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Smith v. Nationwide Affinity Insurance Co.

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

August 28, 2017

PAM SMITH, Plaintiff,



         On December 5, 2014, Plaintiff Pam Smith filed a Complaint [ECF No. 3] in Dekalb Superior Court against Defendants Nationwide Affinity Insurance Company (Nationwide) and PHH Mortgage Corporation (PHH), alleging breach of contract and bad faith. The Plaintiff also sought declaratory judgment and injunctive relief against PHH. PHH removed the case to this Court on January 12, 2015. On November 11, 2016, the Court granted the parties' joint stipulation to dismiss PHH. [ECF No. 60]. This matter is now before the Court on Defendant Nationwide's Motion for Partial Summary Judgment [ECF No. 31] as to the Plaintiff's bad faith claim (Count II). For the reasons stated in this Opinion and Order, the Court finds that the Defendant is entitled to summary judgment on Count II.


         The following facts are undisputed. Before and on April 4, 2014, the Plaintiff maintained a homeowner's insurance policy [ECF No. 64-1] with Nationwide. The Policy excludes coverage for “any loss arising out of any act an ‘insured' commits or conspires to commit with the intent to cause a loss.” (Policy at 27, ECF No. 64-1.) The Policy also excludes coverage if an insured has “intentionally concealed or misrepresented any material fact or circumstance; engaged in fraudulent conduct; or made false statements” relating to the insurance. (Id. at 30-31.)

         On April 4, 2014, a fire[1] occurred at the Plaintiff's house, located at 922 South Ijams Street in Garrett, Indiana. (See Fire Loss Documents, ECF No. 64-4.) At the time of the fire, the Plaintiff lived in the house with four of her children, including her 19-year old son, Austin Carroll, and her four dogs. (P. Smith Stmt. 3-4, ECF No. 64-16.) The day before the fire, the Plaintiff maintains that she took her younger children and their friends to the Children's Museum in Indianapolis on an overnight trip. (Id. at 18-19.) She also carried, in her purse, $5, 000 in cash that she had previously received from Nationwide on a separate insurance claim. (P. Smith Second Stmt. 24-26, ECF No. 64-14.) Carroll, who remained at home alone, stated that he made dinner on the stove the night before the fire, went to bed, and awoke at around 1:00 AM due to black smoke in his bedroom. (A. Carroll Stmt. 3, 5; ECF No. 64-17.) Upon noticing the smoke, he maintains that he jumped out of his window, ran to the front of the house to get the dogs out, and called the fire department. (Id.) The same day, after learning about the fire from her son, the Plaintiff made a claim under the Policy. Also on the same day, Nationwide's claims adjuster met with the Plaintiff and advanced her money to cover her immediate expenses.

         A. Nationwide's Investigation of the Cause of the Fire

         Nationwide's cause-and-origin investigator, Jim Hunter, was assigned to the case. Four days after the fire, he inspected the house, took photographs, reviewed the Garrett Volunteer Fire Department's (VFD) report, collected evidence, and interviewed the Plaintiff and her son. Though the house sustained smoke damage, the Plaintiff does not contest Nationwide's conclusion that the damage did not constitute a total loss and instead, the house was in such a condition would allow for remodeling. (P. Smith Second Stmt. 47-48.)

         Hunter also determined that there were two separate fires in the house: one in the kitchen on the stovetop, where newspapers were stuffed underneath the grate of one of the gas burners; and one in the hallway, where there was an unusual burn pattern indicating the presence of an ignitable liquid trailer. (Hunter Report 7, ECF No. 51-2.) Hunter took samples of the carpet and pad from the hallway and laboratory testing confirmed that the ignitable liquid on one sample was gasoline residue. (Id. at 6.) Ultimately, Hunter opined that the cause of the two fires was “the result of an intentional human act[;] this is an incendiary fire.” (Id. at 7.)

         According to Nationwide, because it had reason to believe that the fire was intentionally set, the case was assigned to Christopher Lease of Nationwide's Special Investigations Unit (SIU) to determine who set the fire. Lease maintains that he examined the house, canvassed the neighborhood, and interviewed the Plaintiff and Carroll. (Lease Dep. 108:17-110:8, ECF No. 64-12.) From his interview of the Plaintiff, Lease noted that one month earlier, the Plaintiff's basement flooded due to a sewer backup and she had received $10, 000 from Nationwide. From his examination of the house, Lease determined that although the Plaintiff cleaned her basement after the sewer backup, she did not have the damage repaired. (P. Smith Stmt. 8-9; Case Manager System (CMS) Notes 21-22, ECF No. 64-13.)

         Lease also spoke with the Garrett VFD Chief and confirmed that the VFD found two separate fires in the house. (Lease Dep. 106:12-16; CMS Notes 21.) Though the VFD categorized the fire as still “under investigation, ” they did not investigate the fire because the VFD did not have any certified fire investigators. (Lease Dep. 105:14-106:11; CMS Notes 21.)

         Lease did not talk to the firefighters who were at the scene of the fire, nor did he receive any photos from the VFD, though he requested photos on at least one occasion. (Lease Dep. 108:2- 9.) The VFD Fire Marshal ultimately informed Lease that they were not interested in investigating the fire any further. (Id. at 263:2-12.) Lease also learned from the Garrett Police Department (PD) that Carroll had previously “vandaliz[ed] mailboxes.” (Id. at 109:11-110:8.) During a recorded interview with Lease, the Plaintiff confirmed that Carroll had been caught vandalizing mailboxes and a golf course. (P. Smith Second Stmt. 12-13.)

         During his interview with the Plaintiff, Lease disclosed that Hunter found two points of origin of the fire: the first emanating with the newspapers on the stove and the second due to the presence of gasoline in the hallway. (Id. at 38-39.) Lease then explained that the evidence “leads to Austin [Carroll].” (Id. at 40.) Though neither party contests the content of the interview, the parties have differing interpretations of the inferences resulting from Lease's statement in the following portions of the interview:

I know you filed bankruptcy a couple of years ago and you're getting back on your feet and doing everything that you can. And I think you're doing the right thing. I think you're doing everything that you can.
You're working hard and you're paying your bills, and you're doing everything, um, Austin is too. It doesn't seem like Austin's a bad kid.
Um, so now, we have, I'm stuck in a situation, here, and, obviously, um, when law enforcement requests my information or my file . . . I have to turn it over. I have to turn it over. I have to turn it over to the State Fire Marshal's office, um, and, yeah, the department of insurance, National Insurance Crime Bureau and Garrett Fire Department or whomever, okay?
No one has requested that, obviously. I wanted to take the opportunity to first meet with you.
And try to figure out what is the best thing we can do okay? . . . [H]e's only 19 and, you know, you're, you're not too old yourself. I mean you've got a life too, I mean, um, in time you'd have quite a few grandchildren, probably.

(Id. at 40, 41, 43-44.)

         He then asked the Plaintiff, “What do you want Nationwide to do?” and she replied “Like, figure out what happened.” (Id. at 45.) Lease replied back, “I'm, okay, I'm certain as to what happened.” (Id.) Lease informed the Plaintiff that if she wished to continue to pursue her claim, Nationwide would move forward with requests to obtain the Plaintiff's financial records and conduct an examination under oath (EUO) of both the Plaintiff and Carroll. (Id.) If the claim was denied, then Nationwide would have to report “everything” to the National Insurance Crime Bureau and the Indiana Department of Insurance, “[a]nd, then they follow up with any possible criminal charges.” (Id. at 46.) Alternatively, Nationwide would conclude the investigation if she decided to no longer pursue her claim. (Id. (“[T]he other thing is, is if you withdrew your claim then I stop here.”).)

         The Plaintiff explained that she was “not gonna just let it go. I mean . . . I lost my house.” (Id.) She also expressed doubts that Carroll burned the house down, stating “[W]hether anybody did come in or not I don't know. I wasn't there. . . . So it's possible that somebody did, I don't know. But you're trying to say Austin did it.” (Id. at 47.) Lease affirmed, “[T]he evidence, certainly, points that way . . . .” (Id.) Lease explained that his canvassing of the neighborhood led him to the conclusion that the neighborhood was safe and Carroll told him that he did not have any enemies, so it was unlikely that someone broke in and started the fire. (Id. at 48). Lease also confirmed with the Plaintiff that there had been no threats or harassing phone calls against her. (Id.) The Plaintiff maintained that she believed Carroll could not have done it. (Id. (“[T]here's no way that he would want to lose his house.”).) The interview concluded with Lease affirming that as long as the Plaintiff wished to continue to pursue her claim, Nationwide would continue with the investigation and both the Plaintiff and Carroll would have to submit to EUOs.

         Lease subsequently interviewed Carroll, who confirmed that there were newspapers near the stove, though Carroll stated he did not know how they got under the burner. (Carroll Second Stmt. 24, ECF No. 64-15.) Lease explained that the evidence indicated Carroll started the fire:

Lease: And I know how much you love your mother.
Carroll: Uh-huh.
Lease: I mean, you'd probably do anything for you[r] mother.
Carroll: Yeah.
Lease: And I think she'd do anything for you.
Carroll: Uh-huh.
Lease: Right, and the reason I wanted to talk to you both, you know, both of you here today is because once this can, continues to grow then the Indiana State Fire Marshal might want my file, the Indiana Department of Insurance, National Insurance Crime Bureau, I don't know, anyone that requests my file I have to legally turn it over to them.
Carroll: Yep.
Lease: But we're not, we're not at that stage and no one's asked for my information, okay. I haven't even talked to the State Fire Marshal.
Carroll: Okay.
Lease: Okay? Um, and I just want to be clear that if, if you were, ‘cause you seem just as, you seem like a good kid and you know, you know, and everything points to a bad choice of, you know, renovate the house, maybe, get a little bit of insurance money. . . .
Lease: And then, I told her [the Plaintiff], I said, well, let me talk to Austin [Carroll] because if I talk to Austin and we can straighten this out then I don't have to go any further.
Carroll: Yeah.
Lease: I don't have to do anything. I don't have to talk to Indiana State Fire Marshal, the County Prosecutor, or anything of that nature, you know what I mean?
Carroll: Yeah.
Lease: Um, with that being said do you understand everything that I j-, ...

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