In the
United States Court of Appeals
For the Seventh Circuit
No. 11-3100
H ARRY F OSTER, III and L INDA F OSTER,
Plaintiffs-Appellants,
v.
S TATE F ARM F IRE AND C ASUALTY C OMPANY,
Defendant-Appellee.
Appeal from the United States District Court
for the Northern District of Indiana, Fort Wayne Division.
No. 1:10-cv-00020-TLS-RBC—Theresa L. Springmann, Judge.
A RGUED F EBRUARY 23, 2012—D ECIDED M ARCH 16, 2012
Before FLAUM and T INDER, Circuit Judges, and
S HADID, District Judge.
T INDER, Circuit Judge. This case presents two issues,
both under Indiana law: First, whether the Fosters
The Honorable James E. Shadid, District Judge for the
United States District Court for the Central District of Illinois,
sitting by designation.
2 No. 11-3100
breached their insurance contract with State Farm by
failing to comply with a section titled “Your Duties
After Loss” and, second, whether State Farm’s delay in
deciding the Fosters’ claim was in bad faith and there-
fore tortious. The district court granted State Farm’s
motion for summary judgment. We affirm.
On January 3, 2009, while Harry and Linda Foster, their
two children, Harry’s father, and the family’s eight dogs
were out, a fire severely damaged the Fosters’ home.
Mrs. Foster submitted a claim to State Farm under the
family’s homeowners’ policy the next day. State Farm
promptly began requesting documents, authorizations,
and interviews. Based on its initial interviews, State
Farm learned that the Fosters had at least two businesses,
held numerous personal and business accounts, and
were involved in multiple lawsuits.
At the end of January, State Farm sent a letter to
the Fosters restating its initial requests for information
and documents, including blueprints, utility bills, and
receipts for electrical components in the “theater room.”
State Farm wrote the Fosters again in early March to
remind them of their contractual obligations, quoting the
following policy provisions:
2. Your Duties After Loss. After a loss to which
this insurance may apply, you shall see that the
following duties are performed:
***
c. Prepare an inventory of damaged or
stolen personal property. Show in detail
No. 11-3100 3
the quantity, description, age, replace-
ment cost and amount of loss. Attach to
the inventory all bills, receipts and related
documents that substantiate the figures
in the inventory;
d. as often as we reasonably require:
(1) exhibit the damaged property;
(2) provide us with records and
documents we request and permit
us to make copies;
(3) submit to and subscribe, while
not in the presence of any other
insured:
(a) statements; and
(b) examinations under oath;
and
(4) produce employees, members
of the insured’s household or oth-
ers for examination under oath to
the extent it is within the insured’s
power to do so; and
e. submit to us, within 60 days after the
loss, your signed, sworn proof of loss
which sets forth, to the best of your knowl-
edge and belief: [details about the cause of
the loss and damaged or destroyed prop-
erty]
***
4 No. 11-3100
6. Suit Against Us. No action shall be brought
unless there has been compliance with the policy
provisions. The action must be started within one
year after the date of loss or damage.
By mid-March, State Farm’s fire investigator had con-
cluded that the fire was intentionally set and the Fosters’
claim was referred to the insurance company’s Special
Investigative Unit. State Farm informed the Fosters
that “there is a question as to whether the loss is acci-
dental as it relates to a named insured” and requested
additional documents, such as detailed phone rec-
ords, bank account transaction histories, tax returns, and
mortgage information. State Farm also reminded the
Fosters that their proof of loss was due by May 2, 2009.
(By the way, all significant communications between
the Fosters and State Farm that we discuss in the opin-
ion took place between their lawyers because both the
insureds and the insurer retained counsel from nearly
the beginning of the claim process.)
In April, the Fosters requested a 60-day extension
for filing their proof of loss. State Farm granted the exten-
sion, reminded the Fosters of its previous document
requests, and encouraged the Fosters to produce docu-
ments as they got them so the claim process could
move forward. A few days after the initial 60-day exten-
sion, the Fosters informed State Farm that they were
hiring a new attorney and requested additional time to
file their proof of loss. State Farm granted the Fosters’
request and gave them until August 5, 2009 to file. In the
same letter that granted that second extension, State
No. 11-3100 5
Farm restated its previous request for documents,
added the Fosters’ 2008 taxes to its request list, and
emphasized that the documents already in the Fosters’
possession should be produced “as quickly as possible” to
facilitate the claim process and because there could be
follow-up questions and requests.
On May 20, the Fosters sent State Farm phone bills
and a signed medical release and indicated that they
were trying to get other requested documents, which
they said they would produce shortly. At the beginning
of July, the Fosters told State Farm that they were “close
to obtaining the information and documents you’ve
requested in your previous letters.” The Fosters produced
some additional documents in July but many remained
outstanding. On August 5, the Fosters delivered close
to 1,000 pages of documents, including their proof of loss.
On August 13 and 25, Mr. Foster sat for his “examina-
tion under oath” (EUO). On August 26, Mrs. Foster
began her EUO. Based on statements by the Fosters
during those EUOs about previously undisclosed bank
accounts and business dealings, State Farm requested
financial information dating back to 2002. On Septem-
ber 3, State Farm sent the Fosters lists of old and new
document and information requests. Mrs. Foster’s EUO
was continued on September 9. During that continuation
of her EUO, Mrs. Foster said that she was still gathering
requested documents. The next day, during her third day
of questioning, Mrs. Foster told State Farm that the
Fosters had actually earned more money than reported
in their 2004-2007 tax returns. That day’s interview ended
with the following exchange:
6 No. 11-3100
Counsel for State Farm: Okay. I suppose this is
probably a good place
to stop, and we’ll ad-
journ. And by agree-
ment, Counsel, is that
correct?
Counsel for Mrs. Foster: Correct.
Counsel for State Farm: And w e’re going to
reconvene at a later
date when we gather
these documents that
we’ve been talking
about for several days.
Counsel for Mrs. Foster: Correct.
On September 21, State Farm sent the Fosters a master-list
of old and new requests. All together, State Farm was
asking for fifty-nine categories of information and docu-
ments.
The Fosters sent State Farm a status report on October 1.
For a majority of the requests, the Fosters said that they
were either looking into them or that they had them-
selves already sent requests to various financial institu-
tions for responsive documents. On December 2, State
Farm sent the Fosters its own detailed status report.
According to its records, State Farm had not received a
majority of the requested documents or an explanation
for why they could not be produced. State Farm
expressed concern “about the lack of documents
the Fosters have provided since the last session of
No. 11-3100 7
Mrs. Foster’s examination under oath on September 10,
2009” and concluded the letter by referring to Mrs.
Foster’s incomplete EUO: “Pursuant to our agreement, we
agreed to cancel and reschedule Mrs. Foster’s examina-
tion under oath to allow [the Fosters] additional time to
produce these documents. Upon substantial compliance
with the requests listed above, we will reschedule the
continuation of Mrs. Foster’s examination under oath.”
On December 11, the Fosters responded: “We are dis-
turbed by State Farm’s unsupported allegations that the
Fosters have produced a ‘lack of documents.’ Specifically,
we are concerned with the growing evidence of State
Farm’s bad faith in assessing the Foster’s claim. . . . By this
letter, if you are attempting to create a noncooperation
or noncompliance issue in [the Fosters’] policy, it is
strictly foreclosed and we are firmly establishing a rea-
sonableness boundary in responding to your copious
and often unreasonable requests.” The Fosters also
stated that they believed they had until January 3, 2010
to sue on the contract. The Fosters then updated their
position on each of State Farm’s requests. For a majority,
they declared that they “possess nothing further to pro-
duce.” The Fosters ended the letter by reminding
State Farm that they were not going to “ignore” their
$2.6 million claim and gave State Farm “until December 23,
2009 to complete your examinations under oath, your
evaluation of this claim, and make a decision.”
State Farm answered on December 15: “Your letter
strikes a curious tone, given your prior acknowledge-
ment of the amount of documents that were still out-
8 No. 11-3100
standing at the time we mutually agreed to continue
Mrs. Foster’s examination under oath. . . . [W]hile
[the Fosters] have provided numerous documents, there
is still a significant amount of relevant information
that [the Fosters] have identified in their examinations
under oath, agreed to provide, and have chosen not to
provide, to date.” State Farm again quoted the Your
Duties After Loss section of the policy, rejected the Fos-
ters’ deadline of December 23, and explained that
“your statement that suit must be initiated by January 3,
2010 is not accurate since the implementation of Ind.
Code § 27-1-13-17 on June 27, 2007 establishing the mini-
mum period of a policyholder to bring an action against
an insurer to no less than two years from the date of
loss.” State Farm’s letter did not deter the Fosters.
They filed this suit for breach of contract and bad faith
on December 30, 2009, just shy of the one-year anniver-
sary of the fire.
Approximately two years after removal from state
court, the district court granted State Farm’s motion for
summary judgment. Foster v. State Farm Fire & Cas. Co.,
No. 1:10-cv-20, 2011 WL 3610425 (N.D. Ill. Aug. 17, 2011).
As usual, we review the district court’s grant of sum-
mary judgment de novo, viewing the facts in a light
most favorable to the non-moving party. Echo, Inc. v.
Timberland Machs. & Irr., Inc., 661 F.3d 959, 963 (7th Cir.
2011). A motion for summary judgment should be
granted only if there is no genuine issue of material fact
and the moving party is entitled to judgment as a matter
of law. Nat’l Athletic Sportswear, Inc. v. Westfield Ins. Co., 528
No. 11-3100 9
F.3d 508, 512 (7th Cir. 2008). The parties (properly) agree
that this diversity case is governed by Indiana law. Id.
For the contract claim, the relevant Indiana law is set
out in Morris v. Economy Fire & Cas. Co., 848 N.E.2d 663
(Ind. 2006). Morris involved a suit by an insured
claiming breach of contract and bad faith because the
insurer refused to provide a transcript of recorded state-
ments before requiring an additional EUO. Id. at 665.
The contractual provisions at issue in Morris were
nearly identical to those in this case: There was a Your
Duties After Loss section and a provision stating that
there could be no suit until those obligations were
satisfied. Id. at 666. The Indiana Supreme Court made
it clear that a Your Duties After Loss provision is not
a cooperation clause that requires only reasonable assis-
tance with the investigation of a claim, but is “an
entirely separate condition that explicitly requires the
policyholder to perform specific duties.” Id. The insured
must produce documents and sit for EUOs and cannot
impose prerequisites on the performance of those duties.
Id. “Compliance [is] not optional or subject to a trial
court determination of reasonableness.” Id. at 667. The
reasonableness language in a Your Duties After Loss
section—which requires EUOs and document production
“as often as we [the insurer] reasonably require”—
“describes how often the insurer can make requests, not
the nature and extent of the information or statement
sought. The policy contract does not itself impose an
explicit general ‘reasonableness’ requirement on the
insurer regarding what documentation the insurer
10 No. 11-3100
might demand of the insured or in what context the
insurer might ask for an examination under oath.” Id.
The court in Morris concluded that “[t]he Morrises
breached the contract as a matter of law when they
refused to provide an examination under oath until
Economy [the insurer] fulfilled additional conditions
prescribed by the Morrises.” Id. at 666-67. In this
case, similarly, the Fosters breached their insurance
contract as a matter of law when they did not produce
the documents necessary to complete Mrs. Foster’s EUO.
Under Morris, the Fosters were not permitted to demand
that Mrs. Foster’s EUO be completed before they sub-
stantially complied with State Farm’s document re-
quests. This conclusion is particularly secure here,
given that the parties agreed that Mrs. Foster’s EUO
would be completed when certain documents were pro-
duced.
That was also our conclusion in National Athletic, 528
F.3d at 508, a remarkably similar insurance dispute
under Indiana law. As in this case, in National Athletic
the policyholder sued its insurer for breach of contract
and bad faith, claiming that the insurer did not make a
decision on the policy fast enough and, among other
things, improperly insisted on continuing (or having a
second) EUO with a particular person after he had
already sat for an eight-hour EUO. Id. at 511. The insur-
ance company in National Athletic, like State Farm in
this case, claimed that it didn’t have to pay because the
insured failed to complete that EUO. Id. at 516. And, just
as in this case, the insurer in National Athletic would
No. 11-3100 11
continue the critical EUO only once the insured
produced requested documents. Id. at 514. Also like
this case, the parties in National Athletic had a clear plan
to continue the disputed EUO after the requested docu-
ments were produced. Id. at 515. The plaintiff in National
Athletic failed to sit for the continuation of the EUO
but also denied that it was refusing to sit for the EUO. Id.
at 516. It was not a refusal, plaintiff protested, they had
merely set “reasonable limitations,” id., or, as the Fosters
put it, “a reasonableness boundary.” Morris and the
cases interpreting it, however, “make clear that the
insureds cannot put conditions on their existing contrac-
tual duties. . . . More specifically in regard to this case, de-
manding that an EUO have ‘reasonable limitations’ lacks
legal support.” Id. at 518.
Because an insured cannot impose a reasonableness
limit on “the nature and extent of the information or
statement sought,” Morris, 848 N.E.2d at 667, in National
Athletic we discussed whether the plaintiff could get
anywhere by objecting to the number or frequency of
the insurer’s requests for EUOs or documents or informa-
tion:
Plaintiff also couches its claim in the context of
Defendant’s many requests for documents and
information. The implication is that after the
Plaintiff provided thousands of pages of docu-
ments, spent many hours dealing with Defen-
dant’s document requests, and submitted to the
first EUO, it was unreasonable to make Plaintiff
submit to another EUO. While it is clear that the
12 No. 11-3100
Plaintiff provided a great amount of cooperation
with the Defendant’s requests, one problem with
this argument is that the Plaintiff left the first
EUO with the understanding that the Defendant
would request, and the Plaintiff would provide,
more documents, and that another EUO would
be held to discuss them.
528 F.3d at 522. And so it is here: Having unambiguously
agreed to produce documents and complete Mrs. Foster’s
EUO, the Fosters have left themselves no room to argue
that State Farm’s requests were so numerous or frequent
that they violated the insurance contract under Morris.
The Fosters emphasize that they produced for State
Farm everything they possessed. We assume they did.
But the Fosters misunderstand their duty under the
contract as construed by Morris: Their duty was not (only)
to give State Farm documents they happened to
possess physically but to acquire and deliver requested
documents related to their financial condition. See
Morris, 848 N.E.2d at 666 (insured must comply with the
“specific duties” imposed by a “Your Duties After Loss”
provision); Wood v. Allstate Ins. Co., 21 F.3d 741, 747 (7th
Cir. 1994) (financial condition of the insured is relevant
when a possibility is raised that the insured set fire to
her own house). As a matter of law, the Fosters’ failure
to produce requested documents or even explain why
they could not, and their related failure to complete
Mrs. Foster’s EUO, materially breached the contract. The
closer we look, the clearer this is. The Fosters’ failures
to produce were basic:
No. 11-3100 13
Tax Returns from 2002, 2003, and 2008. State Farm re-
quested the Fosters’ tax returns for 2002-2008. As of the
beginning of September 2009, the Fosters had produced
their returns for 2004-2007 but not for 2002, 2003, and
2008. On September 21, State Farm restated its request
for the missing returns. The Fosters responded ten days
later that “Linda [Foster] is looking to find these tax
returns. Otherwise, we will submit a request to the
IRS . . . .” Two months later, on December 2, 2009, State
Farm told the Fosters that it had not received the
missing returns and that it was willing to reimburse the
Fosters for fees they would incur if they had to get new
copies from the IRS. Approximately one week later,
without having produced their 2002, 2003, and 2008
tax returns, the Fosters declared that they had provided
“necessary authorizations to obtain financial informa-
tion. Please see all previous responses or information
in your possession related to this claim. [The Fosters]
possess nothing further to produce.”
Income from eBay. During her August 26, 2009 EUO,
Mrs. Foster informed State Farm that she had income
from selling items on eBay. In September, State Farm
requested documentation of that income. In October,
the Fosters responded this way: “We are making a reason-
able inquiry into this request and to the extent other
items produced or yet to be produced do not evidence
the sale of EBay [sic] items, we will continue to investi-
gate.” Two months later, State Farm wrote that it had
not received the requested documents. On December 11,
without having given State Farm responsive documents,
14 No. 11-3100
the Fosters stated that they “possess nothing further
to produce.”
Mortgage Applications. In September 2009, State Farm
twice requested the Fosters’ applications for the first and
second mortgages on their home. In October, the Fosters
said that they did not have copies of their mortgage
applications. Two months later, State Farm informed
the Fosters that they had received bank records about
a line of credit that Mrs. Foster said was for the second
mortgage. The records did not contain the mortgage
application, however. State Farm said it would request
the second mortgage application itself. As for the first
mortgage, which was with a different bank, State Farm
requested the application directly from the bank but
was refused. State Farm communicated that refusal to
the Fosters, indicating that they needed to get that ap-
plication themselves. On December 11, the Fosters ac-
knowledged that they had not produced the applica-
tions and said that if State Farm’s own requests for mort-
gage applications had been refused, it should inform
the Fosters of the protocol to request applications and
they would execute the request. Otherwise, they “possess
nothing further to produce.”
Bank Statements. In September 2009, State Farm
requested statements for twenty-one different accounts
and lines of credit dating back to 2002. The Fosters re-
sponded in October with statements for three accounts
and a message that, for most of the other accounts,
they had sent requests to creditors for statements. In
December, State Farm gave the Fosters an account-by-
No. 11-3100 15
account inventory: The Fosters had provided at least
some records for four accounts, said that three of the
accounts may relate to Mr. Foster’s law practice, but
had not produced statements (or an explanation for
nonproduction) for the remaining accounts. The Fosters
responded to State Farm’s inventory with a general
statement about all the accounts: They had made requests,
produced to State Farm the statements that had been
delivered to them, provided State Farm with authoriza-
tions, and now “possess nothing further to produce.”
Possible Suspect. Finally, a non-financial example: In
September 2009, State Farm requested “[t]he name of the
police officer that according to Mrs. Foster, had a heart
attack as a result of Mr. Foster [a lawyer] questioning
him while on the stand. Mrs. Foster also mentioned him
as a suspect to starting the fire during [her] September 10,
2009 examination under oath.” The Fosters responded
that they “do not remember the name of the officer
that suffered a heart attack on the stand during Harry
Foster III’s cross-examination of him. The Fosters remem-
ber the police officer was and may still be a mall security
guard.” At the beginning of December, State Farm again
asked for “information regarding the mall where the
officer is a security guard.” To that, the Fosters said they
“are unaware of the mall where the officer may be a
security guard.”
In short: The Fosters did not provide State Farm with
documents and information as requested. If we stop
right there, this is an easy case under Morris and National
Athletic. And the district court case the Fosters rely on
16 No. 11-3100
in their briefs, Keten v. State Farm, No. 2:06-cv-341, 2010 WL
1258198 (N.D. Ind. Mar. 29, 2010), where the insureds
produced all requested documents not destroyed in a
fire, and the district court case the Fosters cited at argu-
ment but not in their briefs, New Berean Missionary
Baptist Church, Inc. v. State Farm Fire & Cas. Ins.
Co., No. 1:08-cv-1584, 2010 WL 2010464 (S.D. Ind. May 18,
2010), do not persuade us to reach a different conclusion.
But the Fosters also attempt to move their case out
from under Morris and National Athletic by insisting that
their hand was forced—their hunt for documents had
to end and they had to sue when they did—because the
one-year limitations period in their contract was about
to expire. Their apparent noncompliance with the con-
tract’s express terms, especially the requirement that
“[n]o action shall be brought unless there has been com-
pliance with the policy provisions,” was a function of the
limitations period. How could they have been required
to wait to sue and risk facing a winning limitations-
period defense from State Farm? The short answer is
that they faced no such risk, regardless of what the
contract said.
In 2007, Indiana passed a law requiring that insurance
policies covering “first party loss to property located in
Indiana” that “insures against loss or damage to . . . real
property . . . which is the principal place of residence of
the named insured . . . may not be issued, renewed, or
delivered to any person in Indiana if the policy limits
a policyholder’s right to bring an action against an
insurer to a period of less than two (2) years from the
date of loss.” Ind. Code § 27-1-13-17 (emphasis added).
No. 11-3100 17
The Fosters renewed the policy on their Indiana home,
their principal place of residence, in 2008. They are obvi-
ously covered by the statute. And State Farm said as
much. When the Fosters told State Farm they were con-
cerned about the contractual limitations period, State
Farm wrote:
I would point out that your statement that suit
must be initiated by January 3, 2010 is not ac-
curate since the implementation of Ind. Code § 27-
1-13-17 on June 27, 2007 establishing the minimum
period of a policyholder to bring an action against
an insurer to no less than two years from the
date of loss. Notwithstanding the enactment of
this legislation, it is still State Farm’s intent to
complete its investigation into the Fosters’ claim
as quickly and efficiently as possible. To that end,
I would urge you and your clients to provide the
outstanding documents as quickly as possible.
But the Fosters were unsure if this actually guaranteed
them at least two years to sue because of the letter’s
next paragraph:
Finally, State Farm Fire and Casualty Company
has asked me to remind you and your clients that
they are continuing to investigate this claim
under a full reservation of rights and that no
action by the Company should be construed as a
waiver of any of your clients’ rights, duties or
obligations under the policy, nor as a waiver of
any of State Farm’s rights or defenses, all of
which are specifically reserved.
18 No. 11-3100
Similar boilerplate concluded every letter from State
Farm. But, giving the Fosters the benefit of the doubt,
let’s assume that the letter was not a clear statement
that they had at least two years to sue.
The express terms of their policy with State Farm
should have allayed any lingering doubts:
Conformity to State Law. When a policy provision
is in conflict with the applicable law of the State
in which this policy is issued, the law of the
State will apply.
And if this didn’t give the Fosters certainty, they could
have consulted Indiana common law, which provides
for the same result: “The terms and conditions of the
contract include the relevant statutory provisions which
exist at the time the contract is made as if such provi-
sions were expressly incorporated.” Wencke v. Indianapolis,
429 N.E.2d 295, 297 (Ind. Ct. App. 1981). But the Fosters
complain that, on top of all this, State Farm did not offer
a tolling agreement. And it is true, State Farm did not.
But that would only be relevant if the Fosters had asked
for one. They did not. The limitations period was two
years and it was the Fosters’ responsibility to under-
stand that.
In addition to their contract claim, the Fosters appeal
the district court’s grant of summary judgment on
their bad faith claim. Under Indiana law, if State Farm
wrongfully slow-walked the Fosters’ request for
coverage, even if they had not yet denied payment on
the policy, State Farm could be liable for the tort of insur-
ance bad faith. See Erie Ins. Co. v. Hickman, 622 N.E.2d
No. 11-3100 19
515, 519 (Ind. 1993); but cf. Kartman v. State Farm, 634
F.3d 883, 891 (7th Cir. 2011). That said, on this record,
State Farm is entitled to judgment as a matter of law. To
prove bad faith, there must be an element of “dishonest
purpose, moral obliquity, furtive design, or ill will.”
Monroe Guar. Ins. Co. v. Magwerks Corp., 829 N.E.2d 968,
977 (Ind. 2005). There is no record evidence of that.
To the contrary, the record reveals nothing more than
State Farm’s attempt to investigate a substantial claim
made after an intentionally set fire. “[A] good faith
dispute concerning insurance coverage cannot provide
the basis for a claim in tort that the insurer breached
its duty to deal in good faith with its insured. . . . And
‘[t]his is so even if it is ultimately determined that the
insurer breached its contract. That insurance companies
may, in good faith, dispute claims has long been the rule
in Indiana.’ ” Id. at 976 (quoting Hickman, 622 N.E.2d at
520). The Fosters argue that Hamed & Michigan Foods, Inc.
v. General Accident Ins. Co., 842 F.2d 170 (7th Cir. 1988)
requires a different conclusion. It certainly does not:
In Michigan Foods (as the parties call it) the insurer
dragged its feet for months after the insured had
satisfied the insurer’s requests for documents and EUOs.
Id. at 171. That could be bad faith but, as we have ex-
plained, nothing similar happened to the Fosters.
The district court properly granted State Farm’s motion
for summary judgment on both issues. Our conclusion
should not be overread, however: We do not understand
Morris to license badgering and irrelevant demands
for documents and information or endless EUOs. But,
notwithstanding the Fosters’ representations, that is not
this case; Morris does require policyholders to perform
20 No. 11-3100
their specific “duties after loss.” And that the Fosters
did not do.
A FFIRMED.
3-16-12