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National Athletic Sportswear, Inc. v. West Field Insurance Co.

June 10, 2008

NATIONAL ATHLETIC SPORTSWEAR, INCORPORATED, PLAINTIFF-APPELLANT,
v.
WEST FIELD INSURANCE COMPANY, DEFENDANT-APPELLEE.



Appeal from the United States District Court for the Northern District of Indiana, Fort Wayne Division. No. 06 C 354-Theresa L. Spring mann, Judge.

The opinion of the court was delivered by: Bauer, Circuit Judge.

ARGUED MAY 30, 2008

Before BAUER, RIPPLE and WOOD, Circuit Judges.

In October of 2006, National Athletic Sportswear Company ("NAS") filed a complaint against Westfield Insurance Company in Indiana state court, alleging that Westfield breached an insurance contract by refusing to pay NAS's losses resulting from a burglary of its premises. Additionally, NAS complained that Westfield's efforts to settle the claim were in bad faith. Westfield removed the case to federal court, and filed an answer, as well as a counterclaim seeking a declaratory judgment that NAS failed to comply with the terms of the Examination Under Oath ("EUO") provision in the policy, because NAS refused to submit to Westfield's request for a second EUO. Subsequently, Westfield moved for summary judgment. The district court granted the motion, concluding that it was not unreasonable for Westfield to require a second EUO, therefore NAS breached the contract by failing to comply with the terms and conditions of the policy, and that Westfield did not breach its good faith duty.

NAS objects to the district court's findings and further argues that material issues of fact existed as to both claims. Because the district court issued a thorough*fn1 and well-reasoned opinion and order that does not contain any error, we adopt the district court's opinion and order dated November 5, 2007, as our own and AFFIRM the judgment of the lower court on all counts. A copy of the district court's November 5, 2007 opinion and order is attached and incorporated herein.

UNITED STATES DISTRICT COURT NORTHERN DISTRICT OF INDIANA FORT WAYNE DIVISION

NATIONAL ATHLETIC SPORTSWEAR, INC., Plaintiff, v. WESTFIELD INSURANCE COMPANY, Defendant.

CAUSE No. 1:06-CV-354-TS

OPINION AND ORDER

This insurance contract action is before the Court on Defendant's Motion for Summary Judgment (DE 14). The heart of this case, and the key to resolution of the parties' accusations of breach of contract, is the legal effect of a provision in the insurance contract requiring the insured to participate in an Examination Under Oath ("EUO") at the request of the insurance company. Also at issue is the parties' conduct throughout the claims process in the context of the Plaintiff's breach of contract claim and the Plaintiff's claim that the Defendant breached the duty of good faith.

BACKGROUND

On October 4, 2006, National Athletic Sportswear, Inc., the Plaintiff in this action, filed a lawsuit against Westfield Insurance Company, the Defendant in this action, in Allen County Superior Court. The Complaint has two counts. Count One is for breach of contract and accuses the Defendant of breaching its contractual obligation by not paying the Plaintiff's claimed losses, amounting to $386,299.38. Count Two is for bad faith claim settlement practices, or what Indiana law would call the breach of the duty of good faith. The allegations underlying this claim are that the Defendant: failed to acknowledge the Plaintiff's communications and act promptly on them; failed to affirm or deny coverage of the claims in a reasonable amount of time after the Plaintiff submitted proof of loss statements; did not attempt in good faith to effectuate prompt, fair, and equitable settlement of the Plaintiff's claim; compelled the Plaintiff to file suit to recover money due under the insurance policy by offering substantially less than the amount the Plaintiff is entitled to; required an employee of the Plaintiff to submit to an EUO for eight hours and then requested more time to continue the EUO; ignored information from its own expert about the value of the Plaintiff's claim; and, harassed the Plaintiff's employees with numerous requests for documents and statements under oath and then, after the Plaintiff complied, failed to acknowledge or respond to the Plaintiff's claim in a prompt manner. This claim of bad faith seeks punitive damages.

The Defendant removed the case to this Court on November 1, 2006, under 28 U.S.C. § 1441(a). On January 10, 2007, the Defendant filed an Answer to the Complaint (DE 12) raising several defenses. On the same date, the Defendant filed a Counterclaim (DE 12) alleging the Plaintiff failed to comply with terms of the contract, including the EUO provision. The Counterclaim sought declaratory judgment that the Plaintiff's recovery under the contract was limited or barred. On February 10, 2007, the Defendant filed a Motion for Summary Judgment (DE 14) on the Plaintiff's two claims. The Motion has two main arguments: first, that the Defendant was relieved of its duty to pay the Plaintiff because the Plaintiff violated the insurance contract by not submitting to the second EUO, or the rest of the EUO; and second, that the Defendant did not act in bad faith as a matter of law because it merely exercised its contractual rights under the policy. The Motion did not seek summary judgment on the Defendant's Counterclaim. The Plaintiff filed a Response on March 15, 2007 (DE 17). The Defendant filed a Reply (DE 21) on April 2, 2007.

JURISDICTION AND LEGAL STANDARD

The Court has subject matter jurisdiction over this diversity action under 28 U.S.C. § 1332(a), (c)(1).*fn2

The Federal Rules of Civil Procedure mandate that motions for summary judgment be granted "if the pleadings, depositions, answers to interrogatories, and admissions on file, together with the affidavits, if any, show that there is no genuine issue as to any material fact and that the moving party is entitled to a judgment as a matter of law." Fed. R. Civ. P. 56(c). "In other words, the record must reveal that no reasonable jury could find for the nonmoving party." Dempsey v. Atchison, Topeka, & Santa Fe Ry. Co., 16 F.3d 832, 836 (7th Cir. 1994) (quotations and citations omitted). Rule 56(c) further requires the entry of summary judgment, after adequate time for discovery, against a party "who fails to make a showing sufficient to establish the existence of an element essential to that party's case, and on which that party will bear the burden of proof at trial." Celotex Corp. v. Catrett, 477 U.S. 317, 322 (1986).

In viewing the facts presented on a motion for summary judgment, a court must construe all facts in a light most favorable to the non-moving party and draw all legitimate inferences and resolve all doubts in favor of that party. NLFC, Inc. v. Devcom Mid-Am., Inc., 45 F.3d 231, 234 (7th Cir. 1995); Doe v. R.R. Donnelley & Sons Co., 42 F.3d 439, 443 (7th Cir. 1994); Beraha v. Baxter Health Care Corp., 956 F.2d 1436, 1440 (7th Cir. 1992). A court's role is not to evaluate the weight of the evidence, to judge the credibility of witnesses, or to determine the truth of the matter, but instead to determine whether there is a genuine issue of triable fact. Anderson, 477 U.S. at 249--50; Doe, 42 F.3d at 443.

In deciding to what insurance coverage, if any, the Plaintiff is entitled, the Court must apply Indiana law for contract interpretation. Allstate Ins. Co. v. Keca, 368 F.3d 793, 796 (7th Cir. 2004) ("A federal court sitting in diversity has the obligation to apply the law of the state as it believes the highest court of the state would apply it if presented with the issue."). "Generally, the interpretation of an insurance policy presents a question of law and is thus appropriate for summary judgment." Morris v. Econ. Fire & Cas. Co., 848 N.E.2d 663, 665--66 (Ind. 2006) (citing Colonial Penn Ins. Co. v. Guzorek, 690 N.E.2d 664, 667 (Ind.1997)). An insurance contract "is subject to the same rules of interpretation as are other contracts." Id. at 666 (citing USA Life One Ins. Co. of Ind. v. Nuckolls, 682 N.E.2d 534, 537--38 (Ind.1997)). "If the language in the insurance policy is clear and unambiguous, then it should be given its plain and ordinary meaning, but if the language is ambiguous, the insurance contract should be strictly construed against the insurance company." Id.

MATERIAL FACTS

Construing all facts in a light most favorable to the Plaintiff, and drawing all legitimate inferences in favor of the Plaintiff, the following facts are assumed true for the purposes of summary judgment.

A. Chronology of Events

The Plaintiff, National Athletic Sportswear, Inc., ("NAS"), is an Indiana corporation with its principal place of business in Allen County. It is engaged in the business of making designs and embroidering them onto apparel for universities, colleges, stores, and manufacturers of clothing. On August 11 or 12, 2005, someone broke into the Plaintiff's premises through the rear door and stole computer equipment and other items, including a computerized embroidery designs library.

The Plaintiff had an insurance contract, effective from February 19, 2005, to February 19, 2006, with the Defendant, Westfield Insurance Company ("Westfield"), an Ohio corporation that is doing business in Indiana and has its principal place of business in Ohio. The Defendant provided $777,500 in coverage for losses to the Plaintiff's "Business Personal Property" under the contract's "Businessowners Special Property Coverage Form." The insurance also provided coverage for other areas, such as building damage and business liability. Importantly for this case, the insurance contract also contained a provision that required the insured to submit to an examination under oath ("EUO") by the Defendant regarding a claim. The provision is on page 14 under E. Property Loss Conditions, 3. Duties In The Event of Loss or Damage, b. It states:

We may examine any insured under oath, while not in the presence of any other insured and at such times as may be reasonably required, about any matter relating to this insurance or the claim, including an insured's books and records. (DE 16-3, 3; Def. Desig. of Mat. Evid., Ex A-2, 3.) Under E.4., Legal Action Against Us, the contract states: "No one may bring a legal action against us under this insurance unless: a. There has been ...


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