Patel v. United Fire & Cas. Co., 1:98:CV-0323.

• Decision Date: 25 January 2000
• Docket Number: No. 1:98:CV-0323.,1:98:CV-0323.
• Citation: 80 F.Supp.2d 948
• Parties: Mahendra D. PATEL and Nila Patel, Plaintiffs, v. UNITED FIRE & CASUALTY COMPANY and Commercial Union Midwest Insurance Company, Defendants.
• Court: U.S. District Court — Northern District of Indiana

80 F.Supp.2d 948

Mahendra D. PATEL and Nila Patel, Plaintiffs, v. UNITED FIRE & CASUALTY COMPANY and Commercial Union Midwest Insurance Company, Defendants.

No. 1:98:CV-0323.

United States District Court, N.D. Indiana, Fort Wayne Division.

January 25, 2000.

COPYRIGHT MATERIAL OMITTED

John F. Lyons, Barrett and McNagny, Fort Wayne, IN, for John F. Lyons, mediator.

Jack E. Roebel, Roebel and Associates, Fort Wayne, IN, Leonard E. Eilbacher, Eilbacher Scott Inc., Fort Wayne, IN for Mahendra D. Patel, plaintiff.

Robert T. Keen, Jr., Calvert S. Miller, Miller Carson Boxberger and Murphy, Fort Wayne, IN, for United Fire & Casualty Company, defendant.

John S. Beeman, Jeffrey R. Oberlies, Leeuw and Doyle, Indianapolis, IN, Patricia J. Pikel, Swift & Finlayson, Fort Wayne, IN, for Commercial Union Midwest Insurance Company, defendant.

MEMORANDUM OF DECISION AND ORDER

WILLIAM C. LEE, Chief Judge.

After their restaurant was destroyed in a fire, Plaintiffs, Mahendra D. Patel and Nila Patel ("the Patels") claimed insurance coverage through the two defendants, United Fire and Casualty Company ("United Fire") and Commercial Union Midwest Insurance Company ("Commercial Union"). When coverage was denied from both sources, the Patels brought this diversity action alleging that United Fire and Commercial Union had each breached their insurance contracts and denied them coverage in bad faith. On August 16, 1999, Commercial Union was dismissed from this case and United Fire remains as the sole defendant.

Before the Court are numerous motions including United Fire's Motions for Partial Summary Judgment, filed on September 1, 1999 and October 15, 1999; Plaintiffs' Motion to Reconsider this court's August 27, 1999 Order; and Plaintiffs' Motion to Certify Questions of State Law, both filed on September 13, 1999. These motions, for the most part, relate to the Patels' claims for emotional damages, consequential damages (such as lost profits), and attorney's fees resulting from United Fire's conduct. In addition to these motions, on January 3, 2000, United Fire filed Motion to Strike portions of the Affidavit of Mahendra Patel. Following this barrage of motions, this court held a status conference on January 12, 2000 and directed United Fire to file a motion in limine, to the extent that it asserted Patel was not a competent witness to testify about his own lost profit damages Given this instruction, the court informed the parties that it would enter an order on all pending motions save United Fire's Motion for Partial Summary Judgment relating to lost profits. This order addresses those pending motions.

For the reasons that follow, the Court will DENY the Patels' Motion for Reconsideration; DENY the Patels' Motion to Certify Questions of State Law; DENY United Fire's Motion for Partial Summary Judgment relating to emotional damages, and DENY United Fire's Motion for Partial Summary Judgment relating to attorney fees. The Court shall hold under advisement United Fire's Motion for Partial Summary Judgment relating to lost profits and United Fire's Motion to Strike the Affidavit of Mahendra Patel.

FACTUAL BACKGROUND

Given that the parties agree that the issues before the court are purely legal ones, only minimal background facts are necessary. The Patels are joint owners of a commercial building utilized as a motel and restaurant in Fort Wayne, Indiana.¹ In the early morning of September 29, 1997, the Patels' restaurant was destroyed by fire, indisputably the result of arson. At the time of the fire, the Patels were the named insureds on a policy issued by United Fire, insuring their motel and restaurant against loss by fire. Additionally, the tenant/operator of the restaurant/motel (Steinhaus) also carried insurance on the premises through its casualty insurance carrier, Commercial Union. After an investigation by the two insurance carriers spanning the course of a year, United Fire notified Mr. Patel, via letter, that it was denying his claim because it believed he (and presumably Mrs. Patel) had intentionally set the restaurant ablaze in violation of the fraud and arson provisions of their policy. United Fire offered the Patels no factual basis for this conclusion.

Subsequently, the Patels initiated the present action wherein they sued United Fire for breach of contract and for breach of its duty of good faith and fair dealing. While this action was pending, the Fort Wayne Police Department arrested an individual on an unrelated arson charge. While in custody, this individual promptly confessed to setting the fire that destroyed the Patels' restaurant. Thereafter, in June 1999, United paid plaintiffs' claim for losses covered under the policy along with interest but refused to pay any consequential damages attributable to the delay in paying the claim or any damages for alleged bad faith.

In this lawsuit, the Patels seek damages for breach of the insurance contract, and for United Fire's alleged bad faith, including consequential damages, emotional damages, punitive damages, and attorney's fees.

APPLICABLE STANDARD

This court has previously articulated to the parties in this case the appropriate standard to be applied on summary judgment and need not enlarge this opinion further by reiterating it herein. See Court's August 27, 1999 Order, pp. 2-3. Cognizant of these standards and recognizing that summary judgment is only appropriate by the very terms of Rule 56(c) where there exists "no genuine issue as to any material facts and ... the moving party is entitled to judgment as a matter of law," the Court now turns to arguments advanced by the parties in the pending motions.

DISCUSSION²

More than seven years ago, the Indiana Supreme Court, in Erie Ins. Co. v. Hickman, 622 N.E.2d 515, 520 (Ind.1993), recognized the special relationship between an insurer and the insured and the right of an insured to bring suit, in tort, against an insurer for breach of its duty to act in good faith and deal fairly with an insured. Since the Indiana Supreme Court's decision in Erie, much has been written about the conduct which leads to an insurer's liability for breach of this duty. See First-mark Standard Life Insurance Company v. Goss, 699 N.E.2d 689 (Ind.App.1998); Colley v. Indiana Farmers Mutual Insurance Group, 691 N.E.2d 1259 (Ind.App. 1998); Johnston v. State Farm Mutual Auto. Ins., 667 N.E.2d 802 (Ind.App.1996). Indeed, this court has had recent occasion to examine the subject extensively. See Enright v. Auto-Owners Ins. Co., 2 F.Supp.2d 1072 (N.D.Ind.1998); United Capitol Ins. Co. v. Special Trucks, Inc., 918 F.Supp. 1250 (N.D.Ind.1996).³ The issues before the court in the present case, however, do not involve whether United Fire's conduct is a breach of the duty, as this will be determined by the trier of fact. Rather, the issues presented are purely damage questions and, for purposes of these motions, the parties assume liability on the part of the insurer.

Before analyzing the particular damages sought by the plaintiffs here, the court acknowledges that both the Indiana Supreme Court, and at least one Indiana appellate panel, have expressly refused to consider the issue of what damages a plaintiff in a bad-faith insurance claim is entitled, see Erie, 622 N.E.2d at 519 ("Neither do we need to decide the precise nature and extent of damages recoverable in such an action."); Goss, 699 N.E.2d at 696 ("... [L]ike our supreme court in Erie, we leave for another day the determination of the precise nature and extent of damages recoverable in such an action."), and thus this court is left with a relatively uncharted sea within which to decide the question posed today.⁴

After the pronouncement in Erie Insurance, an insured who believes an insurance claim has been wrongly denied has two distinct legal theories available, one for breach of the insurance contract and one in tort for breach of the duty of good faith and fair dealing. Erie Ins. Co. v. Hickman, 622 N.E.2d 515, 520 (Ind.1993). In this case, the Patels invoked both and seek the following damages:

1. ... damages in the nature of loss of rents from the restaurant building which was destroyed in the subject fire, for that period of delay in the payment of the coverages, but not including the period of reconstruction of the restaurant.

2. ... loss of rental income from [Plaintiffs'] motel operation, which can be proved to have been directly caused by the delay in reconstruction of the motel. For example, plaintiffs had an agreement with the Norfolk & Western Railroad to house their transient train crews, which amounted to 8-10 rooms per night. Norfolk & Western terminated the arrangement, when the on-premises restaurant was lost by fire. Plaintiffs have been unable to restore the restaurant and the former arrangement because of the delay in the settlement of the insurance claim.

3. ... damages for the unavailability of a restaurant during the "delay" period for deprivation of the opportunity sell [sic] the motel and restaurant. At the time of the fire there were ongoing negotiations for sale of the motel and the restaurant. The loss of interest income on the profit in such a sale is readily calculable.

4. ... compensatory damages for emotional and physical stress as a result of the tortious bad-faith adjusting practices of United, including having been accused of being felons in the written denial of their fire claim, and the deprivation of the insurance proceeds.

5. ... attorneys fees

On August 27, 1999, this court, in ruling on United Fire's [First] Motion for Partial Summary Judgment, denied the Patels the right to recover items # 1 through # 3 on their breach of contract claim but left open the possibility that such items would be recoverable at trial on their claim for breach of the insurer's duty of good faith and fair dealing. See August 27, 1999 Order, pp. 9-12. Plaintiffs now request reconsideration of that order and certification of that question to the ...