Justices take certified question on coverage of ‘negligent’ insureds

The Indiana Supreme Court will provide clarification on two conflicting rulings related to insurance coverage for parties accused of acting negligently when a co-insured is accused of acting intentionally or criminally.

The justices Tuesday accepted a certified question from the U.S. District Court for the Northern District of Indiana in American Family Mutual Insurance Company v. Dustin McCowan, et al., 2:14-cv-46. The case began when Dustin McCowan fatally shot Amanda Bach in 2011 and was convicted of her murder in 2013.

At the time of the murder, McCowan lived in his parents’ home, which was covered under an American Family Mutual Insurance Company homeowners policy. The policy carved out coverage exclusions for “bodily injury … caused intentionally by … any insured” and for “bodily injury … arising out of … violation of any criminal law for which any insured in convicted.”

The scope of those exclusions became relevant in March 2013, when Bach’s parents sued McCowan for negligently, carelessly, recklessly and/or intentionally shooting their daughter, and his father, Joseph, for negligently failing to secure the firearm that was used in the murder. American Family responded with a complaint against the McCowans, a seeking declaratory judgment that it had no obligation under the policy to either Dustin or Joseph.

The district court granted summary judgment to American Family on that issue as it related to Dustin, but not as it related to Joseph. Relying on the Indiana Supreme Court’s ruling in Frankenmuth Mutual Insurance Co. v. William, 690 N.E.2d 675 (Ind. 1997), the court determined that the “intentional injury” exclusion did not preclude coverage of a co-insured who is accused only of negligence, such as Joseph.

Following that ruling, Joseph moved to certify to the Indiana Supreme Court the question of whether the “violation of law” exclusion could preclude coverage of co-insureds accused of negligence. The district court agreed in March to certify the following question to the Supreme Court: “Under Indiana law, does the American Family Policy serve to provide a duty to defend and indemnify an insured being sued only for negligence, notwithstanding any intentional or criminal acts of a co-insured which result in the exclusion of coverage for that co-insured, in light of the severability clause in the Policy?”

While Frankenmuth does not specifically address severability clauses, it “supports the notion that courts should look at each co-insureds’ conduct separately when analyzing a policy’s exclusions,” the district court determined. But that holding conflicts with Holiday Hospitality Franchising, Inc. v. AMCO Ins. Co., 983 N.E.2d 574 (Ind. 2013), where the high court held that coverage was excluded as to all insureds based on the phrase “any insured” in the policy.

“However, since the decisions do not specifically address one another, and because the reasoning provided in each opinion regarding these issues is relatively brief, it is difficult for … this court to determine where such factual distinctions should be drawn,” Judge James T. Moody wrote in March.

In its Tuesday order accepting certification, the Supreme Court instructed counsel for both sides to file their briefs and appendices by June 15, with extensions granted only in “truly extraordinary circumstances.” Oral argument was scheduled for June 28 at 9:45 a.m.

The Supreme Court previously ruled in the McCowan case in 2015 when it handed down its decision in Dustin E. McCowan v. State of Indiana, 64S03-1408-CR-516. The justices upheld McCowan’s murder conviction after he argued that the trial court should have given his proffered jury instruction related to the presumption of innocence.

Though the court upheld McCowan’s conviction, it used the decision to impose an instruction that every criminal defendant must now receive upon request: “The presumption of innocence continues in favor of the defendant throughout the trial. You should fit the evidence to the presumption that the defendant is innocent if you can reasonably do so.”