Clifford v. State Farm Fire and Casualty Insurance Company

Filing 35

ORDER granting 10 Motion for Partial Summary Judgment. Cliffords claims of bad faith, failure to act in good faith, punitive damages, and attorney fees are dismissed. Case will proceed on Clifford's claim for breach of contract. Signed by Senior Judge James T Moody on 6/7/2011. (kds)

UNITED STATES DISTRICT COURT
NORTHERN DISTRICT OF INDIANA
SOUTH BEND DIVISION
HELEN CLIFFORD,
Plaintiff,

)
)
)
v.
)
)
STATE FARM FIRE AND CASUALTY )
INSURANCE COMPANY,
)
Defendant.
)

No: 3:10 CV 221

OPINION AND ORDER
In this case, the plaintiff’s house caught fire and, in processing her claim, her
insurance company investigated the possibility that she procured arson of her house.
While the investigation was underway, plaintiff Helen Clifford (“Clifford”) filed a
complaint against defendant State Farm Fire and Casualty Insurance Company (“State
Farm”) listing claims of breach of contract, failure to maintain good faith, bad faith, and
agent’s neglect and misrepresentation. (DE # 1.) After the complaint was filed, State
Farm concluded that Clifford had procured arson of her house and denied her claim.
State Farm has filed a motion for partial summary judgment arguing that Clifford does
not have evidence to support her claims of bad faith and failure to maintain good faith
or to recover punitive damages or attorney fees. (Def.’s Mot. for Partial
Summ. J. DE # 11; Def.’s Br. in Supp. of Mot. for Partial Summ. J., DE # 12.) Clifford has
filed a response (Pl.’s Mot. in Opp’n to Partial Summ. J. DE # 21; Pl.’s Mem. in Opp’n to
Partial Summ. J., DE # 22) and State Farm has filed a reply. (Def.’s Reply, DE # 24.)

I.

FACTUAL BACKGROUND
A.

The parties

Plaintiff Clifford is a single mother with two children. She is the owner of a
residence located at 1951 North 400 East in Winamac, Indiana (“Clifford’s house.”).
Clifford had an insurance policy on the house with defendant State Farm.
B.

The fire

Clifford’s house caught on fire on October 7, 2008. The Monterey Assistant Fire
Chief Steve Shank (“Shank”), who happened to be near the house at the time, reported
the fire at 11:03 a.m. (Clifford Claim File 286, 325, Def.’s Exh. A to Mot. for Partial
Summ. J., DE ## 12-1 - 12-5.) Shank was driving past the home when he noticed smoke
venting from the south second floor windows and he called Pulaski County Dispatch to
notify them of the event. (Id. at 286.) When Shank first spotted the fire he was about a
quarter mile away from Clifford’s house and he did not see any other traffic around.
(Steve Shank Dep. 28, Pl.’s Exh. 29 to Mem. in Opp’n to Mot. for Partial Summ. J.,
DE # 23-29.) Shank approached the home in about two to three minutes, knocked on the
door, and forced his way in when he got no response. (Id. at 31; Clifford Claim File 286.)
He searched the main floor and did not find any occupants. (Id.) He walked past the
stairway to the second floor, noticed flames moving down the steps towards him, and
thought that movement seemed unnatural. (Id. at 286-87.) When he exited the home,
Shank found a red plastic container, that looked like a gasoline container, near the east
door of the residence. (Id. at 287.) He removed the container from the porch to the yard
2

southeast of Clifford’s house. (Id.) He observed that the entire interior of the house
became fully engulfed very quickly. (Id.)
The fire department did not find any evidence indicating any kind of forced
entry into the home prior to the fire. (Id.) About ten minutes after Shank reported the
fire, another person, later identified to be Romel Scholz, called 911. (Id.) She reported
that she had observed a tall, thin male, dressed in a hooded sweatshirt, leaving
Clifford’s house just prior to flames emerging from the south second floor windows.
(Id.) She reported that the man had gotten into a maroon van.1 (Id.)
C.

Monterey Tippecanoe Volunteer Fire Department report

The Monterey Tippecanoe Volunteer Fire Department Fire Chief, Ken McClure,
completed a form, dated October 18, 2008, about the fire. (Pl.’s Exh. 5, DE # 23-5.) The
report stated that the item and material contributing most to the fire were
“undetermined.” (Id.) It stated that the cause of the fire was “under investigation.” (Id.)
The report concluded that the Monterey Tippecanoe Volunteer Fire Department’s
report would remain “[u]ndetermined and incomplete” until the department received
the Fire Marshal’s report. (Id.)
D.

The Fire Marshal’s report of fire investigation

Frederick J. Sumpter (“Sumpter”) of the Investigation Section of the Department
of Homeland Security for the Indiana State Fire Marshal’s Office, prepared a Report of

1

Clifford contends that Scholz did not provide identifying information about the
man or the van, but this assertion is not supported by the portion of the Fire Marshal’s
Report to which Clifford cites. (Pl.’s Mem. 5; Pl.’s Exh. 7, DE # 23-7 at 10.)
3

Fire Investigation (“Fire Marshal’s report”) with the assistance of members of the
Monterey Fire Department and the Pulaski County Sheriff’s Department. (Clifford
Claim File 282.) The report, dated December 19, 2008, identified several large,
unconnected lines of demarcation on the south side of the residence and around the
south second floor window along the east side of Clifford’s house. (Id. at 288-89, 390.)
The report found that “[e]vidence was identified indicating that an ignitable liquid has
been poured on the floor prior to ignition of the flames.” (Id. at 386.) It also stated:
Evidence was identified that the ignitable liquid had been “trailed” into
the northeast bedroom of the first floor. This “trailer”, a vehicle used to
increase the spread of flames along the floor, was identified extending
through the doorway, through the center portion of the bedroom and
terminating near the north end of the room.
(Id.) Evidence also showed that an ignitable liquid had been poured in the kitchen and
trailed to the living room. (Id. at 387.) It also stated that there was evidence of the liquid
having pooled on the floor. (Id. at 386-89.) The charring from the fire was identified as
“extending unnaturally downward where the ignitable liquid had soaked through” the
carpet and the flooring. (Id. at 386.)
The report stated that the occupant, Clifford, stated that she had not been in the
residence since October 6, 2008, and that there was an electrical problem inside the
residence. (Id. at 286.) It stated that she described the problem as the kitchen fan going
on and off and that she did not provide any evidence that the problem had been
examined by an electrician. (Id.)

4

The Fire Marshal’s report concluded: “Based on these facts this fire was
determined to be incendiary.” (Id. at 390.) It stated that the fire originated from the
floors in the living room, the northeast first floor bedroom, the kitchen, the stairway to
the second floor, and the second floor bedrooms. (Id.) It stated that evidence showed
that an ignitable liquid had been poured on the floor in these rooms prior to ignition of
the flames. (Id.) The report stated that all accidental causes for the fire were eliminated
and it identified a possible motive for the fire as “[i]nsurance [f]raud.” (Clifford Claim
File 283.) The report also stated that the laboratory results from samples from the house
secured by a private investigator for State Farm were negative. (Id. at 390.) It explained
that the negative result did not rule out the presence of an ignitable liquid, it just failed
to identify it. (Id.)
E.

The policy

On the date of the fire, Clifford’s house was insured under a homeowner’s
insurance policy issued by State Farm. (Def.’s Exh. B, DE # 12-6.) Clifford’s mother,
Grace Clifford, was an additional insured under the policy. (Clifford Claim File 006.)
Clifford was late paying her premium for September, 2008, and paid for September and
October together on October 3, 2008, making a cash payment of $294.72 on her policy.
(Pl.’s Exh. 18, DE # 23-18; Clifford Claim File 34.) If the premium had not been paid,
Clifford’s policy would have lapsed. (Id.)
The policy stated that it covered “accidental direct, physical loss to property.”
(State Farm Policy 7, Def.’s Exh B, DE # 12-6.) The policy also stated:
5

Intentional Acts. If you or any other person insured under this policy
causes or procures a loss to property covered under this policy for the
purpose of obtaining insurance benefits, then this policy is void and we
will not pay you or any other insured for this loss.
(Id. at 15.)
The policy explained the insured’s duties after a loss. (Id. at 13.) These duties
included, providing, as often as State Farm reasonably required, records and documents
that State Farm requested and submitting to statements and examinations under oath of
the insured and members of the insured’s household or any other people to extent that
the insured had the power to do so. (Id.) The policy required the insured to submit a
sworn proof of loss sixty days after the loss. (Id.)
Another provision of the policy stated:
Concealment of Fraud. This policy is void as to you and any other
insured, if you or any other insured under this policy has intentionally
concealed or misrepresented any material fact or circumstance relating to
this insurance, whether before or after a loss.
(Id. at 19.) The policy did not provide for the payment of attorney fees to the insured in
the event of a dispute about the policy. (Id.)
F.

State Farm’s communications with Clifford after the fire

The day after the fire, State Farm informed Clifford of Alternative Living
Expense coverage and told her close to that time it had advanced her $5,000 to buy
food and clothes. (Clifford Claim File 34, 45; Helen Clifford Dep. 126-27, Def.’s Exh. C,
DE # 13.) State Farm also gave Clifford $500 for first month’s rent at her mother’s house.

6

(Clifford Claim File 34, 45.) State Farm informed Clifford that it would be undertaking
an investigation of the fire. (Id. at 34.)
On October 9, 2008, State Farm sent Clifford a letter setting out the coverages
applicable to her loss and her responsibilities under the policy. (Clifford Claim File 810.)
On October 13, 2008, Clifford signed a “Request for Claim Service and Non-waiver of
Rights” form. (Id. at 816.) The form stated that the reason for this request was: “There is
a question as to whether this fire is accidental as it relates to the insured.” (Id.) The form
included this statement:
The undersigned request(s) and authorize(s) the Company to investigate,
negotiate, settle, deny or defend any claim arising out of such reported
event as it deems expedient. Such action shall not waive any right the
Company may have to deny any obligations under the policy contract,
and shall not waive any right of the undersigned.
(Id.) Clifford signed below this statement. (Id.)
G.

State Farm’s investigation

State Farm began its investigation the day of the fire. (Clifford Claim File 32-33.)
State Farm’s Claim Representative, David Lucas (“Lucas”) began working on the case
on October 9, 2008. (Id. at 34.)
1.

Clifford’s account of the day of the fire

Clifford talked to State Farm representatives on the day of the fire. (Clifford
Claim File 36.) She stated that she had not been staying at her house since it started
getting cold, but that she and her two children went to the house every day around four
and stayed until it started getting cold. (Id.) The last time Clifford slept at the house was
7

on October 2, 2008; since that time she, her two children, and her dog had been staying
at her mother’s house. (Id. at 34.) The last time she was in the house was
October 6, 2008, at around 4:30 p.m. Clifford said that there was no gas to the house, but
it was supposed to be delivered that week. (Id. at 35.) She had been using electrical
heaters to heat the house, but they were not running during times that no one was in
the house. (Id. at 35-36.) Only Clifford and her mother had keys to the house. (Id. at 34.)
At the time of the fire, the children were at school. (Id.) Clifford informed State
Farm that she left her mother’s house around eleven for her job at Pulaski Memorial
Hospital and was informed by her boss at work at around 11:30 a.m. that her house was
on fire. (Id. at 34-35.) She told State Farm that the fireman said it had been an electrical
fire. (Id. at 34, 36.) Clifford said that the ceiling fan/light in her house would
sporadically go off and on. (Id. at 34.) She had not hired anyone to come look at the
electrical system. (Id.) Clifford informed State Farm that the fire caused a total loss of
the house and the fire department was not allowing anyone into the building. (Id. at 35.)
Clifford gave a recorded statement to Lucas on October 14, 2008. (Id. at 32.)
Clifford informed Lucas that her mother owned and drove a maroon van. (Id. at 860,
886.) She stated that the doors and windows to the house were locked on the day of the
fire. (Id. at 870, 872.) She stated that the locks to the house had been changed about two
months before the fire and only she and her mother had keys to the house. (Id. at 873.)
Clifford stated that she did not have any lighter fluid, oil based paints, paint thinners,
kerosene, lamp oil, lantern fuel, or gasoline in the house. (Id. at 878.)
8

Clifford stated that on the day of the fire she woke up at 6:00 a.m., took her
children to school at around 7:45 a.m., and returned to her mother’s house at around
8:10 a.m. (Clifford Claim File 867.) After breakfast, Clifford went to pick up her friend
Randy Hovis (“Hovis”) who was like a brother to her. (Id. at 868.) He lived about a half
mile to a mile away from her mother’s house, and she drove her mother’s maroon van
to pick him up sometime around 9:30 or 10:00 a.m. so that he could mow the lawn of
her mother’s home. (Id. at 868, 886.) She returned to her mother’s house with Hovis at
around 10:00 a.m. or a quarter after. (Id. at 869.) Clifford stated that she left for work at
about 10:50 a.m. and punched in at work between 11:10 and 11:15 a.m. (Id.) She stated
that it takes her about five to six minutes to get to work. (Id.) That day, she arrived at
the parking lot of her work at about 10:55 or 10:56 a.m., parked her car, and lit a
cigarette. (Id.) She sat in her car for fifteen to twenty minutes to smoke a few cigarettes
before going into work. (Id.) After Clifford checked into work and was notified of the
fire, her boss drove her to her mother’s house. (Id. at 886.) From there, Clifford, her
mother, and Hovis went to the scene of the fire. (Id. at 887.)
Clifford stated that she had not talked to Hovis or her mother about burning her
house. (Clifford Claim File 887.) She also stated that there would be no reason that
Hovis would just go burn her house. (Id.) She stated that she never said that she wanted
the house to burn down and that she loved her house. (Id.) She said that there would
have been no reason that Hovis, her mother, or anyone else would think that they were

9

doing her a favor by burning the house. (Id.) She also said that there was no reason that
anyone would have seen the maroon van over by her house before the fire. (Id.)
Clifford provided more information to State Farm during her examination under
oath (“EUO”) on July 31, 2009. Clifford again stated that she had experienced electrical
problems with her ceiling fans, elaborating that “they were hanging down with bare
wires,” they shook badly when turned on, and she once saw a spark come from one.
(Clifford EUO 42-43, Pl.’s Exh. 27, DE # 23-27 at 23.) She did not have an electrician or
anyone else look at the fans. (Id. at 43.) She also stated that her window air conditioner
units at the house would blow fuses when they were turned on. (Id.) She continued that
in the last few months before the fire there was nothing she was using that had electrical
problems. (Id.) She also stated that she kept a red plastic container on her front porch so
that she could put gasoline into it when she was ready to mow her lawn. (Id. at 60.)
2.

Clifford’s mother’s account of the day of the fire

Grace Clifford, Clifford’s mother, gave a recorded statement to Lucas on
October 22, 2008. (Pl.’s Exh. 11, DE # 23-11 at 1.) She stated that on the day of the fire,
she and Clifford took Clifford’s children to school and then picked up Hovis at about
10:30 or 11:00 a.m. (Id.) She stated that Clifford left for work at about 11:15 a.m. (Id.) She
stated that Clifford came back to Grace’s house and was crying. (Id.) Grace Clifford
stated that she “broke down” when she saw Clifford’s house on fire because all of
Grace’s husband’s things were in that house. (Id.) She stated that Pulaski County

10

Deputy Sheriff Paul Grandstaff (“Grandstaff”) told her that he thought that the fire was
electrical. (Id.)
3.

Distances between relevant places

Lucas determined how long it took to drive between the locations involved in
this case. (Clifford Claim File 31.) Lucas found that it took four minutes to drive from
Clifford’s mother’s home to Clifford’s work. (Id.) He also found that it took about
eleven minutes to drive from Clifford’s house to her mother’s house and seven minutes
to drive from Clifford’s house to her work. (Id.)
4.

Clifford’s financial situation

State Farm learned from Clifford’s insurance agent that, prior to the fire, Clifford
had been injured, requiring her to take time off of work, and that people in her
community were taking a collection to help pay her gas bill. (Clifford Claim File 34.)
During her initial recorded statement with State Farm on October 14, 2008, Clifford
provided information about her financial situation. (Id. at 32, 858.) Clifford worked 35
hours a week for $8 an hour. (Clifford Claim File 133, Pl.’s Exh. 9, DE # 23-10.) One of
her sons received $545 a month in social security payments. (Clifford Claim File 858.)
Her other son received child support payments of $84 every two weeks “when his dad
decide[d] to pay it.” (Id.; see also Clifford EUO 23 (stating that Clifford was supposed to
receive child support payments but only did when her child’s father felt like sending
it).) When asked if she had any money saved anywhere, Clifford said she had $5 in the
bank. (Clifford Claim File 858.) Clifford’s gas had been shut off because she owed $1,300
11

on her account. (Clifford EUO 44, 46.) Clifford’s church helped her get the money to pay
the bill and she sent the money to the gas company the Friday before the fire. (Id. at 44;
Clifford Claim File 34.) She also stated that her monthly expenses were a mortgage
payment of $627, a gas bill of $140, an electric bill of $94, a satelite bill of $120, and a cell
phone bill of $100. (Id. at 858-60.) She stated that her payments were current on these
bills. (Id. at 859.) Clifford told Lucas that she did not have any credit cards or
outstanding loans and that she did not owe anything on her car. (Id. at 860.) Thus, her
monthly expenses were $1,081.
Clifford had filed for bankruptcy which had been discharged in June, 2002.
(Id. at 31, 861.) Her credit report showed that she had medical collection items totaling
to $4,789, a $3,309 unpaid collection item, and a $554 collection account. (Id. at 31.) She
stated that she had never tried to sell the house. (Id. at 861.)
5.

Shandforensic’s investigation

State Farm hired Shandforensic Investigations (“Shand”) to complete a cause and
origin report of the fire in Clifford’s house. (Clifford Claim File 246.) Shand’s report
found that the burn patterns and degree of damage to the house showed that the fire
originated in several different areas. (Id. at 248.) It found that the “reports of movement
down the stairs prior to any fire on the first floor, coupled with the rapid involvement
of the first floor rooms, indicates the use of an ignitable liquid to accelerate fire.” (Id.) It
also stated that an accelerant detection canine was run through the first-floor rooms and
alerted near a hole that burned through the floor in the bedroom. (Id.) Burn patterns in
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the kitchen tile also indicated use of a liquid accelerant. (Id.) Further, oxidation patterns
on the remains of several appliances revealed upward burning from the floor level
which would not be consistent with fire movement from the living room door into the
kitchen. (Id.) Burn patterns on the sofa and in the first floor bedroom also indicated use
of a liquid accelerant. (Id. at 249.) Shand conducted a laboratory analysis of debris from
the fire and “failed to identify the ignitable liquid used.” (Id. at 246.)
Shand’s report concluded that the fire started in multiple rooms of the house, the
fire was observed to have started on the first floor and the fire damage on the first level
was not consistent with a natural fire moving from the second to first floor, the fire
movement down the stairs and rapid involvement of the first floor rooms indicated the
use of an accelerant, and potential accidental ignition sources on the first floor were
examined and eliminated as causes of the fire. (Id.) Thus, Shand’s report determined
that the fire was incendiary. (Id.)
6.

State Farm’s recorded statement of Shank

Lucas took a recorded statement from Shank on October 15, 2008. (Clifford Claim
File 30.) Shank stated that he found the house secure, did not see any smoke or fire on
the first floor at first, and observed that flames on the stairs were running from upstairs
to downstairs. (Id.) He stated that it took the Monterey and Winamac Fire Departments
ten to fifteen minutes to respond to his 911 call. (Id.) During that period, the fire went
from just the upstairs to consuming the whole house. (Id.) He told Lucas that he thought

13

there was an accelerant present to assist the spread of the fire since fire does not usually
run down stairs. (Id.)
7.

Lucas’s conversation with Pulaski County Deputy Sheriff Paul
Grandstaff

On October 21, 2008, Lucas spoke with Deputy Sheriff Paul Grandstaff
(“Grandstaff”). (Clifford Claim File 28.) Grandstaff told Lucas that a witness, Romel
Scholz (“Scholz”), had stated that she saw a maroon van driving near Clifford’s house
just before the fire and saw a thin man with a ball cap, bushy hair, gray in the back, and
blue jeans walking near the house just before the fire. (Id.) Grandstaff said that he
thought this description matched Hovis. (Id.) He said that he knew the Clifford family
from church and that a few weeks before October 21, 2008, Clifford’s mother had asked
him about whether they could get Clifford’s house financed or refinanced. (Id.)
8.

State Farm’s recorded statements of Scholz

On October 22, 2008, Lucas took a recorded statement of Scholz, the witness who
called 911 after seeing a man walking away from Clifford’s house. (Clifford Claim
File 200.) Scholz was driving near the area of the fire on County Road 200 and saw a six
foot tall, thin man wearing a light blue jacket, light blue jeans, and either a hood or a
baseball cap. (Id.) The man’s hair was “all bushed out” around his head. (Id.) Scholz and
Lucas had the following conversation about the man’s hair color:
Q.
A.

Q.

What, what color was his hair?
And it was . . . I would say like a, a sandy brown. Did look like a
two tone or coulda maybe been some blonde in it or grays. . . . I
don’t know.
Just some kind of a . . .
14

A.
Q.
A.
Q.

It wasn’t . . . no.
Is it a sandy blonde or gray hair?
Yeah. It was black.
Okay.

(Id.)
Scholz stated that the man was walking north near the intersection of County
Road 200 and 400 East, near Clifford’s house. (Id.) She said that the man was heading
north on Laughton Road and then a maroon van, which was coming from the north and
heading south stopped, picked the man up, and then continued heading south.
(Id. at 201.) Scholz said that the man entered the car through the side door because there
were already two adult women sitting in the front seats. (Id.) She stated that she saw the
van pick up the man at about 10:45 a.m. on October 7, 2008. (Id. at 204.) Scholz saw the
man being picked up by looking through the mirror on her car.2 (Id. at 201.)
On November 19, 2008, Lucas showed Scholz pictures of Hovis and Clifford’s
mother’s van. (Clifford Claim File 24.) Lucas wrote in Clifford’s claim file:
Met with Romel Scholz and showed her the photographs of Grace
Clifford’s Maroon Van & of Randy Hovis. Romel Scholz stated the
Maroon van looks like the van she saw on the day of the fire, and the hair
& body type looks like the man she saw from the back on the day of the
fire.

2

Clifford also cites to Scholz’s deposition for this type of testimony. (Pl.’s
Mem. 7.) Scholz’s deposition was taken on June 1, 2010, after this lawsuit was
commenced and after Clifford’s claim was denied. (Pl.’s Exh. 30, DE # 23-30.) For the
bad faith claim, the court’s focus is on what information State Farm had when
processing Clifford’s claim. See e.g., Thompson Hardwoods, Inc. v. Transp. Ins. Co.,
No. 00-74-C, 2002 U.S. Dist. Lexis 4592, at*6 n.1 (S.D. Ind. Mar. 15, 2002). Thus
information that was not available until after the alleged delay took place and the claim
was denied is immaterial.
15

(Id.) In her second recorded statement to Lucas, Scholz saw the picture of Hovis and
stated that the man she saw the day of the fire had the same build as Hovis: “Yes. Same
build, but I could not recog. . . I could not ident. . . I didn’t see the face.” (Pl.’s Exh. 9,
DE # 23-9 at 1.) She also commented on the picture of Hovis: “The hair looks a lot like
the same character I seen walkin’.” (Id.) Upon seeing a picture of Grace Clifford’s
maroon van, Scholz stated: “That looks uh, like the van I seen pick him up.” (Id. at 2.)
9.

Investigation into Scholz’s statement

Lucas took Hovis’ recorded statement on October 22, 2008. (Clifford Claim
File 28.) He stated that he was not at or near Clifford’s house on the morning of the fire.
(Id.) Lucas also took a recorded statement from Grace Clifford, Clifford’s mother, at that
time. (Id.) Clifford’s mother stated that she and her maroon van were not at or near
Clifford’s house at the time of the fire. (Id.)
On November 5, 2008, Lucas took pictures of Hovis. (Id. at 26.) Clifford was
present at that time and Lucas told her that he could not clear her as a possible suspect
in the fire. (Id.) As Lucas was leaving, Hovis walked over to him and told him that he
had recorded Lucas’s conversations that day and would give a copy to the FBI. (Id.) He
also stated that he had a lawsuit against the State of Indiana. (Id.)
On February 18, 2009, Lucas noted that he had information that Hovis believed
that nurses who cared for his father could testify that he was at his father’s home when
the fire started. (Clifford Claim File 18, DE # 12-1.) Lucas’s supervisor, Mike Thomas,
asked Lucas to follow up about the nurses. (Id.) On May 5, 2009, Lucas reported that
16

State Farm’s Attorney, Robert S. O’Dell (“O’Dell”) contacted the hospital that the nurses
worked for and was told by the hospital director that she would not provide the names
or time records of the nurses. (Id. at 10.) O’Dell and Clifford’s attorney planned to work
together to get that information. (Id.)
10.

State Farm’s communications with Clifford to obtain documents

On November 17, 2008, State Farm was informed that attorney Dale Starkes
(“Starkes”) was representing Clifford. (Clifford Claim File 24.) After this point, most of
State Farm’s communications with Clifford was done through Starkes.
(Clifford Dep. 140.) Clifford relied on Starkes to handle her claim with State Farm and
to get it the information that was needed. (Id. at 148.) In late November, 2008, State
Farm sent Clifford a letter outlining her duties under the policy and informing her that
its attorney would contact her attorney to set a time for her to submit to an EUO.
(Id. at 140; Clifford Claim File 22; Pl.’s Exh. 14, DE # 23-14.) The letter informed Clifford
that State Farm had received her Personal Property Inventory Forms but it could not
pay her based on that submission as it was continuing its investigation of her claim. (Id.)
In December 2008, State Farm wrote to Starkes to get information about Clifford’s
mortgage payment history. (Clifford Dep. 147.) Starkes submitted the mortgage
payment documents to State Farm by February 18, 2009. (Clifford Claim File 218.)
EUOs for Clifford and her mother were scheduled for May 12, 2009. (Clifford
Claim File 10.) Prior to the EUOs, State Farm sent Clifford a letter reiterating the date of
the EUOs and asking her to bring various documents to her EUO. (Pl.’s Exh. 15,
17

DE # 23-15.) The documents related to her financial condition and the value of her claim
and included receipts and paid bills for personal property, her tax returns for the three
years prior to the fire, a list of all creditors and authorization to obtain records from
those creditors, loan agreements with creditors, check-stubs and W-2 forms to show
income, cell phone records for September and October 2008, and any documents
relating to any bankruptcy filings. (Id.) Starkes sent State Farm pictures of Clifford’s
house. (Pl.’s Exh. 17, DE # 23-17.)
On May 11, 2009, State Farm was informed that Clifford had fired Starkes and
hired a public adjustor, Jay Hatfield (“Hatfield”) of Midwest Public Adjusting. (Clifford
Claim File 9.) Clifford stated that she terminated Starkes because she was not “real
comfortable with him” and she had a communication problem with him.
(Clifford Dep. 150.) Clifford asked for an extension of time for the EUOs in order to
obtain new counsel. (Clifford Claim File 9.) State Farm granted this request and the
EUOs were rescheduled for July 8, 2009. (Id. at 8.) On May 26, 2009, State Farm’s
attorney received notice that Clifford’s new attorney was Steven L. Davies (“Davies”)
and a certified copy of the policy was sent to him. (Id. at 7-8.) Davies quit the firm and,
on July 8, 2009, his former partner, Kevin Marshall, who had taken over the
representation of Clifford, appeared at the scheduled EUO and demanded a copy of the
declarations page that listed Grace Clifford, Clifford’s mother, as an insured for the date
of loss before he would let her submit to an EUO. (Id. at 7.)

18

As a result, the EUOs were reset for July 31, 2009 and took place on that day.
(Id. at 6, 700.) At the end of Clifford’s EUO, State Farm’s attorney asked Clifford about
documents that were supposed to be produced by that time that had not been
produced. (Id. at 725.) Clifford responded that Hatfield had most of those documents
including her income tax returns from the last three years, her list of creditors, loan
agreements with creditors, her cell phone records for September and October 2008, and
invoices and bills. (Id.) When asked if she had any collection or foreclosure notices,
Clifford stated that she thought she had them. (Id.) When asked if she had W-2s or other
things that showed her income, Clifford responded that she was not sure if she had
given them to State Farm and if she had not she would have them “at the house.” (Id.)
In her deposition, Clifford stated that she did not bring the requested documents with
her to the EUO. (Clifford Dep. 179.) In contrast to her testimony at the EUO, she stated
that she had not brought them because she had given them to Starkes. (Id. at 180.)
Clifford’s policy with State Farm stated that the insured needed to submit a
sworn proof of loss form within sixty days of the loss. (State Farm Policy 13.) Clifford
provided the proof of loss to State Farm on July 1, 2009. (Clifford Dep. 183.)
11.

Clifford’s investigation

State Farm’s case activity log shows that Clifford’s former attorney, Starkes,
called Mike Thomas (“Thomas”) at State Farm on March 12, 2009. Starkes told Thomas
that he had received information from an expert they had hired, Jack Fetrow of Donan

19

Engineering, that the fire was not accidental. (Clifford Claim File 17.) Thomas wrote
that Starkes said:
[T]he insureds now think the fire was caused by Mr. Hovis. They feel he
burned the home to secure insurance proceeds to build a new home.
Reportedly he considers himself insured’s boyfriend.
(Id.) In her EUO testimony, Clifford stated that Starkes told her that he believed Hovis
started the fire because Hovis was crazy. (Clifford Claim File 722.) On April 2, 2009,
State Farm’s attorney sent Starkes a letter stating that Starkes’ expert and State Farm
agreed that the fire was intentionally set. (Pl.’s Exh. 16, DE # 23-16.) The letter informed
Starkes that State Farm would not perform any additional investigation relating to the
structure of the property. (Id.)
12.

Lucas’s account of the investigation

At a deposition, Lucas testified that based on its investigation, State Farm did not
believe that Clifford “herself was at the house starting the fire.” (David Lucas Dep. 26,
Pl.’s Exh. 28, DE # 23-28.) He continued: “Our – our investigation pretty quickly point –
we had a witness – pointed to the facts and circumstances, and those facts and
circumstances didn’t include Helen Clifford being in the house starting the fire.” (Id.)
He said, “My investigation showed that [Clifford] was not in the house itself – likely not
in the house itself prior to the fire.” (Id.)
H.

Clifford’s account of State Farm’s treatment of her

In her deposition, given on December 14, 2009, Clifford agreed that she did not
have a problem with State Farm investigating whether the fire was intentionally set.
20

(Clifford Dep. 132.) Clifford was asked if State Farm had said anything to her that was
rude, obnoxious, or made her feel bad. (Id. at 144.) Clifford responded that David Lucas
had once hung up on her. (Id.) She stated that before she hired Starkes, she called Lucas
to see how her case was going because no one had told her anything. (Id.) She asked
Lucas if her mother was going to get her rent and he said “Pay it out of your pocket,”
and hung up on her. (Id.) Clifford was asked whether she knew if Lucas actually hung
up on her or whether they were disconnected and she responded that she figured he
had hung up on her. (Id. at 144-45.) She was asked if it was true that Lucas called her
back but got her voicemail and she responded that that could have been true.
(Id. at 145.)
Clifford did not have any evidence of State Farm acting with bad faith or
inappropriately during the time that she was represented by Starkes.
(Clifford Dep. 153.) She stated that she was not sure if she had any facts that State Farm
made an unfounded refusal of her claim. (Id. at 200.) She stated that she was not aware
of any facts that State Farm tried to trick her in any way after the fire. (Id. at 201.)
Clifford stated that she could not recall anyone from State Farm saying anything to her
out of the ordinary or that made her upset. (Id. at 173.)
I.

Clifford’s lawsuit and State Farm’s denial of her claim

Clifford filed a complaint against State Farm in Indiana State Court on
August 31, 2009. (DE # 1.) She listed claims of breach of contract, failure to maintain

21

good faith, bad faith, and agent’s negligence and misrepresentation.3 The complaint
focuses on State Farm’s alleged delay in investigating and settling Clifford’s claim.
(DE # 1 ¶¶ 2, 3, 9.) It states that State Farm failed to affirm or deny coverage within a
reasonable time after proof of loss statements were submitted and compelled “insured
to institute litigation to recover amounts due under an insurance policy by denying
coverage based on a misstatement of the policy provision and involvement of the
statutorily retained public adjustor pursuant to I.C. 27-1-27-1 et seq.” (Id. ¶ 7.)
On October 20, 2009, State Farm sent Clifford a letter informing her that her
policy would be canceled as of November 22, 2009. (Pl.’s Exh. 19, DE # 23-19.) State
Farm sent Clifford a letter denying her claim on November 25, 2009. (Pl.’s Exh. 21,
DE # 23-21 at 1.) The letter informed Clifford that her claim was being denied because
1) it did not involve an “accidental direct physical loss;” 2) the policy was rendered void
because the insured caused or procured the loss; 3) the policy was rendered void
because of Clifford’s intentional concealment and misrepresentation of facts material to
the claim; and 4) Clifford breached the policy by failing to comply with the policy by
not providing State Farm with documents it requested and not signing and returning
the transcript from her EUO. (Id.)

3

The Indiana State Court granted summary judgment to the agent on this claim.
(DE # 2-10.)
22

J.

The parties’ arguments

As stated above, State Farm has moved for summary judgment on Clifford’s
claims for bad faith, failure to maintain good faith,4 punitive damages, and attorney fees
First, State Farm argues that when the conduct giving rise to a claim of bad faith is not a
claim denial, evidence of conduct after the filing of the bad faith claim is irrelevant.
(DE # 11 at 14.) It points out that when Clifford filed her lawsuit, State Farm had not
denied her claim and was seeking additional information needed to evaluate her claim.
(Id. at 16.) It argues that any delay in evaluating the claim was due to Clifford’s failure
to provide that information. (Id. at 17.) Thus, it argues that Clifford’s claims for breach
of the duty of good faith and fair dealing should be dismissed.
State Farm also argues that Clifford’s claims of the breach of the duty of good
faith and fair dealing should be dismissed because the evidence that State Farm
gathered in evaluating the claim supported a conclusion that Clifford had caused the
fire to be set, providing a rational and principled basis for State Farm’s denial of her
claim. (Id. at 18-19.) It states that Clifford’s own lawyer advised State Farm that Hovis
set the fire. (Id. at 18.) Further, State Farm argues that Clifford does not have clear and
convincing evidence to show that it acted with malice, fraud, gross negligence, or
oppressiveness as required to support an award of punitive damages. (DE # 11 at 20.) It
also argues that Clifford cannot recover attorney fees because the policy did not provide

4

Clifford listed these as two separate claims, but they appear to be one claim
under Indiana law and the court will treat them as one claim. The court will also
consider allegations for bad faith under Clifford’s request for punitive damages.
23

for attorney fees and Indiana follows the American Rule that parties pay their own
attorney fees. (Id. at 20.)
In opposition to summary judgment, Clifford argues that she made diligent
efforts to comply with State Farm’s requests for information, but she could not produce
many of the documents because they had been destroyed in the fire. (Pl.’s Mem. 16.) She
also argues that State Farm requested documents beyond those needed to prove loss.
(Id. at 17.) She argues that State Farm’s request for “voluminous” financial records was
not authorized under the contract. (Id.) Clifford argues that a material issue of fact exists
as to whether State Farm acted with bad faith because the evidence shows that State
Farm made an unfounded refusal to pay on the policy, caused an undue delay in
making payment, pressured her to forego her fire loss claim, or pressured her to settle
for less than the full value under the policy. (Id. at 19.) She contends State Farm acted
with bad faith and caused her harm by effectuating criminal charges against her. (Id.)
Clifford argues that it was unreasonable of State Farm to look into her financial
motive for committing arson because its investigation showed that she was at work and
did not set the fire. (Id. at 20.) She argues that State Farm acted with fraud and gross
negligence when it delayed her claim by thirteen months by requesting documents that
related to an inquiry of whether her claim was barred on the basis that she procured
arson of her house. (Id. at 21.) She argues that State Farm’s theory that she procured
arson of her house amounted to an intentional strategy to not pay her on her policy.
(Id. at 21.) She accuses State Farm of grounding its entire claim denial process upon the
24

credit worthiness of the insured, a practice that she insinuates is immoral and amounts
to discrimination based on financial means. (Id. at 22.)
Clifford’s current attorney denies that he ever stated that he believed that Hovis
started the fire.5 (Pl.’s Mem. 23.) Clifford also takes issue with State Farm’s assertions
that she had a financial incentive to procure arson of her house and that she paid her
insurance premiums before the fire was set so that her policy would be effective.
(Id. at 23-24.) She argues that once State Farm determined that she was not in the house
and did not start the fire, it should have closed its investigation and determined how
much to pay her. (Id. at 24.)
Clifford asserts that she is entitled to punitive damages for State Farm’s bad faith
and then launches into a discussion of how the preponderance of evidence standard
applies for determining whether an insurance company acted with bad faith and the
clear and convincing evidence standard applies to awarding punitive damages.
(See id. at 26-29.) She argues that the award of attorney fees is appropriate when a party
litigated the action in bad faith. (Id. at 29.) She argues that an insurance company’s
denial of coverage in a bad faith dispute can lead to a conclusion that the insurer
litigated the action in bad faith. (Id. at 29-30.)
In reply, State Farm points to evidence from both the Fire Marshal and its own
investigation that shows that the fire was intentionally set. (Def.’s Reply, DE # 24 at 2.)

5

However, the record and State Farm’s brief indicate only that Clifford’s former
attorney, Starkes, stated that he believed Hovis started the fire.
25

It also argues that it may rely on evidence of Clifford’s financial condition to
demonstrate a financial motive to procure arson. (Id. at 3.) As State Farm points out,
Clifford has not cited to any evidence to show that it was impossible for her to produce
the requested records. (Id. at 5.) In fact, Clifford testified in her deposition that she had
not brought the records because she had given them to her prior counsel. (Id. at 6.)
State Farm contends that Clifford’s response does not acknowledge the full
extent of her financial obligations before the fire as shown in the evidence. (Id. at 3.)
State Farm also argues that it was permitted to rely on Scholz’s testimony when
handling Clifford’s claim and that an arson defense for denying an insurance claim can
be based on the insured’s procurement of arson. (Id. at 4-5.) It argues that there is
sufficient evidence showing that State Farm had a rational, principled basis for its belief
that Clifford procured arson of her house. (Id. at 8-9.) It contends that the fact that no
one has been arrested or prosecuted in relation to the arson is irrelevant. (Id. at 10.)
II.

STANDARD OF REVIEW
Summary judgment should be granted “if the movant shows that there is no

genuine dispute as to any material fact and the movant is entitled to a judgment as a
matter of law.” FED. R. CIV. P. 56(a). The party seeking summary judgment “bears the
initial responsibility of informing the district court of the basis for its motion, and
identifying” those materials listed in RULE 56(c) which “demonstrate the absence of a
genuine issue of material fact.” Celotex Corp. v. Catrett, 477 U.S. 317, 323 (1986).

26

Once the moving party has met its burden, the nonmovant may not rest upon
mere allegations. Instead, “[t]o successfully oppose a motion for summary judgment,
the nonmoving party must come forward with specific facts demonstrating that there is
a genuine issue for trial.” Trask-Morton v. Motel 6 Operating L.P., 534 F.3d 672, 677
(7th Cir. 2008). “It is not the duty of the court to scour the record in search of evidence
to defeat a motion for summary judgment; rather, the nonmoving party bears the
responsibility of identifying the evidence upon which he relies.” Harney v. Speedway
SuperAmerica, LLC, 526 F.3d 1099, 1104 (7th Cir. 2008). When evaluating a motion for
summary judgment, the court views the record and makes all reasonable inferences in a
light most favorable to the nonmovant. Popovits, 185 F.3d at 731. If the non-moving
party cannot establish an essential element of its claim, RULE 56(a) requires entry of
summary judgment on that claim. Massey v. Johnson, 457 F.3d 711, 716 (7th Cir. 2006)
(citing Celotex, 477 U.S. at 322-23).
III.

ANALYSIS
A.

Bad faith

In Indiana, “there is a legal duty implied in all insurance contracts that the
insurer deal in good faith with its insured.” Erie Ins. Co. v. Hickman, 622 N.E.2d 515, 518
(Ind. 1993). A claim of bad faith, also called a breach of the duty of good faith, exists
when the insurer breaches this duty by denying a claim when it knows that there is no
rational, principled basis for doing so. Freidline v. Shelby Ins. Co., 774 N.E.2d 37, 40 (Ind.

27

2002). Proof of bad faith exists when there is “clear and convincing evidence6 which
establishes the insurer had knowledge that there was no legitimate basis for denying
liability.” Id. (citing Ind. Ins. Co. v. Plummer Power Mower & Tool Rental, Inc., 590 N.E.2d
1085, 1093 (Ind. Ct. App. 1992)). A finding of bad faith requires evidence of a state of
mind of “conscious wrongdoing” including “dishonest purpose, moral obliquity,
furtive design, or ill will.” See Monroe Guar. Ins. Co. v. Magwerks Corp., 829 N.E.2d 968,
977 (Ind. 2005) (internal quotation omitted); Colley v. Ind. Farmers Mut. Ins. Group, 691
N.E.2d 1259, 1261 (Ind. Ct. App. 1998) (“Poor judgment or negligence do not amount to
bad faith; the additional element of conscious wrongdoing must also be present.”).
A claim for bad faith is not generated by every erroneous denial of an insurance
claim. Hickman, 622 N.E.2d at 520. Insurers may dispute claims in good faith,
erroneously deny a claim, fail to diligently investigate a claim, or even breach a contract
without committing an act of bad faith. Id.; Allstate Ins. Co. v. Hennings, 827 N.E.2d 1244,
1250 (Ind. Ct. App. 2005). Bad faith does not exist when an insurer rests its coverage
decision upon a rational basis. Masonic Temple Ass’n of Crawfordsville v. Ind. Farmers Mut.
Ins. Co., 779 N.E.2d 21, 29-30 (Ind. Ct. Ap. 2002); Patel v. United Fire & Cas. Co.,

6

The Freidline decision states that the standard for proving a bad faith claim is
“clear and convincing evidence.” See also Sexson v. State Farm Fire & Cas. Co., 61 F. App’x
267, 271 (7th Cir. 2003). There is some possibility that the standard for proving a bad
faith claim is preponderance of the evidence and the standard for proving punitive
damages is clear and convincing evidence. See Hickman, 622 N.E.2d at 520; Donald v.
Liberty Mut. Ins. Co., 18 F.3d 474, 484 (7th Cir. 1994). However, Clifford cannot prove her
bad faith claim under either standard.
28

80 F. Supp. 2d 948, 958 (N.D. Ind. 2000); Colley, 691 N.E.2d at 1261 (insurer not liable for
bad faith if it denies liability with a rational, principled basis for doing so).
In sum, as one court has explained, “a successful bad faith claim is composed of
an objective element (such as the lack of a reasonable basis to deny a claim) and a
subjective element (such as the knowledge of the lack of a reasonable basis to deny a
claim).” Balzer v. Am. Family Ins. Co., No. 2:08-cv-241, 2011 U.S. Dist. LEXIS 32701,
at *14-16 (N.D. Ind. Mar. 28, 2011). To succeed on a bad faith claim at trial, a plaintiff
must produce evidence establishing that there was no reasonable basis to deny the
claim and that the insurer knew that there was no reasonable basis. Id. Although the
scope of the duty of good faith is not precisely defined, the Indiana Supreme Court has
identified a non-exhaustive list of actions that can constitute bad faith. See id. at 976.
These are: “(l) 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.”7 Hickman, 622
N.E.2d at 519; Monroe Guar. Ins. Co. v. Magwerks Corp., 829 N.E.2d 968 (Ind. 2005).

7

Clifford also argues that State Farm has violated Indiana’s Unfair Claims
Settlement statute, INDIANA CODE § 27-4-1-4.5. However, as State Farm points out, this
statute does not provide a private cause of action. See IND. CODE § 27-4-1-18; Hickman,
622 N.E.2d at 519 n.1; Whiles v. Allstate Ins. Co., No. 3:04-cv-134,
2005 U.S. Lexis Dist. 32523, at *11 (N.D. Ind. Sept. 9, 2005). In so far as Clifford is
arguing that actions that violate the Unfair Claims Settlement Act are bad faith actions,
the court is mindful that bad faith can exist through actions beyond those identified in
Hickman and has carefully evaluated the evidence for proof of such actions.
29

Clifford argues that State Farm has engaged in all four actions identified as
constituting bad faith by Hickman. Clifford has not pointed to any evidence that State
Farm deceived her. Clifford mentions that State Farm exercised an unfair advantage
over her by making “criminal allegations” of arson against her. (Pl.’s Mem. at 19.)
However, Clifford has not presented any evidence to support this assertion. (See id. at
12, 19.) The record shows only that State Farm stated to Clifford in person and by letter
that it was investigating her involvement in the fire and that it concluded that she was
involved in procuring the fire. Evidence that an insurer told an insured’s acquaintances
that he committed arson does not show that it used unfair pressure against him. See
Sexson, 61 F. App’x at 270-71. Accordingly, State Farm did not exercise an unfair
advantage over Clifford when it told her that it was investigating her involvement in
the arson of her house. Therefore, the court will focus on whether State Farm caused an
undue delay in making payment or made an unfounded refusal to pay on the policy.8
To begin, there is not evidence from which a jury could conclude that State Farm
caused an unfounded delay in making payment on the policy. First, State Farm was
reasonable in investigating whether it had a defense to payment based on a possibility
that Clifford procured arson of her house. See Lottie v. W. Am. Ins. Co., 248 F. App’x 734,

8

State Farm argues that Clifford’s lawsuit is not based on denial of her claim
since it was filed before her claim was denied. While this argument has merit, Clifford’s
complaint mentions refusal to pay for her loss and her summary judgment argument
focuses on denial of her claim. (See Pl.’s Mem. at 21.) Therefore, in the interest of
completeness, the court will address whether Clifford has evidence to show State
Farm’s bad faith based on its denial of her claim.
30

740 (7th Cir. 2007) (unpublished). Second, Clifford argues that State Farm was
unreasonable in continuing to investigate the possibility once it established that she
could not afford to pay an arsonist and after it did not find a canceled check showing a
payment for arson. (Pl.’s Mem. at 20.) While these are creative arguments, they do not
show that State Farm’s decision to investigate the fire further was irrational.
Further, Clifford repeatedly argues that State Farm had no basis for continuing
its investigation of her involvement in the fire, and for eventually denying her claim,
once State Farm’s investigation revealed that “Helen Clifford was not in the house and
did not start the fire.” (Id. at 24; Lucas Dep. 26, 29.) Lucas’s statements, such as the one
just quoted, show only that State Farm had concluded that Clifford herself did not light
the fire - they do not show that State Farm had ruled out her involvement in bringing
about the fire. The policy stated that it would be rendered void “[i]f you or any other
person insured under this policy causes or procures a loss to property covered under this
policy for the purpose of obtaining insurance benefits.” (State Farm Policy 7 (emphasis
added).) Further, under Indiana law an arson defense can be predicated on evidence
showing that the insured procured arson of his or her property. See Gregory’s Cont’l
Coiffures & Boutiques v. St. Paul & Marine Ins. Co., 536 F.2d 1187, 1191 (7th Cir. 1976).
Thus, contrary to Clifford’s argument, State Farm was not unreasonable in continuing
to investigate and in denying Clifford’s claim after it determined that she was not in the
house when the fire started.

31

Third, Clifford’s argument that State Farm’s requests for documents about her
financial condition were unauthorized is unavailing. Clifford argues that it was
immoral, unfair, and illegal for State Farm to consider her credit history and financial
condition when processing her claim. (Pl.’s Mem. 22, 16.) However, Clifford agreed to
provide State Farm with information needed to process her claim. Her policy with State
Farm required her to provide documents and information to State Farm as needed to
process her claim. Clifford also signed a “Request for Claim Service and Non-waiver of
Rights” form that stated that she “request(s) and authorize(s) the Company to
investigate, negotiate, settle, deny or defend” any claim arising from her loss. (Clifford
Claim File 816.) Therefore, Clifford agreed to cooperate with the investigation and State
Farm was entitled to rely upon her cooperation. Cf. Wood v. Allstate Ins. Co., 21 F.3d 741,
745 (7th Cir. 1994) (stating that cooperation clauses are clearly valid because they
“‘enable the company to possess itself of all knowledge, and all information as to other
sources and means of knowledge, in regard to facts, material to their rights, to enable
them to decide upon their obligations, and to protect them against false claims’”) (citing
Claflin v. Commonwealth Ins. Co. of Boston, Mass., 110 U.S. 81, 94-95 (1884)).
Further, as part of its investigation into the arson defense, State Farm could
reasonably look into whether Clifford would have a financial motive for procuring
arson. This is because, as explained below, an arson defense can be based on
circumstantial evidence including motive. Cincinnati Ins. Co. v. Compton,
569 N.E.2d 728, 730 (Ind. Ct. App. 1991). Clifford’s credit report revealed that she had
32

unpaid collection items of at least $8,852 against her. This information was relevant to
State Farm’s investigation of Clifford’s claim. In Wood, the Seventh Circuit discussed
that it is understandable that an insurer would request access to an insured’s income tax
returns. 21 F.3d at 747. The court explained: “Where the possibility is raised that an
insured torched her own house in order to collect on the insurance policy, the financial
condition of the insured is plausibly at issue.” Id. Accordingly, it was reasonable for
State Farm to request information related to Clifford’s financial situation. Cf. United
States v. Fakhoury, 819 F.2d 1415, 1421 (7th Cir. 1987).
Fourth, as State Farm argues, Clifford caused much of the delay in State Farm’s
handling of her claim by submitting her proof of loss well after the sixty days required
by the policy, by failing to submit the requested documents, and by rescheduling the
EUO of herself and her mother. To start, it is reasonable for an insurer to require an
insured to submit to an EUO and to provide documents related to her loss. See Morris v.
Econ. Fire & Cas., 848 N.E.2d 663, 667 (Ind. 2006). Clifford does not argue that the
manner or frequency of State Farm’s request was unreasonable. Instead she argues that
State Farm requested documents that were impossible for her to retrieve because they
were destroyed in the fire. (Pl.’s Mem. at 16.) However, Clifford has not produced any
evidence showing that the documents State Farm requested were destroyed in the fire,
or, more importantly, that State Farm was informed that the documents were
unavailable because they were burned in the fire. In fact, Clifford told State Farm’s
attorney at her EUO that she had given some of the requested documents, such as her
33

tax returns and cell phone records, to Hatfield,9 that she thought that she had given
State Farm other documents, and that she did have one type of document but it was “at
the house.” She did not state that any of the documents had been in the fire or were not
available. Given these statements from Clifford, it was reasonable for State Farm to
expect that the documents were available and to try to procure them.
Further, once State Farm made its reasonable requests of Clifford, she did not
promptly respond. Clifford did not provide the proof of loss to State Farm until
July 1, 2009, nine months after the loss, when her policy required her to submit it two
months after the loss. (Clifford Dep. 183.) Her EUO was originally scheduled for
May 12, 2009, and Clifford asked twice for the date to be extended. She did not submit
to an EUO until July 31, 2009, and there are several requested documents that she never
submitted to State Farm. Clifford brought her lawsuit against State Farm for its delay on
August 31, 2009, a month after her EUO was completed and only two months after she
submitted her proof of loss. A month delay in processing a claim after information has
been provided is not so unreasonable as to constitute bad faith. See e.g., Westers v.
Auto-Owners Ins. Co., 711 F. Supp. 947, 949-50 (S.D. Ind. 1989) (stating that an insurer
acted “promptly” when it denied a claim a little over a month after the insured’s proof
of loss was submitted). Further, as stated above, State Farm never received several of

9

In her deposition, Clifford asserted that she had given the documents to Starkes.
(Clifford Dep. 180.) However, this proposed testimony is irrelevant to Clifford’s bad
faith claim because Clifford did not give her deposition until December 14, 2009, so
State Farm did not have access to it until after it denied her claim.
34

the documents that it requested from Clifford to process her claim. (Clifford Dep. 200.)
Therefore, Clifford does not have evidence to show that State Farm caused an
unfounded delay in processing her claim.
Next, Clifford does not have evidence to show that State Farm had no rational,
principled basis for denying her claim. Both under the policy and Indiana law, State
Farm was not required to cover any loss that was caused by the insured, Clifford,
causing or procuring the loss. (State Farm Policy 7, 15.) Lottie, 248 F. App’x at 740. To
deny a claim on the basis of arson, an insurer needs to be able establish its claim of
willful burning by a preponderance of the evidence and circumstantial evidence is
sufficient to prove arson. Id. (citing Dean v. Ins. Co. of N. Am., 453 N.E.2d 1187, 1194 (Ind.
Ct. App. 1983) and Hoosier Ins. Co., Inc. v. Mangino, 419 N.E.2d 978, 986 (Ind. Ct. App.
1981)); Sexson, 61 F. App’x at 271; Palace Entm’t, Inc. v. Bituminous Cas. Corp.,
793 F.2d 842, 846 (7th Cir. 1986); Property Owners Ins. Co. v. Hack, 559 N.E.2d 396, 399 n.2
(Ind. Ct. App. 1990). This circumstantial evidence can include evidence showing
motive, opportunity, and an incendiary cause of the fire. Cincinnati Ins. Co.,
569 N.E.2d at 730; Dean, 483 N.E.2d at 1194; Sexson, 61 Fed. App’x at 271. It is important
to emphasize that for a bad faith claim, the insurer does not have to have been correct in
its conclusion that it could prove willful burning, it just has to be able to show that it
had a rational, principled basis for concluding that it could prove willful burning.
Johnny Miller Transp. & Tours, Inc. v. Great Am. Ins. Co. of N.Y., No. 4:03-cv-0124,
2005 U.S. Dist. LEXIS 5840, at *24 (S.D. Ind. Mar. 18, 2005).
35

Three opinions from the United States Court of Appeals for the Seventh Circuit
show the type of evidence that can provide a rational basis for an insurer to determine
that an insured’s loss was due to willful burning. In Lummis v. State Farm Fire & Cas. Co.,
the plaintiff, Lummis, brought claims of bad faith and breach of contract against his
insurance company for denying his claim for the total loss of his home on the basis that
it found that Lummis was “intentionally complicit in setting the fire that led to the
loss.” 469 F.3d 1098, 1099 (7th Cir. 2006). The district court granted summary judgment
on the bad faith claim and a jury subsequently found that State Farm breached the
contract by not covering the loss and granted damages to Lummis. Id.
Lummis had $1,300 a month garnished from his paycheck, he supported his
girlfriend and her three children, he had not paid his mortgage for two years, and he
received a decree of foreclosure from the mortgage a day before the fire. Id. The Seventh
Circuit considered that all investigations concluded that the fire was intentionally set, a
container with traces of kerosene and gasoline was found by the scene, the defendant
had notified Lummis that he had coverage under the policy even though his mortgage
company was paying his premiums and when Lummis reported his loss to State Farm
he seemed “nonchalant and cavalier.” The Seventh Circuit explained:
Add to this the fact (1) that Lummis had a potential financial benefit in
collecting something under the policy; (2) that he was in a financial pinch;
(3) that he and Howe purchased gasoline the morning of the fire; (4) that
Howe removed her dog from the house before it burned down; and
(5) that the fire occurred one day after the foreclosure proceeding, and
State Farm’s position, as a matter of law, simply can’t be viewed as
unreasonable or motivated by ill will.
36

Id. at 1100. The Seventh Circuit affirmed the trial court’s grant of summary judgment on
the bad faith claim because it found that the evidence showed that “no reasonable jury
could find that State Farm denied Lummis’s claim knowing there was no rational,
principled basis for believing that” Lummis was involved in setting the fire. Id.
Similarly, in Sexson, the Seventh Circuit determined that the insurer had a
genuine good faith dispute about whether the plaintiff, Sexson, intentionally caused the
loss of his property by fire and affirmed the district court’s grant of summary judgment
on the Sexson’s bad faith claim even though a jury had found that the insurer breached
the contract by not covering the loss. 61 F. App’x at 271. The insurer argued that it had
evidence of Sexson’s motive and opportunity to set the fire in that Sexson had been
trying to sell the property for a year, he was the only person with a key to the property
and the last person to leave it and lock it up, he called the electric company to turn on
the electricity which lead to the fire, and the fire department determined that the fire
was incendiary. Id. at 271. The Seventh Circuit found that in light of the information the
insurer had, Sexson had not shown by clear and convincing evidence that the insurer
had no legitimate basis for denying his claim. Id.
In Lottie, the Seventh Circuit found that an insurance company had produced
sufficient evidence to support an arson defense. 248 F. App’x at 740. There, the plaintiff
lived in California and his brother took care of his property in Indiana. Id. The Seventh
Circuit found that the following evidence supported an arson defense: 1) the insurance
adjuster, a special investigator for the insurer, and a fire expert all testified that the fire
37

was intentionally set; 2) Lottie had “some financial difficulties” including $180,000 of
debt and the fact that the two lost properties had needed to pass government inspection
before they could be leased again; 3) Lottie’s brother was the caretaker for the property
and had a key to the property; and 4) Lottie’s brother was in the vicinity of both fires
when they started. Id. All of these cases are instructive as to the question of whether
circumstances existed from which State Farm could conclude in good faith both that an
arson investigation and denial of the claim were warranted.
In this case, it is undisputed that State Farm was aware of the following
circumstantial evidence that Clifford procured the fire: 1) she had a potential financial
benefit from recovering under the policy; 2) she was in a difficult financial situation
supporting two children with no savings and with bills in collection; 3) all three fire
investigations, including one commissioned by Clifford and one completed by the
Indiana State Fire Marshal, concluded that the fire was set intentionally; 4) a red
container was found in the house; 5) an impartial eye witness saw a man who looked
like Clifford’s good friend, who was with her right before the fire started, at the scene;
6) the same eye witness saw a van that looked like Clifford’s mother’s maroon van with
two women in it stop and pick up the man; 7) Clifford stated that she was sitting alone
in her car in her work parking lot at the time the eye witness saw two women picking
up a man that looked like Hovis 8) Clifford’s former attorney, Starkes, told State Farm
that they thought Hovis started the fire; 9) there was no sign of forced entry and only
Clifford and her mother had keys to the house; 10) Clifford and her children had not
38

been staying at the house for four nights before the fire; 11) Clifford paid her September
and October premiums five days before the fire and if she had not done so her policy
would have lapsed; and 12) Deputy Grandstaff told State Farm that shortly before the
fire Grace Clifford had asked him about financing or refinancing Clifford’s house. This
evidence provided State Farm with a rational, principled basis to deny her claim. See
Westers, 711 F. Supp. at 947-49 (finding that there was sufficient circumstantial evidence
to support the insurer’s suspicion of arson when the insurer’s investigator found that
the fire was incendiary (even though the Fire Marshal deemed it accidental) and the
insured had a poor financial condition as shown by the facts that he lost his job, his
utilities were shut off for lack of payment, and he failed to make a home payment).
State Farm’s reading of this evidence does not have to be accurate, it just cannot
be irrational. Lummis, 469 F.3d at 1100. Clifford’s financial situation was not as dire as
that of the plaintiff in Lummis, but it was still strained and could reasonably be seen to
have provided her with a motive to procure arson. She had bills in collection, her gas
had been shut off and she was only able to restore it with help from her church, and the
amount of her set bills, without consideration to food or clothing, was close to her
monthly income. Given the impartial witness’s testimony placing Hovis and Clifford at
the scene of the fire immediately after it started, the findings of the three fire
investigations, Starkes’ statement to State Farm that he believed Hovis started the fire,
and Clifford’s financial situation, State Farm had a great deal of information from which
it could reasonably conclude that an arson investigation was warranted.
39

Clifford’s challenges to the evidence State Farm relied upon do not show that its
decision was irrational. Clifford attempts to cast doubt on Scholz’s account by pointing
out that in her statement to Lucas, Scholz said that the fire started on a different road
than the one on which Clifford’s house was located and that she viewed part of the
scene through her rearview mirror. (Pl.’s Mem. 5.) She also contends that Lucas “led Ms.
Scholz through the factual scenario” and that Scholz agreed that the man’s hair was
black after leading. (Id. at 6.) These arguments are insufficient to render reliance on
Scholz’ statement irrational. She stated that she saw the man and the maroon van close
to the scene of the fire and she told State Farm that Hovis looked like the man she saw.
Additionally, Clifford has presented some evidence that she had electrical
problems with the fan in her house and that Deputy Grandstaff initially thought that
the fire could have been electrical. She also stated at her EUO that the red plastic
container was at the house to provide fuel for her riding lawn mower. Assuming that
the red plastic container had nothing to do with the fire loss, there was still ample
evidence supporting the conclusion of all three investigations that the fire was
intentionally set. While Clifford thought the fire might have been electrical, she has not
presented any evidence disputing the State Fire Marshal’s and Shand’s conclusions that
all accidental causes of the fire were ruled out and that the fire was intentionally set
because the fire went downstairs, there were demarcations indicating a liquid
accelerant, and the temperature of the fire indicated a liquid accelerant. In sum, Clifford
does not have evidence from which a reasonable jury could conclude that States Farm
40

lacked a rational, principled basis for delaying her claim and for denying payment so
her bad faith claim cannot survive summary judgment. Lummis, 469 F.3d at 1100.
Furthermore, there is no evidence that State Farm committed bad faith through
some action other than the four identified in Hickman. To show bad faith, Clifford has to
show “the additional element of conscious wrongdoing” or a “culpable mental state” on
the part of State Farm. Sexson, 61 F. App’x at 271 (citing Colley, 691 N.E.2d at 1261). At
her deposition, Clifford only identified one possible instance of bad treatment from
State Farm - an instance in which Lucas hung up on her. Clifford said it was possible
that Lucas had called her back immediately and left her a voice mail message. Clifford
does not identify any consequence that resulted from the phone being hung up. Even if
Lucas hung up on Clifford and did not call her back, this conduct alone does not rise to
the level of fraud, gross negligence, or oppressiveness. Clifford stated that Lucas hung
up on her before she hired Starkes in mid-November 2008. There is ample evidence that
State Farm continued to communicate with Clifford after that time, through her
attorneys, about her claim. Clifford also stated in her deposition that she could not
recall other instances in which State Farm treated her poorly. Thus, Clifford does not
have evidence that State Farm handled her claim with conscious wrongdoing, dishonest
purpose, moral obliquity, furtive design, or ill will, so her claim for bad faith will be
dismissed.
B.

Punitive damages

41

As explained above, Clifford’s tort claim for bad faith will be dismissed.
Clifford’s remaining claim is for breach of contract and punitive damages cannot be
awarded under a breach of contract action. Allstate Ins. Co. v. Hennings, 827 N.E.2d 1244,
1250 (Ind. Ct. App. 2005). Even more, punitive damages are only appropriate when an
insurer has acted with “malice, fraud, gross negligence, or oppressiveness which was
not the result of a mistake of fact or law, honest error or judgment, overzealousness,
mere negligence, or other human failing.” Id. Malice or oppressive conduct can be
inferred when an insurance company has no reasonable grounds for denying liability.
Mangino, 419 N.E.2d at 983. Clifford argues that State Farm’s denial letter constituted
fraud or gross negligence because it indicated that Clifford procured arson of her
property. (Pl.’s Resp. Br. at 21.) However, as discussed above, State Farm had a rational
basis for investigating and finding that Clifford procured arson of her property so these
actions cannot provide a basis for a finding of bad faith. Colley, 691 N.E.2d at 1261;
Malone v. ReliaStar Life Ins. Co., 558 F.3d 683, 695 (7th Cir. 2009). Further, Clifford does
not have clear and convincing evidence of any other act from which a jury could find
that State Farm acted with malice, fraud, gross negligence, or oppressiveness.
C.

Attorney Fees

Clifford argues that she may be able to recover attorney fees under INDIANA
CODE § 34-52-1-1(b)(3) that allows attorney fees if a party litigated an action in bad faith.
(Pl.’s Mem. at 29.) Clifford argues that a denial of coverage in bad faith can lead to a
finding that an insurer litigated an action in bad faith. (Id. (citing Patel v. United Fire &
42

Cas. Co., 80 F. Supp. 2d 948, 963 (N.D. Ind. 2000)).) As explained above, this court has
determined that Clifford does not have evidence showing that State Farm denied her
claim in bad faith. She has also not produced other evidence that State Farm litigated
this action in bad faith. Thus, State Farm’s motion for summary judgment on Clifford’s
claim for attorney fees will be granted.
IV.

CONCLUSION
For the foregoing reasons State Farm’s motion for partial summary judgment

(DE # 10) is GRANTED. Clifford’s claims of bad faith, failure to act in good faith,
punitive damages, and attorney fees are DISMISSED. The case will proceed on
Clifford’s claim for breach of contract.
SO ORDERED.
Date: June 7, 2011
s/James T. Moody________________
JUDGE JAMES T. MOODY
UNITED STATES DISTRICT COURT