Bates v. Allied Mut. Ins. Co.

• Decision Date: 20 March 1991
• Docket Number: No. 89-1805,89-1805
• Parties: George BATES, Appellant, v. ALLIED MUTUAL INSURANCE COMPANY, Appellee, and Darwin Van Baale, Defendant, and Gene R. La Suer, Appellee.
• Court: Iowa Supreme Court

Page 255

467 N.W.2d 255

George BATES, Appellant, v. ALLIED MUTUAL INSURANCE COMPANY, Appellee, and Darwin Van Baale, Defendant,

and

Gene R. La Suer, Appellee.

No. 89-1805.

Supreme Court of Iowa.

March 20, 1991.

Roger J. Kuhle, Des Moines, for appellant.

Jack Hilmes and Thomas G. Fisher, Jr. of Duncan, Jones, Riley & Finley, P.C., Des Moines, for appellee Allied Mutual Ins. Co.

L.R. Voigts of Nyemaster, Goode, McLaughlin, Voigts, West, Hansell & O'Brien, Des Moines, for appellee Gene R. La Suer.

Considered by McGIVERIN, C.J., and HARRIS, NEUMAN, SNELL, and ANDREASEN, JJ.

SNELL, Justice.

Appellant, George Bates, appeals from an adverse ruling in the district court on motions for summary judgment filed by appellees Allied Mutual Insurance Company (Allied) and Gene R. La Suer. The district court granted appellees' motions holding (1) that plaintiff, as a third-party claimant, does not have a cause of action against an insurer, or its attorney, based on bad faith; (2) that Iowa Code section 507B (1985) does not create a private cause of action; (3) that defendants did not perpetrate a fraud upon the plaintiff; and (4) that plaintiff did not sustain severe emotional distress as a result of defendants' conduct. We conclude that the district court decided all issues correctly, and therefore affirm the district court's ruling granting defendants' motions for summary judgment.

I. Background Facts and Proceedings.

The circumstances of this case begin with a motor vehicle accident involving Bates and Darwin Van Baale that occurred on September 8, 1984. The accident took place at the intersection of Army Post Road and Southeast Fifth Street in Des Moines, Iowa. Bates was traveling South on Southeast Fifth when he collided with an automobile operated by Van Baale. Bates was taken to Iowa Lutheran Hospital following the accident. Van Baale was apparently uninjured and his passenger, David Hedlund, sustained minor injuries but refused treatment. Van Baale and Hedlund claimed that Van Baale had the green light, while Bates had the red. Bates was at first unsure of the color of his light, but later claimed he had the green.

Following an interrogation of the two drivers, a police officer issued Bates a summons for failure to stop at a traffic signal. Bates pled not guilty to the charge and the matter was later tried before a jury. At trial, Bates and Van Baale testified, but not Hedlund. Bates was acquitted on the charges.

Bates later filed a personal injury suit against Van Baale for damages arising out of the accident. Allied, Van Baale's insurance carrier, hired Gene R. La Suer to defend Van Baale in the suit. Throughout discovery, Van Baale and Hedlund continued to claim that Van Baale had the green light and was not liable. Defense counsel believed the case was defensible and that a defense verdict was likely. He thought that two witnesses, Van Baale and Hedlund, would testify the light for Van Baale was green, and a police officer would testify that when he talked with Bates in the hospital he acknowledged that his light "may have been red." He also knew that Bates' insurance company had paid the property damage claim of Van Baale and the personal injury claim of Hedlund.

A bench trial on Bates' suit began on the morning of May 26, 1987. During the morning session, the parties commenced with a brief dispute relating to discovery and then gave opening statements to the court. Following opening statements, the court took the testimony of Bates and two other witnesses. During the noon recess, La Suer telephoned Hedlund in California to discuss the testimony to be given at trial upon his return. At that point, Hedlund revealed for the first time he had lied about the accident, and that Van Baale was the one who had run the red light on the night of September 8, 1984.

Immediately after speaking with Hedlund, La Suer telephoned Chris Angier, an adjuster for Allied, and informed him of the change in testimony. Angier then gave La Suer authority to spend up to the policy limits of $20,000 to settle the case. La Suer then confronted Van Baale with Hedlund's change in testimony, at which time Van Baale admitted that he ran through the red light.

After a brief contemplation of his options, La Suer negotiated with Bates' counsel, Steve Lombardi, and ultimately agreed to settle the suit for $15,000 plus $1500 in court costs. This was an amount below the policy limits, which, consequently, would prevent Bates from collecting on his own underinsurance policy. La Suer did not tell Bates or his attorney about the change in Hedlund's testimony. The settlement was then dictated into the record by attorney Lombardi and the trial was adjourned.

By the next day La Suer had decided he should withdraw from the case. He telephoned Allied and attempted to telephone Van Baale to set up a meeting at which he would explain his withdrawal. Shortly thereafter, Bates' attorney, Lombardi, contacted La Suer and explained that he had found out about Van Baale and Hedlund's perjured testimony. The two attorneys then agreed to hold a hearing before the district court judge who presided over the case to allow La Suer to withdraw. A hearing was set for that afternoon, May 27, 1987.

The hearing was attended by La Suer, Lombardi and Bates. At the conclusion of the hearing the court approved the withdrawal of La Suer pending an appearance by another counsel and notice to Van Baale. Within two days of La Suer's withdrawal, Tom Henderson, as counsel retained by Allied for Van Baale, offered the full policy limits of $20,000 to Bates in settlement of the case. Eventually, a settlement was reached with Bates accepting the $20,000 from Allied and another amount from his own company based on an underinsurance clause.

Bates then filed the present suit against Allied, Van Baale and La Suer, alleging bad faith, unfair trade practices, fraud and intentional infliction of emotional distress. Allied and La Suer moved for summary judgment which was granted by the district court in a ruling filed November 15, 1989. Bates appeals from this ruling.

Our scope of review is determined by the nature of the trial proceedings. See Medd v. Medd, 291 N.W.2d 29, 31 (Iowa 1980). This action was filed and tried at law. Therefore, our review is for correction of errors at law. Iowa R.App.P. 4.

II. Summary Judgment.

Iowa Rule of Civil Procedure 237 sets forth the standards to be applied by the trial court in deciding summary judgment motions. That rule states in pertinent part that:

The judgment sought shall be rendered forthwith if the pleadings, depositions, answers to interrogatories, and admissions on file, together with the affidavits, if any, show that there is no genuine issue as to any material fact and that the moving party is entitled to a judgment as a matter of law....

Iowa R.Civ.P. 237(c).

"The purpose of summary judgment is to enable a judgment to be obtained promptly and without the expense of a trial when there is no genuine and material fact issue present." Drainage Dist. No. 119 v. Incorporated City of Spencer, 268 N.W.2d 493, 499 (Iowa 1978). The moving party must demonstrate both the absence of any such issue, and that he is entitled to judgment as a matter of law. Suss v. Schammel, 375 N.W.2d 252, 254 (Iowa 1985). The trial court is required to examine the entire record before it in a light most favorable to the nonmoving party. Matherly v. Hanson, 359 N.W.2d 450, 453 (Iowa 1984); Frohwein v. Haesemeyer, 264 N.W.2d 792, 795-96 (Iowa 1978); Amco Ins. Co. v. Stammer, 411 N.W.2d 709, 711 (Iowa App.1987). "If, upon this examination, the court determines no such issue is present, and the movant is entitled to judgment as a matter of law, entry of summary judgment is proper." Drainage Dist. No. 119, 268 N.W.2d at 499-500 (citing Lewis v. State, 256 N.W.2d 181, 186 (Iowa 1977); Daboll v. Hoden, 222 N.W.2d 727, 731 (Iowa 1974); Davis v. Comito, 204 N.W.2d 607, 611-12 (Iowa 1973)).

III. Third-Party Bad Faith.

Defendants argue that a third-party bad faith cause of action is not recognized in this state as between a third-party claimant and a tortfeasor's insurer, and therefore summary judgment was proper on this issue. They cite Long v. McAllister, 319 N.W.2d 256 (Iowa 1982). In Long, the plaintiff asked this court to recognize a cause of action that would permit a third party to recover against an insurer for the insurer's bad faith in failing to settle a liability claim against the insured. We refused to recognize such a cause of action. However, we distinguished the situation in Long from third-party excess judgment cases and first-party actions. In each of those situations the duty of good faith arises out of the insurance contract and runs from the insurer to the insured. In an excess judgment case, the issue is whether the insurer is guilty of bad faith toward the insured in failing to settle an injured party's claim within policy limits. See, e.g., Kooyman v. Farm Bureau Ins. Co., 315 N.W.2d 30 (Iowa 1982). In a first-party action, the issue is whether the insurer is guilty of bad faith in failing to pay the insured's own claim. See e.g., Dolan v. Aid Ins. Co., 431 N.W.2d 790 (Iowa 1988). The reasoning behind these decisions is that while an insurer has a fiduciary relationship with its insured, it has an adversarial relationship with a third-party claimant. Long, 319 N.W.2d at 262. Therefore, a tort victim, as a third-party claimant, cannot compel a tortfeasor's insurer to negotiate and settle a claim in good faith anymore than he could compel the tortfeasor to do so himself.

Plaintiff contends that our decision in Dolan compels a different result. He argues that Dolan is a logical extension of the remedy formulated in Kooyman where we recognized a cause of action for third-party bad faith in an excess judgment situation. However, plaintiff's support from these cases is tenuous. In Kooyman, the plaintiff, representing the injured party,...