Opinion ID: 2025009
Heading Depth: 1
Heading Rank: 3

Heading: Sampson's bad faith claim.

Text: Sampson's bad faith claim stems from American Standard's refusal to settle the claim for the full limits of UM ($25,000) coverage under the policy. Specifically, Sampson contends the district court erred in sustaining defendant American Standard's motion for partial summary judgment concerning her claim for bad faith. Although the record is unclear as to whether Sampson's bad faith claim was also based on failure to pay benefits under the medical coverage provision of the policy ($2000), she does raise this issue on appeal. To be successful in a first-party bad-faith claim, a plaintiff must prove by substantial evidence (1) the absence of a reasonable basis for denying the claim, and (2) that the defendant knew or had reason to know that its denial was without reasonable basis. [2] Dolan v. Aid Ins. Co., 431 N.W.2d 790, 794 (Iowa 1988) (recognizing a tort cause of action against insurer for bad-faith conduct concerning insured's claim); see also Thompson v. United States Fidelity & Guar. Co., 559 N.W.2d 288, 291 (Iowa 1997). Evidence is substantial if a reasonable mind would accept it as adequate to reach a conclusion. Stover v. Lakeland Square Owners Ass'n, 434 N.W.2d 866, 873 (Iowa 1989) (citations omitted). An insurance company has the right to debate claims that are fairly debatable without being subject to a bad faith tort claim. Morgan v. American Family Mut. Ins. Co., 534 N.W.2d 92, 96 (Iowa 1995). Thus, when an objectively reasonable basis for denying the claim exists, the insurer as a matter of law cannot be held liable for bad faith. Id. The debate may involve a dispute concerning an issue of fact or of law. Id. The reasonable basis for denying the claim, however, must exist at the time the claim is denied. See Morgan, 534 N.W.2d at 96; Central Life Ins. Co. v. Aetna Cas. & Sur. Co., 466 N.W.2d 257, 263 (Iowa 1991). The absence of a reasonable basis for denying the claim is an objective element. Morgan, 534 N.W.2d at 96. In Thompson we discussed whether the fairly debatable issue in a bad-faith case is a question of law for the court or a question for the jury. 559 N.W.2d at 290. We stated that the answer to this question depends on the facts of the individual case. Id. Based on the facts as presented in Thompson, we concluded that the fairly debatable issue was a question appropriately decided by the court. As explained below, we conclude that under the facts of the present case, the fairly debatable issue was also a question of law for the district court.
We first point out that the situation here is not one where the insurer has flatly denied the insured's claim for benefits. Cf. Morgan, 534 N.W.2d at 95 (insured filed claim for uninsured motorist benefits, which insurer denied after its claims committee reviewed insured's medical records). In fact, American Standard made payments to Sampson under the policy provisions; it reimbursed Sampson for lost wages under UM coverage and also paid Palmer Clinic under the medical coverage provisions for Sampson's treatment immediately after the accident, in March 1996, and again in September 1996, after Sampson filed her petition. Nothing in the record shows that American Standard refused to pay any bills submitted by Sampson. Rather, American Standard refused Sampson's demand to settle the claim for the full limits of UM coverage under the policy. [3] The question we must consider is whether American Standard had a reasonable basis for refusing to honor Sampson's settlement demand for the full limits of UM and medical coverage under the policy. Upon our review of the record, we conclude that it did. 1. The record presents several facts showing that Sampson's claim was fairly debatable, thus giving American Standard a reasonable basis for refusing to honor Sampson's demand for the full limits of UM and medical coverage. First, the parties seem to agree that the records American Standard had in its possession at the time attorney Soble made his settlement demand included: (1) copies of Sampson's postaccident records from Palmer Clinic; (2) copies of Dr. Milas's letters addressed to attorney Soble concerning Sampson's diagnosis; [4] and (3) the MRI film. The fact that the Palmer Clinic records, that American Standard initially received, started on page forty-nine suggested that Sampson had received chiropractic treatment at Palmer Clinic prior to the November 30 accident, a fact later confirmed by Dr. Illingworth's May 23, 1996, letter. [5] This fact raised a question in American Standard's view as to causation concerning Sampson's medical complaints, as conveyed to Dr. Milas, and whether those complaints could be attributed to the November 30 accident. In other words, whether the November 30 accident caused Sampson's present medical complaints was fairly debatable. We thus conclude that American Standard therefore had a reasonable basis for refusing to settle Sampson's claim for the full policy limits of UM coverage. Cf. Dolan, 431 N.W.2d at 794 (no bad faith where insured's previous back injury raised a fairly debatable issue concerning whether insured had any residual disability when the accident for which insured sought benefits occurred). The fact that Dr. Illingworth and Dr. Milas opined that Sampson's diagnosis of a syrinx or cavity in her spinal cord and associated physical complaints were caused by the accident did not make American Standard automatically obligated to pay Sampson the full limits of coverage available under the policy. This is because [a]n insurance company is not obligated to disregard the opinion of its own expert in favor of the insured's expert's opinion. Morgan, 534 N.W.2d at 97. 2. We believe that American Standard reasonably declined to honor Sampson's settlement demand for the full limits of UM and medical coverage until it had a chance to fully investigate the claim. Cf. Dolan, 431 N.W.2d at 794 (insured had right to depose plaintiff-insured and his physician before offering settlement amount). This fact is important because an insurer has a right to conduct an investigation concerning claims made by its insured. See Hoekstra v. Farm Bureau Mut. Ins. Co., 382 N.W.2d 100, 111 (Iowa 1986) (insurer had right to investigate cause and origin concerning fire in insured's home); Pirkl v. Northwestern Mut. Ins. Ass'n, 348 N.W.2d 633, 635 (Iowa 1984) (in the course of investigating a claim, insurer may require the insured to present adequate proof of loss before paying the claim); Amsden v. Grinnell Mut. Reinsurance Co., 203 N.W.2d 252, 255 (Iowa 1972) (noting that insurer could not be expected to pay a loss during investigation of fire at insured's business). We also point out that Sampson's policy expressly states that an insured must provide the insurer with medical, employment and other records and documents we request, as often as we reasonably ask, and permit us to make copies. The policy also states that American Standard has the right to investigate claims for benefits under the UM and medical coverage provisions of the policy. [6] Sampson thus was put on notice concerning her duty to provide records to American Standard. Sampson likewise was put on notice that American Standard would exercise its right to investigate any claims for benefits under the policy, including the right to determine whether medical bills presented by her were reasonable in amount, appropriate and necessary, and incurred because of the November 30 accident. Cf. AMCO Mut. Ins. Co. v. Lamphere, 541 N.W.2d 910, 914 (Iowa App.1995) (insured's lack of cooperation in providing documents requested by insurer established an objectively reasonable basis for denial of coverage and plaintiff-insured thus failed to present sufficient evidence to support bad faith claim). We also reject Sampson's contention that American Standard's investigation was inadequate. In a first-party bad faith claim, an imperfect investigation, standing alone, is not sufficient cause for recovery if the insurer in fact has an objectively reasonable basis for denying the claim. Reuter v. State Farm Mut. Auto. Ins. Co., 469 N.W.2d 250, 254-55 (Iowa 1991); see also Hollingsworth v. Schminkey, 553 N.W.2d 591, 596 (Iowa 1996); but cf. Kooyman v. Farm Bureau Mut. Ins. Co., 315 N.W.2d 30, 35 (Iowa 1982) (failure to investigate, standing alone, may establish bad faith in third-party bad faith claim). 3. In summary, we conclude that reasonable minds would not differ in finding that Sampson's claim for benefits under the policy was fairly debatable, based on Sampson's medical records, or lack thereof, that American Standard had in its possession at the time of the settlement demand. Sampson thus failed to produce substantial evidence that American Standard lacked a reasonable basis for denying her policy limits claim. See Thompson, 559 N.W.2d at 292. Accordingly, the initial question of whether Sampson's claim for the full policy limits of UM and medical coverage was fairly debatable was appropriate for the district court to decide as a matter of law. We have considered other arguments raised by plaintiff and find them unnecessary to address or without merit.