Modesto Paulino v. Chartis Claims, Inc., 774 F.3d 1161

Paulino, an undocumented Mexican national, became permanently paraplegic in a workplace injury insured by Chartis; Chartis paid medical and rehab costs.
After rehabilitation, CCS set an anticipated discharge April 30, 2006; Paulino required wheelchair-accessible, specially equipped housing but had very limited income and was ineligible for public assistance due to immigration status.
Chartis could not locate suitable housing and on May 6, 2006 withdrew authorization to pay Paulino’s CCS living expenses (rent, utilities, groceries, cable), concluding the stay was no longer medically necessary.
Paulino obtained a Commissioner ruling ordering Chartis to pay pending placement; Chartis sought judicial review and the state court affirmed the Commissioner.
Paulino sued Chartis in Iowa state court (bad-faith denial of benefits, consequential and punitive damages); Chartis removed to federal court; the district court granted summary judgment for Chartis; Paulino appealed to the Eighth Circuit.

Issue	Paulino's Argument	Chartis's Argument	Held
Whether Chartis lacked a reasonable basis in denying payment for CCS living expenses	Denial was unreasonable because Iowa cases broadly interpret §85.27 to cover nonmedical expenses for immobile claimants	Denial was fairly debatable because §85.27 covers medical services/appliances, not general living expenses; prior cases involved appliances/vehicle/home adaptations	Held: Denial was fairly debatable; summary judgment for Chartis affirmed
Whether Chartis’s decision was motivated by discriminatory animus due to Paulino’s undocumented status	Chartis investigated immigration status and intended denial to avoid payment / force deportation	Immigration-status inquiries related to housing eligibility; Chartis would remain liable even if deported; status irrelevant to entitlement	Held: No sufficient evidence of discriminatory motive; summary judgment affirmed
Whether Chartis acted in bad faith by not paying after the Commissioner’s July 2008 reversal	Failure to pay after Commissioner’s order shows bad faith	Chartis timely sought judicial review under Iowa Code §17A.19; claim remained fairly debatable, so nonpayment pending appeal was not bad faith	Held: Chartis’s request for review did not constitute bad faith; summary judgment affirmed

Bellville v. Farm Bureau Mut. Ins. Co., 702 N.W.2d 468 (Iowa 2005) (framework for bad-faith denial: objective reasonable-basis and subjective knowledge)
Stone Container Corp. v. Castle, 657 N.W.2d 485 (Iowa 2003) (§85.27 covers reasonable medical services and necessary appliances; computer/adaptations compensable)
Manpower Temporary Servs. v. Sioson, 529 N.W.2d 259 (Iowa 1995) (van modifications compensable; related maintenance costs not medical necessities)
Quaker Oats Co. v. Ciha, 552 N.W.2d 143 (Iowa 1996) (home and vehicle modifications comparable to extensions of wheelchair access)
Liberty Mut. Ins. Co. v. Pella Corp., 650 F.3d 1161 (8th Cir. 2011) (insurer can defeat bad-faith claim by showing at least one reasonable basis for denial)
Rodda v. Vermeer Mfg., 734 N.W.2d 480 (Iowa 2007) (an impartial adjudicator’s agreement with insurer supports reasonableness of insurer’s position)