Opinion ID: 1599033
Heading Depth: 1
Heading Rank: 3

Heading: Third-Party Bad Faith.

Text: Defendants argue that a third-party bad faith cause of action is not recognized in this state as between a third-party claimant and a tortfeasor's insurer, and therefore summary judgment was proper on this issue. They cite Long v. McAllister, 319 N.W.2d 256 (Iowa 1982). In Long, the plaintiff asked this court to recognize a cause of action that would permit a third party to recover against an insurer for the insurer's bad faith in failing to settle a liability claim against the insured. We refused to recognize such a cause of action. However, we distinguished the situation in Long from third-party excess judgment cases and first-party actions. In each of those situations the duty of good faith arises out of the insurance contract and runs from the insurer to the insured. In an excess judgment case, the issue is whether the insurer is guilty of bad faith toward the insured in failing to settle an injured party's claim within policy limits. See, e.g., Kooyman v. Farm Bureau Ins. Co., 315 N.W.2d 30 (Iowa 1982). In a first-party action, the issue is whether the insurer is guilty of bad faith in failing to pay the insured's own claim. See e.g., Dolan v. Aid Ins. Co., 431 N.W.2d 790 (Iowa 1988). The reasoning behind these decisions is that while an insurer has a fiduciary relationship with its insured, it has an adversarial relationship with a third-party claimant. Long, 319 N.W.2d at 262. Therefore, a tort victim, as a third-party claimant, cannot compel a tortfeasor's insurer to negotiate and settle a claim in good faith anymore than he could compel the tortfeasor to do so himself. Plaintiff contends that our decision in Dolan compels a different result. He argues that Dolan is a logical extension of the remedy formulated in Kooyman where we recognized a cause of action for third-party bad faith in an excess judgment situation. However, plaintiff's support from these cases is tenuous. In Kooyman, the plaintiff, representing the injured party, received from the tortfeasor, as part of a settlement, an assignment of the tortfeasor's claim for bad faith against its own insurance company. Plaintiff then sued the tortfeasor's insurer in an excess judgment action alleging bad faith. Dolan, like Kooyman, is based on a relationship between the insurer and the insured. It does not involve parties to an adversarial relationship as in Long and the present case. Because Long is applicable to the factual situation here, we agree with the district court in rejecting plaintiff's cause of action for bad faith as a matter of law. Plaintiff makes an additional claim that the rejection of his third-party bad faith cause of action against defendants violates the equal protection clauses of the United States and Iowa constitutions. Plaintiff bases his equal protection claim on the different treatment given to the insured under an insurance contract and a third party to the contract. The law currently provides that an insured may sue an insurer for bad faith while a third party may not. See Dolan, 431 N.W.2d at 790; Long, 319 N.W.2d at 256; Kooyman, 315 N.W.2d at 30. We agree with the district court in rejecting this claim. Again, the distinction between an insured and a third-party claimant is that the insured has a contractual relationship with the insurer. The insurer has a greater duty to the insured than to third parties. There is a legitimate and rational basis for distinguishing between these parties on the question of whether they can maintain a private cause of action in the event of an insurer's bad faith. Plaintiff's equal protection claim has no merit.