Monika Schmidt v. Allstate Property and Casualty Insurance Company

FILED

Feb 12 2020, 5:31 am

CLERK

Indiana Supreme Court

Court of Appeals

and Tax Court

ATTORNEY FOR APPELLANT ATTORNEYS FOR APPELLEE

John R. Helm Crystal G. Rowe

Schreckengast & Helm Kightlinger & Gray, LLP

Indianapolis, Indiana New Albany, Indiana

ATTORNEY FOR AMICUS CURIAE John B. Drummy

INDIANA TRIAL LAWYERS ASSOCIATION Kightlinger & Gray, LLP

Indianapolis, Indiana

Paul Petro

Petro Law Firm LLC

Fishers, Indiana

IN THE

COURT OF APPEALS OF INDIANA

Monika Schmidt, February 12, 2020

Appellant-Plaintiff, Court of Appeals Case No.

19A-CT-1489

v. Appeal from the Johnson Superior

Court

Allstate Property and Casualty The Honorable Marla Clark, Judge

Insurance Company, Trial Court Cause No.

Appellee-Defendant 41D04-1408-CT-125

Crone, Judge.

Court of Appeals of Indiana | Opinion 19A-CT-1489 | February 12, 2020 Page 1 of 14

Case Summary

[1] Monika Schmidt was injured in an accident while riding with a friend, who was

insured by Allstate Property and Casualty Insurance Company. Schmidt sued

her friend and the underinsured driver of the other vehicle for negligence.

Schmidt, who qualified as an insured under her friend’s policy, demanded the

underinsured motorist coverage limits from Allstate. Schmidt later amended

her complaint to include a claim alleging that Allstate owed her a duty of good

faith and fair dealing as its insured and that it breached that duty in handling

her underinsured motorist claim. Allstate filed a motion for summary judgment

on the bad-faith claim. The trial court granted Allstate’s motion, concluding

that an insurer does not owe a duty of good faith and fair dealing to an insured

who is not the policyholder. On appeal, Schmidt argues that the trial court

erred in granting summary judgment on that basis. We agree and therefore

reverse and remand for further proceedings.

Facts and Procedural History 1

[2] The relevant facts are undisputed. In October 2012, Schmidt was a passenger

in a vehicle driven by her friend, Deborah Fisher. A vehicle driven by Robert

Bromley collided with Fisher’s vehicle, and Schmidt was injured. Bromley held

a Progressive insurance policy on his vehicle with $50,000 per person/$100,000

1

We remind Schmidt’s counsel that an appellant’s statement of facts “should be a concise narrative of the

facts stated in the light most favorable to the judgment and should not be argumentative.” Ruse v. Bleeke, 914

N.E.2d 1, 4 n.1 (Ind. Ct. App. 2009) (emphases added).

Court of Appeals of Indiana | Opinion 19A-CT-1489 | February 12, 2020 Page 2 of 14

per accident liability coverage. Fisher held an Allstate insurance policy on her

vehicle with $100,000 per person/$300,000 per accident liability coverage, as

well as underinsured motorist coverage of $100,000. Schmidt qualified as an

insured under Fisher’s policy, which defines “Insured Person(s)” in pertinent

part as “any person while in, on, getting into or out of, or getting on or off of an

insured auto with your permission[.]” Appellant’s App. Vol. 2 at 64. The

policy provides that Allstate “will pay damages which an insured person is

legally entitled to recover from the owner or operator of an uninsured [i.e.,

underinsured 2] auto because of … bodily injury sustained by an insured person”

that is “caused by accident and arise[s] out of the ownership, maintenance, or

use of an uninsured auto.” Id.

[3] In August 2014, Schmidt filed a complaint against Bromley and Fisher, alleging

that both negligently operated their vehicles. Allstate defended Fisher.

Schmidt demanded Fisher’s policy limits for underinsured motorist coverage

from Allstate. After unsuccessful settlement negotiations, Schmidt amended

her complaint to include an underinsured motorist claim against Allstate and a

2

The policy defines “uninsured vehicle” in pertinent part as

an underinsured motor vehicle which has bodily injury liability protection in effect and

applicable at the time of the accident in an amount equal to or greater than the amounts

specified for bodily injury liability by the financial responsibility laws of Indiana, but:

a. in an amount less than the applicable limit of liability for this coverage shown on the Policy

Declarations; or

b. available limits have been reduced to less than the applicable limit of liability for this

coverage as shown on the Policy Declarations.

Appellant’s App. Vol. 2 at 65.

Court of Appeals of Indiana | Opinion 19A-CT-1489 | February 12, 2020 Page 3 of 14

bad-faith claim based on Allstate’s handling of that claim. Schmidt alleged that

Allstate breached its duty of good faith and fair dealing with respect to her as its

insured by failing to promptly inform her of the existence of the underinsured

motorist coverage under its policy, failing to promptly respond to her coverage

claim, failing to make a reasonable settlement offer, failing to promptly assign

an adjuster to her claim, falsely asserting that she had to file suit against Allstate

before her claim would be considered, and demanding that Fisher be dismissed

from the lawsuit before it would consider Schmidt’s claim, among other things.

Allstate and Schmidt ultimately settled the underinsured motorist claim. In

February 2016, Bromley was dismissed from the case.

[4] In April 2017, Allstate filed a motion for summary judgment, asserting that it

did not act in bad faith in handling Schmidt’s underinsured motorist claim.

Schmidt filed a response and designated evidence regarding Allstate’s handling

of that claim. In September 2017, the trial court issued an order denying

Allstate’s motion, concluding that a genuine issue of material fact existed

regarding whether Allstate had acted in bad faith.

[5] In October 2017, Allstate filed a second motion for summary judgment,

asserting for the first time that it did not owe Schmidt a duty of good faith

because she “is not the named insured under the insurance policy, or even a

Court of Appeals of Indiana | Opinion 19A-CT-1489 | February 12, 2020 Page 4 of 14

party to the contract of insurance[.]” Appellant’s App. Vol. 7 at 2. 3 Schmidt

filed a response and designated evidence in opposition to Allstate’s motion.

She also filed a motion for sanctions and contempt, which was not included in

the record before us.

[6] In March 2018, the trial court issued an order that reads in relevant part as

follows:

2. Under Indiana law, there is an implied duty of good faith in

all insurance contracts that an insurer will act in good faith with

its insured. Gooch v. State Farm Mut. Auto Ins. Co., 712 N.E.2d 38,

40 (Ind. Ct. App. 1999) (citing Erie Ins. Co. v. Hickman by Smith,

622 N.E.2d 515, 518 (Ind. 1993)). The Gooch court described the

Erie decision as establishing “the duty of good faith and fair

dealing with respect to the discharge of the insurer’s contractual

obligation.” Id.

3. The Erie court based its decision to recognize a duty of good

faith and fair dealing on the unique nature of insurance contracts,

public policy, and the unavailability of punitive damages in

contract cases. See Eri[e], 622 N.E.2d at 519. However, it did not

determine the precise extent of the duty. Id. In support of its

decision, however, it surveyed and noted the jurisdictions that

recognized a cause of action in some form for the breach of the

duty to exercise good faith in first-party litigation. See id. at 519

n.1 (Ind. 1993) (emphasis added).

4. In Cain v. Griffin, 849 N.E.2d 507, 511 (Ind. 2006), the plaintiff

3

In its answer to Schmidt’s amended complaint, Allstate admitted that it owed Schmidt a duty of good faith

and fair dealing as its insured. After the trial court denied its first summary judgment motion, Allstate sought

leave to amend its answer to a denial, which the trial court ultimately granted in the instant summary

judgment order. Schmidt has not appealed that ruling.

Court of Appeals of Indiana | Opinion 19A-CT-1489 | February 12, 2020 Page 5 of 14

was a patron at a restaurant when she slipped and fell. She made

a claim against the restaurant owner’s insurer and asserted a

claim for bad faith. The trial court granted summary judgment,

and this was affirmed by the Court of Appeals. In affirming the

trial court, the Indiana Supreme Court explained that a “special

relationship” exists between an insurer and its insured in a first-

party claim. It noted that its Erie opinion did not identify any

duty of good faith that an insurer owes a third-party claimant.

Because Erie dealt with the duty of an insurer to its insured, and

because the plaintiff was only a third party to the insurance

contract the Court found no conflict between the grant of

summary judgment on the plaintiff’s bad faith claim and the

holding in Erie.…[ 4]

5. In Martinez v. State Farm Mut. Auto. Ins. Co., No. 2:15 CV 137,

2016 U.S. Dist. LEXIS 42956, at *1-3 (N.D. Ind. Mar. 31, 2016),

the federal court was faced with precisely the issue presented to

this Court here. That court noted that insurers have a duty to

deal in good faith with their insured, but further noted that

“under Indiana law, third-party beneficiaries cannot sue an

insurer in tort for bad faith.” Id. (citing Cain, 849 N.E.2d at 515).

The court recognized that the Indiana Court of Appeals had

adhered to a strict interpretation of Cain. In its analysis, the court

noted the plaintiff’s argument that she was an “insured,” under

the terms of the insurance policy. It concluded that this

provision arguably put her in privity of contract with the insurer,

but rejected her argument that she could assert her bad faith

claim because she was not the named insured in the insurance

contract. It explained that she lacked the “special relationship”

necessary to establish a duty on the insurer’s part to act towards

her in good faith and therefore granted the insurer’s motion for

partial summary judgment. Martinez, at *4-5.

4

Here, the trial court cited two memorandum decisions from this Court, which have no precedential value

pursuant to Indiana Appellate Rule 65(D).

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6. Similarly, here, because [Schmidt] is an “insured,” but not a

policyholder who had entered a contract and paid premiums to

Allstate, she had no “special relationship” with Allstate, and

therefore under Indiana law, is not entitled to assert a claim of

bad faith.

7. For these reasons, Allstate’s motion for partial summary

judgment is GRANTED and judgment is entered in favor of

Allstate and against Schmidt on Count 3 of her Second Amended

Complaint.

…

Although the Court does not condone Allstate’s actions in

asserting this defense belatedly, because Allstate prevailed on the

merits, [Schmidt’s] Motion for Sanctions and Contempt is

DENIED.

Appealed Order at 5-7. Schmidt filed a motion to certify the order for

interlocutory appeal, which the trial court granted, but this Court declined to

accept jurisdiction. In June 2019, the trial court issued an order approving the

stipulated dismissal of Fisher from the case and directing entry of final

judgment for Allstate. This appeal ensued.

Discussion and Decision

[7] Schmidt contends that the trial court erred in granting summary judgment on

the basis that Allstate does not owe her a duty of good faith and fair dealing as

its insured. “The purpose of summary judgment is to terminate litigation about

which there can be no factual dispute and which may be determined as a matter

of law.” Ingram v. Diamond Equip., Inc., 118 N.E.3d 1, 6 (Ind. Ct. App. 2018),

Court of Appeals of Indiana | Opinion 19A-CT-1489 | February 12, 2020 Page 7 of 14

trans. denied (2019). “Generally, the existence of a duty is a pure question of

law appropriate for disposition by summary judgment.” D.H. by A.M.J. v.

Whipple, 103 N.E.3d 1119, 1128 (Ind. Ct. App. 2018), trans. denied.

Accordingly, we review that issue de novo. Rogers v. Martin, 63 N.E.3d 316,

320 (Ind. 2016). “A trial court’s findings and conclusions offer insight into the

rationale for the court’s judgment and facilitate appellate review but are not

binding on this Court.” Denson v. Estate of Dillard, 116 N.E.3d 535, 539 (Ind. Ct.

App. 2018). “The party that lost in the trial court has the burden of persuading

us that the trial court erred.” Id.

[8] At the outset, we observe that no published Indiana Supreme Court or Court of

Appeals case has squarely held that an insurer does not owe a duty of good

faith and fair dealing to an insured, named or unnamed, who is not the

policyholder. 5 To the extent that the cases mentioned in the trial court’s order

may suggest that no such duty exists, we believe that such a proposition is

untenable and unjust.

[9] In Erie, the leading case cited by the trial court, Hickman was injured in a

collision with an uninsured motorist while driving a vehicle owned by her

mother, Smith. “Smith’s vehicle was insured by a policy issued by Erie, which

5

In Stewart v. Walker, 597 N.E.2d 368 (Ind. Ct. App. 1992), another panel of this Court stated, “[W]e believe

it sound policy to … impose a duty on an insurer faced with an uninsured motorist claim made by an injured

passenger of its insured of bearing itself with all good faith towards the claimant[.]” Id. at 375 (quotation

marks omitted). Amicus Indiana Trial Lawyers Association characterizes this statement as a holding, but it

is actually dicta within dicta.

Court of Appeals of Indiana | Opinion 19A-CT-1489 | February 12, 2020 Page 8 of 14

provided only liability and uninsured motorist coverage.” Erie, 622 N.E.2d at

521. Smith reported the accident to Erie and requested “reimbursement under

her uninsured motorist coverage.” Id. Erie denied the claim based on its

determination that Hickman was more than fifty percent at fault for the

accident. Smith and Hickman sued Erie for breach of contract and bad faith;

our supreme court described this as “a first-party claim[.]” Id. at 517. Although

Erie is silent on this point, this leads us to believe that Hickman, like Schmidt in

this case, was an additional insured under the policy. See Bergerud v. Progressive

Cas. Ins., 453 F. Supp. 2d 1241, 1249 (D. Nev. 2006) (“A claimant seeking

[uninsured/underinsured motorist] benefits is a first-party claimant because

such benefits are available only to individuals whom an insurer has defined as

‘insured.’ Thus, the insurer has agreed to cover them regardless of whether they

contracted for the insurance coverage or paid premiums.”). Consequently, we

are unpersuaded by the trial court’s reliance on Cain, in which the plaintiff was

not an additional insured and thus was considered a third-party beneficiary

under the defendants’ policy’s medical payments provision. 6 We are also

6

Regardless of whether one considers an additional insured seeking underinsured motorist coverage to be a

first-party claimant under the vehicle owner’s policy per Erie and Bergerud or an intended third-party

beneficiary of the policy, see Crabtree ex rel. Kemp v. Estate of Crabtree, 837 N.E.2d 135, 141 (Ind. 2005)

(acknowledging debate over terminology regarding injured passengers as additional insureds), the critical fact

for purposes of our analysis is that Allstate specifically agreed to provide such coverage to additional insureds

like Schmidt under the terms of its policy. Schmidt points out that claims like hers “are claims that both the

insurance company and the [policyholder] anticipated and considered in obtaining and providing the

insurance coverage.” Appellant’s Br. at 32.

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unpersuaded by the trial court’s reliance on Martinez, which, although factually

similar to this case, relied heavily on Cain’s analysis.

[10] After the Erie case went to trial, the jury found for Hickman and Smith and

awarded them compensatory and punitive damages. Erie appealed, and this

Court reversed the punitive damages award “on the grounds that punitive

damages were not recoverable in a breach of contract action.” Erie, 622 N.E.2d

at 517-18. Our supreme court granted transfer to “address the question of

whether a tort remedy [is] available to an insured when the insurer fails to fulfill

duties imposed upon it by law.” Id. at 518. The court stated,

It is axiomatic that tort obligations arise, not from an agreement

between the parties, but by operation of law. Webb v. Jarvis, [575

N.E.2d 992, 995 (Ind. 1991)]. Indiana law has long recognized

that there is a legal duty implied in all insurance contracts that

the insurer deal in good faith with its insured. Whether breach of

this duty constitutes a tort involves a judicial balancing of three

factors: (1) the relationship between the parties, (2) the

reasonable foreseeability of harm to the person injured, and (3)

public policy concerns. Webb[, 575 N.E.2d at 995 7].

Clearly, a relationship exists between an insurer and its insured

because they are in privity of contract. However, the existence of

a contract, standing alone, does not give rise to the required

“special relationship” to support imposition of a tort duty.

Rather, it is the unique character of the insurance contract which

supports the conclusion that there is a “special relationship.”

7

Actually, the Webb court stated that these three factors “must be balanced” in determining whether “to

impose a duty at common law[,]” not in determining whether a duty was breached, i.e., whether a tort was

committed. 575 N.E.2d at 995.

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This contractual relationship is at times a traditional arms-length

dealing between two parties, as in the initial purchase of a policy,

but is also at times one of a fiduciary nature, see, e.g., Richey v.

Chappell[, 594 N.E.2d 443, 447 (Ind. 1992),] (statements from the

insured to the insurer concerning an occurrence which may be

the basis of a claim by a third party are privileged from disclosure

by the attorney-client privilege), and, at other times, an

adversarial one, as here in the context of a first-party claim.

Easily foreseeable is the harm that proximately results to an

insured, who has a valid claim and is in need of insurance

proceeds after a loss, if good faith is not exercised in determining

whether to honor that claim. Given the sui generis nature of

insurance contracts, then, we conclude that it is in society’s

interest that there be fair play between insurer and insured.

These factors, coupled with our return to the rule of no punitive

damages in contract cases, leads us to conclude that recognition

of a cause of action for the tortious breach of an insurer’s duty to

deal with its insured in good faith is appropriate.

Id. at 518-19 (some citations omitted).

[11] Here, in urging us to conclude that Allstate owes her a duty of good faith and

fair dealing under the three-part Webb analysis, Schmidt first notes that the

relationship between her and Allstate “is that of insured and insurer” and that

she had “duties and obligations under the cont[r]act of insurance.” Appellant’s

Br. at 48. More specifically, Schmidt observes that she “was in a relationship

with Allstate that was both fiduciary in nature[,] requiring her to give

statements, make honest representations, submit to medical examination[,] and

provide private health information at the request [of] Allstate, and adversarial in

the context of her first-party [underinsured motorist] claim.” Id. Aside from

the fact that Schmidt did not sign the insurance contract and pay premiums on

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the policy, we see little difference between the nature of her contractual

relationship with Allstate as an additional insured and the nature of Fisher’s so-

called “special relationship” with Allstate as a policyholder.

[12] Schmidt further asserts that,

as the court stated in Erie, easily foreseeable is the harm that

proximately results to an insured, who has a valid claim and is in

need of insurance proceeds after a loss, if good faith is not

exercised in determining whether to honor that claim.…

Schmidt had a contractual right to underinsured coverage,

however, Schmidt could do little to enforce that right.

Id. at 48-49. We agree with this assertion.

[13] Finally, with respect to public policy concerns, Schmidt contends that “it is in

society’s best interest that there be fair play between insurer and insured.

Indiana Courts have long recognized this need, and the legislature has

recognized it as well by implementing the unfair claims practices act.” Id. at 49

(citation omitted). Indeed, our legislature has seen fit to treat all insureds

equally when it comes to protecting them against unscrupulous behavior by

insurers. Indiana Code Section 27-4-1-4.5 enumerates unfair claim settlement

practices for which an aggrieved person may file a complaint with the insurance

commissioner; the statute does not differentiate between policyholders and

additional insureds. See Ind. Code § 27-4-1-4.5 (listing over fifteen unfair

practices such as “[f]ailing to affirm or deny coverage of claims within a

reasonable time after proof of loss statements have been completed” and “[n]ot

Court of Appeals of Indiana | Opinion 19A-CT-1489 | February 12, 2020 Page 12 of 14

attempting in good faith to effectuate prompt, fair, and equitable settlements of

claims in which liability has become reasonably clear”). 8

[14] Moreover, our legislature has required that motorists maintain minimum

amounts of liability insurance under threat of criminal and administrative

penalties, Ind. Code §§ 9-25-4-1 and 9-25-8-2, and has also required that

insurers make uninsured and underinsured motorist coverage available to

motor vehicle owners “for the protection of persons insured under the policy

provisions who are legally entitled to recover damages from owners or

operators of uninsured or underinsured motor vehicles because of bodily

injury[.]” Ind. Code § 27-7-5-2. This statute does not differentiate between

policyholders and additional insureds. In light of this government-mandated

and -regulated insurance market, with an emphasis on providing coverage for

innocent insureds who are injured by uninsured or underinsured motorists, we

can think of no principled reason for not requiring insurers to deal in good faith

with all insureds. As Schmidt persuasively observes,

The policyholder purchases insurance for peace of mind. Surely

policyholders entering into the insurance contract expect that

their family and friends (who are also being provided coverage by

the policyholder [as either permissive drivers or permissive

passengers]) will be treated fairly by their insurance company.

Otherwise, their relationships and friendships may be ruined and

the financial lives of their loved ones devastated because the

8

Violations may result in civil penalties of up to $50,000 and/or suspension or revocation of an offender’s

license or certificate of authority. Ind. Code § 27-4-1-6(a).

Court of Appeals of Indiana | Opinion 19A-CT-1489 | February 12, 2020 Page 13 of 14

insurance company does not want to treat such [additional]

insureds fairly.

Appellant’s Br. at 32. Assuming that a policyholder enjoys a “special” or “first-

among-equals” status with respect to all other insureds covered by a policy,

there can be little doubt that dealing with those other insureds in good faith

only benefits the policyholder, even when (or especially when) her interests are

adverse to those of additional insureds, as in this case.9

[15] In sum, a balancing of the three Webb factors weighs decisively in favor of

concluding that an insurer owes a duty of good faith and fair dealing to an

insured who is not the policyholder. We therefore reverse the trial court’s entry

of summary judgment for Allstate and remand for further proceedings on

Schmidt’s bad-faith claim, including her motion for sanctions and contempt.

As mentioned above, the trial court has already determined that a genuine issue

of material fact exists regarding whether Allstate acted in bad faith.

[16] Reversed and remanded.

Bradford, C.J., and Pyle, J., concur.

9

Allstate attempts to draw a dispositive distinction between a “named insured” such as Fisher and a “policy-

defined insured” such as Schmidt. Appellee’s Br. at 9. With apologies to Gertrude Stein, an insured is an

insured is an insured is an insured for purposes of an insurer’s duty of good faith and fair dealing.

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