Accident Fund Ins. Co. of Am. v. Custom Mech. Constr., Inc.

504 F.Supp.3d 913

ACCIDENT FUND INSURANCE COMPANY OF AMERICA, Plaintiff,

v.CUSTOM MECHANICAL CONSTRUCTION, INC., and Danny Cope, Defendants.

Custom Mechanical Construction, Inc., Counter Claimants,

v.Accident Fund Insurance Company of America, Counter Defendants.

Custom Mechanical Construction, Inc., Third Party Plaintiff,

v.Schultheis Insurance Agency Inc., and James Lee Sublett, Third Party Defendants.

Liberty Mutual Insurance Company, Intervenor Plaintiff.

No. 3:16-cv-00251-RLY-MPB

United States District Court, S.D. Indiana, Evansville Division.

Signed November 30, 2020

Justin T. Nestor, Bryce Downey & Lenkov LLC, Schererville, IN, Tina M. Paries, Pro Hac Vice, Bryce Downey & Lenkov LLC, Chicago, IL, for Plaintiff/Counter Defendants.

Jenna C. Lower, Law Offices of the Liberty Mutual Group, Indianapolis, IN, for Intervenor Plaintiff.

Alyssa C.B. Cochran, Kightlinger & Gray, LLP, New Albany, IN, Brent R. Weil, Kightlinger & Gray, Evansville, IN, for Third Party Defendants.

Meagan R. Brien, Reed S. Schmitt, Dentons Bingham Greenebaum LLP, Theodore C. Ziemer, IV, Stoll Keenon Ogden, PLLC, Evansville, IN, Randall K. Schmitt, Pro Hac Vice, McCorriston Miller Mukai MacKinnon LLP, Honolulu, HI, for Defendants/Counter Claimants/Third Party Plaintiff.

Danny Cope, pro se.

ENTRY ON MOTIONS FOR SUMMARY JUDGMENT

RICHARD L. YOUNG, JUDGE

While working on a clarifier in Kentucky, Danny Cope fell and suffered serious injuries. At the time of the accident, Cope's employer, Custom Mechanical Construction, Inc., was insured under an Indiana workers' compensation policy obtained through its agent Schultheis Insurance Agency. The policy was issued by Accident Fund Insurance Company of America. Schultheis assured Custom Mechanical the policy would cover the claim, but Accident Fund ultimately denied the claim stating the policy did not provide coverage for work in Kentucky absent prior notice.

The dispute over coverage trickled into court. Accident Fund and Custom Mechanical dispute whether there is coverage under the policy, and Custom Mechanical and Schultheis dispute whether Schultheis was negligent in procuring coverage and failing to properly advise Custom Mechanical. Before the court are cross-motions for summary judgment on both issues.

The policy at issue does not provide coverage for Cope's injuries because the accident occurred in Kentucky, and Accident Fund did not have prior notice of Custom Mechanical's work there. The question of whether Schultheis was negligent in procuring coverage and failing to advise Custom Mechanical cannot be determined as a matter of law because a rational jury could find a verdict for either party.

I. Background

Most of the facts are undisputed. Where there is a dispute, the court identifies the contested facts and construes them in the light most favorable to the nonmoving party against whom the motion is made. Markel Ins. Co. v. Rau , 954 F.3d 1012, 1016 (7th Cir. 2020) (internal citations and quotations omitted).

A. Custom Mechanical and Schultheis Insurance

Randall Titzer and Kenneth Ernst started Custom Mechanical in 2005. (Filing No. 1, Complaint ¶ 6; Filing No. 20, Custom Mechanical Answer ¶ 6; Filing Nos. 157-1 and 154-6, Deposition of Randall Titzer ("Titzer Dep.") at 9:2 – 6). Custom Mechanical is a mechanical contractor in Evansville, Indiana that primarily works on jobs in Indiana. (Complaint ¶¶ 2, 6; Answer ¶¶ 2, 6; Titzer Dep. 22:16 – 25). Although not formally registered to do business in Kentucky until 2009, Custom Mechanical has always completed jobs there. (Filing No. 157-3, Certificate of Authorization; Titzer Dep. at 21:13 – 22:25; see also Filing Nos. 157-5 and 151-10, Deposition of Holly Bugg ("Bugg Dep.") at 33:7 – 24). When performing work in Kentucky, Custom Mechanical uses both Indiana and Kentucky employees. (Filing No. 157-4, Deposition of Kenneth Ernst ("Ernst Dep.") at 12:15 – 13:6).

Custom Mechanical has used Schultheis to procure its insurance coverage since Custom Mechanical opened in 2005. (Titzer Dep. 11:24 – 12:4). Titzer¹ chose Schultheis because Titzer had used Schultheis for his personal insurance needs and another contractor had recommended Lee Sublett, one of Schultheis's agents. (Id. at 5:12). After an initial meeting with Titzer, Sublett procured standard insurance coverages for Custom Mechanical, which included workers' compensation. (Filing No. 154-1, Deposition of Lee Sublett ("Sublett Dep.") at 93:3 – 94:10). Sublett met with Titzer three or four times a year to discuss coverages and make any changes if necessary. (Titzer Dep. 15:2 – 21).

B. Custom Mechanical's Workers Compensation Coverage

Custom Mechanical has always maintained a workers' compensation policy with primary coverage in Indiana because the majority of its jobs are in Indiana. (Titzer Dep. 22:16 – 19; 58:13 – 14). When forming Custom Mechanical, Titzer never specifically requested that Sublett procure workers' compensation in Kentucky. (Titzer Dep. 35:8 – 24). Holly Bugg, who was the Controller for Custom Mechanical and assisted with policy audits, also never requested coverage in Kentucky. (Bugg Dep. 32:23 – 33:14). Both Titzer and Bugg, however, always believed Custom Mechanical had coverage in Kentucky. (Titzer Dep. 54:6 – 22; Bugg Dep. 32:23 – 33:24).

In January of 2010, Custom Mechanical's workers compensation carrier at the time—Midwestern Insurance Alliance² —discovered through an audit that Custom Mechanical had performed work in Kentucky. (Bugg Aff. ¶ 25; Bugg Aff. at 16 – 17, Ex. 12-C, 2010 Midwestern Correspondence; Bugg Dep. 57:3 – 58:20). Midwestern contacted Bugg and asked if Custom Mechanical had opened a Kentucky location. (2010 Midwestern Correspondence). Bugg responded that Custom Mechanical did not have a Kentucky location and instead took some of its Indiana employees to complete jobs in Kentucky. (Bugg Dep. 57:3 – 58:20). Midwestern then reached out to Sublett and informed him Custom Mechanical had performed work in Kentucky. (Filing No. 154-3, Affidavit of Lee Sublett ("Sublett Aff.") Ex. 3D, Sublett Correspondence with Midwestern). The underwriter for Midwestern said that using Indiana employees to complete a job in Kentucky was fine but also highlighted that the then-current policy did not have "primary coverage" in Kentucky. (Id. ).

More on that point. The Midwestern policy provided two types of coverage to Custom Mechanical: "primary" coverage for Indiana, and "other states coverage" for most other states. (Id. Ex. 3-I at 10). "All states coverage" also referred to as "other states coverage" provides coverage for temporary or incidental work outside of the primary state. (Id. ¶ 49). The Midwestern underwriter recommended Sublett add all states coverage so that future jobs in Kentucky would be covered. (Sublett Correspondence with Midwestern). Sublett agreed, and so Midwestern added that coverage at the end of January 2010. (Id. ¶¶ 49, 50).

C. Custom Mechanical Changes Carriers from Midwestern to Accident Fund

In 2015, around the time of the Midwestern policy renewal, Sublett began shopping different carriers for Custom Mechanical's workers' compensation coverage. (Sublett Dep. 69:20 – 70:9; Sublett Aff. ¶ 16). Sublett obtained quotes from both Midwestern and Accident Fund and e-mailed Bugg, so that she and Titzer could compare premium prices between the two carriers. (Sublett Aff. ¶ 53; Sublett Dep. 220:2 – 10; see also Sublett Aff. Ex. 3-F). In the e-mail, Sublett explained Accident Fund was a good company and its policy premium was roughly $2,600³ cheaper than Midwestern. (Bugg Dep. 128:6 – 14; see also Filing No. 157-13, E-mail from Sublett to Bugg at 2). He recommended Custom Mechanical go with Accident Fund. (E-mail from Sublett to Bugg at 2). The only thing Bugg compared between the two quotes were the premium rates. (Bugg Dep. 129:10 – 16). The Accident Fund quote stated it was "pleased to present your Workers' Compensation Insurance coverage in the state of IN." (E-mail from Sublett to Bugg at 10). Bugg did not pay much attention to this language because Custom Mechanical had always done work in Kentucky and because Titzer and Bugg believed coverage existed in Kentucky. (Bugg Dep. 130:10 – 23). Bugg also believed coverage existed based on conversations with Sublett. (Id. at 130:21 – 23).

Titzer ultimately decided to switch coverage from Midwestern to Accident Fund. (Bugg Dep. 130:24 – 131:3). Bugg sent Sublett an e-mail stating "Randy is on board for going with Accident Fund" and told Sublett to "do what you have to do to switch our carrier." (Filing No. 154-3, Ex. 3G at 1, E-mail from Bugg to Sublett). Sublett then completed an application for workers' compensation insurance with Accident Fund. (Sublett Dep. 82:3 – 86:4; see also Filing No. 157-14, Accident Fund Application for Insurance at 2 – 5). Sublett prepared the application himself: no one from Custom Mechanical reviewed or signed the application. (Sublett Dep. 82:15 – 83:6). Sublett selected "Indiana" as the state of insurance. (Id. at 84:12 – 85:14). In response to the question "[d]o employees travel out of state?", Sublett responded "no". (Accident Fund Application for Insurance at 4, Question Number 14). Accident Fund approved Sublett's application and issued a policy providing coverage for the period of October 24, 2015 through October 24, 2016 ("First Policy"). (Filing No. 157-11, Deposition of Theresa Miller ("Miller Dep.") at 95:11 – 96:5; Sublett Aff. at 31 – 54, Ex. 3-H, First Policy).

D. Custom Mechanical Changes Ownership

In March of 2016, Kevin Short and Carl Cole started working at Custom Mechanical with the intention of eventually purchasing the company. (Filing Nos. 157-16 and 154-12, Deposition of Carl Cole ("Cole Dep.") at 10:12 – 25). At the time, both Short and Cole knew Custom Mechanical performed work in Kentucky. (Id. at 12:23 – 13:24; Filing Nos. 157-16 and 154-13, Deposition of Kevin Short ("Short Dep.") at 12:5 – 19). In fact, Short hoped to expand work in Kentucky. (Short Dep. 70:23 –...