Lummis, John D. v. State Farm Fire ( 2006 )

In the
United States Court of Appeals
For the Seventh Circuit
____________
No. 06-1266
JOHN D. LUMMIS and CYNTHIA A. MACBETH,
Plaintiffs-Appellants,
v.
STATE FARM FIRE & CASUALTY COMPANY,
Defendant-Appellee.
____________
Appeal from the United States District Court
for the Southern District of Indiana, Indianapolis Division.
No. 04 C 80—David F. Hamilton, Judge.
____________
ARGUED OCTOBER 31, 2006—DECIDED DECEMBER 5, 2006
____________
Before POSNER, WOOD, and EVANS, Circuit Judges.
EVANS, Circuit Judge. Most people who watch television
can sing it: “Like a good neighbor, State Farm is there.”
John Lummis thinks State Farm should have been, but
wasn’t, “there” for him after a fire destroyed his home
in Jamestown, Indiana. And State Farm’s refusal to
cover the loss gave birth to this litigation, which ulti-
mately included a jury trial and a prior ruling on a mo-
tion for summary judgment that took a critical issue out
of the jury’s hands. Only the summary judgment matter
is before us on Lummis’s appeal.
The house Lummis “owned” (we use quotation marks
because his grip on the home was rather tenuous) was
2 No. 06-1266
covered by a State Farm homeowner’s policy. Like all
policies of this sort, an insurer is excused from paying if
the insured is intentionally complicit in setting the fire
that led to the loss. And that’s the position State Farm
staked out soon after the house burned to the ground.
Lummis, and his ex-wife Cynthia Macbeth, sued State
Farm on two claims: breach of contract and bad faith. Like
his house, the bad-faith claim was gutted when the dis-
trict court dismissed it on summary judgment. Subse-
quently, a jury found that State Farm breached the
contract by not covering the loss. Lummis and Macbeth
were awarded $46,800.46 in damages and, because the
jury rejected a State Farm counterclaim, they were not
ordered to pay back various sums (we’re not sure, but it
looks like they add up to something in the neighborhood
of $25,000) advanced under the policy on a reservation-of-
rights basis. Although State Farm eventually had to honor
the policy, whether “bad faith” motivated its decision to
refuse to ante up is another story. Here are the facts (some
of them, at least) that are important on the issue before
us.
For some time prior to the fire, Lummis lived in the
Jamestown house with his girlfriend, Beth Howe, and her
three children. And Lummis was in a financial bind:
between the $1,300 a month garnished from his wages in
order to pay child support for four of his six children, and
supporting Howe and her three children, he had not
made a mortgage payment for almost 2 years. The mort-
gage holder (the Cendant Mortgage Company), who had
been paying the premiums on the State Farm policy,
obtained a foreclosure decree on the house on February 5,
2003. The fire occurred the very next day.
Howe called 911 to report the fire around noon. She
then called Lummis at work. Most people, upon learning
that their house is on fire, would hurry home as fast as
No. 06-1266 3
possible. Not Lummis. Lummis’s boss offered him a ride
home immediately. He turned it down. He took his buddy
up on the second offer of a ride later in the day. When
he got to the house, he reported the fire to State Farm. He
didn’t seem too worried, though—the agent who took his
call thought he sounded pretty nonchalant and cavalier
about the whole thing. State Farm started the claims
process and an investigation into the cause of the fire
as soon as it got the call.
One of the most important clues to the fire’s origin was
a red plastic container found at the scene that tested
positive for traces of gasoline and kerosene. Firefighters
know this mixture—which burns “long and hot”—is an
ideal accelerant for a fire. Lummis, who was a volunteer
firefighter with the Jamestown Fire Department for
about 7 years, would, State Farm concluded, be more
familiar with this mixture as an accelerant than would
the average Joe. Ultimately, all investigators who looked
into the fire determined that it was started intentionally.
State Farm concluded that Lummis, perhaps with help
from Howe, intentionally started the blaze, so it denied
coverage.
We review grants of summary judgment de novo and
will uphold them only if no genuine issue of material
fact exists and the movant is entitled to judgment as a
matter of law. And here, of course, we draw all factual
inferences in favor of Lummis. Hrobowski v. Worthington
Steel Co., 358 F.3d 473, 475 (7th Cir. 2004); Rogers v. City
of Chicago, 320 F.3d 748, 752 (7th Cir. 2003). Since this
is a diversity case, we apply the substantive law of the
forum state, Indiana. Erie v. Tompkins, 304 U.S. 64, 78
(1938); Wolverine Mut. Ins. v. Vance, 325 F.3d 939, 942
(7th Cir. 2003).
Lummis’s task on his bad-faith claim was to demonstrate
that a reasonable jury could conclude that State Farm
4 No. 06-1266
denied coverage without a rational, principled basis for
doing so. Erie Ins. Co. v. Hickman, 622 N.E.2d 515, 520
(Ind. 1993); Monroe Guar. Ins. Co. v. Magwerks Corp., 829
N.E.2d 968, 975-76 (Ind. 2005). In Indiana, “[a] finding of
bad faith requires evidence of a state of mind reflecting
dishonest purpose, moral obliquity, furtive design, or ill
will.” Magwerks, 829 N.E.2d at 977 (quoting Colley v.
Indiana Farmers Mut. Ins. Group, 691 N.E.2d 1259, 1261
(1998)). This is a rather heavy burden, and Lummis tried
to meet it by demonstrating that State Farm’s factual
basis for denying coverage was weak. This argument,
however, shoots itself in the foot because it implicitly
acknowledges that there was evidence to support State
Farm’s position. In fact, a summary of some of that
disputed evidence is spread over three pages, graph-style,
in 13 different categories in Lummis’s brief. And it’s
important to remember that State Farm’s reading of that
evidence doesn’t have to be accurate. It just can’t be
irrational.
Two points are particularly important, when combined
with the fact that arson, by someone, was unquestionably
committed. First, State Farm sent Lummis notice before
the fire that he had coverage under the policy even though
his mortgagee was paying the premiums. Second, when
reporting the claim to State Farm on the day of the fire he
was “nonchalant and cavalier.” That, to State Farm,
seemed odd. We agree.
Add to this the fact (1) that Lummis had a potential
financial benefit in collecting something under the policy;
(2) that he was in a financial pinch; (3) that he and Howe
purchased gasoline the morning of the fire; (4) that Howe
removed her dog from the house before it burned down;
and (5) that the fire occurred one day after the fore-
closure proceeding, and State Farm’s position, as a mat-
ter of law, simply can’t be viewed as unreasonable or
motivated by ill will.
No. 06-1266 5
Based on all the evidence, no reasonable jury could find
that State Farm denied Lummis’s claim knowing there
was no rational, principled basis for believing he, perhaps
with Howe, were involved in setting the fire. See Dean v.
Ins. Co. of North Am., 453 N.E.2d 1187, 1194 (Ind. Ct. App.
1983) (permitting an insurer to rely on circumstantial
evidence to conclude that policyholder committed arson).
Lummis did not meet his burden of showing a genuine
issue of material fact as to whether State Farm acted
with a dishonest purpose, moral obliquity, furtive design,
or ill will when it denied his claim. Magwerks, 829 N.E.2d
at 977. This conclusion makes it unnecessary for us to
consider State Farm’s cross-appeal which challenges the
district court’s reasoning that Indiana law did not re-
quire a clear and convincing evidence standard for a bad-
faith claim.
The judgment of the district court is AFFIRMED.
A true Copy:
Teste:
________________________________
Clerk of the United States Court of
Appeals for the Seventh Circuit
USCA-02-C-0072—12-5-06