MILLER, Presiding Judge.
On November 10, 1983, the plaintiff-appellee, Kara Glasgow, filed a small claims action in the Vigo County Court against Gerald Weist, Jr., judgment-defendant and appellee. The small claims notice alleged that Weist had caused damage to Glasgow's automobile in an incident at a filling station in which Weist's car collided with Glasgow, but the notice did not state a
Glasgow then filed for proceedings supplemental to execution of the judgment, seeking recovery from State Farm as Weist's insurer. See Ind.Rules of Procedure, Trial Rule 69(E). The special judge who presided over the proceedings supplemental heard evidence from State Farm, over Glasgow's objection, in support of State Farm's contention that Weist had intentionally caused the damage to Glasgow's car and that the claim, therefore, was not covered by Weist's insurance policy. The special judge took Glasgow's objection to this evidence under advisement and, on October 20, 1983, entered the following findings of fact and conclusions of law:
State Farm filed a timely motion to correct errors, which the special judge denied.
On appeal, State Farm argues that the above findings of fact, conclusions of law and memorandum make it clear that the special judge believed that the trial court in the underlying tort action made a "special finding" that Weist's negligence caused Glasgow's damages, and that both he and State Farm were bound by the finding of negligence. The result, State Farm argues, is that the special judge refused to consider the evidence that Weist acted intentionally in causing Glasgow's damages, going no farther than to rely on the "special finding of negligence" made in the underlying tort action. As a consequence, State Farm contends, the special judge erroneously concluded that State Farm was liable to Glasgow under the terms of the policy insuring Weist.
As briefed by the parties, the issues on appeal are:
Additional facts will be recited where relevant. We reverse and remand for further proceedings.
In cases such as this, where the special judge entered findings of fact on his own motion, this court will not set aside such findings unless clearly erroneous. T.R. 52(A); Baker v. Compton (1983), Ind. App., 455 N.E.2d 382. On the other hand, when the error complained of is the correctness of the trial court's application of the law, we must correctly apply the law to the findings made by the trial court. Brokus v. Brokus (1981), Ind. App., 420 N.E.2d 1242. State Farm's initial allegation of error — that the special judge erred in holding the issue of Weist's negligent or intentional conduct conclusively decided by the "special finding" of negligence in the underlying tort action — is directed at the special judge's Finding of Fact number 7, supra. This finding, however, is unmistakably a mix between a finding of fact (that the trial judge in the underlying tort action made a "special finding of negligence") and a conclusion of law (that State Farm was collaterally estopped from litigating the question of whether Weist acted negligently or intentionally in causing Glasgow's damages, see supra, n. 2). State Farm's first allegation ultimately implicates both the finding of fact element as being clearly erroneous and the conclusion of law element as being based on the special judge's misapplication of the law to the facts found. We must determine whether the special judge committed an error of law in making this finding of fact or in reaching this conclusion of law.
Collateral estoppel — also known as "issue preclusion" and "estoppel by verdict" — applies "when a particular issue is adjudicated and then is put into issue in a subsequent suit on a different cause of action between the same parties or those in privity with them." State v. Speidel (1979), 181 Ind.App. 448, 452, 392 N.E.2d 1172, 1175. An additional requirement to the application of collateral estoppel is that there must be "mutuality of estoppel" between the party asserting the doctrine and the party against whom it is asserted. Id. "Estoppel is mutual if the one taking advantage of the prior adjudication would have been subsequently bound had the prior judgment gone the other way." Id. at 456, 392 N.E.2d at 1177. For purposes of this case, we assume, though we do not decide, that State Farm was in privity with Weist, see Snodgrass v. Baize (1980), Ind. App., 405 N.E.2d 48, 51 (indemnitor generally considered in privity with indemnitee), and that mutuality of estoppel existed between Glasgow — the party allegedly asserting collateral estoppel — and State Farm — the party allegedly estopped.
Citing Snodgrass v. Baize, supra, State Farm argues that collateral estoppel does not apply to the present case because there existed a conflict of interest between State Farm and Weist, its insured. In Snodgrass, the plaintiff sued the insured, alleging in alternative counts that the insured shot him intentionally or negligently. The insurance company initially entered an appearance on the insured's behalf, but, upon perceiving a conflict of interest, withdrew from the case and paid the insured's personal attorney's fee. The insurer's attorney spelled out its position concerning the conflict and its non-waiver of exclusions under the insurance policy in two letters written to the insured's personal attorney.
405 N.E.2d at 51.
It appears, however, that a conflict of interest such as to preclude the application of collateral estoppel arises only where: (1) the insurance company actually participates in some part of the insured's defense in the underlying tort action, either directly or by reimbursing the insured's personal attorney, see Snodgrass v. Baize, supra; see also Cozzens v. Bazzani Building Co. (E.D.Mich. 1978), 456 F.Supp. 192; Farmers Insurance Co. v. Vagnozzi (1983), 138 Ariz. 443, 675 P.2d 703 (en banc); Cowan v. Insurance Company of North America (1974), 22 Ill.App.3d 883, 318 N.E.2d 315; and (2) the insurance company gives its insured clear and prompt notice of the existence and nature of the conflict of interest, and its implications for the insured, see Snodgrass v. Baize, supra; see also Cozzens v. Bazzani Building Co., supra; Farmers Insurance Co. v. Vagnozzi, supra; Maryland Casualty Co. v. Peppers (1976), 64 Ill.2d 187, 355 N.E.2d 24; Cowan v. Insurance Company of North America, supra. Both of the above requirements may be met where the insurance company defends its insured under a reservation of rights in the underlying tort action. See Cowan v. Insurance Company of North America, supra. The insurance company may also protect itself from the conflict of interest by filing a declaratory judgment action, prior to the entry of judgment in the underlying tort action, seeking a declaration of its rights and duties under the policy of insurance relative to the claim against its insured. See id.; Maryland Casualty Co. v. Peppers, supra. In the present case, however, State Farm refused to defend Weist from the moment it had notice of Glasgow's action against him, did not seek a declaratory judgment, and did not raise the issue of a conflict of interest until after the final hearing on the proceedings supplemental, too late to constitute clear and prompt notice of the conflict to its insured. See Cozzens v. Bazzani Building Co., supra.
It is well-settled that a court of record speaks only through its order book entries. Anderson v. Indiana State Employees' Appeals Commission (1977), 172 Ind.App. 529, 360 N.E.2d 1040 (citing State ex rel. Mammonth Development & Construction Consultants, Inc. v. Superior Court (1976), 265 Ind. 573, 357 N.E.2d 732). By statute, the Vigo County Court is a court of record.
265 Ind. at 576, 357 N.E.2d at 733 (emphasis added).
Thus, it appears that even a silent order book controls statements made from the bench regarding matters that ought to be reflected by an order book entry. The entry of judgment is such a matter. See Ind.Rules of Procedure, Trial Rule 58. Therefore, the order book entry of the trial court in the underlying tort action — silent on the question of Weist's negligence — controls the purported "special finding" of negligence made from the bench. The result is that there was no "special finding" of negligence to which State Farm could be bound by collateral estoppel. Therefore, the finding of fact element of the special judge's Finding of Fact number 7 (that the trial judge in the underlying tort action made a "special finding of negligence") was clearly erroneous and must be reversed. Baker v. Compton, supra.
Furthermore, even if the order book entry did not "control" the initial question of what was decided in the underlying tort action, see Webb v. State, the divergence between the entry and the statement from the bench would, at least, create some doubt as to what was decided. When such doubt arises, the application of collateral estoppel "is only effective as to facts which were necessary to sustain the judgment." In re a Search Warrant, etc. (1983), Ind. App., 448 N.E.2d 1089, 1094. The only facts necessary to sustain the judgment of the trial court in the underlying tort action were those that established that Weist's conduct was the legally sufficient cause of the damage to Glasgow's car, by whatever means. For the purpose of establishing Weist's liability to Glasgow under the latter's small claims notice, it was not necessary for the trial court to find that Weist acted negligently or that he acted intentionally, but only that his conduct was the legal cause of the damage complained of. The application of collateral estoppel in the present case, therefore, would be proper only on the issue of Weist's liability and not on the issue of whether such liability was covered by the State Farm insurance policy. In re a Search Warrant, supra; accord, Cowan v. Insurance Co. of North America, supra. Thus, the conclusion of law element of Finding of Fact number 7 (that State Farm was collaterally estopped from litigating the issue of whether Weist acted negligently or intentionally in causing Glasgow's damages, see supra, n. 2) resulted from the special judge's misapplication of the law and must be reversed. Brokus v. Brokus, supra.
In conclusion, we hold that the purported "special finding" of negligence in the underlying tort action did not collaterally estop State Farm in the proceedings supplemental from litigating the issue of whether Weist acted negligently or intentionally in causing Glasgow's damages. By refusing to look beyond that "special finding," the special judge might have determined erroneously that State Farm was liable to pay Glasgow for the damages caused by Weist. This brings us to State Farm's second allegation of error.
State Farm asks that we order an entry of judgment in its favor on the ground that the evidence in the proceedings supplemental was insufficient to sustain the special judge's judgment that State Farm is obligated to pay Glasgow for the damages caused by Weist. We decline to do so.
We are a court of review and will not decide such an issue until it properly has been decided at the trial level. See Brown v. Poulos (1980), Ind. App., 411 N.E.2d 712; Citizens National Bank v. Harvey (1976), 167 Ind.App. 582, 339 N.E.2d 604; 4A BAGNI, GIDDINGS & STROUD, INDIANA APPELLATE PROCEDURE § 130 at 171-72 (1979). Therefore, we reverse and remand for a full hearing on the issue of whether Glasgow's damages were caused "by accident" under the policy of insurance issued by State Farm covering Weist.
CONOVER and YOUNG, JJ., concur.
(R. 68). State Farm also reserved the right to investigate any claim or lawsuit under the policy. (Id.) For purposes of this appeal, the parties apparently agree that if the damages to Glasgow's car resulted from Weist's negligent acts, then the damages were "caused by accident," and State Farm is liable. Conversely, if Weist intentionally caused the damages, they are not covered by the policy. Cf. American Economy Insurance Co. v. Liggett (1981), Ind. App., 426 N.E.2d 136 (public policy does not permit guilty party to profit from wrongdoing).
Id. at 52-121.
Id. at 799, quoted in Snodgrass v. Baize, 405 N.E.2d at 51.
The only "small claims exception" that might render a county court not a court of record when hearing a small claims action is paragraph 2(c). However, we do not believe this exception embraces the court of record statute, IC 33-10.5-7-8, because the avowed purpose of the informality prescribed by paragraph 2(c) is to promote the "sole objective of dispensing speedy justice between the parties according to the rules of substantive law." IC 33-10.5-7-2(c). Removing the court's proceedings from the record would not necessarily promote that objective, and it would seriously hamper our review of appeals taken in small claims actions from county courts, which come directly to this court. See IC 33-10.5-7-10; Appellate Rule 4(A). On the other hand, decisions of Marion County small claims courts, which are not courts of record, IC 33-11.6-1-4, are appealed to the circuit or superior court of that county for trial de novo, IC 33-11.6-33-11.6-4-14, rendering unnecessary for review purposes the keeping of a record of the small claims action. Thus, while the legislature could have made an exception removing county courts from the record when hearing cases from their small claims dockets, as the legislature did with the Marion County small claims courts, we believe the legislature intended the county courts to be courts of record at all times, even when hearing a small claims action.