Stephen Caplin and his wife, Bonnie, had a homeowners and an umbrella policy, both of which excluded coverage for expected or intended losses. Both policies were provided by United Services Automobile Association.

In 1987 during the time the policies were in force, the Caplins sold their home to Maury and Elizabeth Zivitz. The evidence showed that the house had serious structural defects due to soil instability. In 1989 the purchasers filed suit against the Caplins alleging that the structural and foundation defects had continued, and had existed, for several years prior to the sale, and the Caplins were aware of such defects. The Zivitzes stated that the Caplins hid the defects so they were not immediately apparent, and this was done with the intent of defrauding the buyers. The Caplins also made false statements to the buyers about the house and land.

The Caplins reported the action to United Services, and the company initially agreed to defend the action under a reservation of its rights. The insureds wished to retain their own attorney and United Services agreed.

The Caplins obtained a summary judgment in the trial court, and the buyers appealed. That judgment was reversed by the Court of Appeals of Indiana, and shortly thereafter United Services withdrew its defense, and filed this action for a declaratory judgment to determine its liability.

Ultimately, the action was settled by the Caplins on terms favorable to the buyers. The settlement agreement required the Caplins to take the house back, assume the balance on the mortgage of about $125,000, and pay the buyers $62,500. The agreement also required F.C. Tucker Co., the realtor who had represented the Caplins in the allegedly fraudulent sale of the house, to pay Mr. and Mrs. Zivitz an additional $42,500. The record showed that the house had been listed originally for $170,000.

In this action, both United Services and the Caplins had filed motions for summary judgment. The trial court denied United Services' motion and granted the Caplins' motion. That court had determined, as a matter of law, that the Caplins were protected under their United Services policies. The company appealed.

The higher court decided the judgment of the trial court was erroneous. The court pointed out that the buyers' complaint was based exclusively on fraud, which was excluded in the Caplins' policies.

Therefore, United Services was not required to defend the Caplins under either policy.

The judgment of the trial court in favor of the insureds was reversed and remanded with instructions that summary judgment be entered in favor of the company.

United Services Automobile Association, Appellant v. Stephen B. Caplin and Bonnie Caplin-No. 49A05-9406-CV-210-Court of Appeals of Indiana-October 23, 1995-656 North Eastern Reporter 2d 1159.