What the Hail Is All the Fuss About? Indiana Hail Damage Claims In the Context of Bad Faith

Proving that an insurance company failed to act in the utmost of good faith is not as easy as it sounds. Many cry “bad faith” without fully understanding what it means or how to prove it. Winning a “bad faith” lawsuit is difficult anywhere, especially in Indiana. A recent hail damage Order1 ruling that no bad faith occurred should be read by those with hail damage cases, and especially those with property insurance claims in Indiana.

The judge got to the bottom line in the first paragraph of the Order:

To sue an insurance company for bad faith in Indiana, an insured must prove that the insurer had knowledge that there was no legitimate basis for denying liability. Here, a condominium complex’s roofs were purportedly damaged by hail, and the complex and its insurer could not agree on the repair estimate. The insured, North Shore Co-Owners’ Association, Inc. (‘North Shore’), bought suit against the insurer, Nationwide Mutual Insurance Co. (‘Nationwide’), for breach of contract and bad faith; a declaratory judgment request was later added that mirrors the same issues as in their breach of contract claim. The insurer moved for partial summary judgment on the bad faith and declaratory judgment counts. Because Nationwide has shown a legitimate basis for denying liability, and because the declaratory judgment count is redundant of the breach of contract count that will likely be resolved at trial, we grant the partial motion for summary judgment, dismissing both the bad faith and declaratory judgment claims.

The court recited Indiana law regarding good faith as follows:

Under Indiana law, insurers are required to deal in good faith with their insureds.” Winding Ridge v. State Farm Fire & Casualty Co., 942 F.3d 824, 833 (7th Cir. 2019) (‘Winding Ridge II’); see also Monroe Guaranteed Ins. Co. v. Magwerks Corp., 829 N.E.2d 968, 977 (Ind. 2005). This obligation includes refraining from ‘(1) making an unfounded refusal to pay policy proceeds; (2) causing an unfounded delay in making payment; (3) deceiving the insured; and (4) exercising any unfair advantage to pressure an insured into a settlement of his claim.’ Erie Ins. Co., v. Hickman, 622 N.E.2d 515, 519 (Ind. 1993). But this ‘does not create a new cause of action every time an insurer erroneously denies a claim.’ Winding Ridge II, 942 F.3d at 520. It has ‘long been the rule in Indiana’ that ‘insurance companies may, in good faith, dispute claims.’ Hickman, 622 N.E.2d at 520. Thus, in order to prove bad faith, the plaintiff must establish by 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). Plaintiffs are also required to prove an insurer’s ‘conscious wrongdoing’ or ‘culpable mental state.’ Winding Ridge II, 942 F.3d at 833. ‘This is a high burden of proof.’ Id. (citing Inman v. State Farm Mut. Auto. Ins. Co., 981 N.E.2d 1202, 1207 (Ind. 2012)).

The last element regarding “conscious wrongdoing” or a “culpable mental state” invites insurance adjusters to delay and deny claims with an easy excuse of mere negligence or studied blundering. While I do not make the laws, insurance companies teach their adjusters that they fail to act in good faith without having to have some evil mind while doing so. The word “bad” is something easier to say than “failed to act in good faith cause of action.” A minority of the courts have mistakenly added this “evil mind” requirement which is not found in the training manuals of insurance company adjusters. I am not certain where it came from in Indiana jurisprudence.

In this case, the policyholder tried to prove the “regular cast of experts” hired by the insurer were biased. The case should be studied for what is needed on this allegation. Mere repeated retention is not going to win the case proving bias:

North Shore argues Nationwide acted in bad faith because Ladder-Now and Nederveld are ‘simply biased preferred vendors who are paid large sums of money every year by Nationwide,’ a jury could find that Wildason ignored Shields’ report, and that Wildason ‘intentionally performed an inadequate inspection for hail damage.’ North Shore repeatedly asserts these issues must be sent to a jury for resolution, but “bad faith is a legal issue that the Court must resolve, not a factual issue on which [North Shore’s] claim rests.’…

…

We also reject North Shore’s argument that Nationwide acted in bad faith because it hired Ladder-Now and Nederveld, who are ‘simply biased preferred vendors who are paid large sums of money every year by Nationwide.’ The only support North Shore provides for this statement are the tax returns of Nederveld’s income over the years from Nationwide. There is no citation to financial information for Ladder-Now, so North Shore’s argument with respect to that allegedly ‘biased’ vendor is entirely unsupported. As for Nederveld, North Shore has provided no other relevant information, such as how often Nationwide has hired Nederveld, how much of Nederveld’s business is dependent on Nationwide, how many other engineering firms Nationwide contracts with, etc. Even if North Shore had provided some of this missing contextual information as to Nationwide and Nederveld’s business relationship, North Shore has failed to provide any grounds for imputing bias to an otherwise normal business relationship, especially given the myriad of possible benign reasons a company may choose to do business with another company on a repeated basis. Despite extensive discovery, North Shore has provided no other evidentiary support for Nederveld’s alleged bias.

If there was a silver lining for policyholders out of this otherwise dreary Order, it was the finding that the jury could award replacement cost benefits without the replacement taking place:

We also reject North Shore’s argument that declaratory judgment is necessary to preserve arguments about whether North Shore must actually replace the roofs before being awarded the full replacement cost benefits. As North Shore itself points out, a jury may award the full replacement cost benefits under the breach of contract count. North Shore’s citation to Rockford Mutual Insurance Co. v. Pirtle, in which the Indiana Court of Appeals dealt with this actual replacement issue, is inapt because that case involved only a breach of contract claim. Id. (citing 911 N.E.2d 60 (Ind. Ct. App. 2009)). Further, the jury in that case awarded plaintiff full replacement cost benefits, without the building having been actually repaired or replaced….

I have long warned about biased and outcome-oriented experts. For example, Insurance Company Experts Are Often Biased And Outcome Oriented, showed an advertisement by an expert promising to help lower the insurance companies payments. I list a number of posts where I have written on the topic in, Experts Regarding Causation Can Be More Important Than Witnesses — or, Don’t Believe Your Lying Eyes When Your Insurance Company Hires an Expert.

The lesson is that the ability to prosecute a claims practice case against an insurance company varies greatly from state to state. The cases are never easy. Many advertising lawyers and others pontificating on social media about “bad faith” often do so without ever being in the arena and actually proving it. If there really is a “good” bad faith case, find lawyers who know what they are doing to help you.

Thought For The Day

The roots of all goodness lie in the soil of appreciation for goodness.
—Dalai Lama
_____________________________________________________________
1 North Shore Co-Owners Ass’n v. Nationwide Mutual Ins. Co., No 1:18-cv-03632 (S.C. Ind. Aug. 30, 2022).