COA affirms for New Hampshire insurer in AES coverage dispute

An Indianapolis electricity company had its appeal zapped Monday by the Court of Appeals of Indiana after being denied a request for declaratory judgment in a coverage dispute against its former insurer.

In August 2021, AES Indiana filed a complaint against The Home Insurance Co. and other insurance companies seeking insurance coverage for claims arising from its handling of coal combustion residuals.

AES Indiana claimed Home had a duty to defend and reimburse it for ongoing defense costs against “covered claims relating to coal combustion residual liabilities” pursuant to two insurance policies issued by Home to AES Indiana between 1971 and 1976.

The energy company specifically alleged there was a breach of contract based on Home’s perceived failure to provide coverage; a declaratory judgment, seeking a determination that the claims were covered under Home’s policies; and unfair claims practices and a breach of the duty of good faith.

However, Home, a New Hampshire corporation, was liquidated years earlier after the  Merrimack Superior Court in New Hampshire issued an order of liquidation in 2003 upon a finding that Home was insolvent pursuant to the New Hampshire Insurers Rehabilitations and Liquidation Act.

As part of that court order, all persons and entities were “permanently enjoined and restrained from” commencing or continuing any judicial action or proceeding against Home.

Home moved to dismiss AES’s complaint in November 2021, which AES partially consented to regarding the breach of contract claim and the unfair claims practices and breach of the duty of good faith. It objected to the dismissal of the declaratory judgment claim, arguing that Home was a necessary party pursuant to Indiana Trial Rule 19.

The Marion Superior Court ultimately granted Home’s motion to dismiss, which the Court of Appeals of Indiana affirmed in Indianapolis Power & Light Company (d/b/a AES Indiana) v. The Home Insurance Co., et al., 22A-PL-1211.

Citing and reaching a similar conclusion made in Church v. State, 189 N.E.3d 580, 588 (Ind. 2022), the appellate court acknowledged that Indiana’s insurance liquidation statutes “are a blend of substantive rights and procedural mechanisms” that “confer the right on claimants to file a claim against insolvent insurance companies.”

“In support of its argument that Indiana’s insurance liquidation statutes merely involved the ‘orderly dispatch of judicial business,’ AES Indiana points to the fact that, ‘[i]n its filings with the trial court, Home several times identified the liquidation process as a procedure.’ However, this is exactly what the Church court cautioned against and was the reason the court developed its predominant objective test as ‘the terms ‘substance’ and ‘procedure’ precisely describe very little except a dichotomy, and what they mean in a particular context is largely determined by the purposes for which the dichotomy is drawn,’” Judge Patricia Riley wrote.

“Accepting AES Indiana’s analysis would result in subjecting insurers in liquidation to pursue piecemeal litigation of a multiplicity of claims across the country rather than to employ its assets for the benefits of claimants by centralizing the claims within one designated forum,” Riley continued.

Finding that AES is mandated to file its claim against Home in the New Hampshire liquidation proceeding, the COA concluded that the relevant provisions of Indiana’s Insurance Code at issue were not matters of procedure, but rather “substantive laws restricting the judiciary’s exercise of its jurisdiction over an industry that is legislatively regulated and controlled.”

“The statutes at issue reflect ‘clear legislative policy’ to manage the rights of claimants with respect to insolvent insurers and are not statutes that merely control the ‘judicial dispatch of litigation.’ As they establish predominately substantive rights and protections, Indiana Code sections 27-9-4-3(c) and 27-9-3-12(b) take precedence over Trial Rule 19,” judges concluded.

The appellate court therefore concluded that AES’s complaint was properly dismissed.