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Inc. v. Nationwide Mutual Insurance Co.

United States District Court, S.D. Indiana, Indianapolis Division

July 22, 2019

NORTH SHORE CO-OWNERS' ASSOCIATION, INC., Plaintiff,
v.
NATIONWIDE MUTUAL INSURANCE COMPANY, Defendant.

          ORDER DENYING NATIONWIDE'S PARTIAL MOTION TO DISMISS

          JAMES PATRICK HANLON UNITED STATES DISTRICT JUDGE

         North Shore Co-Owners' Association alleges that Nationwide Mutual Insurance Company breached the insurance policy issued to North Shore by failing to fully pay for covered shingle damage. North Shore also alleges that Nationwide acted in bad faith by wrongly and intentionally deceiving North Shore and denying coverage for open and obvious cosmetic hail damage. Nationwide has moved to dismiss North Shore's bad-faith claim, asserting that it had a rational basis for denying coverage for the shingle damage. Dkt. [9]. For reasons that follow, that motion is DENIED.

         I. Facts and Background

          In deciding Nationwide's motion for dismissal, the Court accepts and recites “the well-pleaded facts in the complaint as true.” McCauley v. City of Chicago, 671 F.3d 611, 616 (7th Cir. 2011).

         Nationwide insured North Shore's buildings. Dkt. 1-2 at 3 (Compl. ¶ 1). The policy covered cosmetic shingle damage from hail, even if that damage was just cosmetic. Id. at 5 (¶ 18). During the policy period, North Shore's roofs sustained open and obvious hail damage. Id. at 3-4 (¶¶ 2-3, 14).

         Nationwide hired Nederveld, a preferred vendor, to inspect North Shore's buildings and to submit a report on the damage. Id. at 5 (¶¶ 16, 17, 20). Nederveld defined “damage” from hail to only include functional shingle damage, not cosmetic damage. Id. (¶ 19). Under that definition, Nederveld reported to Nationwide that North Shore's roofs had no damage. Id. (¶ 20). Nationwide used Nederveld's report to conclude that the applicable policy only covered functional shingle damage and North Shore's roofs had no damage. Id. (¶¶ 21-22). Ultimately, Nationwide did not pay the full amount of the loss. Id. at 3 (¶ 4).

         Nationwide removed North Shore's complaint to this court on November 20, 2018. Dkt. 1. The complaint alleges two counts: Count I for breach of contract and Count II for bad faith. Dkt. 1-2. Nationwide answered Count I, dkt. 8, and moves to dismiss Count II, arguing that North Shore has not alleged sufficient facts under Indiana law to support a claim of bad faith, dkt. 10. In response, North Shore argues that the Court should deny the motion to dismiss or alternatively stay Nationwide's motion pending bad faith discovery and/or grant North Shore leave to amend its complaint. Dkt. 14.

         II. Applicable Law

         Defendants may move under Federal Rule of Civil Procedure 12(b)(6) to dismiss claims for “failure to state a claim upon which relief may be granted.” Fed. R. Civ. Pro. 12(b)(6). To survive a Rule 12(b)(6) motion to dismiss, a complaint must “contain sufficient factual matter, accepted as true, to ‘state a claim to relief that is plausible on its face.'” Ashcroft v. Iqbal, 556 U.S. 662, 678 (2009) (quoting Bell Atl. Corp. v. Twombly, 550 U.S. 544, 570 (2007)). A facially plausible claim is one that allows “the court to draw the reasonable inference that the defendant is liable for the misconduct alleged.” Id.

         When ruling on a 12(b)(6) motion, the Court will “accept the well-pleaded facts in the complaint as true, ” but will not defer to “legal conclusions and conclusory allegations merely reciting the elements of the claim.” McCauley, 671 F.3d at 616.

         A federal court hearing a case under diversity jurisdiction must apply the substantive law of the state in which it sits. Erie Railroad Co. v. Tompkins, 304 U.S. 64, 78 (1938). Indiana law governs this case. See Kartman v. State Farm Mut. Auto. Ins. Co., 634 F.3d 883, 890 (7th Cir. 2011) (applying Indiana law).

         III. Analysis

         Nationwide argues that Count II should be dismissed because it had a rational basis for its coverage position and North Shore fails to allege any “element of conscious wrongdoing.” Dkt. 10 at 3.

         North Shore contends that it sufficiently pleads a bad-faith claim because it “alleges furtive intent, deceitful conduct and wrongdoing.” Dkt. 14 at 3. North Shore asserts that “[d]enying obvious hail damage, coupled with the size of the claim, estimated at over five hundred thousand ...


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