JANE MAGNUS-STINSON, Chief District Judge.
In the matter before the Court, Plaintiff ProAssurance Indemnity Company, Inc. ("
ProAssurance filed a Motion for Summary Judgment on its rescission claim, seeking a declaration that the policies are void and that ProAssurance has no obligation to defend against pending and future claims or to pay judgments or damages that may be assessed against the named defendants. [
Two Cross-Motions for Summary Judgment were filed: the first by Defendants Donald Wagoner, Marilyn Wagoner, Wagoner Medical Center, LLC, Wagoner Medical Center, P.C., D.J. & M.L. Wagoner, Inc., and Linda Richards, (collectively, the "
ProAssurance also filed a Motion to Strike certain portions of the Wagoner Defendants' and Mr. Thomas' reply briefing, [
Each of the Motions is ripe for the Court's review.
STANDARD OF REVIEW
A motion for summary judgment asks the Court to find that a trial is unnecessary because there is no genuine dispute as to any material fact and, instead, the movant is entitled to judgment as a matter of law. See Fed. R. Civ. P. 56(a). As the current version of Rule 56 makes clear, whether a party asserts that a fact is undisputed or genuinely disputed, the party must support the asserted fact by citing to particular parts of the record, including depositions, documents, or affidavits. Fed. R. Civ. P. 56(c)(1)(A). A party can also support a fact by showing that the materials cited do not establish the absence or presence of a genuine dispute or that the adverse party cannot produce admissible evidence to support the fact. Fed. R. Civ. P. 56(c)(1)(B). Affidavits or declarations must be made on personal knowledge, set out facts that would be admissible in evidence, and show that the affiant is competent to testify on matters stated. Fed. R. Civ. P. 56(c)(4). Failure to properly support a fact in opposition to a movant's factual assertion can result in the movant's fact being considered undisputed, and potentially in the grant of summary judgment. Fed. R. Civ. P. 56(e).
In deciding a motion for summary judgment, the Court need only consider disputed facts that are material to the decision. A disputed fact is material if it might affect the outcome of the suit under the governing law. Hampton v. Ford Motor Co., 561 F.3d 709, 713 (7th Cir. 2009). In other words, while there may be facts that are in dispute, summary judgment is appropriate if those facts are not outcome determinative. Harper v. Vigilant Ins. Co., 433 F.3d 521, 525 (7th Cir. 2005). Fact disputes that are irrelevant to the legal question will not be considered. Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 248 (1986).
On summary judgment, a party must show the Court what evidence it has that would convince a trier of fact to accept its version of the events. Johnson v. Cambridge Indus., 325 F.3d 892, 901 (7th Cir. 2003). The moving party is entitled to summary judgment if no reasonable fact-finder could return a verdict for the non-moving party. Nelson v. Miller, 570 F.3d 868, 875 (7th Cir. 2009). The Court views the record in the light most favorable to the non-moving party and draws all reasonable inferences in that party's favor. Darst v. Interstate Brands Corp., 512 F.3d 903, 907 (7th Cir. 2008). It cannot weigh evidence or make credibility determinations on summary judgment because those tasks are left to the fact-finder. O'Leary v. Accretive Health, Inc., 657 F.3d 625, 630 (7th Cir. 2011). The Court need only consider the cited materials, Fed. R. Civ. P. 56(c)(3), and the Seventh Circuit Court of Appeals has "repeatedly assured the district courts that they are not required to scour every inch of the record for evidence that is potentially relevant to the summary judgment motion before them," Johnson, 325 F.3d at 898. Any doubt as to the existence of a genuine issue for trial is resolved against the moving party. Ponsetti v. GE Pension Plan, 614 F.3d 684, 691 (7th Cir. 2010).
"The existence of cross-motions for summary judgment does not . . . imply that there are no genuine issues of material fact." R.J. Corman Derailment Servs., LLC v. Int'l Union of Operating Eng'rs, 335 F.3d 643, 647 (7th Cir. 2003). Specifically, "[p]arties have different burdens of proof with respect to particular facts, different legal theories will have an effect on which facts are material; and the process of taking the facts in the light most favorable to the non-movant, first for one side and then for the other, may highlight the point that neither side has enough to prevail without a trial." Id. at 648.
The basic facts of this case are not in dispute and for the purposes of efficiency and clarity, the Court will only discuss facts relevant to its decision.
Between 2001 and 2013, ProAssurance issued numerous medical professional liability policies (the "
In addition, each of the Policies contained the following provision, with minor variations:
On May 28, 2014, Defendant Donald Wagoner pled guilty to a number of Class A Felonies and admitted to knowingly prescribing controlled substances outside the usual course of professional practice, resulting in opiate overdoses, respiratory depression, and poly-pharmacy overdoses. [
In addition, Mr. Wagoner admitted to committing a Class B felony by conspiring with numerous individuals — including Defendants Marilyn Wagoner, Gary Hartman, and Linda Richards — to deal in narcotic drugs between April 2008 and February 7, 2013. [
Between January and July 2015, several other defendants pled guilty to related crimes, including: Linda Richards, who pled guilty to conspiring with numerous individuals to deal in narcotic drugs between April 2008 and February 7, 2013, [
On or about April 26, 2013, prior to the entry of the guilty pleas, and simultaneous with indicating it was cancelling the policies, ProAssurance offered a "tail" policy, which would provide coverage for future claims involving the Wagoner Parties and Mr. Thomas involving services rendered prior to the termination date and subsequent to the retroactive date on the Policies. [
On September 2, 2015, ProAssurance filed a Complaint for Declaratory Judgment, arguing that the Policies are void ab initio "as a result of the Wagoner Defendants' material omissions, failures to disclose and false statements." [
After ProAssurance filed a Motion for Summary Judgment, [
OBJECTIONS TO ADMISSIBILITY OF EVIDENCE AND STATEMENTS AND MOTION TO SUPPLEMENT
Throughout the filings, the parties objected to the admissibility of several pieces of evidence, each of which the Court will discuss in turn.
A. Report from Dr. Timothy King
[Filing No. 186 at 6]
The Wagoner Defendants object to "the submission of and the Court's consideration of the report from Dr. Timothy King submitted by ProAssurance" on the grounds of relevance, arguing that the opinions cited therein are "simply irrelevant to the issues that need to be addressed by the Court in determining whether ProAssurance is entitled to a rescission." [
In response, ProAssurance argues that the report "provides extensive independent evidence of the scope of the Wagoner Defendants' criminal sale of drugs outside the bounds of legitimate medicine beyond: 1) their binding judicial and evidentiary admissions in the criminal cases; and 2) the Wagoner's binding admissions in their State of Indiana Medical Licensing Board actions." [
Under the Federal Rules of Evidence, all relevant evidence is admissible. Fed. R. Evid. 402. Relevant evidence is "evidence having any tendency to make the existence of any fact that is of consequence to the determination of the action more probable or less probable than it is without the evidence." Fed. R. Evid. 401. "A party faces a significant obstacle in arguing that evidence should be barred because it is not relevant, given that the Supreme Court has stated that there is a `low threshold' for establishing that evidence is relevant." United States v. Boros, 668 F.3d 901, 907 (7th Cir. 2012) (quoting Tennard v. Dretke, 542 U.S. 274, 285 (2004)).
The Court was able to review and render judgment on the parties' Cross-Motions for Summary Judgement without reviewing Dr. King's report. However, ProAssurance seeks to rescind insurance Policies dating back to 2001 on the basis of guilty pleas for crimes dating back to 2008. Given the expansive amount of time at issue in this case, and the low threshold for establishing that evidence is relevant, the Court is not prepared to make a finding that Dr. King's report is not relevant.
The Wagoner Defendants and Mr. Thomas' objection to the Court's consideration of this evidence is
B. Recommendation of Plea Agreement concerning Mr. Thomas
[Filing No. 188 at 3]
Mr. Thomas also objects to ProAssurance's submission of a Recommendation of Plea Agreement, which he argues "has no probative value, it is hearsay, it is not the statement of Defendant Thomas, and should not be considered in any way by the Court in these proceedings." [
In response, ProAssurance asserts that the plea agreement constitutes "uncontested and material evidence" which was "offered to explain the basis for ProAssurance's inability to provide substantive testimony from Thomas regarding his conduct and the charges against him, as well as to prevent him from implying that the lack of a criminal conviction against him is evidence that he committed no criminal conduct." [
To the extent that Mr. Thomas' objection is based on hearsay, the Seventh Circuit has ruled that admissions in a plea agreement may be admissible under Rule 803(22). See Scholes v. Lehmann, 56 F.3d 750, 762 (7th Cir. 1995). However, the Recommendation of Plea Agreement contains no admissions and is not itself a plea agreement. Even considering the low threshold for establishing that evidence is relevant," Boros, 668 F.3d at 907, the Recommendation of Plea Agreement does not pass muster under Fed. R. Evid. 401.
Mr. Thomas' objection to the Court's consideration of this evidence is SUSTAINED.
C. Various Factual Representations in the Cross-Motions for Summary Judgment
[Filing No. 195 at 3-21]
ProAssurance's response to the Cross-Motions for Summary Judgment, [
D. Motion to Strike Replies in Support of the Cross-Motions for Summary Judgment
[Filing No. 200]
After the Motion for Summary Judgment, [
Here again, the Wagoner Defendants' and Mr. Thomas' Cross-Motions for Summary Judgment fail on the merits. Therefore, ProAssurance's Motion to Strike, [
E. Motion to Supplement Summary Judgment Exhibits and Evidence Designations
[Filing No. 204]
Finally, ProAssurance filed a Motion to Supplement Summary Judgment Exhibits, in which it seeks to amend its Motion for Summary Judgment to incorporate the recent guilty plea and criminal conviction of Mr. Thomas. [
Mr. Thomas objects to ProAssurance's Motion to Supplement, arguing that allowing ProAssurance to supplement at this time would not allow Defendants the opportunity to respond. [
ProAssurance's Motion for Summary Judgment fails on the merits. Therefore, ProAssurance's Motion to Supplement, [
GENERALLY APPLICABLE INSURANCE LAW
When the Court exercises diversity jurisdiction over an action, it is "obliged to apply state law to the substantive issues in the case." Lodholtz v. York Risk Servs. Grp., Inc., 778 F.3d 635, 639 (7th Cir. 2015) (citing Erie RR. Co. v. Tompkins, 304 U.S. 64, 78 (1938)). The parties do not dispute that Indiana law governs this action. Accordingly, this Court must "apply the law that would be applied by the Indiana Supreme Court." Lodholtz, 778 F.3d at 639. "If the Indiana Supreme Court has not spoken on the issue, [the Court] generally treat[s] decisions by the state's intermediate appellate courts as authoritative, unless there is a compelling reason to think that the state supreme court would decide the issue differently." Id.
Turning to the merits, in its Motion for Summary Judgment, ProAssurance asks this Court to declare the following:
relief in its favor.
The Wagoner Defendants and Mr. Thomas, on the other hand, request that this Court grant summary judgment in their favor, arguing that there are no genuine issues of material fact with respect to any of ProAssurance's claims, and that they are entitled to judgment as a matter of law. [
The issue of contract rescission is central to the parties' respective Motions. Therefore, in order to determine whether summary judgment in favor of any party is appropriate, the Court will, in turn, consider the procedural and substantive arguments underlying rescission of the Policies.
A. Is Rescission Procedurally Available to ProAssurance?
Under Indiana law, "[r]escission can arise under two circumstances: (1) it may be effected by mutual agreement and (2) it may be granted unilaterally because of fraud, illegality, mutual mistake or a contract provision providing for rescission." Deckard v. Gen. Motors Corp., 307 F.3d 556, 561 (7th Cir. 2002) (citing Econ. Leasing Co. v. Wood, 427 N.E.2d 483, 486 (Ind. Ct. App. 1981)). In the insurance context, "[t]he right to void coverage due to fraud in the making of the policy is well established in the common law," Colonial Penn Ins. Co. v. Guzorek, 690 N.E.2d 664, 672 (Ind. 1997), because fraud "prevents a `meeting of the minds' as to the risk to be insured." Foster v. Auto-Owners Ins., Co., 703 N.E.2d 657, 659 (Ind. 1998). Accordingly, "an insurance company may void coverage based on a material misrepresentation in the application." Foster, 703 N.E.2d at 658; see also Colonial Penn, 690 N.E.2d at 672; Brunnemer v. Metro. Life Ins. Co., 14 N.E.2d 97, 100 (Ind. 1938) (setting forth a scenario in which "the insurer in the application asks the prospective applicant about a fact that is within his knowledge, and he answers falsely"). A representation is "material" if "the fact omitted or misstated, if truly stated, might reasonably have influenced the insurer in deciding whether to reject or accept the risk or charge a higher premium." French v. State Farm Fire & Cas. Co., 950 N.E.2d 303, 312 (Ind. Ct. App. 2011) (citations omitted).
However, Indiana courts have set forth time-honored procedural requirements for rescission. Where an insurer desires to rescind a contract on the ground of fraud, it must return, or offer to return, the premiums received as consideration "within a reasonable time after acquiring knowledge of the fraud." Prudential Ins. Co. of Am. v. Smith, 108 N.E.2d 61, 65 (Ind. 1952) (quoting National Council, etc., v. Walton, 136 N.E. 25, 26 (Ind. App. 1922)). The Indiana Supreme Court reaffirmed this rule most recently in 2013 in Dodd v. Am. Family Mut. Ins. Co., 983 N.E.2d 568 (Ind. 2013), where the Court stated that "[f]ailure to offer such return of premiums, or if refused, to pay it into court, constitutes a waiver of the alleged fraud." Dodd, 983 N.E.2d at 570-71 (citing Prudential, 108 N.E. 2d at 65; Grand Lodge of Bhd. of R.R. Trainmen v. Clark, 127 N.E. 280, 282 (Ind. 1920)). However, the Dodd Court also set forth an exception to the requirement that an insurer tender a return of the premiums in order to rescind a contract. "Under this exception, `such a tender is not necessary where . . . the insurer has paid a claim thereon which is greater in amount than the premiums paid.'" Dodd, 983 N.E.2d at 570 (quoting Am. Standard Ins. Co. v. Durham, 403 N.E.2d 879, 881 (Ind. Ct. App. 1980)).
Based on the foregoing, two questions bear on whether ProAssurance has complied with the procedural requirements for rescission under Indiana law: (1) was ProAssurance required to tender premiums it received in consideration for the Policies back to the insured?; and (2) if so, did ProAssurance wait too long to do so?
In their Cross-Motion for Summary Judgment, the Wagoner Defendants argue that ProAssurance waited too long to seek rescission of the policies and was required to "immediately tender back the premiums the Wagoner Parties paid for the policies." [
In response, ProAssurance appears to admit that it has not tendered premiums back to the insured for the Policies that it now seeks to rescind, and instead alleges that it "sensibly offered to tender into the Court whatever currently unknown amount is eventually determined by the Court to be the proper amount." [
As a preliminary matter, the Court notes that ProAssurance's reliance on Hitt is misplaced. In Hitt, the Indiana Court of Appeals addressed an argument that an insurance company's refusal to tender back premiums estopped the company from denying liability under the policy. Hitt, 509 N.E.2d at 211. During the policy period at issue, the insured sold two vehicles and purchased new ones without notifying the insurance company, per the terms of their policy. Id. at 211. The insured then collided with a motorcyclist in one of the newly purchased vehicles, and the insurance company denied liability under the policy. Id. The Court held that the insurance company was not estopped from denying liability because the automobile insurance policy at issue extended liability protection if the insured were to cause an accident while driving a non-owned automobile. Id. at 213. The Court of Appeals reasoned that the non-owned vehicle protection was consideration sufficient to support the contract and to justify retention of the premiums by the insurance company. Id. Hitt does not, as ProAssurance alleges, stand for the broad proposition that "an insurer ha[s] no obligation to tender back premiums in order to return the insured to the status quo if the insurer had already performed any of its obligations, and regardless of the monetary value of the insurer's performance to the insured." [
Instead, the key case that is relevant to the question of whether ProAssurance was required to tender premiums for the Policies in order to rescind is Dodd v. Am. Family Mut. Ins. Co., 983 N.E.2d 568 (Ind. 2013). As previously discussed, in Dodd the Indiana Supreme Court reaffirmed an exception to the procedural rules surrounding rescission, wherein tender of premiums is not required when "the insurer has paid a claim thereon which is greater in amount than the premiums paid." Dodd, 983 N.E.2d at 570 (quotations omitted, emphasis added). Accordingly, in order to ascertain whether ProAssurace was required to tender premiums back to the insured before seeking rescission of the Policies, the Court must determine whether ProAssurance paid claims under the Policies that were greater in amount than the premiums it received.
It is impossible for this Court to make such a determination based on the evidence before it. With regard to the amount of the premiums paid, ProAssurance points out in its reply brief that the Wagoner Defendants allege that between March 2000 and May 2013, ProAssurance was paid $474,189.00 for coverage under the Policies. [
Similarly, there is a genuine issue of material fact regarding when ProAssurance knew about the alleged breach — information that is critical to determining whether ProAssurance has waived its claim for rescission. It is well established in Indiana that "[o]ne who asks a court's aid in compelling the rescission of a contract must show that he or she exercised reasonable diligence in ascertaining the facts and thereafter promptly sought rescission within a reasonable time after discovering the fraud." A.J.'s Auto. Sales, Inc. v. Freet, 725 N.E.2d 955, 968 (Ind. Ct. App. 2000) (citation omitted); see also Cain v. Guthrie, 8 Blackf. 409, 410 (Ind. 1847) ("If a party desires to rescind a contract on the ground of mistake or misrepresentation, he is bound to be prompt in communicating the facts upon which he relies to the opposite party, and also his intention to rescind."). A delay in seeking rescission may result in waiver. A.J.'s Auto. Sales, 725 N.E.2d at 968 (citing INB Nat. Bank v. Moran Elec. Service, Inc., 608 N.E.2d 702 (Ind. Ct. App. 1993)).
In this case, the parties do not agree on when ProAssurance became aware of its right to rescind the Policies. The Wagoner Defendants and Mr. Thomas contend that ProAssurance knew or should have known of its right to seek rescission of the Policies in April 2013, but did not file suit to rescind until September 2015 — over two years later. [
B. Is Rescission Substantively Available to ProAssurance?
Having determined that genuine issues of material fact exist as to whether rescission is available as a procedural matter, the Court need not delve into the substance of each of the six declarations that ProAssurance seeks. However, the Court will briefly address one substantive argument that took up a significant portion of the parties' briefing.
The basis of ProAssurance's rescission claim is that "there is no dispute that the Wagoner Defendants' failure over time to disclose their criminal, illegal or otherwise improper non-medical and non-professional conduct in dispensing scheduled narcotics outside the legitimate practice of medicine and for non-medical purposes, was a material misrepresentation and/or omission which voids the Wagoner Policies ab initio." [
The Wagoner Defendants, however, contend that ProAssurance should not be allowed to rescind because the Reservation of Rights letters that ProAssurance sent caused each of the individual Wagoner Defendants to have "an expectation of coverage" that caused them to take "a strategic position in the underlying criminal proceedings, even to the extent of entering guilty pleas, with the understanding that ProAssurance would provide coverage unless an exclusion was triggered under the applicable policy." [
The Wagoner Defendants' argument is without merit. Indiana law does not recognize nolo contendere pleas, in which a defendant does not admit or deny the charges. Corbin v. State, 713 N.E.2d 906, 907 (Ind. Ct. App. 1999) (citing Mahoney v. State, 149 N.E. 444, 447 (Ind. 1925)). In Indiana, "the only pleas which are permitted are a) not guilty, b) guilty, or c) guilty but mentally ill." Id. at 907 (citing Ind.Code § 35-35-2-1(a)(3)). The Indiana Supreme Court has held that "[t]he factors which motivated the appellant to plead guilty are not material, so long as we can ascertain from the record that his guilty plea was entered freely, voluntarily and knowingly." Boles v. State, 303 N.E.2d 645, 653 (Ind. 1973).
In this case, it is undisputed that several of the Wagoner Defendants entered guilty pleas for crimes related to the illegal prescription of scheduled controlled substances. The factors which motivated the Wagoner Defendants to plead guilty are not material to the dispute at hand.
None of ProAssurance's requested declarations speak specifically to the evidentiary effect of the Wagoner Defendants' guilty pleas. However, ProAssurance included a catch-all provision in its prayer for relief, requesting a declaration that it is "entitled to a judgment which grants all other appropriate relief in its favor." [
"The purpose of summary judgment is to `pierce the pleadings and to assess the proof in order to see whether there is a genuine need for trial.'" Biddle v. Martin, 992 F.2d 673, 675 (7th Cir. 1993) (quoting Matsushita Elec. Indus. Co. v. Zenith Radio Corp., 475 U.S. 574, 587 (1986)). In this case, the existence of several genuine issues of material fact demonstrates the genuine need for a trial. Accordingly, the Wagoner Defendants' Cross-Motion for Summary Judgment, [
ProAssurance's Motion for Summary Judgment, [
In addition, for the reasons set forth herein, the Court rules as follows on the parties' evidentiary objections and motions:
As a final matter, the Court requests that the Magistrate Judge set a settlement conference with the parties at his earliest convenience.
The Wagoner Defendants, on the other hand, dispensed altogether with the proper citation format set forth in the Court's Practices and Procedures. [