ACCENT CONSULTING GROUP, INCORPORATED v. GREAT AMERICAN ASSURANCE COMPANY

UNITED STATES DISTRICT COURT

SOUTHERN DISTRICT OF INDIANA

INDIANAPOLIS DIVISION

ACCENT CONSULTING GROUP, INCORPORATED, )

BRENDA MARIE STEPHENS, )

)

Plaintiffs, )

)

v. ) No. 1:22-cv-01767-JMS-CSW

)

GREAT AMERICAN ASSURANCE COMPANY, )

)

Defendant. )

)

)

GREAT AMERICAN ASSURANCE COMPANY, )

)

Counter Claimant, )

)

)

v. )

)

ACCENT CONSULTING GROUP, INCORPORATED, )

BRENDA MARIE STEPHENS, )

)

Counter Defendants. )

)

)

)

ORDER

Plaintiff Brenda Marie Stephens is a real-estate appraiser and is the President of Plaintiff

Accent Consulting Group (collectively, "Ms. Stephens"). Ms. Stephens demanded that Defendant

Great American Assurance Company ("Great American") provide legal representation for her

under an insurance policy (the "Policy") it issued related to a professional disciplinary hearing and

Great American refused. After Ms. Stephens successfully defended herself in the hearing,

incurring legal costs, she and Accent Consulting initiated this litigation against Great American.

With leave of Court, Great American filed a counterclaim against Ms. Stephens and Accent

Consulting, [Filing No. 73], alleging that Ms. Stephens's insurance application contained a

misrepresentation — specifically, that she was not subject to any complaint, investigation, or

disciplinary hearing even though she was. Great American claims it relied on the

misrepresentation. Now before the Court are Cross-Motions for Summary Judgment. [Filing No.

53; Filing No. 64.] Great American has also requested that the Court strike the testimony of Ms.

Stephens's expert, Professor William Warfel, [Filing No. 67 at 28-32.] Each motion is ripe for the

Court's review.

I.

MOTION TO STRIKE EXPERT TESTIMONY

In Great American's Cross-Motion for Summary Judgment, it requests that the Court strike

the expert testimony of Ms. Stephens' expert, Professor William Warfel. [Filing No. 67 at 28.]

Because the Court's rulings on the motion to strike testimony impact the evidence the Court can

consider on summary judgment, the Court turns first to that motion.

Great American argues that Professor Warfel's expert opinion is not a "fact[]." [Filing No.

67 at 28.] Great American further argues that the expert opinion is "not relevant, reliable,

appropriate or admissible" under Federal Rule of Evidence 702 and Daubert v. Merrell Dow

Pharmaceuticals, Inc., 509 U.S. 579 (1993). [Filing No. 67 at 28.] Great American argues that

Professor Warfel is not "qualified" to offer expert opinions on real estate appraisal disciplinary

actions and "merely attempts to . . . explain the legal effect of" the Policy. [Filing No. 67 at 28-

32.]

Ms. Stephens did not file any response to Great American's Cross Motion for Summary

Judgment, which contains the motion to strike the expert testimony. According to Great American,

Ms. Stephens' counsel specifically "advised the Court that [her] decision not to file any response

was intentional and that [she] did not intend on opposing Great American's" Cross Motion for

Summary Judgment, nor did she "intend on filing any reply in support of [her] Motion for

Summary Judgment." [Filing No. 80 at 1.] Well after the deadline, Ms. Stephens filed an

unauthorized "sur-reply." [Filing No. 82.] The sur-reply does not address the motion to strike

expert testimony and instead argues that Great American has not demonstrated prejudice from

allegedly late notice of her insurance claim. [Filing No. 82 at 2-3.]

As Great American describes, Professor Warfel's expert opinion is largely a rehashing of

Ms. Stephens's arguments. For example, Professor Warfel opines that "[t]he trigger of coverage

issue must be evaluated within the context of the insuring agreement," that "[t]he underlying claim

against [Ms.] Stephens became ripe once The Office of the Indiana Attorney General filed its

original Formal Complaint against her," and that "an expectation . . . that an insured . . . must report

to the . . . carrier . . . all Consumer Complaints against the insured . . . is entirely unreasonable."

[E.g., Filing No. 53-11 at 9-11]. No party in this case appears to dispute the actual language of the

Policy, and the interpretation of a contract is a question of law for the Court, so the Court has no

need for Professor Warfel's opinion. As the Seventh Circuit has held, "[a]bsent any need to clarify

or define terms of art, science, or trade, expert opinion testimony to interpret contract language is

inadmissible." Delta Min. Corp. v. Big Rivers Elec. Corp., 18 F.3d 1398, 1402 (7th Cir. 1994).

Accordingly, the Motion to Strike the Expert Opinion of Professor William Warfel, [Filing No. 67

at 28-32], is GRANTED.

II.

CROSS-MOTIONS FOR SUMMARY JUDGMENT

A. Standard of Review

A motion for summary judgment asks the Court to find that a trial is unnecessary because

there is no genuine dispute as to any material fact and, instead, the movant is entitled to judgment

as a matter of law. See Fed. R. Civ. P. 56(a). As the current version of Rule 56 makes clear,

whether a party asserts that a fact is undisputed or genuinely disputed, the party must support the

asserted fact by citing to particular parts of the record, including depositions, documents, or

affidavits. Fed. R. Civ. P. 56(c)(1)(A). A party can also support a fact by showing that the materials

cited do not establish the absence or presence of a genuine dispute or that the adverse party cannot

produce admissible evidence to support the fact. Fed. R. Civ. P. 56(c)(1)(B). Affidavits or

declarations must be made on personal knowledge, set out facts that would be admissible in

evidence, and show that the affiant is competent to testify on matters stated. Fed. R. Civ. P.

56(c)(4). Failure to properly support a fact in opposition to a movant's factual assertion can result

in the movant's fact being considered undisputed, and potentially in the grant of summary

judgment. Fed. R. Civ. P. 56(e).

In deciding a motion for summary judgment, the Court need only consider disputed facts

that are material to the decision. A disputed fact is material if it might affect the outcome of the

suit under the governing law. Hampton v. Ford Motor Co., 561 F.3d 709, 713 (7th Cir. 2009). In

other words, while there may be facts that are in dispute, summary judgment is appropriate if those

facts are not outcome determinative. Harper v. Vigilant Ins. Co., 433 F.3d 521, 525 (7th Cir. 2005).

Fact disputes that are irrelevant to the legal question will not be considered. Anderson v. Liberty

Lobby, Inc., 477 U.S. 242, 248, 106 S.Ct. 2505, 91 L.Ed.2d 202 (1986).

"On summary judgment, a party must show the Court what evidence it has that would

convince a trier of fact to accept its version of the events. Johnson v. Cambridge Indus., Inc., 325

F.3d 892, 901 (7th Cir. 2003). The moving party is entitled to summary judgment if no reasonable

factfinder could return a verdict for the nonmoving party. Nelson v. Miller, 570 F.3d 868, 875 (7th

Cir. 2009). The court views the record in the light most favorable to the non-moving party and

draws all reasonable inferences in that party's favor. Darst v. Interstate Brands Corp., 512 F.3d

903, 907 (7th Cir. 2008). It cannot weigh evidence or make credibility determinations on summary

judgment because those tasks are left to the fact-finder. O'Leary v. Accretive Health, Inc., 657 F.3d

625, 630 (7th Cir. 2011). The Court need only consider the cited materials, Fed. R. Civ. P. 56(c)(3),

and the Seventh Circuit Court of Appeals has "repeatedly assured the district courts that they are

not required to scour every inch of the record for evidence that is potentially relevant to the

summary judgment motion before them." Johnson, 325 F.3d at 898. Any doubt as to the existence

of a genuine issue for trial is resolved against the moving party. Ponsetti v. GE Pension Plan, 614

F.3d 684, 691 (7th Cir. 2010). "To determine whether genuine issues of material fact exist, we ask

if 'the evidence presents a sufficient disagreement to require submission to a jury or whether it is

so one-sided that one party must prevail as a matter of law.'" Adeyeye v. Heartland Sweeteners,

LLC, 721 F.3d 444, 449 (7th Cir. 2013).

"The existence of cross-motions for summary judgment does not, however, imply that there

are no genuine issues of material fact." R.J. Corman Derailment Servs., LLC v. Int'l Union of

Operating Engineers, Loc. Union 150, AFL-CIO, 335 F.3d 643, 647 (7th Cir. 2003). Specifically,

"[p]arties have different burdens of proof with respect to particular facts; different legal theories

will have an effect on which facts are material; and the process of taking the facts in light most

favorable to the non-movant, first for one side and then for the other, may highlight the point that

neither side has enough to prevail" on summary judgment. Id. at 648.

B. Statement of Facts

The following factual background is set forth pursuant to the standard detailed above. The

facts stated are not necessarily objectively true, but as the summary judgment standard requires,

the undisputed facts and the disputed evidence are presented in the light most favorable to "the

party against whom the motion under consideration is made," in this case, beginning with Ms.

Stephens. Premcor USA, Inc. v. Am. Home Assurance Co., 400 F.3d 523, 526-27 (7th Cir. 2005).

1. The Initial Insurance Policy

Ms. Stephens is an Indiana licensed appraiser and is the President of co-Plaintiff Accent

Consulting Group. [Filing No. 53 at 3.] Using insurance broker Landy Insurance, Ms. Stephens

purchased a claims-made and reported Real Estate Professional Errors and Omissions Insurance

Policy (the "Policy"). [Filing No. 9 at 4; Filing No. 64-1 at 2.] To receive coverage, the Policy

required Ms. Stephens to report in writing any claims or disciplinary actions against her during the

policy period or extended reporting period. [Filing No. 64-1 at 5; 15.] Although the Policy

provided for reimbursement of "reasonable attorneys' fees, costs and expenses incurred in

responding to a Disciplinary Action," the Policy specifically stated that Great American "shall not

be obligated to defend any Disciplinary Action." [Filing No. 64-1 at 15.] The covered

reimbursement costs for Disciplinary Actions were limited to $2,500. [Filing No. 64-1 at 15.] The

Policy also stated that "any material representation . . . by the . . . Insured or the Insured's agent

will render the Policy null and void and relieve" Great American from all liability. [Filing No. 64-

1 at 38.] The Policy ran from April 2020 to April 2021. [Filing No. 9 at 4; Filing No. 64-1 at 2.]

2. The Consumer Complaint

During the first Policy period, in October 2020, Ms. Stephens agreed to and did perform a

"desktop appraisal" of an Indiana single-family home (the "Property"). [Filing No. 53-4; Filing

No. 53-5.] A "desktop appraisal" is one that is virtual, not requiring a "physical inspection of the

property by the appraiser." [Filing No. 53-5 at 3.]

The next month, in November 2020, the Property's owners filed a complaint (the

"Consumer Complaint") against Ms. Stephens with the Office of the Indiana Attorney General

("Indiana OAG"). [Filing No. 53-6.] In the Consumer Complaint, the homeowners alleged that

"[t]he appraisal [was] egregiously inaccurate in assessing value of the property," reported an

"inaccurate" "description of the property," and appraised the home based on "comparable sales . .

. from a neighboring county, widely known to have a depressed economy and were not similar in

type or value." [Filing No. 53-6 at 3.] The Consumer Complaint alleged that Ms. Stephens'

appraisal was "20% below contracted sales price and thus the sale was lost." [Filing No. 53-6 at

3.] The Consumer Complaint alleged that "Ms. Stephens did not act in good faith nor with

professionalism from a licensed real estate appraiser." [Filing No. 53-6 at 3.] The Consumer

Complaint demanded an "investigation of [Ms. Stephens'] appraisal and practices," and

"disciplinary action." [Filing No. 53-6 at 3.]

Later that month, on November 19, 2020, the Indiana OAG "sent a letter" to Ms. Stephens

regarding the Consumer Complaint to Ms. Stephens and requested several documents underlying

her disputed appraisal. [Filing No. 73-1 at 3.] A few days later, Ms. Stephens "emailed the

[Indiana] OAG investigator the requested documents." [Filing No. 73-1 at 4.] Ms. Stephens did

not report the Consumer Complaint or Indiana OAG investigation to Great American. [Filing No.

53 at 5.]

3. The Insurance Renewal Application

Less than six months after the Complaint and Indiana OAG correspondence, on March 16,

2021, Ms. Stephens applied to renew Accent's insurance Policy with Great American. The

Renewal Application asked whether Ms. Stephens was "aware of any of the following in the past

12 months: . . . [c]omplaint, disciplinary action, investigation or license suspension/revocation by

any regulatory authority." [Filing No. 73-3 at 3.] She answered "no." [Filing No. 73-3 at 3.] The

Renewal Application required Ms. Stephens to affirm that "there has been no . . . misstatement[]."

[Filing No. 73-3 at 5.] Ms. Stephens agreed and provided her signature. [Filing No. 73-3 at 5.]

4. The Complaint Before the Real Estate Appraiser Licensure and

Certification Board

Later that autumn, on November 1, 2021, the Indiana OAG filed a complaint against Ms.

Stephens before the Real Estate Appraiser Licensure and Certification Board ("REAB").

Complaint, In the Matter of the License of Brenda Marie Stephens License No(s): CR60300559

(Active) (REAB No. 0002, Nov. 1, 2021) (hereinafter "REAB Complaint"). The REAB Complaint

alleged that the Indiana OAG tried to convene an investigative interview with Ms. Stephens, first

emailing, then calling, then leaving a voicemail, but to no avail. [Filing No. 73-1 at 5-6.] As of

the filing of the REAB Complaint, the Indiana OAG alleged that Ms. Stephens "still ha[d] not

followed up with the OAG's request for an investigative interview regarding" her disputed

appraisal. [Filing No. 73-1 at 6.] Pursuant to the Consumer Complaint, the Indiana OAG alleged

in the REAB Complaint that Ms. Stephens violated the Uniform Standards of Professional

Appraisal Practice ("USPAP") by conducting an appraisal below the USPAP's rules of competency.

[Filing No. 73-1 at 5-6.] The OAG further alleged that Ms. Stephens "continued to practice

although [she] ha[d] become unfit to practice due to professional incompetence." [Filing No. 73-

1 at 7.] For those alleged infractions, the Indiana OAG demanded "disciplinary sanctions." [Filing

No. 73-1 at 7.]

5. The Request for Insurance Coverage

After the filing of the REAB Complaint, Ms. Stephens requested legal representation from

Great American. [Filing No. 53 at 6.] Great American denied the application because Ms.

Stephens received the Consumer Complaint in November 2020, during the first Policy period, but

did not report it until November 2021, the following year during the renewed Policy period. [Filing

No. 53-8 at 3.] Thus, Great American stated that Ms. Stephens was late in reporting and did not

tender the proper notice within the Policy period. [Filing No. 53-8 at 3.] Additionally, Great

American stated that the REAB proceedings did "not constitute a claim as defined by the Policy,"

and were instead a "disciplinary action," so Ms. Stephens could not invoke the extended reporting

period. [Filing No. 53-8 at 4-5.] Ms. Stephens retained her own counsel and ultimately prevailed

before the REAB, which determined that in performing the desktop appraisal, she "was at least

minimally competent." [Filing No. 64-4 at 118-19.]

6. This Litigation

In August 2022, Ms. Stephens sued Great American in Marion Superior Court, and Great

American later removed the matter to this Court on the basis of diversity jurisdiction. [Filing No.

1; Filing No. 1-1.] Ms. Stephens alleges that in defending herself before the REAB, she was

"forced to seek counsel and incurred debt," "substantially curtailed [her] appraisal intake cases in

order to seek counsel and prepare [her] defense," and lost "substantial profits and business

opportunities." [Filing No. 1-1 at 12.] Because she was denied insurance coverage, she sued Great

American for breach of contract and bad faith. [Filing No. 1-1 at 12-15.]

Later in the litigation and following receipt of certain discovery response from Ms.

Stephens, Great American moved to file a Counter-Complaint or in the Alternative Amend

Affirmative Defenses, to allege that Ms. Stephens made a misrepresentation on her insurance

renewal application when she denied that there were any pending disciplinary investigations

against her. Great American sought to add a claim for rescission of the Policy. [Filing No. 52.]

Great American noted Ms. Stephens's admission that "as of November 23, 2020, [she] had

knowledge of, and was aware of, the allegations of the" Consumer Complaint. [Filing No. 52 at

4.] The Court granted the motion to amend, noting that Ms. Stephens "fail[ed] to address or even

allege diligence or delay on the part of Great American," and "[n]owhere in [her] twenty-two paged

response [was] there any analysis under the rules applicable" to the motion. [Filing No. 71 at 4-

5.] The parties filed Cross-Motions for Summary Judgment, and in a later order, the Court ordered

supplemental briefing on the issue of misrepresentation. [Filing No. 92 at 10-11.]

C. Discussion

Based on its Counter-Complaint for Declaratory Judgment, [Filing No. 73,] Great

American seeks to rescind the policy in its supplemental briefing. As there can be no coverage

under a rescinded policy the Court will address that claim first.

1. Misrepresentation on the Insurance-Renewal Application and Rescission

Great American argues in its Supplemental Brief in Support of Cross-Motion for Summary

Judgment that by the time Ms. Stephens had submitted her Policy Renewal Application, she was

already aware of the allegations in the Consumer Complaint and the Indiana OAG's investigation

against her. [Filing No. 93 at 6.] Yet, Great American argues, Ms. Stephens answered on her

Renewal Application that she was not aware of any "[c]omplaint, disciplinary action, investigation

or license suspension/revocation by any regulatory authority." [Filing No. 93 at 6-7.] Great

American argues that Ms. Stephens's answer amounted to misrepresentation. [Filing No. 93 at 8.]

Great American states through the testimony of one of its Vice Presidents, that it "had no

knowledge" of Ms. Stephens' alleged misrepresentation, that it "relied on the answers [Ms.

Stephens] provided," and that "if [Ms.] Stephens had disclosed the Consumer Complaint, the

Indiana OAG's investigation, and/or [her] communications with the Indiana OAG regarding the

investigation," it "would have issued the Policy on materially different terms and charged a higher

premium." [Filing No. 93 at 7-8 (citing Filing No. 93-1)]. Great American states the under the

Policy, "[a]ny material representation or concealment by the Named Insured or the Insured's agent

will render the Policy null and void and relieve the Company from all liability herein." [Filing No.

93 at 3.] Consequently, Great American argues that Ms. Stephens's answer was "false" and

"material," entitling it to "judgment, as a matter of law, that it may rescind the Policy." [Filing No.

93 at 9-14.]

Ms. Stephens argues in her supplemental briefing that the Consumer Complaint's dates

should not be considered regarding the dispute over misrepresentation because the Consumer

Complaint "had absolutely nothing to do with Stephens." [Filing No. 94 at 11.] According to Ms.

Stephens, it was the "lender, who relied [on] the appraisal [Ms.] Stephens prepared, no one else."

[Filing No. 94 at 11.] Ms. Stephens asserts she owed no duty to the consumers whose home she

was appraising and that the Consumer Complaint "could not possibly arise to the level of an

investigation reasonably expected to result in a claim in which Great American would have to

cover pursuant to the [P]olicy." [Filing No. 94 at 11.] As evidence of this, Ms. Stephens points to

the fact that Great American "admits" that the Consumer Complaint "did not qualify as a claim

under the [P]olicy." [Filing No. 94 at 12.] Ms. Stephens argues that, although Great American

alleges that it would have charged a higher premium "had it known of the [C]onsumer

[C]omplaint," Great American actually "did not renew the policy" at all. [Filing No. 94 at 14.]

Ms. Stephens alleges that ultimately, Great American's rationale for not renewing the Policy was

"vague at best" given that the "misrepresentation claim wasn't introduced" until this Court's

litigation and that Great American simply "abandoned" her, leaving her to "obtain[] coverage

elsewhere." [Filing No. 94 at 13.]

Great American argues in its Reply in Support of Supplemental Brief that "(1) [Ms.]

Stephens' answer [on] the Renewal Application was false because, prior to executing the

application . . . [Ms.] Stephens knew about the Consumer Complaint and the Indiana OAG's

resulting investigation; and (2) this false statement was material to the risk insured by the Policy."

[Filing No. 97 at 1.] Great American notes that even if "[Ms.] Stephens believed her answer was

true," under Indiana law, "her subjective belief is irrelevant." [Filing No. 97 at 4.] Great American

argues that because Ms. Stephens's "false statement and nondisclosure was material," it is "entitled

to judgment as a matter of law." [Filing No. 97 at 7.]

When the Court exercises diversity jurisdiction over an action, it is "obliged to apply state

law to the substantive issues in the case." Lodholtz v. York Risk Servs. Grp., Inc., 778 F.3d 635,

639 (7th Cir. 2015) (citing Erie R.R. Co. v. Tompkins, 304 U.S. 64, 78 (1938)). The parties do not

dispute that Indiana law governs this action. Accordingly, this Court must "apply the law that

would be applied by the Indiana Supreme Court." Lodholtz, 778 F.3d at 639. "If the Indiana

Supreme Court has not spoken on the issue, [the Court] generally treat[s] decisions by the state's

intermediate appellate courts as authoritative, unless there is a compelling reason to think that the

state supreme court would decide the issue differently." Id.

Indiana law provides at least two definitions of "material misrepresentation." "Under one

definition, a misrepresentation or omission is 'material' if knowledge of the truth would have

caused the insurer to refuse the risk or to charge a higher premium for accepting the risk." Colonial

Penn Ins. Co. v. Guzorek, 690 N.E.2d 664, 672 (Ind. 1997) (citation omitted). Alternatively, if

"rescission is attempted after a loss has been incurred," "coverage of the incurred loss would be

voided if the misrepresentation affected that risk" represented by the loss. Id. at 673. Both

definitions encompass a "misrepresentation . . . innocently made," and both definitions include a

misrepresentation which leads to a loss for which the insured later seeks coverage. Id. Even if an

insured's "agent incorrectly fills out the application, so long as the potential insured had an

opportunity to review the application and signs it," the person held responsible for the

misrepresentation is the insured. Brennan v. Hall, 904 N.E.2d 383, 387 (Ind. Ct. App. 2009). Such

rules vindicate the "the insurer's right to know the full extent of the risk it undertakes when an

insurance policy is issued." Guzorek, 690 N.E.2d at 672.

In this case, the Consumer Complaint led directly to the Indiana OAG investigation, [Filing

No. 73-1 at 3]; the Indiana OAG investigation led directly to the REAB Complaint. [Filing No.

73-1 at 8 (complaint filed by the Indiana OAG)]. A direct line is easily traced from the Consumer

Complaint to the REAB Complaint to Ms. Stephens's claimed expenses. As the Court has earlier

explained, and as Ms. Stephens has not introduced new facts to controvert, if the cost and expense

regarding the disciplinary proceedings "led directly to [Great American's] exposure with respect

to the [proceedings], it borders on the surreal to think that the nondisclosure [was] immaterial."

TIG Ins. Co. v. Reliable Rsch. Co., 334 F.3d 630, 637 (7th Cir. 2003) (affirming district court's

granting rescission of insurance contract where insured materially misrepresented whether

Plaintiff was subject to an injunction exposing insurer to costs); Foster v. Auto-Owners Ins., Co.,

703 N.E.2d 657, 661 (Ind. 1998) (holding that where the risk was "precisely the subject of the

omission on [the] application[], the omission plainly affected the risk for which [the insured] now

seeks coverage."). [See generally Filing No. 92 at 7.] Regardless of Ms. Stephens' intent, which

Indiana law disregards, she made a material misrepresentation. Such a finding would mean that

even if Ms. Stephens provided proper notice, and even if the proceedings before the REAB

amounted to a covered claim for limited fees incurred in defending a "disciplinary action," her

misrepresentation would entitle Great American to rescind the policy.

At this juncture of the analysis, Great American would be entitled to rescission unless some

kind of waiver or estoppel prevented Great American from invoking that right, as Plaintiffs seem

to suggest. The issue of waiver and estoppel is what the Court turns to next.

2. Waiver and Estoppel

Ms. Stephens argues in her supplemental briefing that because Great American wrongfully

"denied coverage," it is estopped from and has "waived its defenses," "including

misrepresentation." [Filing No. 94 at 8.] Ms. Stephens argues that "when an insurer induces the

insured to effect self-help to protect [her]self, it cannot then hide behind the language of the policy

to avoid its duty to defend or insure." [Filing No. 94 at 9 (citing Fed. Ins. Co. v. Stroh Brewing

Co., 127 F.3d 563, 571 (7th Cir. 1997)).] Ms. Stephens states that estoppel "extend[s] to practically

every ground upon which an insurer may deny liability," including raising the defense of

misrepresentation. [Filing No. 94 at 10.] According to Ms. Stephens, "Great American gambled

on denying coverage based on a claim of late notice, and lost." [Filing No. 94 at 10.]

Great American argues in its Reply in Support of Supplemental Brief that "it did not waive

its coverage defenses." [Filing No. 97 at 4.] Great American states that "waiver is an intentional

relinquishment of a known right and is a voluntary act." [Filing No. 97 at 4.] Great American

states that contrary to such an intentional relinquishment, "as soon as [it] became aware of [Ms.]

Stephens' false statement in the application, it sought to amend its counterclaim to allege the

material misrepresentation precluded coverage." [Filing No. 97 at 4.] Great American concludes

to state that "[t]here is simply no admissible evidence (or even allegations) that Great American

'intentionally relinquished' or waived any known rights or coverage defenses." [Filing No. 97 at

4-5.]

The Indiana Supreme Court has explained the concepts of waiver and estoppel in the realm

of insurance:

Technically, there is a distinction between "waiver" and "estoppel." A waiver is an

intentional relinquishment of a known right and is a voluntary act, while the

elements of estoppel are the misleading of a party entitled to rely on the acts or

statements in question and a consequent change of position to his detriment. But

in the law of insurance, the distinction between "estoppel" and "implied waiver" is

not easy to preserve, and, quite commonly, in insurance cases, the courts have found

it unnecessary or inadvisable to make a distinction between them and have used the

terms interchangeably."

Travelers Ins. Co. v. Eviston, 37 N.E.2d 310, 314 (Ind. Ct. App. 1941). Given the fact that the

parties actually litigated and the Court expressly permitted Great American to file a Counterclaim

and affirmative defense of misrepresentation and rescission, finding it was proper under the

circumstances, it cannot be said that Great American intentionally relinquished its right to raise

those arguments. [See Filing No. 71 (Order Granting Great American's Motion for Leave to File

a Counter-Complaint regarding misrepresentation).] The Court thus focuses on the concept of

estoppel and implied waiver.

As to estoppel, "[a]n insurer, having knowledge its insured has been sued, may not close

its eyes to the underlying litigation, force the insured to face the risk of litigation without the benefit

of knowing whether the insurer intends to defend or to deny coverage, and then raise policy

defenses for the first time after judgment has been entered against the insured." Progressive Cas.

Ins. Co. v. Morris, 603 N.E.2d 1380, 1383 (Ind. Ct. App. 1992). "[W]hen an insurer induces the

insured to effect self-help to protect himself, it cannot then hide behind the language of the

insurance policy to avoid its duty to defend or insure." Stroh Brewing Co., 127 F.3d 563, 571 (7th

Cir. 1997) (citing Indiana Ins. Co. v. Ivetich, 445 N.E.2d 110, 112 (Ind. Ct. App. 1983) and Am.

Fam. Mut. Ins. Co. v. Kivela, 408 N.E.2d 805 (Ind. Ct. App. 1980)). That is, "[w]hen a liability

insurer unjustifiably refuses to defend a suit against its insured, the insurer will be estopped from

later asserting policy defenses to coverage." 46 C.J.S. Insurance § 1202. "Whether an insurer is

estopped to disclaim liability under the insurance policy is generally a question for the factfinder

unless the facts giving rise to the estoppel are undisputed and susceptible of only one

interpretation." Emps. Ins. of Wausau v. Recticel Foam Corp., 716 N.E.2d 1015, 1028 (Ind. Ct.

App. 1999). The question of whether Great American is estopped thus depends on whether it

breached its duty to defend.

"An insurer's duty to defend is determined solely by the nature of the complaint." USAA v.

Caplin, 656 N.E.2d 1159, 1162 (Ind. Ct. App 1995). "'[N]ature of the complaint' might refer to

the allegations of the complaint plus additional facts known or reasonably ascertainable by the

insurer." Hayes Lemmerz Int'l, Inc. v. Ace Am. Ins. Co., 619 F.3d 777, 781 (7th Cir. 2010). "[W]hen

the nature of the claim is obviously not covered by the policy of insurance, there is no duty to

defend." Transamerica Ins. Servs. v. Kopko, 570 N.E.2d 1283, 1285 (Ind. 1991). "[W]hile

Indiana's courts may use differing language to describe that standard, . . . there is essentially only

one standard—that the allegations of the complaint, including the facts alleged, give rise to a duty

to defend whenever, if proved true, coverage would attach." Stroh Brewing Co., 127 F.3d 563, 566

(7th Cir.1997). The nature of the complaint is then juxtaposed with the duty to defend in the

insurance contract. "An insurance company," "by its contract," "is free to determine . . . what risks

it is undertaking to insure." Cincinnati Ins. Co. v. Mallon, 409 N.E.2d 1100, 1103 (Ind. Ct. App.

1980). So generally, "insurance companies have, in the absence of statutory provisions to the

contrary, the same right as individuals to limit their liability and to impose whatever conditions

they please upon their obligations, not inconsistent with public policy. Consequently, if such

exceptions, exclusions and limitations are plainly expressed, insurers are entitled to have them

construed and enforced as expressed." Id.

The Court returns to the original reasons that Great American declined to defend Ms.

Stephens in the REAB action. It is true that Great American declined coverage because notice was

not "first received by the Insured and reported in writing . . . during the Policy Period." [Filing

No. 53-8 at 2.] It is also true that Great American stated that because the REAB proceedings were

a "Disciplinary Action," they did not amount to a "claim." [Filing No. 53-8 at 4.] Great American

justified that rationale with the Policy's definition of "Disciplinary Action," which is any non-

criminal proceeding "before any state licensing board . . . regulating professional conduct, alleging

misconduct in providing Real Estate Professional Services." [Filing No. 53-8 at 4.] For such

Disciplinary Actions, the Policy provides the following exclusion: Great American "shall not be

obligated" "to pay any fine, penalty or award resulting from any Disciplinary Action" nor "to

defend any Disciplinary Action." [Filing No. 53-8 at 4.]

Ms. Stephens sought Policy coverage for defending herself against allegations of

incompetence in proceedings before the REAB, a state licensing board empowered by statute to

impose "disciplinary sanctions," Ind. Code §§ 25-1-11-12, 13. Those proceedings clearly

amounted to the Policy's definition of "Disciplinary Action." Thus, far from breaching its duty to

defend, Great American had no duty to defend Ms. Stephens during the REAB proceedings at all.

Far from surprising Ms. Stephens, Great American explained its Policy on Disciplinary Actions in

its original letter denying coverage. [Filing No. 53-8 at 4.] And far from improperly "induc[ing]"

Ms. Stephens to defend herself, Ivetich, 445 N.E.2d at 112, Great American merely stood on its

right to rely on its own policy exclusions. See Progressive Se. Ins. Co. v. Smith, 140 N.E.3d 292,

297-99 (Ind. Ct. App. 2020) (granting declaratory judgment in favor of insurer where under the

claim's circumstances, the policy stated that the "duty to defend" "will not apply"). Whether or

not the proceedings before REAB amounted to a "claim," and whether or not Ms. Stephens

provided proper notice, Great American did not breach its duty to defend, was specifically

permitted by the Court to allege misrepresentation, and is hence not estopped from invoking the

argument of Ms. Stephens's material misrepresentation in order to rescind the policy.1

The Court holds that Ms. Stephens misrepresented material answers to her insurance

applications, that the proceedings before the REAB were a "Disciplinary Action," and that because

Great American did not breach its duty to defend, it was not estopped from raising the affirmative

defense of misrepresentation. Great American Assurance's Cross-Motion for Summary Judgment,

[64], is GRANTED. Conversely, Ms. Stephens's Motion for Summary Judgment, [53], is

DENIED.

3. Refund of Premiums

"It is the law in Indiana that in all cases of rescission of a contract the party rescinding must

restore or offer to restore everything of value which he has received under the contract."

Prudential Ins. Co. of Am. v. Smith, 108 N.E.2d 61, 65 (Ind. 1952). "It is further the law that where

a tender back is necessary in order to effect a rescission of a contract of insurance, such tender to

be sufficient must first be offered to the beneficiary named in the policy." Id. This is to say, when

an insurance contract is rescinded, the policyholder receives a refund of her premiums. At the

same time, Great American has already offered to refund Ms. Stephens's premiums, [Filing No.

93-1 at 4], which are valued at $1,109.00. [Filing No. 64-1 at 2.] Great American is ORDERED

to return $1,109.00 in premiums to Accent Consulting Group, Inc.

1 To the extent that Ms. Stephens is arguing that Great American has impermissibly changed

positions in this litigation itself, Federal Rule of Civil Procedure 8(d) permits pleading in the

alternative. It is also persuasive that the Indiana Supreme Court decided a question of late notice

and misrepresentation as alternative "independent ground[s]." Guzorek, 690 N.E.2d at 670

(notice); id. at 671 (misrepresentation); see also Amerisure Ins. Co. v. Nat'l Sur. Corp., 695 F.3d

632, 636 (7th Cir. 2012) (holding that "[t]o require a potential defendant to commit irrevocably to

defenses before he is sued would be unreasonable to the point of absurdity.")

4. Other Issues

In the parties' original briefing regarding the Cross-Motions for Summary Judgment, the

parties disputed whether the disciplinary proceedings amounted to a "claim" under the Policy,

[Filing No. 67 at 15], whether Ms. Stephens provided proper notice to Great American to trigger

Policy coverage, [Filing No. 67 at 18], whether the Policy uses the correct definition of

"Disciplinary Action," [Filing No. 53 at 15], and whether Great American engaged in bad faith,

[Filing No. 53 at 21.] The Court need not address these issues. There is no point in interpreting a

rescinded Policy.

In any event, the Court re-emphasizes Ms. Stephens's delay and lack of diligence in the

Court's proceedings. As the Court explained in deciding the Motion to Strike Expert Testimony,

supra, Ms. Stephens did not file any response to Great American's Cross-Motion for Summary

Judgment, which contains the motion to strike the expert testimony. According to Great American,

Ms. Stephens's counsel specifically "advised the Court that [her] decision not to file any response

was intentional and that [she] did not intend on opposing Great American's" Cross Motion for

Summary Judgment, nor did she "intend on filing any reply in support of [her] Motion for

Summary Judgment." [Filing No. 80 at 1.] Well after the deadline, Ms. Stephens filed an

unauthorized "sur-reply." [Filing No. 82.] The sur-reply belatedly argues that Great American has

not demonstrated prejudice from allegedly late notice of her insurance claim. [Filing No. 82 at 2-

3.] Having failed to timely respond and otherwise abide by the Court's procedures, Ms. Stephens's

arguments in opposition to the remaining issues are waived. And Great American would be

alternatively entitled to summary judgment on its original Cross-Motion for Summary Judgement.

III.

CONCLUSION

Having considered the foregoing action, the Court makes the following rulings:

e Ms. Stephens's Motion for Summary Judgment, [53] is DENIED.

e Great American's Motion to Strike the Expert Opinion of Professor William Warfel,

[Filing No. 67], is GRANTED.

e Great American's Cross-Motion for Summary Judgment, [64] is GRANTED and the

policy is rescinded.

e Great American is ORDERED to return $1,109.00 in premiums to Accent Consulting

Group, Inc. Great American shall file a report when the premium for the rescinded

policy has been paid to Ms. Stephens.

Once the report of the premium return is made, final judgment shall issue.

Date: 5/20/2024

Hon. Jane Magnus-Stinson, Judge

‘United States District Court

Southern District of Indiana

Distribution:

Kimberly E. Blair

WILSON ELSER MOSKOWITZ EDELMAN & DICKER LLP

kimberly.blair@wilsonelser.com

Michael A. Kreppein

WILSON ELSER MOSKOWITZ EDELMAN & DICKER LLP

michael.kreppein@wilsonelser.com

Rafael Ramirez

RAMIREZ LAW OFFICE, P.C.

rafael@ramirez-law.com

Joseph J. Stafford

WILSON ELSER MOSKOWITZ EDELMAN & DICKER LLP

joseph.stafford@wilsonelser.com

20