Seventh Circuit Holds Insurer Did Not Breach Policy or Act in Bad Faith By Treating Rather Than Euthanizing Show Horse

Michael R. Giordano

Greenbank v. Great Am. Assurance Co., 2022 WL 3754722 (7th Cir. 2022)

Julie Greenbank purchased an athletic show horse named Thomas. Greenbank obtained a mortality insurance policy from Great American Assurance Company that provided coverage in the event of Thomas’ death or his “authorized humane destruction.” The policy defined “authorized humane destruction” as “the intentional destruction” of the horse when the insurer consents to the destruction or a “qualified veterinarian” certifies that “immediate destruction is imperative for humane reasons.” The policy also included endorsements that provided coverage for certain “reasonable and customary veterinary fees” for medical treatment and allowed the insured to renew the policy if certain conditions were met.

Thomas later developed pneumonia. Despite veterinary treatment, Thomas lost 50 pounds and developed a bacterial infection in all four legs. Thomas later pulled his right stifle, the equine equivalent of a knee, which hindered his ability to get up and down. Thomas had pneumonia for more than two months before Greenbank notified Great American.

The original veterinarian informed Great American that Thomas “probably” needed to be euthanized. After hearing that information, Great American exercised its right under the policy to retain its own veterinarian to treat Thomas. The veterinarian retained by Great American evaluated Thomas and determined he had a deep lung abscess and severe laminitis, which is a life-threatening condition that impedes blood flow to the tissue in the horse’s foot. Although the veterinarian advised recommending euthanasia would be reasonable, she wanted to first try treating Thomas’ previously undiagnosed conditions.

After Thomas’ deep lung abscess had been treated, a veterinary podiatrist recommended treating his laminitis by performing a tenotomy, which required making a one-inch incision and cutting the deep flexor tendon to restore blood blow in his foot and relieve the pressure on his hoof. Greenbank objected because she believed it would destroy Thomas’ athleticism as a show horse. The specialist, however, advised that the tenotomy was Thomas’ only chance of regaining any athletic ability because, after the surgery, the tendon would eventually heal and become functional. The specialist successfully performed the tenotomy and within a year, Thomas regained the weight he’d lost and returned to trotting, bucking, running, and galloping around the farm.

Greenbank sued Great American for unreasonably refusing to euthanize Thomas and for unlawfully maintaining control over him after the policy expired. After the case was removed to federal court, Greenbank filed an amended complaint alleging breach of contract, bad faith, theft, statutory conversion, criminal mischief, common law and constructive fraud, common law conversion, and negligence. Both parties filed motions for summary judgment, and the district court granted summary judgment for Great American. Although the Seventh Circuit affirmed on all counts, we discuss only the breach of contract and bad faith claims.

The Seventh Circuit quickly disposed of Greenbank’s claim that Great American breached the policy by failing to provide mortality coverage. As the Seventh Circuit put it, the fact that Thomas did not die, whether naturally or by authorized humane destruction, “should end the inquiry into whether Great American breached a mortality insurance contract.” Greenbank, however, argued that Great American “unreasonably” refused to approve of Thomas’ destruction and instead, over her objection, performed a tenotomy, which destroyed Thomas’ future athleticism. In rejecting this argument, the Seventh Circuit noted that “nothing in the contract says that Great American was expected to protect Thomas’ use as a show horse.” Had Greenbank been interested in that protection, the Seventh Circuit continued, she could have sought a loss of use policy.

The Seventh Circuit also rejected Greenbank’s argument that Great American breached the policy by not paying for two medications prescribed to Thomas by the original veterinarian. Greenbank designated no evidence that the medications were necessary to treat Thomas’ pneumonia, as required to trigger coverage.

Greenbank’s bad faith claim fared no better. Although she claimed Great American’s failure to consider her interests or Thomas’ athletic ability, she cited no policy provision requiring Great American to do so. And while she argued that Great American acted in bad faith by refusing to renew the policy, the Seventh Circuit noted that Great American’s refusal was based on Greenbank’s failure to meet several conditions precedent, including her failure to provide immediate notice of Thomas’ pneumonia. Even though it was the first time in 14 years that Great American ever denied an automatic renewal based on late notice, the Seventh Circuit held that this fact alone was not enough to support a bad faith claim.

While most insurance practitioners are unlikely to confront a mortality insurance policy, they may still find Greenbank helpful for its analysis of a bad faith claim under Indiana’s stringent standard.