ATTORNEY FOR APPELLANT: ATTORNEY FOR APPELLEES:
MICHAEL K. LULICH NANCY K. BRIGGS
Michael K. Lulich & Associates Steven A. Johnson & Associates
Avon, Indiana Merrillville, Indiana
COURT OF APPEALS OF INDIANA
ILLINOIS FOUNDERS INSURANCE )
vs. ) No. 45A03-0005-CV-167
HORACE MANN INSURANCE COMPANY, )
As subrogee of MICHAEL EMERSON, and )
MICHAEL EMERSON, )
COUNTY DIVISION III
APPEAL FROM THE LAKE SUPERIOR COURT
The Honorable Deborah A. Kapitan, Magistrate
The Honorable Julie N. Cantrell, Judge
Cause No. 45D09-9712-SC-4871
November 27, 2000
OPINION - FOR PUBLICATION
STATEMENT OF THE CASE
Appellant-Garnishee-Defendant, Illinois Founders Insurance Company (Illinois), appeals the trial courts Order finding that
Illinois is responsible for payment of the judgment entered against Elmer L. Luster
(Luster), as insured by Illinois, and in favor of Horace Mann Insurance Company
(Horace), as subrogee of Michael Emerson (Emerson).
Illinois raises one issue on appeal, however, we raise the following dispositive issue
sua sponte: whether a garnishee-defendant may challenge a Proceedings Supplemental Order when an
underlying judgment has been entered against it and Plaintiff subsequently filed a Motion
to Enforce Judgment by Proceedings Supplemental.
FACTS AND PROCEDURAL HISTORY
On January 24, 1997, Emerson and Luster were involved in an auto collision
in Gary, Indiana. At the time of the collision, Emerson was insured
with Horace and Luster was insured with Illinois. Both drivers had coverage
for damage to their own vehicle, as well as liability coverage. Horace
paid Emerson for the repairs to his vehicle less the deductible, and presented
several written subrogation claims to Illinois. Horace received several letters from Illinois
denying its subrogation claim and stating that Illinois had conducted an investigation of
the accident and had retained legal counsel.
On December 5, 1997, Horace and Emerson filed a Notice of Claim in
Small Claims Court for property damage resulting from the auto collision. On
January 20, 1998, an appearance was filed for Luster, and on June 29,
1998, an answer was filed for Luster with attached counterclaim filed by Illinois
naming Luster as the named counter-plaintiff.
On May 4, 1999, a bench trial was held on Horaces complaint and
Illinois counterclaim. Counsel appeared for both parties, however, Luster failed to appear.
Judgment was entered for Horace in the amount of $2,329.73 plus court
costs and interest, and the court ruled against Illinois on its counterclaim.
After judgment was ordered, Illinois refused to provide coverage to Luster claiming that
he breached the cooperation clause of the policy by failing to provide a
change of address and notify the police of the collision. Thus, on
September 10, 1999, Horace filed a Verified Motion to Enforce Judgment by Proceedings
Supplemental to Execution with Illinois. Illinois continued to contest coverage for Luster
in response to proceedings supplemental based upon Lusters alleged non-cooperation with the claims
process and failure to attend the trial. On February 1, 2000, the
trial court ruled that the proceedings supplemental were well taken, but that at
trial Illinois failed to raise the defense of Lusters non-cooperation.
Thereafter, on March 23, 2000, Illinois filed a Motion to Correct Errors; again
claiming Lusters failure to cooperate severely prejudiced it in its defense of the
underlying cause. On March 28, 2000, the trial court entered its Order
on Illinois Motion to Correct Errors and rejected its argument of non-cooperation and
found that Illinois was responsible for payment of the underlying judgment. Illinois
DISCUSSION AND DECISION
Initially, we note the appropriate procedures through which an insurer may challenge the
judgment rendered against its insured. In Gallant Ins. Co. v. Wilkerson, 720
N.E.2d 1223 (Ind. Ct. App. 1999), we found that:
When an insurer questions whether an injured partys claim falls within the scope
of policy coverage or raises a defense that its insured has breached a
policy condition, the insurer essentially has two options: (1) file a declaratory judgment
action for a judicial determination of its obligations under the policy; or (2)
hire independent counsel and defend its insured under a reservation of rights.
Id. at 1227 (citations omitted).
On appeal, Illinois argues that Luster, its insured, failed to cooperate in the
investigation and defense of the claim by Horace, as subrogee of Emerson.
Specifically, Illinois claims that Luster breached the cooperation clause and notice provisions of
the insurance policy by failing to notify Illinois of his address changes, his
failure to respond to inquiries regarding the accident and damages, and his failure
to attend the trial. Further, Illinois contends that it took extraordinary steps
to locate Luster by hiring a private investigator. Illinois asserts that compliance
with the cooperation clause and notice provisions of an insurance policy are conditions
precedent to coverage, and Lusters failure to cooperate was prejudicial. Therefore, Illinois
argues that it should be released from the proceedings supplemental judgment. Illinois
is correct in its assertion that when an insurer is prejudiced by the
insureds noncompliance with the policys provisions, the insurer is relieved of its liability
under the policy. Gallant Ins. Co. v. Allstate Ins. Co., 723 N.E.2d
452, 456 (Ind. Ct. App. 2000). However, we have held that when
an insurance company assumes the defense of an action against its insured, without
reservation of rights, and with knowledge of facts which would have permitted it
to deny coverage, it may be estopped from subsequently raising the defense of
non-coverage. Hermitage Ins. Co. v. Salts, 698 N.E.2d 856, 858 (Ind. Ct.
It is well settled that contractual provisions of an insurance policy may be
waived or that the insurer may be estopped from asserting such provisions.
Wilkerson, 720 N.E.2d at 1227 (citations omitted). Here, because the Record does
not contain a transcript of either the trial or the proceedings supplemental, we
can discern no evidence from the Record, nor does Illinois provide us with
any, to support even an inference that it took affirmative steps necessary to
locate Luster and procure his attendance. See Id. Furthermore, the Record
reflects that at trial, Illinois failed to claim non-cooperation by Luster. Specifically,
in its Proceedings Supplemental Order, the trial court stated that:
The parties come before the Court having filed a request for proceedings supplemental,
a response to the proceedings supplemental, a reply to the response, and a
further response to the reply. After reviewing all of the briefs, the
Court finds the Request for proceedings supplemental is well taken. The Defendant
filed an answer with the Court and did not claim failure to cooperate
by their client. At trial Defendants counsel, never claimed lack of cooperation
by their client. To make that claim at this point in the
cause, is illogical.
(R. 215) (emphasis supplied). Illinois subsequently filed a Motion to Correct Error,
and the trial court issued its Order on Illinois motion, specifically stating in
relevant part as follows: [t]he Court rejects the Defendants arguments of non-cooperation by
their insured. Therefore, the result remains the same, the Court finds the
Defendants responsible for payment of the judgment. (R. 254).
Thus, because Illinois does not present us with evidence to the contrary displaying
that it did in fact claim Lusters non-cooperation at trial, we note the
general rule stated in Wilkerson that:
an automobile liability insurer which learns before the trial of an action against
its insured that the insured has breached the cooperation clause of the policy,
and nevertheless defends him at trial, thereby waives or is estopped to assert
the insureds noncooperation in a subsequent action to recover on the policy.
This rule has been applied in a number of cases in which the
insured failed to appear at the trial of the original action brought against
him or her, and where the insurer conducted the defense of the insured
in his or her absence.
Wilkerson, 720 N.E.2d at 1229 (citations omitted). We believe this rule to
be an equitable one that also comports with the underlying purpose of proceedings
The filing of a motion for proceedings supplemental speaks only to how the
claim is to be satisfied, whereas the complaint in the original action speaks
to whether the claim should be satisfied. Id. (citations omitted). Proceedings
supplemental are merely a continuation of the underlying claim, initiated under the same
cause number for the sole purpose of enforcing a judgment. Koors v.
Great Southwest Fire Ins. Co., 538 N.E.2d 259, 260 (Ind. Ct. App. 1989).
The trial court is vested with broad discretion in conducting proceedings supplemental.
Hermitage Ins. Co., 698 N.E.2d 856. A judgment rendered pursuant to
proceedings supplemental is a general judgment that may not be disturbed unless the
record fails to support any theory justifying the trial courts decision. Allstate
Ins. Co., 723 N.E.2d at 455; Wilkerson, 720 N.E.2d at 1226. Proceedings
supplemental cannot be used to collaterally attack the underlying judgment. Koors, 538
N.E.2d at 260. In proceedings supplemental to recover from a liability insurer,
the judgment creditor bears the burden of showing a judgment, the insurance policy,
and facial coverage under the policy. Allstate Ins. Co., 723 N.E.2d
at 454 (citing Hermitage Ins. Co., 698 N.E.2d at 859). To allow
an insurer to defend its insured without a reservation of rights and subsequently
raise a policy defense would subvert the very function for which proceedings supplemental
were created. Wilkerson, 720 N.E.2d at 1229. Clearly, proceedings supplemental are
not appropriate vehicles for creating, enlarging or reducing liability. Id. (citation omitted).
However, a liability insurer may stay proceedings supplemental while pursuing a separate
declaratory action to determine the insurers liability under the policy. See Wilkerson,
720 N.E.2d at 1227.
Finally, this court relied on the following reasoning expressed by the Illinois Appellate
An insurer may not raise a policy defense when it has defended and
lost the underlying claim without a reservation of rights. It would be
unfair to the insured to allow the insurer to defend the underlying claim
while at the same time it is formulating policy defenses to deny coverage.
It would also waste the time of the courts and the litigants
to go through a trial expected to be dispositive only then to discover
the insurer is claiming a second bite at the apple in the form
of a policy defense.
Id. at 1229 (citing Western States Ins. Co. v. Weller, 299 Ill.App.3d 317,
233 Ill.Dec. 692, 701 N.E.2d 542, 545 (1998) (citations omitted), appeal denied; see
also Debra E. Wax, Annotation, Liability Insurer's Waiver of Right, or Estoppel, to
Set Up Breach of Co-operation Clause, 30 A.L.R.4th 620, § 12, at 673-79
(1984) (insured's failure to appeal at trial)).
Here, Illinois had a full and fair opportunity to raise Lusters alleged non-cooperation
in the underlying tort action and could have protected its interests either by
defending Luster under a reservation of rights or by filing a declaratory judgment
action on the issue of his cooperation. See Wilkerson, 720 N.E.2d at
1229 (citing Progressive Cas. Ins. Co. v. Morris, 603 N.E.2d 1380, 1383 (Ind.
Ct. App. 1992); Liberty Mut. Ins. Co. v. Metzler, 586 N.E.2d 897, 902
(Ind. Ct. App. 1992), trans. denied). Illinois did neither.
Therefore, because the Record reveals that Illinois failed to raise the defense of
Lusters non-cooperation at trial, together with the absence of any evidence in the
Record that Illinois made a diligent effort to locate and procure Lusters appearance
at the trial, we conclude that Illinois is now estopped from asserting the
defense of non-cooperation in proceedings supplemental.
Based on the foregoing reasons, the judgment of the trial court finding that
Illinois is responsible for payment of the underlying judgment is affirmed.
BARNES, J., and BAILEY, J., concur.