Northern District of Indiana: No Bad Faith Where Insurer Has a Rational Basis for its Coverage Position

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Thorne v. Member Select Ins. Co., No. 2:09 CV 87, 2014 WL 4700873 (N.D. Ind. Sept. 22, 2014).

The Northern District of Indiana denies an insured’s motion for reconsideration of the court’s entry of summary judgment in the insurer’s favor on a bad faith claim.

David Thorne’s home was destroyed in a fire.  Thorne had a homeowner’s policy with Member Select Insurance Company (“Member Select”).  Member Select denied Thorne’s claim, concluding that the fire was either intentionally set by Thorne or someone acting at his direction.  Thorne filed suit in the United States District Court for the Northern District of Indiana, asserting causes of action for breach of contract and breach of the duty of good faith and fair dealing.  Member Select filed a motion for summary judgment, asserting that it did not act in bad faith.  The court granted Member Select’s motion and entered judgment in its favor on the bad faith claim; the court allowed the breach of contract claim to move forward. 

Following the court’s ruling on Member Select’s motion for summary judgment, Thorne filed a motion for reconsideration.  Thorne argued that two items of new evidence had come to light that created issues of fact regarding whether Member Select acted in good faith.  Accordingly, Thorne argued, that issue should be submitted to a jury.  Specifically, Member Select’s denial was based in part on the claims investigator’s view that Thorne acted suspiciously by refusing to allow Member Select to run a credit check and refusing to produce a copy of his cell phone records.  Following the summary judgment ruling, Thorne had received and reviewed an audio recording of a phone conversation where the claims investigator requested that information from Thorne but told him that production was “totally up to you.”  Thorne argued that it was not suspicious for him to act consistent with that advice and that it was a deceptive practice for the investigator to give him the advice and then draw an adverse inference when he followed it.   

Thorne’s next piece of new evidence was a page from the local police department’s report following the fire, wherein the investigating detective noted that Thorne refused to take a polygraph test.  While Member Select cited that refusal as further justification for its denial of Thorne’s claim, that page had not been previously produced in discovery, and, Thorne argued, was the only source from which Member Select could have learned of the polygraph refusal.  Accordingly, Thorne asserted that Member Select had purposely withheld evidence.            

The court began its analysis of Thorne’s motion by emphasizing that a bad faith claim is not generated by every erroneous denial of benefits.  So long as the insurer has a rational basis for its coverage position, there is no bad faith.  The court rejected Thorne’s argument regarding the “new evidence.”  First, the court noted that Thorne’s recorded conversation with the claims investigator was contentious and the investigator made it clear that he wanted the information Thorne chose to withhold.  Accordingly, the interview provided no new evidence of bad faith and provided no basis for reconsideration of the court’s prior ruling. 

The court came to a similar conclusion regarding the police report.  Member Select argued that this was a public document to which Thorne had equal access, and also asserted that it had, in fact, never seen the specific page on which Thorne relied.  The court held that there was no evidence to suggest that Member Select had ever actually seen that page, and could have learned the information from another source.  The court further reasoned that Thorne had a file showing that Member Select had not identified a source of its information regarding the polygraph at the time that he responded to the original motion for summary judgment.  The court noted that a motion for reconsideration is not a proper vehicle to raise arguments that could have been asserted sooner but were not and further found that Member Select had a rational basis for its coverage position.  Accordingly, the motion for reconsideration was denied.    

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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