Gallant Insurance Co. v. Oswalt

SULLIVAN, Judge,

dissenting.

Because I dissent from the majority's holding reversing the summary judgment in favor of Oswalt in the proceedings supplemental, I do not reach the matter of Gallant's summary judgment motion in the declaratory judgment suit. If, however, I were to join the majority with regard to the proceedings supplemental, I would likewise agree that denial of Gallant's summary judgment motion was correct.

The nature of my dissent has multiple aspects. For this reason, I deem it appropriate to make somewhat extensive reference to the various communications and occurrences between Gallant and Chadwick.

The letter of April 7, 1997, from Gallant to Chadwick advised him he had breached Condition 3 of the policy by failing to "immediately forward ... the Summons and Complaint served upon you...." Appellant's App. at 116. The letter proceeded to state that, "K)f a judgment was entered against you due to your breach of this condition" certain adverse consequences might occur including Gallant not defending Chadwick and not paying any such judgment. Id. (emphasis supplied). This eventuality did not occur in that no judgment was entered as a result of the alleged breach. Therefore, the alleged breach of Condition 3 had no impact upon the preparation of a defense, nor did it otherwise prejudice the insurer. As a matter of fact, this letter advised that Gallant would "investigate ... and retain attorneys to defend you." Id.

The letter of April 28, 1998, from Gallant's attorney Wilk, was sent to the same address (Maple Grove Road, Marion, Ohio) and advised that Wilk had been retained by Gallant "to defend you." Appellant's App. at 117. The letter advised that it was necessary to meet with Chadwick for an interview concerning the accident. It stated that the policy required Chadwick to cooperate and that, "If you don't, you may end up losing your coverage and/or defeating my efforts to properly defend your interests." Id. It advised of a trial date setting for January 18-21, 1999. This letter was a warning advising of what might happen absent contact and cooperation. It demonstrates that nothing prior to that time could or would constitute such a breach as to cause no defense or no coverage.3

*1265To the extent that the letter of October 8, 1998, from Gallant to Chadwick constituted notice that Gallant was proceeding under a reservation of rights, it references Condition 5 of the policy and says that Gallant considers that condition as having been breached. However, none of the enumerated duties under Condition 5 could have been breached as of that time, with the possible exception of the duty to secure evidence upon Gallant's request.4 Yet, there is no indication of record that as of that time Gallant had requested Chadwick to secure evidence. Be that as it may, as of October 1998, there was still a full year before the actual trial date. Therefore, the presentation of the defense was not then jeopardized.5

As a matter of fact, on October 28, 1998, Chadwick did cooperate and help attorney Wilk complete interrogatories submitted by the plaintiff, Oswalt. Therefore, as of October 28, 1998, Chadwick was cooperating and no basis existed for Gallant to claim any breach of the cooperation clause sufficient to jeopardize Chadwick's defense or Gallant's Hability under the policy.

The crucial letter is that of September 16, 1999, in which new defense attorney Conover advised Chadwick of the trial date for October 12, 1999, and that Chadwick's appearance was required. It also noted that failure to cooperate by "failure to attend this trial could jeopardize any insurance you may have for this incident and result in a judgment being entered against you and for which you would be personally responsible." Appellant's App. at 124. It is again a warning of what might happen if Chadwick failed to appear at trial. It also told Chadwick to advise "any witnesses you may have" of the trial date and told him to visit the seene of the accident and to note location and operation of any traffic control devices and all other important details, such as lanes of traffic and approximate distances. Id. Again, it was an instruction of something Chadwick had to do before trial, not that he had done something in the past to jeopardize his coverage.

It is my view that the only breach of the terms and conditions of the policy, even arguably sufficient to warrant a denial of coverage, was Chadwick's failure to appear at trial and assist in his defense.6 Nothing which had occurred or had failed to occur prior to that time would justify a contention that settlement discussions or presentation of a defense had been compromised. Notwithstanding Gallant's letters to Chadwick containing language indicating a res*1266ervation of rights, there was from the outset, through to the date the trial began, a duty on the part of Gallant to defend and, until Chadwick failed to appear and assist in the defense, I believe Gallant was under a prospective obligation to pay any judgment up to the $25,000 policy limits. In this respect, I believe that the majority misreads the underlying rationale for this dissent. It is not that an insurer may not assert a reservation of rights without first proving prejudice. Rather, it is that there must have been an instance or instances of meaningful non-cooperation before the reservation of rights may be effectively asserted. An insurer may not seek to protect itself against lability by asserting a reservation of rights due to some prospective or fancied act of non-cooperation which has not yet occurred.

Although there was some justification, at least before October 28, 1998, for Gallant's concern that Chadwick might not fully cooperate, nothing Chadwick did or did not do prejudiced Gallant's ability or duty to defend; nor was there anything done which caused Gallant to advise Chadwick that coverage was being denied. To the contrary, all the communication to Chadwick was phrased in terms of "if" you do not cooperate, certain consequences might occur.

The phrasing of Gallant's communications to Chadwick and the conduct of defendant's counsel prior to the date of trial unmistakably indicate that, despite knowledge of arguable but technical non-cooperation on the part of Chadwick, Gallant was " 'continuing to act for the insured before the trial. ...'" Gallant Ins. Co. v. Wilkerson, 720 N.E.2d 1223, 1227 (Ind.Ct.App. 1999) (quoting 7A AmJur2d Automobile Insurance § 402, at 190-91). Such action constitutes a waiver of any non-cooperation defense which may have existed prior to trial. Id.7

Accordingly, I question whether the majority is correct in its conclusion that here, unlike in Illinois Founders Ins. Co. v. Horace Mann Ins. Co., 738 N.E.2d 705 (Ind.Ct.App.2000), Gallant proceeded under a valid reservation of rights. In this case, as contemplated by the general rule set forth in Wilkerson, " 'the insured failed to appear at the trial of the original action ... and ... the insurer conducted the defense of the insured in his or her absence?" 720 N.E.2d at 1228-1229 (quoting 7A AmJurZ2d supra, § 403, at 191).

The only relevant breach of the cooperation clause of the policy was Chadwick's failure to appear for trial. It was not until that occurrence that Gallant became aware of the arguable applicability of the noncooperation defense.

The majority takes what appear to me to be inconsistent positions. On the one hand, it is said that Gallant became aware of the defense of non-cooperation "by proceeding under a reservation of rights." Op. at 1259. Yet, on the other hand, the majority has concluded that not until filing of its answer to the proceedings supplemental on February 18, 2000, did Gallant have "its first true opportunity to claim Chadwick's non-cooperation (Le., his failure to appear at the trial in late 1999) as a defense to liability." Op. at 1261.

I agree with the latter stated position of the majority precisely because it was the *1267failure of Chadwick to appear on the trial date which triggered Gallant's non-cooperation assertion. In short, any so-called "reservation of rights" asserted in various correspondence between Gallant or the attorneys retained by Gallant and Chadwick is irrelevant to the matter before us.

I must further take issue with the majority opinion insofar as it appears to place a burden upon the plaintiff to make inquiry whether or not the insured is cooperating with his insurer. See Op. at 1262. The majority seems to place this duty upon the plaintiff "during discovery." Id. Yet, as earlier observed, the non-cooperation in question did not occur during discovery. It occurred at the commencement of the trial when Chadwick did not appear.

Furthermore, in this regard, the majority somehow transfers to the plaintiff the ability of the "insured's counsel" to inquire of the insurance company to determine cooperation or the lack thereof by the insured. The majority is concerned that counsel for the insured should not "change hats" in, on the one hand, vigorously defending the client, the insured, but then on the other hand, volunteering information potentially adverse to the client. Op. at 1262. Yet, the majority contemplates precisely that seenario in noting that if, during discovery, a plaintiff, such as Oswalt, wishes to inquire as to cooperation or noncooperation he may do so, and then counsel for the insured will ask that question of the insurance company and in turn, relay the information to plaintiff's attorney. I wholly fail to understand why volunteering information and responding to an inquiry from the plaintiff with the identical information solves concerns as to "ethical obligations." Op. at 1262. In my view, the majority places a wholly unrealistic and unnecessary burden upon plaintiffs. Plaintiff should not be required to contact the insurer on a daily basis to ask: "Is your insured still cooperating?"

As to pre-trial non-cooperation, it has been noted that ordinarily an insurer is not obligated to file a reservation of rights letter in the injury action. This approach is premised upon the idea that the reservation is a matter between the insurer and the insured arising out of the contract of insurance between the two. 14 Ls® E. Russ anp THomas F. Secara, Couck on InsurANCE, § 20244 (8d ed.1997). However, Couch also notes that some jurisdictions require the insurer to provide the injured party plaintiff with a copy of the reservation of rights letter.

In this state, at least one case, Motorists Mut. Ins. Co. v. Johnson, 139 Ind.App. 622, 218 N.E.2d 712 (1966), leads me to the conclusion that a plaintiff is entitled to notice of assertion by the insurer of a reservation of rights. In that case, the court noted that after receiving a judgment against the insured person, the plaintiff, in proceedings against the insurer to collect the judgment, "is in the legal shoes of the insured. If the insured has violated the policy requirements, the injured person would be precluded from recovery against the insurance company." Johnson, 218 N.E.2d at 715.

This proposition clearly reflects that a prospective claim by the insurer of no liability upon the policy will have an adverse effect upon the injured party plaintiff.8 Accordingly, it stands to reason that *1268the injured plaintiff is entitled to be put on notice that collection of any judgment which might be rendered in his favor has been jeopardized, at least to the extent of the policy limits. At a minimum, the injured plaintiff should be apprised if and when the insurer notifies the insured that the defense is proceeding under a reservation of rights.9

Even if there is opportunity during discovery for plaintiff to inquire as to cooperation or non-cooperation, I would certainly think it inappropriate to impose such a duty of inquiry after discovery has closed just on the chance that some unforeseen non-cooperation has occurred. Here, there was no non-cooperation problem during discovery. As earlier noted, Chadwick assisted in answering Oswalt's pre-trial interrogatories. Here, we need not decide whether counsel for the insured was required to raise the non-cooperation claim at or prior to trial, as was held in Horace Mann, supra, at least as such relates to incidents of non-cooperation occurring during investigation and discovery of plaintiffs claim.10 In the case before us, neither of the parties nor the trial court anticipated Chadwick's failure to appear at trial. In this set of cireumstances, I would submit that there was no duty for insurance counsel to advise Oswalt of the then obvious non-cooperation, nor of Oswalt to make inquiry of Gallant as to the same obvious fact.

To the extent that Horace Mann and Wilkerson require the insurance company to assert the non-cooperation defense at the first reasonable opportunity, I would apply those decisions to the case before us. Having waited from October 12, 1999, the first day of trial, until February 18, 2000, to present the issue, Gallant should now be estopped to assert that defense.

I would affirm the judgment of the trial court.

. The majority seems to place great emphasis upon a skip-trace conducted August 20, 1998, and concludes that the additional address shown, i.e. 9462 N. St. [Road] 3, Etna Green, Indiana was a "new" address. Op. at 1256. I would note, however, that the Etna Green address is shown as of February 1997, one month earlier than the time shown for the *1265Maple Grove Road address in Marion, Ohio. Furthermore, the skip-trace report shows the "current address" as Maple Grove Road, Marion, Ohio. Contrary to the conclusion reached by the majority, therefore, I must deduce that the Etna Green address was not a "new"" address as of the date of the report.

. The pertinent portion of Condition 5 reads as follows:

"Assistance and Cooperation of the Insured. The insured shall cooperate with the company and, upon the company's request, attend hearings and trials and assist in making settlements, securing and giving evidence, obtaining the attendance of witnesses in the conduct of any legal proceedings in connection with the subject matter of this insurance." Appellant's App. at 107.

. Under Indiana law, an insurer is not permitted to refuse to provide a defense or deny liability under the policy unless the non-cooperation of the insured has prejudiced the insurer. Miller v. Dilts, 463 N.E.2d 257 (Ind.1984); Motorists Mut. Ins. Co. v. Johnson, 139 Ind.App. 622, 218 N.E.2d 712 (1966), trans. denied.

. Not every failure to appear ai trial will be prejudicial to the insurer, e.g., where the insured's presence would only lead to testimony demonstrating his, and therefore insurer's liability. 8 Appleman, Insurance Law anp PracTice § 4773.

. Clearly, and as observed by the majority here, "an insurer's duty to defend is broader than its coverage for liability...." Op. at 1259. Nevertheless, this legal truism does not alter the principle drawn from Wilkerson and from Hermitage Ins. Co. v. Salts, 698 N.E.2d 856 (Ind.Ct.App.1998) (and cases cited therein), that an insurer who proceeds to defend with full knowledge of the facts may be es-topped from subsequently raising the defense of non-coverage.

. A rationale for notification to the plaintiff is found in Kitchen v. McCullough, 428 S.W.2d 907, 910 (Mo.Ct.App.1968), in which the plaintiff obtained a $4000 judgment in an automobile collision suit and then, as here, initiated garnishment against the insurer, when for the first time, the insurer asserted a policy defense. Although in that case the insurer had not defended under a reservation of rights, the court observed that the plaintiff *1268might have chosen to not go to "the expense of producing witnesses and attending the taking of depositions that might not have been necessary if garnishee had disclaimed Hability." Id. Of course, this presupposes that had the insurer done so before trial, plaintiff would have been notified of the reservation of rights.

. Perhaps, in order to avoid transmission of prejudicial information concerning the nature and extent of the non-cooperation giving rise to the reservation of rights, that information need not be conveyed to the plaintiff. It might be deemed sufficient if the plaintiff is merely notified of the fact of the reservation of rights letter to the insured.

. In Horace Mann, the defendant had failed to cooperate in several respects prior to the trial at which defendant failed to appear. Thus, the reservation of rights available to Horace Mann prior to the date of trial, was not available with respect to the non-cooperation in question before the trial date.