Court Opinion

ID: 9725132
Source: CourtListenerOpinion
Date Created: 2023-08-26 11:31:38.653698+00
Date Added: 2024-06-11T18:25:10.944919
License: Public Domain

SHARPNACK, J.
dissenting.
I respectfully dissent from the majority’s conclusion that Cain is not a third-party beneficiary of the Griffins’ insurance policy with Auto-Owners. Although the majority concludes that Cain is not a third-party beneficiary, it offers little rationale for that conclusion. I believe that an analysis of relevant cases indicates that Cain is a third-party beneficiary.
Third-party beneficiaries may directly enforce a contract in Indiana. Mogensen v. Martz, 441 N.E.2d 34, 35 (Ind.Ct.App.1982). A third-party beneficiary contract requires that: (1) the intent to benefit the third party be clear; (2) the contract impose a duty on one of the contracting parties in favor of the third party; and (3) the performance of the terms necessarily render to the third party a direct benefit intended by the parties to the contract. Id.
In arguing that she is a third-party beneficiary, Cain relies upon the Seventh Circuit’s opinion in Donald v. Liberty Mutual Ins. Co., 18 F.3d 474 (7th Cir.1994). There, the plaintiff, Donald, injured his arm on property owned by the University of Evansville. Id. at 476. The University was insured by Liberty Mutual, and the policy provided:
COVERAGE C. MEDICAL PAYMENTS
1. Insuring Agreement.
*45a. We will pay medical expenses as described below for “bodily injury” caused by an accident:
(1) On premises you own or rent;
(2) On ways next to premises you own or rent; or
(3) Because of your operations; provided that:
(1) The accident takes place in the “coverage territory” and during the policy period;
(2) The expenses are incurred and reported to us within one year of the date of the accident; and
(3) The injured person submits to examination, at our expense, by physicians of our choice as often as we reasonably require.
b. We will make these payments regardless of fault. These payments will not exceed the applicable limits of insurance. We will pay reasonable expenses for:
(1) First aid at the time of an accident;
.(2) Necessary medical, surgical, x-ray and dental services, including prosthetic devices; and
(3) Necessary ambulance, hospital, professional nursing and funeral services.
2. Exclusions.
We will not pay expenses for “bodily injury”:
a. To any insured.
b. To a person hired to do work for or on behalf of any insured or a tenant of any insured.
c. To a person injured on that part of premises you own or rent that the person normally occupies.
d. To a person, whether or not an employee of any insured, if benefits for the “bodily injury” are payable or must be proved under a workers ■compensation or disability benefits law or a similar law.
e. To a person injured while taking part in athletics.
f. Included within the “products-completed operations hazard.”
g. Excluded under Coverage A.
h. Due to war, whether or not declared, or any act or condition incident to war. War includes civil war, insurrection, rebellion or revolution.
Id. at 477-478. The “applicable limit of insurance” for Coverage C was $5,000. Id. at 478. Liberty Mutual refused to pay Donald, and Donald filed a claim against Liberty Mutual for breach of contract and breach of duty to deal in good faith. Id. at 476-477. Liberty Mutual filed a motion for summary judgment, and the district court held that Donald could not sue Liberty Mutual on its contract with the University and “that under Indiana law an insurer owes no duty of good faith dealings to claimants not privy to the contract between the insurer and the insured.” Id. at 478-479. Therefore, the district court held that Donald could not sue Liberty Mutual on the ground that it had not dealt with his claim in good faith. Id. at 479.
The Seventh Circuit disagreed. The court noted that Indiana is not a “direct action” state and, thus, an injured person cannot sue the tortfeasor’s insurance company directly. Id. at 480. However, “[t]he concept of direct action against an insurer applies when an injured .party seeks to sue the insurer directly to recover sums for which the insured would otherwise be liable in tort.” Id. The court noted that Coverage C explicitly provides that medical payment benefits will be made' “regardless of fault” and held:
Coverage C is not limited to damages in the way of medical payments incurred *46by the injured person on account of a tort committed by the insured; if Donald is entitled to medical payment benefits under Coverage C, it is not due to any liability on the part of the University. Hence Indiana’s position on direct action is irrelevant to whether Donald can sue Liberty Mutual directly to recover the medical payment benefits.
* * * * *
Donald’s right to sue Liberty Mutual rests, not on whether Indiana has authorized direct actions against a tortfea-sor’s insurer, but rather on whether he is a third party beneficiary of the contract providing for medical payment benefits.
Id. at 480-481 (footnote omitted). The Seventh Circuit concluded that “[t]he weight of authority suggests that medical payment provisions regarding injured third parties are third party beneficiary contracts” and determined that it had “no reason to believe that Indiana would not follow this line of authority.” Id. at 481. In fact, the court noted that one Indiana court had come close to this position. Id. (citing Snow v. Bayne, 449 N.E.2d 296 (Ind.Ct.App.1983), reh’g denied, and stating that “the court, applying Indiana law, allowed injured third parties to sue the insured’s insurer directly, as third party beneficiaries under a no-fault automobile insurance policy, to recover ‘personal protection insurance benefits’ ”). Therefore, the Seventh Circuit held “that Donald is not barred by Indiana’s position on direct actions from bringing suit, in Count Two of his Complaint, directly against Liberty Mutual to recover the medical payment benefits provided by Coverage C” and “further that Donald is a third party beneficiary of the contract between the University and Liberty Mutual and 'that he is therefore entitled to sue Liberty Mutual on its contract with the University.” Id.
Next, in considering Donald’s bad faith claim, the court conceded that “[i]t is true that in Indiana an injured third party cannot sue the tortfeasor’s insurer for handling his claim in bad faith.” Id. at 482. However, because Donald was not claiming the medical payment benefits on account of any liability of the University but rather as a third party beneficiary of the medical payment provision, Liberty Mutual did owe him a duty of good faith dealing. Id. Thus, Donald could sue Liberty Mutual for bad faith. Id. Ultimately, the Seventh Circuit granted summary judgment to Donald on his breach of contract claim. Id. at 483. On the bad faith claim, the court determined that summary judgment for either party was inappropriate because genuine issues of material fact existed. Id. at 484.
While I recognize that the Seventh Circuit’s decision in Donald is not binding authority, I find its analysis persuasive in this case. See Chaffin v. Nicosia, 261 Ind. 698, 703, 310 N.E.2d 867, 870 (1974) (holding that federal cases interpreting Indiana law are persuasive authority but do not control on questions of Indiana law), superseded on other grounds. As in Donald, here, the Griffins’ policy with Auto-Owners provides:
COVERAGE C. MEDICAL PAYMENTS
1. Insuring Agreement
a. We will pay medical expenses as described below for “bodily injury” caused by an accident:
(1) On premises you own or rent.
(2) On ways next to premises you own or rent; or
(3) Because of your operations;
provided that:
*47(1) The accident takes place in the “coverage territory” and during the policy period;
(2) The expenses are incurred and reported to us within one year of the date of the accident; and
(3) The injured person submits to examination, at our expense, by physicians of our choice as often as we reasonably require.
b.We will make these payments regardless of fault. These payments will not exceed the applicable limit of insurance. We will pay reasonable expenses for:
(1) First aid at the time of an accident;
(2) Necessary medical, surgical, x-ray and dental services, including prosthetic devices; and
(3) Necessary ambulance, hospital, professional nursing and funeral services.
2. Exclusions.
We will not pay expenses for “bodily injury”:
a. To any insured.
b. To a person hired to do work for or on behalf of any insured or a tenant of any insured.
c. To a person injured on that part of premises you own or rent that the person normally occupies.
d. To a person, whether or not an employee of any insured, if benefits for the “bodily injury” are payable or must be provided under a workers’ compensation or disability benefit law or similar law.
e. To a person injured while taking part in athletics.
f. Included within the “products-completed operations, hazard”. .
g. Excluded under Coverage A.
h.Due to war, whether or not declared, or any act or condition incident to war. War includes civil war, insurrection, rebellion or revolution. •
Appellant’s Appendix at 122-123 (emphasis added).
As in Donald, the policy provides for the payment of medical expenses for bodily injuries on the Griffins’ property “regardless of fault.” Id. Thus, I conclude that Cain’s entitlement to the payment is not based upon the Griffins’ fault, and Cain is a third-party beneficiary of the Griffins’ policy with Auto-Owners. Because Cain’s breach of contract and breach of duty of good faith claims are based upon her Status as a third-party beneficiary, not upon her status as the injured party, Cain is entitled to maintain a breach of contract action and a breach of duty of good faith action against Auto-Owners. See, e.g., Donald, 18 F.3d at 481-482. Consequently, I cannot agree with the majority’s decision that “there was no duty on the party of Auto-Owners to deal with Cain in good faith” or that Cain “certainly cannot be considered a third party beneficiary of the contract between Auto-Owners and the Griffins.... ” Op. at 44.
Having determined that Auto-Owners had a duty to deal with Cain in good faith, I believe that we should then determine whether genuine issues of material fact exist and whether Auto-Owners is entitled to judgment as a matter of law on Cain’s claim. Our supreme court has held that the “obligation of good faith and fair dealing with respect to the discharge of the insurer’s contractual obligation includes the obligation to refrain from (1) making an unfounded refusal to pay policy proceeds; (2) causing an unfounded delay in making payment; - (3) deceiving the insured; and (4) exercising any unfair advantage to pressure an insured into a set*48tlement of his claim.” Erie Ins. Co. v. Hickman by Smith, 622 N.E.2d 515, 519 (Ind.1993). “[A] good faith dispute about the amount of a valid claim or about whether the insured has a valid claim at all will not supply the grounds for a recovery in tort for the breach of the obligation to exercise good faith.” Id. at 520. Further, the lack of diligent investigation alone is not sufficient to support an award. Id. However, an insurer that denies liability knowing that there is no rational, principled basis for doing so has breached its duty. Id.
Generally, “tort damages for the breach of the duty to exercise good faith will likely be coterminous with those recoverable in a breach of contract action.” Id. at 519. The mere finding by a preponderance of the evidence that the insurer committed the tort will not, standing alone, justify the imposition of punitive damages. Id. Thus, the court in Erie held that a breach of duty of good faith must be proven by a preponderance of the evidence and that damages for a breach of good faith action are likely the same as those recoverable in a breach of contract action. However, our supreme court later held in Freidline v. Shelby Ins. Co., 774 N.E.2d 37, 40 (Ind.2002), that “[t]o prove bad faith, the plaintiff must establish, with clear and convincing evidence, that the insurer had knowledge that there was no legitimate basis for denying liability.” (emphasis added). See also Donald, 18 F.3d at 484 (holding that the plaintiff was required to prove his bad faith claim by a preponderance of the evidence and to prove his punitive damages claim by clear and convincing evidence). Thus, it is unclear whether a plaintiff in a breach of good faith action has the burden of proving his claim by a preponderance of the evidence or by clear and convincing evidence. On the other hand, it is clear that punitive damages may be awarded in a breach of good faith action if there is clear and convincing evidence that the defendant “acted with malice, fraud, gross negligence, or oppressiveness which was not the result of a mistake of fact or law, honest error or judgment, overzealousness, mere negligence, or other human failing, in the sum [that the jury believes] will serve to punish the defendant and to deter it and others from like conduct in the future.” Erie, 622 N.E.2d at 519.
The majority states that even if Donald was binding, “the record shows that Auto-Owners did tender payment to Gain for her medical expenses, once the claim had actually been presented to them.” Op. at 44 n. 1. Thus, the majority implies that even if it found Donald persuasive, it would have affirmed the trial court’s grant of summary judgment to Auto-Owners on Cain’s breach of duty of good faith claim because Auto-Owners did not refuse to pay Cain. The majority fails to address Cain’s arguments that she submitted a demand for payment within the policy’s one-year limitations period and that, even if she failed to do so, Auto-Owners waived the one-year limitations period. These are important issues that should be considered in determining whether the trial court properly granted summary judgment to Auto-Owners. See, e.g., State Farm Mut. Auto. Ins. v. Brown, 48 Ark.App. 136, 892 S.W.2d 519 (1995) (holding that the insured submitted reasonable proof of damages where the insurer “knew of the accident; knew of its liability under the policy; and knew the amount of benefits being claimed”); Hufstetler v. International Indemnity Co., 183 Ga.App. 606, 359 S.E.2d 399 (1987) (holding that “an implied waiver may result from an insurer’s silence and nonaction, especially where an insured’s request on a matter is ignored by the insurer leading the insured to believe nothing further is required” where the insured *49submitted a proof of loss without required medical bills and the insurer failed to contact the insured about the alleged insufficiency of her proof of loss until more than 90 days had elapsed); see also Stewart v. Walker, 597 N.E.2d 368, 375-376 (Ind.Ct.App.1992) (“We cannot but conclude that a duty of good faith dealing certainly must include an obligation to inform such a claimant of conditions precedent in the insurance contract, the more so when the nonparty claimant has asked whether the insurer requires any additional information in order to process the claim.”), reh’g denied.
In summary, I disagree with the majority regarding whether Cain is entitled to maintain an action for breach of good faith against Auto-Owners. Further, I believe that my colleagues and I should address Cain’s arguments regarding whether she made a demand for payment to Auto-Owners, whether Auto-Owners waived the requirement for a demand within the one-year limitations period in the policy, and the proper burden of proof in a breach of good faith action. For these reasons, I respectfully dissent.