Opinion rules on 2 issues of first impression

The Indiana Court of Appeals was faced with two issues of first impression in one opinion – the meaning of Indiana
Code Section 27-9-3-34(d) and whether a party is entitled to a jury trial for disputes concerning claims in liquidation proceedings.

In Carol Cutter, as the Commissioner of the Indiana Department of Insurance v. Classic Fire & Marine
Insurance Co. v. J.W., et al., No. 49A05-0906-CV-315, Indiana company Classic Fire & Marine Insurance
issued a general liability policy to Alaska corporation Allvest in 1995 for one year. During its policy coverage, Allvest
let CFM know that women were going to file claims of sexual molestation against an Allvest employee. In 1998, the Indiana
Department of Insurance’s petition for liquidation against CFM was granted.

Allvest’s claim for indemnification from CFM under the policy was identified as disputed claim 83, which the Allvest
bankruptcy estate sold to the women’s attorney. Allvest was placed in involuntary Chapter 11 bankruptcy in Alaska several
years after the women filed their claim. The women, known as the J.W. claimants, got final judgments against Allvest totaling
more than $1.22 million before Allvest went into bankruptcy. The bankruptcy court awarded them more than $430,000.

The J.W. claimants wanted a jury trial on the disputed claim and argued they were entitled to full faith and credit in the
Indiana insolvency proceedings based on the Alaska judgments. In 2006, the Alaska bankruptcy court approved more than $555,000
from Allvest’s bankruptcy estate for the J.W. claimants, which the Department of Insurance as liquidator objected to
based on double recovery. The trial court agreed with the liquidator and dismissed disputed claim 83.

The appellate court ruled that the J.W. claimants’ claim against Allvest and Allvest’s claim against CFM are
two separate, distinct claims, so a distribution on the disputed claim 83 won’t result in a double recovery. The trial
court erred in its decision.

With respect to judgments or orders entered against an insured, such as Allvest in CFM’s liquidation proceedings, Indiana
Code Section 27-9-3-34(d) says “The following do not need to be considered as evidence of liability or the measure of
damages: A judgment or order against an insured or the insurer entered after the date of filing a successful petition for
liquidation.”

The liquidator argued the J.W. claimants have to prove their claim against Allvest from scratch; the J.W. claimants argued
the Alaska judgments are entitled to full faith and credit. Since it’s first impression for Indiana courts, the judges
looked to Montana and Pennsylvania cases, which held a judgment or order against an insured filed after a successful petition
for liquidation against the insurer isn’t conclusive of liability or the quantum of damages. In CFM’s liquidation
proceedings, the Alaska judgments aren’t conclusive evidence of liability or the measure of damages, the COA judges
concluded.

The judges noted that the statute doesn’t prohibit a judgment or order against an insured or an insurer entered after
the date of filing a successful petition for liquidation from being considered as evidence of liability or the measure of
damages.

“The particular facts of each case, the legal issues involved, and the Indiana Rules of Evidence should be used to
determine whether such a judgment or order may be considered as evidence of liability or the measure of damages,” wrote
Judge Terry Crone.

In the other matter of first impression, the appellate judges ruled that a party isn’t entitled to a jury trial for
disputes concerning claims in liquidation proceedings. I.C. Section 27-9-3-37(b) prescribes a hearing before a judge, not
a jury.

The case was remanded for further proceedings.