Mt. Vernon Fire Insurance Co. v. Louis Jancetic (mem. dec.)

MEMORANDUM DECISION FILED Pursuant to Ind. Appellate Rule 65(D), Nov 04 2016, 9:37 am this Memorandum Decision shall not be regarded as precedent or cited before any CLERK Indiana Supreme Court Court of Appeals court except for the purpose of establishing and Tax Court

the defense of res judicata, collateral estoppel, or the law of the case.

ATTORNEYS FOR APPELLANT ATTORNEY FOR APPELLEE Storrs W. Downey Kevin W. Marshall Jeffrey E. Kehl Hobart, Indiana Bryce Downey & Lenkov LLC Chicago, Illinois

IN THE COURT OF APPEALS OF INDIANA

Mt. Vernon Fire Insurance Co., November 4, 2016 Appellant-Respondent Court of Appeals Case No. 45A05-1607-PL-1696 v. Appeal from the Lake Superior Court Louis Jancetic, The Honorable Calvin D. Appellee-Movant Hawkins, Judge Trial Court Cause No. 45D02-1205-PL-12

Baker, Judge. Court of Appeals of Indiana | Memorandum Decision 45A05-1607-PL-12 | November 4, 2016 Page 1 of 7 [1] Mount Vernon Fire Insurance Company (Mount Vernon) appeals the judgment

of the trial court, which, in a proceeding supplemental, found that an insurance

policy issued by Mount Vernon covered a judgment against its insured, Source

One Partners, LLC (Source One). Finding that the insurance policy clearly and

unambiguously excluded intentional misrepresentations from coverage, we

reverse and remand with instructions to enter summary judgment in Mount

Vernon’s favor.

Facts [2] In October 2011, Debra Hadu sold a property—through Source One, her real

estate agent—in Crown Point to Louis Jancetic. As part of the transaction,

Hadu filled out a disclosure form. On February 28, 2012, Jancetic filed a

complaint, alleging that Source One and Hadu knew that there was a mold

problem stemming from a water leak but represented in the disclosure form that

there was no mold problem on the property. Jancetic further alleged that,

because of this “fraudulent representation[],” he agreed to purchase the

property and sustained damages thereby. Appellant’s App. p. 75. Jancetic later

amended the complaint to add a home inspection company, which he alleged

had been negligent in failing to find the mold, as a defendant. [3] Source One had a “Real Estate Agents Errors And Omissions” insurance policy

(the Policy) with Mount Vernon. Id. at 188. The Policy protected Source One

from claims arising from negligent acts, errors, or omissions; personal injuries;

allegations of discrimination; or improper use of the lock box on houses. The

Court of Appeals of Indiana | Memorandum Decision 45A05-1607-PL-12 | November 4, 2016 Page 2 of 7

Policy explicitly excluded from coverage “any claim arising out of . . . any

actual or alleged . . . dishonest, fraudulent, criminal or malicious act or

omission or deliberate misrepresentation committed by, at the direction of, or

with the knowledge of any Insured.” Id. at 191-92. The Policy also states that

it “does not apply to . . . [claims] arising out of . . . any form of Organic

Pathogen, whether or not . . . it is alleged that an Insured failed to discover or

disclose the existence of Organic Pathogens from any source whatsoever.” Id.

at 192, 179. “Organic Pathogens” was defined as “any organic irritant or

contaminant, including but not limited to mold . . . .” Id. at 179. [4] On March 27, 2012, Source One tendered Jancetic’s complaint to Mount

Vernon, but Mount Vernon disclaimed coverage the following day, believing

that Jancetic’s claims were excluded under the Policy. Id. at 96. Source One

did not dispute Mount Vernon’s analysis, and neither Source One nor any other

party to the lawsuit involved Mount Vernon further. [5] Jancetic eventually settled with Hadu, but Source One filed for bankruptcy

protection. After obtaining relief from the bankruptcy stay, Jancetic pursued

his case against Source One at an August 17, 2015, bench trial. Source One did

not attend the trial. Jancetic presented evidence regarding the expenses he

incurred fixing the water and mold problems in the house. He also testified that

the furnace and the sump-pump had to be replaced. Altogether, the cost of

rebuilding, testing for mold, and removing moisture totaled $149,496.33, and

the trial court entered judgment against Source One in that amount.

Court of Appeals of Indiana | Memorandum Decision 45A05-1607-PL-12 | November 4, 2016 Page 3 of 7 [6] On September 17, 2015, Jancetic filed a verified motion for proceedings

supplemental, seeking to recover from Mount Vernon pursuant to the Policy.

After Mount Vernon filed an answer, the parties filed several motions to the

trial court, including a “Motion for Judgment” from Jancetic and a motion for

summary judgment from Mount Vernon. On July 1, 2016, the trial court

granted Jancetic’s “Motion for Judgment,” denied Mount Vernon’s motion for

summary judgment, and entered judgment against Mount Vernon in the

amount of $149,496.33. Mount Vernon now appeals.

Discussion and Decision [7] A proceeding supplemental is not an independent action asserting a new or

different claim from the claim upon which the judgment was granted, but is

merely a proceeding to enforce the earlier judgment. Hermitage Ins. Co. v. Salts,

698 N.E.2d 856, 858-59 (Ind. Ct. App. 1998). In proceedings supplemental to

recover judgment from a liability insurer, the judgment creditor bears the

burden of showing a judgment, the insurance policy, and facial coverage under

the policy. Id. at 859. Once the judgment creditor establishes this prima facie

case, it is incumbent upon the liability insurer to go forward with evidence

creating a genuine issue of fact. Id. Where the evidence is entirely

documentary or the decision is based upon an admission or stipulation by the

parties, this Court is in as good a position as the trial court to determine its

force and effect. Williamson v. Rutana, 736 N.E.2d 1247, 1249 (Ind. Ct. App.

2000). Thus, this court’s review of the trial court’s decision is de novo, and no

presumption in favor of the trial court exists on appeal. Id.

Court of Appeals of Indiana | Memorandum Decision 45A05-1607-PL-12 | November 4, 2016 Page 4 of 7 [8] The interpretation of an insurance policy is generally a question of law

appropriate for summary judgment. Liberty Mut. Ins. Co. v. Michigan Mut. Ins.

Co., 891 N.E.2d 99, 101 (Ind. Ct. App. 2008). We review an insurance policy

using the same rules of interpretation applied to other contracts; if the language

is clear and unambiguous, we will apply the plain and ordinary meaning. Id. [9] Here, we find that the Policy clearly and unambiguously excludes from

coverage any “dishonest, fraudulent, criminal or malicious act or omission or

deliberate omission or deliberate misrepresentation committed by, at the

direction of, or with the knowledge of any Insured.” Appellant’s App. p. 192.

While the Policy does cover “any Claim arising out of any negligent act, error,

[or] omission . . . committed by the Insured in the rendering or failure to render

Professional Services for others,” id. at 188, Jancetic has never alleged that

Source One acted negligently. In his original complaint, he charged “[t]hat at

the time [of] the representations relating to the hazardous conditions present on

the property, both Defendant Hadu and Defendant Source One [], by and

through its agent knew that these representations were false.” Id. at 75. The

complaint continued, “Source One [] made fraudulent representations to the

Plaintiff in order to sell a home . . . .” Id. Moreover, Jancetic alleged that

Source One “knew at the time they were making false representations that they

were inducing the Plaintiff to buy a home that had hazardous conditions . . . .”

Id. at 76. Although he amended his complaint to include another defendant,

the allegations made against Source One remained the same. Id. at 91-94.

Court of Appeals of Indiana | Memorandum Decision 45A05-1607-PL-12 | November 4, 2016 Page 5 of 7 [10] Further, at his August 17, 2015, bench trial, Jancetic only charged Source One

with intentional behavior. His counsel told the court, “we have admissions by

the realtor about things that he knew about the property before an offer was

made.” Id. at 101. Counsel showed the court a request for admission in which

it was admitted that

the realtor was informed that a water pipe burst in the house; and that, as a result, the entire floor of the house was replaced . . . [and] that on October 9, 2011, the realtor had informed the seller that there was a dip in the floor. And the floor was checked, and there was discovered water in the crawl space.

Id. at 101-02. Counsel then presented other evidence to show that “the realtor

was informed there was a problem with [the] HVAC . . . .” Id. at 102. After

showing the court a copy of the disclosure form, in which Hadu and Source

One said there were no issues with the house, the trial moved on to establishing

the amount of damages. Because he has never alleged that Source One acted

negligently, Jancetic has failed to meet his initial burden of showing facial

coverage under the Policy. [11] In different circumstances, we have held that “when an insurance company

assumes the defense of an action against its insured, without reservation of

rights, and with knowledge of facts which would have permitted it to deny

coverage, it may be estopped from subsequently raising the defense of

noncoverage.” Salts, 698 N.E.2d at 859. But this can only arise where “the

insurer had notice of the litigation and an opportunity to control the defense.”

Id.

Court of Appeals of Indiana | Memorandum Decision 45A05-1607-PL-12 | November 4, 2016 Page 6 of 7 [12] These circumstances are certainly not present in this case: unlike the insurer in

Salts, who defended its insured’s case at trial but failed to raise any defense of

noncoverage, Mount Vernon asserted the defense of noncoverage from the first

and had no further involvement in the case until the proceeding supplemental. [13] In short, Mount Vernon agreed to insure Source One against its negligence but

not against its intentional misrepresentations. Jancetic has only ever alleged

that Source One committed intentional misrepresentations and has never

alleged that Source One was negligent. Finally, Mount Vernon has not

engaged in any conduct that would estop it from asserting its defense of

noncoverage. The trial court should have denied Jancetic’s “Motion for

Judgment” and granted Mount Vernon’s motion for summary judgment. [14] The judgment of the trial court is reversed and remanded, with instructions to

enter summary judgment in Mount Vernon’s favor.

Vaidik, C.J., and Najam, J., concur.

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