May 30, 2023   •   News

Insurance Coverage Case Law – Weekly Update “May 20, 2023 – May 26, 2023”

By Ryan T. Leagre

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May 30, 2023   •   News

Insurance Coverage Case Law – Weekly Update “May 20, 2023 – May 26, 2023”

By Ryan T. Leagre

Last week, Indiana courts issued two opinions on insurance disputes and one opinion on a surety dispute. First, the Northern District of Indiana denied a bond company’s motion for summary judgment on whether it had to pay a subcontractor’s claim for equipment rental when that equipment was not actually used during the disputed period. Second, the Southern District of Indiana denied a health insurance company’s motion to dismiss a claim for unjust enrichment based on the insurer’s refusal to pay “out-of-network” emergency physicians at their full rates for emergency medical services. Third, the Indiana Court of Appeals held that Safeco, as a subrogee of its insured, could assert third-party spoliation and negligence claims against a fire remediation contractor for destroying a piece of equipment that may have caused the fire.

Summaries of each decision are below.

McLean Contr. Co. v. Great Am. Ins. Co., (N.D. Ind. May 24, 2023)

Case Overview: A subcontractor, McLean, asserted claims against a surety, Great American Insurance Company, for failure to honor obligations under a payment bond. The dispute arose when the owner of a construction project terminated its contract with the general contractor but then asked the subcontractor to keep its equipment (cranes and a barge, among other items) on site and available if the general contractor was able to reinstate its contract. The subcontractor sought reimbursement for the cost ($781,851.83) to keep its equipment on standby for roughly two months. The payment bond required Great American to “pay for labor, materials and equipment furnished for use in the performance of the Construction Contract.” Great American moved for summary judgment. It argued that it was not required to pay the subcontractor’s standby costs because the equipment was not “used” and therefore the claim did not fall within the terms of the bond.

Ruling:  The court denied Great American’s motion for summary judgment. It noted that the payment bond did not require the equipment to be “furnished and used” but rather only “furnished for use.” That the equipment was not used was not determinative. The court held that, when viewing the evidence in the light most favorable to the subcontractor, a reasonable jury could find that the subcontractor was unaware of the termination of the main contract and that it kept its equipment on site for use as requested by the owner of the project.

Citation:  2023 U.S. Dist. LEXIS 90699

ECure v. United Healthcare Insurance Company, (S.D. Ind. May 25, 2023)

 Case Overview: For years, the St. Vincent Emergency Physicians, Inc. practice group provided emergency medical services to members of United Healthcare’s insureds. The Physicians were “out-of-network” providers, meaning they did not have a contract with United and they did not agree to accept discounted reimbursements. The Physicians billed their full rates to United’s insureds, but United only reimbursed a portion of the amounts billed. ECure purchased the reimbursement claims and sued United seeking to recover the unpaid balance, asserting its claims based on unjust enrichment and suit on an account. United filed a motion to dismiss, arguing that ECure failed to allege all necessary elements of its unjust enrichment claim and that it failed to allege the existence of an account.

Ruling: The court granted in part and denied in part United’s motion to dismiss. The court held that ECure adequately pleaded a claim for relief and that it alleged the necessary elements of unjust enrichment. Under Indiana law, a plaintiff alleging unjust enrichment must show: (1) a benefit conferred upon another at

the express or implied request of the other party; (2) allowing the other party to retain the benefit without restitution would be unjust; and (3) the plaintiff expected payment. United argued that the physicians only conferred a benefit on United’s insureds, not on United itself, and thus the first element was missing. The court rejected this argument, at least at the pleadings stage, because this is an issue of first impression in Indiana and there is persuasive authority from other jurisdictions finding that rendering medical services to an insurance company’s insureds does confer a benefit on the insurance company. For this and other reasons, the court held that ECure could maintain its unjust enrichment claim against United. However, the court dismissed ECure’s “suit on account” claim, finding that there was no agreement between the Physicians and United on which to bring a claim.

 Citation: 2023 U.S. Dist. LEXIS 91562

 Safeco Ins. Co. v. Blue Sky Innovation Group, (Ind. Ct. App. May 25, 2023)

 Case Overview:  Safeco Insurance Company of Indiana, as subrogee of Ramona Smith, appealed the trial court’s order granting Michaelis Corporation’s Trial Rule 12(B) motion to dismiss. Safeco sued Michaelis for spoliation after Michaelis, a fire remediation contractor, destroyed a piece of equipment that may have caused the fire that damaged the insured’s home. Safeco argued that the trial court erred in granting the motion to dismiss because Safeco properly asserted claims of third-party spoilation and negligence. The Court heard oral argument on May 9, 2023.

Ruling: The Court of Appeals reversed the trial court’s determination, finding that Safeco’s claims were sufficient to withstand a motion to dismiss. To prevail on a third-party spoliation claim, the plaintiff must show that the third party owed a duty to preserve the evidence in question. To determine whether this duty exists, courts examine (1) the relationship between the parties, (2) the reasonable foreseeability of the type of harm to the type of plaintiff at issue, and (3) the public policy promoted by recognizing an enforceable duty.” Because Safeco alleged that Michaelis was informed of the need to preserve the evidence and took steps to preserve it before ultimately discarding or destroying it, the Court held that Safeco had sufficiently alleged that a duty to preserve the evidence existed. As such, Safeco could pursue both its third-party spoliation and negligence claims against Michaelis.

Citation: 2023 Ind. App. LEXIS 157

 Indiana GRQ, LLC v. Amer. Guar., (N.D. Ind. May 26, 2023)

 Case Overview: A property owner sued seven insurance companies after flooding caused damage to its South Bend facility. The property owner sued for the cost to perform electrical repairs, the cost to remediate PCBs, and for damages for the insurers’ breach of their duty of good faith and fair dealing.

Jury Verdict: The jury returned a verdict in favor of the policyholder on all claims. The jury awarded the following damages against the insurers:

  • Compensatory Damages for Electrical Damages = $11,577,827
  • Compensatory Damages for Environmental Damages = $13,141,216
  • Punitive Damages against American Guarantee = $12,500,000
  • Punitive Damages against Interstate Fire and Cas. Co.  = $12,500,000
  • Punitive Damages against Starr Surplus Lines Ins. Co. = $12,500,000
  • Punitive Damages against Chubb Custom Ins. Co. = $12,500,000
  • Punitive Damages against General Security Indem. Co. = $12,500,000
  • Punitive Damages against Axis Surplus Ins. Co. = $12,500,000
  • Punitive Damages against Ironshore Specialty Ins. Co. = $12,500,000

Total Damages Award = $112,219,043

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