Travelers Indem. Co. v. Johnson

Decision Date18 February 2020
Docket NumberCAUSE NO.: 4:17-CV-86-TLS-JEM
Citation440 F.Supp.3d 980
Parties The TRAVELERS INDEMNITY COMPANY, Plaintiff, v. Brittany M. JOHNSON, Defendant. Brittany M. Johnson, Counter-Claimant, v. The Travelers Indemnity Company, Counter-Defendant.
CourtU.S. District Court — Northern District of Indiana

Brian E. Devilling, PHV, Pro Hac Vice, Matthew S. Ponzi, PHV, Pro Hac Vice, Alexander J. Bialk, PHV, Pro Hac Vice, James B. Glennon, Foran Glennon Palandech Ponzi & Rudloff PC, Chicago, IL, for Plaintiff and Counter Defendant.

Timothy S Schafer, Timothy S. Schafer, II, Todd S. Schafer, Schafer and Schafer LLP, Merrillville, IN, for Defendant and Counter-Claimant.



This matter is before the Court on Travelers' Motion to Dismiss Count II and to Strike Portions of Counts I and III [ECF No. 24 ], filed on January 18, 2018. In relevant part, Travelers argues that an insurance provider, under Indiana law, does not breach the obligation of good faith and fair dealing that it owes to its insured when it merely acts negligently. The Court agrees with this argument. As such, for the reasons stated below, Travelers' Motion to Dismiss is GRANTED.


On April 27, 2008, Brittany M. Johnson was injured in a vehicular collision involving a semi-truck. See Def.'s Countercl., p. 10, ECF No. 19. Kimiel Horn was the operator of the truck, and he was employed by Sandberg Trucking, Inc. Id. at 9. Both Horn and Sandberg Trucking were insured by the Travelers Indemnity Company (Travelers). Id. As a result of the collision, Johnson suffered serious injuries such as severe traumatic brain injury

, multiple skull fractures, multiple fractured ribs, scarring across her forehead, and deafness in her left ear. Id. at 11. John Pinckney, an expert with significant experience in truck safety, later issued an affidavit in which he concluded that Horn's actions caused or substantially contributed to the crash. Id. at 12. Various doctors also prepared written reports which detailed the serious injuries that Johnson suffered. Id.

Following the crash, Johnson sued both Horn and Sandberg Trucking in state court. Id. Upon filing suit, Travelers took exclusive possession and control of the defense and all settlement negotiations. Id. On numerous occasions during the state court litigation, Johnson requested that Travelers pay its $1,000,000 policy limit in exchange for Horn's full release from liability. Id. at 13. In every instance, Travelers rejected Johnson's demand and exposed its insured, Horn, to an excess verdict. Id. Throughout the negotiation process, Travelers responded with offers ranging from $75,000 to $150,000—all of which were rejected by Johnson. Id. at 14. Ultimately, the case proceeded to trial in February 2016, and a jury returned a $7,100,000 verdict in favor of Johnson. Id. at 15. Horn was responsible for $2,130,000 of the verdict. Id. On October 13, 2017, Horn assigned to Johnson his right to sue Travelers. Id. at 16.

On November 2, 2017, Travelers filed a Complaint for Declaratory Judgement [ECF No. 1 ] against Johnson in this Court, alleging that it should be relieved of any future responsibility because it had paid Johnson the full amount of the insurance policy and statutory interest. Compl. for Declaratory J. ¶ 21. On December 21, 2017, Johnson filed an Answer and Counterclaim [ECF No. 19 ]. Johnson responded that Travelers' request for declaratory judgment should be denied and brought counterclaims alleging declaratory judgment (Count I), negligent failure to settle (Count II), bad faith failure to settle (Count III), and breach of contract (Count IV). Answer and Countercl. at 9–18.

On January 18, 2018, Travelers filed the instant Motion to Dismiss in relation to the Counterclaim, seeking to dismiss Count II in its entirety and to dismiss Counts I and III to the extent that Counts I and III are based upon negligence. Travelers does not seek to dismiss Count IV of the Counterclaim. This Motion is fully briefed and ripe for ruling.


"A Rule 12(b)(6) motion challenges the sufficiency of the complaint itself." Bonnstetter v. City of Chicago , 811 F.3d 969, 973 (7th Cir. 2016). "To survive a motion to dismiss under Rule 12(b)(6), the [counterclaim] must provide enough factual information to ‘state a claim to relief that is plausible on its face’ and ‘raise a right to relief above the speculative level.’ " Camasta v. Jos. A. Banks Clothiers, Inc. , 761 F.3d 732, 736 (7th Cir. 2014) (quoting Bell Atl. Corp. v. Twombly , 550 U.S. 544, 555, 127 S.Ct. 1955, 167 L.Ed.2d 929 (2007) ). The Court presumes that all well-pleaded allegations are true, views these well-pleaded allegations in the light most favorable to the plaintiff, and accepts as true all reasonable inferences that may be drawn from the allegations. Reynolds v. CB Sports Bar, Inc. , 623 F.3d 1143, 1146 (7th Cir. 2010). "While a [counterclaim] attacked by a Rule 12(b)(6) motion to dismiss does not need detailed factual allegations, a [counterclaimant's] obligation to provide the grounds of [her] entitlement to relief requires more than labels and conclusions, and a formulaic recitation of the elements of a cause of action will not do." Bonnstetter , 811 F.3d at 973 (quoting Twombly , 550 U.S. at 555, 127 S.Ct. 1955 ).


Travelers argues that, under Indiana law, an insurance provider does not breach the obligation of good faith and fair dealing that it owes to its insured when it merely acts negligently. In support of this argument, Travelers relies on Erie Insurance Co. v. Hickman by Smith , 622 N.E.2d 515, 517 (Ind. 1993) and the body of caselaw arising from it. In contrast, relying upon Anderson v. St. Paul Mercury Indemnity Co ., 340 F.2d 406, 407 (7th Cir. 1965), Johnson argues that an insurance provider breaches the obligation of good faith and fair dealing that it owes to its insured when it either acts negligently or in bad faith.1 For the reasons stated below, the Court concludes as a matter of Indiana law that an insurance provider does not breach the obligation of good faith and fair dealing that it owes to its insured when it merely acts negligently. As such, Travelers' Motion to Dismiss is granted.

A. Controlling Law in Diversity Cases

When resolution of an issue depends upon state law, courts must apply the law that would be applied by the state supreme court. Goetzke v. Ferro Corp. , 280 F.3d 766, 773 (7th Cir. 2002). When an issue of state law has not been addressed by the state supreme court, a federal court sitting in diversity must deduce, as closely as possible, how the state supreme court would rule. Hinc v. Lime-O-Sol Co. , 382 F.3d 716, 720 (7th Cir. 2004) (citing Allstate Ins. Co. v. Menards, Inc. , 285 F.3d 630, 636–37 (7th Cir. 2002) ). "If the state supreme court has not spoken on a particular issue, then decisions of the intermediate appellate court will control ‘unless there are persuasive indications that the state supreme court would decide the issue differently.’ " BMD Contractors, Inc. v. Fid. and Deposit Co. of Md. , 679 F.3d 643, 648 (7th Cir. 2012) (quoting Research Sys. Corp. v. IPSOS Publicité , 276 F.3d 914, 925 (7th Cir. 2002) ); see also S. Ill. Riverboat Casino Cruises, Inc. v. Triangle Insulation and Sheet Metal Co. , 302 F.3d 667, 674 (7th Cir. 2002). Finally, if there are no directly applicable decisions, then a court may consult relevant state precedents, analogous decisions, considered dicta, academic works, and any other reliable source that would indicate how the state supreme court would rule. BMD Contractors , 679 F.3d at 648. However, when the United States Court of Appeals for the Seventh Circuit has addressed an issue of state law, a district court is bound by the following framework:

In a hierarchical system, decisions of a superior court are authoritative on inferior courts. Just as the court of appeals must follow decisions of the Supreme Court whether or not we agree with them, so district judges must follow the decisions of this court whether or not they agree. A decision by a state's supreme court terminates the authoritative force of our decisions interpreting state law, for under Erie our task in diversity litigation is to predict what the state's highest court will do. Once the state's highest court acts, the need for prediction is past. But decisions of intermediate state courts lack similar force; they, too, are just prognostications. They could in principle persuade us to reconsider and overrule our precedent; assuredly they do not themselves liberate district judges from the force of our decisions.

Reiser v. Residential Funding Corp. , 380 F.3d 1027, 1029 (7th Cir. 2004) (internal citations omitted).

B. History of the Duty of an Insurer to Deal with its Insured in Good Faith

Turning to Indiana law, this Court's analysis begins with Flint & Walling Manufacturing Co. v. Beckett , 167 Ind. 491, 79 N.E. 503, 504 (1906), in which the owner of a barn brought an "action to recover damages for an injury to his barn and the contents thereof, owing to the fact that [defendant] constructed a windmill thereon in such an insufficient manner that it fell." The complaint was based upon a theory of negligence. See id. at 504–05. On appeal, the defendant argued that the plaintiff's cause of action "could only be enforced by an action on the contract for a breach thereof." Id. at 505. The Indiana Supreme Court disagreed, concluding that the plaintiff's cause of action could arise both under a theory of contract law or tort law. Id.

In Anderson , in 1965, the Seventh Circuit Court of Appeals relied on the holding in Flint & Walling Manufacturing Co. In Anderson , Leon Allison sued James T. Goldsberry for personal injuries arising from a vehicle collision. 340 F.2d at 407. The jury awarded damages in the amount of $75,000. Id. Goldsberry was insured by St. Paul Mercury Insurance Company, which paid the policy limit of $15,000. Id. Goldsberry was...

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