Backwater, Incorporated, Doing Business as Finke's, William Finke, and Ruth Finke v. Penn-American Insurance Company

EVANS, Circuit Judge.

In late December 2001, a Highland, Indiana, nightclub called “Finke’s” was vandalized. The damage was extensive, and the club’s owners, William and Ruth Finke (more precisely, their company, “Backwater, Inc.”), soon filed a claim with the property’s insurer, Penn-American Insurance Company. But Penn-American rejected the claim, concluding after a lengthy investigation that the vandalism was an inside job. The Finkes sued, alleging breach of contract and bad faith. See Erie Ins. Co. v. Hickman, 622 N.E.2d 515, 519 (Ind.1993) (recognizing cause of action for insurer’s…