The Indiana Attorney General’s Office waited too long to file claims under a crime insurance policy after a former Lawrenceburg city official absconded with more than $40,000 in misappropriated public funds, the Indiana Court of Appeals ruled Thursday, finding for the insurer and reversing a trial court judgment in favor of the state.
Former Lawrenceburg Clerk-Treasurer Theresa Bruening pleaded guilty in 2014 to federal wire fraud charges after she helped herself to excess payroll funds in 2012 and 2013. She was placed on supervised probation and agreed to make restitution.
The Indiana State Board of Accounts ultimately concluded the damages attributable to Bruening were almost $275,000. In addition to the payroll money she stole, Lawrenceburg incurred liquidated damage charges of $138,737 by failing to remit withholdings and contributions under her watch to a union pension fund in 2012 and 2013. The city also incurred penalties and interest of $72,742.79 by failing to properly file reports and withholdings to the Internal Revenue Service, among other damages.
By April 2015, a State Board of Accounts preliminary report was finished, and a field examiner had exchanged emails with an agent for Ohio Casualty Insurance Company. The insurer had issued a crime insurance policy to Lawrenceburg that named the state as an additional insured party. The agent reminded the examiner to file a notice of loss, writing, “We have heard rumors of a defalcation at the [City of Lawrenceburg] and read some things in the newspaper but I don’t believe that any formal loss notice was received and/or filed with Ohio Casualty unless it was done directly by the City [or] the [SBOA] on behalf of the State of Indiana.”
The insurer followed up in August by acknowledging the claim and sending the city a blank proof of loss form to fill out and return. On Dec. 3, 2015, having not heard from the Lawrenceburg or the state, Ohio Casualty closed the file.
The state submitted proof of loss to the insurer in March 2017, then three months later sued Ohio Casualty, seeking more than $252,000 jointly and severally from the insurer and Bruening. In December 2018, the Dearborn Superior Court ordered summary judgment against Ohio Casualty and Bruening, awarding $224,690.08 — the amount sought by the state offset by the amount of restitution Bruening had paid. The trial court likewise rejected Ohio Casualty’s motion to correct error.
The COA reversed, holding the trial court erred by not finding the state’s suit time-barred, citing Robertson v. State, 141 N.E.3d 1224 (Ind. 2020), a recent ruling involving another embezzling official, former Jennings Circuit Court bookkeeper Cathy Jo Robertson. That case interpreted the attorney general’s authority to seek recovery of funds for official malfeasance under Indiana Code § 5-11-5-1(e) (2012).
“Whereas the (Office of Attorney General’s) filing of a claim was permissive under subsection (e) when the OAG received the (State Board of Accounts’) preliminary report, filing a claim became mandatory under subsection (a) when the OAG received the final, verified report. … Thus, the State’s misappropriation claim did not accrue until the OAG received the verified final report on January 21, 2016, and its cause of action against Robertson, which was filed on May 5, 2017, was timely,” justices held in Robertson.
Here, Ohio Casualty argued it was in a different position because it was not the tortfeasor, and the state’s ability to recover is limited to the language of the insurance contracts.
“While Robertson gives the State the right to file its complaint against Bruening and Ohio Casualty, the only way Ohio Casualty can be liable under the contract is pursuant to the contract’s terms,” Judge Melissa May wrote for the panel, reversing and ordering judgment for the insurer in Ohio Casualty Insurance Company v. State of Indiana, 19A-PL-2794.
“Pursuant to the terms of the contracts purchased by Lawrenceburg, Ohio Casualty is not liable for losses unless proof of loss was filed within 120 days and a lawsuit was brought within two years of the discovery of the losses. Lawrenceburg discovered the direct losses in 2013, notified the SBOA, and had federal criminal charges brought against Bruening in 2014. However, formal notice of the losses was not given to Ohio Casualty until 2017, three months before the complaint naming Ohio Casualty as a defendant was filed. Accordingly, we hold the trial court erred when it granted summary judgment to the State rather than to Ohio Casualty,” May wrote.
The panel also chastised the state for arguing it was not a party to the contract, a claim Ohio Casualty asserted was “illogical” because the state was listed on the policy as an additional insured.
“Even more perplexing is the State’s attempt to assert that the OAG is not synonymous with the State for the purposes of the lawsuit brought by the OAG against Ohio Casualty,” May wrote in a footnote. “… Prosecuting and defending ‘all suits instituted by or against the state of Indiana’ is the first of the Attorney General’s enumerated Powers and Duties” under I.C. § 4-6-2-1(a).