Lift-A-Loft Corp. v. Rodes-Roper-Love Insurance Agency

Citations: 975 F.2d 1305; 1992 WL 232306Docket: Nos. 91-3287, 91-3392

Court: Court of Appeals for the Seventh Circuit; September 22, 1992; Federal Appellate Court

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Lift-A-Loft Corporation and Lift-A-Loft Manufacturing, Incorporated appeal a district court's summary judgment against them in their case against Rodes-Roper-Love Insurance Agency, Incorporated (RRL). RRL cross-appeals against Fogelman-Oseman Insurance Agency and Stephen Oseman, seeking to reverse a summary judgment related to indemnification claims. The court affirms the judgment on negligence and breach of contract claims but reverses the summary judgment on the fraud claim, remanding it for further proceedings. The fraud claim's survival leads to a reversal of the district court's decision regarding third-party liability.

Lift-A-Loft sought replacement general liability insurance after Reliance Insurance Company declined to renew its policy. Steve Oseman, Lift-A-Loft’s agent, solicited quotes, including one from American Interinsurance Group, and received a binding offer from Allied Fidelity Insurance Company for $500,000 coverage. Oseman was informed by RRL's underwriter, David Tooley, that Allied would be nonrated due to a dispute over its financial statements, though Tooley later denied discussing this rating with Oseman. A proposal was presented to Lift-A-Loft's Vice-President, Francis Clarke, who only saw the premium summary and was misled to believe both policies offered $1,000,000 in coverage, despite Oseman not disclosing critical details about the policies.

Clarke testified that Oseman assured him that Allied was a reputable company and did not disclose that Allied would be nonrated in the upcoming Best’s Key Rating Guide to Insurers. Ralph Dennis, Lift-A-Loft’s CEO, corroborated this by stating that during a meeting with Oseman, he was not informed that the quote from American offered $1,000,000 coverage compared to Allied’s $500,000. Dennis further noted that Oseman characterized both insurance companies as comparable and did not mention their Best ratings. Oseman, however, claimed he reviewed the entire insurance proposal with Clarke, detailing both quotes and their limits, and asserted he informed Clarke about Allied's nonrated status, to which Clarke responded he was already familiar with Allied.

Lift-A-Loft opted for the Allied policy, which was delivered on July 17, 1985, providing coverage until March 1, 1986. On March 6, 1986, Allied was ordered into rehabilitation by the Marion County Circuit Court, and Lift-A-Loft was informed shortly thereafter. By July 1986, following an order of liquidation for Allied, Lift-A-Loft realized it no longer had general liability coverage, despite several claims arising under the policy before its termination. Three of five claims related to the Allied policy were addressed by guaranty funds, leaving Lift-A-Loft unaware of the full extent of its damages.

Details of the Doman claim emerged after Lift-A-Loft received notice on November 6, 1986, that Allied was not authorized to operate in Illinois, which precluded the claim from being recognized as "covered" under Indiana law. Subsequent correspondence with the Indiana Insurance Guaranty Association revealed that they would not handle the Doman claim, and Lift-A-Loft continued to engage with them over the next two years. Ralph Dennis's affidavit indicated that Lift-A-Loft incurred legal expenses related to claims from the coverage period as early as May 28, 1987, although it remains unclear if this was specifically related to the Doman claim.

On May 1, 1987, Lift-A-Loft initiated a four-count lawsuit in federal court against RRL, asserting claims based on misrepresentation, breach of contract, negligent insurance placement, and seeking a determination of RRL's obligations under an insurance policy. RRL responded on August 25, 1987, and later amended its answer to include a third-party complaint against Oseman for indemnification, which the court permitted on October 22, 1990. RRL subsequently raised a statute of limitations defense, which the district court accepted on April 8, 1991. Following RRL's motion for summary judgment on the statute of limitations issue, the court ruled in RRL's favor on September 19, 1991, also granting summary judgment for Oseman regarding indemnification. Lift-A-Loft appealed on October 2, 1991, with RRL filing a cross-appeal on October 15, 1991.

The court addressed three main issues: the applicability of the statute of limitations, the accrual date of Lift-A-Loft’s claims, and the implications for Oseman's indemnification. It upheld the district court's application of a two-year statute of limitations for Lift-A-Loft’s negligence and contract claims, which Lift-A-Loft conceded was correct. The court also agreed that Lift-A-Loft’s claims accrued by January 23, 1987, when it received notice from the Indiana Insurance Guaranty Association. However, it found that summary judgment on the fraud claim was inappropriate and remanded that issue for further consideration. Consequently, due to the reversal on the fraud claim, the ruling on RRL’s indemnification from Oseman was also reversed.

The district court's summary judgment decision is reviewed de novo, affirming if there is no genuine issue of material fact and the moving party is entitled to judgment as a matter of law. The court applied the two-year statute of limitations from Ind.Code. 34-1-2-2(1) to all counts in Lift-A-Loft’s complaint, which pertains to personal property injuries. Lift-A-Loft acknowledged this statute applies to its negligence claim but contended that the six-year statute under Ind.Code. 34-1-2-1 should apply to its fraud and contract claims. However, the district court determined that the essence of Lift-A-Loft’s claims was malpractice, thus meriting the two-year statute. This conclusion aligns with Indiana precedent, notably Shideler v. Dwyer, which emphasized that the nature of the cause of action dictates the applicable statute of limitations, regardless of how claims are labeled. Similarly, Butler v. Williams reinforced this principle by applying the shorter statute to a negligence claim against an insurance agent, despite the allegation of breach of contract. Lift-A-Loft argued its claims were based on substantial factual grounds rather than mere allegations, but Indiana courts have clarified that the statute of limitations is determined by the nature of the harm. Whitehouse v. Quinn emphasized that the nature of the alleged harm dictates the applicable statute, regardless of whether a written contract exists, as the claim was ultimately for damage to personal property interests.

RRL contends that Lift-A-Loft’s allegations of fraud and breach of contract are vague and merely reiterate claims of negligence, arguing that the essence of Lift-A-Loft’s complaint is that Oseman should have advised the purchase of the American policy over the Allied policy, which constitutes a malpractice claim. RRL asserts that the alleged harm is uniform across all counts and that Lift-A-Loft’s claims should adhere to a two-year statute of limitations as established in Indiana case law, specifically referencing the Whitehouse, Butler, and Davis cases. These precedents support applying a two-year limitation to negligence and tort claims, which effectively characterize Lift-A-Loft’s complaint as malpractice.

However, the court’s stance on the fraud count differs. It notes that the district court initially denied RRL’s motion to dismiss the fraud count for lack of specificity, but later ruled Lift-A-Loft's claims were essentially for malpractice. The court emphasizes that the determination of whether a claim states a cause of action under procedural rules differs from evaluating the substantive nature of the action for limitations purposes. While the district court's view might have merit, it would be erroneous to apply the two-year malpractice statute to fraud claims when sufficient evidence exists to support a fraud cause of action, which is subject to a six-year limitation per Indiana law. The court finds that the district court did not properly address the substance of the fraud claim or whether genuine material facts existed. Consequently, it reverses the district court's decision on the fraud count and remands for further proceedings, underscoring the necessity to apply the correct six-year statute of limitations for fraud.

The district court determined that Lift-A-Loft's cause of action accrued before May 1, 1987, specifically as early as January 23, 1987. If this is accurate, Lift-A-Loft's claims in negligence and contract, filed on May 1, 1989, were too late under the two-year statute of limitations for malpractice suits. The Indiana Supreme Court's rulings in Shideler and Butler support that a cause of action arises when damage occurs, regardless of the extent of that damage. The district court found that Lift-A-Loft became aware of Allied's rehabilitation in March 1986 and its impending liquidation in July 1986, with definitive knowledge of lack of insurance coverage on January 23, 1987. Although Lift-A-Loft argued that its claims did not accrue until it incurred expenses on May 28, 1987, the court found that it should have accrued earlier, potentially at the time of Allied’s liquidation, as Lift-A-Loft realized it had no general liability insurance by then. Consequently, if the liquidation date in July 1986 is taken as the accrual date, the claims were indeed filed too late. The court upheld the district court's conclusion regarding the accrual date while also addressing Oseman’s third-party liability to RRL, noting that Oseman was not liable if RRL was not. Following the reversal of the district court's decision on the fraud count, the basis for Oseman’s summary judgment no longer stands, requiring a reversal of that decision as well.

The district court's summary judgment in favor of RRL is affirmed regarding Lift-A-Loft’s negligence and breach of contract claims, as these claims were filed after Indiana's two-year statute of limitations expired, given their accrual before May 1, 1987. However, the decision on Lift-A-Loft's fraud claim is reversed due to the existence of a genuine issue of material fact and the application of a six-year statute of limitations for fraud, which renders the claim timely. Consequently, the summary judgment favoring the third-party defendants is also reversed, as it was based on the finding that RRL was not liable for any claims from Lift-A-Loft. The possibility of RRL’s liability on the fraud claim necessitates this reversal. Regardless of whether a July 1986 or January 23, 1987, accrual date is considered, Lift-A-Loft's fraud claim remains timely. Each party will bear its own costs. The ruling is affirmed in part, reversed in part, and remanded.