Opinion ID: 2177304
Heading Depth: 1
Heading Rank: 1

Heading: Existence of Independent Tort Action for Insurer's Bad Faith Failure to Settle First Party Claims.

Text: At the outset, plaintiff urges us to clarify the matter of whether this jurisdiction recognizes an independent tort based upon an insurer's bad faith in failing to settle a casualty loss claim with its own insured. The defendant association contends that we unequivocally rejected such a theory of liability in Brown Township Mutual Insurance Association v. Kress, 330 N.W.2d 291, 298 (Iowa 1983). We do not believe our holding in Kress is that clearly defined with respect to this issue. While we noted in Kress that we had in other cases declined to recognize such a theory of recovery, it appears that in those cases in which the issue had previously been considered, the claims which the insurer failed to pay were as a matter of law fairly debatable. See, e.g., Higgins v. Blue Cross of Western Iowa and South Dakota, 319 N.W.2d 232, 236 (Iowa 1982); M-Z Enterprises, Inc. v. Hawkeye Security Insurance Co., 318 N.W.2d 408, 414 (Iowa 1982). [1] We also inferred that this was the situation in Kress in denying the right to recover punitive damages in that case. As a result of our previous approach to claims of this nature, our law has been shaped on the basis of identifying the type of situation which does not permit recovery on an independent tort theory rather than identifying the type of situations, if any, which would support recovery on such a theory. Because of the apparent frequency with which this type of claim is being asserted, we conclude that some effort should be made to clarify its status under our law. The plaintiff urges that there is no logical basis for recognizing a cause of action in tort for acts of a liability insurer which cause harm to its insured as a result of the insurer's bad faith in representing the insured's interests against a third party claim [2] and in not also recognizing a similar cause of action against a casualty insurer who causes harm to its insured through the bad faith handling of a property loss claim. He cites Anderson v. Continental Insurance Co., 85 Wis.2d 675, 687, 271 N.W.2d 368, 374-75 (1978) as supporting the analogy between the two types of insurance claims. We are not nearly as persuaded as the Wisconsin court in Anderson that the rationale which recognizes an ancillary duty of a liability insurer to exercise good faith in the settlement of third party claims is equally applicable and of equal importance when an insured seeks payment of a claim for a property loss from his own casualty insurer. The relationship between the insurer and its insured in the two situations is markedly different. In the former situation, a clear fiduciary duty arises which places an affirmative duty on the insurer to investigate the claim and take such additional affirmative action as is required in the best interests of its insured. In the casualty insurance situation, the relationship between insurer and insured is for many purposes at arms length. The insurer has no clearly defined duty of investigation and may require the insured to present adequate proof of loss before paying the claim. The two parties are on opposite sides of the issue rather than being partners on the same side as in the liability insurance situation. If the issue were simply a theoretical one of whether the nature of this type of claim is one which should properly be recognized as a tort action we would be inclined to respond in the negative. Clearly, however, that is not the real issue presented. The real issue is whether punitive damages may be recovered in some circumstances for denial of a first party casualty loss claim by an insurer for other than legitimate reasons. The defendant association urges that such failure is only a breach of contract, and we should adhere to the rule that punitive damages are not recoverable for that type of claim. We thoroughly reviewed the law surrounding recovery of punitive damages in contract actions in Pogge v. Fullerton Lumber Co., 277 N.W.2d 916, 918-20 (Iowa 1979). We determined in Pogge that in considering whether punitive damages should be permitted, the nature of the conduct is more significant than the legal label which is attached to the conduct. We recognized that in situations which satisfied the elements of a claim for intentional infliction of emotional distress an act which is a breach of contract may also support a claim for punitive damages. Id. at 920. We concluded that [I]n exploring the dimensions of conduct invoking an award for punitive damages,... such an award was permissible where defendant was guilty of malice, fraud, gross negligence, or an illegal act. Id. In Kooyman, 315 N.W.2d at 34 (Iowa 1982), we recognized that in the area of bad faith settlements of third party liability claims by a liability insurer not all acts constituting bad faith will support an award of punitive damages. We implied, however, that such damages are recoverable in situations involving positive misconduct of a malicious, illegal, or an immoral nature. Based upon the considerations discussed in Pogge and Kooyman, we are unable to accept the defendant's contention that in no instance will the denial of a valid claim by a casualty insurer support a claim for punitive damages in addition to the recovery of the loss which should have been paid under the policy. We conclude, however, that such recovery may not be predicated on action which involves no more than upsetting the justified expectations of the insured. Tested by these principles, we find that the trial court in the present case was correct in setting aside the jury's award of punitive damages in its ruling on defendant's motion for judgment notwithstanding the verdict. The evidence of theft submitted to the defendant association by plaintiff was certainly not strong. At several places in the record, plaintiff himself is quite equivocal as to his own beliefs in this regard. There is no claim of fraud in defendant's denial of the claim. There is no indication in the record of any acts by the defendant from which it can be inferred that it acted with malice in denial of the claim. We affirm the district court on plaintiff's appeal.