In December 1999, while Knight was employed at Indiana University, he overheard assistant basketball coach Ronald Felling on the phone criticizing Knight's coaching abilities and referring to Knight in a derogatory manner. Knight advised Felling to find another job and later verbally confronted Felling in an office at Assembly Hall at IU with other assistant coaches present. Knight made physical contact with Felling as he tried to leave, contact Knight and his assistant coach and son Pat Knight described as a "bump." As a result of the contact, Felling was pushed backwards into a television set and later filed a lawsuit in the U.S. District Court for the Southern District of Indiana in April 2001. The lawsuit presented a wrongful termination claim against IU and alleged Knight's physical conduct against Felling violated 42 U.S.C. 1983.
In October 2001, Knight informed his insurer, Indiana Insurance Co. - with which he had a homeowner's policy - about the Felling lawsuit. In late October, the insurance company issued a reservation of rights letter to Knight that outlined liability coverages and exclusions.
In July 2002, the insurer took a recorded statement from Knight during which he said he "bumped into Felling," they "collided as (Knight) jumped up," and "(Felling) couldn't have been hurt." In August of that year, the insurance company sent a letter to Knight denying his coverage for the Felling lawsuit citing the "business exclusion" in his policy. On Aug. 30, 2002, Knight settled the lawsuit by paying $25,000 to Felling and admitting he shoved Felling in anger.
In 2004, Knight filed a complaint seeking indemnification from the insurer and IU. The insurer moved for summary judgment and Knight filed a cross-motion for summary judgment on the insurer's duty to defend. The trial court granted summary judgment for the insurance company.
Knight appealed, claiming the summary judgment was improper because Felling had no bodily injury and the trial court erroneously applied an insurance coverage exclusion involving bodily injury; that there is a genuine issue of material fact whether Knight acted with the intent to cause injury; and that the trial court erroneously concluded as a matter of law the insurance company had not breached its duty to defend.
The Court of Appeals ruled Felling did not sustain bodily harm, sickness, or diseases as a result of the event, which is how bodily injury is defined in Knight's policy. Because there was no bodily injury, there was no event to warrant coverage under the policy.
Also, the incident occurred at Knight's profession or place of business. His homeowner's policy excludes injury or damage "arising out of or in connection with a business engaged in by an insured."
Knight also claimed Indiana Insurance Co. breached its duty to reasonably investigate and defend the lawsuit and is entitled to reimbursement for his costs of legal representation. The Court of Appeals ruled it was a workplace incident that resulted in no bodily injury and a reasonable claims manager would be able to "discern the lack of contractual obligation at that juncture."