Bad Faith - Federal Court Rejects Automatic "Directed Verdict" Rule Under Iowa’s First-Party Bad Faith Law
Earlier this week, the U.S. District Court for the Northern District of Iowa held that Iowa law has not adopted an automatic "directed verdict" rule as part of its standard for first-party bad faith claims. In Niver v. Travelers Indemnity Co.,
No. C 01-3064-MWB, 2006 WL 267157 (N.D. Iowa, Feb. 6, 2006), the district court conducted an extensive examination of the Iowa Supreme Court's decision in Bellville v. Farm Bureau Mutual Insurance Co., 702 N.W.2d 468
(2005), and rejected the insurer's argument that Bellville had made a "sea change" in Iowa’s first-party bad faith standard.
The plaintiff in Niver sued for alleged bad faith failure to pay workers compensation benefits. An initial motion for summary judgment by the insurer was denied in March 2005. However, in November 2005, the insurer again sought
summary judgment on the grounds that the recent Bellville decision changed the standards for determining bad faith in first-party cases. Specifically, it contended that Bellville established that unless a court
is prepared to grant a directed verdict to the insured on his or her claim under the policy, the court must find that the insurance claim was "fairly debatable" and the insurer is entitled to a directed verdict or summary
judgment on the bad faith claim.
The district court rejected the insurer’s interpretation and concluded that in Bellville "there is no signal – indeed, there is not the merest hint – that the Iowa Supreme Court intended to modify
Iowa law or to reject its prior formulations" of the elements for first-party bad faith claims. Rather, the court held, although Bellville could be read to suggest that a plaintiff’s entitlement to a directed
verdict is relevant to the determination of whether or not the insurer had a reasonable basis for denying the plaintiff’s claim, Bellville did not establish that a determination that the plaintiff was not entitled
to a directed verdict would automatically be dispositive of the outcome of the bad faith claim. In the court’s view, the trial court was still required to review the facts and particular circumstances of the case in order
to determine whether the issues were fairly debatable. At most, the court said, Bellville established that an insurer "should generally" be entitled to a directed verdict on the bad faith claim unless the insured
is entitled to a directed verdict on its policy claim.
Applying these standards, the district court denied summary judgment to the insurer and granted summary judgment to the plaintiff on his bad faith claim.