and purchased new
ones without notifying the insurance company, per the terms of their policy. Id. at 211. The
insured then collided with a motorcyclist in one of the newly purchased vehicles, and the insurance
company denied liability under the policy. Id. The Court held that the insurance company was
not estopped from denying liability because the automobile insurance policy at issue extended
liability protection if the insured were to cause an accident while driving a non-owned automobile.
Id. at 213. The Court of Appeals reasoned that the non-owned vehicle protection was consideration
sufficient to support the contract and to justify retention of the premiums by the insurance
company. Id. Hitt does not, as ProAssurance alleges, stand for the broad proposition that “an
insurer ha[s] no obligation to tender back premiums in order to return the insured to the status quo
if the insurer had already performed any of its obligations, and regardless of the monetary value
of the insurer’s performance to the insured.” [Filing No. 195 at 37.] Moreover, Hitt involved a
question of coverage, not a question of rescission. It is, therefore, inapplicable to the case at hand.
Instead, the key case that is relevant to the question of whether ProAssurance was required
to tender premiums for the Policies in order to rescind is Dodd v. Am. Family Mut. Ins. Co., 983
N.E.2d 568 (Ind. 2013). As previously discussed, in Dodd the Indiana Supreme Court reaffirmed
an exception to the procedural rules surrounding rescission, wherein tender of premiums is not
required when “the insurer has paid a claim thereon which is greater in amount than the premiums
paid.” Dodd, 983 N.E.2d at 570 (quotations omitted, emphasis added). Accordingly, in order to
ascertain whether ProAssurace was required to tender premiums back to the insured before seeking
rescission of the Policies, the Court must determine whether ProAssurance paid claims under the
Policies that were greater in amount than the premiums it received.
It is impossible for this Court to make such a determination based on the evidence before
it. With regard to the amount of the premiums paid, ProAssurance points out in its reply brief that
the Wagoner Defendants allege that between March 2000 and May 2013, ProAssurance was paid
$474,189.00 for coverage under the Policies. [Filing No. 195 at 16.] ProAssurance, however,
contends that “[t]he actual amount of premiums paid . . . is $304,463.00.” [Filing No. 195 at 16.]
In addition, with regard to claims that ProAssurance paid under the Policies, ProAssurance alleges
that “even if it were to stop defending the Wagoner Defendants tomorrow,” it has paid costs todate of indemnity and defense under a reservation of rights in the amount of $187,478.83 spread
out over various policies. [Filing No. 195 at 37.] The parties do not cite to any authority that
allows the Court to guess when ProAssurance paid said claims, or under which of the Policies the
claims were paid. In short, applying the facts before this Court to the rule set forth in Dodd, the
Court cannot ascertain the amount of the claims paid or premiums received and, therefore, the
Court cannot determine whether ProAssurance was required to tender back premiums to the
insured as a procedural step in rescinding the Policies. Accordingly the Court finds that genuine
issues of material fact exist regarding the amount of claims that ProAssurance paid under the
Policies and the amount of premiums they received.
Similarly, there is a genuine issue of material fact regarding when ProAssurance knew
about the alleged breach – information that is critical to determining whether ProAssurance has
waived its claim for rescission. It is well established in Indiana that “[o]ne who asks a court’s aid
in compelling the rescission of a contract must show that he or she exercised reasonable diligence
in ascertaining the facts and thereafter promptly sought rescission within a reasonable time after
discovering the fraud.” A.J.’s Auto. Sales, Inc. v. Freet, 725 N.E.2d 955, 968 (Ind. Ct. App. 2000)
(citation omitted); see also Cain v. Guthrie, 8 Blackf. 409, 410 (Ind. 1847) (“If a party desires
to rescind a contract on the ground of mistake or misrepresentation, he is bound to be prompt in
communicating the facts upon which he relies to the opposite party, and also his intention to
rescind.”). A delay in seeking rescission may result in waiver. A.J.’s Auto. Sales, 725 N.E.2d at
968 (citing INB Nat. Bank v. Moran Elec. Service, Inc., 608 N.E.2d 702 (Ind. Ct. App. 1993)).
In this case, the parties do not agree on when ProAssurance became aware of its right to
rescind the Policies. The Wagoner Defendants and Mr. Thomas contend that ProAssurance knew
or should have known of its right to seek rescission of the Policies in April 2013, but did not file
suit to rescind until September 2015 – over two years later. [Filing No. 186 at 5; Filing No. 186
at 9; Filing No. 188 at 8.] The Wagoner Defendants argue that this was an unreasonable delay and
point to Indiana precedent providing that waiting more than seventeen months to rescind does not
comply with the rule surrounding rescission. [Filing No. 186 at 9 (citing Griffin v. Axsom, 525
N.E.2d 346, 348 (Ind. Ct. App. 1988)).] ProAssurance, on the other hand, contends that it “did
not learn of the first guilty plea until roughly twelve months” before bringing this suit and argues
that “[t]here is no case that has held that twelve (12) months is too long a period of time to file a
rescission claim, least of all under circumstances involving the scope of people, time, policies,
other cases and materials here.” [Filing No. 195 at 34.] The question of whether the party seeking
rescission acted within a reasonable time is ordinarily a question of fact, A.J.’s Auto. Sales, 725
N.E.2d at 968, and, under Indiana case law, determining whether ProAssurance waited twelve
months or twenty nine months is of paramount importance to determining whether it acted with
reasonable promptness. Accordingly, the Court finds that there is a genuine issue of material fact
regarding whether ProAssurance acted within a reasonable time to rescind the Policies.
B. Is Rescission Substantively Available to ProAssurance?
Having determined that genuine issues of material fact exist as to whether rescission is
available as a procedural matter, the Court need not delve into the substance of each of the six
declarations that ProAssurance seeks. However, the Court will briefly address one substantive
argument that took up a significant portion of the parties’ briefing.
The basis of ProAssurance’s rescission claim is that “there is no dispute that the Wagoner
Defendants’ failure over time to disclose their criminal, illegal or otherwise improper non-medical
and non-professional conduct in dispensing scheduled narcotics outside the legitimate practice of
medicine and for non-medical purposes, was a material misrepresentation and/or omission which
voids the Wagoner Policies ab initio.” [Filing No. 175 at 35.] In support thereof, ProAssurance
points to the Wagoner Defendants’ guilty pleas and convictions, which it argues were the subject
of a valid state court determination and, therefore, “cannot be relitigated in federal court.” [Filing
No. 175 at 23.]
The Wagoner Defendants, however, contend that ProAssurance should not be allowed to
rescind because the Reservation of Rights letters that ProAssurance sent caused each of the
individual Wagoner Defendants to have “an expectation of coverage” that caused them to take “a
strategic position in the underlying criminal proceedings, even to the extent of entering guilty
pleas, with the understanding that ProAssurance would provide coverage unless an exclusion was
triggered under the applicable policy.” [Filing No. 186 at 6.]
The Wagoner Defendants’ argument is without merit. Indiana law does not recognize nolo
contendere pleas, in which a defendant does not admit or deny the charges. Corbin v. State, 713
N.E.2d 906, 907 (Ind. Ct. App. 1999) (citing Mahoney v. State, 149 N.E. 444, 447 (Ind. 1925)).
In Indiana, “the only pleas which are permitted are a) not guilty, b) guilty, or c) guilty but mentally
ill.” Id. at 907 (citing Ind.Code § 35-35-2-1(a)(3)). The Indiana Supreme Court has held that “[t]he
factors which motivated the appellant to plead guilty are not material, so long as we can ascertain
from the record that his guilty plea was entered freely, voluntarily and knowingly.” Boles v. State,
303 N.E.2d 645, 653 (Ind. 1973).
In this case, it is undisputed that several of the Wagoner Defendants entered guilty pleas
for crimes related to the illegal prescription of scheduled controlled substances. The factors which
motivated the Wagoner Defendants to plead guilty are not material to the dispute at hand.
None of ProAssurance’s requested declarations speak specifically to the evidentiary effect
of the Wagoner Defendants’ guilty pleas. However, ProAssurance included a catch-all provision
in its prayer for relief, requesting a declaration that it is “entitled to a judgment which grants all
other appropriate relief in its favor.” [Filing No. 174 at 6.] Accordingly, the Court grants
Summary Judgment on the limited issue of the effect of Defendants’ guilty pleas. To the extent
that any of the Defendants have pled guilty to and been convicted of any crimes, they are barred
from now claiming that they pled guilty because of actions or omissions on the part of
ProAssurance. Moreover, any fact necessarily established by a guilty plea will be deemed
admitted in this case. Rediehs Exp., Inc. v. Maple, 491 N.E.2d 1006, 1008 (Ind. Ct. App. 1986)
(citing Brattain v. Herron, 309 N.E.2d 150 (Ind. Ct. App. 1974) (“Indiana has long permitted pleas
of guilty in all criminal cases to be used in civil cases, if appropriate and relevant, as an admission
of a party against interest”); see also Karpov v. Net Trucking, Inc., 2011 WL 6056618, at *2–3
(N.D. Ind. Dec. 5, 2011) (permitting the use of offensive collateral estoppel of facts underlying a
conviction predicated on a guilty plea).
“The purpose of summary judgment is to ‘pierce the pleadings and to assess the proof in
order to see whether there is a genuine need for trial.’” Biddle v. Martin, 992 F.2d 673, 675 (7th
Cir. 1993) (quoting Matsushita Elec. Indus. Co. v. Zenith Radio Corp., 475 U.S. 574, 587 (1986)).
In this case, the existence of several genuine issues of material fact demonstrates the genuine need
for a trial. Accordingly, the Wagoner Defendants’ Cross-Motion for Summary Judgment, [Filing
No. 185], and Mr. Thomas’ Cross-Motion for Summary Judgment, [Filing No. 187], are DENIED.
ProAssurance’s Motion for Summary Judgment, [Filing No. 174], is GRANTED in part
and DENIED in part, with Summary Judgment being granted only on the limited issue of the effect
of Defendants’ guilty pleas.
In addition, for the reasons set forth herein, the Court rules as follows on the parties’
evidentiary objections and motions:
the Wagoner Defendants’ and Mr. Thomas’ objection to the admission of the Report from
Dr. Timothy King, [Filing No. 186 at 6, n. 2], is OVERRULED;
Mr. Thomas’ objection to the admission of the Recommendation of Plea Agreement
concerning Mr. Thomas, [Filing No. 188 at 3, n.1], is SUSTAINED;
ProAssurance’s objections to various factual representations in the Cross-Motions for
Summary Judgment, [Filing No. 195 at 3-21], are DENIED as moot;
ProAssurance’s Motion to Strike, [Filing No. 200], is DENIED as moot;
ProAssurance’s Motion to Supplement Summary Judgment Exhibits and Evidence
Designations, [Filing No. 204], is DENIED as moot.
As a final matter, the Court requests that the Magistrate Judge set a settlement conference
with the parties at his earliest convenience.
Distribution via ECF only to all counsel of record
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