Chadima v. National Fidelity Life Ins. Co., No. 3-90-CV-90058.

CourtUnited States District Courts. 8th Circuit. United States State District Court of Southern District of Iowa
Writing for the CourtKevin H. Collins of Shuttleworth & Ingersoll, P.C., Cedar Rapids, IA, for plaintiffs
Citation894 F. Supp. 1300
Decision Date15 August 1995
Docket NumberNo. 3-90-CV-90058.
PartiesGeorge W. CHADIMA, et al., Plaintiffs, v. NATIONAL FIDELITY LIFE INSURANCE COMPANY, Defendant, and State of Iowa, ex rel., Civil Reparations Trust Fund, Intervenor.

894 F. Supp. 1300

George W. CHADIMA, et al., Plaintiffs,
v.
NATIONAL FIDELITY LIFE INSURANCE COMPANY, Defendant,
and
State of Iowa, ex rel., Civil Reparations Trust Fund, Intervenor.

No. 3-90-CV-90058.

United States District Court, S.D. Iowa, Davenport Division.

August 15, 1995.


Kevin H. Collins of Shuttleworth & Ingersoll, P.C., Cedar Rapids, IA, for plaintiffs.

Thomas J. Shields of Lane & Waterman, Davenport, IA, for defendant National Fidelity Life Ins. Co.

Asst. IA Attys. Gen. Richard E. Mull and Craig Kelinson, for Intervenor State of Iowa ex rel. Civil Reparations Trust Fund.

ORDER DENYING PLAINTIFFS' MOTION FOR ENTRY OF JUDGMENT

BENNETT, District Judge.

This litigation presents a difficult conundrum. With all due respect to the Iowa Supreme Court, I believe they have erroneously interpreted the precedent I must apply in this action. As a federal district court judge applying state law in a diversity action, I am bound by the construction of state law by the Iowa Supreme Court. This is true, even here, where, after much thought and deliberation, I believe that the Iowa Supreme Court is wrong. Principles of federal-state relations and stare decisis demand no less.

I have come to believe that the Iowa Supreme Court has misinterpreted the standard for dividing the bounty in punitive damages cases where Iowa code section 668A.1(1)(b) mandates a division of punitive damages between a successful plaintiff and the State of Iowa Civil Reparations Fund. I write to espouse my views on this subject in the hope that this opinion will assist the Iowa Supreme Court by casting new light on a troublesome but recurring question and that

894 F. Supp. 1301
the Iowa Supreme Court will reevaluate its position when it has the chance to do so.1 Because I am thus constrained by the Iowa Supreme Court's precedent, Plaintiff George Chadima remains precariously perched on a Sisyphean incline where he is powerless to succeed in his struggle despite his best and continuing efforts.2 I therefore hope that this ruling is appealed and that the parties and the U.S. Court of Appeals for the Eighth Circuit see the wisdom of certifying this issue to the Iowa Supreme Court for its thoughtful consideration.3

I. INTRODUCTION AND BACKGROUND

On April 30, 1990, Defendant National Fidelity removed this case involving breach of insurance contract and first-party bad faith case from state court to the United States District Court for the Southern District of Iowa, Davenport Division. The litigation arises as a result of the purchase of life insurance by George Milton Chadima from National Fidelity in January 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 "Chadima").

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.

Regarding the issue of punitive damages, in response to a special interrogatory required by Iowa Code § 668A.1(1)(b) (1993), "whether the conduct of the defendant was directed specifically at the claimant, or at the person from which the claimant's claim is derived," the jury answered in the negative.4

894 F. Supp. 1302
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)

The parties filed post-trial motions.5 Chadima 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. The court granted judgment notwithstanding the verdict to National Fidelity on Chadima's bad-faith claim, concluding that substantial evidence existed on both sides of the question of whether National Fidelity had a reasonable basis for denying the claim, and, therefore, National Fidelity's position was fairly debatable as a matter of law. Chadima, 848 F.Supp. at 1431-32 & n. 14. The court, however, determined the question of the jury's determination under section 668A.1(1)(b) to be moot after it set aside the punitive damage award. See Chadima, 848 F.Supp. at 1431-32. The Eighth Circuit reversed this court's determination on the issue of the punitive damage award and concluded that Chadima met his burden of producing sufficient evidence from which a reasonable jury could conclude that National Fidelity had no reasonable basis for denying the claim. Thus, the issue was for the jury to decide. Chadima, 55 F.3d at 350. Because the Eighth Circuit reinstated the punitive damage award, Chadima's motion for entry of judgment pursuant to Rule 50 of the Federal Rules of Civil Procedure seeking to set aside the jury's finding that National Fidelity's conduct was not specifically directed at Chadima must now be addressed by the court.6

894 F. Supp. 1303

II. FACTUAL BACKGROUND

On January 21, 1986, National Fidelity issued life insurance policy no. 550529 to George M. Chadima. The policy provided a declining death benefit policy. Under this policy, the amount to be paid at the death of the insured, George M. Chadima, decreased during the life of the insured. In April 1989, George M. Chadima contacted National Fidelity complaining that he thought he had purchased a $100,000 fixed death benefit policy, rather than a declining death benefit policy. He asked to convert his policy to a $100,000 fixed death benefit policy. National Fidelity refused, but offered to issue a new policy with a $90,000 fixed death benefit. National Fidelity instructed Chadima to return the original policy with an executed change of policy form. On July 11, 1989, George M. Chadima forwarded the policy and a change of policy form to National Fidelity. The request form provided that "the requested change(s) shall not take effect until approved in writing by the Company." George Milton Chadima died on October 26, 1989, before National Fidelity had changed or reissued the policy. At that time, the declining-benefit policy had a value of $134,973.20. Chadima's estate filed a claim for benefits.

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 (this included the $90,000.00 amount of the policy plus interest due under the policy at 7.5 percent from the date of death). 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 associate 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.

A reasonable jury might have found that 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 Chadima to accept the lesser amount that would be due them under the newer policy requested by George M. Chadima. Furthermore, a reasonable jury might have found that National Fidelity's conduct would have been the same if a different insurance claim were involved.

Subsequently, on February 22, 1990, National Fidelity forwarded to the Plaintiffs an additional check in the amount of $46,072.89 — which represented the amount due under the original policy plus accrued interest.

III. ANALYSIS OF MOTIONS

A. The Appropriate Standard for Determining Fed.R.Civ.P. 50 Motion7

Federal Rule of Civil Procedure 50, entitled "Judgment as a Matter of Law in Actions Tried by Jury; Alternative Motion for New Trial; Conditional Rulings", states in relevant part:

(a) JUDGMENT AS A MATTER OF LAW.

(1) If during a trial by jury a party has been fully heard on an issue and there is no legally sufficient evidentiary basis for a reasonable jury to find for that party on that issue, the court may determine the
894 F. Supp. 1304
issue against that party and may grant a motion for judgment as a matter of law against that party with respect to a claim or defense that cannot under the controlling law be maintained or defeated without a favorable finding on that issue.
(2) Motions for judgment as a matter of law may be made at any time before submission of the case to the jury. Such a motion shall specify the judgment sought and the law and the facts on which the moving party is entitled to
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1 practice notes
  • Olympus Aluminum Products, Inc. v. Kehm Enterprises, Ltd., No. C 96-3056-MWB.
    • United States
    • United States District Courts. 8th Circuit. Northern District of Iowa
    • July 9, 1996
    ...(also citing Chandler), cert. denied, 498 U.S. 1090, 111 S.Ct. 970, 112 L.Ed.2d 1056 (1991); Chadima v. National Fidelity Life Ins. Co., 894 F.Supp. 1300, 1309 (S.D.Iowa 1995) (deferring to state court's interpretation even where the federal court found that interpretation both unduly restr......
1 cases
  • Olympus Aluminum Products, Inc. v. Kehm Enterprises, Ltd., No. C 96-3056-MWB.
    • United States
    • United States District Courts. 8th Circuit. Northern District of Iowa
    • July 9, 1996
    ...(also citing Chandler), cert. denied, 498 U.S. 1090, 111 S.Ct. 970, 112 L.Ed.2d 1056 (1991); Chadima v. National Fidelity Life Ins. Co., 894 F.Supp. 1300, 1309 (S.D.Iowa 1995) (deferring to state court's interpretation even where the federal court found that interpretation both unduly restr......

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