ERIE INSURANCE EXCHANGE v. NGUYEN (2026)

MEMORANDUM DECISION

Statement of the Case

[1] Erie Insurance Exchange (Erie) appeals from the trial court's order on cross-motions for summary judgment concluding that State Farm Fire and Casualty Company (State Farm) had no duty to defend or indemnify its insured Lan Nguyen (Nguyen). Concluding that the trial court properly granted summary judgment in State Farm's favor and denied Erie's motion for summary judgment, we affirm.

Facts and Procedural History

[2] Nguyen resides with her spouse in a single-family residence in Greenwood. State Farm issued a homeowners policy effective June 15, 2020 to June 15, 2021 to Nguyen's spouse Sy Van Nguyen (Sy) as the named insured. Appellee's App. Vol. II, p. 139 (Named Insured). The policy insured the Nguyens’ Greenwood residence (the Insured Location). Id. at 154 (Insured Location defined). Nguyen is also an insured under the policy.

[3] Nguyen and Sy were the two members of a business, Luxury Nail Spa II, LLC (the Spa). On July 10, 2020, Nguyen entered into a lease contract (Lease) with Meridian Oaks Apartments LLC (Meridian Oaks) to rent an apartment (the Apartment) in Greenwood. The Apartment was occupied by employees of the Spa. And the Spa's employees, not the Spa or Nguyen, were responsible for paying the monthly rent and utility expenses. Appellant's App. Vol. 2, p. 29 (Nguyen Affidavit, ¶ 6).

[4] Nguyen never stayed at the Apartment and none of the Spa's business was conducted there. Id. at 30 (Nguyen Affidavit, ¶ 9). In fact, the Lease prohibits the use of the Apartment for business purposes other than a remote work position that does not require customers, clients, patients, or associates to come onto the premises. Appellee's App. Vol. II, p. 8 (¶ 20, Limitations on Conduct). And the Lease prohibits smoking anywhere inside the apartment buildings and on the attached balconies or patios. Id. at 26 (¶¶ 4, 5).

[5] On April 14, 2021, the Apartment and surrounding apartments sustained fire and related damage. Although the cause of the fire was undetermined, the investigation revealed that the balcony of the Apartment was the area of the fire's origin. Id. at 113. The Fire Report concluded as follows:

Cause of the fire: After a complete fire scene examination, interviewing witnesses, it is determined the ignition source for the fire is undetermined. The materials first ignited are undetermined. The act or omission that brought the ignition source and the material first ignited together is undetermined. Using these elements of fire cause, the cause of the fire is undetermined.

Id. (emphases added). At the time, Meridian Oaks, who owned and operated the apartment complex, was insured by Erie. Erie tendered the insurance benefits to its insured.

[6] Next, Erie initiated a subrogation action against Nguyen under cause number 41D01-2108-CT-101 (the Subrogation Action). Then Erie brought this declaratory judgment action to determine if State Farm was required to defend and indemnify Nguyen in the Subrogation Action. Erie and State Farm filed motions for summary judgment. The trial court held a hearing after which it denied Erie's motion for summary judgment and granted State Farm's cross-motion for summary judgment. Erie now appeals.

Discussion and Decision

[7] Erie contends the trial court erred by granting State Farm's motion for summary judgment. Our standard of review in such cases is well settled:

Summary judgment is appropriate only where the designated evidentiary matter shows that there are no genuine issues as to any material fact and that the moving party is entitled to a judgment as a matter of law. When reviewing a grant of a motion for summary judgment, we stand in the shoes of the trial court. Once the moving party demonstrates, prima facie, that there are no genuine issues of material fact as to any determinative issue, the burden falls upon the non-moving party to come forward with contrary evidence. The non-moving party may not rest upon the pleadings but must instead set forth specific facts, using supporting materials contemplated under Trial Rule 56, which show the existence of a genuine issue for trial. The party appealing the grant of summary judgment bears the burden of persuading this court that the trial court erred, but we still carefully scrutinize the entry of summary judgment to ensure that the non-prevailing party was not denied its day in court. We do not weigh the evidence but rather consider the facts in the light most favorable to the nonmoving party. We may sustain the judgment upon any theory supported by the designated evidence. The trial court here entered specific findings of fact and conclusions thereon. Although such findings and conclusions facilitate appellate review by offering insight into the trial court's reasons for granting summary judgment, they do not alter our standard of review and are not binding upon this court.

Grinnell Mut. Reinsurance Co. v. Ault, 918 N.E.2d 619, 624-25 (Ind. Ct. App. 2009) (quoting Auburn Cordage, Inc. v. Revocable Trust Agreement of Treadwell, 848 N.E.2d 738, 747 (Ind. Ct. App. 2006) (citations omitted)).

[8] “[T]he fact that the parties have made cross-motions for summary judgment does not alter our standard of review. Rather, we consider each motion to determine whether the moving party is entitled to judgment as a matter of law.” Id. at 625 (quoting Blasko v. Menard, Inc., 831 N.E.2d 271, 273 (Ind. Ct. App. 2005) (citation omitted), trans. denied (2006)). And “[a] trial court's summary judgment ruling is clothed with a presumption of validity, and the losing party has the burden of establishing that the trial court erred.” Thomson Inc. v. Insurance Co. of North America, 11 N.E.3d 982, 994 (Ind. Ct. App. 2014), trans. denied.

[9] “ ‘Interpretation of an insurance policy presents a question of law that is particularly suitable for summary judgment.’ ” Id. at 993 (quoting State Auto. Mut. Ins. Co. v. Flexdar, Inc., 964 N.E.2d 845, 848 (Ind. 2012)). “ ‘Clear and unambiguous language in insurance policy contracts, like other contracts, should be given its plain and ordinary meaning.’ ” Id. (quoting Cinergy Corp. v. Associated Elec. & Gas Ins. Servs., Ltd., 865 N.E.2d 571, 574 (Ind. 2007)). “ ‘Policy terms are interpreted from the perspective of an ordinary policyholder of average intelligence. If reasonably intelligent persons may honestly differ as to the meaning of the policy language, the policy is ambiguous.’ ” Id. (quoting Gasser v. Downing, 967 N.E.2d 1085, 1087 (Ind. Ct. App. 2012) (citation omitted)). “ ‘However, an ambiguity does not exist merely because the parties proffer differing interpretations of the policy language.’ ” Id. (quoting Buckeye State Mut. Ins. Co. v. Carfield, 914 N.E.2d 315, 318 (Ind. Ct. App. 2009), trans. denied (2010)).

[10] The question here is whether State Farm has a duty to defend and indemnify Nguyen for the fire and related damage at the Apartment and surrounding apartments at the apartment complex. “An unambiguous insurance policy must be enforced according to its terms, even if those terms limit an insurer's liability.” Ebert v. Illinois Cas. Co., 188 N.E.3d 858, 865 (Ind. 2022). “Whether an insurer has a duty to defend a particular lawsuit is determined by examining the nature of the underlying complaint.” Id. “If the pleadings reveal that a claim is clearly excluded under the policy, then no defense is required.” Jim Barna Log Sys. Midwest, Inc. v. General Cas. Ins. Co. of Wisconsin, 791 N.E.2d 816, 823 (Ind. Ct. App. 2003), trans. denied. “And an insurer's duty to defend is broader than its duty to indemnify.” Ebert, 188 N.E.3d at 865. “Consequently, if an insurer does not have a duty to defend, then it does not have a duty to indemnify.” Id.

[11] Erie's underlying complaint against Nguyen in the Subrogation Action alleged breach of contract based on the No-Smoking Addendum to the Lease. Appellee's App. Vol. II, pp. 30-31. Erie's complaint for declaratory judgment against State Farm in the current case alleged that Nguyen's State Farm Homeowners Policy provided personal liability coverage, “does not contain any exclusions to that coverage which would disclaim coverage” for the damages alleged in the Subrogation Action Complaint. Appellee's App. Vol. II, pp. 3-4. As such, Erie argued that State Farm had a duty to defend and indemnify Nguyen in the Subrogation Action. Id. at 5.

[12] Next, Erie filed a motion for summary judgment, contending that Nguyen breached the No-Smoking Addendum of the Lease as “smoking materials were negligently discarded by occupants [employees of Luxury Nails Spa II LLC] of the Apartment, proximately causing an April 14, 2021 fire loss and resultant property damages in excess of 4.6 million dollars.” Appellant's App. Vol. 2, p. 36. And Erie argued that it tendered insurance benefits to Meridian Oaks for the fire damage to the apartment complex prior to initiating the Subrogation Action. Id. at 33.

[13] State Farm filed its opposition to Erie's motion and its cross-motion for summary judgment. State Farm argued that Meridian Oaks could have required Nguyen to obtain insurance for the Apartment, but chose not to do so. And State Farm's position was that Erie was “wrongfully attempting to recoup its alleged payments from the homeowners insurance policy issued for Nguyen's personal home.” Id. at 43. Erie was not entitled to summary judgment, according to State Farm, because: “(i) Erie cannot contend that smoking caused the fire as the evidence tendered by Erie shows that the cause of the fire was undetermined; (ii) Erie failed to designate any evidence of the insurance benefits provided to Meridian Oaks for the alleged fire damage to [the Apartment] and complex; and (iii) the undisputed evidence shows that Nguyen used the apartment for business pursuits, which the insurance contract issued by State Farm excludes from coverage.” Id. at 43-44.

[14] As for its cross-motion for summary judgment, State Farm asserted three policy provisions supported its position that it had no duty to defend and indemnify Nguyen. First, the policy excluded coverage for liability imposed on or assumed by Nguyen through any unwritten or written contract, including the lease. Id. at 44. Second, State Farm is not obligated to provide coverage for the Apartment because it is not an “insured location” or “residence premises” as defined by the policy. Id. And third, Nguyen used the Apartment for business pursuits, by allowing her Spa employees to live there, which is excluded from coverage by the policy. Id.

A. Erie's Motion for Summary Judgment

[15] The trial court denied Erie's motion for summary judgment. Erie contends the trial court erred because the State Farm Policy provides coverage under Personal Liability Exclusion 2(c).

[16] Section II—LIABILITY COVERAGES, COVERAGE L—PERSONAL LIABILITY provides in pertinent part as follows:

If a claim is made or a suit is brought against an insured for damages because of bodily injury or property damage to which this coverage applies, caused by an occurrence, we will:

1. pay up to our limit of liability for the damages for which the insured is legally liable. We will not pay for criminal restitution; and

2. provide a defense at our expense by counsel of our choice. We may make any investigation and settle any claim or suit that we decide is appropriate. Our obligation to defend any suit ends when the amount we pay for damages, to effect settlement or satisfy a judgment resulting from the occurrence, equals our limit of liability. We will not provide a defense to any insured for criminal prosecution or proceedings.

Id. at 76.

[17] The policy further states that

2. Coverage L does not apply to:

* * *

c. ․ property damage to property rented to, used or occupied by, or in the care, custody, or control of any insured at the time of the occurrence. This exclusion does not apply to property damage caused by fire, smoke, explosion or abrupt and accidental damage from water;

Id. at 81.

[18] As for Personal Liability Exclusion 2(c), trial court concluded that:

3. While Erie contends that this provision means that the exclusion does not apply to the property of Meridian Oaks, read in context, the fire and smoke exclusion applies to property rented to, used or occupied by, or in the care, custody, or control of an insured, i.e., the Apartment itself, if anything. This interpretation is consistent with several other terms of the Policy.

Appellant's App. Vol. 2, p. 21.

[19] We agree with the trial court's interpretation of the policy language. In the Subrogation Action, Erie sought reimbursement for damages to all of the apartments at the Meridian Oaks’ apartment complex due to the August 14, 2021 fire. Paragraph 8 of the Subrogation Action Complaint includes the Lease language imposing liability for “all lost rental income or economic and financial damages for loss of use due to smoking or smoke related damage caused by you or your occupants ․” Appellee's App. Vol. II, p. 31. Coverage L provides coverage for property damage, the exclusion takes away coverage for property damage to property rented to the insured—namely the Apartment, not the apartment complex as a whole or that was also damaged—and the exception restores coverage, at best, for property damage due to the fire for the Apartment only. Therefore, we affirm the trial court's decision to deny summary judgment to Erie.

B. State Farm's Cross-Motion for Summary Judgment

[20] Erie contends that the trial court erred by granting summary judgment in favor of State Farm based on Personal Liability Exclusion 2(a)(2). Appellant's Br. p. 10; Reply Br. pp. 5-6. That exclusion provides as follows:

2. Coverage L does not apply to:

a. liability:

* * *

(2) imposed on or assumed by any insured through any unwritten or written contract or agreement. This exclusion does not apply to liability for damages that the insured would have in absence of the contract or agreement.

Appellee's App. Vol. II, p. 81 (emphases in original).

[21] The Complaint alleges that Nguyen breached the terms of her contract with Meridian Oaks, the Lease. And the policy's terms explicitly exclude coverage for liability “imposed on or assumed by any insured through any unwritten or written contract or agreement.” Id. at 81. Thus, even if the factual basis for the Subrogation Action—that Nguyen violated the terms of the Lease by allowing others to smoke there—were found to be true, State Farm would not be obligated to defend Nguyen because of the contract exclusion. See Jim Barna, 791 N.E2d at 823 (“[w]hen the underlying factual basis of the complaint, even if proved true, would not result in liability under the insurance policy, the insurance company can properly refuse to defend.”). We agree with the trial court's conclusion that State Farm did not have a duty to defend because coverage is excluded under the contract exclusion language.

[22] And Erie admitted in response to State Farm's First Set of Requests for Admission to Plaintiff, that the Apartment does not constitute an “insured location” or “residence premises” as defined by the policy. Appellee's App. Vol. II, pp. 97-98. We agree that the State Farm Homeowners Policy was clearly acquired for the Insured Property, namely the Nguyens’ Greenwood residence. The policy does not include the address for the Apartment and the Insured Property is the only premises shown in the State Farm Policy declarations. Id. at 33.

[23] The trial court concluded that “Nguyen's potential liability in the [Subrogation Action] arises solely from the alleged contractual obligations assumed by or imposed on Nguyen via the written contract, i.e., the Lease, with Meridian Oaks.” Appellant's App. Vol. 2, p. 25. The court further found that Nguyen's State Farm Policy unambiguously excluded coverage for liability imposed on or assumed by Nguyen, and entered summary judgment in favor of State Farm. Id.

[24] Erie argues that the exception to the exclusion applies because of statutory duties imposed on Nguyen under the Indiana Landlord Act, Indiana Code chapter 32-31-7, Tenant Obligations. Appellant's Br. pp. 10-11; Reply Br. pp. 5-6. However, Erie's Subrogation Action is a breach of contract action based on the No-Smoking Addendum to the Lease. Therefore, Nguyen's obligations under the statute exist solely because she entered into the Lease (contract). Consequently, Nguyen would not have those statutorily imposed obligations absent entering into the Lease. The trial court correctly granted summary judgment in favor of State Farm.

[25] Although the parties have presented a business pursuit exclusion, we need not address it, because we may affirm the trial court's grant of summary judgment on any basis found in the record. Grinnell Mut., 918 N.E.2d at 624. And there are two bases which we have discussed that exclude coverage for the August 14, 2021 fire, and, in turn, support State Farm's position that it has no duty to defend or indemnify Nguyen in the Subrogation Action. The trial court's grant of summary judgment in favor of State Farm is affirmed.

Conclusion

[26] In light of the foregoing, we conclude that the trial court correctly denied Erie's motion for summary judgment and correctly granted State Farm's cross-motion for summary judgment. We affirm the trial court.

[27] Affirmed.

Crone, Senior Judge.

Bailey, J., and Mathias, J., concur.