Opinion ID: 1823962
Heading Depth: 1
Heading Rank: 4

Heading: Reverse Bad Faith.

Text: In its appeal, Farm Bureau argues that we should recognize a cause of action for reverse bad faith in favor of insurance companies when an insured brings a frivolous bad faith claim against the insurer. Farm Bureau emphasizes it does not dispute the insured's right to file a contract claim for coverage, but it objects to the linking of a frivolous tort claim to the contract claim in an attempt to gain unfair advantage in the contract claim. Farm Bureau asserts that its denial of coverage was clearly fairly debatable. It contends the district court's summary judgment ruling against Verdell on his breach of contract claim establishes this as a matter of law. It also claims Verdell failed to make a close study of the policy before bringing the bad faith claim and that he could not point to any particular provision in the policy that he relied on in determining Farm Bureau was being unreasonable. Farm Bureau therefore contends that Verdell's allegation of bad faith denial of coverage was made in bad faith. Insurance contracts contain an implied covenant of good faith that neither party will do anything to injure the rights of the other in receiving the benefits of the agreement. Kooyman v. Farm Bureau Mut. Ins. Co., 315 N.W.2d 30, 33 (Iowa 1982). We have permitted claims against insurance companies for breach of the implied covenant of good faith. First, we recognized the tort of bad faith in so-called third-party situations where an insurer's bad faith refusal to settle a third-party's claim against the insured within the policy limits exposes the insured to monetary liability exceeding policy limits. Id. at 33-34. Later, we adopted the first-party bad faith tort. Dolan v. Aid Ins. Co., 431 N.W.2d 790, 791 (Iowa 1988). First-party bad faith claims involve an insured's attempt to recover for his or her own losses allegedly covered under the insurance policy. The test for first-party bad faith is that the insured must show the absence of a reasonable basis for denying the claim. Dolan, 431 N.W.2d at 794. When coverage is reasonably debatable the insurer has the right to have its rights adjudicated without being subject to tort claims. Clark-Peterson Co. v. Independent Ins. Assocs., 514 N.W.2d 912, 914 (Iowa 1994). Farm Bureau contends that the mutual obligation of good faith, together with its right to dispute coverage when it is fairly debatable, favors adopting the tort of reverse bad faith. It also asserts that recognition of the tort of first-party bad faith has given an unfair advantage to insureds, creating the need for a reverse bad faith cause of action. Verdell argues it is not necessary to recognize a reverse bad faith cause of action because rule 80(a) sanctions and abuse of process provide adequate alternate remedies for frivolously filed first-party bad faith suits. Some commentators have begun to discuss possible adoption of a reverse bad faith cause of action. See Douglas R. Richmond, An Overview of Insurance Bad Faith Law and Litigation, 25 Seton Hall L.Rev. 74 (1994); Douglas R. Richmond, Insured's Bad Faith as Shield or Sword: Litigation Relief for Insurers?, 77 Marq.L.Rev. 41 (1993); William S. Anderson, Placing a Check on an Insured's Bad Faith Conduct: The Defense of Comparative Bad Faith, 35 S.Tex. L.Rev. 485 (1994); Patrick E. Shipstead & Scott S. Thomas, Comparative and Reverse Bad Faith: Insured's Breach of Implied Covenant of Good Faith and Fair Dealing as Affirmative Defense or Counterclaim, 23 Tort & Ins.L.J. 215 (1987); John F. Dobbyn, Is Good Faith in Insurance Contracts a Two-Way Street?, 62 N.D.L.Rev. 355 (1986). However, we are aware of no jurisdiction that has adopted the tort of reverse bad faith. In the only published opinion we could find squarely addressing the issue, the Supreme Court of Ohio rejected the tort. Tokles & Son, Inc. v. Midwestern Indem. Co., 65 Ohio St.3d 621, 632-34, 605 N.E.2d 936, 945 (1992). California permits the defense of comparative bad faith to bad faith claims. California Casualty Gen. Ins. v. Superior Court, 173 Cal.App.3d 274, 283-84, 218 Cal. Rptr. 817, 822-23 (4 Dist.1985). The California case, however, is distinguishable from this case; nor do we find it persuasive support for adoption of an independent cause of action for reverse bad faith. We decline to adopt a tort of reverse bad faith. Farm Bureau argues that insurers should have a remedy other than abuse of process because abuse of process requires an element of a wrongful or illegal primary purpose. It asserts insurers should not be limited to such a narrow remedy. A motion for rule 80(a) sanctions, however, does not require a wrongful motive to remedy the filing of a frivolous claim. We believe sanctions under Iowa Rule of Civil Procedure 80(a) provide an adequate remedy to insurance companies when an insured files a frivolous bad faith claim. Rule 80(a) provides an attorney's signature on every motion, pleading, or other paper, is a certification that the attorney has read the motion, pleading, or other paper; that to the best of Counsel's knowledge, information, and belief, formed after reasonable inquiry, it is well grounded in fact and is warranted by existing law or a good faith argument for the extension, modification, or reversal of existing law; and that it is not interposed for any improper purpose, such as to harass or cause an unnecessary delay or needless increase in the cost of litigation. Iowa R.Civ.P. 80(a). Violation of the rule subjects the signer and the represented party to sanctions: If a motion, pleading, or other paper is signed in violation of this rule, the court, upon motion or upon its own initiative, shall impose upon the person who signed it, a represented party, or both, an appropriate sanction, which may include an order to pay the other party or parties the amount of the reasonable expenses incurred because of the filing of the motion, pleading, or other paper, including a reasonable attorney fee. Id. Farm Bureau seems to suggest rule 80(a) sanctions are insufficient because they are not awarded with enough regularity. We note, however, that we have upheld rule 80(a) sanctions, together with substantial damages, where a frivolous medical malpractice case was filed. Fields v. Iowa Dist. Court, 468 N.W.2d 38, 40 (Iowa 1991). Fields indicates that courts are willing to impose sanctions when confronted with an appropriate case. Because we do not recognize a separate cause of action for reverse bad faith, the directed verdict against Farm Bureau on this counterclaim was appropriate.