
ATTORNEYS FOR APPELLANT                 ATTORNEY FOR APPELLEE

Julia Blackwell Gelinas                 Julie L. Michaelis
Hugh E. Reynolds, Jr.             Wooden & McLaughlin LLP
James Dimos                       Indianapolis, IN
Locke Reynolds LLP
Indianapolis, IN






                                   IN THE

                          SUPREME COURT OF INDIANA



STATE FARM FIRE & CASUALTY        )
COMPANY,                                )
                                        )
      Appellant                   ) In the Supreme Court
      (Garnishee Defendant Below), ) No. 53S01-0102-CV-00099
                                        )
            v.                          )
                                        )
T.B.,                             ) In the Court of Appeals
a minor by her parents and next   ) No. 53A01-9908-CV-266
friends, GEORGE BRUCE and CATHY   )
BRUCE,                                  )
                                        )
      Appellees (Plaintiffs Below).     )
___________________________________)
                                        )
MURL L. DOBSON and VICKI L.       )
DOBSON,                                 )
                                        )
      Defendants below.                 )







                    APPEAL FROM THE MONROE CIRCUIT COURT
                     The Honorable David L. Welch, Judge
                         Cause No. 53C06-9705-CT-676



                              February 21, 2002


SHEPARD, Chief Justice.


      State Farm Fire and Casualty Company declined to represent an  insured
homeowner in a suit brought by a child whom the insured’s  husband  molested
during daycare in the insured’s home.   The  insured  agreed  to  a  consent
judgment of $375,000,  with  the  stipulation  that  none  of  it  would  be
collected from the homeowner, and assigned all policy rights to  the  child.
The trial court entered the judgment.  It later granted summary judgment  in
favor of the child in proceedings supplemental against State Farm.


      State Farm appeals, claiming that the trial court erred  when  it  (1)
estopped State Farm from raising the childcare exclusion in the  homeowner’s
policy as a defense, and  (2)  awarded  contractual  damages  in  an  amount
exceeding the limits of the homeowner’s policy.  We agree.







                        Facts and Procedural History


      Vicki Dobson operated a daycare center in  her  home  in  Bloomington,
Indiana, for about twenty-five years.  T.B  was  one  of  her  charges.   On
April 4, 1996, Dobson left T.B. and three other children  with  her  husband
Murl, while Dobson went across the street to  care  for  her  mother-in-law.
Murl molested T.B. and was later convicted of child molesting.

      About a year later,  T.B.  sued  the  Dobsons  on  premises  liability
grounds,  alleging  that  Murl’s  conduct  caused  “emotional  and  physical
sickness” and “permanently scarred [T.B.] emotionally.”   (R.  at  20.)   At
the time of the molestation,  the  Dobsons  owned  a  homeowner’s  insurance
policy issued by State Farm.  The policy  provided  for  personal  liability
coverage according to the following terms:
      SECTION II – LIABILITY COVERAGES


      COVERAGE L - PERSONAL LIABILITY


      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;  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 claim or 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.
      ...
(R.  at  279-80.)   The  policy  also  included   the   following   relevant
exclusions:
      SECTION II - EXCLUSIONS
       1. Coverage L and Coverage M do not apply to:


      ...


        (i) any claim made or suit brought against any
        insured by:


              1) any person who is in the care of any insured
           because of child care services provided by or at
           the direction of:
              a) any insured;
              b) any employee of any insured;  or
              c) any other person actually or apparently
           acting on behalf of any insured;  or
              2) any person who makes a claim because of
           bodily injury to any person who is in the care  of  any  insured
           because of child care services provided by or at  the  direction
           of:
           (a) any insured;
           (b) any employee of any insured;  or
           (c) any other person actually or apparently
           acting on behalf of any insured.


      This exclusion does not apply to the occasional  child  care  services
      provided by any insured . . . .


(R. 280-81.)

      State Farm received notice of the lawsuit on May 8, 1997, in a  letter
sent by T.B. dated April 30, 1996.  State  Farm  responded  six  days  later
with two letters, one acknowledging receipt of T.B.’s letter and  explaining
that an investigation was underway, and another addressed  to  the  Dobsons.
In the Dobson letter, State Farm questioned  its  obligation  to  defend  or
indemnify the Dobsons and reserved the right to deny  coverage  if  a  claim
arose out of childcare services provided by the insured.

       After  receiving  a  copy  of  T.B.’s  complaint,  State  Farm   took
statements from the  Dobsons.   It  later  advised  them  to  procure  legal
representation at their own expense, explaining that previous cases  similar
to the Dobsons’ were found not to be covered  by  the  policy.   State  Farm
subsequently denied coverage to the  Dobsons,  saying:   “After  a  thorough
investigation of the Complaint against [the Dobsons] we have concluded  that
the allegations against Murl Dobson do not involve an occurrence as  defined
by the policy.”  (R. at 902.)  State Farm’s letter also observed that  “Murl
and Vicki Dobson  were  providing  full-time  childcare  services  for  many
children and have done so for many years.”  (R. at 904.)

      On November 5, 1997,  T.B.  and  the  Dobsons  tendered  an  offer  of
judgment and  covenant  agreement  which  the  trial  court  accepted.   The
Dobsons agreed to assign to T.B. all rights, interests and remedies  against
State Farm arising  from  their  homeowner’s  policy.   The  agreement  also
provided for a money judgment of $375,000, conditioned upon  T.B.’s  promise
not to execute on the Dobson’s personal assets.

     About a month after entry of judgment, T.B.  filed  a  verified  motion
for proceedings supplemental and  garnishment  against  State  Farm.   State
Farm and T.B. filed cross motions for summary  judgment.   The  trial  court
granted summary judgment to T.B., and State Farm  appealed.   The  Court  of
Appeals affirmed the summary judgment, though it reduced  the  award  amount
to the policy limit, which was $300,000.  State Farm  Fire  &  Cas.  Co.  v.
T.B. ex rel.  Bruce,  728  N.E.2d  919  (Ind.  Ct.  App.  2000).   We  grant
transfer.


                     Summary Judgment Standard of Review

      Summary judgment is proper if the evidence shows there is  no  genuine
issue of material fact and the moving party is entitled to a judgment  as  a
matter of law.  Ind. Trial Rule 56(C); Butler v. Peru, 733 N.E.2d 912  (Ind.
2000).  The courts construe all facts and reasonable inferences  drawn  from
those facts in a light most favorable to the nonmoving party.   Butler,  733
N.E.2d at 915.  On appeal the nonmovant has the burden of proving  that  the
grant of summary judgment was erroneous, but we  review  the  trial  court’s
decision carefully to ensure that the nonmovant was  not  improperly  denied
his day in court.  Ind. Dept. of  Envtl.  Mgmt.  v.  Med.  Disposal  Servs.,
Inc., 729 N.E.2d 577 (Ind. 2000).





                           I.  Collateral Estoppel


      State Farm first asserts that summary judgment  in  T.B.’s  favor  was
inappropriate because the trial court improperly estopped  State  Farm  from
raising the childcare exclusion as a defense in the garnishment  proceeding.
 State Farm specifically argues that it  should  not  be  bound  by  factual
statements contained in T.B.’s consent judgment that were not  necessary  to
the resolution of the underlying action.


      A.  To Defend or Not to Defend.  Collateral estoppel, also referred to
as “issue preclusion,” describes the binding effect of a  previous  judgment
regarding a  particular  issue  on  the  parties  and  their  privies  in  a
subsequent action.  Liberty Mut. Ins. Co. v. Metzler, 586  N.E.2d  897,  900
(Ind. Ct. App. 1992).  “The  doctrine  of  collateral  estoppel  applies  to
insurance contracts and an insurer is ordinarily  bound  by  the  result  of
litigation to which its insured is a party,  so  long  as  the  insurer  had
notice  and  opportunity  to  control  the  proceedings.”   Id.   (citations
omitted).


      An insurer may avoid  the  effects  of  collateral  estoppel  by:  (1)
defending the insured under a reservation of rights in the  underlying  tort
action,  or  (2)  filing  a  declaratory  judgment  action  for  a  judicial
determination of its obligations under  the  policy.   Id.  at  902  (citing
State Farm Mut. Auto. Ins. Co. v. Glasgow, 478 N.E.2d  918  (Ind.  Ct.  App.
1985)).  Either of these actions will preserve an insurer’s right  to  later
challenge a determination made in the prior action.


      An insurer may also elect not to defend an insured party in a  lawsuit
if, after investigation of the complaint, the  insurer  concludes  that  the
claim is “patently outside the risks covered by the  policy.”   Id.  at  901
(citations omitted).  Such a course is taken at the insurer’s peril  because
the insurer will be “bound at least to the  matters  necessarily  determined
in the lawsuit.”  Frankenmuth Mut. Ins. Co. v.  Williams,  645  N.E.2d  605,
608 (Ind. 1995)(citation omitted)(emphasis added).

      State Farm received notice of T.B’s complaint against the Dobsons  and
promptly investigated.  State Farm subsequently decided not  to  defend  the
Dobsons and “concluded the allegations against Murl Dobson  do  not  involve
an occurrence as defined by the policy.”  (R. at 902.)   Neither  did  State
Farm file for declaratory judgment.  Consequently, State Farm  is  bound  to
the matters necessarily determined in the lawsuit.

      B.   Matters  Necessarily  Determined.   State  Farm   concedes   that
collateral estoppel prevents it from disputing  certain  findings  necessary
to  establish  the  Dobsons’  liability,  such  as  the  finding  that   the
molestation  was  negligent.   State  Farm  challenges,   however,   factual
statements included in the consent judgment establishing  that  the  child’s
injury was unrelated to daycare activities.  It says this finding  was  “not
a necessary element of the consent  judgment.”   (Appellant’s  Br.  at  13.)
State Farm observes that T.B. and the Dobsons  “characterize[d]  the  events
in a very specific manner, with the obvious intent of seeking to  bring  the
judgment within the coverage of the policy.”  (Id.)



      The offered judgment, tendered by T.B. and the Dobsons and entered  by
the trial court, indicated:

      The [Dobsons] represent that the  occurrence  of  misfeasance  .  .  .
      proximately resulting in serious bodily injury and harm to [T.B.]  was
      separate from, independent of, and had no direct or  indirect  factual
      or legal connection or relationship to Vicki L. Dobson’s separate  and
      sole ownership and operation of  her  limited,  part-time  child  care
      activities and services.  The existence of said  day  care  activities
      and services is only  an  independent  and  coincidental  circumstance
      which does not give rise to any breach of duty or legal responsibility
      as relevant to the occurrence and injuries described herein.

(R. at 84-85.)  We agree with State Farm that these  characterizations  were
unnecessary to sustain T.B.’s complaint  for  damages  regarding  negligence
and premises liability.  (See R. at 20-21.)  The statement’s  apparent  sole
purpose was to isolate the molestation from the childcare activities.


      In Frankenmuth, 645 N.E.2d at 608, we explained that an insurer having
sufficient notice of the lawsuit is “bound at least to  matters  necessarily
determined in the lawsuit” when the  insurer  declines  to  defend  or  seek
declaratory judgment.  The term “at least” in the holding signifies  only  a
minimum requirement.  Frankenmuth, therefore, left some question of  whether
an  insurer  is  bound  as  to   matters   not   “necessarily   determined.”
Consideration of the requirement that adequate  notice  precede  application
of collateral estoppel persuades  us  not  to  broaden  the  portions  of  a
consent agreement to which an insurer is bound.


      The notice requirement provides the insurer with a base of information
from which to determine whether to participate in a lawsuit.   Specifically,
prior notice alerts an insurer of the factual determinations  that  will  be
made in order to resolve the litigation.   Thus,  an  insurer’s  failure  to
participate  in  the  action  will  bind   it   to   those   determinations.
Unnecessary determinations are less predictable.  Estopping an absent  party
from contesting unnecessary matters settled upon by the  consenting  parties
invites collusive or fraudulent determinations.


      T.B.’s lawsuit against  the  Dobsons  claimed  personal  and  premises
liability.  The portions  of  the  consent  agreement  that  resolved  these
issues are binding on State Farm.


      T.B.’s claim did not specifically  address  State  Farm’s  contractual
obligations under the Dobsons’ homeowner’s policy.  The  consent  agreement,
nevertheless, did.  The statement that T.B.’s molestation was separate  from
Vicki  Dobson’s  daycare  services  was  unnecessary   to   resolve   T.B.’s
complaint.  It was thus tantamount to dictum,  and  State  Farm  should  not
have been estopped from challenging it during proceedings supplemental.


      C.   Issues  of  Material  Fact.   Without  contesting   the   consent
agreement’s determination that T.B. was a “guest” in the  Dobsons’  home  on
the day she was molested, State Farm asserts that T.B. was  receiving  child
care from the insured, a  condition  excluded  from  the  Dobsons’  personal
liability coverage.[1]  The policy states that coverage does  not  apply  to
“any person who is in  the  care  of  any  insured  because  of  child  care
services provided by or at the direction  of:  (a)  any  insured.”   (R.  at
280.)  State Farm argues that the consent agreement is  ambiguous  and  that
“[t]he use of the term ‘guest’ is  not  inconsistent  with  a  finding  that
[T.B.] was present as the recipient of paid childcare services  provided  by
Vicki Dobson.”   (Appellant’s Br. at 13 n. 3.)


      Relying on the consent agreement’s  use  of  the  term  “guest,”  T.B.
argues that the  issue  of  her  legal  status  on  the  premises  has  been
determined  and  that  State  Farm  is  precluded  from   relitigating   the
matter.[2]  (Appellee’s Br. at 21-22.)


      The term “guest” was not defined in the consent agreement.   We  agree
with  State  Farm’s  contention  that  the  term  “guest”  is  an  ambiguous
description of a person’s status with  regard  to  premises  liability.   In
Burrell v. Meads,  569  N.E.2d  637,  643  (Ind.  1991),  we  described  the
position of the social visitor as “anomalous” and  noted  Professor  Fleming
James’ description of the guest as “an invitee who is not an invitee.”


      In  Burrell  we  discussed  the  traditional  categories  of  visitors
entitled to an  “invitee”  status:  the  public  invitee  and  the  business
visitor.[3]  Id. at 640-41.  We added the social guest to this  class.   Id.
at 643.  Each of these categories is distinguished by whether it involves  a
public, business or social  aspect.   A  description  stating  only  that  a
person is an invitee, visitor or guest omits the  relevant  portion  of  the
label,  i.e.,  public,  business  or  social.   Consequently,  the   consent
agreement’s determination that T.B.  was  a  “guest”  does  not  preclude  a
finding that she was present in the home  for  a  business  activity,  i.e.,
daycare.


      Summary judgment for either party is unsustainable with regard to  the
childcare exclusion.


      Vicki Dobson operated a daycare in her home  for  several  years,  and
T.B.’s mother paid Vicki Dobson to care for her daughter over  a  period  of
years.  Drawing all facts and reasonable inferences in favor of State  Farm,
it appears as though T.B. was in the Dobsons’ home for the sole  purpose  of
benefiting from childcare  services.   Accordingly,  we  reverse  the  trial
court’s grant of summary judgment for T.B. as to  the  childcare  exclusion.
The trial court should take evidence  on  this  question  and  rule  on  the
merits.


      T.B. argues that even if State Farm raises the childcare exclusion  as
a defense, summary judgment is still appropriate  because  an  exception  to
the exclusion applies.  The Dobsons’  policy  provides  that  the  childcare
exclusion “does not apply to the occasional childcare services  provided  by
any insured.”  (R. at 281.)


      T.B. concedes that “Vicki did routinely provide childcare services  to
[T.B.] before and after school and during the summer. . .  .”   (Appellant’s
Br. at 36.)  She explains that Vicki did not usually  care  for  her  during
the day, except on days that T.B. was sick.  (R.  at  464.)   This  was  the
circumstance on the day that Murl molested T.B.  Based on these facts,  T.B.
argues that Vicki’s care at that time was occasional.  (Appellant’s  Br.  at
36.)  T.B. additionally states that she was not in Vicki’s care at the  time
of the incident because Vicki left the home to attend to  her  mother-in-law
across the street.  (R. at 471.)  She claims that she was actually  left  in
Murl’s care.  She argues that his care was occasional  because  “Vicki,  not
Murl, was paid for caring for [T.B.].”  (Appellant’s Br. at 37; R. at  483.)



      There is a genuine issue of material fact as to  whether  T.B.’s  care
was occasional, such that the occasional care exception to  the  child  care
exclusion would apply.  Because summary judgment was inappropriate for  this
issue, we direct a trial on the merits for this question as well.




                             II.  Damages Award

      State Farm next argues that grant of summary judgment in favor of T.B.
was improper because the trial court erroneously accepted an  award  greater
than allowed by the Dobsons’ homeowner’s policy.  The Court of Appeals  held
that the insurer’s liability was limited to $300,000.   State  Farm  Fire  &
Cas. Co., 728 N.E.2d at 919.  We summarily affirm  their  decision  on  this
point.  Ind. Appellate Rule 58(A)(2).


                                 Conclusion

      We reverse the trial court’s grant of summary judgment and remand  for
a hearing on the merits of  the  childcare  exclusion  and  occasional  care
exception.

Dickson, Sullivan, Boehm, and Rucker, JJ., concur.
-----------------------
[1] The consent agreement states that “on April 4, 1996, the Plaintiff
[T.B.], a 10 year old minor, was present as a guest at the residence of
Murl L. Dobson and Vicki L. Dobson.”  (R. at 81.)
[2] As earlier mentioned, the consent agreement also stated that the
malfeasance was unrelated to Vicki Dobson’s daycare activities. Because we
have determined that this statement was not necessary to resolve the
liability claim, we will not again address the statement here.
[3] The Restatement (Second) of Torts § 332 defines the public invitee as
“a person who is invited to enter or remain on land as a member of the
public for a purpose for which the land is held open to the public.”  The
Restatement defines a business visitor as “a person who is invited to enter
or remain on land for a purpose directly or indirectly connected with
business dealings with the possessor of the land.”  Id.

