FOSTER v. STATE FARM FIRE AND CASUALTY COMPANY (March 16, 2012)
In early January 2009, Harry and Linda Foster's home was severely damaged by fire. Their insurer, State Farm, began an investigation immediately. As part of its investigation, State Farm requested a number of supporting documents from the Fosters under a "Your Duties After Loss" policy section. A proof of loss was due 60 days after the claim. Within a few months, State Farm began to suspect that the fire was set intentionally. The Fosters finally submitted their proof of loss and other documents in early August and submitted to an examination under oath. State Farm continued to request additional documentation, particularly as the Fosters provided new or changed information. Months went by. The Fosters did not complete their examinations nor did they finish their document production. Nevertheless, they filed suit for breach of contract and bad faith in late December, 2009. Judge Springmann (N.D. Ind.) granted summary judgment to State Farm. The Fosters appeal.
In their opinion, Seventh Circuit Judges Flaum and Tinder and District Judge Shadid affirmed. Under Indiana law, the "Your Duties After Loss" provision is not just a cooperation clause requiring reasonable assistance. It imposes an absolute duty on the policy holder's part. Here, the Fosters tried to impose preconditions on the completion of the examination under oath and their production of documents. The Court also concluded that the Fosters, having explicitly agreed to produce additional documents and complete Mrs. Foster's examination under oath, could not argue that the company's requests were too onerous. The Court assumed that the Fosters produced all documents in their possession. But that was not enough. There were a number of documents that existed in the possession of third parties, including tax returns and bank records, that the Fosters were obligated to obtain. Finally, the Court rejected the Fosters' argument that they had to bring suit when they did because of a one-year limitations period in the contract. Even though the policy had a one-year limitation, Indiana state law required a two-year limitation period and the policy provided that state law governed if it conflicted with a policy provision. The Court turned to the summary judgment ruling on the bad-faith claim. In Indiana, a bad-faith claim requires dishonesty or ill will. The Court found nothing in the record to support a bad-faith claim.