Insurance Appeals

On appeal from a bench trial judgment in favor of a purchaser who backed out of a condominium purchase because their inspection revealed that no power was being delivered to several outlets in the condo, the Court of Appeals reversed the trial court’s judgment and determined that the problem complained of did not constitute a major defect.

In Fischer v. Heymann, No. 49A04-1004-PL-231, the seller of a condo unit entered into a purchase agreement with a buyer that allowed for the buyer to conduct an inspection of the property before closing the deal and included that the buyer could terminate the agreement if it found what could be termed a “Major Defect” that the seller was unable or unwilling to remedy. After hiring an inspector and conducting the inspection, it was found that several outlets around the residence were not receiving power. The inspection report classified this problem as a “major concern” which was the highest level of alert on the report. The buyers presented the report to the seller who, through an agent, said that she would not be able to remedy to problem by the stated closing date and requested a two-week extension. The buyers did not grant the two-week extension and instead gave the seller several extra days to fix the problem. The day before the extension was to expire, the buyers entered into a new agreement with another seller and instructed their agent not to deliver their termination letter to the first seller until the extension period had ended. The seller eventually fixed the power issue in what turned out to be a minor repair but after receiving the termination letter, and sued the buyer for specific performance or, in the alternative, damages including attorney's fees and costs.

In its opinion, the Court of Appeals cited to the language in the contract, stating that termination could be sought for a “major defect” and determined that the buyers must have “reasonably believed” that the defect was major. The court held that the defect in the condo was not of the major variety and also held that the buyers were not able to claim that they held a reasonable belief because the inspection report, despite listing the power issue as a “major concern,” also stated that it might be easily fixed. Because the buyer did not hold a reasonable belief that there was a major defect, as defined within the contract agreement, the trial court’s decision was reversed and remanded to determine the seller's fees and costs.

In a dissenting opinion, however, Judge Brown focused on the fact that the seller did not remedy the issue until after the agreed upon closing date (and subsequent extension) had passed. Because the remedy did not take place within the time frame listed in the agreement, and because the contract also contained a “time is of the essence” clause, the dissent believed that the agreement should have been struck down and the trial court's decision should have been upheld.

In a medical malpractice action based on negligence, where a juror failed to initially disclose a potential bias but later admitted the possibility that one existed, the Court of Appeals held that, if a hearing is not granted at trial to investigate the juror’s prejudice, a new trial must ensue.

In Thompson v. Gerowitz, No. 49A05-1005-CT-296, a doctor was sued for the wrongful death of a patient after the doctor’s performance of a stem cell procedure. During voir dire, the process by which prospective jurors are questioned, attorneys for the doctor asked the pool of jurors if any among them held biases against medical professionals that would affect their decision-making processes. No juror spoke up during voir dire, but after voir dire had concluded and the trial court had announced the selected jury, a juror offered up the information that she was a widow and had tried to “go after the doctor for negligence.” The trial judge, after discussing this statement with the attorneys, referenced presiding over more than 250 jury trials and said “I think the jury is a good one, and I am sure it will be just fine for both sides . . . .” After trial, the jury returned a verdict for the plaintiff and the doctor appealed.

In its opinion, the Court of Appeals acknowledged that the juror’s statement “was specific, substantial evidence showing a juror was possibly biased,” and continued, “[a]t that point, it was incumbent upon the trial court to conduct a hearing, out of the presence of the remainder of the jury” to investigate further if the juror’s statement indicated bias and if such a hearing would itself create a bias in the juror. The trial court should have then allowed the doctor’s attorneys to challenge the juror for cause and declare a mistrial if bias was found. Because the trial court judge allowed the case to continue uninterrupted, the Court of Appeals remanded the case for a new trial.

A negligence claim against CVS Pharmacy and one of its pharmacists was allowed to go forward in accordance with a ruling by the Indiana Court of Appeals today. The court ruled that a legal duty exists for a pharmacist to warn patients of risks involved with the taking of certain medications.

In Kolozsvari v. John Doe, M.D., No. 32A04-1008-CT-525, the plaintiff was prescribed OsmoPrep, a medication used in preparation for colonoscopies, and took the prescription to CVS to have it filled. While filling the prescription, the pharmacists received a warning screen on the computer stating that, because of the plaintiff’s age, there was a risk involved with prescribing the medication. The pharmacists dismissed the warning and filled the prescription without relaying the warning to the plaintiff. The following day, the plaintiff believed that the medication hadn’t prepared her well enough for the procedure and the doctor advised her to refill the prescription and try it again. She took the second prescription back to the pharmacy and relayed the information that she felt a tingling sensation in her body and asked if it was caused by the medication. The pharmacist said that it was not and refilled the prescription, ignoring a second warning relating to the risk involved with refilling the prescription so quickly. The pharmacy also had access to the plaintiff’s medication history and was on notice that she was routinely taking hypertension medication that is known to conflict with the colonoscopy drug. After taking the medication one more time, the plaintiff awoke the next morning to severe tingling and went to the hospital, which informed her that she had suffered a kidney failure and would need to be on dialysis indefinitely or receive a transplant.

In a negligence action against her doctor, nurse, CVS, and the pharmacist individually, the trial court granted summary judgment against the plaintiff, stating that there existed no duty of the pharmacist to warn patients of medication risks. The Court of Appeals reversed the trial court’s decision, stating that “CVS and [the pharmacist] had a duty of care to [the plaintiff] either to warn [her] of the side effects of OsmoPrep or to withhold the medication in accordance with Indiana Code section 25-26-13-16 and Pharmacy Board rule 1-33-2.” The Court of Appeals remanded the case to the trial court for further proceedings.

In Beneficial Indiana, Inc. v. Joy Properties, LLC, No. 02A05-1005-PL-260, the Indiana Court of Appeals held a mortgagee’s interest in defaulted property to be superior to that of a quitclaim deed beneficiary.

In 2003, Beneficial Indiana was granted a security interest by an executed mortgage relating to real estate owned by Ronald and Cheryl Osten. In 2008, after the Ostens failed to pay property taxes, Allen County held an auction sale to recoup the tax dollars owed. The Ostens failed to exercise their rights to reclaim the property before the expiration of a one-year redemption period, leaving a surplus of $42,462.20. After Beneficial Indiana filed a motion asking for the surplus funds to be held pending court action, citing the Osten’s defaulted mortgage, the Ostens executed a quitclaim deed to Joy Properties granting them their interest to the property.

In an action between the two parties, the court explained that Beneficial Indiana’s security interest in the property was extinguished by the tax sale, but then followed the proceeds and attached to the surplus money. The deed executed by the Ostens only granted Joy Properties an interest in the real estate subject to Beneficial Indiana’s mortgage lien, meaning the surplus should have been given to Beneficial Indiana to satisfy the defaulted mortgage.

When a plaintiff alleges enhanced injury as a result of a product’s design, the Indiana Supreme Court held in Green v. Ford Motor Co., No. 94S00-1007-CQ-348, that the fact-finder can only apportion fault to the injured party if the fact-finder concludes that the fault of the injured party is “a proximate cause of the harm for which damages are being sought.” 

The decision comes from the court’s consideration of a lawsuit filed by Nicholas Green against Ford Motor Co. arising out of an accident in which Green’s car hit a guardrail before flipping down an embankment, leaving Green as a quadriplegic. He argued that his 1999 Ford Explorer’s defective and unreasonably dangerous design caused the injuries, while Ford responded that his own negligence contributed to the car’s leaving the road in the first place.

The court accepted review from the United States District Court for the Southern District of Indiana to resolve the single question of whether “in a crashworthiness case alleging enhanced injuries under the Indiana Products Liability Act, the finder of fact shall apportion fault to the person suffering physical harm when that alleged fault relates to the cause of the underlying accident.” After considering this question, the court answered in the affirmative but restricted the language of the question, requiring the fault to be a proximate cause of the harm for which damages are sought.   There are two collisions in auto accidents, as recognized in cases alleging enhanced injuries as a result of product defectiveness. The first occurs when a plaintiff’s negligence causes him to be caught in an accident. In the context of the case, Green sought relief from the injuries that resulted from the “second collision” of the crash, involving a manufacturer’s failure to exercise reasonable care by designing a defective product. The court’s narrowing of the question means that a plaintiff’s negligence must have contributed to the “second collision” as well as the first in order to be considered by the fact-finder.

The Court of Appeals held last week that a real estate agent representing a buyer in a transaction only owes the selling party a duty of honesty and a duty of not knowingly giving out false information, pursuant to Indiana statutory law.

In Likens v. Prickett’s Properties, Inc., a buyer’s agent in a real estate transaction contacted a seller independently to encourage acceptance of the buyer’s offer. The agent represented to the seller that, although closing would have to wait several months until the buyer was able to secure enough cash for the purchase, the buyer presented a good offer and would make rental payments to the seller on the property until closing. The agent also told the seller that the buyer deposited $10,000 in escrow, which was to be held in the form of a bank letter of guarantee of funds. After closing did not occur by the date specified and the bank letter was determined to be fraudulent, the seller sued the agency, the buyer, and the agent for negligence and fraud.

The trial court granted summary judgment in favor of the real estate agent on both counts, citing Indiana Code § 25-34.1-10-11, which states that a licensee (a real estate agent) representing a buyer “owes no duties or obligations to the seller or landlord except that a licensee shall treat all prospective sellers or landlords honestly and not knowingly give them false information.” The statute also states that the agent bears no responsibility to ensure the financial stability of the buyer. The Court of Appeals, in affirming the granting of summary judgment, explained that because there was no statutory duty owed to the seller, there could be no negligence claim. The seller failed to appeal the summary judgment as it related to the fraud claim, so no further investigation of the agent’s knowledge needed to be conducted.

J.K. Harris, a tax resolution company with several offices in Indiana, lost its ability to argue against a class action suit brought against it by an Indiana resident whose tax issues were not resolved by the company, the Court of Appeals of Indiana held today in J.K. Harris & Co. v. Sandlin, No. 49A05-1003-CT-184.

The rationale behind the forfeiture of argument stems from Harris’s five and a half month absence from the litigation. Harris failed to appear before the court several times before the trial court ordered locks to be placed on the doors of the Indiana locations of the business. 

In an appeal of the court’s denial to set aside default judgment against it, Harris argued that it did not receive adequate notice of the proceedings, even though it was served with the plaintiff’s complaint. The Court of Appeals concluded that because Harris did not raise the argument during trial, it waived any ability to make the argument on appeal. The court similarly dismissed Harris’s claim that the contract signed by the plaintiff stated that any disputes between the parties would be resolved in arbitration. The court held that by ignoring the pending litigation, Harris, in effect, acted as if it was not interested in pursuing the arbitration claim and, therefore, could not stand by the arbitration clause in the contract. The court remanded the case for further class determination, but sided with the plaintiff on all other accounts.

By Steven M. Badger*
email: sbadger@boselaw.com

            The United States Court of Appeals for the Seventh Circuit heard oral argument on January 14, 2011 in a case of first impression that will decide whether a high school athletic association may require media organizations to buy licenses for internet streaming of high school athletic events.

The appellate court is reviewing a lower court decision last June upholding the Wisconsin Interscholastic Athletic Association’s (the “Wisconsin Athletic Association”) policies regulating internet streaming of high school tournament events. Two Gannett newspapers in Wisconsin challenged the licensing policy on First Amendment grounds.  

            The Wisconsin licensing scheme at issue requires any media organization to pay a fee ranging from $250 to $1500 for the right to stream video of any tournament event over the internet. The Wisconsin Athletic Association also reserves to itself “sole discretion” to grant such rights without specifying any standards for the exercise of its discretion.

Under the Wisconsin licensing policy, any media organization that pays the licensing fee and receives internet streaming rights must provide a master copy its video to a private company holding exclusive broadcast rights.   That private company then may market the video and the media organization that made the video is entitled to a 20% share of the proceeds as a royalty.

The lower court observed in its June ruling that “ultimately, this case is about commerce, not the right to a Free Press.” Gannett’s appeal however argues that the Wisconsin Athletic Association’s revenue-generating motive does not trump the media’s First Amendment rights.

Gannett also focuses its constitutional arguments on the unrestricted discretion the Wisconsin Athletic Association reserves for itself to grant licenses to media organizations of its choosing. Gannett contends that if the athletic association wishes to pick and choose which media organizations may stream video over the internet, the First Amendment requires it do so on an even-handed basis without any threat of exclusion based on viewpoint.

An array of national media associations and media companies has joined in supporting Gannett’s appeal through the filing of an amicus curiae (friend of the court) brief. Those supporting organizations include the Newspaper Association of America, the American Society of News Editors, the National Press Photographers Association and The Online News Association. The supporting media companies include Sun Times Media, LLC and Lee Enterprises, Incorporated, among others.

The Wisconsin Athletic Association is supported by two amicus briefs, one by the National Federation of State High School Associations and the other by 10 state high school associations, including the IHSAA.  

            A decision by the Seventh Circuit is expected this summer or fall. Any of the parties could then seek review by the United States Supreme Court. The decisions of the Seventh Circuit Court of Appeals are binding precedent for lower federal courts in the states of Indiana, Illinois and Wisconsin.

*Steve Badger is a partner at Bose McKinney & Evans and represents media organizations and journalists in media law and First Amendment matters.

The Indiana Wage Claims Statute and the Indiana Wage Payment Statute are separate laws that address the same issue. The statutes provide the procedure for payment of employees, but are to be used in separate and distinct circumstances, the Court of Appeals held last week.

In Hollis v. Defender Security Co., No. 49A02-1004-PL-464, Robert Hollis filed suit against his former employer for failure to pay wages in a timely fashion. The court said that in circumstances where an employee has been separated from his former employer, whether voluntarily or involuntarily, the procedure for a claim is the same. The former employee must file a claim under the Wage Claims Statute with the Department of Labor first and seek remedy from that body rather than filing in the court system right away.

The court held that when a current employee has a claim against his employer, the employee is allowed to file suit in the court system right away and pursue action under the Wage Payment Statute. The reasoning for this decision is to keep frivolous lawsuits by disgruntled former employees out of the court system. Should a former employee’s claim make it through the Department of Labor process, the complaint can then be taken into the courts. Because Hollis was separated from his employment at the time he filed suit, he should have pursued the claim within the Department of Labor and under the Wage Claims Statute, and it was because of this that his case was dismissed.

In a case involving the determination of work bonuses being paid as “wages” under Indiana law, the Indiana Court of Appeals held that in circumstances where the bonuses are not related to the amount of time an employee works, are not guaranteed to be paid regularly, and are not granted based on the employer’s financial success, the bonuses do not fall under the wage classification for purposes of Indiana statutes.

While Orlando Quezare was employed as a collections account representative for Byrider Finance, Inc., his employment agreement called for bonus payments if certain percentages were met, each week, regarding the amount of delinquency on his accounts and also if his team of account reps met certain goals.  After he was terminated, Quezare sued Byrider, alleging that the company violated Indiana law by failing to make wage payments within ten business days of the pay period ending date.  Bose McKinney & Evans attorneys Gregory Guevara and Emily Yates argued successfully that the bonus payments did not constitute wages under the statute.

In the opinion of Quezare v. Byrider Finance, Inc., the Court of Appeals held that, in order for bonus payments to be considered wages under Indiana law, the payments must be directly related to the amount of time an employee works, must be paid to the employee with regularity, and cannot be tied to the financial success of the employer.  Because Quezare’s bonuses were tied only to his individual success, were never guaranteed, and also because Indiana case law doesn’t consider team bonuses to be wages, Byrider was not in violation of Indiana law.

In Sheehan Construction Co. v. Continental Casualty Co., No. 49S02-1001-CV-32, the Court reconsidered its opinion by rehearing a previous decision in which the Court ruled in favor of the insured parties. The question in that case was whether the insurance policy covered faulty workmanship by a subcontractor. The Court ruled that it did, but did not address the timeliness of the insured party’s notice to the insurer.  The Court reopened its opinion in order to address this question.

The trial court granted summary judgment in favor of the insurers and the Indiana Supreme Court agreed. The Court reasoned that the basis for the timely notice of claims is to allow the insurer ample time to investigate the claim. In circumstances where the insured party fails to give notice in a timely manner, the Court presumes prejudice. The burden then shifts to the insured party to prove that the insurer was not prejudiced by the failure to report. In the case, the insured parties admitted their notice was untimely and because they produced no evidence to support the contention that the insurer was not prejudiced, the Court granted summary judgment for the insurance company.

The Court of Appeals of Indiana upheld the trial court in a decision granting summary judgment in favor of a firefighter who allegedly made malicious comments during the course of fighting a fire.

Terry Hart, Assistant Fire Chief with the Martinsville Fire Department, was overheard by the son of the plaintiff saying “let it burn” while responding in an assisting capacity to a fire in Washington Township. In a complaint against Hart, as an individual and in his capacity with the fire department, and against the Martinsville Fire Department for negligence, the family who owns the burned property alleged that Hart and the fire department didn’t take proper care in ensuring that the property was protected from the fire. The trial court granted summary judgment in favor of the defendants, citing the common law and black letter rule of governmental immunity. 

In the opinion of Ellis v. City of Martinsville, No. 55A01-1003-CT-141, the court determined that the negligence actions against Hart and the city did not have issues of material fact and granted summary judgment for the municipalities. The court sided with the argument that the fire department cannot be held liable for the decisions made by those in charge of its operations and also that the individuals in charge of making those decisions cannot be held liable as long as the decision is made in the course of employment. Because Hart arrived at the scene in firefighting gear and was paid for his time at the fire, he was determined to be acting in his capacity as a firefighter and, thus, was granted immunity from liability to the homeowners.

The Indiana Supreme Court recently held that, in an insurance dispute regarding defense and indemnification of environmental liability, the uniform approach (a single state’s law governing the entire contract) should be applied, and the state with the “most intimate contacts” will have its law pertain to the contract.

Standard Fusee Corporation (“SFC”) previously operated factories manufacturing emergency signaling flares in Maryland, Indiana, New Jersey, Ohio, California and Pennsylvania while maintaining its headquarters in Maryland. SFC purchased comprehensive general liability policies from two different brokers, holding all communication and discussions regarding the policies in Maryland. After a toxic chemical used in manufacturing its flares was detected in the groundwater near its California facility, SFC was subject to lawsuits which were eventually dismissed because it was determined that SFC didn’t emit the chemical. Afterwards, it voluntarily tested its Indiana facility and found that the chemical may have been emitted at the Indiana location. SFC was granted inclusion into the Indiana Department of Environmental Management’s Voluntary Remediation Program. SFC requested defense and indemnification from the insurers, who denied an obligation. 

SFC sought a declaratory judgment against the insurers and filed for summary judgment that Indiana law governed the policy’s interpretation and also that the insurers had a duty to defend, which the trial court granted. The insurers sought application of Maryland law, as its interpretation would be more beneficial to their position. The Court of Appeals sided with neither party and reversed the trial court’s holding, determining that a site-specific approach should apply to the policy. In National Union Fire Insurance Co. v. Standard Fusee Corporation, No. 49S04-1006-CV-318, the Indiana Supreme Court held that Indiana has long applied the uniform approach to multistate insurance policies. The Court went on to hold that, in order to determine which state’s law governed the contract, a “most intimate contacts” test should be used. Because a single event is not determinative as to which state has the most intimate contacts with the transaction, several factors must be weighed together. Because SFC was located in Maryland, all of the correspondence regarding the insurance took place in Maryland, and because the policies were retained and the premiums were paid in Maryland, the Court held that Maryland law should uniformly apply to the dispute.

The Court of Appeals reversed the trial court and held that student loan funds that are deposited into a personal bank account are exempt from being attached by a judgment creditor.

Nikki Brindle and Patrick J. Arata entered into an agreed judgment whereby Brindle would pay Arata for legal services provided. Arata initiated proceedings to seek funds from Brindle’s bank account at National City Bank, at which time contained $3,367.01. A week later, Brindle filed an exemption claim and requested a hearing. At the hearing, Brindle introduced a voucher from the Academy of Art University stating that she would receive a check in the amount of $3,268.00 which was the amount left over after her tuition was paid to the university. The trial court denied Brindle’s exemption claim and ordered all funds except $300.00 to be transferred. The court stated the funds lost their exempt status when they were deposited into her bank account. Brindle appealed.

In Nikki Brindle v. Patrick J. Arata, No. 02A05-1004-SC-239, the Court of Appeals held that under U.S.C. Title 20 section 1095a, regarding wage garnishments, the plain language of the statute was clear that student loan funds and property traceable to those funds were exempt from garnishment or attachment. Furthermore, because there were no provisions to terminate this status, a contrary decision would render section 1095a meaningless, which the Court doubted was Congress’ intent. It stated that almost every recipient of student funds deposits their funds into a personal bank account and that it “could not imagine that Congress wishes those who receive student loans to stuff their mattresses with their rent money to prevent judgment creditors from attaching it.” Additionally, it distinguished the garnishment of retirement funds after they were deposited from the garnishment of student loan funds. The federal statutes are only extended to protect from the collection of student loans. The Court stated that "not being able to give something away is quite different from having it protected from being taken away." Retirement fund statutes do not apply to student loans. Therefore, the trial court’s holding was erroneous because the student loan funds that Brindle deposited into her bank account were protected, and Arata was prohibited from attachment. Trial court’s holding is reversed.
 

     In insurance law, the insured has the initial burden to make accurate representations in the application.  If an insurance policy is issued, the insurer then has the burden to issue a policy with clear language and provide insurance according to the policy's terms.  Because the insurer is charged with writing an unambiguous policy, if a dispute between the insured and insurer turns on a term that is deemed ambiguous the policy is interpreted in favor of coverage. 

     In Allied Property & Casualty Ins. Co. v. Good, the Court of Appeals held that a policy is void ab initio and summary judgment should be entered in favor of the insurer when the insured makes a material misrepresentation on the application for insurance.  Specifically, the Court held:  "Because the uncontradicted evidence indicates Linda misrepresented the Goods' cancellation history on the application for homeowners insurance and Allied would not have issued the policy if it had known the truth about their history, the trial court erred by denying Allied's motion for summary judgment."

     Of note, Indiana appellate courts have stated that an ambiguity does not exist merely because the parties proffered differing interpretations of the policy language.  In this case, no ambiguity was found even though one of the three judges on the appellate panel interpreted the disputed language in the policy differently.  In dissent, Judge Bailey opined that the insured may not have provided misinformation in the application.  Judge Bailey further stated that, even if the insured provided misinformation, an insurer's use of a self-serving affidavit may not be sufficient to prove the materiality of the misrepresentation.

The Indiana Court of Appeals held that a master homeowners’ association was required to be established by the controlling ordinances for a planned unit development (“PUD”) and that a swimming pool was within the scope of the association’s responsibilities.

The City of Greenwood adopted a zoning ordinance for planned unit developments which provided “there shall be established a homeowners association to provide for the control and maintenance of all common areas.” A developer submitted the Master Plan for The Pines of Greenwood’s PUD, and it consisted of five communities with two types of homes and densities, the Pines of Greenwood (“POG”) and the Village Pines (“VP”). The Master Plan did not contain any definitions, but was approved by the Greenwood Common Council in an ordinance that amended the city’s zoning ordinance (“Master Plan Ordinance”). Later, covenants and restrictions were recorded establishing two separate homeowners’ associations for the POG and VP communities. However, a master homeowners’ association was never established for The Pines as a whole. 

A swimming pool was built in the POG community, but not in the VP community. The POG covenants stated that only POG property owners could use the pool. The VP community filed a complaint seeking to reform the POG covenant because it “mistakenly omitted a provision whereby the residents of VP would be permitted to use the community swimming pool” located in the POG area. The VP community argued that a master homeowners’ association should be established for maintenance and operation of the common areas. The trial court held that the creation of a master homeowners’ association to control the common areas was not expressly stated in the documents reflecting the development of The Pines. VP appealed.

The issue in The Village Pines at the Pines of Greenwood Homeowners' Assn. Inc. v. The Pines of Greenwood Homeowners' Assn. Inc., Case No. 41A01-0912-CV-568, was whether the Master Plan Ordinance required a master homeowners’ association, and if required, what areas this association would control. The Court read the PUD zoning ordinance and the Master Plan Ordinance together because they contained the same subject matter and, thus, should be read together to come to a “harmonious statutory scheme.” Both the PUD ordinance and Master Plan Ordinance discussed a master homeowners’ association. Thus, a master homeowners’ association was required for The Pines. Furthermore, when deciding if the master homeowners’ association responsibilities included the swimming pool, it looked at the terms “amenities” and “park area” contained in the ordinances. Although the terms were not defined, it used the plain, ordinary and usual meanings of the words. It held that the swimming pool was within the definition of the terms because a pool is an “amenity or park area available as a recreation area to all residents.” Therefore, it was within the master homeowners association’s responsibilities to properly control, maintain and operate it. The Court reversed the trial court’s holding and ordered the parties to engage in mediation.

The Indiana Court of Appeals encourages cooperation and conflict resolution among attorneys to resolve issues outside of court, but time extensions still require formal relief given directly by the court.

Mary Booher slipped and fell in a Hampton Inn bathtub. Her accident was the first in nearly 5 months after Hampton Inn had covered its bathtubs with a non-skid surface in compliance with safety standards. Mary and her husband filed suit. After receiving two time extensions to reply to Hampton Inn’s motion for summary judgment, another time extension was needed because the Boohers’ attorney was facing major surgery and their expert needed extra time to complete his report. The attorney contacted Hampton Inn’s counsel to explain that another extension would be needed. Hampton Inn’s counsel agreed to the extension, and relying on this out-of-court agreement, the attorney never filed a formal request with the trial court. Three weeks after the second extension deadline had passed, the Boohers submitted their reply to the trial court. Hampton Inn moved to strike based on Trial Rule 56, which the trial court granted. It later granted summary judgment in favor of Hampton Inn. The Boohers appealed.

In Mary Booher, et al. v. Sheeram, LLC, No. 20A03-1005-CT-338, the Indiana Court of Appeals held that the trial court did not err in its decision to strike the Boohers’ reply and properly entered summary judgment in favor of Hampton Inn. Under Trial Rule 56, a trial court does not have the discretion to accept late-filed documents. The Court stated that the attorney’s reliance on the out-of-court agreement was not sufficient to extend the due date, and that he should have filed a motion for a time extension with the trial court. It stated that even under the extraordinarily difficult circumstances in this case, the court’s “proverbial hands were tied” as the Supreme Court made it clear that trial courts have no discretion to accept untimely filed documents. Additionally, because Hampton Inn applied a non-skid coating which complied with industry standards, it protected its business invitees from foreseeable dangers. Hampton Inn fulfilled its duty to exercise reasonable care, and therefore, there were no issues of material fact. Thus, the Court affirmed the trial court’s holding.
 

The Indiana Court of Appeals held, as a matter of first impression, that the definition of a “courthouse” for a notice statute can be a temporary courthouse in which the courts convene while a permanent county courthouse is undergoing repairs.

In August 2009, the Grant County Courthouse was undergoing repairs. Due to the repairs, the court was relocated to a temporary site. Around this time, Claudette Gee’s home was ordered into foreclosure. The Grant County Sheriff’s Department posted notice of the foreclosure on a bulletin board located next to the door of the temporary courtroom. A week after Gee’s property was purchased, Gee moved to set aside the sheriff’s sale. She argued that the sheriff’s office failed to post notice of the sale “at the door of the courthouse” as required by Indiana statute. The trial court denied Gee’s motion and Gee appealed to the Indiana Court of Appeals.

In Claudette Gee v. Green Tree Servicing LLC, No. 27A02-1003-MF-304, the issue on appeal was whether the sheriff followed the correct procedure when the sheriff posted notice of the sale at the temporary county court offices and not at the permanent county courthouse. The Court held that the sheriff complied with Indiana’s notice statute because a “courthouse” is defined as a place where judges convene to adjudicate disputes and administer justice. The Court relied on Black’s Law Dictionary for this definition, as it was not defined in a statute. Because the temporary courtroom was the place where three of the four county courts convened during renovations, the Court determined that the plain meaning of the statute also applied to temporary courtrooms. Therefore, the sheriff followed the proper notice procedure and the foreclosure sale was valid. The court noted, however, that Gee did not argue that the sheriff was required to post notice at both sites, and thus, the Court did not consider this issue. Affirmed.

The Indiana Supreme Court split in a 3:2 decision on the issue of whether an “occurrence” under a commercial general liability (CGL) policy covered a subcontractor’s faulty workmanship under the insured’s contract.

Sheehan Construction Company was a general contractor on the Crystal Lake residential project, and was responsible for hiring subcontractors to build the houses. During the period when the houses were being built, Sheehan was insured by Continental Insurance Co. under a CGL policy that covered all damages the insured was legally obligated to pay because of “bodily injury” or “property damage” that were caused by an “occurrence” in the coverage territory. This policy excluded coverage for damages to the insured’s property and work that arose out of work performed on “your behalf by a subcontractor.” Sheehan was also insured by Somerville Construction, one of Sheehan’s subcontractors, under their CGL policy through Indiana Insurance Company.

In April 2000, Vincent B. Alig and his wife Mary Jean Alig purchased a home in Crystal Lake. A few years later, the Aligs experienced leaking windows, water damage, and other issues in their home and notified their homeowner insurance carrier, who later found that the problems resulted from faulty workmanship of Sheehan’s subcontractors. In November 2004, the Aligs filed suit against Sheehan alleging violation of Indiana Code sections 32-27-3-1 to 14 (concerning cause of action for construction defects). Later, more homeowners in the Crystal Lake subdivision joined and created a class-action suit. The class and Continental Insurance settled.   Continental filed for declaratory judgment claiming that Sheehan’s claims were not covered under the policy. Sheehan and the class filed a third-party complaint against Indiana Insurance and MJ Insurance, Sheehan’s insurance broker. The trial court granted summary judgment in favor of Continental, MJ, and Indiana Insurance. The Court of Appeals affirmed.

In Sheehan Construction Co., Inc., et al. v. Continental Casualty Co., et al., No. 49S02-1001-CV-32, Justices Robert Rucker, Brent Dickson, and Theodore Boehm held that CGL policies can cover an insured’s liability for a subcontractor’s faulty workmanship. The issue the Court grappled with was whether faulty workmanship is an “accident” within a standard CGL policy’s definition of an “occurrence.” The majority determined that faulty workmanship is an accident if the damage is the result of an unexpected or unforeseeable event. The Court defined an “accident” as an unexpected happening without intention or design. Implicit in this definition is a lack of intent. If the faulty workmanship was the product of unintentional conduct, then the resulting damage would be unforeseeable and would be an accident within the CGL policy’s definition of an “occurrence.” This analysis is fact specific and should be determined on a case-by-case basis. In this case, the trial court did not conclude on the issue of whether the faulty workmanship was intentional or unintentional and the trial court’s judgment was reversed and remanded for further proceedings.

Dissent:

Chief Justice Shepard: This opinion leads Indiana to the wrong result because CGL policies are not designed or priced to cover any demand an insured may face. Oral argument suggested that an insurance product that covers an insured’s faulty work may not even exist. Therefore, CGL policies should not cover faulty subcontractor work as an accident within standard coverage of a CGL policy’s definition of an “occurrence.”  

Justice Sullivan: An “occurrence” under a CGL policy is an accidental damage caused by an insured or an insured’s subcontractors, to property owned by third-parties, but not the costs of repairing work performed. Instead, a party who wishes to insure against damages from faulty workmanship should obtain protection from a performance bond.

Author:  Craig E. Pinkus

A 16 year-old at the time she listened to music through a website claiming to be “100%” lawful asked the US Supreme Court last July to review the decision of the 5th Circuit Court of Appeals against her. Petition for Writ of Certiorari, Whitney Harper, Petitioner v. Maverick Recording Company, et al. , No. 10-94 (U.S. July 16, 2010). One of thousands of young people sued for copyright infringement by downloading music, the judgment and damages awarded against her were apparently so routine for the recording industry that it waived the right to respond to the petition.

In the wake of an amicus brief filed by Harvard Law professor Charles Nesson and others, however, the Court in a simple letter from the clerk requested a response from the record industry by October 15, 2010.  For most lawyers and clients, this is a request you cannot refuse.

An “innocent infringer” defense is provided by the Copyright Act. 17 U.S.C. § 504(c). It is not a complete defense but can be considered by the court as a matter in mitigation that can reduce a damage award for the acts in question. Of particular interest in the 7th Circuit is that the denial of certiorari would arguably affirm the decision in BMG Music v. Gonzalez, 430 F.3d 888, 892 (7th Cir. Ill. 2005) which makes a showing of innocent infringement in these cases a virtual impossibility.

There is naturally no guarantee the Court will grant certiorari, but the request for a response means that it is more likely than is the case with nearly all certiorari petitions. Many observers have argued for years that the flood of lawsuits against downloaders would ultimately fail as a business strategy for the music industry in the internet world. But a cert grant holds the possibility that the legal strategy will need to be revised without waiting for the business strategy to change.