Legal Updates

Submitted by George Budd and Chad Smith

 

CLAIM HANDLING

 

Reciprocity required for trigger of IC 27-7-5-6 thirty-day deadline to advance funds

 

In Hornberger v. Farm Bureau Insurance, 868 N.E.2d 1149 (Ind. Ct. App. 2007), a Farm Bureau insured, Brewington, was struck by Hornberger, an insured of Citizens Insurance Company. On November 13, 2003, Citizens informed Brewington and Farm Bureau of its intentions to make a policy limits offer and provided a copy of the policy coverage limits as required by I.C. 27-7-5-6. Brewington refused the offer due to the contingency that he accept 50% fault for the accident. Nonetheless, Farm Bureau notified Brewington of its intention to advance the money and reserve its subrogation rights against the tortfeasor, Hornberger.

On March 23, 2004 Brewington decided to accept Citizens’ offer, and advised Farm Bureau. On April 2, 2004 Farm Bureau advanced payment to Brewington. After suit was filed, Hornberger moved for summary judgment on the grounds that Farm Bureau had waived its subrogation rights by failing to advance the money within thirty days of the initial offer, conveyed on November 13, 2003. The trial court denied his motion.

The Indiana Court of Appeals affirmed. In doing so, the Court concluded that Hornberger’s argument – that only the fact of an offer and proof of policy limits is necessary to trigger the statutory thirty-day period – was against the clear language of the statute. The Court determined that the thirty-day period does not been to run until there is clear evidence of a reciprocal agreement between the tortfeasor and the insured plaintiff to settle for the tortfeasor’s liability limits. There was no reciprocity in November of 2003, as Brewington did not consent to the settlement terms. Farm Bureau’s deadline to advance funds did not expire until April 22, 2004, after it had tendered payment.  

As a practical matter, when notifying UIM carriers of a limits tender, insurers must be careful to clearly demonstrate the plaintiff’s willingness to accept the offer and release the tortfeasor. It would be helpful to secure written confirmation of such agreement from plaintiff’s counsel. If this is not possible, the notice should clearly indicate that plaintiff’s counsel has expressed a willingness to accept the funds, and copy plaintiff’s counsel on the letter. Without evidence of such reciprocity, notice of a limits tender will not trigger the thirty-day period established by the statute.

 

 

Breach of insurance contract and failure to submit to second EUO

 

In National Athletic Sportswear, Inc. v. Westfield Insurance Company, 2008 WL 2345019 (7^th Cir. 2008), National Athletic (“NAS”) sued Westfield for breach of contract and bad faith after Westfield denied NAS’ burglary claim. Westfield filed an answer and counterclaim for declaratory judgment based on NAS’ refusal to submit to a second examination under oath (“EUO”), in violation of its post-loss duties under the contract.

Westfield’s insurance contract contained a provision which read, “We may examine any insured under oath, while not in the presence of any other insured and at such times as may be reasonably required, about any matter relating to this insurance or the claim, including an insured’s books and records.” The contract also required insureds to fully comply with their contractual duties before filing an action against the company. NAS timely reported the underlying theft and loss of property to Westfield, and Westfield promptly tendered payment to NAS for its loss of business income. Approximately two months later, an attorney for Westfield conducted a lengthy EUO of the president of NAS. The exam was recessed so that NAS could provide additional documentation to Westfield. After receiving numerous documents, Westfield sought to reconvene the EUO to discuss them. Although both parties originally agreed to conduct a second EUO after the documents were provided, NAS subsequently objected and refused to participate. It also sought to limit the length of a second EUO, if one was ordered. 

The Court rejected NAS’ argument that the Federal Rules of Civil Procedure limited EUOs to seven hours, noting that nothing in the insurance contract so limited an EUO’s duration. As this was a contract dispute, the federal rule was “at best, only persuasive or analogous.” There was no legal basis for NAS’ argument that Westfield’s attempt to reconvene the EUO was unreasonable. While conducting repeat EUOs in an attempt to harass or burden an insured could be unreasonable in some situations, that was not the case here. By refusing to submit to a reasonable resumption of the EUO, NAS breached the contract. 

The Court also rejected the bad faith claim. There was a rational basis for Westfield’s questioning of NAS’ president. In addition, the underlying disagreement centered around value, not the claim-handling process. A good-faith dispute about value is not grounds for a bad faith claim.

 

Compliance with post-loss duties precursor for recovery under the policy

 

In Allstate Insurance Company v. Fields, 885 N.E.2d 728 (Ind. Ct. App. 2008), Allstate insured the Fields, who were involved in an auto accident with Jimmy Woodley. The Fields’ Allstate policy contained medical payments coverage, UM coverage and UIM coverage. The Fields filed a lawsuit against Woodley, alleging negligence and loss of consortium, and submitted medical bills to Allstate, which paid the medical payments coverage limits under the policy. After Woodley’s insurance carrier became insolvent, the Fields notified Allstate that they were pursuing a UM claim. Allstate acknowledged this claim, but requested that the Fields complete medical/wage authorizations and proof-of-loss forms. The Fields responded by sending a list of medical bills to Allstate and acknowledging that the submission was incomplete. At the same time, the Fields made a policy limits demand. Allstate responded by sending a second set of forms and iterated that no offers of settlement could be made until they were completed and returned. The Fields claimed that they had provided complete medical records to Allstate and reiterated their policy limits demand, while also stating that Allstate’s continued refusal to pay policy limits was in bad faith. Allstate responded by stating that it still had not received the completed forms. 

The Fields moved for leave to amend their complaint to add Allstate as a party defendant and allege a bad faith claim. The court denied Allstate’s subsequent motion for partial summary judgment on the bad faith claim. Ultimately, after several years’ worth of discovery disputes, interlocutory appeals and other procedural hurdles, a jury awarded the Fields $2,000.000 in compensatory damages and $18,000,000 in punitive damages. Allstate, of course, appealed.

The Court stressed that a good-faith dispute as to the amount of a valid insurance claim is not a breach of the duty to exercise good faith. Also, any conduct on the part of an insurance company after a lawsuit has been filed is not evidence of bad faith. Ultimately, the Court of Appeals concluded that there was no evidence of bad faith on the part of Allstate in the handling of the Fields’ claim and that the trial court erred in its denial of Allstate’s motion for partial summary judgment. Specifically, the Court stated that Allstate did not act with ill will by delaying any payments to the Fields, as it was still seeking full compliance with the terms of the insurance contract. 

 

Interpretation of one-year suit clause

 

In General Casualty Insurance Company v. Bright, 885 N.E.2d 56 (Ind. Ct. App. 2008), Diana Bright and her spouse maintained a homeowner’s insurance policy with General Casualty. The policy itself contained a provision that read: “Suit Against Us. No action can be brought unless the policy provisions have been complied with and the action is started within one year after the date of the loss.” According to the policy, “us” referred to General Casualty. In June of 2003, the dwelling burned down, and the Brights submitted a claim to General Casualty.

In September of 2005, General Casualty filed suit against the Brights and alleged that they had caused the fire and had fraudulently submitted an insurance claim regarding the same. Bright eventually filed a motion to dismiss, alleging that General Casualty had failed to file its complaint within one year after the house had burned down. The trial court agreed and dismissed General Casualty’s complaint with prejudice. General Casualty appealed. 

On appeal, General Casualty argued that the contractual provision limiting the time for filing lawsuits applies only to insureds. In turn, Bright argued that if the policy was intended to have this meaning, it would have been specifically iterated. The Court of Appeals agreed with General Casualty. The Court determined that the suit limitation clause was clear and only applied to suits filed by insureds against the insurer. General Casualty was free to proceed with its suit against the Brights.

 

 

HEALTH CARE LAW

 

Hospitals may have duty to protect patients from external harm after discharge

 

In McSwane v. Bloomington Hospital & Healthcare System, 882 N.E.2d 244 (Ind. Ct. App. 2008), Vandeede presented to the emergency room with lacerations and a deep puncture wound sustained when she allegedly fell from a horse. She was accompanied by her visibly controlling ex-husband. Noting that Vandeede appeared intimidated by him, one nurse presented her with a domestic abuse form, which she refused. Even in the ex-husband’s absence, Vandeede maintained she fell from her horse. After she was treated, Vandeede insisted on being released to her ex-husband, and the staff repeatedly questioned her about her safety. Vandeede’s mother told the staff that her daughter was the victim of domestic violence, but Vandeede told her mother to mind her own business and left with her ex-husband. Shortly after being released, the ex-husband killed Vandeede and then committed suicide.      

In the mother’s resulting lawsuit, the surgeon and the hospital moved for summary judgment, which the trial court granted. The Court of Appeals upheld the summary judgment as to the surgeon, as Plaintiff waived her argument against him by failing to properly present it at the trial level. 

In reversing the summary judgment for the hospital, the court first held that a hospital’s general duty of care to a patient may include a duty not to discharge that patient to a suspected abuser.    A hospital has a duty to safeguard the welfare of its patients, and this can include a duty to protect them from external circumstances if the hospital observed or unreasonably ignored events that could lead to a risk of harm. The Court cautioned that such risks must be reasonably foreseeable. The Court determined there were genuine issues of material fact as to whether the hospital ignored such events in Vandeede’s case. 

The Court also declared the hospital may have violated a statutory duty to report the abuse of an endangered adult. It defined “endangered adult” as someone who, by virtue of a physical or mental ailment, is incapable of making decisions in his or her own interest. Given that Vandeede’s treatment consisted of extensive use of narcotics and anesthesia, the Court determined there was a genuine issue of material fact of whether she was an “endangered adult.” 

One judge penned a strong dissent, arguing that the Court had imposed an unreasonably broad duty on hospitals. He emphasized the facts that Vandeede was fully coherent prior to discharge, and that the hospital suggested on several occasions that she not leave with her ex-husband. She voluntarily chose to do so.   

 

Presence of surgical sponge is evidence of medical malpractice

 

In Chi Yun Ho v. Frye, 880 N.E.2d 1192 (Ind. 2008), Plaintiff underwent a hysterectomy. Following the surgery, nurses performed a sponge count and advised the surgeon that all the used sponges were accounted for. Over a year later, plaintiff learned that a sponge had been left in her abdomen, and underwent a second operation to remove it. A medical review panel found that the surgeon failed to meet an adequate standard of care.

At trial, Plaintiff moved for a partial summary judgment on the issue of liability, which was denied. Following the entry of a defense verdict, Plaintiff filed various post-trial motions, seeking a new trial. After the trial court ordered a new trial, the surgeon appealed, and the Plaintiff cross-appealed the denial of her partial summary judgment motion.

Ultimately, the Court affirmed denial of Plaintiff’s motion, and reinstated the jury’s verdict. Citing Funk v. Bonham, 204 Ind. 170, 183 N.E. 312 (1932), it explained that a surgeon has a duty as a matter of law to ensure that all sponges are removed after a procedure is completed. Even if a surgeon delegates the task of counting sponges to an assistant, a failure to remove all of them is evidence of medical negligence and will support a jury’s finding of liability on the part of the surgeon. He or she cannot escape liability for such a failure by delegating the duty to another.

The Court noted that a provider “is only required to produce expert evidence refusing the panel’s opinion” to avoid summary judgment in a medical malpractice case. Even without any concrete facts supporting the opinions, the very existence of conflicting expert opinions on whether the standard of care was met is sufficient to preclude summary judgment. As the surgeon introduced evidence of a conflicting opinion, summary judgment was inappropriate.

 

LITIGATION AND TRIAL PROCEDURE

 

Grant of new trial based on newly-discovered evidence

 

In Speedway SuperAmerica, LLC v. Holmes, 885 N.E.2d 1265 (Ind. 2008), Gerald Holmes claimed that while at Speedway’s truck stop, he slipped and fell on a black spot he believed to be diesel fuel. He promptly changed his pants, which he claimed were at least partly covered in diesel fuel. Ten days prior to trial in their suit against Speedway, one of the Holmes’ attorneys asked his clients whether they still had the clothes Mr. Holmes wore on the date of his alleged injury. One day before trial, the Holmes told him that they had located the jeans and boots, which they put in the trunk of their car. The attorney did not physically examine the jeans or boots. 

On the day of trial, Holmes’ attorney advised defense counsel for the first time that the Holmes were in possession of the clothing and that the items might be introduced into evidence. Speedway’s attorney did not inspect the items. When the Holmes’ attorneys attempted to introduce the clothing, Speedway objected on the basis the evidence was highly prejudicial, and that the substance had not been identified as diesel fuel via any scientific testing. The trial court allowed the clothing to be admitted, but prohibited any testimony or inferences as to whether the stain was derived from diesel fuel. 

The Holmes subsequently testified that the stains on the boots and jeans were present before the accident and appeared as a result of the fall. They explained that they put the clothing in their barn after the accident and had subsequently forgotten until just before trial. Ultimately, the jury found in favor of Mr. Holmes and awarded him $1,125,000 which, after a 50% fault apportionment to him, was reduced to $562,000. 

Speedway moved for a new trial and also filed a motion to preserve and test the clothing, the latter of which the trial court granted over the Holmes’ objection. A chemist concluded that the jeans did not contain diesel fuel, turpentine or mineral spirits. In addition, Speedway learned that the jeans had not been manufactured until 2000 and were not available for sale until April or May of 2001, long after Mr. Holmes’ June, 2000, fall. Nonetheless, the trial court denied Speedway’s motion for a new trial, specifically stating that Speedway had not established intentional misrepresentation on the part of the Holmes or their attorneys. 

A majority of the Court of Appeals affirmed the trial court’s ruling, stating that Speedway could have requested a continuance to have the clothing tested. The dissent reasoned that although Speedway would have had an advantage by requesting a continuance to obtain testing, this was a clear case for a new trial due to the post-verdict discovery of new evidence. 

The Indiana Supreme Court concluded that Speedway was entitled to a new trial based on the chemist’s report and the timeline of the jeans’ manufacture. The Court concluded that Speedway met the nine elements required for granting a new trial due to newly-discovered evidence, that: 1) the evidence has been discovered since the trial; 2) it is material and relevant; 3) it is not cumulative; 4) it is not merely impeaching; 5) it is not privileged or incompetent; 6) due diligence was used to discover it in time for trial; 7) the evidence was worthy of credit; 8) it can be produced upon a retrial of the case; and 9) it will probably produce a different result at retrial. 

The only element Supreme Court questioned was whether Speedway exercised due diligence in obtaining the test results. In the end, the Court found that the Holmes ultimately created the underlying procedural problem by failing to report the existence of the jeans and boots to counsel for Speedway until the morning of trial. The Court concluded that although Speedway could have requested a continuance during trial, failure to do so did not result in failure to exercise due diligence during post-trial testing of the jeans. 

 

Bifurcation not allowed absent showing of actual prejudice

 

In Shafer & Freeman Lakes Environmental Conservation Corp. v. Stichnoth, 877 N.E.2d 475 (Ind. Ct. App. 2007), the Plaintiff went to his parent’s property near Lake Shafer. Upon arrival, Plaintiff’s father warned him that there was a newly installed dredge pipe near their dock. Despite this knowledge, Plaintiff dove into the water – like he had done many times in the past – and struck his head on the dredge pipe. Plaintiff fractured several vertebrae and was paralyzed. 

Prior to trial, Defendant moved for summary judgment on liability and also moved to bifurcate the liability and damages portions of the. The trial court denied both motions. Following a trial, the jury returned a verdict for the Plaintiff totaling $3,398,000, but attributed 50% fault of the to the Plaintiff, 20% to the Plaintiff’s father (who was named as a non-party) and 30% to Defendant. Defendant appealed the denial of its motions.

The Court of Appeals held that the Plaintiff was an invitee at the lake and, as such, was entitled to a greater degree of protection than if he were merely a licensee. Defendant tried to argue that since a person could only access the lake by crossing private property, requiring permission, anyone at the lake must be a licensee. The Court concluded that lake visitors are invitees, as the lake was open to the public for everyone’s enjoyment. As such, Defendant owed a higher duty of care, and summary judgment was properly denied.

The Court also upheld the trial court’s denial of bifurcation. With the benefit of hindsight, the Court noted that the jury apportioned 50% of the fault to Plaintiff, despite the severe nature of his injuries. This suggested that the jury did not improperly conflate emotion with its liability assessment, and that no actual prejudice occurred. It rejected Defendant’s speculation that, if the case had been bifurcated, Plaintiff would have been assessed more than 50% at fault. Relying on a recent Supreme Court decision, State Farm Mut. Auto. Ins. Co. v. Gutierrez, 866 N.E.2d 747 (Ind.2007), the Court explained that the mere possibility or speculation of prejudice is insufficient to require separate trials on liability and damages. 

 

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