In the case of Backwater, Inc., doing business as Finke's, William Finke, and Ruth Finke against Penn-American Insurance Company, the plaintiffs filed a claim for extensive vandalism at their nightclub, which Penn-American rejected after an investigation, concluding the incident was an inside job. The Finkes alleged breach of contract and bad faith against the insurer. The case was moved to federal court, where Penn-American successfully obtained summary judgment on the bad-faith claim and won a jury trial on the breach-of-contract claim.
Under Indiana law, an insurer breaches its duty of good faith when it denies a claim without a rational basis. Penn-American argued that the Finkes' recent increase in insurance coverage, inquiries about the building's security, and the thoroughness of the vandalism provided justification for their denial. The Finkes countered that their coverage increase was based on advice from an insurance agent and that the evidence was circumstantial.
The court recognized that conflicting interpretations of the facts do not constitute bad faith by the insurer. Thus, the court found that Penn-American was justified in its denial and that the summary judgment on the bad-faith claim was appropriate. The jury verdict on the breach-of-contract claim also favored Penn-American, indicating that the evidence supported the insurer's position.
The Finkes challenge the trial verdict on two grounds, claiming procedural flaws. They argue that the court wrongly excluded Mr. Finke's testimony regarding an insurance agent's statement about the property being underinsured, which they assert was relevant to their decision to increase insurance coverage in 2001. The court deemed this testimony hearsay, as it was offered to prove the property was underinsured. However, the Finkes contend that the intent of the testimony was to demonstrate its impact on their decision-making, thus not constituting hearsay. They failed to formally object during the trial, forfeiting this argument but now label the exclusion as 'plain error.' The court notes that plain-error review is rarely applied in civil cases and finds no extraordinary circumstances warranting correction.
Additionally, the Finkes claim it was plain error for the jury instructions to include the fact that Backwater, Inc. increased insurance coverage on November 1, 2001, asserting that its placement unduly emphasized a point supporting Penn-American’s fraud theory. The court argues that every jury instruction must have an order, and questioning the placement lacks precedent. The undisputed evidence indicated that Penn-American had reason to suspect insurance fraud, and the jury affirmed that the denial of coverage was justified. The court finds no plain error in the trial proceedings and affirms the judgment.
