McClellan v. State Farm Mutual Automobile Insurance Company

Filing 97

ORDER granting State Farm's 14 Motion for Partial Summary Judgment & 37 Motion to supplement. McClellan's outrage & bad-faith claims are dismissed with prejudice. His breach-of-contract claim remains for the jury. Signed by Judge D. P. Marshall Jr. on 10/7/2011. (jct)

IN THE UNITED STATES DISTRICT COURT

EASTERN DISTRICT OF ARKANSAS

JONESBORO DIVISION

DOUGLAS ANDREW MCCLELLAN

PLAINTIFF

No. 3:10-cv-84-DPM

v.

STATE FARM MUTUAL AUTOMOBILE
INSURANCE COMPANY

DEFENDANT

ORDER
1. After Andrew McClellan's 2005 Chevy Silverado Truck was stolen

from a Super 8 Motel parking lot in Illinois, his insurer State Farm refused to
pay his resulting claim. McClellan was a guest at the motel while working as
a journeyman lineman electrician for his employer.

According to his

complaint, McClellan left the hotel in the morning and went to work; the
truck was gone when he returned in the afternoon. McClellan promptly
talked to the motel's manager, called the police, and then notified State Farm
of the loss. Motel surveillance cameras recorded the theft. The truck has
never been found.
State Farm investigated. The company ultimately denied the claim
based on some policy terms and other circumstances it believes supported a

denial. Simply put, State Farm thinks McClellan may have had a hand in the

alleged theft.
McClellan says State Farm broke the insurance contract when it denied
his claim; and beyond his contract claim he asserts bad-faith and outrage
claims in tort. State Farm moves for partial summary judgment on bad faith
and outrage. Having received and considered many helpful briefs and other
materials, the Court enters judgment as a matter of law for State Farm on
these two claims. It has applied Arkansas law on the substantive claims and
federal law on the summary-judgment standard of review. Council Tower
Ass'n v. Axis Specialty Insurance Co., 630 F.3d 725, 728 (8th Cir. 2011) (Erie

doctrine); Anderson v. Liberty Lobby, Inc., 477 U.s. 242,254-55 (1986) (standard
of review); Taylor v. White, 321 F.3d 710, 715 (8th Cir. 2003) (same).
State Farm's motion to supplement its sur-sur-reply, Document No. 37,
is granted. Although McClellan argues that the supplemental letter was
produced after the discovery deadline, the intervening continuance of this
case eliminates any prejudice that may have resulted from late production.
2. A few more facts provide important context. After investigating the
loss for about three months, State Farm informed McClellan by letter that it

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was denying his claim. Here is the policy provision that State Farm primarily

relied on in its denial letter:
SECTION IV-PHYSICAL DAMAGES COVERAGES

***
CONDITIONS

7.

Concealment or Fraud

There is no coverage under this policy if you or any other

person insured under this policy has made false statements

with the intent to conceal or misrepresent any material fact

or circumstance in connection with any claim under this

policy.

Document No. 15-1, at 1.

The denial letter stated that State Farm had concluded the "[l]oss was
not accidental" and that ~1cClellan concealed and misrepresented material
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facts and circumstances in connection with [his] claim." Document No. 15-1,

at 2. McClellan allegedly misrepresented: (1) the facts leading up to the theft;
(2) his financial status; (3) the fact that he had the original keys to the vehicle
and had not made any copies; and (4) facts surrounding the discovery of the
theft. Ibid.

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The Court acknowledges the dispute in the briefs about references to

different policies. The Court agrees with State Farm, however, that the case
is unaltered by what appear to be administrative discrepancies in paperwork.
There is no material disagreement about the events that fuel this lawsuit-the
truck was taken; McClellan alleged itwas stolen and made a claim; State Farm
acknowledged and investigated the claim, later denying it on a fraud-based
exception; and McClellan says the contract was triggered and State Farm
should pay. To the extent technical discrepancies exist about different copies
of the policy, the Court has construed them in McClellan's favor.
3. Outrage. Having viewed the evidence in a light most favorable to
McClellan, resolved any factual disputes in his favor, and given him the
benefit of reasonable inferences arising from the proof, no reasonable juror
could conclude that State Farm investigated the stolen vehicle in a way
intolerable in a civil society. Anderson, 477 U.s. at 255; Marlar v. Daniel, 368
Ark. 505, 509,247 S.W.3d 473, 477 (2007).
McClellan is frustrated by State Farm's handling of the claim. The
Court credits, for example, his deposition testimony that the claim process has
caused a "lot of mental pressure[.]" Document No. 15-5, at 29. He also says

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that the distractions spawned by the claim process caused him to have a

work-related accident. For summary-judgment purposes, the Court takes
McClellan at his word that he is disgusted with the whole situation" and has
II

had sleepless nights and pain and agony."
II

Document No. 15-5 at 29.

Nonetheless, the record as a whole does not create a triable outrage claim in
light of the exacting legal standard under Arkansas law. E.g., Faulkner v.
Arkansas Children's Hospital, 347 Ark. 941, 957, 69 S.W.3d 393, 403-04 (2002).

State Farm vigorously investigated the stolen-truck claim. It did not,
however, act beyond all bounds of decency. State Farm acted based on policy
language that eliminates coverage if McClellan acted in a fraudulent manner.
Rather than simply concluding McClellan was somehow involved in the theft,
State Farm investigated and discovered circumstantial facts that it believed
triggered a policy exclusion. Whether State Farm can persuade a jury that it
acted correctly under its contractual obligations and rights is another matter.
But the Court concludes, as a matter of law, that State Farm did not act
outrageously when denying the claim.
4. Bad faith. McClellan's contention that State Farm handled the claim
in bad faith presents a closer question. The parties have gone back-and-forth

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a lot on this issue, with several recurring points of disagreement.

For

example, how many keys to the truck were floating around, who had access,
and what McClellan told State Farm about these things are much disputed.
But viewing the disputed facts in McClellan's favor, there is insufficient
evidence to create a jury question on bad faith.
For several circumstantial reasons, State Farm thinks McClellan may
have been somehow involved in the theft, which is why it rested the denial
on fraud-related policy language. State Farm pointedly asked McCellan
during his deposition why he thought State Farm had acted in bad faith. The
reasons boiled down to these:
•

Claim investigator Etchison had" a look of doubt in his face
from the get-go" regarding the claim and the visits with
McClellan"were really short and to the point";

•

State Farm reviewed years' worth of personal financial
information when it investigated the stolen-vehicle claim;

•

State Farm viewed a" cut and dried Videotape" of the theft,
and McClellan was nowhere in sight;

•

State Farm dragged its feet (for two weeks) in getting
McClellan a rental car, which thwarted at least one
opportunity to work; and

•

Investigator Etchison advised McClellan to cancel his
passport, which was in a lockbox (along with a treasured
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duck call collection) inside the Silverado when itwas stolen.
McClellan says the passport cancellation later cost him
thousands of dollars worth of work in Canada.
Document No. 15-5, at 18-21.

McClellan says nlany other things showed that his insurance company
acted in bad faith. For example, State Farm reported the possible insurance
fraud in Illinois, where the theft and alleged fraud occurred, rather than
reporting it in Arkansas, where McClellan was a resident and where the
vehicle was registered. McClellan also says State Farm told him that is was
not going to fully credit his side of events. Finally, the investigation led to a
Deputy Sheriff visiting a family farm in Georgia.
State Farm has explained in some detail why it denied the claim. The
Court has considered all this proof, as it must, in a light most favorable to
McClellan.
Has McClellan created a jury question on his bad-faith claim under
Arkansas law? No. An insurer acts in bad faith when it is dishonest,
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malicious, or oppressive in an attenlpt to avoid its liability under an insurance
policy./1 Aetna Casualty and Surety Co. v. Broadway Arms Corp., 281 Ark. 128,
133, 664 S.W.2d 463, 465 (1984). Malicious conduct is characterized by

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"hatred, ill will or a spirit of revenge." Aetna, 281 Ark. at 134, 664 S.W.2d at
465; see also AMI Civ. 2304 (2011). Negligence or bad judgment does not

suffice. Watkins v. Southern Farm Bureau Casualty Insurance Co., 2009 Ark. App.
693, at 13, 2009 WL 3400697.
Dishonest.

Malicious.

Oppressive. Hatred.

III will.

Vengeful.

Arkansas law erects a formidable burden of proof on this kind of claim. At
the summary-judgment stage, McClellan does not have to prove his case. But
he must present admissible evidence creating a genuine dispute of material
fact that State Farm acted in bad faith. He has not done so.
State Farm vigorously questioned and probed McClellan's claim. And
McClellan has significant disagreements with how State Farm handled the
claim and why the company decided not to pay. But many of the issues he
raises are relevant to whether State Farm correctly or incorrectly denied the
claim, not whether the company affirmatively acted in bad faith. In the
Court's judgment, a reasonable fact finder could not conclude from the
evidence that State Farm engaged in affirmative misconduct that crosses the
dishonest, oppressive, or malicious line. Compare, e.g., Southern Farm Bureau
Casualty Insurance Co. v. Allen, 326 Ark. 1023, 1027-29, 934 S.W.2d 527,529-30

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(1996) (lying about coverage and actively concealing coverage); Employers
Equitable Life Insurance Co. v. Williams, 282 Ark. 29, 30-31, 665 S.W.2d 873,

873-74 (1984) (policy of delaying payment and altering customer-payment
records); Aetna, 281 Ark. at 134,664 S.W.2d at 465-66 (threatening to report
transaction to the IRS in order to pressure insured to settle). Hard ball is not
bad faith.

***
5.

State Farm's motions to supplement and for partial summary

judgment, Document Nos. 37 & 14, are granted. McClellan's outrage and badfaith claims are dismissed with prejudice. His breach-of-contract claim,
however, remains for the jury.
So Ordered.

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