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holding the insurer was estopped from denying coverage where agent told prospective purchaser that policy would cover "anything to do with" prospective purchaser's business including use of dump trucks, in clear contradiction to written policy which excludes such coverage and where prospective purchaser reasonably relied
Summary of this case from Youngblood v. Auto-Owners Ins. Co.Opinion
No. IP98-1085-C-H/G
August 11, 2000.
ENTRY ON PLAINTIFF'S MOTION TO RECONSIDER AND DEFENDANTS' MOTION FOR ENTRY OF JUDGMENT
When a court has clearly made a mistake, especially before entry of final judgment, it should acknowledge the mistake and correct it if it can. This court made a mistake of law in its entry on the parties' motions for summary judgment and can fix that mistake today. Even with that mistake corrected, however, there are still disputed issues of material fact that preclude summary judgment on the remaining claim in this matter under the plaintiff's comprehensive general liability policy.
This case concerns disputed liability insurance coverage for a fatal collision in Oklahoma between a dump truck operated in defendant Willie Jeffery's paving business and two other vehicles. The other defendants are the survivors of Teresa Burton, who was killed in the accident, and others injured in the accident. On February 28, 2000, the court granted summary judgment to plaintiff American Family Mutual Insurance Company as to its claim that it owes no duty of defense or indemnification to defendant Willie Jeffery under his motor vehicle insurance policy. The court found that the motor vehicle policy was void because Jeffery had made material misrepresentations in his insurance application. The court also granted summary judgment to American Family on Jeffery's counterclaim that American Family acted in bad faith when it denied his insurance claim. Those holdings are not at issue today, though defendants remain free to challenge them on appeal.
In the initial entry, however, the court denied summary judgment for American Family as to whether it owes a duty of defense or indemnification to Jeffery under his commercial general liability (CGL) policy. The court found that the CGL policy provided only illusory coverage. In its motion for reconsideration, American Family contends the court erred in several respects in finding the CGL policy provided only illusory coverage. As explained below, the court agrees that it based its finding on an incorrect interpretation of exclusions for property damage in the CGL policy. When those exclusions are read properly, the CGL policy provides sufficient coverage to avoid being deemed illusory under Indiana law. Accordingly, American Family's motion to reconsider is granted.
I. The Issue of "Illusory" Coverage
An insurance policy is illusory under Indiana law if "a premium was paid for coverage which would not pay benefits under any reasonably expected set of circumstances." Meridian Mutual Ins. Co. v. Richie, 540 N.E.2d 27, 30 (Ind. 1989), vacated on rehearing, 544 N.E.2d 488 (Ind. 1989) (adhering to general rule but holding on rehearing that policy in question, when properly interpreted, was not illusory because it would provide for payment of underinsured motorist benefits if accident occurred in any of at least fourteen states). Additionally, Indiana courts have recognized that illusory insurance policies violate public policy. See, e.g., Fidelity Guar. Ins. Underwriters, Inc. v. Everett I. Brown Co., L.P., 25 F.3d 484, 490 (7th Cir. 1994) (stating that "illusory insurance coverage is disfavored as a matter of public policy" in Indiana); see also Meridian Mutual Ins. Co. v. Richie, 540 N.E.2d at 31 (finding that public policy interests disfavor illusory coverage).
In concluding that Jeffery's CGL policy provided illusory coverage, the court relied on the policy's exclusions for injuries covered by workers' compensation, injuries or damage resulting from the use of "autos," defined to include the dump truck, and the exclusions for damage to property.
The court determined that the policy excluded coverage for the following types of claims: property damage caused by Jeffery or one of his employees in performing the paving work (see Def. Ex. N, CGL ¶ 2(j)(5)); any damage from having to restore, repair, or replace property because Jeffery or one of his employees incorrectly performed paving work on the property (see CGL ¶ 2(j)(6)); property damage caused by Jeffery's use of his equipment (see CGL ¶ 2(j)(5)); bodily injury to any of Jeffery's employees in the course of their employment (see CGL ¶ 2(e)(1); and bodily injury or property damage caused by the use of Jeffery's dump truck or other vehicles (see CGL ¶ 2(g)). See Entry at 19-20.
The court further concluded that the CGL policy would provide coverage only under a very narrow and unlikely set of circumstances: if Jeffery or an employee, through the use of equipment other than "autos" (defined to include the dump truck), inflicted bodily injury on a person not employed by Jeffery while performing paving work. In light of this conclusion, the court found that the evidence demonstrated "that the likelihood of Jeffery's 'commercial general liability' policy actually providing coverage to a real risk is sufficiently remote to render the policy illusory." Id. at 22.
The court read the CGL's "damage to property" exclusions too broadly. The CGL policy provides that coverage is excluded for property damage to the following:
(5) That particular part of real property on which you or any contractors or subcontractors working directly or indirectly on your behalf are performing operations, if the "property damage" arises out of those operations; or
(6) That particular part of any property that must be restored, repaired or replaced because "your work" was incorrectly performed on it.
American Family argues that the court also found the CGL policy illusory because it failed to provide automobile coverage and workers' compensation coverage. See Pl. Recon. Br. at 3. That assertion misunderstands the court's opinion in this respect. The court did not expect the CGL policy to duplicate automobile and workers' compensation coverage. However, a finding of illusory coverage ordinarily requires consideration of the policy as a whole. The court therefore considered the automobile and workers' compensation exclusions, along with the property damage exclusions, in attempting to determine the actual coverage provided by the policy. See Entry at 16-24. The critical issue here is the scope of the property damage exclusions. The exclusions for automobile and workers' compensation coverage did not by themselves render the CGL policy illusory, even in the court's initial opinion.
CGL ¶ 2(j). In its initial opinion, the court interpreted these provisions, and especially paragraph (j)(5), as excluding liability for any property damage caused by Jeffery or his agents. See Entry at 19-20. That interpretation was wrong.
The exclusions in the American Family CGL policy issued to Jeffery adopt the language of form exclusions contained in a standard CGL policy promulgated by the Insurance Services Office (ISO). See 1 Susan J. Miller and Philip Lefebure, Miller's Standard Insurance Policies Annotated 411 (4th ed. 1995). The ISO is an association of property and casualty insurers that develops and distributes standard form policies, and most CGL insurance written in the United States is written on ISO forms. See Hartford Fire Ins. Co. v. California, 509 U.S. 764, 772 (1993).
The court overlooked the significance of the limitation in paragraph (j)(5) to real property "on which you . . . are performing operations, if the 'property damage' arises out of those operations." The Supreme Court of Indiana explained in Indiana Insurance Co. v. DeZutti, 408 N.E.2d 1275, 1280 (Ind. 1980), that parallel standard property damage exclusions had the effect of excluding coverage for damages confined to the insured's work and caused by that work. The court recognized that such exclusions are designed, essentially, to prevent a CGL policy from becoming a policy that covers what would amount to customers' claims for breaches of warranty resulting from faulty workmanship. Id. at 1279. These standard property damage exclusions do not exclude coverage for damage to other property (such as a neighboring house or store or a nearby parked vehicle), nor do they exclude coverage for damage to the property being worked on if the damage did not result from incorrect performance of work upon it.
These exclusions are generally known as "business risk" and "work product" exclusions. See Gregory L. Schultz, Commercial General Liability Coverage of Faulty Construction Claims, 33 Tort Ins. L. J. 257, 266-67 (1997). Although these limitations can sometimes pose difficult questions of interpretation, see, e.g., Action Auto Stores, Inc. v. United Capitol Ins. Co., 845 F. Supp. 417, 435 (W.D.Mich. 1993) (identifying three potential interpretations of (j)(5) exclusion), these limitations are widely recognized and enforced by courts. See, e.g., Employers Mut. Cas. Co. v. Pires, 723 A.2d 295, 299 (R.I. 1999) (construing (j)(6) exclusion narrowly and holding it did not render coverage illusory); Fisher v. American Family Mut. Ins. Co., 579 N.W.2d 599, 604 (N.D. 1998) (construing (j)(5) exclusion as ambiguous with respect to time of resulting damage); Glen Falls Ins. Co. v. Donmac Golf Shaping Co., 417 S.E.2d 197, 199-201 (Ga.App. 1992) (construing exclusions narrowly and finding coverage for damages resulting from golf course builder's failure to obtain necessary permits before building golf course on protected federal wetlands).
Because the court read the standard property damage exclusions in Jeffery's CGL policy too broadly, the court erroneously concluded that Jeffery's CGL policy would provide coverage only if Jeffery or an employee, through the use of equipment other than "autos," inflicted bodily injury on a person not employed by Jeffery while performing paving work. Although Jeffery's CGL policy would provide coverage under such circumstances, it would also provide coverage for certain property damage caused by Jeffery or his employee. Thus, if Jeffery or his employee damaged a parked car while using equipment to pave a parking lot, or ran over a mailbox or into the side of a house while using equipment to pave a driveway, Jeffery's CGL policy would provide coverage for the resulting property damage.
Based on its misunderstanding of these exclusions, the court also criticized testimony by American Family's Tim Johnston about the scope of the policy. See Entry at 20. That criticism was not justified.
With this error corrected, it is now clear as a matter of law that the CGL policy did not provide only illusory coverage under Indiana law.
II. Remaining Issues on the CGL Policy
Because the court concluded in its initial entry that the CGL policy issued to Jeffery provided only illusory coverage, the court did not address in that entry the other arguments presented by defendants in response to American Family's motion for summary judgment on its duty to provide coverage under the CGL policy. After considering these arguments, the court concludes that there is still a genuine issue of material fact as to whether American Family must provide insurance coverage for the motor vehicle collision on a theory of equitable estoppel under Indiana law.
The fatal collision between Jeffery's dump truck and the Burton and Taylor vehicles falls within the "automobile" exclusion of the CGL policy as written. That exclusion unambiguously bars coverage and leaves such matters for a separate automobile policy which, in this case, was voided by Jeffery's misrepresentation of facts material to the extent of his business and the risks that American Family would accept under the policy.
However, defendants contend that American Family is equitably estopped from denying coverage for the motor vehicle collision because of misrepresentations made by American Family insurance agents regarding the coverage provided by the CGL policy. "Equitable estoppel is a preclusion of asserting rights which otherwise might exist through a change of position by an innocent party. The facts necessary to establish equitable estoppel require a misrepresentation of past or existing facts such as would give rise to a claim for fraud." Egnatz v. The Medical Protective Co., 581 N.E.2d 438, 441 (Ind.App. 1991), citing Reeve v. Georgia-Pacific Corp., 510 N.E.2d 1378, 1382 (Ind.App. 1987).
Indiana courts have recognized that an insurer may be equitably estopped from denying coverage when the insurer's agent makes oral misrepresentations regarding the coverage provided by the policy and the purchaser reasonably relies on such misrepresentations. The Indiana Court of Appeals discussed the application of equitable estoppel under such circumstances in Village Furniture v. Associated Ins. Managers, Inc., 541 N.E.2d 306 (Ind.App. 1989). In that case, an insured furniture company brought an action to determine whether its insurance policy provided coverage for losses due to a fire at its furniture store. The insurer had denied coverage based on a "sprinkler clause," which precluded coverage for fire damage when an insured had turned off its sprinkler system. The insured's representatives admitted that they had never read the insurance policy. They claimed, however, that they had informed the insurer's agent about the company's previous problems with the sprinkler system freezing during cold weather and that the company was procuring insurance because of this problem. The parties agreed that the agent had never mentioned the sprinkler clause to the company representative's. Id. at 307.
The trial court granted summary judgment to the insurer, finding that the insured had a duty to read the insurance policy and "to inform itself about its contract of insurance." Id. at 308. The Indiana Court of Appeals reversed. The court recognized that, although an insured generally has a duty to read his insurance policy, an exception exists when an insurance company has "led the insured to believe that the specific coverage he had requested had been provided." Id. The court then quoted a Seventh Circuit case with approval:
It is true that courts in Indiana and elsewhere, realizing that many people do not read their insurance policies and, perhaps even more important, do not do so because the policies are unreadable, have held that the agent's oral representations at the time of sale can override the written terms of the policy. If the agent insists to the prospective purchaser that the policy will insure against a hazard . . . that the prospect is particularly concerned about, and the hazard materializes, the company may be estopped to plead the terms of the policy because the strength of the agent's oral assurances lulled the prospect into not reading, or reading inattentively, dense and rebarbative policy language.
Id. (emphasis in original), quoting Burns v. Rockford Life Ins. Co., 740 F.2d 542, 544 (7th Cir. 1984) (internal citations omitted). The Indiana court then concluded that a question of fact remained as to whether the insured reasonably relied on the insurance agent's representations. Village Furniture, 541 N.E.2d at 308. See also Page v. Hines, 594 N.E.2d 485, 487-88 (Ind.App. 1992) (citing Village Furniture and finding that, in insured's action against insurance agent for negligently failing to procure employer's liability insurance, a question of fact existed as to whether agent made representations that the insurance policy contained liability insurance).
In applying the doctrine of equitable estoppel in insurance coverage disputes, Indiana courts recognize an exception to the longstanding common law rule that a purchaser has a duty to read and understand the terms of his insurance policy. See Anderson Mattress Co. v. First State Ins., 617 N.E.2d 932, 940 (Ind.App. 1993) (noting that, although older cases imposed "an almost unconditional duty on the purchaser of a policy to acquaint himself with its contents and to understand them," more recent cases have "recognized exceptions to the rule"); accord, Plohg v. N N Investors Life Ins. Co., 583 N.E.2d 1233, 1237 (Ind.App. 1992) ("The traditional rule has been that reliance is not justified where the injured party has a written instrument available and fails or neglects to read it. On the other hand, we have come to recognize that in the modern world ordinary, i.e. reasonable, care does not necessarily require a person to read something as complex as today's insurance policies.") (internal citation omitted); Medtech Corp. v. Indiana Ins. Co., 555 N.E.2d 844, 849-50 (Ind.App. 1990) (noting that, although insured generally has a duty to learn the terms of her insurance policy, there are "certain exceptions to this duty" including "[r]easonable reliance upon an agent's representations").
Indiana courts have limited this exception to a party's duty to read a written instrument specifically to insurance policies. See, e.g., Wiggam v. Associates Financial Services, 677 N.E.2d 87, 90-91 (Ind.App. 1997) (noting that the court in Medtech had "explained that its holding was justified by the nature and complexity of insurance contracts," and distinguishing between "the terms of a complex insurance contract" and a "short, simple and unambiguous loan application form;" loan applicants were bound by the "unambiguous" terms of the written loan application); McWaters v. Parker, 995 F.2d 1366, 1374 (7th Cir. 1993) (refusing to apply Medtech exception to a release agreement because, as a matter of law, party unreasonably relied on insurance agent's statements regarding terms of release agreement: "The instant case does not involve a complicated insurance policy, but rather a half page release, identified as such in large bold print, warning the signer to read its contents.").
Defendants have presented evidence establishing a genuine issue of material fact as to whether American Family insurance agents made misrepresentations to the Jefferys regarding the coverage provided by the CGL policy. Renae Corrigan was one of the American Family agents who met with the Jefferys.
She testified that she was a "captive agent" for American Family, as she "only wrote American Family policies." Corrigan Dep. 7. Jeffery testified that he and his wife met with Corrigan three or four different times in 1996 regarding insurance issues. W. Jeffery Dep. 79; see Corrigan Dep. 7, 9.
Viewing the evidence in the light reasonably most favorable to defendants, the evidence shows that Beverly Jeffery specifically questioned Corrigan about the coverage provided by the CGL policy. Beverly testified as follows:
Q: Did you have any specific discussions with [Corrigan] as to whether [the CGL policy] would cover motor vehicle accidents?
A: I asked her what all it covered. She told me that it would cover, like he said, if you run your truck into a building and it burns someone's property down, or you run a piece of equipment into something and you damage someone else's property or someone. She basically explained it that it covered anything to do with our business whether it be equipment or a truck, one of the dump trucks.
* * *
Q: Did she say it would cover damage that was caused by one of the dump trucks, or did she say it would cover damage that was caused by a piece of equipment?
A: Both.
Q: Okay.
A: Anything that my husband uses in his business.
Beverly Jeffery Dep. 15-16 (emphasis added). Assuming for purposes of summary judgment that Corrigan told Beverly Jeffery that the CGL policy would cover "anything to do with" the Jefferys' business, including the use of dump trucks, this statement clearly contradicts the automobile exclusion contained in the Jefferys' CGL policy, which excludes coverage for any property damage for bodily injury resulting from the "use" of any "auto." See CGL ¶ 2(g).
Corrigan testified that she did not recall whether she told Beverly Jeffery that the CGL policy would pay for damages from the accident if the $250,000 automobile policy was not enough, see Corrigan Dep. 10, 24, 31, but she also testified that "it is probable" she made such a statement. Id. at 10. This statement also cannot be reconciled with the auto exclusion in the Jefferys' CGL policy.
Additionally, Beverly Jeffery gave the following testimony regarding her understanding of the CGL policy:
Q: Did you have any understanding at that point when you started to talk to Renae Corrigan as to what general liability insurance was?
A. Not really. I asked her to explain it to me.
* * *
Q: Well, did you then understand that if the dump truck were to cause an accident on a highway, that your understanding was that the general liability would cover it?
A: I understood that it would if this [the motor vehicle policy] was not enough.
* * *
Q: If it was your understanding that the general liability would cover vehicle accidents, why didn't you just get the general liability policy and not the vehicle policy?
A. Well, this was for his truck. I never thought we would ever need the general liability. I thought it was extra insurance is what I bought it for.
* * *
Q: I thought your understanding was that you were getting vehicle insurance under the general liability policy?
A: No. My understanding was that the general liability policy was no good unless you had vehicle insurance. It was something extra you purchased in case you ever needed it, which we never thought we ever would.
Beverly Jeffery Dep. 15-18. A jury could reasonably conclude from this testimony that, relying on statements made by Corrigan, Beverly Jeffery believed the CGL policy would provide "extra" coverage for motor vehicle accidents.
The Jefferys also met with Latricia Schooley, another "captive agent" for American Family, on more than one occasion to discuss insurance coverage. See Schooley Dep. 5, 9-10. The Jefferys' account was transferred to Schooley after the Jefferys became displeased with the way Corrigan handled their account. Id. at 32. The parties agree that after the motor vehicle accident, the Jefferys contacted Latricia Schooley to find out how much coverage they had for the accident. See Schooley Dep. 14. Schooley denies that she told the Jefferys that the CGL policy would provide coverage for the motor vehicle collision, see Schooley Dep. 15-16, 23-24. Jeffery testified, however, that Schooley told them they had a $250,000 automobile policy and that if this did not provide enough coverage, they had an extra $500,000 under the CGL policy. See W. Jeffery Dep. 87-88. This clearly would be an inaccurate statement about the terms of the CGL policy.
Additionally, as noted in the initial entry, Schooley's description of her conversation with the Jefferys after the accident further tends to show that the Jefferys believed the CGL policy would provide coverage for the motor vehicle accident. Schooley testified:
A: I told [the Jefferys] that the liability would not cover the accident; that the auto, which was separate from the general liability, would be the only coverage, the per occurrence limit.
Q: Did it seem to you that they thought the GL [general liability] policy would, in fact, cover it?
A: They didn't understand why it wouldn't cover it.
Q: Why didn't they understand?
A: We went through coverages, but I don't know why they didn't understand.
Q: Did it seem as though Renae-did it seem as though it was sold to them with the understanding it would cover?
A: I don't know.
Q: But they were clearly perplexed or confused when you told them, "No, there's no coverage"?
A: Yes, they were.
Schooley Dep. 23-24. Schooley's statements after the accident cannot support directly the defendants' claim of equitable estoppel because they could not have affected the Jefferys' decision to buy the CGL policy. However, evidence of these later conversations tends to corroborate the Jefferys' accounts of their earlier meetings with Corrigan. On this record, a jury could find that American Family misrepresented to the Jefferys that the CGL policy would provide coverage for motor vehicle accidents.
Nevertheless, American Family argues, even assuming its agents made misstatements about the Jefferys' coverage under the policy, these statements were not misrepresentations of past or existing fact because they pertained exclusively to the Jefferys' legal rights under the insurance contract. As noted above, equitable estoppel requires "a misrepresentation of past or existing facts such as would give rise to a claim for fraud." Egnatz v. The Medical Protective Co., 581 N.E.2d at 441. Under Indiana law, a claim for fraud cannot be based on a misrepresentation of law or on a promise to be performed in the future. See Peoples Trust Bank v. Braun, 443 N.E.2d 875, 877 n. 2 (Ind.App. 1983); accord, Travelers' Protective Ass'n of Amer. v. Smith, 107 N.E. 283, 287 (1914). Additionally, "mere opinion or prophecy cannot be the basis for an action of fraud." Medtech, 555 N.E.2d at 848; accord, Darst v. Illinois Farmers Ins. Co., 716 N.E.2d 579, 581-82 (Ind.App. 1999).
The Supreme Court of Indiana has criticized, in dicta, the distinction under Indiana law between a misrepresentation of law and fact. See Lawyers Title Ins. Corp. v. Pokraka, 595 N.E.2d 244, 249 (Ind. 1992) (recognizing that fraud cannot be based on a misrepresentation of law, but noting that "'the present tendency is strongly in favor of eliminating the distinction between [misrepresentations of] law and facts as useless duffle of an older and more arbitrary day' and toward 'recognizing that a statement as to the law, like a statement as to anything else, may be intended and understood either as one of fact or one of opinion only, according to the circumstances of the case.'"), quoting Prosser and Keaton, Torts § 109 (5th ed. 1984) (footnotes omitted). As the Seventh Circuit has explained, however, "because the Pokraka court expressly declined to eliminate the distinction, we think it appropriate to apply the law as it currently stands and to leave any major change in doctrine to the Indiana judiciary." Bowman v. City of Indianapolis, 133 F.3d 513, 518 (7th Cir. 1998).
In Darst v. Illinois Farmers, the Indiana Court of Appeals discussed the nature of an insurance agent's statements to an insured regarding coverage. The court distinguished such statements from those concerning matters other than the terms of the insurance policy. The insured in Darst argued that his insurer made misrepresentations of existing fact to him regarding a settlement offer for personal injuries the insured sustained in an automobile accident. The trial court granted summary judgment to the insurer on the insured's claims, including claims for constructive and actual fraud. The Indiana Court of Appeals affirmed. 716 N.E.2d at 580-82.
The court concluded that the insurance agent's statements to the insured regarding what would be a fair settlement offer "constituted expressions of opinion rather than fact." Id. at 582. The insured did not "call to obtain factual information regarding his policy or coverage, but, rather, . . . he called to obtain advice about the fairness of the settlement offer, meaning he called to get an opinion." Id. "The basis upon which a settlement may be determined to be fair is not written into any insurance policy." Id.
The court then distinguished the statements made by an insurer in Vernon Fire and Cas. Ins. Co. v. Thatcher, supra: "The statements made in Vernon were factual ones which were made with regard to the coverage of certain items of personal property under the insurance policy and 'which would have been known to the Company's agent and field representative before either made any statement concerning it.'" Id., quoting Vernon, 285 N.E.2d at 669.
The court also distinguished the statements made by an insurer in Medtech Corp. v. Indiana Ins. Co., supra. The court explained that the insurer in Medtech misrepresented the insurance company's claim procedures, and that such statements "concerning the plaintiff's insurance policy were of a factual nature and provided information with which he [the agent] should have been or was familiar and about which he spoke with an air of knowledge." Darst, 716 N.E.2d at 582 n. 3. After distinguishing a few other cases relied upon by the insured, the court concluded:
Further, in all three cases cited by [the insured], the misrepresentations were made regarding issues related to the essence of the relationship between the parties, i.e. misrepresentations regarding the coverage of or collection upon the policies that the plaintiffs in those cases had with the defendant companies. Thus, the plaintiffs in those cases had a reasonable right to rely upon the agents' misrepresentations. However, here the advice sought was not related to the essence of the relationship between the two parties. It was not a fact related to the policy which [the insured] maintained with Illinois Farmers, about which [the agent] should be expected to know. Rather, it was a request for the agent's advice as [to] a matter outside the limited scope of their relationship.
Id. at 583 (emphasis added). Thus, the insured in Darst had no right to rely on the agent's subjective opinion. Id.
In light of this Indiana case law, the court believes that the Supreme Court of Indiana would find that the statements made to the Jefferys by American Family insurance agents were statements of present fact, and not statements of law or of opinion. A jury could reasonably conclude from the testimony discussed above that American Family insurance agents made false statements of fact about what coverage was actually provided by the CGL policy, i.e., what terms were contained in the insurance contract. The question of whether certain terms are included in an insurance contract is distinguishable from the question of what legal rights a party to the contract may have based on those terms.
Just as the statements in Vernon were "factual ones which were made with regard to the coverage of certain items of personal property under the insurance policy," the statements allegedly made here were made with regard to the coverage of certain aspects of the Jefferys' business operations, including the use of motor vehicles. Darst, 716 N.E.2d at 582. Thus, the statements made by American Family agents were not about the Jefferys' legal rights under the CGL policy, but were statements containing factual information about the terms of the CGL policy. And, unlike the agent's statements in Darst regarding his opinion of a settlement offer, a "matter outside the limited scope" of his relationship with the insured, the statements made here addressed facts related to the policy itself, a matter clearly within the scope of American Family's relationship with the Jefferys.
Whether the Jefferys reasonably relied on any misrepresentations made by American Family agents and were therefore relieved of their duty to read and understand the terms of the CGL policy is a question of fact precluding summary judgment. See Anderson Mattress Co., 617 N.E.2d at 940 (finding that a question of fact remained as to whether an insurance agent's representation that a policy provided "blanket coverage" relieved the insured of his duty to read the policy); Plohg, 583 N.E.2d at 1237 (stating that "whether a party's reliance upon an agent's representations is reasonable even though he failed to exercise the opportunity to read the policy is a question of fact for the factfinder"); Medtech, 555 N.E.2d at 850 ("Reasonable reliance upon an agent's representations can override an insured's duty to read his insurance policy. Whether or not such reliance is reasonable is a question of fact.") (internal citations omitted). There is a clear disparity here in the "business sophistication" of the parties. Jeffery is a sole proprietor who has a sixth grade education. American Family drafted the CGL policy disputed here. On this record, a jury could find that the Jefferys reasonably relied on any misrepresentations made by American Family agents.
American Family argues further that even if its agents misrepresented the terms of the CGL policy, there is no evidence that the Jefferys relied in fact on these statements to their detriment. In other words, American Family contends there is no evidence that, if the Jefferys had known the CGL policy did not provide motor vehicle liability coverage, they would not have purchased the policy. American Family relies on Beverly Jeffery's testimony that when she began talking to American Family agents, she had the specific intent of purchasing general liability insurance because it was required by some of Jeffery's customers. See Beverly Jeffery Dep. 39. Looking at the evidence in the light reasonably most reasonable to the Jefferys, however, a jury could reasonably conclude that the Jefferys were induced to purchase the CGL policy by the statements of American Family agents. As discussed above, Beverly Jeffery testified that, based on her conversations with Corrigan, she thought the CGL policy provided "extra insurance" for her husband's business. This business is parking lot and driveway paving, which necessarily requires the use of motor vehicles, such as a dump truck to haul asphalt. With this understanding of Jeffery's business, a jury could reasonably find that, if the Jefferys had known the CGL policy would not provide coverage for claims relating to the use of their dump truck, they would not have purchased the policy.
American Family also argues that, even if its agents misrepresented the coverage provided by the CGL policy, and the Jefferys relied on such misrepresentations to their detriment, it cannot be estopped from raising policy defenses because equitable estoppel cannot be used to create insurance coverage where none exists. The court disagrees. Indiana does follow "the general rule that the doctrine of estoppel is not available to create or extend the scope of coverage of an insurance contract." Employers Ins. of Wausau v. Recticel Foam Corp., 716 N.E.2d 1015, 1028 (Ind.App. 1999), citing Transcontinental Ins. Co. v. Manta, Inc., 714 N.E.2d 1277, 1281 ( Ind. App. 1999). However, Indiana courts have recognized two exceptions to this rule. "The first exists when an insurer misrepresents the extent of coverage to an insured, thereby inducing the insured to purchase coverage which does not in fact cover the disputed risk." Recticel Foam Corp., 716 N.E.2d at 1028, citing Manta, Inc., 714 N.E.2d at 1281; see also Huff v. Travelers Indem. Co., 363 N.E.2d 985, 992 (Ind. 1977) (finding that insurer was estopped from asserting vacancy exception in insurance contract where insurer's agent knew that the insured's building was vacant at the time coverage was purchased).
The second exception, that an insurer may be estopped from raising the defense of noncoverage when it assumes the defense of an action on behalf of its insured without a reservation of rights, but with knowledge of facts which would have permitted it to deny coverage, is not applicable here. See Recticel Foam Corp., 716 N.E.2d at 1016.
As explained above, a jury could reasonably conclude from the evidence presented that American Family agents misrepresented to the Jefferys that the CGL policy provided coverage for automobile accidents and that this misrepresentation induced them to purchase the CGL policy. If a jury were to reach this conclusion, the Jefferys would fall under the exception in Indiana law permitting the doctrine of equitable estoppel to create or extend the scope of coverage of an insurance contract.
Finally, American Family contends that it cannot be held vicariously liable for any misrepresentations made by its agents because it had no notice that its agents had made such statements. American Family relies on Vernon Fire and Cas. Co. v. Thatcher, supra, and Town Country Mut. Ins. Co. v. Savage, 421 N.E.2d 704 (Ind.App. 1981). Vernon considered whether an insurance agent had the authority to inform applicants about the coverage provided by an insurance policy so as to bind the insurance agency by the agent's statements. 285 N.E.2d at 670. Town Country addressed whether an insurance agent has a duty to exercise reasonable care in procuring an insurance policy. 421 N.E.2d at 707. The courts in both cases relied on language in a Tenth Circuit decision holding that an insurance company could not be bound by the representations made by an agent outside of his authority if the representations had never come to the company's attention. See Cadez v. General Cas. Co. of America, 298 F.2d 535, 537 (10th Cir. 1961). The Tenth Circuit concluded in Cadez that, because the insurance agent had the limited authority only to solicit insurance, or to "receive and accept proposals" for insurance, he had no authority to make statements about the coverage provided by an insurance policy. Id. Thus, because the company was unaware of his statements about coverage, it could not be bound by such statements. Id. The court also stated, however, that "we have no doubt that negligent representations as to policy coverage when made by a general agent or by a policy-writing agent are binding upon the agent's principal." Id.
American Family's reliance on language from the Tenth Circuit's opinion in Cadez is not persuasive here. First, the Indiana Court of Appeals in Vernon specifically questioned the principle that "the authority to solicit insurance does not carry with it, as a power impliedly incidental thereto, the apparent authority to state what the policy covers." Vernon, 285 N.E.2d 710. The court also noted that there was "no case in Indiana in which those principles have been applied to insulate the company from liability for its soliciting agent's false representation of policy coverage." Id. Second, the court did not ultimately have to decide whether to follow the Tenth Circuit's reasoning because there was evidence in the record from which the insurance company's knowledge of its agent's representations as to coverage could be implied. Id. Thus, contrary to American Family's argument, Vernon did not adopt and apply the Tenth Circuit's reasoning in Cadez.
American Family's reliance on Town Country for the proposition that Indiana courts follow the notice requirement imposed by the Tenth Circuit in Cadez is also unpersuasive. The court in Town Country found there was sufficient evidence in the record to support the trial court's finding that an insurance company was liable for its agent's failure to use reasonable care in procuring insurance coverage. Town Country, 421 N.E.2d at 707-08. The court therefore affirmed the trial court's ruling that the insurance company was negligent in failing to procure insurance. The court also affirmed the trial court's finding that the insured was not contributorily negligent for failing to read his policy. Id. However, the insurance company's notice of its agent's alleged misrepresentations was not even addressed by the court.
The recent Indiana cases discussed above that address the effects of an insurance agent's misrepresentations to an insured regarding the terms of an insurance contract do not require that an insurer have notice of his agent's statements before the insurer can be held vicariously liable for any misstatements. In fact, the issue of notice to an insurer of such misstatements is not discussed in any of the recent Indiana cases on point here. See, e.g., Anderson Mattress Co., 617 N.E.2d at 940; Page v. Hines, 594 N.E.2d at 487-88; Village Furniture, 541 N.E.2d at 308. Additionally, unlike the insurance agent in Cadez, there is no allegation here that American Family agent Corrigan had the limited authority only to solicit insurance, or to "receive and accept proposals." American Family management did not need to have actual notice of its agents' statements about the Jefferys' CGL policy as a condition of finding equitable estoppel.
Conclusion
For the foregoing reasons, American Family's motion to reconsider is granted and the court finds as a matter of law that the CGL policy did not provide only illusory coverage under Indiana law. However, American Family's motion for summary judgment, as well as defendants' motion for entry of judgment in their favor, are both denied.
So ordered.