Kiner v. Reliance Ins. Co.

• Decision Date: 21 November 1990
• Docket Number: No. 89-744,89-744
• Citation: 463 N.W.2d 9
• Parties: Ronald KINER, Appellant, v. RELIANCE INSURANCE COMPANY, Appellee.
• Court: Iowa Supreme Court

Page 9

463 N.W.2d 9

Ronald KINER, Appellant, v. RELIANCE INSURANCE COMPANY, Appellee.

No. 89-744.

Supreme Court of Iowa.

Nov. 21, 1990.

Barry J. Nadler of Newbrough, Johnston, Brewer, Maddux & Nadler, Ames, for appellant.

Jack W. Rogers, West Des Moines, for appellee.

Considered by HARRIS, P.J., and LARSON, SCHULTZ, CARTER, and NEUMAN, JJ.

LARSON, Justice.

When the workers' compensation carrier for Ronald Kiner's employer denied Kiner's workers' compensation claim, Kiner sued it for bad-faith failure to pay and for slander. He recovered substantial verdicts on both theories, but the district court ordered a new trial on his bad-faith claim and a remittitur on his claim for slander. Kiner appealed, and Reliance cross-appealed. We affirm in part, reverse in part, and remand on the appeal and affirm on the cross-appeal.

In 1970, Kiner fell while on the job as a carpenter, injuring his back. Reliance Insurance Company, the workers' compensation carrier, paid him benefits for a permanent partial disability. From 1972 to 1980, Kiner took pain medications for back problems related to the injury and, despite its periodic objections, Reliance paid for these medications. Kiner testified that he stopped using these medications in December 1980, but his pain persisted. In November 1981, and twice afterward, he obtained "single" prescriptions (apparently a week's supply each time) for pain medications. Kiner submitted the prescription bills to Reliance, which refused payment on the ground that Kiner had a drug dependency problem. Reliance also requested that Kiner have a chemical dependency evaluation.

In June 1985, Kiner filed an action against Reliance for bad-faith failure to pay workers' compensation benefits. In 1988, he amended his petition to allege a claim of slander against Reliance for wrongfully stating that Kiner was addicted to drugs. Reliance eventually paid the workers' compensation benefits.

Following trial, the jury awarded Kiner $75,000 in actual damages and $550,000 in punitive damages on the bad-faith claim. On the slander claim, it awarded him $75,000 actual and $150,000 punitive damages.

In response to Reliance's posttrial motions, the court ordered a new trial on all issues in the bad-faith case, ¹ finding the $550,000 punitive damage award to be excessive. On the slander claim, the court found that the award of compensatory damages was excessive and ordered a new trial on the slander claim unless Kiner would consent to a $25,000 remittitur. The trial court left in place the verdict for $150,000 in punitive damages in the slander case. Kiner appealed. Reliance cross-appealed, claiming that the court erred in submitting the bad-faith claim.

I. The Bad-Faith Claim.

We first address Reliance's cross-appeal argument that the court erred in submitting the bad-faith claim to the jury. Reliance argues that (1) the court lacked subject matter jurisdiction because the industrial commissioner has exclusive original jurisdiction of workers' compensation issues, and (2) the merits of the workers' compensation claim were "fairly debatable" as a matter of law.

A. The jurisdiction issue. Reliance's argument that the district court lacked subject matter jurisdiction is based on the exclusive-remedy provision of the Workers' Compensation Act. See Iowa Code § 85.20 (1985). In Tallman v. Hanssen, 427 N.W.2d 868 (Iowa 1988), the trial court read the worker's suit against the insurance company as one seeking payment for medical bills, a matter solely within the jurisdiction of the industrial commissioner. The court accordingly dismissed the petition. We reversed, concluding that, when the petition was considered as a whole, it alleged a bad-faith claim, a matter not within the exclusive jurisdiction of the industrial commissioner. ² We said:

It is axiomatic that an employee's rights and remedies arising from an injury suffered in the course of employment are exclusively provided under Iowa Code chapter 85. See Iowa Code section 85.20 (1987). A district court would ordinarily have no subject matter jurisdiction over a claim that an employee is entitled to workers' compensation benefits. But this exclusivity principle is limited to matters surrounding a job-related injury and does not extend to subsequent dealings during which a tort may arise by reason of bad faith on the part of an employer's insurer.

Id. at 870. Tallman controls on this issue, and we agree with the district court that it had jurisdiction of the bad-faith claim.

B. The "fairly debatable" issue. Reliance argues that Kiner's bad-faith claim should not have been submitted to the jury because, as a matter of law, it was "fairly debatable" whether Reliance was obligated to pay Kiner's claim.

To show a claim for bad faith, a plaintiff must show the absence of a reasonable basis for denying benefits of the policy and defendant's knowledge or reckless disregard of the lack of a reasonable basis for denying the claim.

Dolan v. Aid Ins. Co., 431 N.W.2d 790, 794 (Iowa 1988) (quoting Anderson v. Continental Ins. Co., 85 Wis.2d 675, 691, 271 N.W.2d 368, 376 (1978)). We further said that

[w]here a claim is "fairly debatable," the insurer is entitled to debate it, whether the debate concerns a matter of fact or law.

Id. As the Wisconsin court said in Anderson, "the knowing failure to exercise an honest and informed judgment constitutes the tort of bad faith." 85 Wis.2d at 692, 271 N.W.2d at 377. We believe that a reasonable fact finder could find that Reliance failed to "exercise an honest and informed judgment" on Kiner's claim, and thus could conclude that its denial was not fairly debatable. The issue was therefore one for the jury, not for the court as a matter of law.

C. Elements of the bad-faith claim. Reliance complains that the trial court's instruction incorrectly stated the elements of a bad-faith claim. Instruction 13 stated that the plaintiff must prove:

1. That there is no reasonable basis for denying or delaying payment of benefits;

2. That Defendant knew or should have known that there was not a reasonable basis for denying payment ....

(Emphasis added.)

Dolan states that bad faith involves an insurer's "knowledge or reckless disregard of the lack of a reasonable basis for denying the claim." 431 N.W.2d at 794. This, Reliance claims, introduces an element of intent which is not found in Instruction 13. See Anderson, 85 Wis.2d at 691, 271 N.W.2d at 376 ("It is apparent ... that the tort of bad faith [failure to settle] is an intentional one. 'Bad faith' by definition cannot be unintentional."). Bad faith it is said, suggests deceit, through strategy and wile. Id.

It is not clear what "reckless disregard" means in the context of bad-faith claims, although we see it in connection with defamation law, e.g., New York Times Co. v. Sullivan, 376 U.S. 254, 279, 84 S.Ct. 710, 725, 11 L.Ed.2d 686, 706 (1964), and in tort law regarding the safety of others. See, e.g., Restatement (Second) of Torts § 500 (1965). Drawing an analogy to reckless disregard under this section of the Restatement, we believe that reckless disregard for purposes of a bad-faith claim would exist if an insurer knows or has reason to know that it has no basis for denying the claim but does so anyway. Cf. Restatement (Second) of Torts § 500 (reckless disregard for safety of others found if person acts or fails to act "knowing or having reason to know" of unreasonable risk to another).

Despite the reference to reckless disregard in Dolan and Anderson, and despite the similarities that this concept shares with the elements of the bad-faith claim in the sense that the actor knew or should have known of the consequences of his act, we do not believe that reckless disregard is a necessary element in a bad-faith claim. It is sufficient to show that the insurer denied the claim knowing or having reason to know that its denial is without basis. Substantially the same instruction as that given in this case was approved by the Texas Supreme Court in Aranda v. Insurance Co. of North America, 748 S.W.2d 210, 213 (Tex.1988). We believe that Instruction 13 correctly stated the law, and we approve it.

D. The grant of a new trial. The trial court granted Reliance's motion for a new trial on the bad-faith claim, stating: "The verdict of $550,000.00 is not reasonably related to actual damages, or the conduct of Defendant, which resulted in actual injury to Plaintiff. Such award is flagrantly excessive and lacking in evidentiary support."

In ruling upon a motion for new trial, broad but not unlimited discretion is vested in the trial court, Iowa R.App.P. 14(f)(3), and the grant of a new trial will not be disturbed unless an abuse of discretion is shown. McConnell v. Aluminum Co. of Am., 367 N.W.2d 245, 248 (Iowa 1985). We are more reluctant to interfere with the grant of a new trial than its refusal, Iowa R.App.P. 14(f)(4). Furthermore, we will not find an abuse of discretion unless it is shown that the trial court's discretion was exercised on grounds clearly untenable or to an extent clearly unreasonable. State v. Brumage, 435 N.W.2d 337, 341 (Iowa 1989).

The trial court's grounds for exercising its discretion are set out above, and we cannot say that its rationale is so unreasonable that the order for new trial constituted an abuse of discretion.

II. The Slander Claim.

Reliance contends that Kiner's claim for slander should not have been submitted to the jury because (1) the claim was barred by the statute of limitations, (2) the statement was a privileged communication, and (3) the statement was not published to third parties.

A. Statute of limitations. Reliance argues that Kiner's claim for slander is barred by the two-year limitation of Iowa Code section 614.1(2), which begins to run on the date of publication. Kiner's claim of slander relates to three separate publications. In the first, which occurred on May 28, 1982, Reliance's claims supervisor informed a claims...