Appellate court rules for insurer in coverage dispute

Summary judgment has been upheld for an insurer who denied coverage on the basis of an invalid lease, even though the insurer had partially granted coverage when the claim was originally filed.

After transferring their ownership of a Leesburg property to a trust overseen by David Holsclaw, David and his wife Darlene Holsclaw – sole shareholders and officers of Nuell Inc. – executed on Nuell’s behalf a written lease on the property for the 2015 calendar year. The Holsclaws signed the lease as the landlord, and David signed separately as the tenant in his capacity as Nuell’s executive vice president.

Nuell obtained an insurance policy on the property from Property-Owners Insurance Company. The policy noted that the insurer “will not pay you more than your financial interest in the covered property.”

After Timothy Marsillett drove his vehicle through a concrete barrier and struck a building on the Nuell property, Nuell filed an insurance claim. The claim was initially approved as to the building, and two checks totaling $37,689.99 were distributed. However, Property-Owners denied the claim as to the concrete barrier.

Nuell did not cash the checks but instead challenged the partial denial of coverage, filing a complaint for declaratory judgment in May 2016. As that case proceeded, Property-Owners received a copy of the lease and then sent a letter saying it had “no obligation to pay property damage proceeds” because Nuell did not own the building or barrier.

Nuell responded with a “supplemental complaint” seeking a declaration that Property-Owners was required to cover damage to the building and the barrier. It also sought punitive damages for a breach of Property-Owners’ duty of good faith and fair dealing.

The insurer moved for summary judgment, alleging the property was leased from the Holsclaws but owned by the trust. Thus, it argued, Nuell did not have a financial interest in the property as required by the insurance policy.

In response, Nuell claimed that even if it did not have the required financial interest, Property-Owners had waived or was estopped from relying on that provision because it initially approved the claim as to the building.

The Kosciusko Circuit Court entered summary judgment for Property-Owners, finding there was no valid lease agreement between the owner of the property – specifically, the trust – and Nuell. The Indiana Court of Appeals affirmed Tuesday in Nuell, Inc. v. Timothy D. Marsillett and Property-Owners Insurance Company, 20A-PL-1427.

“The designated evidence demonstrates that, while the trust owns the property, the trust did not enter into the lease agreement,” Judge Edward Najam wrote. “Rather, David and Darlene, who no longer have an interest in the property, signed the lease.

“… In that David and Darlene do not own the property, they do not have lawful authority to enter into a lease on the property,” Najam continued. “Because the owner of the property was not a party to the lease, the lease was invalid.”

Nuell argued the lease was valid because it was signed by David, “who holds both legal title to the property as trustee and equitable title as beneficiary.”

But “it was only David acting as trustee – not David as an individual or David as a trust beneficiary – who had the authority to lease the property to Nuell,” Najam wrote. “But David did not sign the lease as trustee. Rather, as David acknowledged in his deposition, he signed the lease ‘personally.’”

Further, Najam continued, “Nuell has not directed us to any case law, and we find none, to support its contention that a lease is valid when it is only signed by the tenant and where the purported landlord did not in fact own the property or otherwise have authority to enter an agreement to lease the property. David’s signature on behalf of Nuell is not sufficient to create a valid lease between Nuell and the trust.”

The COA likewise rejected Nuell’s argument that an oral lease existed between it and the trust.

Nuell’s waiver/estoppel argument also failed on appeal, with the panel noting that Property-Brothers did not see the lease for almost two years after the accident. Nuell, however, knew or should have known that its lease was not valid, so it “should have known that it did not have the right to rely on any initial coverage decision Property-Owners made prior to January 2017,” when the insurer obtained a copy of the lease.

Finally, as to the issue of breach of the duty to good faith and fair dealing, the COA held that it “cannot agree that the designated evidence established any genuine (issue) of material fact on this issue” precluding the trial court’s grant of summary judgment.