Rodgers v. Pennsylvania Life Ins. Co., Civ. No. 81-338-A.

• Decision Date: 16 April 1982
• Docket Number: Civ. No. 81-338-A.
• Parties: Harold L. RODGERS, Plaintiff, v. PENNSYLVANIA LIFE INSURANCE COMPANY, Defendant.
• Court: U.S. District Court — Southern District of Iowa

539 F. Supp. 879

Harold L. RODGERS, Plaintiff, v. PENNSYLVANIA LIFE INSURANCE COMPANY, Defendant.

Civ. No. 81-338-A.

United States District Court, S. D. Iowa, C. D.

April 16, 1982.

COPYRIGHT MATERIAL OMITTED

Fred J. Haas and Mark Humphrey, Humphrey, Haas & Gritzner, Des Moines, Iowa, for plaintiff.

Barry A. Russell, Blanchard, Cless, Hanson & Pundt, Des Moines, Iowa, for defendant.

RULING AND ORDER

STUART, Chief Judge.

Harold L. Rodgers filed a complaint against the Pennsylvania Life Insurance Company on July 22, 1981. The dispute arose over benefits payable under a disability insurance policy defendant issued to him about ten years ago. Plaintiff's claims are based on breach of contract, the tort of bad faith, intentional interference with protected property interests, and the intentional infliction of emotional distress. Compensatory and punitive damages are sought. Jurisdiction is invoked under 28 U.S.C. § 1332.

Defendant filed motions to dismiss the original and amended complaint and moved to strike an affidavit which was filed by plaintiff for the purpose of establishing amount in controversy. Hearing was held December 17, 1981. Appearances are noted in the clerk's minutes.

In ruling upon a motion to dismiss for failure to state a claim, the Court must accept as true all well-pled allegations of the complaint and construe them in a light most favorable to the complainant. Hospital Building Co. v. Trustees of Rex Hospital, 425 U.S. 738, 740, 96 S.Ct. 1848, 1850, 48 L.Ed.2d 338 (1976); Scheuer v. Rhodes, 416 U.S. 232, 236, 94 S.Ct. 1683, 1686, 40 L.Ed.2d 90 (1974). Fact pleading is not required and "a complaint should not be dismissed for failure to state a claim unless it appears beyond doubt that the plaintiff can prove no set of facts in support of his claim". Conley v. Gibson, 355 U.S. 41, 45-46, 78 S.Ct. 99, 102, 2 L.Ed.2d 80 (1957); See Hungate v. United States, 626 F.2d 60, 62 (8th Cir. 1980). However, the complainant must show, at minimum, the prima facie elements of his claim in order to avoid dismissal. 626 F.2d at 62.

The following facts are alleged in the complaint.

On July 26, 1971 defendant contacted plaintiff through its agent, Max Cross, concerning the purchase of a disability income insurance policy. Plaintiff told the agent that he wanted a policy which would guarantee life time benefits should he become disabled. Max Cross then executed and delivered to the plaintiff a policy which would pay benefits of $200 per month should plaintiff be totally disabled. These payments were to be made for as long as the total disability continued. Plaintiff complied with all of the conditions of the policy which is now and has been since 1971 in full force and effect.

Plaintiff, who is a farmer, became totally disabled in January of 1976. Defendant made payments under the disability policy from January 8, 1976 through October 12, 1976 but thereafter discontinued monthly benefits. Plaintiff claims that defendant misrepresented policy coverage, delayed benefit payments unreasonably and failed to properly investigate the extent of his disability. Other abuses relating to claim processing are also alleged.

Defendant set up an independent medical examination which was performed by Dr. Ralph R. Pray on January 21, 1977. He found plaintiff suffered from various medical problems including obesity and organic heart disease. In the doctor's opinion, plaintiff was disabled to the extent he could not work in gainful employment. Defendant reviewed the doctor's report and on February 4, 1977, informed plaintiff that no further benefits would be paid.

Three and a half years later, in July of 1980, plaintiff suffered a heart attack. He underwent heart surgery that same month and applied for total disability benefits on August 18, 1980. Although the dates do not appear, he was confined indoors both prior to and after the surgery and required and continues to require the regular attendance of a physician.

Plaintiff received monthly disability benefits following his heart attack through June 5, 1981. However, these payments were usually delayed despite plaintiff's repeated requests that defendant remain current with the payments.

Defendant knew plaintiff was a farmer whose income was dependent upon his ability to do farm work. Defendant also knew that plaintiff had a wife to support and was dependent upon the financial benefits of the disability policy once plaintiff was no longer able to farm.

A. Subject matter Jurisdiction.

Jurisdiction of this Court is based upon diversity of citizenship, 28 U.S.C. § 1332(a)(1). Plaintiff does not specify the amount of damages claimed except in Count VII for intentional infliction of severe emotional stress, ($100,000). Defendant has computed the number of months for which disability payments are claimed, contending that the total of such payments is considerably less than the $10,000 jurisdictional amount. Defendant claims this Court does not have jurisdiction. Plaintiff attached his affidavit to his resistance claiming damages in excess of the jurisdictional amount on all counts. The Court cannot say that it appears beyond doubt that plaintiff can prove no set of facts which would show damages of $10,000 or more. However, the complaint should allege damages to satisfy the jurisdictional requirements. Plaintiff will be given 10 days from the date of this Ruling and Order to amend the complaint to make such allegation.

Good Faith and Fair Dealing.

In Count II plaintiff alleges that defendant acted wrongfully and unreasonably in breach of the implied covenant of good faith and fair dealing in terminating benefits to plaintiff on October 12, 1976. In Count IV plaintiff alleges the same cause of action relating to the July 1980, application for disability benefits. Both counts involve the question of whether Iowa recognizes a cause of action against an insurer for breach of a duty to act in good faith toward and to deal fairly with its insured. This issue has never been directly addressed by the Iowa Courts.

Defendant acknowledges that the Iowa Courts have utilized the "bad faith" concept and approach in excess settlement situations, Kooyman v. Farm Bureau Mutual Ins. Co., 267 N.W.2d 403, 406 (Iowa 1978) and citations, but argues that the fiduciary relationship that exists when the insurer has control of the settlement process and is in a position to expose the insured to an excess judgment through an unreasonable failure to settle is not present when the dispute is between the insurer and its insured over the amount payable to insured under the terms of the insurance policy. Spencer v. Aetna Life & Casualty Insurance Company, 227 Kan. 914, 611 P.2d 149, 155.

Plaintiff, in support of his position, cites Amsden v. Grinnell Mutual Reinsurance Company, 203 N.W.2d 252 (Iowa 1972) and this Court's opinion in Sigler v. Mutual Benefit Life Insurance Company, 506 F.Supp. 542, 545 (S.D.Iowa 1981). The comment in Sigler was dictum and should not be read as holding that an action for breach of a duty of good faith and fair dealing has been recognized in Iowa. The insurer's position in that case was fully supported by the applicable law. It was not necessary for the court to decide whether such cause of action did in fact exist.

The nearest an Iowa Court has come to considering bad faith claims in the context of first party insurance actions is Amsden v. Grinnell Mutual Reinsurance Co., 203 N.W.2d 252 (Iowa 1972). However, that case merely established an action for the intentional infliction of emotional distress when defendant's conduct was outrageous. Id. at 252. See also Meyer v. Nottger, 241 N.W.2d 911, 918 (Iowa 1976). Plaintiff fails to allege any outrageous conduct in counts 2 and 4. The issue of whether a first party bad faith claim is actionable in Iowa is therefore clearly presented here for the first time.

Early California cases laid the foundation for the development of the tort of bad faith in first party insurance actions. See Comunale v. Traders General Ins. Co., 50 Cal.2d 654, 328 P.2d 198 (1958); Crisci v. Security Ins. Co., 66 Cal.2d 425, 58 Cal.Rptr. 13, 426 P.2d 173 (1967); Fletcher v. Western Nat'l Life Ins. Co., 10 Cal.App.3d 376, 89 Cal. Rptr. 78 (1972). This line of cases culminated in the decision of Gruenberg v. Aetna Ins. Co., 9 Cal.3d 566, 108 Cal.Rptr. 480, 510 P.2d 1032 (1972), in which bad faith was held to support an independent action against an insurer for failure to settle with its insured. It should be noted that the Crisci holding is similar to the holding in Henke v. Iowa Home Mut. Cas. Co., 250 Iowa 1123, 97 N.W.2d 168 (1959), both of which concern the obligations of an insurance carrier in settling claims brought against its insured by a third person. Later, the court in Amsden cited with approval several passages from Fletcher and ultimately adopted the holding of the California court in that case. 203 N.W.2d at 254, 255.

In Spencer v. Aetna Life and Cas. Ins. Co., 227 Kan. 914, 611 P.2d 149, 151-152 (1980), the Supreme Court of Kansas carefully reviewed the decisions adopting the Gruenberg approach or embracing similar positions and generally identified the reasons for those decisions. The Court also reviewed the cases which refused to recognize a tort of bad faith in first party cases. Id. 151-153. This Court, in predicting which line of cases the Iowa Supreme Court will follow, believes that the Iowa Supreme Court will continue to follow the lead of the California court, as the reasons for recognizing such causes of action are more in keeping with the approach of the Iowa Supreme Court. "Essentially, all arguments for the adoption of bad faith tort pertain to the unequal bargaining position of insured and the insurer and the public interest nature of the industry." Spencer, 611 P.2d at 152.

The superior bargaining power of an insurance company over its insured has long been recognized in Iowa. Insurance policies are simply...