Opinion
No. 4-004 / 02-1343
Filed February 27, 2004
Appeal from the Iowa District Court for Polk County, Scott D. Rosenberg, Judge.
Farm Bureau Mutual Insurance Company appeals from an adverse jury verdict and resulting judgment in favor of plaintiffs for bad faith failure to pay an underinsured motorist claim. REVERSED AND REMANDED.
James Pugh of Morain, Burlingame Pugh, West Des Moines, Thomas Hanson and Barry Russell of Hanson, Bjork Russell, L.L.P., Des Moines, and Mark Sherinian of Sherinian Walker, P.C., West Des Moines, for appellant.
John Hearn and John Ward, Des Moines, for appellees.
Thomas J. Miller, Attorney General, Craig Kelinson, Special Assistant Attorney General, and Richard E. Mull, Assistant Attorney General, for appellee State.
Heard by Huitink, P.J., and Vogel and Mahan, JJ.
Farm Bureau Mutual Insurance Company appeals from an adverse jury verdict and resulting judgment in favor of plaintiffs for bad faith failure to pay an underinsured motorist claim.
The plaintiffs in this action are Roger Bellville, as administrator of Sue Ellen Bellville's Estate, and Roger Bellville, individually.
I. Background Facts Proceedings
Sue Ellen Bellville died as the result of injuries sustained in a car/motorcycle accident on October 9, 1999. Sue Ellen was a passenger on a motorcycle driven by her husband, Roger Bellville. Gary Schueler was the driver of the car involved in the accident.
The accident occurred in a controlled intersection in Cedar Rapids. The investigating officer's report included the following narrative description of the accident:
VEHICLE 1 [Schueler] WAS TRAVELING SOUTH ON EDGEWOOD RD NW APPROACHING O AVE NW. VEHICLE 2 [Bellville] WAS TRAVELING NORTH ON EDGEWOOD RE NW APPROACHING O AVE NW. VEHICLE 1 ATTEMPTED TO MAKE A LEFT TURN ONTO O AVE FROM EDGEWOOD RD NW. VEHICLE 1 PROCEEDED INTO THE INTERSECTION AS VEHICLE 1 WAS ATTEMPTING THE TURN. VEHICLES 1 AND 2 COLLIDED. THE DRIVERS OF BOTH VEHICLE 1 AND 2 CLAIM THAT THE TRAFFIC SIGNALS CONTROLLING BOTH NORTH AND SOUTH BOUND TRAFFIC WAS YELLOW.
The report also noted Bellville "ran [a] Traffic Signal" as a driver/vehicle related contributing circumstance. Bellville was asked and submitted to blood and urine testing after the accident. Those results were positive for THC (cannabinoids). No traffic citations were issued as a result of these investigative conclusions.
This evidence was presented as part of an offer of proof, but was not admitted by the district court, because Farm Bureau did not know the result of Bellville's chemical test until after the present suit was filed.
Bellville claimed the accident was Schueler's fault and negotiated a settlement with Schueler's auto liability carrier, State Farm Insurance Co. Under the terms of the settlement, State Farm agreed to pay Bellville the $50,000 liability limits of Schueler's policy. Because Bellville believed his damages exceeded that amount, he sought underinsured motorist benefits from his auto insurance carrier, Farm Bureau. On January 20, 2000, Bellville notified Farm Bureau of his intentions and requested Farm Bureau's consent to settle with Schueler as required by the underinsured motorist provisions of his policy.
In its initial assessment of Bellville's claim, Farm Bureau placed a $250,000 value on Sue Ellen's estate and reserved $200,000 to cover its exposure. Farm Bureau's initial $100,000 offer was based in part on credits against its reserve for thirty-percent allocation of fault to Roger and a $50,000 offset for his settlement with Schueler.
After Roger rejected its first offer, Farm Bureau increased its offer to $133,000. Roger countered with a $270,000 demand Farm Bureau's increased offer of $160,000 was also rejected, and negotiations ended. Farm Bureau did not consent to Roger's proposed settlement with State Farm and Schueler while these negotiations were in progress.
On April 13, 2000, Bellville sued Farm Bureau for damages based on Farm Bureau's bad faith failure to settle his uninsured motorist claim or consent to his settlement with Schueler and State Farm. Farm Bureau denied liability, claiming Bellville's uninsured motorist claim was fairly debatable. Farm Bureau also denied any duty to consent to Bellville's proposed settlement and asserted that in any event it did not breach any such duty under these circumstances.
In addition to this tort action against Farm Bureau, Bellville filed a contractual action seeking recovery under the underinsured motorist provision of the parties' insurance policy. Bellville v. Farm Bureau Mut. Ins. Co., No. 2-0263 (Iowa Ct.App. Apr. 30, 2003). In that case, Roger was found to be five percent at fault and Schueler ninety-five percent at fault. Id. Damages were computed to be $756,714.95, and judgment was entered against Farm Bureau for $300,000, the limits of its underinsured liability coverage. Id.
Both parties unsuccessfully moved for summary judgment. Farm Bureau's various motions for directed verdict were denied and Bellville's bad faith claim was submitted to the jury on the theories listed in the following instruction:
INSTRUCTION NO. 11
In order for the Plaintiff to recover for insurer bad faith, the Plaintiff must prove all of the following propositions:
1. Farm Bureau refused or failed without reasonable basis to give consent to the State Farm settlement offer and/or failed without reasonable basis to properly consider Plaintiff's UIM claim or extend reasonable settlement sums in response to such claim.
2. Farm Bureau knew or had reason to know that there was no reasonable basis for refusing to give its consent to the offered State Farm settlement and/or no reasonable basis for failing to properly consider or reasonably respond to Plaintiff's UIM claim.
The jury returned special verdicts finding Farm Bureau acted in bad faith on both theories submitted. As a result, the jury awarded Bellville $80,000 for emotional distress and $1250 for interest lost because of the delay in settling his claim. The jury also awarded Bellville $9,054,000 in punitive damages. Farm Bureau's posttrial motions for new trial, judgment notwithstanding the verdict, and remittur of the punitive damages awarded were denied resulting in this appeal.
After the award of punitive damages, the State intervened on behalf of the Civil Reparations Trust Fund. See Iowa Code § 668A.1 (2001).
On appeal, Farm Bureau raises the following issues:
I. THE TRIAL COURT SHOULD HAVE ENTERED SUMARY JUDGMENT OR A DIRECTED VERDICT ON THE FIRST PARTY BAD FAITH CLAIM
II. THE TRIAL COURT'S REFUSAL TO RULE AS A MATTER OF LAW ON THE INSURER'S DUTY TO CONSENT TO SETTLEMENT CONSTITUTED REVERSIBLE ERROR
III. THE TRIAL COURT ERRED IN FAILING TO LIMIT EXPERT TESTIMONY
IV. THE TRIAL COURT ERRED IN ALLOWING EVIDENCE OF THE UNDERLYING UNDERINSURED MOTORIST VERDICT
V. THE TRIAL COURT ERRED IN FINDING THERE WAS NO JURY MISCONDUCT
VI. PUNITIVE DAMAGES MUST BE VACATED
II. Standard of Review
In this action involving a bad faith claim against an insurance company, we review for the correction of errors at law. Iowa R. App. P. 6.4.
III. Sufficiency of Evidence Supporting Bellville's Bad Faith Theories
In considering rulings on motions for directed verdict and for judgment notwithstanding the verdict, we view the evidence in the light most favorable to the party opposing the motion. Iowa R. App. P. 6.14(6)( b); Midwest Home Distrib. v. Domco Indus. Ltd., 585 N.W.2d 735, 738 (Iowa 1998). We consider whether substantial evidence exists to support the plaintiff's claim, justifying submission of the case to the jury. Channon v. United Parcel Serv., 629 N.W.2d 835, 859 (Iowa 2001). Evidence is substantial if a jury could reasonably infer a fact from the evidence. Balmer v. Hawkeye Steel, 604 N.W.2d 639, 640 (Iowa 2000).
A successful first party bad faith claim requires a plaintiff to prove the absence of a reasonable basis for the insurance company to deny a claim under an insurance policy. Gardner v. Hartford Ins. Accident Indem. Co., 659 N.W.2d 198, 206 (Iowa 2003); Dolan v. Aid Ins. Co., 431 N.W.2d 790, 794 (Iowa 1988). A plaintiff must show the insurance company denied the claim knowing or having reason to know that its denial was without a reasonable basis. Kiner v. Reliance Ins. Co., 463 N.W.2d 9, 13 (Iowa 1990). A reasonable basis to deny a claim exists when the claim is fairly debatable. Dirks v. Farm Bureau Mut. Ins. Co., 465 N.W.2d 857, 861 (Iowa 1991). The debate may concern an issue of fact or of law. Morgan v. American Family Mut. Ins. Co., 534 N.W.2d 92, 96 (Iowa 1995). An insurance company has the right to debate claims that are "fairly debatable" without exposure to a bad faith tort claim. Sampson v. American Standard Ins. Co., 582 N.W.2d 146, 150 (Iowa 1998).
When an insurer has an objectively reasonable basis for denying a claim, as a matter of law it cannot be held liable for bad faith. Id. at 150. Whether the evidence is sufficient to generate a jury question is an issue of law for the court. Thompson v. U.S. Fidelity Guar. Co., 559 N.W.2d 288, 290 (Iowa 1997).
A. Valuation of Bellville's Claim
Farm Bureau cites several circumstances supporting its difference of opinion with Bellville concerning the value of his underinsured motorist claim. These include the value of Sue Ellen's estate as well as the degree to which Roger's fault contributed to Sue Ellen's accidental death. The record indicates Sue Ellen's estate was valued based on Farm Bureau's claims history involving similarly situated claimants. Also, and as noted earlier, Farm Bureau was aware of significant evidence indicating Roger ran a traffic light, or at least knew the traffic light was yellow when he entered the intersection where the accident occurred.
In assessing the reasonableness of Farm Bureau's actions, we do not consider whether Farm Bureau could have possibly acted in manner different than it did, or whether others would have valued Sue Ellen's estate for a greater amount. We consider solely whether there is no reasonable basis for the insurer's actions. See Johnson v. American Family Mut. Ins. Co., ___ N.W.2d ___, ___ (Iowa 2004) (noting plaintiff must show there was no reasonable basis for insurer's action). Moreover, a dispute concerning liability has been held to provide a reasonable basis for denying an uninsured motorist claim. Dirks, 465 N.W.2d at 862. Based on these factors, we determine Bellville's claims were fairly debatable and Farm Bureau had an objectively reasonable basis for offering him a lesser amount than demanded. The district court erred by failing to grant Farm Bureau's motion for directed verdict on this theory.
B. Consent to Settle
Under a consent-to-settlement clause, like that at issue here, an insured has a duty to notify the insurer and obtain written consent to a proposed settlement with the tortfeasor. Grinnell Mut. Reins. Co. v. Recker, 561 N.W.2d 63, 70 (Iowa 1997). The purpose of a consent-to-settlement clause is to protect an insurer's subrogation rights. Kapadia v. Preferred Risk Mut. Ins. Co., 418 N.W.2d 848, 851 (Iowa 1988). A consent-to-settlement clause also protects an insurer against the possibility of collusion between the insured and the third-party tortfeasor. Grinnell Mut., 561 N.W.2d at 68.
A consent-to-settlement clause may not be enforced unless an insurer is able to show it was prejudiced by the settlement. Hoth v. Iowa Mut. Ins. Co., 577 N.W.2d 390, 392 (Iowa 1998). Prejudice may arise because by consenting to a proposed settlement agreement, an insurer's subrogation rights against the third-party are relinquished. Id. at 392-93. Failure to obtain the insurer's consent is not a complete defense; an insurer is only entitled to set off an amount it reasonably could have collected from the third-party. Id. at 393; see also In re Estate of Rucker, 442 N.W.2d 113, 117 (Iowa 1989) (holding an injured party may only recover the difference between the liability policy limit and the damages suffered, subject to the underinsured motorist policy limits).
Under this theory of bad faith Bellville argued the consent-to-settlement clause created a corresponding duty which required Farm Bureau to consent to a reasonable settlement. Bellville contends this duty arises from an implied covenant of good faith in an insurance contract that neither party will do anything to injure the rights of the other in receiving benefits under their agreement. Johnson v. Farm Bureau Mut. Ins. Co., 533 N.W.2d 203, 207 (Iowa 1995) (quoting Kooyman v. Farm Bureau Mut. Ins. Co., 315 N.W.2d 30, 33 (Iowa 1982)).
Our review of the record fails to disclose any evidence that Farm Bureau injured or impeded Bellville's rights to receive benefits under their agreement. See Johnson, 533 N.W.2d at 207. Specifically, Bellville failed to prove he was unable to obtain underinsured motorist benefits, or the benefits from State Farm, because Farm Bureau had not consented to his proposed settlement with Schueler. Furthermore, he has not shown Farm Bureau would have been prejudiced if he had entered into the settlement without Farm Bureau's consent, so that Farm Bureau could have denied him benefits. Bellville has accordingly failed as a matter of law to show any underlying breach of an implied duty of good faith upon which his duty to consent argument is premised.
In addition to relying on an implied covenant of good faith, Bellville also claimed Farm Bureau had a duty to consent arising from Iowa Code section 507B.4(9) (1999), regarding unfair claim settlement practices by insurance companies. Chapter 507B, however, does not create a private cause of action for violations of the prescribed unfair settlement practices. Bates v. Allied Mut. Ins. Co., 467 N.W.2d 255, 260 (Iowa 1991). The exclusive means for enforcing section 507B.4(9) is the province of the insurance commissioner. Seeman v. Liberty Mut. Ins. Co., 322 N.W.2d 35, 42 (Iowa 1982). Because proof of an illegal act may support an award of punitive damages, evidence of a violation of section 507B.4(9) was only relevant to Bellville's claim for punitive damages. See Terra Indus., Inc. v. Commonwealth Ins. Co., 990 F. Supp. 679, 688 (N.D. Iowa 1997). We accordingly reject Bellville's claim that Farm Bureau had any duty other than its implied duty of good faith inherent in an insurance contract.
Even if such a duty existed, we determine Farm Bureau reasonably withheld its consent under the facts of this case. As noted above, the purpose of a consent-to-settlement clause is to protect an insurer's subrogation rights. Kapadia, 418 N.W.2d at 851. An insurer may therefore reasonably deny a request to consent if the settlement would adversely affect the insurer's right to subrogation from the third-party tortfeasor.
During the relevant time period in this case, from January 20, 2000, when Bellville requested consent to the proposed settlement, to April 17, 2000, when Bellville filed suit, Farm Bureau had not yet determined whether Schueler had additional funds available to recover on its expected subrogation claim. Although Farm Bureau had access to an asset report showing Schueler had few exempt assets, that report did not account for Schueler's wages, potential inheritance, or other sources of recovery. Bellville nevertheless argues that Farm Bureau could have protected its contingent subrogation claim by tendering an amount equal to State Farm's offer and as assignee of Bellville's claim pursued Schueler to recover the amount paid. See Grinnell Mut., 561 N.W.2d at 70. While Farm Bureau could have pursued this option, it was not required to do so. Id. (noting insurance company could use this procedure).
The ultimate question before us is whether Bellville presented substantial evidence to show Farm Bureau did not have a reasonable basis for failing to consent to the proposed settlement during the relevant time period. See Dolan, 431 N.W.2d at 794. Because Bellville failed to present substantial evidence establishing this proposition, the district court should have granted Farm Bureau's motion for directed verdict on this bad faith theory as well.
IV. Other Issues
Farm Bureau has raised several other issues in this appeal. Because we have determined the district court should have granted a directed verdict for Farm Bureau on Bellville's claims, we determine we need not address these issues. We reverse the judgment for Bellville, including the award of punitive damages. We remand to the district court for entry of an order dismissing Bellville's claims.