UNITED STATES DISTRICT COURT

NORTHERN DISTRICT OF INDIANA

HAMMOND DIVISION

FAMILY CHRISTIAN WORLD, INC., )

a/k/a FAMILY CHRISTIAN CENTER, )

)

Plaintiff, )

)

v. ) Cause No.: 2:15-CV-102

)

PHILADELPHIA INDEMNITY INSURANCE )

COMPANY, PHILADELPHIA INSURANCE )

COMPANIES, and ILLINOIS CLAIMS )

SERVICE, LTD., )

)

Defendants. )

OPINION AND ORDER

This matter is before the court on the “Combined Motion to Dismiss, or in the Alternative

to Strike, Pursuant to Federal Rules of Civil Procedure 12(b)(6) and 12(f)” filed by Defendant

Illinois Claims Service, Ltd. (“ICS”) (DE 19). Plaintiff Family Christian World, Inc., a/k/a

Family Christian Center (“Family Christian”) filed a response in opposition (DE 24) and ICS

filed a reply (DE 27). For the reasons discussed below, the motion to dismiss is GRANTED and

the motion to strike is MOOT. All claims asserted against Defendant ICS are dismissed with

prejudice. All claims asserted against Defendants Philadelphia Indemnity Insurance Company

and Philadelphia Insurance Company (collectively “Philadelphia Indemnity”) are unaffected by

this Opinion and Order and remain pending.

BACKGROUND

Family Christian filed this lawsuit in state court on January 28, 2015, and ICS removed it

to this court on March 18, 2015, on the basis of diversity jurisdiction. Family Christian owns real

property located at 340 45 Avenue in Munster, Indiana. Compl. (DE 6), p. 2. Philadelphia th
Indemnity issued an insurance policy covering the property and ICS served as administrator of

the policy. Id. On January 28, 2013, the property was damaged by flooding. Id. Family Christian

filed a property damage claim with Philadelphia Indemnity to cover the cost of repairs to the

building and Philadelphia Indemnity, using ICS as its third-party agent, began an investigation

into the claim on January 29, 2013. Id., p. 3. On November 13, 2014, ICS sent a reservation of

rights letter to Family Christian, stating that “. . . Philadelphia Insurance Companies cannot

verify that the alleged damages occurred or coverage exists[.]” and that Philadelphia Indemnity

and ICS would “continue[] to investigate this claim under a Reservation of Rights . . . .”

Defendant’s Memorandum in Support of Motion to Dismiss (DE 20), Exh. 20-7, pp. 45-47. In

that letter, ICS claimed that Family Christian failed to provide proof of the damage to the

building and so ICS could not conclude its investigation, confirm that the damage was incurred,

or determine whether Family Christian’s claims were covered under the policy. Id., p. 47. Family

Christian contends that “Chris McCormick, . . . employed by ICS, investigated the claim and

photo-documented the damage to the property.” Complaint, p. 3. Family Christian also alleges

that “[t]he Defendants subsequently lost or destroyed the photographs that documented the

damage to the property.” Id. In any event, Family Christian’s claim was not paid. 

Family Christian filed this lawsuit containing two counts against the Defendants. Count I

of the Plaintiff’s Complaint is titled “Declaratory Judgment [and] Breach of Contract.” Id., p. 4.

Family Christian alleges in Count I that “[t]his is a count for declaratory judgment under Ind.

Code § 34-14-1, et seq., for the purpose of seeking an order from this Court declaring that the

Defendants are obligated to indemnify Family Christian under the Policy to pay Family Christian

for the sum Family Christian has incurred to repair the damage to the covered property.” Id. Also

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in Count I, Family Christian alleges that “[b]ecause [Philadelphia Indemnity] and their agent,

ICS, have failed to indemnify Family Christian for the damage to the covered property, they have

breached their agreement with Family Christian.” Id. Count II of the Complaint states a claim for

bad faith, alleging that the defendants “breached their duties of good faith and fair dealing, and

further acted in bad faith and in ill will . . .” in handling Family Christian’s claim. Id., p. 5.

Family Christian seeks compensatory damages, punitive damages, costs, and attorney’s fees. Id.,

p. 6. Additional facts will be discussed below as they become relevant to the court’s analysis.

In its motion to dismiss or to strike, ICS claims that Count I of the complaint should be

dismissed because “ICS was not a party to the insurance contract.” Defendant’s Memorandum, p.

4. ICS contends that since it was not a party to the contract, and acted solely as a third-party

administrator, it cannot be held liable for breach of that contract, nor is it a proper party for a

declaratory judgment action based on that contract. Id., pp. 4-5. As a result, ICS argues that

Count I should be dismissed pursuant to Rule 12(b)(6) because it fails to state a valid claim for

relief. Id., pp. 6-7. ICS includes a companion argument, claiming that Count I “improperly

intertwines a cause of action for breach of contract with a declaratory judgment claim, and

renders the claim incoherent and confusing.” Id., p. 7. ICS argues that “Count II for bad faith

should also be dismissed because the allegations supporting the claim are conclusory and fail to

set forth enough facts to state a claim to relief that is plausible on its face.” Id., p. 2. Finally, ICS

argues that if the court does not dismiss Count I, it should nonetheless strike Family Christian’s

request for attorney’s fees contained in that Count. Id., p. 10. ICS claims that neither Indiana

contract law nor the “federal statutes authorizing declaratory judgment claims” allow for

recovery of attorney’s fees. Id. (citations omitted).

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STANDARD OF REVIEW

I. Fed.R.Civ.P. 12(b)(6).

Federal Rule of Civil Procedure 12(b)(6) allows a defendant to move to dismiss a

complaint that has fails to “state a claim upon which relief can be granted.” Fed.R.Civ.P.

12(b)(6). When deciding a motion to dismiss under Rule 12(b)(6), the court accepts as true all

factual allegations in the complaint and draws all inferences in favor of the plaintiff. Bielanski v.

County of Kane, 550 F.3d 632, 633 (7th Cir. 2008). The complaint must contain a “short and

plain statement of the claim showing that the pleader is entitled to relief.” Fed.R.Civ.P. 8(a)(2).

In Bell Atlantic Corp. v. Twombly, the Supreme Court explained that the complaint must allege

facts that are “enough to raise a right to relief above the speculative level.” Twombly, 550 U.S.

544, 555, 127 S.Ct. 1955, 167 L.Ed.2d 929 (2007). Stated differently, the complaint must include

“enough facts to state a claim to relief that is plausible on its face.” Hecker v. Deere & Co., 556

F.3d 575, 580 (7th Cir. 2009) (internal citation and quotation marks omitted). To be facially

plausible, the complaint must allow “the court to draw the reasonable inference that the

defendant is liable for the misconduct alleged.” Ashcroft v. Iqbal, 556 U.S. 662, 678, 129 S.Ct.

1937, 173 L.Ed.2d 868 (2009) (citing Twombly, 550 U.S. at 556).

II. Fed.R.Civ.P. 12(f).

Federal Rule 12(f) states, in its entirety, as follows:

Motion to Strike. The court may strike from a pleading an insufficient defense or

any redundant, immaterial, impertinent, or scandalous matter. The court may act:

(1) on its own; or

(2) on motion made by a party either before responding to the pleading or, if a

response is not allowed, within 21 days after being served with the pleading.

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Motions to strike are generally disfavored; however, “where . . . motions to strike remove

unnecessary clutter from the case, they serve to expedite, not delay.” Heller Fin., Inc. v. Midwhey

Powder Co., Inc., 883 F.2d 1286, 1294 (7th Cir. 1989). Motions asserted under Rule 12(f) are

“ordinarily not granted unless the language in the pleading at issue has no possible relation to the

controversy and is clearly prejudicial.” Hofmann v. Aspen Dental Mgmt., Inc., 2011 WL

3902773, at *3 (S.D.Ind. Sept. 6, 2011) (quoting Baker v. Westinghouse Elec. Corp., 830 F.Supp.

1161, 1168 (S.D.Ind. 1993)). 

DISCUSSION

I. Breach of Contract Claim.

ICS argues that since it was not a party to the insurance contract between Family

Christian and Philadelphia Indemnity, it cannot be sued for breach of contract. ICS states that

“[i]t is fundamental that in order for a party to be held liable under a contract, they must be a

party to that contract.” Defendant’s Memorandum, p. 4 (citing Rodriguez v. Tech Credit Union

Corp., 824 N.E.2d 442, 447 (Ind. App. 2005)). ICS states that it is not liable to Family Christian

because the insurance policy at issue in this case “was issued by Philadelphia to Family Christian

and therefore Philadelphia and Family Christian are the only parties to that insurance contract.

Paint Shuttle Inc. v. Continental Cas. Co., 733 N.E.2d 513, 523 (Ind. App. 2000) (‘An insurance

policy is a contract between the insurer and the insured.’); . . . ICS is merely a third-party

administrator for the Policy and is not a party thereto. . . . As such, ICS cannot be held liable

under the Policy and is not properly the subject of a declaratory judgment action predicated upon

the Policy.” Id., pp. 4-5. ICS argues that “[t]here is a wealth of case law holding that a third-party

5
administrator cannot be held liable for a breach of the terms of an insurance policy.” Id., p. 5

(citing Sieveking v. Reliastar Life Ins. Co., 2009 LEXIS 52763 (S.D. Ind. June 23, 2009) and

Heavilin v. Madison Nat’l Life Ins. Co., 2012 LEXIS 176446 (N.D. Ind. Dec. 12, 2012)). ICS

also cites cases it claims supports its contention that ICS is not a proper party to a declaratory

judgment action because of its status as a third-party administrator. See Defendant’s

Memorandum, pp. 5-6 (citing Wells Fargo Bank, N.A. v. Tippecanoe Assocs. LLC, 923 N.E.2d

423 (Ind. App. 2010) (third-party administrator was merely a “mouthpiece” for lender, not a party

to the contract)). Therefore, argues ICS, it cannot be sued by Family Christian for breach of

contract or in a declaratory judgment action.

In its response brief, Family Christian argues that ICS is a proper party defendant in this

case because ICS “has undertaken and assumed the contractual obligation under the terms of the

Policy to investigate and evaluate Family Christian’s water damage claim. . . . ICS assumed the

contractual duties under the Policy to investigate and evaluate Family Christian’s claim and

either made the decision to den[y] its claim, or at least participated in the decision to deny that

claim.” Plaintiff’s Response (DE 24), pp. 10-11. Family Christian does not cite case law to

support its contention that a third-party administrator is liable for breach of an insurance policy

or is a proper party to a declaratory judgment action. The entire basis for Family Christian’s

opposition to ICS’s motion to dismiss is its contention that ICS “assumed the contractual duties

under the Policy” and therefore can be sued for breach of contract and bad faith. So the first

question before the court is simple. Can ICS, as a third-party administrator of the insurance

contract between Family Christian and Philadelphia Indemnity, be sued for breach of that

contract by virtue of the fact that it “assumed” the duty to investigate and evaluate Family

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Christian’s flood damage claim? The answer is no.

In the Heavilin case, the defendant insurance company denied the plaintiff benefits under

a long-term disability insurance contract. The plaintiff sued both the insurance company and its

designated third-party administrator, alleging breach of contract and bad faith against both. The

court granted summary judgment in favor of the third-party administrator on the plaintiff’s

breach of contract claim, explaining that “‘Indiana law provides that only a party to the contract

can be held liable for its breach. Rodriguez v. Tech Credit Union Corp., 824 N.E.2d 442, 447

(Ind. App. 2004).’ . . . Because Plaintiff had no contractual relationship with [the third-party

administrator], her breach of contract claim against it is without merit.” Heavilin, 2012 WL

6507680, at *8 (internal citation to record omitted). It is well-established law in Indiana, as ICS

correctly argues, that “[a] person typically cannot be held liable for breach of contract unless it is

shown that she was a party to the contract. . . . Contractual obligations are personal in nature and

privity of contract is essential for the establishment of contractual liability. ” DiMizio v. Romo,

756 N.E.2d 1018, 1021–22 (Ind. Ct. App. 2001), trans. denied (citing Columbia Club, Inc. v. Am.

Fletcher Realty Corp., 720 N.E.2d 411, 417 (Ind. Ct. App.1999), trans. denied); see also,

Kadambi v. Express Scripts, Inc., 86 F.Supp.3d 900, 912 (N.D. Ind. 2015) (defendants who were

not parties to settlement agreement could not be sued for breach of contract); Sieveking v.

Reliastar Life Ins. Co., 2009 WL 1795090, at *2 (S.D. Ind. June 23, 2009) (third-party

administrator was not party to insurance contract and could not be sued for breach). Family

Christian makes a gallant effort to distinguish these cases on factual grounds, but the rule of law

expressed in those cases is clear and Family Christian’s argument that ICS should be held liable

for breach of the policy because it allegedly “assumed” certain obligations related to the policy is

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unavailing. Family Christian fails to state a valid claim for breach of contract against ICS and

ICS’s motion to dismiss Count I of the Plaintiff’s Complaint is granted. 

II. Bad Faith Claim.

Rather ironically, the cases cited by ICS in support of its argument that it cannot be sued

for breach of contract, specifically Heavilin and Sieveking, also make clear that its status as a

third-party administrator does not shield it from Count II of Family Christian’s Complaint. See

Heavilin, 2012 WL 6507680 at *9 (“third-party administrator owes an insured the same duty of

good faith and fair dealing throughout the entire insurance claim process.”); Sieveking, 2009 WL

1795090 at *2 (third-party administrator can be liable to the plaintiff for bad faith, even if it was

not a party to the underlying insurance contract). The claim can be asserted, and damages

recovered, against a third-party administrator because “the tort of bad faith is not based entirely

on privity of contract. The relationship of insurer to insured is at times fiduciary in nature. . . . As

the administrator of [the insured’s] claim and the employer of those persons who actually made

the decision to deny her claim, [the third-party administrator] owed [the insured] a fiduciary duty

to administer her claim in good faith.” Id., at *2 (internal citation omitted). 

ICS concedes that it is subject to a bad faith claim, but argues that Family Christian’s

claim should be dismissed anyway. According to ICS, “Plaintiff’s claim for bad faith . . . is

predicated upon conclusory allegations that are entirely insufficient to sustain such a cause of

action. . . . [Plaintiff’s] allegations fail to contain any factual content and represent only the most

basic recitation of elements necessary for a claim of bad faith. As such, dismissal of Count II is

warranted pursuant to Twombly and Iqbal.” Defendant’s Memorandum, p. 8. ICS also refers to

Family Christian’s bad faith claim as “nothing more than ‘blank assertions,’ and without more,

8
cannot sustain a cause of action for bad faith.” Id., p. 10 (quoting Twombly, 550 U.S. at 570).

Under Indiana law, an insured may recover for the tort of bad faith upon a showing that

the insurer engaged in practices such as: “(1) making an unfounded refusal to pay policy

proceeds; (2) causing an unfounded delay in making payment; (3) deceiving the insured; and (4)

exercising any unfair advantage to pressure an insured into a settlement of [her] claim.” See Erie

Ins. Co. v. Hickman, 622 N.E.2d 515, 519 (Ind. 1993). So, the second issue before the court in

this case is whether Family Christian’s allegations against ICS satisfy the

Twombly/Iqbal standard by pleading sufficient facts to establish the elements of a bad faith claim

under Indiana law. The court concludes that the answer to this question is also no.

In its Complaint, Family Christian included many factual assertions against ICS. The

relevant assertions, with regard to the bad faith claim, include the following:

1. The insurance policy issued by Philadelphia Indemnity to Family Christian was “administered

by ICS[.]”;

2. “On January 29, 2013, PIIC and/or PIC began their investigation of Family Christian’s claim

using third-party ICS.”

3. Chris McCormick, an employee of ICS, investigated the claim, took pictures of the damaged

property, and “advised Family Christian that all of the walls on the west side of the property

required quarantine for mold and complete replacement at a cost of $90,000.”

4. “The Defendants subsequently lost or destroyed the photographs that documented the damage

to the property.”

5. Family Christian concluded that replacement of all the walls would result in too much

“downtime” to its business and sought a second opinion from Dave Van Dyke of Precision

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Construction.

6. Van Dyke “conducted a thermal imaging test on the exterior wall structure and opined that

neither quarantine nor complete replacement were necessary based on the results of that test.

Family Christian informed ICS that it did not want to replace the walls, “but would proceed with

all other repairs needed.”

7. On November 13, 2014, ICS sent its reservation of rights letter to Family Christian.

8. Family Christian fulfilled all of its obligations under the policy “[a]nd all conditions precedent

to coverage under the policy have been satisfied.”

9. “The Defendants breached their duty of good faith and fair dealing[.]”

10. “The Defendants acted in a malicious, willful, oppressive, and unfounded manner in handling

Family Christian’s insurance claim[.]”

Complaint, pp. 2-5. 

Again, ICS maintains that Family Christian’s entire bad faith claim is based solely on

those few facts and conclusory allegations. ICS contends that only two statements in the

Plaintiff’s Complaint could reasonably be interpreted to imply bad faith–the allegation that

“Defendants lost or destroyed the photographs that documented the damage to the property[.]”

and the fact that ICS sent a reservation of rights letter alleging that Family Christian failed to

provide proof of its loss. Id., pp. 4-5. ICS argues that these allegations are insufficient because 1

 ICS points out that Family Christian, in its response brief, states that “[e]ven though 1

ICS’s own representative determined that Family Christian had incurred at least $90,000 in water

damages, ICS has refused that claim or recommended to PIC that it refuse to pay [the claim].”

Defendant’s Memorandum, p. 6 (quoting Plaintiff’s Response, p. 15). ICS argues that this

allegation appears only in Family Christian’s response brief and “[n]o such allegation exists in

Plaintiff’s Complaint and thus this non-Complaint commentary cannot save the insufficient

pleading.” Id. It is true that this factual allegation does not appear anywhere in the Complaint.

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they fail to meet the pleading standard enunciated in Twombly and Iqbal or set forth the elements

necessary to establish a bad faith claim under Erie and its progeny. Id., pp. 8-10.

In order to pass muster under the Rule 12(b)(6) standard, a complaint must allege facts

that are “enough to raise a right to relief above the speculative level.” Twombly, 550 U.S. at 555.

In this case, as ICS argues, the allegations contained in Family Christian’s Complaint, even after

all reasonable inferences are drawn in favor of the Plaintiff, fail to establish a claim for bad faith.

The allegations are that Philadelphia Indemnity, employing ICS as its third-party administrator,

investigated Family Christian’s claim, issued a reservation of rights letter, allegedly lost or

destroyed photographs evidencing the damage to the subject property, and refused to pay the

claim. These allegations do not suffice because they fall far short of evidencing the type of 

“dishonest purpose, moral obliquity, furtive design, or ill will” that constitutes a breach of the

However, ICS is incorrect if it is claiming that factual assertions contained in a plaintiff’s brief

cannot be considered by the court when ruling on a motion to dismiss. As a general rule, a

district court ruling on a motion under Rule 12(b)(6) must do so based only on the complaint

itself, documents attached to the complaint, documents that are critical to the complaint and

referred to in it, and information that is subject to proper judicial notice. Geinosky v. City of

Chicago, 675 F.3d 743, 751, n. 1 (7th Cir. 2012). But the court may also consider “additional

facts set forth in Plaintiffs’ brief opposing dismissal, so long as those facts ‘are consistent with

the pleadings.’” Levitin v. Nw. Cmty. Hosp., 64 F. Supp. 3d 1107, 1111 (N.D. Ill. 2014) (quoting

Geinosky, 675 F.3d at 751); see also, Early v. Bankers Life and Casualty Co., 959 F.2d 75, 79

(7th Cir. 1992) (plaintiff is free to assert new facts in brief opposing motion to dismiss). Of

course, the denial of Family Christian’s claim is obviously at the heart of this lawsuit and the

Complaint makes that clear. But even if Family Christian’s factual allegation concerning ICS’s

direct knowledge of the water damage is considered, it is still insufficient to support a bad faith

claim under the facts of this case, since the denial of an insured’s claim does not, in itself,

automatically give rise to a bad faith claim. Masonic Temple Ass’n of Crawfordsville v. Indiana

Farmers Mut. Ins. Co., 779 N.E.2d 21, 26 (Ind. Ct. App. 2002) (a bad faith cause of action will

not arise every time an insurance claim is denied).

11
covenant of good faith and fair dealing. Johnston v. State Farm Mut. Auto. Ins., 667 N.E.2d 802,

805 (Ind. Ct. App. 1996), trans. denied (“[s]ince a bad faith determination inherently includes an

element of culpability, a finding of bad faith requires more than the unsubstantiated allegations of

an adverse party.”).

It is clear from the Complaint that Family Christian’s bad faith claim is based on the

theory that ICS “ma[de] an unfounded refusal to pay policy proceeds” or “caus[ed] an unfounded

delay in making payment.” See Erie, 622 N.E.2d at 519. Family Christian’s claim remains

unpaid, so obviously it was refused or delayed. However, the facts alleged in Family Christian’s

Complaint fail to support its claim that ICS’s decision to deny or delay payment of Family

Christian’s claim (to the extent that ICS participated in that decision) constituted an

“unfounded refusal” or an “unfounded delay.” Put another way, the Complaint pays lip service to 2

the elements of a bad faith claim, but the facts alleged against ICS are too conclusory and

speculative to permit the court to draw a reasonable inference that ICS is liable on a bad faith

claim.3

 In its Complaint, Family Christian does not use either the term “unfounded refusal” or 2

the term “unfounded delay.” Instead, it uses a slightly more vague phrase by claiming that ICS

(and Philadelphia Indemnity) acted in an “unfounded manner in handling Family Christian’s

insurance claim[.]” Complaint, p. 5 (italics added). This may be nothing more than an issue of

semantics. But whatever term Family Christian uses to characterize ICS’s actions, it fails to

support its position with facts sufficient to permit the court or a jury to reasonably conclude that

ICS’s handling of the claim amounted to bad faith. 

 As for Family Christian’s allegation that the Defendants “lost or destroyed” 3

photographic evidence of the flood damage, ICS points out that “in conceding that photos may

have simply been ‘lost,’ Plaintiff has pled the antithesis of ill will. See Colley v. Indiana Farmers

Mut. Ins. Group, 691 N.E.2d 1259 (Ind. Ct. App. 1998) (requiring ill will or like state of mind for

bad faith). Thus, Plaintiff’s allegation that there was a potential loss of photos does not state a

claim for bad faith.” Defendant’s Reply (DE 27), p. 5. The record does not reveal whether the

photos were lost or destroyed (either accidentally or intentionally). Only the last scenario (i.e.,

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The Indiana Supreme Court in Erie explained at length what is necessary to establish a

bad faith claim under Indiana law: 

We also note that this new cause of action does not arise every time an insurance

claim is erroneously denied. For example, a good faith dispute about the amount

of a valid claim or about whether the insured has a valid claim at all will not

supply the grounds for a recovery in tort for the breach of the obligation to

exercise good faith. This 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. Vernon Fire, 264 Ind. at 609–10, 349

N.E.2d at 181; Indiana Ins. Co. v. Plummer Power Mower (1992), Ind. App., 590

N.E.2d 1085, 1093; CIGNA–INA/Aetna v. Hagerman–Shambaugh (1985), Ind.

App., 473 N.E.2d 1033, 1036; Town & Country Mutual Ins. Co. v. Hunter (1984),

Ind. App., 472 N.E.2d 1265, 1268; Hoosier Ins. Co. v. Mangino (1981), Ind. App.,

419 N.E.2d 978, 982; First Fed. Sav. and Loan Assoc. v. Mudgett (1979), Ind.

App., 397 N.E.2d 1002, 1008. As the Court wrote in Vernon Fire [& Cas. Ins. Co.

v. Sharp, 349 N.E.2d 173 (Ind. 1976)]:

It is evident that the exercise of [the right to disagree as to the amount of

recovery] may directly result in the intentional infliction of temporal

damage, including the damage of interference with an insured’s business

(which an insured will undoubtedly consider to be oppressive). The

infliction of this damage has generally been regarded as privileged, and not

compensable, for the simple reason that it is worth more to society than it

costs, i.e., the insurer is permitted to dispute its liability in good faith

because of the prohibitive social costs of a rule which would make claims

nondisputable.

264 Ind. at 609–10, 349 N.E.2d at 181. Similarly, the lack of diligent investigation

alone is not sufficient to support an award. See Continental Cas. Co. v. Novy

(1982), Ind. App., 437 N.E.2d 1338. On the other hand, for example, an insurer

which denies liability knowing that there is no rational, principled basis for doing

so has breached its duty. See, e.g., Town & Country Mutual, 472 N.E.2d at 1268;

Hoosier Ins. Co. v. Mangino, 419 N.E.2d at 983.

Erie, 622 N.E.2d at 520. In the present case, the facts set forth by Family Christian in its

that the photos were intentionally destroyed) would establish the type of willful or malicious act

that might give rise to a viable bad faith claim. But Family Christian stops short, both in its

Complaint and its brief, of expressly alleging intentional destruction; and the fact that the photos

are missing, without more, is insufficient to allow this court to reasonably infer that ICS acted in

bad faith in the handling of the claim.

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Complaint reveal only that ICS (and Philadelphia Indemnity) questioned the validity of Family

Christian’s claim (due in large part to Family Christian’s alleged failure to supply ICS with

documentation of the property damage) and issued a reservation of rights letter. Under the

standard enunciated in Erie, however, this is not enough to maintain a claim for bad faith. Put

another way, the facts contained in Family Christian’s Complaint allege that ICS investigated the

claim, lost or destroyed photos documenting the property damage, issued a reservation of rights

letter, and refused or withheld payment of the claim. Family Christian concludes that these actions

constituted the sort of malicious, oppressive or willful conduct necessary to support a claim for

bad faith. But in light of the clear language in Erie, Family Christian’s attempt to characterize this

coverage dispute as a bad faith claim against ICS stretches the rubber band to the breaking point.

Under Indiana law, “[p]oor judgment or negligence do not amount to bad faith; the additional

element of conscious wrongdoing must also be present. A finding of bad faith requires evidence

of a state of mind reflecting dishonest purpose, moral obliquity, furtive design, or ill will. . . . A

bad faith determination inherently includes an element of culpability. . . .” Colley v. Indiana

Farmers Mut. Ins. Grp., 691 N.E.2d 1259, 1261 (Ind. Ct. App. 1998) (citing Johnston v. State

Farm Mut. Auto. Ins., 667 N.E.2d 802, 805 (Ind. Ct. App. 1996)). 

 An insurer that denies liability knowing there is no rational, principled basis for doing so

has breached its duty of good faith. Masonic Temple Ass'n of Crawfordsville v. Indiana Farmers

Mut. Ins. Co., 779 N.E.2d 21, 26 (Ind. Ct. App. 2002). However, insurers may dispute a claim in

good faith, erroneously deny a claim, fail to diligently investigate a claim, or even breach a

contract without committing an act of bad faith. Thorne v. Member Select Ins. Co., 899 F.Supp.2d

820, 826 (N.D. Ind. 2012) (citations omitted). Poor judgment and negligence do not amount to

14
bad faith; the additional element of conscious wrongdoing must be present. Spencer v.

Bridgewater, 757 N.E.2d 208, 212 (Ind. Ct. App. 2001) (citations omitted).

The court agrees with ICS’s arguments that Family Christian’s Complaint fails to state a

claim against ICS for bad faith. The claim is based on speculation and conclusory allegations that

lack sufficient factual support evidencing the type of “dishonest purpose, moral obliquity, furtive

design, or ill will” necessary to sustain such a claim. The facts presented by Family Christian fail

to raise its bad faith claim against ICS above the speculative level. Therefore, the motion to

dismiss Count II against ICS is granted. 

III. Attorneys’ Fees Claim.

ICS moves to strike Family Christian’s claim for attorney’s fees in Count I of the

Complaint because the plaintiff failed to cite any contract clause or statute in support of an award

for fees. ICS argues that Family Christian has no basis for its claim for attorney’s fees in Count I

and as a result the Court should strike that claim. ICS’s argument on this point states, in its

entirety, as follows:

Should Count I against ICS not be dismissed, the claim for attorney’s fees contain

within that Count should be stricken. Indiana and the courts within the Seventh

Circuit follow the American Rule which provides that attorney’s fees may not be

awarded unless authorized by statute or contract. American Booksellers Assoc. v.

Hudnut 650 F.Supp. 324, 326 (S.D. Ind. 1986); Liberty Mut. Ins. Co. v. OSI

Indus., Inc., 831 N.E.2d 192, 205 (Ind. App. 2005). Here, a breach of contract

claim is a common law cause of action and the state and federal statutes

authorizing declaratory judgment claims do not allow for attorney’s fees. . . . As

such, Family Christian’s claim for attorney’s fees should be stricken.

Defendant’s Memorandum, p. 10. Since the court concludes that Family Christian’s claims

against ICS must be dismissed, the issue of whether Family Christian can recover fees from ICS

15
is rendered moot. It is important to note, however, that the court’s ruling on this issue affects

only Family Christian’s claim for attorney’s fees against ICS. To the extent that Family Christian

has any basis for recovery of fees from Philadelphia Indemnity, those claims remain pending. 

CONCLUSION

For the reasons set forth in this Opinion and Order, the motion to dismiss filed by

Defendant Illinois Claim Service (DE 19) is GRANTED and the accompanying motion to strike

is MOOT. All claims asserted against Defendant ICS are dismissed with prejudice. All claims

asserted against Defendants Philadelphia Indemnity Insurance Company and Philadelphia

Insurance Company are unaffected by this Opinion and Order and remain pending.

Date: October 21, 2015.

 /s/ William C. Lee 

William C. Lee, Judge

U.S. District Court

Northern District of Indiana

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