Toby Thornton v. American Interstate Insurance Company
2017 Iowa Sup. LEXIS 52
| Iowa | 2017Background
- Toby Thornton, a quadriplegic from a 2009 workplace truck rollover, received weekly workers’ compensation payments at a PTD rate and sought a partial commutation (lump-sum) to buy a home and cover expenses.
- American Interstate (insurer) voluntarily paid stipulated PTD weekly benefits, set reserves for PTD, arranged housing/van modifications and other benefits, but nevertheless contested Thornton’s PTD status before the commissioner and resisted his commutation petition.
- The commissioner found Thornton permanently and totally disabled (PTD) and later granted a partial commutation; the commissioner criticized the insurer’s defense as weak and awarded certain hearing costs to Thornton.
- Thornton sued the insurer for common-law first-party bad faith. On cross-motions, the district court held as a matter of law the insurer acted in bad faith beginning March 11, 2013 (contest of PTD and commutation), leaving earlier-period bad-faith issues and damages to a jury.
- The jury found bad faith starting September 1, 2009, and awarded $284,000 compensatory and $25 million punitive damages; the district court denied post-trial relief, and the insurer appealed. The Supreme Court retained the appeal.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Can an insurer be liable for first-party bad faith while voluntarily paying full weekly benefits? | Thornton: yes — bad faith can arise from unreasonable contesting/delaying even if weekly payments are made. | American Interstate: no — paying full benefits precludes a bad-faith claim absent denial of payments or breach of specific policy term. | Court: Yes. An insurer may be liable for bad faith when it unreasonably contests PTD or delays necessary care despite paying weekly benefits. |
| Was summary judgment correctly entered that insurer acted in bad faith as a matter of law for contesting PTD and commutation? | Thornton: insurer had no reasonable basis to dispute PTD or to resist commutation; summary judgment appropriate. | American Interstate: factual and legal disputes existed; had reasonable bases (e.g., commissioner decides commutation). | Court: Affirmed summary judgment on contesting PTD (no reasonable basis); reversed summary judgment on resisting commutation (commutation was fairly debatable). |
| Were damages instructions/support (pain & suffering; delay harms from wheelchair/commutation) supported by evidence and within jurisdiction? | Thornton: evidence supported pain/suffering from delayed wheelchair and loss from delayed commutation; district court had jurisdiction over bad-faith damages. | American Interstate: some damages (medical-care delay) fall within commissioner's exclusive jurisdiction; insufficient evidence for pain/suffering and home-equity loss. | Court: District court has jurisdiction over bad-faith damages; sufficient evidence supported submission of physical and emotional pain/suffering from delayed wheelchair. But many damages tied to commutation delay must be retried because commutation-bad-faith finding was reversed. |
| Can plaintiff recover attorney fees for prosecuting the bad-faith action? | Thornton: seeks fees incurred prosecuting bad-faith suit as consequential or under common-law exception. | American Interstate: under the American rule, attorney fees are not recoverable absent statute/contract; common-law exception inapplicable. | Court: Denied recovery of fees incurred prosecuting the bad-faith suit; plaintiff may recover attorneys’ fees incurred to establish coverage (e.g., in workers’ comp proceedings) but not fees for the bad-faith litigation itself. |
Key Cases Cited
- Dolan v. Aid Ins. Co., 431 N.W.2d 790 (Iowa 1988) (recognized tort of first-party insurer bad faith based on special insurer/insured relationship)
- Boylan v. American Motorists Ins., 489 N.W.2d 742 (Iowa 1992) (extended first-party bad-faith tort to workers’ compensation insurers)
- McIlravy v. North River Ins., 653 N.W.2d 323 (Iowa 2002) (articulated elements for workers’ compensation bad-faith claim)
- Johnson v. Farm Bureau Mutual Ins., 533 N.W.2d 203 (Iowa 1995) (discussed implied covenant of good faith in insurance contracts)
- Gibson v. ITT Hartford Ins., 621 N.W.2d 388 (Iowa 2001) (described denial element in bad-faith claims)
- Bellville v. Farm Bureau Mutual Ins., 702 N.W.2d 468 (Iowa 2005) (explained fairly debatable standard and summary-judgment context)
- Rodda v. Vermeer Mfg., 734 N.W.2d 480 (Iowa 2007) (reasonableness of insurer’s legal position may be shown by judicial acceptance elsewhere)
- Kiner v. Reliance Ins., 463 N.W.2d 9 (Iowa 1990) (district court has jurisdiction over bad-faith claims against workers’ compensation insurers)