Selective Insurance Company of South Carolina and 500 Rangeline Road, LLC v. Erie Insurace Exchange, Welch & Wilson Properties, LLC d/b/a Hammons Storage, Allianz Global Risks U.S. Insurance Company

FOR PUBLICATION

ATTORNEYS FOR APPELLANT: ATTORNEYS FOR APPELLEE
ERIE INSURANCE EXCHANGE:
JAMES H. AUSTEN
SHANNON G. STARR JAMES P. STRENSKI
Starr Austen & Miller, LLP ANNA M. MALLON
Logansport, Indiana Cantrell Strenski & Mehringer, LLP
Indianapolis, Indiana

ATTORNEY FOR APPELLEE
ALLIANZ GLOBAL RISKS U.S.
INSURANCE COMPANY:

GINNY L. PETERSON
Kightlinger & Gray, LLP
Indianapolis, Indiana
Jul 30 2014, 10:03 am

IN THE
COURT OF APPEALS OF INDIANA

SELECTIVE INSURANCE COMPANY OF )
SOUTH CAROLINA and 500 RANGELINE )
ROAD, LLC, )
)
Appellants-Defendants, )
)
vs. ) No. 73A01-1307-PL-311
)
ERIE INSURANCE EXCHANGE, )
)
Appellee-Plaintiff, )
__________________________________________)
)
WELCH & WILSON PROPERTIES, LLC )
d/b/a HAMMONS STORAGE, ALLIANZ )
GLOBAL RISKS U.S. INSURANCE )
COMPANY, )
)
Appellees-Defendants. )

APPEAL FROM THE SHELBY SUPERIOR COURT
The Honorable Charles D. O’Connor, Special Judge
 Cause No. 73D01-1109-PL-33

July 30, 2014

OPINION - FOR PUBLICATION

BROWN, Judge

Selective Insurance Company of South Carolina (“Selective”) and 500 Rangeline,

LLC (“Rangeline,” and collectively with Selective, “Appellants”) appeal the trial court’s

order granting the cross-motion for partial summary judgment filed by Erie Insurance

Exchange (“Erie”) and denying the Appellants’ motion for partial summary judgment.

Additionally, Allianz Global Risks U.S. Insurance Company (“Allianz”) has filed an

appellee’s brief in this matter as an interested party after intervening below. The

Appellants raise one issue which we revise and restate as whether the court erred in

granting partial summary judgment in favor of Erie and denying the Appellants’ motion

for partial summary judgment. We reverse and remand.

FACTS AND PROCEDURAL HISTORY

Rangeline purchased a warehouse in late 2006 or early 2007. At the time of the

purchase, the principals of Rangeline were Jon Smith, Greg Heuer, and Travis May.

Rangeline did not have any other employees who managed the warehouse or actively

participated in the business affairs of Rangeline other than Smith, Heuer, and May.

Selective provided commercial general liability coverage for Rangeline’s warehouse

beginning on July 1, 2007. In August 2007, Doug Ewing, a Safety Management

Specialist with Selective, visited the warehouse to conduct a risk evaluation survey, and,

2
based on recommendations made by Ewing, May retained Gardner Fire Protection to

inspect the sprinkler system at the warehouse. On October 1, 2007, Jason Gardner from

Gardner Fire Protection wrote a letter to May regarding his findings and identified a

number of “serious issues, including but not limited to the fact that the system had no

functioning alarms,” and May later asked Gardner to provide an estimate of what the cost

would be to repair the issues Gardner had identified. Appellants’ Appendix at 355.

Gardner Fire Protection was never hired to make repairs to the sprinkler system.

Selective renewed the policy with Rangeline for the period of July 1, 2008 through July

1, 2009.

On April 30, 2008, Welch & Wilson Properties, LLC d/b/a Hammons Storage,

(“Hammons”) and Rangeline entered into a lease of the warehouse for the purpose of

storing insulation manufactured by Knauf Insulation KnbH, (“Knauf”). By this time,

Rangeline’s owners were Smith and Heuer, although May remained active in the

company and negotiated the lease with Hammons on behalf of Rangeline. Hammons

prepared the first draft of the lease and sent it to Rangeline. The executed lease contains

the following relevant provisions:

J. INSURANCE AND INDEMNIFICATION . . .

3. TENANT’S PUBLIC LIABILITY INSURANCE: Tenant
shall, at its own cost and expense, keep and maintain in full force
during the Lease term, as policy or policies of comprehensive
commercial general liability insurance on an occurrence basis,
insuring Tenant’s activities in or about the Leased Premises
against loss, damage or liability for personal injury or death of
any person or loss or damage to property occurring in, upon or
about the Leased Premises during the Lease term, with $1.00
Million in combined single limit coverage. Landlord, its

3
 successors, assigns and any mortgagee shall be named as
additional insureds under each policy maintained by Tenant.
Tenant also shall maintain worker’s compensation coverage to
the extent required by law.

*****

5. WAIVER OF SUBROGATION: Any policy of property
insurance maintained by either party shall include a clause or
endorsement denying the insurer any rights of subrogation
against the other party to the extent rights have been waived by
the insured prior to the occurrence of injury or loss. Landlord
and Tenant waive any rights of recovery against the other for
damage or loss due to hazards covered by insurance containing
such a waiver of subrogation clause or endorsement to the extent
of the damage or loss covered thereby. Notwithstanding
anything to the contrary contained in this provision or elsewhere
in this Lease, neither party shall be deemed to have released or
waived any claim against the other for damages to property
within the deductible amount of such party’s insurance policy.

Id. at 58-59. Paragraph K of the lease, titled “UTILITIES AND SERVICES,” assigned

to Rangeline the duty to pay for certain utilities including the “Heat and/or Gas Service”

and the “Fire Sprinkler System.” Id. at 59. Also, Paragraph L stated the following:

MAINTENANCE AND REPAIR: During the Lease term, Tenant shall,
at its own cost and expense, maintain in good condition and repair the
Leased Premises and every part thereof, except for obligations of Landlord
provided for elsewhere in this Lease, ordinary wear and tear, and casualty.
Tenant shall not be required to make any roof, foundation or structural
alterations, repairs or replacements to the Leased Premises except as
otherwise required by this Lease. Landlord shall allow Tenant the use and
benefit of each and every warranty to which Landlord is entitled with
respect to any items repaired or replaced by Tenant. Landlord shall be
responsible for maintaining the roof, exterior walls (except doors, windows
and glass), foundation and structural integrity of the building, except for
damage caused by the negligence or willful act of tenant or its agents,
officers, employees, contractors, licensees or invitees which is not covered
or required to be covered under the property insurance to be maintained
hereunder. Landlord shall be responsible for major component repairs
and/or replacement of the heating, ventilation and air conditioning

4
 equipment in the Leased Premises, provided that the need for such repair or
replacement is not due to any abuse, misuse, damage or negligence of
Tenant or its agents, officers, employees, contractors, licensees, or invitees.

Id.

After the lease was signed and the lease term started, Rangeline conducted some

operations in the warehouse for the first month, and after that time Hammons had sole

possession of the warehouse. Hammons had seven employees working in the warehouse

during the term of the lease including Shawn Mayberry, who was the supervisor of

Hammons’ operation. According to Hammons’ principal, Jeffrey Welch, sometime in

October or November of 2008, May told him that Rangeline was going to drain the water

in the sprinkler system in the Warehouse and not heat the facility. However, the furnace

could be turned on by a switch or thermostat on the wall in the warehouse. Mayberry

does not recall the heat being on in the Warehouse while Hammons stored the insulation

there, and he never touched the furnace.

On or about December 23, 2008, the pipes of the sprinkler system at the

warehouse burst, causing water to escape and damaging the Knauf insulation being stored

therein. Origin and cause investigators hired by the insurers involved in this matter

concurred that the cause of the loss was that the sprinkler system failed due to freezing

temperatures which caused the water from the system to freeze and crack numerous cast

iron fittings, causing the failure of the sprinkler heads. The investigators believed that

there was no antifreeze in the sprinkler system as well as insufficient heat provided to the

warehouse. Erie investigator Patrick Murphy inspected the warehouse on February 17,

2009, and he noted that the gas had been turned off at the regulating system located on

5
the outside of the warehouse. Records from the gas provider indicate that no gas was

used at the warehouse between July 29, 2008 and March 24, 2009, although gas was

available to the warehouse during this timeframe.

At the time of the sprinkler failure, Erie had in full force and effect an “Ultraflex

Package Policy” of insurance issued to Hammons (the “Policy”), which included

commercial property coverage and commercial general liability coverage. Id. at 63. The

Policy contains the following language in the commercial general liability coverage form,

in pertinent part:

SECTION I - COVERAGES

COVERAGE A BODILY INJURY AND PROPERTY DAMAGE
LIABILITY

1. Insuring Agreement

a. We will pay those sums that the insured becomes legally
obligated to pay as damages because of “bodily injury” or
“property damage” to which this insurance applies. . . .

2. Exclusions

This insurance does not apply to: . . .

j. Damage To Property

“Property damage” to: . . .

4) Personal property in the care, custody or
control of the insured; . . .

SECTION IV - COMMERCIAL GENERAL LIABILITY CONDITIONS

7. Separation Of Insureds

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 Except with respect to the Limits of Insurance, and any rights
or duties specifically assigned in this Coverage Part to the
first Named Insured, this insurance applies:

a. As if each Named Insured were the only Named
Insured; and

b. Separately to each insured against whom claim is
made or “suit” is brought.

Id. at 108, 110-111, 115-117. Additionally, the Policy contained the following

endorsement, titled “ADDITIONAL INSURED – MANAGERS OR LESSORS OF

PREMISES” (the “A/I Endorsement”), which stated in pertinent part: “WHO IS AN

INSURED (Section II) is amended to include as an insured the person or organization

shown in the Schedule but only with respect to liability arising out of the ownership,

maintenance or use of that part of the premises leased to you and shown in the Schedule .

. . .” Id. at 123. The Policy listed Rangeline as an additional insured in the relevant

Schedule.

Erie paid $1,000,000 to Knauf to resolve a claim asserted by Knauf due to the loss,

and on February 10, 2010, following Erie’s payment to Knauf, Erie filed a subrogation

lawsuit against Rangeline seeking to recover the $1,000,000 (the “Underlying

Litigation”). On October 4, 2011, Erie filed, as amended, a Complaint for Declaratory

Judgment seeking a determination of whether or not its policy of insurance afforded

coverage to Rangeline for the claim Erie asserted in the Underlying Litigation.

Also, on December 23, 2008, Allianz had in full force and effect a policy of

insurance issued to Knauf and paid to Knauf $398,266 in addition to the $1,000,000 paid

by Erie as a result of the insulation damage. On March 26, 2010, Allianz moved to

7
intervene in the Underlying Litigation to assert a claim against Rangeline for recovery of

the amount paid by Allianz to Knauf, and the court granted its motion. Both Allianz and

Selective, who had a policy in effect at the time of the loss affording coverage to

Rangeline for commercial liability, were named as defendants in Erie’s declaratory

judgment action.

On July 3, 2012, the Appellants filed a motion for partial summary judgment, as

well as a memorandum in support and designation of evidence, addressing the issue of

whether or not the Policy afforded coverage for the claim asserted by Erie in the

Underlying Litigation.1 On January 25, 2013, Erie filed a cross-motion for partial

summary judgment and response to the Appellants’ motion for partial summary judgment

and memorandum in support addressing the same issue. On February 22, 2013, the

Appellants filed a memorandum in response to Erie’s cross-motion and reply in support

of their motion for partial summary judgment and supplemental designation of evidence.

Also, Allianz filed a memorandum in response to Erie’s cross-motion on February 27,

2013. On March 6, 2013, Erie filed its response to the Appellants’ reply to Erie’s cross-

motion for partial summary judgment.

On March 11, 2013, the court held a hearing and heard arguments on the parties’

motions, and on June 21, 2013, issued an order granting Erie’s cross-motion and denying

the Appellants’ motion for partial summary judgment. In the order, the court specifically

found that the A/I Endorsement did not provide coverage for Rangeline for the

1
We note that the Appellants did not address in their partial summary judgment motion the issues
of coverage for the Allianz claim or the effect of any damages claimed by Rangeline arising from Erie’s
failure to afford coverage to Rangeline.
8
subrogation action in the Underlying Litigation and “provides coverage only under the

Commercial General Liability Coverage part and does not provide coverage under the

Ultraflex Commercial Property Coverage part. Liability coverage is provided only with

respect to liability arising out of the ownership, maintenance or use of that part of the

premises leased to the lessee.” Id. at 18.2 The court found that Hammons as tenant had

no duty regarding the sprinkler system, that accordingly there was no duty to breach and

consequently Rangeline cannot be held vicariously liable for any actions or inactions on

Hammons’ part, that Rangeline maintained control over the sprinkler system, and that the

anti-subrogation defense is inapplicable. The court concluded that Erie did not owe

Rangeline a defense or indemnity in the Underlying Litigation and that there was no just

reason for delay, and it entered its order as a final judgment.

ISSUE / STANDARD OF REVIEW

The issue is whether the court erred in granting partial summary judgment in favor

of Erie and denying the Appellants’ motion for partial summary judgment. Summary

judgment is appropriate only where there is no genuine issue of material fact and the

moving party is entitled to judgment as a matter of law. Ind. Trial Rule 56(C); Mangold

ex rel. Mangold v. Ind. Dep’t of Natural Res., 756 N.E.2d 970, 973 (Ind. 2001). All facts

and reasonable inferences drawn from those facts are construed in favor of the

nonmovant. Mangold, 756 N.E.2d at 973. Our review of a summary judgment motion is

limited to those materials designated to the trial court. Id. In reviewing a trial court’s

2
We note that page 5 of the court’s order was mistakenly excluded from the Appellants’
Appendix. However, it does appear at the end of the Appellants’ brief. To the extent that we quote from
page 5 of the order, we rely on the page contained in the Appellants’ brief.
9
ruling on a motion for summary judgment, we may affirm on any grounds supported by

the Indiana Trial Rule 56 materials. Catt v. Bd. of Commr’s of Knox Cnty., 779 N.E.2d

1, 3 (Ind. 2002).

The fact that the parties make cross-motions for summary judgment does not alter

our standard of review. Sterling Commercial Credit-Mich., LLC v. Hammert’s Iron

Works, Inc., 998 N.E.2d 752, 756 (Ind. Ct. App. 2013). Instead, we must consider each

motion separately to determine whether the moving party is entitled to judgment as a

matter of law. Id. The entry of specific findings and conclusions does not alter the

nature of a summary judgment which is a judgment entered when there are no genuine

issues of material fact to be resolved. Rice v. Strunk, 670 N.E.2d 1280, 1283 (Ind. 1996).

In the summary judgment context, we are not bound by the trial court’s specific findings

of fact and conclusions of law. Id. They merely aid our review by providing us with a

statement of reasons for the trial court’s actions. Id.

Insurance contracts “are governed by the same rules of construction as other

contracts.” Colonial Penn Ins. Co. v. Guzorek, 690 N.E.2d 664, 667 (Ind. 1997). The

interpretation of an insurance contract is a question of law, and we address it de novo.

Dunn v. Meridian Mut. Ins. Co., 836 N.E.2d 249, 251 (Ind. 2005). Clear and

unambiguous policy language is given its ordinary meaning in order to accomplish the

primary goal of contract interpretation of determining the intent of the parties at the time

the contract was made as disclosed by the language used to express their rights and

duties. Holiday Hospitality Franchising, Inc. v. AMCO Ins. Co., 983 N.E.2d 574, 577-

578 (Ind. 2013). Where contractual language is ambiguous, we generally resolve those

10
ambiguities in favor of the insured, but will not do so if such an interpretation fails to

harmonize the provisions of the contract as a whole.3 Id. at 578. The failure to define a

contractual term does not necessarily make that term ambiguous, nor does a simple

disagreement about the term’s meaning. Id. Rather, an ambiguity exists where the

provision is susceptible to more than one reasonable interpretation. Id.

We also observe that there exists some disagreement in the current state of Indiana

law regarding what may be considered in deciding whether an insurer has a duty to

defend. “Indiana courts have previously held that ‘[t]he duty to defend is determined

3
Erie argues that this Court should construe the language of the Policy from a neutral standpoint
rather than in favor of the insured, Rangeline. We addressed a similar argument in Liberty Mut. Ins. Co.
v. Mich. Mut. Ins. Co., 891 N.E.2d 99 (Ind. Ct. App. 2008). As will be discussed more thoroughly below,
in that case Liberty Mutual Insurance Company (“Liberty Mutual”) insured and was the subrogee of a
premises owner, and Michigan Mutual Insurance Company (“Michigan Mutual”) insured the tenant of the
premises under a commercial general liability policy. 891 N.E.2d at 100. Before addressing the main
issue, the Court discussed an argument by Michigan Mutual that “this is a dispute between insurance
companies and because neither Liberty Mutual nor [the premises owner] paid any premiums for the
Michigan Mutual Policy, it must be construed from a neutral stance.” Id. at 102. We observed that the
Indiana Supreme Court in Ind. Lumbermens Mut. Ins. Co. v. Statesman Ins. Co., 260 Ind. 32, 291 N.E.2d
897 (1973), stated:

[W]e are in fact in this instance not dealing with the two parties to the contract. The
party claiming to be an insured in this case never paid a penny’s premium to the insurer.
We are therefore not in a situation where we must construe the contract language any
certain way and can seek out the general intent of the contract from a neutral stance.

Id. (quoting Ind. Lumbermens, 260 Ind. at 34, 291 N.E.2d at 899). Liberty Mutual suggested that Ind.
Lumbermens, as well as similar cases, were distinguishable because the premises owner “was not a
stranger to the contract but, rather, was specifically named as an additional insured in an endorsement
attached to the policy.” Id. We noted that Liberty Mutual’s argument had “merit” because the premises
owner “was an additional named insured (under limited circumstances, of course) and the policy was
procured for its benefit, as well as” the tenant’s. Id. We did not decide the issue, however, noting that we
would reach the same conclusion regardless of how the policy was construed. Id.

Here, we similarly arrive at the same conclusion regardless of whether the Policy is construed
from a neutral stance or from a stance favoring Rangeline. However, we note that the argument advanced
by Liberty Mutual in Liberty Mut. carries more weight than it did in that case because while, the premises
owner was removed as a real party in interest prior to the appeal in that case, 891 N.E.2d at 101, here,
Rangeline, who was named as an insured pursuant to the A/I Endorsement, continues as a real party in
interest.
11
solely by the nature of the complaint.’” Ind. Farmers Mut. Ins. Co. v. North Vernon Drop

Forge, Inc., 917 N.E.2d 1258, 1268 (Ind. Ct. App. 2009) (quoting Transamerica Ins. Serv.

v. Kopko, 570 N.E.2d 1283, 1285 (Ind. 1991)), reh’g denied, trans. denied. This Court in

Ind. Farmers recognized that “[s]ome courts still cite Kopko as representing the current

state of Indiana law,” id., and indeed a case cited by the Appellants, Travelers Cas. &

Sur. Co. v. Elkins Constructors, Inc., 2000 WL 724006, at *4 (S.D. Ind. 2000),

reconsideration denied by 2000 WL 748091 (S.D. Ind. June 6, 2000), does just that while

at the same time recognizing that “problems . . . can arise when the doctrine of liberal

notice pleading mixes with the doctrine that the insurer’s duty to defend is determined

solely by the allegations of the complaint.” Id. at *5 n.12. The Ind. Farmers Court also

noted that the Indiana Supreme Court, while not specifically overruling Kopko, “has

more recently entertained extrinsic, designated evidence when assessing an insurer’s duty

to defend,” and considered facts outside of the complaint. 917 N.E.2d at 1268 (citing

Auto-Owners Ins. Co. v. Harvey, 842 N.E.2d 1279, 1291 (Ind. 2006)). Based on the

foregoing, as well as the fact that neither party advocates for the rule in Kopko to be

applied, we consider the relevant designated evidence in determining whether Erie has a

duty to defend Rangeline.

DISCUSSION

The Appellants argue that: (A) Rangeline was covered under the Policy as an

additional insured; and (B) the care, custody, or control exclusion contained in the Policy

does not apply. We address each of the Appellants’ contentions separately.

A. Additional Insured Endorsement

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 The Appellants argue that the A/I Endorsement contained in the Policy afforded

coverage to Rangeline and that Erie’s contention below that it provides only limited

coverage for certain types of claims is not supported by the language of the Policy and

case law. The Appellants note that there is but one case interpreting additional insured

endorsements in Indiana case law, Liberty Mut. Ins. Co. v. Mich. Mut. Ins. Co., 891

N.E.2d 99 (Ind. Ct. App. 2008), and they argue that Liberty Mut. is not instructive here

because the facts are distinguishable. The Appellants argue that Erie misinterprets the

holding of Liberty Mut., and they note that the accident in Liberty Mut. occurred in an

adjacent common area rather than on the leased premises as is the case here. The

Appellants also direct our attention to certain cases for the proposition that the A/I

Endorsement should be interpreted broadly, that is, “beyond merely the additional

insured’s vicarious liability for the actions of the named insured.” Appellants’ Brief at 12

(quoting Elkins, 2000 WL 724006, at *24). The Appellants maintain that “Elkins and the

other decisions cited [] construing A/I endorsements in a broader fashion set forth the

better rule that should be applied under the facts of this case,” and they argue specifically

that Erie wrote the language of the instant A/I Endorsement which “does not attempt to

restrict coverage to only claims for which Rangeline would have vicarious liability due to

the actions of Hammons but instead extends a broader grant of coverage to Rangeline for

4
Erie in its brief notes that Elkins is an unpublished decision and cites to Ind. Appellate Rule
65(D), which states that “not-for-publication memorandum decision[s] shall not be regarded as precedent
and shall not be cited to any court” except under certain circumstances. Erie’s Brief at 18, 18 n.4. We
note, however, that Appellate Rule 65(D) concerns memorandum decisions from this Court and does not
contemplate not-for-publication decisions from other courts. We also note that Elkins has been cited
previously by both this Court as well as by the Seventh Circuit Court of Appeals. See Peabody Energy
Corp. v. Roark, 973 N.E.2d 636, 641 n.3 (Ind. Ct. App. 2012); Lewis v. Methodist Hosp., Inc., 326 F.3d
851 854 (7th Cir. 2003).

13
any liability arising out of the leased premises.” Id. at 16. The Appellants argue that Erie

asserts in the Underlying Litigation a claim for insulation stored in a warehouse damaged

as a result of a sprinkler system failure which “clearly falls within the grant of coverage

of its policy.” Id.

The Appellants also argue that the court in its order “focused extensively on

whether or not the sprinkler system failed as a result of the fault of Rangeline” which

“was not the issue before the Trial Court.” Id. They assert that the court “determined

that Rangeline’s negligence caused the loss and therefore Erie, as the insurer for

Hammons, should be able to obtain reimbursement,” but this reasoning was “error as the

sole question before it was whether [the Policy] afforded coverage for the loss” and that

“the impact of that coverage will be addressed by the court handling the Underlying

Litigation.” Id. The Appellants assert that the “Separation of Insureds” language in the

Policy further supports the conclusion that the A/I Endorsement affords Rangeline

coverage, noting that this Court has previously addressed a similar provision and held

that “even if the policy excluded coverage for an additional insured, the named insured

might still have coverage . . . .” Id. at 18. The Appellants argue that “solely from

Rangeline’s standpoint, Erie has coverage for Rangeline if Rangeline’s liability ‘arises

out of the ownership, maintenance or use of that part of the premises leased to

[Hammons]’” which is “precisely the type of claim asserted by Erie . . . .” Id. at 18-19.

Finally, the Appellants argue that Erie’s argument that Hammons had no duty to maintain

the sprinkler system is without merit because “[e]ven assuming, without conceding, that

14
Hammons had no such duty . . . . Nothing in the A/I [E]ndorsement states that coverage

only exists if the additional insured is free from all fault.” Id. at 19.

Erie begins its argument by noting the A/I Endorsement “provides coverage only

under the Commercial General Liability Coverage Part (Section II) of the [] Policy; it

does not provide coverage under the Ultraflex Commercial Property Coverage Part.”

Erie’s Brief at 13. Erie also emphasizes that the A/I Endorsement states that it provides

coverage “only with respect to liability arising out of the ownership, maintenance, or use

of that part of the premises leased to Hammons,” that accordingly no coverage exists for

Rangeline under the Policy for liability arising out of a part of the warehouse “not leased

to Hammons,” and that “[i]t then logically follows that the [A/I Endorsement] only

provides coverage for [] Rangeline for its vicarious liability with respect to those parts of

the premises over which Hammons has physical control and thus legal responsibility.”

Id. Erie points to the Liberty Mut. case as well as Ins. Corp. of N.Y. v. Cohoes Realty

Assocs., L.P., 854 N.Y.S.2d 815, 818 (N.Y. App. Div. 2008), for the proposition that no

coverage exists under the A/I Endorsement where “the accident occurred in an area

outside the leased premises . . . .” Id. at 15.

Erie acknowledges that the facts of this case, including that the sprinkler system is

located inside the warehouse, makes “this case a closer call,” but it maintains that no

coverage exists under the A/I Endorsement because “the sprinkler system was not ‘part

of’ the premises leased to Hammons.” Id. at 15-16. Erie points to a provision of the

Indiana Administrative Code which “impose[s] a non-delegable duty on the part of []

Rangeline to inspect, test and maintain the sprinkler system,” notes that Hammons “had

15
no duty whatsoever regarding the sprinkler system . . . under Indiana law and had no

control over it” and that “Rangeline explicitly retained control of the sprinkler system as

it advised Hammons that it would drain it and not heat the Warehouse,” and that “[i]f one

accepts the proposition that Hammons had no legal duty to control vis-à-vis the sprinkler

system, then there was no duty for Hammons to breach, and [] Rangeline therefore cannot

be vicariously liable for any actions or inactions on the part of Hammons” and “[a]s such,

the sprinkler system was not ‘that part’ of the premises leased to Hammons . . . .” Id. at

16.

In their reply brief, the Appellants argue that the Cohoes decision is

distinguishable because it relies on a “different exclusion than at issue in this case,” and it

stated without discussion that the applicable Additional Insured endorsement “only

applied to third party actions.” Appellants’ Reply Brief at 4. The Appellants argue that

to the extent Erie asserts that “Rangeline shut off the gas service to the warehouse . . . off

the leased premises” which supports applying Liberty Mut., the designated evidence

“showed that an issue of fact existed as to whether the gas had been shut off . . . prior to

the loss.” Id. at 5. The Appellants suggest that accordingly, “if the issue of whether the

gas service was turned off was determinative . . . summary judgment must be denied to

all parties.” Id. The Appellants maintain that Erie’s contention that Rangeline had a non-

delegable duty to maintain the sprinkler system is erroneous and that Indiana case law

holds that such a duty can be delegated. The Appellants also distinguish the case of

Northbrook Ins. Co. v. Am. States Ins. Co., 495 N.W.2d 450 (Minn. Ct. App. 1993),

discussed in Liberty Mut., noting that the court framed the issue “as whether a given

16
liability arises out of a hazard associated with a named insured’s business” and “the

insulation that was damaged was precisely Hammons’ business.” Id. at 8. With respect

to how to interpret the A/I Endorsement, the Appellants suggest that “[a] narrow

construction makes more sense when the loss does not occur on the premises leased to

the tenant, but occurs in some area close to the leased premises . . . .” Id. at 9. The

Appellants lastly note that to the extent Erie suggests in its brief that Rangeline will be

covered by Selective regarding any subrogation payments it makes to Erie, Selective’s

policy has not been designated as evidence and “[t]his Court should not assume without

an examination of the Selective policy that Rangeline will have insurance coverage with

Selective . . . .”5 Id. at 10-11.

We begin by discussing this Court’s decision in Liberty Mut. As alluded to in the

parties’ arguments, in Liberty Mut. Linda Swann, who worked for Trilithic, Inc.

(“Trilithic”), slipped and fell on a snow- and ice-covered pathway while walking from the

employee parking lot to the Trilithic facility. 891 N.E.2d at 100. Trilithic was a tenant of

Duke Realty Corporation (“Duke”). Id. Liberty Mutual Insurance Company (“Liberty

Mutual”) insured and was the subrogee of Duke, and Michigan Mutual Insurance

Company (“Michigan Mutual”) insured Trilithic under a commercial general liability

policy. Id. Duke was named insured on an additional insured endorsement to the

Michigan Mutual policy “for no additional premium,” in which the endorsement

contained language identical to the A/I Endorsement of the instant case. Id. Swann and

5
The Appellants note specifically that had the Selective policy been designated as evidence by
Erie, “Rangeline could have argued to the Trial Court that Selective’s policy also contains an exclusion
for coverage for damage to personal property owned by others that is within Rangeline’s control at the
time of the loss.” Appellants’ Reply Brief at 10.
17
her husband filed a personal injury action against Duke in February 2002, Duke tendered

the defense of the action to Michigan Mutual pursuant to the additional insured

endorsement, and Michigan Mutual declined to defend or indemnify Duke against the

Swanns’ claims. Id. Duke filed a complaint for declaratory judgment with the trial court

in which it sought a declaration that the insurance policy issued by Michigan Mutual

provided coverage to Duke for the injury claims asserted by the Swanns, and Michigan

Mutual filed an answer and counterclaim for declaratory judgment, claiming the policy

did not provide coverage to Duke for the Swanns’ claims. Id. at 101.

The parties subsequently filed cross-motions for summary judgment, and

Michigan Mutual requested that Liberty Mutual be substituted for Duke as the real party

in interest. Id. At the hearing on the motions for summary judgment, Duke’s counsel

acknowledged that Liberty Mutual, as subrogee of Duke, was the real party in interest.

Id. The trial court substituted Liberty Mutual in place of Duke as the plaintiff in the

declaratory judgment action. Id. On June 25, 2007, the court denied Liberty Mutual’s

motion for summary judgment and granted Michigan Mutual’s cross-motion for summary

judgment, declaring that Michigan Mutual had no obligation to defend or indemnify

Duke against the Swanns’ claims. Id.

On appeal, in addressing whether Michigan Mutual owed Duke a duty to defend

and indemnify, we began by noting that “[a]lthough a liability insurer’s duty to defend its

insured against suit is broader than its duty to indemnify, this principle only applies when

the risk is insured against” and that “‘[w]here an insurer’s independent investigation of

the facts underlying a complaint against its insured reveals a claim is patently outside of

18
the risk covered by the policy, the insurer may properly refuse to defend.’” Id. at 102-

103 (quoting Freidline v. Shelby Ins. Co., 774 N.E.2d 37, 42 n.6 (Ind. 2002)). The Court

recited Liberty Mutual’s argument that it interpret the additional insured endorsement

broadly, noting Liberty Mutual’s argument that “although the fall occurred outside the

leased premises and as a result of Duke’s negligence, liability for Swann’s fall arose out

of the use of that part of the premises leased to Trilithic” because she was injured “as she

was reporting to work on the leased premises while using the only route to the only door

into the premises which she was permitted to use by Trilithic.” Id. at 103.

Liberty Mutual directed the Court’s attention to Md. Cas. Co. v. Chicago & N.W.

Transp. Co., 466 N.E.2d 1091 (Ill. App. Ct. 1984), in which the Illinois Court of Appeals

held that the lessee’s general liability insurance covered the additional insured lessor

against claims asserted by the lessee’s employee when she was raped in the lessor’s

passenger terminal as she reported to work at a news stand leased to her employer. Id.

The Illinois court observed that the situation, in which an employee of the named insured

suffered injury caused by the alleged negligence of an additional insured under a liability

policy “immediately outside the leased premises as she was about to begin her daily

employment,” favored

construing the policy liberally in favor of the insured—a procedure
necessitated by the ambiguity of the “arising out of” language—the instant
injuries appear to have arisen from the operation and use of the leased
premises, since they would not have been sustained “but for” the victim’s
employment on those premises. She was about to commence her
employer’s operation when she was assaulted.

Id. (quoting Md. Cas. Co., 466 N.E.2d at 1094-1095).

19
 We proceeded to observe that “[s]everal cases from other jurisdictions, however,

have rejected such a broad interpretation of additional insured endorsements such as the

one in the instant case” and included the following citation:

Hilton Hotels Corp. v. Employers Ins. of Wausau, 629 So.2d 1064, 1065
(Fla. Dist. Ct. App. 1994) (“isolated connection insufficient to bring this
accident within coverage of the policy” where lessee’s employee’s fall did
not occur on leased premises, but rather in lessor’s lobby, and “[t]he only
way that this accident was even remotely related to the gift shop, was due
to the pure coincidence that the injured party was a [gift shop] employee on
her way to work”); Northbrook Ins. Co. v. American States Ins. Co., 495
N.W.2d 450 (Minn. Ct. App. 1993) (no coverage for landlord under
tenant’s general liability insurance policy with similar additional insured
provision where tenant’s employee fell on ice in alley behind leased
premises, an area under the control of landlord); United States Fid. & Guar.
v. Drazic, 877 S.W.2d 140 (Mo. Ct. App. 1994) (no coverage where
employee of tenant fell in parking lot of landlord’s commercial building).

Id. at 104. This Court held that it agreed “with these cases that more than an incidental

connection with the leased premises is required to obtain coverage under an additional

insured endorsement.” We went on to state that “[o]ne of the primary functions of an

additional insured endorsement in the landlord-tenant context is to protect the landlord

from vicarious liability for acts of its tenant on the leased premises,” and that “[t]he

additional insured endorsements in these settings are meant to provide specialized

protection rather than all-encompassing coverage.” Id. We found the Northbrook Ins.

Co. case to be “particularly instructive,” and discussed the case as follows:

[W]hile loading a truck, an employee of the lessee bakery slipped and fell
on ice in the alley behind the shopping center in which the bakery was
located. The employee subsequently sued the landlord, Fine Properties,
alleging failure to maintain the alleyway. Like in the instant case, the
landlord was an additional insured on the lessee’s general liability
insurance policy with respect to liability arising out of the ownership,

20
 maintenance, or use of the leased premises. Concluding that the policy did
not provide coverage for the landlord, the court explained:

The question whether coverage is afforded for a particular
claim depends on whether liability arises out of a hazard
associated with the named insured’s business. Fine Properties
is entitled to coverage only if the claimed liability is based on
a hazard associated with the bakery’s business.

The American States policy described the premises
insured as the 3,200 square feet the bakery occupied in the
Texa-Tonka Shopping Center. The premium charged was
based on insuring the bakery, not the common areas of the
shopping center. The additional insured endorsement under
which Fine Properties was added as an insured specified it
provided coverage, only with respect to liability arising out of
the ownership, maintenance or use of the insured premises,
i.e., the bakery. By its terms, the endorsement provides
coverage for Fine Properties’ negligence in the bakery.
Coverage is not provided for the rest of the Texa-Tonka
Shopping Center.

The lease agreement between Fine Properties and the
bakery required Fine Properties to maintain the alley. Failure
to maintain the alley is a claim unrelated to the business of
the bakery, and the American States policy therefore does not
cover such a claim against Fine Properties.

Id. at 104-105 (quoting Northbrook Ins. Co., 495 N.W.2d at 453).

This Court held that Michigan Mutual did not owe a duty to defend or indemnify

Duke. Id. at 105. We observed that as in Northbrook Ins. Co., Swann’s fall occurred “in

a common area outside of the leased premises and under Duke’s control.” We further

noted that “there was no physical connection between the accident and the leased

premises or Trilithic’s business operations thereon,” and that “[t]here is no allegation that

the ice and snow on which Swann slipped originated on the leased premises, was caused

by the leased premises, was connected to work done on the leased premises, or had any

21
other significant connection with the leased premises,” which we found to be similar to

the Hilton Hotels case. Id. (citing Hilton Hotels, 629 So.2d at 1065 (“accident was not a

result of any physical condition which emanated from the premises, such as flowing

liquid, an escaped animal, or a runaway vehicle”)). We deemed the fact that Swann was

on her way to work when she fell as an “‘isolated connection’ insufficient to bring the

accident within the coverage of the policy under the additional insured endorsement.” Id.

(quoting Hilton Hotels, 629 So.2d at 1065).

More recently, this Court again addressed additional insured endorsements in

Peabody Energy Corp. v. Roark, 973 N.E.2d 636 (Ind. Ct. App. 2012), aff’d on reh’g,

978 N.E.2d 503 (Ind. Ct. App. 2012), trans. denied. In Peabody, an employee of

Beelman, who provided trucking services to Peabody Energy Corporation (“Peabody”),

the owner of a site where mining operations were conducted, was injured when the

“ground gave away” while he was standing near his truck to deliver a load of ash from a

power plant to the mine. 973 N.E.2d at 637-638. Peabody was listed as an additional

insured on Beelman’s commercial general liability insurance policy provided by North

American Capacity Insurance Company (“NAC”) pursuant to their Master Performance

Agreement (“MPA”), in which the endorsement stated as follows: “WHO IS AN

INSURED (Section II) is amended to include as an insured the person or organization

shown in the Schedule as an insured but only with respect to liability arising out of your

operations or premises owned by or rented to you.” Id. at 638 (emphasis omitted).

Roark, the employee, filed a complaint against Peabody alleging negligence, Peabody

demanded coverage from NAC, and NAC rejected Peabody’s demand, concluding that

22
“Roark’s claim did not arise ‘from Beelman’s work’ . . . .” Id. at 639. Peabody filed a

third-party complaint requesting indemnification from Beelman and seeking a declaratory

judgment regarding NAC’s duty to defend, and Peabody subsequently filed a motion for

partial summary judgment against NAC. Id. NAC and Beelman both filed motions for

summary judgment against Peabody, and following a hearing the court entered final

judgment in favor of Beelman and NAC and against Peabody. Id.

On appeal, this Court discussed Liberty Mut. and noted that there we applied a

narrow interpretation of the “arise out” language of the additional insured endorsement.

Id. at 640-641. The Peabody court summarized the holding of Liberty Mut. as follows:

[W]e considered that the accident occurred in a common area outside of the
leased premises and under Duke’s control, that there was no physical
connection between the accident and the leased premises or Trilithic’s
business operations thereon, and that there was no allegation that the ice
and snow on which Swann slipped was caused by the leased premises, was
connected to work done on the leased premises, or had any other significant
connection with the leased premises. We observed that the accident arose
out of Duke’s own failure to maintain the pathway from the parking lot to
the employee entrance and that “[t]he only way Swann’s fall was even
remotely related to the leased premises was due to the fact Swann was on
her way to work.” We deemed this “isolated connection” to be insufficient
to bring the accident within the coverage of the policy under the additional
insured endorsement and held that Michigan Mutual had no duty to defend
or indemnify Duke.

Id. at 641. In a footnote, the Peabody court observed that in rejecting a “broad

interpretation” of the provision and requiring “that more than an incidental connection

with the leased premises is required to obtain coverage under an additional insured

endorsement,” id. at 641 (quoting Liberty Mut., 891 N.E.2d at 104), the Liberty Mut.

court did not reference the Elkins case (also referenced by the Appellants in their brief)

23
which observed in the year 2000 that although it could not locate Indiana case law

discussing “‘additional insured’ provisions . . . the majority of courts to have considered

the issue construe such provisions . . . broadly, encompassing coverage to extend to

liability beyond merely the additional insured’s vicarious liability for the actions of the

named insured.” Id. at 641 n.3 (quoting Elkins, 2000 WL 724006 at *2). This Court

went on to state that “[e]ven if” it agreed with Liberty Mut. that the additional insured

endorsement should be interpreted narrowly rather than broadly, the facts and language

of the endorsements in the two cases were distinguishable. Id. at 641.

The Peabody Court first noted that, under the applicable endorsement language,

“[a]t issue here is whether the liability arises ‘out of [Beelman’s] operations,’ not whether

the liability arises out of ‘ownership, maintenance or use of’ a leased premises,” and that

“although Liberty Mutual’s focus on the ‘connection with the leased premises’ may be

appropriate in the landlord-tenant context, [it] is of limited application here.” Id. (quoting

Liberty Mut., 891 N.E.2d at 104). The Court stated that “NAC’s suggestion that

Peabody’s potential liability arises out of Peabody’s own alleged negligence in

maintaining its own property misses the mark because it does not resolve the question of

whether Peabody’s potential liability arises out of Beelman’s operations.” Id. at 642.

The Court further observed that Liberty Mut. was also factually distinguishable in that

“Roark was not on Peabody’s property as a means to an end—to get to work—as

[Swann] was. Instead, Roark was at Peabody’s mine as part of his employment as a truck

driver for Beelman.” Id. The Court held that “[r]egardless of whether Roark was injured

because of Peabody’s sole negligence, the designated evidence shows that Roark’s

24
injuries—the basis of Peabody’s potential liability—arose out of Beelman’s operations,”

that further, “[u]nlike in Liberty Mutual, the connection between Roark’s presence at the

mine and his injuries was not ‘incidental’ or ‘isolated;’ instead, Roark’s injuries were

directly related to his work as a truck driver for Beelman,” and that accordingly Peabody

was an additional insured under the policy for the purposes of Roark’s complaint. Id.

Based on this Court’s previous statements in Peabody and Liberty Mut., we find

Rangeline to be an additional insured under Erie’s Policy in the Underlying Litigation.

As noted above, the A/I Endorsement contains language identical to the language of the

endorsement in Liberty Mut. and states that: “WHO IS AN INSURED (Section II) is

amended to include as an insured the person or organization shown in the Schedule but

only with respect to liability arising out of the ownership, maintenance or use of that part

of the premises leased to you and shown in the Schedule . . . .” Appellants’ Appendix at

123. Unlike in Liberty Mut., however, the failure of the sprinkler system, which caused

the damage to the Knauf insulation, occurred within the warehouse. Also, the placement

of the insulation within the warehouse for storage was precisely the business of

Hammons, the tenant who was the named insured on the Policy. Thus, there is a

significant, rather than isolated, connection between the accident and the leased premises.

Also, just as it was undisputed in Peabody that Roark’s injuries arose out of

Beelman’s operations under the applicable additional insured endorsement, here it is

undisputed that the damage to Knauf’s insulation arose out of Hammons’ use of the

warehouse, which is within the scope of the A/I Endorsement. And just as Beelman’s

argument regarding negligence on the part of Peabody “miss[ed] the mark” because it did

25
not resolve the question of whether Peabody’s potential liability arose out of Beelman’s

operations, Erie’s argument similarly fails because it does not address whether

Rangeline’s potential liability arose out of Hammons’s “ownership, maintenance or use

of that part of the premises leased . . . .” To the extent Erie suggests that the sprinkler

system is not “part of the premises leased,” we decline its suggestion to construe the

provision so narrowly as to find that the sprinkler system was not part of the leased

premises.6

B. Care, Custody, or Control Exclusion

As noted in the facts section, the Policy contained the following exclusion (the

“Care Exclusion”):

6
We note that the dissent would find that although “there is a significant connection between the
accident and the leased premises . . . there is no connection between the accident and Hammons” because
“Rangeline retained control over and responsibility for the sprinkler system . . . .” Slip op. at 38. We
believe such a rule to be too narrowly focused, even by the standard set forth in Liberty Mut. Again, in
that case this Court found “particularly instructive” the Northbrook Ins. Co. case, which framed the issue
as “whether coverage is afforded for a particular claim depends on whether liability arises out of a hazard
associated with the named insured’s business.” 891 N.E.2d at 104-105 (quoting Northbrook Ins. Co., 495
N.W.2d at 453) (emphasis added). Hammons’ business was storing Knauf’s insulation. It is a hazard of
storing goods in a warehouse facility that such warehoused goods might become damaged by water, fire,
pests, etc. Further, we disagree with the dissent’s focus on a connection (or lack thereof) between the
accident and the conduct of Hammons and note that the rule of Liberty Mut. focused on the accident’s
connection to the leased premises when this Court specifically stated that there was no duty to defend or
indemnify Duke on the part of Michigan Mutual because “there was no physical connection between the
accident and the leased premises or Trilithic’s business operations thereon” and observed that there was
“no allegation that the ice and snow on which Swann slipped originated on the leased premises, was
caused by the leased premises, was connected to work done on the leased premises, or had any other
significant connection with the leased premises.” Id. at 105 (emphasis added). By the language of the
A/I Endorsement, which provides specifically that “WHO IS AN INSURED (Section II) is amended to
include as an insured the person or organization shown in the Schedule but only with respect to liability
arising out of the ownership, maintenance or use of that part of the premises leased to you and shown in
the Schedule,” the focus of the inquiry is on the accident’s connection to the leased premises. Appellants’
Appendix at 123 (emphases added).

Finally, as noted above we reject the notion that the sprinkler system was not a part of the
premises leased by Hammons. Hammons leased the warehouse, which made up the leased premises, and
we see no basis for the assertion that the sprinkler system, located within such leased premises, was
excluded from the scope of the A/I Endorsement.
26
 This insurance does not apply to: . . .

j. Damage To Property

“Property damage” to: . . .

4) Personal property in the care, custody or control of
the insured; . . .

Id. at 108, 110-111.

The Appellants argue that the plain language of the Care Exclusion does not apply

because Erie concedes that Hammons had custody of the damaged personal property, the

insulation. The Appellants assert that Erie made a two-pronged argument to the trial

court that the exclusion applied – first, that Rangeline had a non-delegable duty to

maintain the sprinkler system so the instrumentality causing the loss was within

Rangeline’s control, and second, that Rangeline exercised dual control over the insulation

“so the exclusion still applied in spite of Hammon’s [sic] custody of the insulation.”

Appellants’ Brief at 20. The Appellants argue regarding Rangeline’s alleged duty to

maintain the sprinkler system that the Care Exclusion “says nothing about excluding

coverage for personal property that is not within a party’s control but which is damaged

by a fixture . . . in the building that is within a party’s control.” Id. at 21. The Appellants

contend that Erie conceded that Hammons had custody of the insulation, that the

separation of insureds provision noted in the facts section above applies in which “Erie

must apply th[e Care Exclusion] as if Rangeline were the only insured,” and “there is no

question that Rangeline did not have custody of the insulation.” Id. To the extent Erie

asserted below that Rangeline maintained dual control over the insulation, the Appellants

27
argue that the out-of-state cases relied upon by Erie are factually distinguishable and their

rationale should not be applied under the present facts. The Appellants maintain that they

have not found “any Indiana decision which has applied a concept of dual control when

interpreting a ‘care, custody’ insurance exclusion” and that this Court should apply the

rule in Am. Fam. Mut. Ins. Co. v. Bentley, 170 Ind. App. 321, 352 N.E.2d 860 (1976),

which held under similar facts that certain equipment contained in a building “was not

within the building owner’s custody.” Id. at 25.

Erie “does not dispute that . . . Hammons exercised care, custody and/or control

over the Knauf insulation,” but “it is undisputed that [] Rangeline also exercised ‘control’

over the Knauf insulation as that term is defined” recently by the Indiana Supreme Court

in Holiday Hospitality Franchising. Appellee’s Brief at 20. Specifically, Erie argues that

Rangeline had a non-delegable duty to maintain the sprinkler system, that Rangeline

controlled the sprinkler system, that the failure of the sprinkler system was the proximate

cause of the loss, and that “[t]hus, Hammons and [] Rangeline exercised joint ‘control’ or

‘power of influence’ over the Knauf insulation . . . .” Id. at 21. Erie also acknowledges

that the Appellants’ argument regarding the separation of insureds provision in the Policy

applies for the purpose of the Care Exclusion.

Also, Allianz, who is Knauf’s insurer and who filed an appellee’s brief as an

interested party, argues that “Erie’s arguments fail because case law clearly establishes

that the party in possession of stored personal property is the party with the care, custody,

and control, not the owner of the storage building.” Allianz’s Brief at 4. Allianz argues

that the “argument that warehouse maintenance amounted to care, custody, and control of

28
the stored property . . . ‘confuse[s] responsibility for the premises with responsibility for

property stored on the premises,’” and that “[o]nly a bailee, not a lessor, assumes this . . .

responsibility.” Id. at 5 (quoting Marine Indem. Ins. Co. of Am. v. Lockwood

Warehouse & Storage, 115 F.3d 282, 288 (5th Cir. 1997), reh’g denied, cert. denied, 522

U.S. 967, 118 S. Ct. 414 (1997)). Allianz argues that both Lockwood and Bentley

“demonstrate that there is no joint control of stored property between a party that merely

maintains a warehouse and the party that possesses the stored property.” Id. at 6. Allianz

also maintains that the cases cited by Erie below and on appeal are distinguishable and

unpersuasive.

We turn first to Bentley, in which this Court affirmed the trial court in a

declaratory judgment action ruling in favor of defendant owner Bentley. 170 Ind. App. at

323, 352 N.E.2d at 861. In Bentley, a Boy Scout Troop rented a portion of a “storage

place and garage” located on Bentley’s property “for storage of a trailer, three aluminum

canoes and other camping equipment.” Id. at 323, 352 N.E.2d at 861. Bentley informed

the Troop that his insurance policy with American Family Mutual Insurance Company

(“American”) would not cover the Troop’s property, and the Troop purchased insurance

with the Indiana Insurance Company (“Indiana Insurance”). Id. at 323, 352 N.E.2d at

861. Bentley received compensation for the use of the building. Id. at 323, 352 N.E.2d

at 861. On June 10, 1970, the building was completely destroyed in a fire along with its

contents, and, after paying for the Troop’s loss, Indiana Insurance demanded

reimbursement from Bentley. Id. at 323, 352 N.E.2d at 862. Bentley notified American,

and American informed Bentley that the property in question was not covered by the

29
policy in part pursuant to the following exclusion: “This section does not apply: Under

any of the coverages, . . . j. to property damage to property used by, rented to or in the

care, custody or control of any insured or property as to which the insured for any

purpose is exercising physical control, . . .” Id. at 324, 352 N.E.2d at 862. American

sought a declaratory judgment against Bentley and Indiana Insurance “praying that the

rights of American and Bentley under an insurance policy sold Bentley by American be

fixed, determined and declared.” Id. at 323, 352 N.E.2d at 861. The trial court ruled in

part “[t]hat the property of [the Troop] was not in the care, custody or control of

defendant Bentley, nor did [Bentley] exercise physical control over said property,” and

“[t]hat [American’s] insurance policy does provide property damage coverage to the

defendant Bentley, and [American] is obligated by the terms of its policy to defend him

in the pending lawsuit filed by the defendant, Indiana Insurance Company . . . .” Id. at

327, 352 N.E.2d at 864.

On appeal, this Court addressed the question of whether the trial court erred in

ruling that the Troop’s property “was not in the care, custody or control of Bentley and

Bentley did not exercise physical control over said property.” Id. at 325, 352 N.E.2d at

862. American argued that the exclusion cited above “excludes from coverage any third

party property over which an insured has control, and further contend[ed] that the facts

adduced in evidence were that the insured did have physical control of the property of”

the Troop. Id. at 327, 352 N.E.2d at 864. Bentley argued that the exclusion did not apply

because he had no control over the Troop’s property “and specifically permitted them

access to their property at all times.” Id. at 327, 352 N.E.2d at 864. The Court agreed

30
with the trial court’s finding that Bentley did not have care, custody, or control of the

property and held that the exclusion did not apply. Id. at 328-329, 352 N.E.2d at 864-

865.

Additionally, we find the Lockwood case cited by Allianz instructive. In

Lockwood, a fire destroyed a warehouse owned by Grand Lockwood Partners Limited

Partnership and managed and leased by Lockwood Warehouse & Storage (“Lockwood”).

115 F.3d at 284. Lockwood maintained insurance coverage with Insurance Company of

America (“Marine Indemnity”) for certain property inside the warehouse, and numerous

owners of property stored inside the warehouse made claims against Marine Indemnity

for the value of their damaged property. Id. Marine Indemnity initiated an interpleader

action to resolve conflicting claims for the insurance proceeds, and the district court

determined the amount of insurance available to be $1,275,610 plus accrued interest. Id.

The court ordered Marine Indemnity to pay that amount to the court’s registry, and a

magistrate judge was appointed as special master to “recommend findings of facts and

conclusions of law on the issues of insurable interests, calculation of damages, and

priority of claims.” Id.

On appeal, two of the intervenor-defendants, Enterplast, Inc. (“Enterplast”) and H.

Muehlstein & Company (“Muehlstein”), objected to the district court’s order denying

them recovery from the interpleaded funds and sought review of the court’s interpretation

of the Marine Indemnity insurance policy. Id. at 284-285. Lockwood had subleased

space in the warehouse to Ultra Warehouse (“Ultra”) and Lance Cowan, doing business

as Shippers International (“Shippers”), who each stored, respectively, the property of

31
Muehlstein and Enterplast. Id. at 285. The district court found “given Enterplast’s and

Muehlstein’s bailment relationship with sublessees of Lockwood, the Marine Indemnity

policy provisions governing covered property barred the two entities from recovery.” Id.

The court observed the following:

The Marine Indemnity policy provided coverage of the following
property:

(A) Personal Property of the Insured pertaining to the conduct
of the Insured’s business.

(B) Personal Property of others which is directly connected
with the Insured’s business while in the care, custody or
control of the Insured, and for which the Insured is
responsible, or for which the Insured has agreed in writing
prior to loss to insure.

(C) Real Property of the Insured.

(D) To the extent of the Insured’s business interests only,
improvements and betterments to buildings occupied, but not
owned by the Insured.

The special master determined that the policy had three coverage
requirements with respect to the property belonging to those other than
Lockwood that was stored in the warehouse. First, the property must have
been “directly connected” with Lockwood’s business. Second, the property
must have been in the “care, custody, or control” of Lockwood. Third,
Lockwood must either have been “responsible” for the property or have had
agreed in writing, prior to the fire, to insure the property. In construing the
first requirement, the special master determined that the policy covered the
property of those who stored property directly with Lockwood, but did not
cover the property of those, including Enterplast and Muehlstein, who
stored property with a sublessee of Lockwood. Because Enterplast and
Muehlstein did not enter into an agreement with Lockwood for the storage
of property, the court adjudged that neither entity could establish that it had
a direct relationship or involvement with Lockwood, and thus also
concluded that their property could not be found to have been “directly
connected” with Lockwood’s business.

32
Id. The special master also found under the third requirement that Enterplast and

Muehlstein were barred from recovery in that they failed to establish that Lockwood was

“responsible” for their property. Id. at 285-286. The special master further found that

Ultra’s and Shippers’ leases with Lockwood “exonerated Lockwood and its insurers from

any damage claims for Ultra’s and Shippers’ property,” and that “based on these waiver

of liability provisions, Lockwood was not responsible for the goods of Ultra and Shippers

or the goods of their bailees, including Muehlstein and Enterplast.” Id. at 286.

Muehlstein and Enterplast argued that Lockwood was responsible for their

property under its insurance policy because Lockwood “maintained control over the

warehouse: that is, by directing and performing warehouse maintenance, repairs, security,

housekeeping, and fire protection, among other things, Lockwood thereby assumed

obligations and duties with regard to all property in the warehouse,” and that Lockwood’s

“negligent performance of these duties . . . rendered it, as landlord, liable, and hence

responsible, for the destruction to their property.” Id. at 287-288. The Fifth Circuit

Court agreed with the district court that Lockwood was not responsible under the

insurance policy, specifically the district court’s findings that “the sublease agreement

between Ultra and Lockwood, and also that between Shippers and Lockwood, established

a lessor-lessee relationship. Consequently, the court found that . . . Lockwood was not

responsible for the property of Ultra or Shippers, or the property of their bailors,

Muehlstein and Enterplast.” Id. at 286, 288. The court, applying Texas law regarding

landlord-tenant and bailment relationships, noted that

33
 responsibility for goods is dependent on the existence of a bailor-bailee
relationship. A bailee, in contrast to a lessor, assumes a duty of care with
regard to both the premises and the goods in its possession. As a lessor,
Lockwood had a duty to exercise care respecting the portions of the
warehouse it controlled, but did not have a general duty to exercise care as
to the sublessees’ property stored on the premises or care with relation to
the property of the sublessees’ bailors. Thus, as lessor, Lockwood was not
responsible for the property of the Muehlstein and Enterplast.

Id. (footnote omitted).7

Here, we first note that Indiana law regarding landlord-tenant and bailment

relationships are sufficiently similar to the provisions of Texas law cited by the court in

Lockwood, and we accordingly find Lockwood to be persuasive authority in determining

whether Rangeline controlled the Knauf insulation. See Pitman v. Pitman, 717 N.E.2d

627, 631 (Ind. Ct. App. 1999) (noting that “[a] bailment is an agreement, either express or

implied, that one person will entrust personal property to another for a specific purpose

and that when the purpose is accomplished the bailee will return the property to the

bailor” and that “[t]he standard of care required of a bailee is determined by the benefit

each party derives from the bailment”); see also Houin v. Burger by Burger, 590 N.E.2d

593, 597 (Ind. Ct. App. 1992) (noting that “[i]n the absence of statute, covenant, fraud or

concealment, a landlord who gives a tenant full control and possession of leased property

7
The Court summarized the relevant Texas law as follows:

Under Texas law, a bailment is a delivery of goods to another which creates a duty of
trust on the part of the bailee to return the deposited goods as directed. A bailee has the
duty to exercise ordinary care over the goods and is therefore “responsible” for the
bailor’s goods. In contrast, a lease is “a transfer of interest in and possession of property
for a prescribed period of time in exchange for an agreed consideration called ‘rent.’”
The lessor has the duty of ordinary care in maintaining the premises it controls, but does
not have a duty to exercise care regarding the lessee’s property stored on the premises.
The lessor is therefore not “responsible” for the property of the lessee.

Lockwood, 115 F.3d at 286 (internal citations omitted).
34
will not be liable for personal injuries sustained by the tenant and other persons lawfully

upon the leased property”).

This court specifically ruled in Bentley that an exclusion similar to the instant

Care Exclusion did not apply to circumstances in which the building owner had no

physical control over the destroyed property. Also, as in Lockwood, we find that simply

because Rangeline allegedly had a duty to maintain certain aspects of the premises

including the sprinkler system, this duty does not include a duty of care with respect to

the property stored on the premises which was governed by the contract for storage

between Hammons and Knauf. Indeed, to the extent that Erie cites Holiday Hospitality

Franchising for the proposition that Rangeline exercised “control” over the insulation, we

observe that that the Indiana Supreme Court in that case, citing to Webster’s Dictionary,

defined control as “[t]o exercise authority or influence over” or “[t]o hold in restraint,”

983 N.E.2d at 579 (quoting WEBSTER’S II NEW COLLEGE DICTIONARY 246 (1995)), and

further noted the Black’s Law Dictionary definition as “[t]o exercise power or influence

over.” Id. (quoting BLACK’S LAW DICTIONARY 378 (9th ed. 2009)). Our review of the

facts and relevant case law does not reveal that Rangeline exercised influence over the

insulation located in the warehouse leased by Hammons. It was Hammons, and not

Rangeline, who entered into a contractual relationship with Knauf and who was a bailee

in favor of Knauf and assumed such a duty of care. We therefore conclude that

35
Rangeline did not exercise “joint control” over the Knauf insulation, and that accordingly

the Care Exclusion does not preclude coverage in favor of Rangeline.8

CONCLUSION

For the foregoing reasons, we reverse the trial court’s grant of summary judgment

in favor of Erie and denial of the Appellants’ motion for partial summary judgment, and

we remand for further proceedings consistent with this opinion.

Reversed and remanded.

BARNES, J., concurs.

ROBB, J., dissents with opinion.

8
We observe that the cases cited by Erie are distinguishable from the facts present here. First, in
Cashmere Pioneer Growers, Inc. v. Uniguard Sec. Co., 891 P.2d 732 (Wash Ct. App. 1995), rev. denied,
Cashmere Pioneer Growers, Inc. (“Cashmere”), the storage facility at issue, was running a “controlled
atmosphere” storage business in which their facility froze the stored produce. 891 P.2d at 733. Thus, the
relationship between Cashmere and Taplett Fruit Picking, Inc. is properly understood to be one of
bailment rather than a lessor-lessee relationship. Second, in Liberty Mut. Ins. Co. v. Zurich Ins. Co., 930
N.E.2d 573 (Ill. App. Ct. 2010), Liberty Mutual insured a hotel in which certain guest property was stolen
from a wall safe located in their hotel room. 930 N.E.2d at 575. The parties asked the court to construe a
“care, custody or control” exclusion similar to the Care Exclusion in this case, and the court ruled that the
property was excluded. Id. at 578. In doing so, the court reasoned that “[a]s an innkeeper, [the hotel] had
a duty to safeguard the property of its guests,” that “[t]he innkeeper has duties similar to those involved in
a bailment with respect to property brought onto the innkeeper’s premises,” and that “the innkeeper has
custody of the property of its guests, and, in the course of its work, it assumes a duty to protect that
property.” Id. at 577. Finally, Stewart Warner Corp. v. Burns Int’l Sec. Servs., Inc., 527 F.2d 1025 (7th
Cir. 1975), involved a security company hiring a watchman to guard a warehouse, and the watchman
intentionally set fire to the warehouse causing damage to certain stored goods. 527 F.2d at 1027. The
owner of the goods sought recovery from the security company’s insurer in which the policy contained a
care, custody, and control exclusion. Id. The court held that “the core of [the security company’s]
workmanship is to provide a trustworthy and capable watchman to care for the premises and their
contents. If the ‘care, custody or control’ exclusion does not apply to such contents, the general liability
insurer would bear the burden of guaranteeing such workmanship.” Id. at 1030.
36
 IN THE
COURT OF APPEALS OF INDIANA

SELECTIVE INSURANCE COMPANY )
OF SOUTH CAROLINA and )
500 RANGELINE ROAD, LLC, )
)
Appellants-Defendants, )
)
vs. ) No. 73A01-1307-PL-311
)
ERIE INSURANCE EXCHANGE, )
)
Appellee-Plaintiff, )
____________________________________)
)
WELCH & WILSON PROPERTIES, LLC )
d/b/a HAMMONS STORAGE, ALLIANZ )
GLOBAL RISKS U.S. INSURANCE )
COMPANY, )
)
Appellees-Defendants. )

ROBB, Judge, dissenting

Because I agree with the trial court that the A/I Endorsement of the Policy does

not provide coverage for Rangeline in the Underlying Litigation, I respectfully dissent

from the majority’s decision reversing the trial court.

Rangeline is an additional insured under the Policy “only with respect to liability

arising out of the ownership, maintenance or use of that part of the premises leased to

[Hammons] . . . .” Slip op. at 7. As noted in Liberty Mut. Ins. Co. v. Michigan Mut. Ins.

Co., 891 N.E.2d 99, 104 (Ind. Ct. App. 2008), which construed an identical provision,

additional insured endorsements in this context are “meant to provide specialized
37
protection rather than all-encompassing coverage.” The Policy, entered into between

Erie and Hammons, does not provide blanket coverage for Rangeline. “One of the

primary functions of an additional insured endorsement in the landlord-tenant context is

to protect the landlord from vicarious liability for acts of its tenant on the leased

premises.” Id. I agree with the majority that there is a significant connection between the

accident and the leased premises. See slip op. at 26. However, because there is no

connection between the accident and Hammons, extending coverage to Rangeline in this

circumstance would not serve the purpose of such coverage. As the trial court found,

Rangeline retained control over and responsibility for the sprinkler system; Hammons

had no duty with respect to the system. Under these circumstances, there could be no

expectation that the tenant’s insurance would cover the landlord who had the sole

responsibility for the instrument of the damage.

As the majority notes in footnote 6, the sprinkler system was physically a part of

the premises leased to Hammons. Whether Rangeline maintained responsibility for its

care and maintenance by the terms of the lease or simply by its actions, Hammons had

nothing to do with system. I therefore do not believe the inquiry can or should be

singularly focused on the connection between the accident and the leased premises

themselves. That the A/I Endorsement includes the arising out of the “ownership,

maintenance or use” language suggests to me that a consideration of which entity is

responsible for the failure on the leased premises causing or contributing to the loss is

reasonable and appropriate. Rangeline’s potential liability for a failure of the sprinkler

system did not arise out of Hammons’s maintenance or use of the premises; it arose out

38
of its own failures. It did not maintain the sprinkler system; it told Hammons it was

going to drain the sprinkler system but then did not do so; it did not apprise Hammons

that the sprinkler system had not been drained; and it did not tell Hammons that because

the sprinkler system had not been drained, the warehouse temperature needed to be

maintained above a certain degree. Not only did Hammons have no responsibility with

regard to the sprinkler system; it had no knowledge regarding it. There is no vicarious

liability here; Rangeline’s liability is its own.

Accordingly, I would affirm the trial court’s grant of partial summary judgment to

Erie and denial of partial summary judgment to Rangeline on this issue.9

9
Because I would hold the Policy does not cover Rangeline as an additional insured under the
circumstances presented, I would not reach the issue of whether the Care Exclusion applies, and I do not
address that portion of the majority opinion.
39