Opinion
Cause No. IP01-0510-C-H/G
November 27, 2002
ENTRY ON DEFENDANT'S MOTION FOR SUMMARY JUDGMENT
Plaintiff James Bartlett was involved in an automobile accident that damaged his vehicle and injured him. The other driver's insurance company paid him its policy limit of $25,000, and his own insurer, defendant State Farm Mutual Automobile Insurance Company ("State Farm") paid its $25,000 policy limit for medical expenses. Bartlett sought additional compensation for his injuries pursuant to the underinsured motorist coverage in his State Farm policy.
Negotiations failed, and a trial in state court produced a jury verdict that Bartlett had suffered total damages of $111,000 minus 10% for comparative fault.
Defendant State Farm then paid Bartlett the $25,000 maximum allowed for underinsured motorists.
Bartlett then brought this action, suing State Farm in an Indiana state court for negligent failure to settle, tortious breach of contract, and bad faith denial of coverage. See Erie Ins. Co. v. Hickman, 622 N.E.2d 515 (Ind. 1993) (recognizing tort of bad faith denial of insurance coverage). State Farm removed this action to the United States District Court for the Southern District of Indiana. Pursuant to 28 U.S.C. § 1332, this court has subject matter jurisdiction based on the parties' diverse citizenship and the amount in controversy.
Both sides agree that Indiana law governs the case. State Farm has moved for summary judgment on all of plaintiff's claims. As explained below, the court grants State Farm's motion for summary judgment. The undisputed facts regarding Bartlett's injuries show that State Farm had, in the language of Erie Insurance Co. v. Hickman, 622 N.E.2d at 520, a "rational, principled basis" for denying additional payments. Bartlett had already received $50,000 in payments for his losses, and his records of prior injuries, post-accident activities (such as bow-hunting), and other causation problems gave State Farm ample grounds for concluding that his losses did not exceed $50,000. A jury could not reasonably find that State Farm acted in bad faith in denying Bartlett's claim for additional payments before the jury returned its verdict as to the extent of his damages.
I. Summary Judgment Standard
The purpose of summary judgment is to "pierce the pleadings and to assess the proof in order to see whether there is a genuine need for trial." Matsushita Elec. Indus. Co. v. Zenith Radio Corp., 475 U.S. 574, 587 (1986). Summary judgment is appropriate when there are no genuine issues of material fact, leaving the moving party entitled to judgment as a matter of law. Fed.R.Civ.P. 56(c). The moving party must show there is no genuine issue of material fact.
Celotex Corp. v. Catrett, 477 U.S. 317, 323 (1986). A factual issue is material only if resolving the factual issue might change the suit's outcome under the governing law. Clifton v. Schafer, 969 F.2d 278, 281 (7th Cir. 1992). A factual issue is genuine only if there is sufficient evidence for a reasonable jury to return a verdict in favor of the non-moving party on the evidence presented. Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 248 (1986). In considering State Farm's motion, the court must consider the evidence in the light reasonably most favorable to the opposing side.
II. Undisputed Facts
With these standards in mind, the following facts are either undisputed or reflect review in the light most reasonably favorable to the plaintiff.
A. The Insurance Policy
State Farm issued an automobile insurance policy to Bartlett for the period of July 1, 1996 to January 1, 1997. The policy provided uninsured/underinsured motorist coverage of $50,000 per person and $100,000 per accident. The policy also provided $25,000 for medical bills resulting from an accident. Def. Ex. 2. The insurance policy also stated that if an agreement could not be reached concerning the amount of damages to be collected from an uninsured or underinsured motorist, then the dispute would be resolved through either arbitration or litigation.
B. The Accident
On Friday, October 11, 1996, Atisha Vance ran a stop sign, striking Bartlett's car on the driver's side. The car Bartlett was driving received damages in the amount of $2,459.00. Undisputed Facts ¶ 8. Vance was driving a 1977 Ford Thunderbird, which was described as "totaled." Undisputed Facts ¶ 8.
To be considered "totaled," the cost of repairing a car ordinarily must exceed either the "Blue Book" value of the car or the fair market value of the car by some specified percentage. Bartlett was driving a 1987 Mercury Sable that incurred $2,459.00 in damages. There is no indication in the record that his car was totaled. Vance was driving a 1977 Ford Thunderbird with apparently over 135,000 miles, so relatively modest damage could have "totaled" it.
Vance was insured through Allstate, and her policy provided coverage of $25,000 per person and $50,000 per accident. It was determined that Vance was at fault, and Allstate paid $25,000 to Bartlett. Undisputed Facts ¶ 3.
C. The Injuries
There were no visible injuries at the scene of the accident, and Bartlett returned to work the following Monday. Def. Ex. 3A. During the following week, he reported feeling a growing tightness in his muscles and eventually went to see his doctor, who prescribed muscle relaxers and anti-inflammatory medication. Def. Ex. 3B.
Bartlett had a history of work-related injuries and a previous automobile accident. Those injuries produced pain and symptoms similar to and in the same areas that he experienced after the Vance accident. Undisputed Facts ¶ 10.
Bartlett also had a history of drug abuse and addiction to narcotics. Def. Exs. 3B, 3C. He was receiving treatment for pain in his elbow as recently as three days before the Vance accident, and he had been receiving treatment for pain in the mid-thoracic region of his back for several months prior to the accident. Bates No. 583. The afternoon after the Vance accident, Bartlett reported to the Columbus Regional Hospital Emergency Room, complaining of elbow pain. Bates Nos. 707-08. Several days later, he began complaining of back pain.
The "Bates No." designations refer to documents in State Farm's claim file, portions of which were submitted by each party. Neither party has raised any objection to the authenticity or admissibility of any evidence other than the Steinkamp affidavit, discussed below.
However, approximately one month after the accident, Bartlett went deer hunting with a bow and arrow. Def. Ex. 3C; Bates No. 592 (Bartlett told doctors on October 22, 1996 that he was having trouble bow hunting because his back hurt while twisting); Bates No. 730 (told doctors of plan to deer hunt on November 15, 1996). On October 24, 1996, thirteen days after the Vance accident, Bartlett was examined again, and this time, the treating physician opined that Bartlett had aggravated his back injuries while at work. Bates No. 594. On or about November 22, 1996, Bartlett was prescribed three weeks of physical therapy, which he completed. On December 9, 1996, one of his treating physicians noted that Bartlett was able to return to work and to resume all normal activities. As a result, his physical therapy was discontinued. Bates No. 800. Even so, Bartlett continued to see several doctors, and he received multiple evaluations through at least 1998, when he received a medical evaluation at the request of State Farm. Def. Ex. 3B.
D. State Farm's Investigations and Assessments
In addition to the $25,000 that Bartlett received from Allstate, Bartlett also received $25,000 from State Farm under the medical payments provision of his insurance policy. Wilson Aff. ¶¶ 4-6.
Bartlett then sought underinsured motorist benefits from State Farm. Def. Br. at 3; see Wilson Aff. ¶ 8. State Farm's James Wilson was assigned to handle Bartlett's claim. Wilson Aff. ¶ 2. Wilson determined that Bartlett's automobile had sustained only minor damages in the accident. Wilson Aff. ¶ 9. He also determined that Bartlett had no visible injuries at the scene of the accident, that all of his injuries were soft tissue injuries, and that there were questions of causation due to his history of similar injuries. Wilson Aff. ¶¶ 10-11. Wilson accordingly valued Bartlett's claim at no more than the $50,000 he had already received through Vance's Allstate policy and from State Farm under the medical payments provision of his own policy. Wilson Aff. ¶ 15. Bartlett's State Farm policy provided that, if the State Farm and the insured could not reach agreement on the value of an underinsured motorist claim, the issue would be resolved by arbitration (if so agreed) or by litigation.
On September 13, 1999, Bartlett filed a suit in Bartholomew Superior Court seeking underinsured motorist damages. The jury returned a verdict in the amount of $111,000 but found Bartlett 10% at fault, effectively valuing his total claim at $99,900. State Farm then paid the $25,000 maximum allowed for underinsured motorists under Bartlett's policy. Def. Br. at 4. Bartlett subsequently brought this action alleging negligence, tortious breach of contract, and bad faith denial of coverage.
III. Preliminary Matters — The Steinkamp Affidavit
Bartlett submitted the affidavit of John Steinkamp as an expert in support of the proposition that State Farm denied Bartlett's claim in bad faith.
Steinkamp is an Indiana attorney and former employee of the Indiana Department of Insurance, which regulates the industry. Bartlett has cited the affidavit primarily for the propositions that:
(1) State Farm violated the Indiana Unfair Claims and Settlement Practices Act, Ind. Code § 27-4-1-4.5;
(2) State Farm misrepresented pertinent facts and policy provisions;
(3) State Farm's refusal to pay uninsured motorist benefits was unfounded in light of the medical examinations;
(4) by refusing to pay those limits, State Farm compelled litigation; and
(5) State Farm breached its duty of good faith and fair dealing with respect to Bartlett. State Farm has moved to strike the Steinkamp affidavit from the summary judgment record. The court grants the motion to strike. Steinkamp offers no personal knowledge of the events relevant to this case. His affidavit addresses matters of law as to which expert testimony would not be admissible and otherwise would not assist the trier of fact. The affidavit is essentially a supplemental brief submitted in the guise of testimony.
Steinkamp's affidavit consists primarily of case law from other jurisdictions and quotations from an insurance claims handling textbook. He also outlines some of the public policy issues presented by insurance claim settlement practices. However, he offers no insight into the practices of State Farm in general or of the practices that occurred in this particular situation. He then offers the conclusion that, because State Farm made a small settlement offer prior to the jury trial on the underinsured motorist claim, State Farm "breached its duty of good faith and fair dealing." Steinkamp Aff. ¶ 14. He further asserts that multiple violations of the Unfair Claims and Settlement Practices Act, Ind. Code § 27-4-1-4.5, are evidence of bad faith, and that State Farm committed multiple violations of this act by misrepresenting the terms of Bartlett's insurance contract, resulting in bad faith. Id. He does not cite any supporting case law for this proposition. See id.
Steinkamp asserts that State Farm continued to refuse to pay the underinsured motorist provision after the jury verdict, attempted to pressure Bartlett into settlement, and misrepresented provisions of Bartlett's insurance policy. See Steinkamp Aff. ¶¶ 12-14. He further argues that these actions amount to bad faith on the part of State Farm. Id. There is no factual support in the record for those assertions, and Steinkamp had no personal knowledge of the relevant facts. State Farm and Bartlett agreed that after the jury verdict, State Farm promptly paid to Bartlett the $25,000 he was seeking under his underinsured motorist provision. Undisputed Facts ¶ 15.
Steinkamp attempts to give his opinion on the law of bad faith denial of coverage in Indiana. Under Seventh Circuit law, a witness may not offer "opinions about legal issues that will determine the outcome of a case. That is, they cannot testify about legal issues on which the judge will instruct the jury."
United States v. Sinclair, 74 F.3d 753, 758 n. 1 (7th Cir. 1996); United States v. Cross, 113 F. Supp.2d 1282, 1283 (S.D.Ind. 2000) (attorney "may not testify as an expert to purely legal matters"). To the extent that Steinkamp testifies in paragraphs 13 and 14 of his affidavit as to what constitutes evidence of bad faith under Indiana law, Steinkamp has overstepped the permissible bounds. Cross, 113 F. Supp.2d at 1283-84. For these reasons, the court grants State Farm's motion to strike Steinkamp's affidavit.
IV. The Motion for Summary Judgment
State Farm has moved for summary judgment on all claims. State Farm argues that Indiana law does not recognize Bartlett's claims of negligent failure to settle in this first-party insurance situation and tortious breach of contract.
In addition, State Farm contends that the undisputed facts show it acted in good faith because it had a rational and principled basis for denying underinsured motorist coverage (beyond the $50,000 already paid to Bartlett) based on its investigation of his injuries and what it perceived to be serious questions of causation and credibility.
A. Negligent Failure to Settle
Bartlett's claim for negligent failure to settle with him is unprecedented in Indiana law. It is well established, of course, that an insured who holds a liability or indemnity policy may have a claim against her insurer if the insurer negligently fails to settle with a third-party claimant and the result of later litigation is a judgment in excess of the policy limits, leaving the insured to face the personal liability against which she thought she had insured herself. See, e.g., Economy Fire Cas. Co. v. Collins, 643 N.E.2d 382, 384-85 (Ind.App. 1994) (adopting so-called "judgment rule" as measure of damages in such cases, so that insurer's liability can exceed policy limits). The "judgment rule" in such cases provides for a form of consequential damages for a breach of contract. The insurer has a duty under the contract to use due care and sound judgment in deciding whether to settle a claim. If a breach of that duty exposes the insured to greater liability, the insurer may be held liable for those proximate and foreseeable losses.
Bartlett seeks to expand such a theory of recovery to a first-party claim, but there simply is no reason to do so. To the extent that Bartlett suffered injuries beyond the relevant policy limits, they were caused by Vance, not by his insurer's disagreement with him about the value of his claim. That disagreement cannot be used to remove the policy limits on coverage.
In fact, Bartlett's insurance policy specifically contemplates and provides for just such a situation, where the insured and the insurance company cannot agree on the amount, if any, owed to the insured under the underinsured motorist provision. Under the policy, the insurer and the insured can agree to arbitrate the disagreement, or they can go to court. If the jury returns a verdict in favor of the insured, the insurance company pays the remedy for breach of contract — the amount that was owed under the policy itself. State Farm was not trying "to hide behind the financial status of its insured," see Collins, 643 N.E.2d at 385, and Bartlett was not left with an excess judgment against him for which he was personally responsible. See Allstate Ins. Co. v. Hammond, 759 N.E.2d 1162, 1166 (Ind.App. 2001) (insurance companies may dispute claims, and absent a showing of bad faith, the claim is to be resolved under traditional principles of contract law), citing Erie Ins. Co. v. Hickman, 622 N.E.2d 515, 520 (Ind. 1993). The policy reasons supporting the judgment rule in third-party insurance cases simply are not implicated by this situation. The court has no reason to believe that the Supreme Court of Indiana would expand the judgment rule to first-party situations. See Mason v. Ashland Exploration, Inc., 965 F.2d 1421, 1424 (7th Cir. 1992) (in diversity case, role of federal court is to predict how the highest court of the state would decide the question)." This portion of Bartlett's complaint therefore does not state a claim for relief under Indiana law, and State Farm is entitled to judgment as a matter of law.
B. "Tortious Breach of Contract"
Indiana also does not recognize a cause of action for tortious breach of contract. Allstate Ins. Co. v. Hammond, 759 N.E.2d 1162, 1166 (Ind.App. 2001); Broadhurst v. Moenning, 633 N.E.2d 326, 334 (Ind.App. 1994); Comfax Corp. v. North American Van Lines, Inc., 587 N.E.2d 118, 123 (Ind.App. 1992). Rather, there is a cause of action for breach of contract and "a cause of action for the tortious breach of an insurer's duty to deal with its insured in good faith." Erie Ins. Co. v. Hickman, 622 N.E.2d 515, 520 (Ind. 1993). Additionally, on a claim for breach of contract, punitive damages are not available. Id. at 519, 520.
In any event, there is no evidence of any breach of contract, let alone a "tortious" breach. In fact, State Farm followed the contract provisions. Bartlett's insurance policy provided that in the event that the parties could not reach an agreement concerning the amount, if any, owed to the insured pursuant to the uninsured-underinsured motorist provision, the dispute would be resolved in either arbitration or court. That is precisely what happened: Bartlett and State Farm could not agree on the amount he was owed under the underinsured motorist provision. Pursuant to his contractual rights, Bartlett filed suit in state court. After a resolution on the merits, Bartlett was promptly paid the $25,000 he was seeking. If State Farm had disputed this claim in bad faith, then Bartlett's recourse would have been a claim for bad faith denial of coverage, which will be discussed below. See Hickman, 622 N.E.2d at 519.
Thus, there are no genuine issues of material fact with respect to the claim of tortious breach of contract, and State Farm is entitled to judgment as a matter of law. See Fed.R.Civ.P. 56(c).
C. Bad Faith
Denial of Claim The Supreme Court of Indiana first recognized the tort of bad faith denial of insurance coverage in Erie Ins. Co. v. Hickman, 622 N.E.2d 515 (Ind. 1993).
The state court took pains to preserve the right of an insurer to deny a claim erroneously, so long as it did so in good faith:
a good faith dispute about the amount of a valid claim or about whether the insured has a valid claim at all will not supply the grounds for a recovery in tort for the breach of the obligation to exercise good faith. This is so even if it is ultimately determined that the insurer breached its contract.622 N.E.2d at 520; accord, McLaughlin v. State Farm Mutual Automobile Ins. Co., 30 F.3d 861, 867-68 (7th Cir. 1994) (applying Hickman and reversing award of punitive damages for bad faith denial of coverage). However, "an insurer which denies liability knowing that there is no rational, principled basis for doing so has breached its duty" of good faith. Hickman, 622 N.E.2d at 520.
To establish bad faith, the insured "must establish, with clear and convincing evidence, that the insurer had knowledge that there was no legitimate basis for denying liability." Freidline v. Shelby Ins. Co., 774 N.E.2d 37, 40 (Ind. 2002) (finding that an insurance company did not act in bad faith in refusing to defend its insured based on its interpretation of a contract provision even though that denial might have been erroneous); see also Hoosier Ins. Co. v. Audiology Foundation of America, 745 N.E.2d 300, 310 (Ind.App. 2001) ("Thus, poor judgment and negligence do not amount to bad faith; the additional element of conscious wrongdoing must also be present.") (citation omitted).
The question presented by State Farm's motion for summary judgment is whether, when the record evidence is viewed in the light most reasonably favorable to Bartlett, a reasonable jury would have to find that State Farm had a rational, principled basis for denying coverage.
State Farm's denial of underinsured motorist coverage was built upon its belief that the accident was not the direct cause of many of Bartlett's claimed injuries and that the total value of the claim did not exceed the $50,000 he had already received. The undisputed facts show that State Farm had a reasonable basis for that conclusion.
State Farm's denial of Bartlett's underinsured motorist claim was based on a number of factors, including causation issues. See Wilson Aff. ¶ 11. All of his injuries appeared to be soft tissue injuries, making quantification difficult. Id. at ¶ 10. Wilson, who was assigned to handle the claim, stated that based on "the minimal property damage, Mr. Bartlett's pre-existing injuries and medical history," and Wilson's own experience, he felt the claim was not worth more than the $50,000 that Bartlett had already received. Id. at ¶ 15.
Bartlett has presented no evidence that would support a finding that the denial of his claim was based on anything but good faith. In fact, the evidence Bartlett has submitted tends to prove the opposite — that State Farm did have a good faith reason for denying his underinsured motorist claim.
Immediately after the accident, Bartlett did not report any injuries to the police officer on the scene, and there was minimal damage to the car. Def. Ex. 3A; Bates Nos. 922, 938. Later that afternoon Bartlett went to the emergency room, complaining of elbow pain — the same type of elbow pain for which he had been receiving treatment as recently as three days prior to the accident. Bates Nos. 583, 707-08.
Over the course of the following week, Bartlett complained of a tightening feeling in his back muscles — the same type of pain and stiffness for which he had been receiving treatment. Def. Ex. 3B. The doctors treating Bartlett even commented that it appeared to be an aggravation of existing conditions because he had a history of lower back pain, which included the exact type of injury for which he was seeking benefits. Id.; Undisputed Facts ¶ 10; Bates Nos. 749-52, 759, 577, 583-83. At least one doctor commented that the condition was aggravated by conditions occurring at his place of employment after the Vance accident occurred. Bates No. 594.
Less than one month after the accident, Bartlett was bow hunting, an activity that requires use of the very muscles and joints Bartlett complained were tender. Bates No. 952 (told doctors on October 22, 1996, that he was having trouble bow hunting because of pain while twisting); Bates No. 730 (told doctors of plan to go deer hunting on November 15, 1996). Furthermore, doctors expressed concern over his history of drug addiction, and Bartlett himself commented that he would take almost anything he "could get his hands on."
Def. Ex. 3B; Bates No. 836. Coincidentally, the treatment for his lower back pain involved the use of narcotics. See Bates Nos. 836-37 (patient requesting prescription for Percocet; doctor explaining that he would discontinue all narcotic prescriptions after being informed of history of drug abuse).
Thus, based on Bartlett's previous injuries of the same nature, recreational activities, and history of drug abuse, it was reasonable for State Farm to conclude that Bartlett's injuries were not as severe as he claimed them to be, and that, to the extent the Vance accident aggravated existing conditions, the value of the claim for that aggravation did not exceed the $50,000 Bartlett had already received in compensation.
Bartlett appears to argue, though it is not entirely clear from his brief, that because Vance's 19 year old car was totaled, Bartlett's damages and injuries must have been very substantial. See Pl. Br. at 13 (stating that Bartlett's "truck was totaled," though there is no indication in the record that Bartlett was driving a truck or that the car he was driving — a four-door Mercury Sable — was totaled).
The only evidence in the record concerning the extent of damage to Bartlett's car clearly states that it received $2,459.00 in damages. In any event, the contention does not support a reasonable inference that State Farm acted in bad faith in valuing his claims at no more than $50,000.
Bartlett also makes much of the fact that State Farm paid the full amount allowed under the medical provision of his insurance policy. Based on that fact, Bartlett argues, it must follow that State Farm also should have paid him more under the underinsured motorist coverage. The conclusion does not follow from the premise, and in any event, under the terms of the insurance policy itself, State Farm was entitled to make separate evaluations concerning the extent of his injuries and what amount, if any, he should receive.
Bartlett also contends that the verdict in his favor valuing his claim at $111,000 minus 10% for comparative fault is prima facie evidence of State Farm's alleged bad faith denial of coverage. In support of this argument, Bartlett cites Becker v. American Family Ins. Group, 697 N.E.2d 106, 107 (Ind.App. 1998), in which an insured's claim for uninsured motorist benefits was denied after the insurer determined that he was 55% at fault, prohibiting coverage under his policy. In a separate trial against the other motorist involved in the accident, a jury determined that the insured was only 45% at fault and awarded damages.
The insured then sued American Family, alleging that it had breached its duty of good faith and fair dealing in denying his uninsured motorist claim.
The trial court granted summary judgment for the insurer, and the court of appeals affirmed. The court of appeals treated the jury verdict as evidence that American Family was rational in its decision to deny the insured's claim, and as a result, there was no bad faith denial. Becker, 697 N.E.2d at 108.
Based on Becker, Bartlett would have the court adopt a bright line rule that a verdict in favor of the insured should be prima facie evidence of the insurer's bad faith. The argument, which would subject an insurer to punitive damages any time it underestimated a likely jury verdict in a case, is not at all persuasive.
In Becker, the court simply used the jury's verdict as evidence of the difficulty in assessing the insured's claim. Id. (jury verdict established that "the issue of whether Becker was more than 50% at fault for the accident was difficult to determine"). Thus, contrary to Bartlett's assertions, the court in Becker did not find as a matter of law that the jury verdict determined American Family Insurance acted in good faith. See id. Rather, the court in Becker determined that, as a matter of law, based on the facts it had before it, a reasonable jury would have to find that American Family had a rational, principled basis for denying coverage.
As the Supreme Court of Indiana emphasized in Hickman, this "cause of action does not arise every time an insurance claim is erroneously denied." 622 N.E.2d at 520. Thus, "even if it is ultimately determined that the insurer breached its contract," as long as it was done in good faith and with a "rational, principled basis for doing so," there is no claim for bad faith denial. Id.
Plaintiff Bartlett has failed to come forward with evidence that would allow a reasonable jury to find that State Farm acted in bad faith. There are no genuine issues of material fact with respect to the claim of bad faith denial, and State Farm is entitled to judgment as a matter of law. Fed.R.Civ.P. 56(c).
Conclusion
Accordingly, the court grants State Farm's motion for summary judgment on all claims. Final judgment will be entered accordingly.
So ordered.