Chadima v. National Fidelity Life Ins. Co.
| Decision Date | 25 March 1994 |
| Docket Number | No. 3-90-CV-30058.,3-90-CV-30058. |
| Citation | 848 F. Supp. 1418 |
| Parties | George W. CHADIMA, et al., Plaintiffs, v. NATIONAL FIDELITY LIFE INSURANCE COMPANY, Defendant, and State of Iowa, ex rel., Civil Reparations Trust Fund, Intervenor. |
| Court | U.S. District Court — Southern District of Iowa |
COPYRIGHT MATERIAL OMITTED
Kevin H. Collins of Shuttleworth & Ingersoll, P.C., Cedar Rapids, Iowa, for plaintiffs.
Thomas J. Shields, Lane & Waterman, Davenport, Iowa, for defendant.
TABLE OF CONTENTS
I. INTRODUCTION. 1420
II. FACTUAL BACKGROUND. 1422
III. STATE OF IOWA'S MOTION FOR JOINDER OR INTERVENTION. 1423
IV. CHADIMA'S CLAIM FOR COMMON LAW ATTORNEY FEES. 1424
V. NATIONAL FIDELITY'S TRIAL MOTION FOR JUDGMENT AS A MATTER
OF LAW AND POST TRIAL MOTIONS. 1425
A. Introduction 1425
B. The Appropriate Standard for Determining National Fidelity's Post Trial
Motions 1426
C. National Fidelity's Challenge to Chadima's Recovery Under the Theory of
First-Party Bad Faith 1428
1. Introduction and Overview of First-Party Bad Faith Under Iowa Law 1428
2. Was Chadima's Claim "Fairly Debatable" By National Fidelity 1430
D. National Fidelity's Challenge to Chadima's Recovery Under Breach of
Contract 1433
VI. CONCLUSION. 1435
This litigation arises from a dispute regarding which one of two National Fidelity Life Insurance Company ("National Fidelity") policies for George Milton Chadima was in effect at the time of his death in 1989. A jury returned a verdict for compensatory damages on Plaintiffs' breach of contract and first-party bad faith claims. The jury also awarded punitive damages on the bad faith claim. Plaintiffs seek an additional remedy of common law attorney fees. Plaintiffs also seek to overturn the jury finding by special interrogatory that National Fidelity's conduct was not directed specifically at the Plaintiffs. This would allow the Plaintiffs to defeat Intervenor State of Iowa's statutory claim of entitlement to 75 percent of the punitive damage award. National Fidelity, through post trial motions, under Federal Rules of Civil Procedure 50 and 59, is attacking the validity of the jury's verdict and subsequent judgment on both the breach of contract and first-party bad faith claims.
This breach of insurance contract and first-party bad faith case was removed from state court to the United States District Court for the Southern District of Iowa, Davenport Division, on April 30, 1990. The litigation arises as a result of the purchase of life insurance by George Milton Chadima from National Fidelity in January of 1986 and his attempt to obtain a modified or new policy from National Fidelity in 1989. George Milton Chadima died on October 26, 1989. The Plaintiffs in this litigation are his son, George W. Chadima, and the Swisher Trust and Savings Bank as trustees of the George Milton Chadima and Lillian Esther Chadima Trust; and Lillian Esther Chadima and George W. Chadima as Executors of the Estate of George Milton Chadima, Deceased (collectively referred to as "Chadima" or "Plaintiffs").
On March 15, 1993, the parties filed a consent to proceed before a United States magistrate judge in accordance with the provisions of 28 U.S.C. § 636(c). A jury trial commenced on January 18, 1994.
On January 20, 1994, the jury returned a verdict in favor of Chadima on both the breach of an insurance contract claim and first-party bad faith claim. The jury awarded the Plaintiffs $34,029.00 in compensatory damages and $100,000.00 in punitive damages. The punitive damages were awarded on the first-party bad faith claim. Judgment, based upon the jury verdict, was entered on January 24, 1994.
Concerning the punitive damages, in response to a special interrogatory required by Iowa Code § 668A.1(1)(b) (1993), the jury answered in the negative, "Whether the conduct of the defendant was directed specifically at the claimant, or at the person from which the claimant's claim is derived." Iowa Code § 668A.1(1)(b) (1993). As a result, "after payment of all applicable costs and fees, an amount not to exceed twenty-five percent of the punitive or exemplary damages awarded may be ordered paid to the claimant, with the remainder of the award to be ordered paid into a civil reparations trust fund administered by the state court administrator." Iowa Code § 668A.1(2)(b). If the jury had answered the special interrogatory that National Fidelity's conduct was directed specifically at Chadima, then Chadima would not be required to share the punitive damage award with the State of Iowa Civil Reparations Trust Fund. Iowa Code § 668A.1(2)(b) (1993).1
Not surprisingly, National Fidelity has filed post trial motions pursuant to Federal Rules of Civil Procedure 50 and 59 to set aside the jury's verdict and the judgment. Additionally, Chadima has filed a motion for entry of judgment pursuant to Federal Rule of Civil Procedure 50 seeking to set aside the jury's determination pursuant to § 668A.1(1)(b) that National Fidelity's conduct was not directed specifically at Chadima. Additionally, pursuant to an agreement of the parties at trial, deferring the questions of Chadima's entitlement to and amount of reasonable common law attorney fees, Chadima has moved for attorney fees and costs in the amount of $60,540.21. National Fidelity has strenuously resisted Chadima's entitlement to and the amount of requested attorney fees.
A hearing on post trial motions and Chadima's request for attorney fees was held on March 11, 1994. Chadima was represented by Kevin H. Collins of Shuttleworth & Ingersoll, P.C., Cedar Rapids, Iowa. National Fidelity was represented by Thomas J. Shields of Lane & Waterman, Davenport, Iowa. The State of Iowa, as a result of their interest in 75 percent of the punitive damages being awarded to the civil reparations trust fund was represented at the hearing by Richard E. Mull, Iowa Assistant Attorney General. Immediately prior to the hearing on post trial motions, the State of Iowa ex relatione Civil Reparations Trust Fund filed a written motion for joinder or intervention. Before turning to Chadima's motion for attorney fees and the post trial motions filed by Chadima and National Fidelity, the court will briefly set forth the factual background and address the State of Iowa's motion for joinder or intervention.
The following facts are not seriously in dispute. In January of 1986 National Fidelity issued Policy No. 550529, a declining death benefit policy, to George Milton Chadima. This was not the coverage that George Milton Chadima desired and he requested that National Fidelity convert the policy to a fixed death benefit policy of $100,000.00. National Fidelity declined to convert the policy but indicated it would be willing to issue a new fixed death benefit policy with a death benefit of $90,000.00. National Fidelity instructed George Milton Chadima to return his policy together with an executed policy request form. In July 1989, George Milton Chadima sent to National Fidelity his insurance policy and the executed policy owner request form.
The policy owner request form indicated that the change would not be effective until approved in writing by the company. However, George Milton Chadima's actual policy of insurance provided that any changes in coverage were effective upon receipt by the company.
George Milton Chadima died on October 26, 1989 before the policy had been changed or reissued by National Fidelity. As of the date of George Milton Chadima's death, his original policy had a face value of $134,973.20. George Milton Chadima was not notified in writing by National Fidelity prior to his death of the change in policies he had requested.
On January 11, 1990, National Fidelity tendered a check in the amount of $91,423.97 in full payment of the death benefits under Policy No. 550529 (). Prior to forwarding this check, Catherine Bicknell White, a claims examiner for National Fidelity, reviewed the claim and the company file and indicated she believed Chadima was entitled to the amount of $136,692.72. However, after consultation between Jan Perrine, the claims manager for National Fidelity, and Robert Burkett, National Fidelity's association general counsel, a decision was made to tender a check in the amount of $91,423.97 in full payment.
Plaintiffs, through their attorneys, promptly notified National Fidelity that the policy had not been changed and that the Plaintiffs were entitled to the greater amount arising under the initial policy. National Fidelity initially refused to pay the full amount due under the original policy.
At this posture of the proceedings, there are substantial factual conflicts and the parties' assertions of what transpired differ dramatically. In Plaintiffs' view, associate general counsel Robert Burkett and claims manager Jan Perrine intentionally concealed the fact that the policy request form had not been acted upon in an attempt to persuade the Plaintiffs to accept the lesser amount that would be due them under the newer policy...
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