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FOR PUBLICATION

ATTORNEYS FOR APPELLANT: KEITH A. KINNEY MICHAEL G. GETTY RORI L. GOLDMAN Hill Fulwider McDowell Funk & Matthews Indianapolis, Indiana

ATTORNEYS FOR APPELLEE: EDWARD M. KAY PAUL V. ESPOSITO Clausen & Miller Chicago, Illinois DOUGLAS A. GARNER Zerbe, Zerbe & Garner Lawrenceburg, Indiana

IN THE COURT OF APPEALS OF INDIANA
GREGORY & APPEL INSURANCE AGENCY, Appellant-Defendant/Cross-Appellee, vs. PHILADELPHIA INDEMNITY INSURANCE COMPANY, Appellee-Plaintiff/Cross-Appellant. ) ) ) ) ) ) ) ) ) )

No. 39A01-0410-CV-428

APPEAL FROM THE JEFFERSON CIRCUIT COURT The Honorable Ted R. Todd, Judge Cause No. 39C01-0305-PL-210

October 20, 2005 OPINION - FOR PUBLICATION CRONE, Judge

Case Summary Gregory & Appel Insurance Agency ("Gregory & Appel") appeals the trial court's exclusion of evidence, refusal of jury instructions, and award of prejudgment interest to Philadelphia Indemnity Insurance Company ("Philadelphia"). On cross-appeal, Philadelphia challenges certain jury instructions and the verdict form. We affirm in part and reverse and remand in part. 1 Issues We consolidate and restate Gregory & Appel's issues as follows: I. Whether the trial court abused its discretion in excluding evidence regarding Gregory & Appel's affirmative defense of Philadelphia's failure to mitigate damages; Whether the trial court abused its discretion in refusing Gregory & Appel's jury instructions on mitigation of damages and actual cash value; and Whether the trial court erred in awarding prejudgment interest to Philadelphia.

II.

III.

We restate Philadelphia's issue as follows: IV. Whether the trial court abused its discretion in instructing the jury on comparative fault as to a nonparty. Facts and Procedural History The relevant facts most favorable to the verdict show that Area 12 Council on Aging and Community Services ("Area 12") is a nonprofit corporation based in Dillsboro, Indiana, that provides health and home assistance services to the elderly and disabled. In 1999, Area 12 began to develop three affordable housing projects for seniors. The Aurora School project

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involved the conversion of a vacant school building and gymnasium owned by the City of Aurora into senior apartments and a YMCA. The estimated cost of the renovations was approximately $2,750,000. Tr. at 402. In September 1999, Area 12 employees Brad Bowen and Ken Nelson met with Area 12's insurance agent, Gregory & Appel vice president Roy Geesa, to discuss insurance coverage for the projects. Bowen later sent Geesa an appraisal of the Aurora School property. 2 After meeting with Bowen and Nelson, Geesa submitted to Philadelphia an insurance application for the Aurora School, requesting $2,500,000 in property coverage and $100,000 in business interruption coverage, with a proposed effective date of June 1, 2000. In an accompanying underwriting memo, Geesa explained, "During the construction phase, the contractor has taken care of all of the insurance so this is a request for permanent insurance on the finished apartment building." Defendant's Exh. E. Geesa never visited the Aurora School site. On December 21, 1999, Bowen told Geesa's subordinate Linda Lukasik that Area 12 needed an insurance binder on the Aurora School because it would be closing on the property. Bowen did not state, and Lukasik did not ask, whether the renovations had been completed. In fact, the renovations had not yet begun. Lukasik contacted Dawn Schaefer, a Philadelphia employee, for permission to issue the binder. Schaefer noticed the proposed effective coverage date in her records and asked Lukasik whether the renovations had been

We hereby deny Philadelphia's petition for oral argument. The appraisal values the school building at approximately $2,500,000 and the gymnasium at approximately $1,000,000. Area 12 Exh. 33. At trial, Geesa testified that Bowen had given him only the portion of the appraisal related to the school building. Tr. at 1094; Defendant's Exh. F.
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completed. Lukasik faxed Schaefer a copy of the binder with the following message: "Enclosed is your copy of the binder we faxed to the insured. It is my understanding the renovations are done on this building." Philadelphia's Ex. 235. Philadelphia approved coverage for the Aurora School effective that day. The City of Aurora deeded the Aurora School property to Area 12 for one dollar. On January 19, 2000, a fire caused extensive damage to the unrenovated school building and gymnasium. On January 27, 2000, Philadelphia sent Area 12 a reservation of rights letter. Area 12 obtained an estimate of over $4,000,000 for restoring the Aurora School buildings to their previous condition and over $700,000 for updating their building code compliance. On March 8, 2000, Area 12's independent claims adjuster sent Philadelphia a proof of loss claim "demanding payment in full at the policy limits." Philadelphia's Ex. 216. On March 10, 2000, Philadelphia filed a declaratory judgment action in federal court seeking rescission of the binder and policy. Area 12 counterclaimed for bad faith refusal to pay and requested consequential and punitive damages. On August 28, 2000, Philadelphia settled with Area 12 for the policy limits of $2,600,000 and took a partial assignment of Area 12's claims against Gregory & Appel. On January 19, 2001, Philadelphia and Area 12 filed suit against Gregory & Appel and Geesa. 3 Philadelphia alleged, inter alia, that it "became obligated to pay" Area 12 the policy limits because of Gregory & Appel's negligence in binding coverage on the buildings "without correctly ascertaining the nature of the risk to be insured" and in "erroneously
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The lawsuit was originally filed in Dearborn Circuit Court and was later venued to Jefferson Circuit

Court.

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advising Philadelphia about the nature of the risk to be insured." Appellant's App. at 75-76 (second amended complaint). Area 12 alleged, inter alia, that Gregory & Appel had "failed to obtain a sufficient amount of insurance coverage on the School[.]" Id. at 80. Gregory & Appel asserted as an affirmative defense that Philadelphia had failed to mitigate its damages. A jury trial commenced on May 18, 2004. At the close of evidence, Area 12 settled with Gregory & Appel for $725,000. The trial court granted Gregory & Appel's request to add Area 12 as a nonparty for purposes of determining comparative fault. On May 26, 2004, the jury returned a verdict in favor of Philadelphia finding total damages of $2,600,000. The jury found Philadelphia to be 0% at fault, Area 12 to be 7% at fault, and Gregory & Appel to be 93% at fault, resulting in a net award of $2,418,000. 4 On July 6, 2004, the trial court entered judgment in that amount and awarded Philadelphia prejudgment interest at 8% from August 28, 2000. Discussion and Decision I. Exclusion of Evidence Gregory & Appel first contends that the trial court committed reversible error by excluding evidence that Philadelphia should have only paid Area 12 the actual cash value of the property rather than the replacement cost, in accordance with the express, unambiguous terms of Philadelphia's insurance policy. The trial court excluded all evidence regarding actual cash value, any mention of the damages allowed under the insurance policy, or any mention of the requirement for Area 12 to rebuild the property. The trial court's [order in limine 5 ] totally
$2,600,000

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