                                                                              FILED
                                                                        Sep 08 2016, 9:19 am

                                                                              CLERK
                                                                         Indiana Supreme Court
                                                                            Court of Appeals
                                                                              and Tax Court




ATTORNEY FOR APPELLANTS                                    ATTORNEYS FOR APPELLEE
Mark A. Matthes                                            David S. Wirth
Yoder Ainlay Ulmer & Buckingham,                           Fairfield, Ohio
LLP                                                        Kristine Lindley
Goshen, Indiana                                            Richard R. Skiles
                                                           Skiles DeTrude
                                                           Indianapolis, Indiana



                                            IN THE
    COURT OF APPEALS OF INDIANA

Thomas A. Carpenter,                                       September 8, 2016
Appellant-Plaintiff,                                       Court of Appeals Case No.
                                                           33A01-1602-CT-265
        v.                                                 Appeal from the Henry Circuit
                                                           Court
Lovell’s Lounge and Grill, LLC                             The Honorable Mary G. Willis,
and Jerry Dean Johnson,                                    Judge
Defendants,                                                Trial Court Cause No.
                                                           33C01-1308-CT-27
and

The Cincinnati Specialty
Underwriters Insurance
Company, a subsidiary of the
Cincinnati Insurance
Companies,
Garnishee-Defendant

______________________________



Court of Appeals of Indiana | Opinion 33A01-1602-CT-265 | September 8, 2016                      Page 1 of 26
      The Cincinnati Specialty
      Underwriters Insurance
      Company,
      Appellee-Plaintiff,

              v.


      Thomas A. Carpenter, Lovell’s
      Lounge and Grill, LLC, and
      Jeremy Lovell d/b/a Lovell’s
      Lounge and Grill,
      Appellants-Defendants




      Crone, Judge.


                                              Case Summary
[1]   This case arises from an incident at Lovell’s Lounge and Grill, in which

      Thomas A. Carpenter was injured by Jerry Dean Johnson. Carpenter, Lovell’s

      Lounge and Grill, LLC, and Jeremy Lovell d/b/a Lovell’s Lounge and Grill

      (collectively “Appellants”) appeal the judgment in favor of The Cincinnati

      Specialty Underwriters Insurance Company (“CSU”) on its action seeking a

      declaratory judgment regarding its obligations under its insurance policy with

      Lovell’s Lounge. In that judgment, the trial court found that CSU had no

      obligation to make payments under a consent judgment (“the Consent

      Judgment”), in which Carpenter and Lovell’s Lounge agreed that Carpenter’s

      injuries were caused by Lovell’s Lounge negligence or that Lovell’s Lounge was


      Court of Appeals of Indiana | Opinion 33A01-1602-CT-265 | September 8, 2016   Page 2 of 26
      vicariously liable for Johnson’s negligence. Appellants argue that the trial court

      erred in finding that the Consent Judgment was the product of bad faith or

      collusion, and therefore collateral estoppel does not require CSU to be bound

      by the determinations of liability and damages in the Consent Judgment.

      Because we conclude that CSU has carried its burden to show by clear and

      convincing evidence that the Consent Judgment was the product of bad faith or

      collusion, we conclude that the trial court did not err in finding that collateral

      estoppel does not require CSU to be bound by the Consent Judgment.

      Therefore, we affirm.


                                  Facts and Procedural History
[2]   Lovell’s Lounge operates Lovell’s Lounge and Grill (“the Lounge”) in New

      Castle. Jeremy Lovell is the registered agent for Lovell’s Lounge. In May

      2012, Carpenter went to the Lounge, and within moments of entering, he was

      injured by Jerry Dean Johnson (“the Incident”). Johnson was charged with

      class C felony battery resulting in serious bodily injury for his actions in injuring

      Carpenter. At the trial, Carpenter testified that upon entering the Lounge, he

      heard Johnson say, “You’re stupid for coming in here.” Appellee’s App. at 60.

      Carpenter also testified that Johnson hit him in the left jaw, causing him to fall,

      and kicked him in the left eye. Id. at 61. In addition, Carpenter testified that a

      couple months prior to the Incident, Johnson threatened to hurt him because

      Johnson was upset that Carpenter was dating Johnson’s ex-girlfriend. Id. at 63-

      64. A jury found Johnson guilty as charged. Johnson appealed, and this Court



      Court of Appeals of Indiana | Opinion 33A01-1602-CT-265 | September 8, 2016   Page 3 of 26
      affirmed his conviction. Johnson v. State, No. 33A01-1306-CR-266 (Ind. Ct.

      App. Dec. 31, 2013), trans. denied (2014).


[3]   In August 2013, Carpenter filed a verified complaint against Lovell’s Lounge

      and Johnson based on the Incident. The complaint’s “Facts” section contained

      the following allegation: “Within moments of entering [the] Lounge, Carpenter

      was brutally attacked by [Johnson] with numerous punches and kicks.”

      Appellants’ App. at 41. In the “Parties and Jurisdiction” section, the complaint

      alleged that “Johnson [was] an employee of and/or performed services for

      Lovell’s Lounge.” Id. at 40.


[4]   Carpenter’s complaint included three counts. In Count I, a claim for civil

      assault and battery, Carpenter alleged that “Johnson did effectuate a civil

      assault and battery upon [him],” and “intended to cause a harmful or offensive

      contact with [him],” which caused severe bodily injury to him. Id. at 42. In

      Count II, a negligence claim based on premises liability, Carpenter alleged that

      he was an invitee and that Lovell’s Lounge breached its duty to him by failing

      to protect him from “expected criminal acts,” failing to “prevent a reasonably

      foreseeable attack by [Johnson],” and “failing to manage the [Lounge] in a

      manner that took previously known threats or acts of violence into

      consideration of the safety of patrons, including Carpenter.” Id. at 43. In

      Count III, a claim based on a Dram Shop Act violation, Carpenter alleged that

      Lovell’s Lounge furnished Johnson with alcohol when Johnson was visibly

      intoxicated and Johnson’s intoxication was a proximate cause of Carpenter’s

      injury and damages. Id.

      Court of Appeals of Indiana | Opinion 33A01-1602-CT-265 | September 8, 2016   Page 4 of 26
[5]   Lovell’s Lounge was insured by CSU under a commercial general liability

      policy (“the Policy”) and sought insurance coverage from CSU for Carpenter’s

      complaint. However, in October 2013, CSU denied coverage to Lovell’s

      Lounge on several grounds, including that the Policy contained an exclusion for

      assault and battery.


[6]   In July 2014, Carpenter filed a verified amended complaint against Lovell’s

      Lounge and Johnson. The amended complaint was identical to the first

      complaint except for four paragraphs added to the end of Count III, which

      contained the following allegations:

              38. Johnson owed Carpenter a duty not to cause harm to the
              person or property of Carpenter.


              39. On or about May 12, 2012, Johnson negligently breached the
              duty of care by coming into physical contact with Carpenter at
              which time Johnson accidently caused bodily injury to
              Carpenter.


              40. As a proximate result of Johnson’s negligence Carpenter
              sustained injuries … .


              41. Lovell’s Lounge owed Carpenter, an invitee, a duty to
              protect him from foreseeable negligent harm, and/or [] to warn
              of foreseeable harm. Lovell’s Lounge breached that duty.


      Id. at 51.




      Court of Appeals of Indiana | Opinion 33A01-1602-CT-265 | September 8, 2016   Page 5 of 26
[7]    Lovell’s Lounge sought insurance coverage from CSU based on Carpenter’s

       amended complaint. In a letter dated August 4, 2014, CSU again denied

       coverage based on the Policy’s exclusion for assault and battery.


[8]    On November 14, 2014, attorney Mark A. Matthes filed an appearance for

       Carpenter. At that time, Lovell’s Lounge was represented by attorney Robert

       Emmerson. Matthes and Emmerson attempted to negotiate a consent

       judgment between Carpenter and Lovell’s Lounge. On December 17, 2014,

       Emmerson sent Matthes the following email:


               I would kindly request until Jan. 9th for Lovell’s Lounge to file
               an answer. I am trying to get a final answer from Jeremy
               regarding his intentions, but I cannot sign the proposed consent
               judgment as drafted. As we have discussed, I do not believe my
               ethical obligations to the court would allow me to sign a
               judgment which states that Jerry Johnson was an agent of
               Lovell’s Lounge at the time of the incident.


       Id. at 288.


[9]    On December 31, 2014, Emmerson withdrew his appearance on behalf of

       Lovell’s Lounge. During his deposition, Jeremy testified that Emmerson

       withdrew because Emmerson had charged him $7000 for legal fees and Lovell

       “told [Emmerson] I wasn’t gonna pay him.” Id. at 215.


[10]   On February 25, 2015, Carpenter and Lovell’s Lounge submitted their Consent

       Judgment to the trial court, which the court approved and entered. The

       Consent Judgment provided in relevant part as follows:


       Court of Appeals of Indiana | Opinion 33A01-1602-CT-265 | September 8, 2016   Page 6 of 26
        2. Upon entering Lovell’s Lounge, [Johnson] negligently came
        into physical contact with Carpenter, accidently causing him
        serious bodily injury. The harm was neither intended nor
        expected from the standpoint of Johnson or Lovell’s Lounge.


        ….


        6. Carpenter was a business invitee, and as such, Lovell’s
        Lounge owed a duty of reasonable care, including the duty to
        warn Carpenter of foreseeable negligent conduct that could cause
        harm.


        7. The negligent conduct engaged in by Johnson which caused
        the harm to Carpenter was foreseeable to Lovell’s Lounge,
        however, while foreseeable to Lovell’s Lounge, it was neither
        intended nor expected from the standpoint of Lovell’s Lounge or
        its employees, including Carpenter.


        8. Lovell’s Lounge breached its duty to warn Carpenter of the
        foreseeable danger, which breach was also a proximate cause of
        the harms of Carpenter.


        9. Not only did Lovell’s Lounge breach its duty to warn,
        [Johnson] performed services for and was an agent of Lovell’s
        Lounge, and he was within the scope of his agency at the time of
        the negligent conduct which was the harm to Carpenter.


        10. Based on the foregoing, and to avoid the costs and expense
        of litigation Defendant Lovell’s Lounge agrees that [Carpenter]
        has incurred injuries and damages, including pain and suffering,
        totaling $1,125,000.




Court of Appeals of Indiana | Opinion 33A01-1602-CT-265 | September 8, 2016   Page 7 of 26
       Id. at 54-56. The Consent Judgment was signed by Jeremy Lovell, pro se, as

       the agent of Lovell’s Lounge and by Matthes, as attorney for Carpenter. Jeremy

       was not a licensed attorney. Johnson was not a party to the Consent Judgment.

       On March 17, 2015, Johnson was dismissed from the case.


[11]   In addition to the Consent Judgment, Carpenter, Lovell’s Lounge, and Jeremy

       entered into a postjudgment agreement not to execute, in which Carpenter, in

       consideration for the Consent Judgment, agreed not to execute or enforce the

       Consent Judgment against Lovell’s Lounge, to indemnify and defend Lovell’s

       Lounge from any action that CSU might have against Lovell’s Lounge for its

       execution of the Consent Judgment, and to pay Jeremy the first $7000 of any

       recovery by Carpenter against CSU.


[12]   On March 17, 2015, Carpenter filed a motion for proceedings supplemental,

       asserting that the Policy provided coverage for the Consent Judgment and

       asking the trial court to order CSU to appear to answer to its obligations under

       the Policy. On March 23, 2015, Matthes, who was still representing Carpenter,

       filed an appearance on behalf of Lovell’s Lounge. CSU filed an answer.


[13]   On June 19, 2015, CSU filed a complaint seeking a declaratory judgment in

       cause number 33C01-1506-PL-45, naming as defendants Lovell’s Lounge,

       Jeremy Lovell d/b/a Lovell’s Lounge, and Carpenter. CSU asserted that it had

       no obligation under the Policy to make payment to Carpenter for the Consent

       Judgment because Carpenter’s injuries were caused by assault and battery and

       the Policy contained an exclusion for assault or battery. CSU also asserted that


       Court of Appeals of Indiana | Opinion 33A01-1602-CT-265 | September 8, 2016   Page 8 of 26
       the Consent Judgment had been obtained by fraud, bad faith, or collusion; it

       had been procured by the unauthorized practice of law; it did not fall within a

       broad range of reasonable solutions of the underlying dispute; and it contained

       statements of fact and/or law that were not necessarily adjudicated and

       therefore were unenforceable against CSU. Id. at 69-73. On June 24, 2015, the

       declaratory judgment action was consolidated with the proceeding

       supplemental.


[14]   On July 9, 2015, Matthes filed an appearance on behalf of Jeremy Lovell d/b/a

       Lovell’s Lounge. In August 2015, Carpenter, Lovell’s Lounge, and Jeremy

       filed a motion to dismiss CSU’s complaint for declaratory judgment and a

       supporting brief, asserting that CSU’s complaint failed to state a claim because

       CSU was barred by collateral estoppel from relitigating facts and issues

       determined in the Consent Judgment. Id. at 78-110. In September 2015,

       Lovell’s Lounge and Jeremy filed a counterclaim against CSU, alleging that

       CSU breached the Policy by failing to defend and/or indemnify Lovell’s

       Lounge for Carpenter’s lawsuit against it.


[15]   In October 2015, CSU filed a motion to set aside the Consent Judgment, a

       cross-motion for summary judgment, and a memorandum in opposition to

       Carpenter, Lovell’s Lounge, and Jeremy’s motion to dismiss and in support of

       its cross-motion for summary judgment, arguing, among other things, that the

       Consent Judgment was the product of bad faith or collusion and therefore was

       not binding on CSU. In November 2015, Carpenter, Lovell’s Lounge, and

       Jeremy filed a cross-motion for partial summary judgment on CSU’s complaint

       Court of Appeals of Indiana | Opinion 33A01-1602-CT-265 | September 8, 2016   Page 9 of 26
       for declaratory judgment, arguing that because CSU failed to file a timely

       declaratory judgment action, it was barred from challenging the Consent

       Judgment. Id. at 290. In December 2015, the trial court held a hearing on the

       motion to dismiss CSU’s complaint, the motion to set aside the Consent

       Judgment, and the cross-motions for summary judgment.


[16]   In January 2016, the trial court issued findings of fact, conclusions thereon, and

       order of judgment, finding in relevant part that the Consent Judgment was

       procured by bad faith and/or collusion, and therefore the doctrine of collateral

       estoppel did not apply to bind CSU to the Consent Judgment. Specifically, the

       trial court found as follows:

               Under Indiana law, a consent judgment will not bind an insurer
               if the consent judgment was the product of bad faith or collusion.
               Midwestern Indem. Co. v. Laikin, [119 F. Supp. 2d 831, 843 (S.D.
               Ind. 2000)].


               ….


               The Court finds that [Carpenter, Lovell’s Lounge, and Jeremy]
               do not enter these proceedings with clean hands. Carpenter and
               Lovell clearly operated with “furtive design”–and without any
               concern for the actual facts–in trying to construct a Consent
               Judgment that would fall within CSU’s coverage and thereby
               allow them to jointly profit. There is clearly no “good ground to
               support” the Consent Judgment under the actual facts presented
               at the criminal trial or applicable law. The Consent Judgment is
               clearly “unreasonable and groundless” when viewed in relation
               to the actual facts of what happened in the Incident. Its
               procurement obviously involved misrepresentation, lack of
               serious negotiations on damages, attempts to affect CSU’s

       Court of Appeals of Indiana | Opinion 33A01-1602-CT-265 | September 8, 2016   Page 10 of 26
               insurance coverage, [and] profit to both Carpenter and Lovell.
               Most troubling to the court is a written promise that Carpenter
               would pay [Jeremy] the first $7,000.00 of any recovery against
               CSU for the consent judgment. Thus, the Court finds that the
               Consent Judgment was presented in bad faith and procured
               through collusion.


       Id. at 32-33.


[17]   The trial court concluded that CSU had no obligation under the Policy to make

       payment to Carpenter for the Consent Judgment or for the Incident between

       Johnson and Carpenter. The trial court denied Carpenter, Lovell’s Lounge,

       and Jeremy’s motion to dismiss CSU’s complaint and their cross-motion for

       partial summary judgment. Also, the trial court granted CSU’s motion to set

       aside the Consent Judgment and its cross-motion for summary judgment and

       directed final judgment in favor of CSU on its declaratory judgment action.

       Finally, the trial court dismissed Lovell’s Lounge and Jeremy’s counterclaim

       and denied Carpenter’s motion for proceedings supplemental as moot. This

       appeal ensued.


                                       Discussion and Decision
[18]   Appellants argue that the trial court erred in granting CSU’s summary

       judgment motion and denying theirs. Our standard of review is well settled:

               When reviewing the grant or denial of summary judgment, this
               Court applies the same legal standard as a trial court: summary
               judgment is appropriate where no designated genuine issues of
               material fact exist and the moving party is entitled to judgment as
               a matter of law. The standard of review is not altered by cross

       Court of Appeals of Indiana | Opinion 33A01-1602-CT-265 | September 8, 2016   Page 11 of 26
                motions for summary judgment on the same issues. A party
                appealing the denial of summary judgment carries the burden of
                persuading this Court that the trial court’s decision was
                erroneous. Moreover, when the material facts are not in dispute,
                our review is limited to determining whether the trial court
                correctly applied the law to the undisputed facts; and, if the issue
                presented is purely a question of law, we review the matter de
                novo. In addition, our standard of review is not changed by the
                trial court’s entry of findings of fact and conclusions thereon.
                Although the findings and conclusions provide valuable insight
                into the trial court’s decision, they are not binding upon this
                Court.


       C.M.L. ex rel. Brabant v. Republic Servs., Inc., 800 N.E.2d 200, 202 (Ind. Ct. App.

       2003) (citations omitted), trans. denied (2004). 1 “[W]e will affirm a summary

       judgment order if it is sustainable upon any theory or basis found in the

       record.” E.J. ex rel. Jeffrey v. Okolocha, 972 N.E.2d 941, 945 (Ind. Ct. App.

       2012).


[19]   Appellants challenge the trial court’s finding that collateral estoppel does not

       apply to bind CSU to the Consent Judgment.

                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) [, trans. denied (1993)]. “The doctrine of collateral


       1
        We note that other than briefly mentioning that the court on appeal must consider each cross-motion for
       summary judgment separately, Appellants fail to set forth the standard of review in their brief as required by
       Indiana Appellate Rule 46(A)(8)(b). In addition, the table of contents of Appellants’ brief fails to include the
       subheadings of their thirty-five-page argument section and the page on which they begin as required by
       Indiana Appellate Rule 46(A)(1).

       Court of Appeals of Indiana | Opinion 33A01-1602-CT-265 | September 8, 2016                        Page 12 of 26
                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. 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 Fire & Cas. Co. v. T.B. ex rel. Bruce, 762 N.E.2d 1227, 1230-31 (Ind.

       2002).


[20]   Specifically, Appellants assert that collateral estoppel applies to bar CSU from

       relitigating the facts and issues determined in the Consent Judgment because

       CSU failed to defend Lovell’s Lounge under a reservation of rights or file a

       declaratory judgment action prior to the trial court’s approval of the Consent

       Judgment. They contend that this case “falls squarely under the [Metzler, 586

       N.E.2d 897, and Frankenmuth Mut. Ins. Co. v. Williams, 690 N.E.2d 675 (Ind.

       1997) (“Frankenmuth II”)] line of cases.” Appellants’ Br. at 31. We disagree.



       Court of Appeals of Indiana | Opinion 33A01-1602-CT-265 | September 8, 2016   Page 13 of 26
[21]   In Metzler, the insured’s truck driver got into an argument and drove his semi-

       tractor into a pub, killing one person and injuring many others. The truck

       driver was convicted of various counts of murder, attempted murder, battery,

       and operating while intoxicated. “On appeal, [he] claimed the evidence did not

       show he was acting with the requisite intent to commit the crimes charged. Our

       supreme court rejected [his] argument, affirmed the convictions, and indicated

       the evidence showed [he] intended the consequences of his act.” 586 N.E.2d at

       899. The injured parties sued the driver, alleging that their injuries were caused

       by his negligence. The driver was served with a complaint and summons but

       did not respond. The insurer also had notice of the lawsuit but did nothing. A

       default judgment was entered against the driver. The injured parties brought

       proceedings supplemental naming the insurer as garnishee defendant. The

       insurer brought a counterclaim seeking a declaratory judgment that the

       insurance policy did not cover the driver’s conduct. The trial court granted the

       injured parties’ summary judgment motion, finding that they were entitled to

       recover from the insurer the amount of their judgment against the truck driver.


[22]   On appeal, the insurer contended that collateral estoppel did not apply to bind it

       to the underlying tort judgment because it had the right not to defend or

       intervene in the underlying lawsuit once its own independent investigation

       revealed that there was no coverage under the insurance policy. Id. at 900. The

       Metzler court acknowledged that the insurer had a right not to defend, but

       rejected the notion that the insurer’s right not to defend would operate to

       preclude the application of collateral estoppel, stating “it is clear that an insurer


       Court of Appeals of Indiana | Opinion 33A01-1602-CT-265 | September 8, 2016   Page 14 of 26
       may refuse to defend its insured, but at its own peril.” Id. at 901. The Metzler

       court also observed,

               An insurer, having knowledge its insured has been sued, may not
               close its eyes to the underlying litigation, force the insured to face
               the risk of that litigation without the benefit of knowing whether
               the insurer intends to defend or to deny coverage, and then raise
               policy defenses for the first time after judgment has been entered
               against the insured.


       Id. at 902. The Metzler court concluded that the insurer was collaterally

       estopped from challenging whether the truck driver acted negligently or

       intentionally in causing the injured parties’ damages. Id.


[23]   In Frankenmuth II, a wife was babysitting a child in her home, and her husband

       molested the child. Child and her mother sued husband and wife, the holders

       of a homeowner’s insurance policy. Their lawsuit included a negligence claim

       against the wife for her alleged negligence in supervising the child. The insurer

       investigated the claim and concluded that because husband’s conduct was

       intentional, the tort claim was not covered by the insurance policy. The insurer

       neither defended husband and wife under a reservation of rights nor filed a

       declaratory judgment action. The wife entered into a consent judgment without

       the insurer’s knowledge or consent, in which she admitted that she had been

       negligent and that her negligence was the proximate cause of the child’s

       injuries. The child and her mother then initiated proceedings supplemental to

       recover the judgment from the insurer. The insurer moved for summary

       judgment, arguing that the insurance policy did not provide coverage for the

       Court of Appeals of Indiana | Opinion 33A01-1602-CT-265 | September 8, 2016   Page 15 of 26
       consent judgment because the injuries to the child resulted from an intentional

       act. The trial court denied the insurer’s summary judgment motion on the basis

       that the insurer was collaterally estopped from opposing the action to recover

       the judgment because it had declined to defend its insured. 690 N.E.2d at 677.


[24]   The insurer appealed, again arguing that the insurance policy did not cover the

       child’s injuries because they resulted from an intentional act. The Frankenmuth

       II court stated that the insurer was attempting to conflate husband’s conduct

       with that of the wife in order to bring the consent judgment within the policy’s

       intentional act exclusion, and that the insurer’s argument was fundamentally

       flawed because the lawsuit had never alleged that wife had engaged in any

       intentional conduct that caused the child’s injuries. Id. at 678. The court noted

       that the insurer had neither defended the insured under a reservation of rights

       nor brought a declaratory judgment action to clarify its obligation under the

       insurance policy. Id. at 679. The court explained, “[A]n insurer may ‘refuse to

       defend or clarify its obligation by means of a declaratory judgment action,’ but

       ‘it does so at its peril.’” Id. (quoting Metzler, 586 N.E.2d at 902). The court

       declared that the insurer was “now estopped from complaining that all of [the

       child’s] damages flowed from the intentional act of molestation, rather than [the

       wife’s] own negligence.” Id. at 678.


[25]   Metzler and Frankenmuth II are distinguishable because neither case involved the

       issue raised here: namely, whether collateral estoppel operates to bind the

       insurer to a consent judgment where the consent judgment was procured by bad

       faith and/or collusion. Metzler did not even involve a consent judgment.

       Court of Appeals of Indiana | Opinion 33A01-1602-CT-265 | September 8, 2016   Page 16 of 26
       Accordingly, we are unpersuaded by Appellants’ contention that Metzler and

       Frankenmuth II dictate that collateral estoppel applies here.


[26]   Although it is not dispositive, we find some guidance for the resolution of this

       case in Laikin, 119 F. Supp. 2d 831, 2 which the trial court relied on. In Laikin,

       renters were injured by a fire in a mobile home and sued the owners in Marion

       Superior Court. The owners demanded that their insurer indemnify and defend

       them in the law suit. The insurer denied coverage and filed a declaratory

       judgment action in federal court seeking a declaration that it owed no duty to

       indemnify or defend the owners. Meanwhile, in state court, the owners and the

       renters entered into a settlement agreement, which was approved by the state

       court.


[27]   Then, in the declaratory judgment action, the insurer filed a summary judgment

       motion arguing, among other things, that it had no duty to pay the agreed

       judgment because it was procured by fraud, collusion or bad faith. Before

       reviewing the insurer’s claim, the Laikin court explained that its review of the

       issue was based on the assumption that the insurer had breached its contract by

       refusing to provide a defense and indemnity for the losses arising from the fire.

       Because Indiana law controlled the parties’ claims and defenses, and the

       Indiana Supreme Court had not directly addressed the issue, the Laikin court




       2
         Another panel of this Court adopted Laikin’s reasoning in the context of deciding that the trial court erred in
       permitting the insurer to intervene in its own name for purposes of appealing the judgment against its
       insured. Cincinnati Ins. Co. v. Young, 852 N.E.2d 8, 14 (Ind. Ct. App. 2006), trans. denied (2007).

       Court of Appeals of Indiana | Opinion 33A01-1602-CT-265 | September 8, 2016                        Page 17 of 26
       began its analysis by reviewing Indiana cases that dealt with collateral estoppel

       to predict how our supreme court would resolve the issue. After discussing

       Frankenmuth II and Metzler, the court went on to consider the Restatement

       (Second) of Judgments and cases from Minnesota, Arizona, and Texas that had

       dealt with allegations that a consent judgment had been procured by bad faith

       and/or collusion. Id. at 836-42. From this broad swath, the Laikin court

       concluded that

               Indiana courts would adopt an approach to this case in which the
               consent judgment with a covenant not to execute would bind the
               insurer on issues of its insured’s liability and the extent of the
               injured parties’ damages, so long as (1) the coverage is eventually
               shown, and so long as the consent judgment (2) is not the
               product of bad faith or collusion and (3) falls somewhere within a
               broad range of reasonable resolutions of the underlying dispute.


       Id. at 842.


[28]   As for the burdens of production and proof on the issues of bad faith, collusion,

       and reasonableness, the Laikin court discussed two different approaches. In one

       approach, the claimant has the burden of showing by a preponderance of the

       evidence that the amount of the judgment was reasonable and prudent. Id. at

       841. In the second approach, the insured has the initial burden of producing

       evidence that the settlement is “‘prima facie reasonable in amount and

       untainted by bad faith,’” and if this burden is satisfied, then the insurer has

       “‘the burden of demonstrating by a preponderance of the evidence that it is not

       liable because the settlement is neither reasonable nor reached in good faith.’”


       Court of Appeals of Indiana | Opinion 33A01-1602-CT-265 | September 8, 2016   Page 18 of 26
       Id. at 841 (quoting Griggs v. Bertram, 443 A.2d 163, 173-74 (N.J. 1982)).

       However, the Laikin court did not need to predict precisely which approach

       Indiana would take because the results in the case would have been the same

       under either approach. Id. at 842.


[29]   The insurer argued that the terms of the consent judgment were so

       unreasonable and the settlement amount of $1.6 million was so unreasonably

       excessive that the consent judgment must have been the result of bad faith or

       collusion. The Laikin court noted that the insurer had presented no direct

       evidence of bad faith or collusion, and ultimately concluded as a matter of law

       that the terms of the consent judgment and the amount of the settlement were

       not unreasonable and could not reasonably permit an inference of collusion or

       bad faith. Id. at 850.


[30]   Here, Appellants claim that Laikin applies only where an insurer files a

       declaratory judgment action prior to the court’s approval of a consent

       judgment. They contend that the Laikin court “explained” that because the

       insurer had filed a declaratory judgment action, Frankenmuth II and Metzler “did

       not control.” Appellants’ Br. at 31 (citing 119 F. Supp. 2d at 837). Although

       the Laikin court recognized differences between its case and Frankenmuth II and

       Metzler, including that the insurers in those cases did not file declaratory

       judgment actions, we are not persuaded that, even if the insurer in Laikin had

       failed to file a declaratory judgment action, the Laikin court would have

       concluded that Frankenmuth II and Metzler controlled whether the consent

       judgment would bind the insurer because those cases did not involve allegations
       Court of Appeals of Indiana | Opinion 33A01-1602-CT-265 | September 8, 2016   Page 19 of 26
       of bad faith or collusion. 3 In any event, we have already concluded that

       Frankenmuth II and Metzler are not dispositive of this case.


[31]   Furthermore, Appellants’ application of Laikin could result in substantial

       injustice because it would mean that even if a consent judgment is procured by

       bad faith or collusion, the insurer is bound by it unless the insurer had defended

       the insured under a reservation of rights in the underlying tort action or filed a

       declaratory judgment action prior to the approval of the consent judgment.

       Appellants have not offered, nor can we discern, any sensible, equitable

       justification to bar an insurer from challenging a consent judgment where it was

       obtained by bad faith and/or collusion even if the insurer did not file a

       declaratory judgment action prior to the consent judgment. Appellants’



       3
          Appellants also assert that this Court has “expressly limited Laikin’s applicability to where a declaratory
       judgment action had been timely filed.” Appellant’s Br. at 33 (citing Klepper v. ACE American Ins. Co., 999
       N.E.2d 86, 93 (Ind. Ct. App. 2014), trans. denied). Appellants’ characterization of Klepper is overbroad, and
       the quote they provide from Klepper is out of context and incomplete. In Klepper, the insurer had agreed to
       defend its insured under a reservation of rights, and had spent considerable resources doing so before the
       insured entered into a settlement agreement with the plaintiffs without the insurer’s consent. The settlement
       agreement provided that a certain amount was to be collected from the insurer “to the extent the damages fall
       within the scope” of the policy. 999. N.E.2d at 89. On appeal, the Klepper court was asked to consider
       whether the insurance company could rely on the insurance policy’s provisions (1) requiring its insured not to
       make a “voluntary payment” without the insurer’s consent and (2) limiting the insurer’s payment under the
       policy to those sums that the insured became “legally obligated to pay” and whether those provisions
       precluded coverage under the policy. Id. at 90-98. In addressing these issues, the Klepper court reviewed
       Indiana cases, including the adoption of Laikin’s reasoning in Young, 852 N.E.2d at 14. Notably, the
       significance of Laikin to Klepper was the second issue in Laikin, which we have not discussed because it is
       irrelevant to this case. The second issue in Laikin was whether the insurer could rely on the insurance
       policy’s “legally obligated to pay” language and thereby avoid any duty to pay the consent judgment because
       the settlement agreement did not impose any legal obligation on the insured to satisfy the judgment. The
       quote in Appellants’ brief is taken from Klepper’s description of Young’s adoption of Laikin, and is mere dicta.
       In any event, the Klepper court distinguished Laikin because Laikin “was premised on the assumption that the
       insurer had breached the insurance contract.” Id. at 95. In Klepper, the parties vigorously disputed whether
       the insurer had breached the contract. The Klepper court concluded that the “voluntary payment” and
       “legally obligated to pay” provisions precluded coverage, and therefore the insurer was not bound by the
       settlement agreement. Id. at 99.

       Court of Appeals of Indiana | Opinion 33A01-1602-CT-265 | September 8, 2016                       Page 20 of 26
       position would actually encourage insureds to engage in collusion if it was clear

       that no coverage was available and the insurer had not done anything to protect

       its interests. We agree with CSU’s observation that insurers would always have

       to file pre-emptive declaratory judgment actions in case the insured might later

       enter into a collusive consent judgment. Therefore, we conclude that even

       though CSU did not defend Lovell’s Lounge under a reservation of rights or file

       a declaratory judgment action before the Consent Judgment was approved, if

       the Consent Judgment is the product of bad faith or collusion, it will not bind

       CSU.


[32]   Indiana courts have not addressed what constitutes bad faith or collusion in the

       context of an insured’s procurement of a consent judgment. In considering

       whether an insurer has acted in bad faith in denying an insured’s claim, we

       have said that a “‘finding of bad faith requires evidence of a state of mind

       reflecting dishonest purpose, moral obliquity, furtive design, or ill will.’” Missler

       v. State Farm Ins. Co., 41 N.E.3d 297, 302 (Ind. Ct. App. 2015) (quoting Mahan

       v. Am. Standard Ins. Co., 862 N.E.2d 669, 677 (Ind. Ct. App. 2007), trans. denied).

       “To prove [an insurer’s] bad faith [in denying a claim], the plaintiff must

       establish by clear and convincing evidence that the insurer had knowledge that

       there was no legitimate basis for denying liability.” Id. Here, CSU is claiming

       that the Consent Judgment was the product of bad faith or collusion, and

       therefore we conclude that it has the burden to prove by clear and convincing

       evidence that the Consent Judgment was procured by bad faith or collusion. In

       this respect, we decline to adopt for this case either of the two approaches to the


       Court of Appeals of Indiana | Opinion 33A01-1602-CT-265 | September 8, 2016   Page 21 of 26
       production and burden of proof discussed in Laikin. Our decision to place the

       burden of proof wholly on CSU reflects the fact that CSU did not file its

       declaratory judgment action before the Consent Judgment was approved.


[33]   The Tenth Circuit Court of Appeals has also addressed whether a consent

       judgment was procured by collusion, and that case provides some helpful

       direction:

               Any negotiated settlement involves cooperation to a degree. It
               becomes collusive when the purpose is to injure the interests of
               an absent or nonparticipating party, such as an insurer or
               nonsettling defendant. Among the indicators of bad faith and
               collusion are unreasonableness, misrepresentation, concealment,
               secretiveness, lack of serious negotiations on damages, attempts
               to affect the insurance coverage, profit to the insured, and
               attempts to harm the interest of the insurer. They have in
               common unfairness to the insurer, which is probably the bottom
               line in cases in which collusion is found.


       Cont’l Cas. Co. v. Hempel, 4 F. App’x 703, 717 (10th Cir. 2001) (quoting Pruyn v.

       Agric. Ins. Co., 42 Cal. Rptr. 2d 295, 305 (Cal. Ct. App. 1995)).


[34]   We note that not all the considerations described in Hempel necessarily need to

       be found in every case of bad faith or collusion, and there may be other

       considerations not recognized in Hempel, but it is a good starting point for

       determining whether the Consent Judgment here was procured by bad faith or

       collusion. As for reasonableness, the Tenth Circuit considered “‘what a

       reasonable prudent person in the position of [the policyholder] would have

       settled for on the merits of plaintiff’s claim.’” Id. (quoting Miller v. Shugart, 316

       Court of Appeals of Indiana | Opinion 33A01-1602-CT-265 | September 8, 2016   Page 22 of 26
       N.W.2d 729, 735 (Minn. 1982)). Notably, the issues of bad faith or collusion

       are closely related to the issue of reasonableness of settlement amount, and the

       evidence often overlaps. Laikin, 119 F. Supp. 2d at 843.


[35]   Turning now to the specific circumstances present here, we have no difficulty in

       concluding that there is clear and convincing evidence that the Consent

       Judgment was obtained in bad faith or collusion. The Consent Judgment

       stipulates that Johnson “negligently came into physical contact with Carpenter,

       accidently causing him serious bodily injury.” Appellants’ App. at 54. This is

       patently unreasonable in light of all the available evidence and the allegations in

       the verified amended complaint that Johnson “brutally attacked” Carpenter

       “with numerous punches and kicks.” Id. at 48. Carpenter has testified

       repeatedly that Johnson punched him and kicked him. There is no evidence

       that would support a reasonable inference that Johnson accidently punched and

       kicked Carpenter. Rather, all the evidence indicates that Johnson intentionally

       punched and kicked Carpenter.


[36]   In addition, the Consent Judgment stipulates that Johnson “performed services

       for and was an agent of Lovell’s Lounge” and “was within the scope of his

       agency at the time of the negligent conduct which was the harm to Carpenter.”

       Id. at 56. This stipulation is particularly troubling because the amended

       complaint did not include any allegations regarding an agency relationship

       between Lovell’s Lounge and Johnson. Although Jeremy testified that Johnson

       occasionally performed repairs for the Lounge in exchange for free beer, their

       relationship does not remotely appear to be one of principal/agent. There is no

       Court of Appeals of Indiana | Opinion 33A01-1602-CT-265 | September 8, 2016   Page 23 of 26
       evidence that Johnson had an agreement with Lovell’s Lounge to perform

       services or to represent Lovell’s Lounge in any respect. In addition, there is

       absolutely no evidence that he was performing any services for the Lounge at

       the time of the Incident. 4 We conclude that there is no rational basis from

       which one could reasonably infer that Johnson was an agent of Lovell’s Lounge

       or that he was acting within the scope of his agency at the time of the Incident.


[37]   As for whether Lovell’s Lounge and Carpenter engaged in serious negotiations

       to reach a reasonable settlement, we conclude that the evidence clearly supports

       the contrary. Appellants claim that approximately seven months elapsed

       between July 2014, when the amended complaint was filed, and February 2015,

       when the Consent Judgment was executed, which does not support a finding

       that the parties failed to engage in serious negotiations. However, the record

       shows that the parties were not involved in negotiations until after CSU denied

       coverage the second time in August 2014. Matthes did not appear for

       Carpenter until November 14, 2014. In December 2014, the attorney for




       4
         Vicarious liability “is a legal fiction by which a court can hold a party legally responsible for the negligence
       of another, not because the party did anything wrong but rather because of the party’s relationship to the
       wrongdoer.” Sword v. NKC Hosps., Inc., 714 N.E.2d 142, 147 (Ind. 1999). Vicarious liability may be imposed
       through various legal doctrines, including respondeat superior, apparent or ostensible agency, agency by
       estoppel, and the nondelegable duty doctrine. Id. “Apparent agency is a doctrine based in agency law.” Id.
       at 148. “[F]or the liability of an agent to be imputed to a principal, an agency relationship must exist, and an
       essential element of that relationship is that the agent must ‘act on the principal’s behalf;’ the agent must
       consent to act on the principal’s behalf, as well as be subject to the principal’s control.” Smith v. Delta Tau
       Delta, Inc., 9 N.E.3d 154, 164 (Ind. 2014) (quoting Restatement (Third) of Agency § 1.01 (2006)).
       Respondeat superior is a tort theory of vicarious liability. Sword, 714 N.E.2d at 148. “Under respondeat
       superior, an employer, who is not liable because of his own acts, can be held liable ‘for the wrongful acts of
       his employee which are committed within the scope of employment.’” Id. (quoting Stropes v. Heritage House
       Childrens Ctr., 547 N.E.2d 244, 247 (Ind. 1989)).

       Court of Appeals of Indiana | Opinion 33A01-1602-CT-265 | September 8, 2016                         Page 24 of 26
       Lovell’s Lounge withdrew his appearance immediately following his email to

       Carpenter’s attorney, in which he explained that he could not honor his ethical

       obligations and stipulate that Johnson was an agent of Lovell’s Lounge and was

       acting within the scope of his agency at the time of the Incident. Also, despite

       the requirement that a corporation be represented by counsel in all cases,

       Lovell’s Lounge did not obtain new counsel, and Jeremy, who is not authorized

       to practice law in the State of Indiana, signed the Consent Judgment. 5 See Ind.

       Code § 34-9-1-1 (providing that “a corporation and any organization required to

       make application to the secretary of state under IC 25-11-1-3 must appear by

       attorney in all cases.”). Less than a month later, Carpenter’s attorney filed an

       appearance on behalf of Lovell’s Lounge. 6 These circumstances show not only

       that Lovell’s Lounge was not seriously negotiating with Carpenter, but also that

       they were trying to affect coverage by purposely remaking the Incident so that it

       would not fall under the Policy’s assault and battery exclusion.


[38]   Because there is clear and convincing evidence that the Consent Judgment was

       obtained by bad faith or collusion, we conclude that collateral estoppel does not

       apply and therefore CSU is not bound by the Consent Judgment. 7 Accordingly,




       5
         The trial court would have been within its authority to withhold approval of the Consent Judgment based
       on Lovell’s Lounge’s lack of legal representation.
       6
         Appellants wrongly claim that attorney Matthes did not appear for Lovell’s Lounge until after CSU filed its
       declaratory judgment action. Appellants’ Br. at 36. Matthes appeared for Lovell’s Lounge on March 23,
       2015, one week after Carpenter filed his motion for proceedings supplemental. Appellants’ App. at 6.
       Matthes appeared for Jeremy Lovell d/b/a/ Lovell’s Lounge on July 9, 2015. Id. at 8.
       7
         Because of our resolution of this issue, we need not address CSU’s claim that the Consent Judgment is void
       because it was obtained by the unauthorized practice of law.

       Court of Appeals of Indiana | Opinion 33A01-1602-CT-265 | September 8, 2016                    Page 25 of 26
       we affirm the trial court’s grant of CSU’s summary judgment motion, its denial

       of Appellants’ cross-motion for summary judgment, and judgment in favor of

       CSU on its declaratory judgment action.


[39]   Affirmed.


       Najam, J., and Robb, J., concur.




       Court of Appeals of Indiana | Opinion 33A01-1602-CT-265 | September 8, 2016   Page 26 of 26
