Golden v. State Farm Mutual Automobile Insurance

In the

United States Court of Appeals
For the Seventh Circuit
No. 12-3901

CINDY GOLDEN,
Plaintiff-Appellant,

v.

STATE FARM MUTUAL AUTOMOBILE
INSURANCE COMPANY,
Defendant-Appellee.

Appeal from the United States District Court for the
Northern District of Indiana, Fort Wayne Division.
No. 1:11 CV 399 — James T. Moody, Judge.

ARGUED SEPTEMBER 9, 2013 — DECIDED MARCH 11, 2014

Before POSNER, ROVNER, and HAMILTON, Circuit Judges.

ROVNER, Circuit Judge. Cindy Golden brought this pur-
ported class action suit against her auto insurer State Farm
Mutual Automobile Insurance Company (“State Farm”).
Golden attacks State Farm’s practice of using its own in-house
attorneys to defend its insureds against third-party claims,
alleging that State Farm owes its insureds a duty to explain in
2 No. 12-3901

its policies that such house counsel may be used. Golden’s
policy (attached to her complaint) provides that in the event of
an accident, State Farm will pay “attorney fees for attorneys
chosen by us to defend an insured who is sued” (emphasis in
original) for damages. The district court dismissed Golden’s
complaint, concluding that Indiana law creates no obligation
for an insurer to provide advance notification to an insured
that it uses house counsel to defend its insureds. The court also
denied Golden’s request to certify to the Indiana Supreme
Court the question of whether advance notification is required.
Golden appeals.
I.
According to Golden’s complaint, which we accept as true
at this stage, sometime before April 2009 she purchased
automobile insurance from State Farm to insure her 2007
Dodge Nitro. She renewed her policy at regular six-month
intervals, and the policy remains in force today. As described
above, the mandatory liability portion1 of her insurance
provided that State Farm would defend the insured against a
third-party lawsuit using attorneys chosen by State Farm.
Golden alleges that “historically and traditionally” State Farm
and other insurers defended third-party claims against
insureds by hiring private, independent attorneys. State Farm
(and, presumably, other insurers), however, now routinely
uses its own in-house staff attorneys to represent insureds
against such third-party claims. It is this practice that Golden

1
See Ind. Code §§ 9-25-4-4 & 9-25-8-2 (listing requirements for statutorily
required liability coverage and making operation of a vehicle without
liability insurance a Class A infraction).
No. 12-3901 3

attacks. She alleges that this arrangement, which was disclosed
to her at the outset of her representation, violates a number of
supposed duties owed her by State Farm, including a duty of
good faith and duties arising from a “special relationship
between insurer and insured.”
In October 2009, Golden was sued as the result of a collision
she had been in earlier that year. She was represented in the
suit by Patrick J. Murphy, who worked in the corporate law
department of State Farm. At the outset, Murphy fully and
accurately disclosed to Golden his status as a State Farm
employee. Specifically, Golden received a letter from Murphy
explaining that he was an attorney “working as a full time
employee of State Farm,” advising her that he had an ethical
obligation to ensure that neither his “professional judgment”
nor the quality of his legal service would be “compromised by
any guidelines or other directives that might be issued by State
Farm.” Murphy’s letter also contained the following disclosure
regarding any possible conflict of interest:
Based on the information I have received and re-
viewed to date, I am not aware of any conflict of
interest between your position and State Farm’s
position in this case. If you are aware, or become
aware, of any conflict, please notify me immediately.
Should I discover facts that raise a conflict of inter-
est, I will promptly advise you of the nature of the
conflict. If you provide me this information in
confidence as your lawyer, I will not disclose what
you told me to State Farm. If a conflict arises that
4 No. 12-3901

cannot be resolved, a new lawyer will be selected to
represent you at State Farm’s expense.2
The suit was tried in a bench trial, and State Farm paid the
resulting $3,608.09 judgment entered against Golden. Golden
nowhere alleges that she received deficient representation or
that she ever objected to the use of house counsel in her suit.
Instead, she maintains that State Farm owed her a duty to
disclose at the time of policy issuance the possibility that house
counsel would be used in the event of a third-party lawsuit.
Golden’s three-count complaint alleges that the failure to
provide such disclosure amounts to a breach of “special,
confidential and fiduciary duties and common law duties to
disclose” (Count I); a breach of the duty of good faith and fair
dealing (Count II); and unjust enrichment (Count III).
The district court concluded that State Farm had no duty to
disclose the possibility that house counsel might be employed
to represent her in the event of a lawsuit relating to the policy.
Because all of Golden’s claims depended on the existence of
such a duty, the district court granted the defendant’s motion
to dismiss the complaint. The court also denied Golden’s
motion to certify questions of state law to the Indiana Supreme
Court.
II.
Our review of the district court’s dismissal under Federal
Rule of Civil Procedure 12(b)(6) is de novo. We accept as true

2
State Farm attached Murphy’s letter to its reply to Golden’s motion in the
district court to certify questions of state law to the Indiana Supreme Court.
Golden has not objected to its inclusion in the record.
No. 12-3901 5

all well-pleaded facts and draw all reasonable inferences from
those facts in Golden’s favor. E.g., Burke v. 401 N. Wabash
Venture, LLC, 714 F.3d 501, 504 (7th Cir. 2013). When sitting in
diversity, it is our task to “ascertain the substantive content of
state law as it either has been determined by the highest court
of the state or as it would be by that court if the present case
were before it now.” Craig v. FedEx Ground Pkg Sys., Inc.,
686 F.3d 423, 426 (7th Cir. 2012) (quoting Thomas v. H & R Block
E. Enters., 630 F.3d 659, 663 (7th Cir. 2011)). Golden’s entire
claim hinges on her belief that under Indiana law, State Farm
owed her a duty to disclose, at the time her policy was issued,
that it used house counsel to defend claims. In short, no such
duty exists, and thus her claim fails.
Golden believes that the Indiana Supreme Court acknowl-
edged that such a duty exists in Cincinnati Insurance Company
v. Wills, 717 N.E.2d 151, 155–56 (Ind. 1999). The precise
question in Wills was whether an insurance company engaged
in the unauthorized practice of law when it employed house
counsel to represent insureds. Id. at 153, 155. Specifically, the
plaintiffs in Wills sought to disqualify the defendant’s insurer
from using house counsel, arguing that it amounted to the
unauthorized practice of law. Id. at 153–54. Cincinnati Insur-
ance Company intervened in an attempt to defend its own
practice of providing counsel to its insureds through a “captive
law firm” called “Berlon and Timmel.” The court held first,
that the use of house counsel to represent insureds did not
necessarily amount to the unauthorized practice of law,3 and

3
Relatedly, the court held that the use of a “law-firm-like name” (in this
(continued...)
6 No. 12-3901

second, that in-house attorneys appearing as counsel to defend
claims against an insured did not necessarily trigger an
impermissible conflict in violation of the Rules of Professional
Conduct. Id. at 155. In reaching this holding, the court made
several observations about the notice required to a policy-
holder regarding the possibility that house counsel may be
used for claims defense.
Like Golden’s policy here, the policy at issue in Wills stated
that the insurance company would provide a defense by
“counsel of our choice.” Responding to whether this consti-
tuted adequate disclosure, the Wills court first noted that
“[o]nly by failing to comment on the issue at all does this
language deal with the point … that the ‘counsel of our choice’
may be an employee of the insurer.” Id. at 156. The court then
rejected the argument that the representation was improper
because the notice was deficient, stating as follows:
As a general proposition, adequate disclosure is a
matter in the first instance properly addressed
through administrative regulation. The insurance
commissioner may choose to require more explicit
notice to the insured at the time the policy is taken
out that ‘counsel of our choice’ could or will include
house counsel. And a policyholder aggrieved by

3
(...continued)
case “Berlon & Timmel”) violated the Rules of Professional Conduct
because it deceptively suggested that the attorneys were outside counsel.
No. 12-3901 7

nondisclosure of this arrangement at the time of
issuance is free to assert whatever claim is thought
to arise from that circumstance.
Id.
Because the Wills court was not actually ruling on the issue
of disclosure, the foregoing comments are technically dicta. But
it is clear from this passage that current Indiana law does not
require an insurer to disclose at the outset that its choice of
counsel in the event a claim arises may ultimately be house
counsel. As the opinion clearly states, the level of disclosure
required is a matter for the insurance commissioner to decide.
Nowhere does Golden allege that the Indiana Department of
Insurance has in fact chosen to require “more explicit notice”
than the sort Golden received here, which was nearly identical
to the notice given in the policy in Wills.
Golden, however, insists that Wills does require advance
notice of an in-house counsel arrangement. Specifically, she
makes much of the court’s observation that when an insurance
company employs house counsel to represent insureds,
“accurate disclosure of the arrangement is required.” Id. at 153.
But the Wills opinion says nothing to suggest that “accurate
disclosure” requires more than precisely the sort of disclosure
Golden received: notice in her policy that State Farm would
provide counsel of its choosing and an explanation at the time
counsel was assigned of the exact relationship between that
counsel and State Farm.
Moreover, the court’s focus on “accurate disclosure” must
be read in the context of the Wills case, which dealt in part with
what it concluded was the inappropriate practice of an
8 No. 12-3901

insurance company providing counsel through its own
employees but under a separate name (Berlon and Timmel)
that deceptively implied independence from the insurer. See id.
at 164–65. Nothing of that sort is alleged here. The policy made
clear that State Farm would choose counsel, and when he (Mr.
Murphy) was appointed, he made abundantly clear to Golden
his exact relationship to State Farm as well as his ethical
obligation to avoid potential and actual conflicts of interest. In
Wills, the Indiana Supreme Court held that the use of house
counsel does not result in an inherent conflict of interest or
“any unethical practice.” Id. at 162. And as the quoted passage
above demonstrates, it also made clear that the precise nature
of the notice required to the insured of such an arrangement is
a matter for the state insurance commissioner, who in the more
than ten years since Wills has apparently declined to require
the sort of explicit notice at the time of policy issuance that
Golden believes is required.
Golden’s alternate theories are equally unavailing. She first
claims that State Farm’s failure to provide advance notice of its
house counsel arrangement amounts to a breach of the duty of
good faith and fair dealing. Golden is correct that Indiana law
recognizes in insurance contracts an implied legal duty for an
insurer to deal in good faith with its insured. Erie Ins. Co. v.
Hickman, 622 N.E.2d 515, 518 (Ind. 1993). But none of the
allegations in her complaint establish a potential breach of such
a duty, in either contract or tort. See id. at 519–20 (recognizing
causes of action in both tort and contract for insurer’s breach
of duty to exercise good faith). As discussed above, State Farm
had no obligation to explain in the initial stages of policy
purchase the specifics of its house counsel arrangement. There
No. 12-3901 9

is thus no merit to Golden’s claim that State Farm’s failure to
be more explicit somehow amounted to a “misleading”
statement that breached its duty of good faith. Cf. id. at 519
(noting generally the types of contractual obligations of good
faith and fair dealing incurred by insurer).
Golden’s claim for unjust enrichment also fails for a
number of reasons. First, the existence of an express contract
forecloses recovery under a theory, such as unjust enrichment,
implied in law. See Zoeller v. E. Chi. Second Century Inc., 904
N.E.2d 213, 221 (Ind. 2009). On appeal, Golden attempts to
argue that her contract with State Farm does not bar her claim,
but this argument goes nowhere. Her complaint makes clear
that she seeks recovery for what she alleges is State’s Farm’s
unjust enrichment by virtue of “its delivery of a different and
cheaper product compared with that promised in the Policy.”
Thus, her unjust enrichment claim is barred by the existence of
the insurance contract on which she attempts to base it.
Moreover, notwithstanding the contract, her complaint
simply fails to state a claim for unjust enrichment, which
requires a showing that “a measurable benefit has been
conferred on the defendant under circumstances in which the
defendant’s retention of the benefit without payment would be
unjust.” Landers v. Wabash Center, Inc., 983 N.E.2d 1169, 1173
(Ind. App. 2013). Golden does not allege that she objected to
her representation by house counsel or that she received
inadequate representation. In short, it is unclear how, even if
State Farm’s use of house counsel were somehow improper,
that arrangement was detrimental to Golden in any way. Cf.
HPI Health Care Servs., Inc. v. Mt. Vernon Hosp., Inc., 545 N.E.2d
672, 679 (Ill. 1989) (stating that unjust enrichment requires
10 No. 12-3901

showing that defendant unjustly retained benefit to the
plaintiff’s detriment); see also Kohl’s Ind., L.P. v. Owens, 979
N.E.2d 159, 167 (Ind. App. 2012). There is nothing in the
complaint to support an inference that State Farm either a)
delivered a product different than that promised in the policy
(which stated clearly that it would provide counsel of its choice
in the event of a lawsuit), or b) was unjustly enriched by its
house counsel arrangement. As the Indiana Supreme Court
noted in Wills, “[I]n the realm of insurance defense, the public
may ultimately reap the benefits of better service at lower cost
through the use of house counsel.” 717 N.E.2d at 164. This
hardly sounds like the makings of a claim for unjust enrich-
ment.
Finally, we reject Golden’s request to certify the question of
policy disclosure to the Indiana Supreme Court. See
Cir. R. 52(a). As our discussion of Wills should make clear, we
are not “genuinely uncertain” about whether an insurer is
obligated to disclose, at the time of policy issuance, its practice
of using house counsel to defend insureds. See Craig, 686 F.3d
at 429–30 (noting that most important consideration guiding
the exercise of discretion to certify is whether we are
“genu–inely uncertain” about a question of state law that is
critical to resolution of the case). Nor do we believe this case
presents a “matter of vital public concern” worthy of certifica-
tion to the Indiana Supreme Court. Id. (listing other factors for
consideration in deciding whether certification is appropriate).
III.
For the foregoing reasons, we AFFIRM the district court’s
decision dismissing Golden’s complaint under Rule 12(b)(6)
No. 12-3901 11

and denying her motion to certify questions of state law to the
Indiana Supreme Court.