Fencing company failed to answer complaint because of excusable neglect, COA rules in reversal

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It was reasonable for a fencing company that was being sued to believe its insurer would know about and handle the complaint, a split Court of Appeals of Indiana has ruled in reversing a lower court’s decision.

On the Level Fence & Deck was digging holes for a fence in Crown Point in July 2020 when it damaged underground utility lines owned by AT&T, according to court records.

AT&T sued the company, alleging negligence, trespass and statutory violations.

On the Level didn’t answer the complaint, though, and AT&T moved for default judgment, which the Lake Superior Court granted three days later in August 2020. The court entered a default judgment against On the Level in the amount of $12,130.

More than two weeks later, an attorney for On the Level called AT&T’s counsel and left a voicemail about the default judgment.

Another attorney who had been retained by On the Level’s insurer later wrote to AT&T’s counsel explaining that On the Level “mistakenly believed that the insurance company was aware of the suit.”

The letter asked AT&T to agree to vacate the default judgment, but AT&T rejected the request.

On the Level moved to set aside the default judgment under Trial Rule 60(B)(1), arguing it failed to answer the complaint as a result of excusable neglect.

AT&T argued On the Level had no reason to believe its insurer “would have notice of the lawsuit or complaint without On the Level communicating that information or providing a copy of it to the insurance company.”

The court denied On the Level’s motion, finding the company “appears” to have a meritorious defense but had not shown excusable neglect.

On the Level appealed, and the Court of Appeals agreed the trial court’s decision should be reversed.

On the Level filed its motion within a year of the default judgment, as required by Trial Rule 60(B)(1), the Court of Appeals said. The opinion also notes the trial court’s determination that the company adequately alleged a meritorious defense, which AT&T didn’t challenge on appeal.

“Therefore,” the opinion says, “the only issue before us is whether On the Level showed that its failure to answer AT&T’s complaint was the result of ‘mistake, surprise, or excusable neglect.’”

On the Level argued that because AT&T was communicating directly with its insurer before filing suit, the company reasonably believed that its insurer would know about the lawsuit and continue handling matters as it had been up to that point.

The trial court didn’t address that argument in its order, and AT&T didn’t respond to it on appeal, the opinion says.

“Under the circumstances, we agree with On the Level that its failure to contact its insurer after being served with the complaint amounts to excusable neglect,” the opinion says. “To be sure, On the Level should have contacted its insurer out of an abundance of caution. But by all indications, On the Level, a fence and deck company, is not a sophisticated party with significant litigation experience. … Therefore, it was reasonable for On the Level to believe that AT&T would continue communicating directly with On the Level’s insurer after filing suit and that the insurer had things under control.”

The Court of Appeals remanded the case back to the trial court for further proceedings on the merits of AT&T’s complaint.

Judge Nancy Vaidik wrote the opinion, with Judge Elizabeth Tavitas concurring.

The case is On the Level Fence & Deck, Inc. v. Indiana Bell Telephone Company d/b/a AT&T Indiana, 22A-CT-3073.

In a dissenting opinion, Judge Peter Foley said he would affirm the trial court’s denial of the motion to set aside the default judgment.

“I agree with the trial court that On the Level failed in meeting its burden of demonstrating excusable neglect,” he wrote.

Foley said On the Level failed to present evidence or testimony about what communications it had with its insurer, and that it didn’t explain why it failed to take any action in response to the suit.

“I am not unmindful that the balancing of judicial efficiency against the preference for deciding cases on their merits, as identified by the majority, may tilt in On the Level’s favor,” he wrote. “Nonetheless, I believe On the Level failed to meet its factual burden to demonstrate excusable neglect. It is my opinion that reversal on this record would dilute the distinction between neglect and excusable neglect as to effectively eliminate it.

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