Seeman v. Liberty Mut. Ins. Co.

• Decision Date: 21 July 1982
• Docket Number: No. 66706,66706
• Citation: 322 N.W.2d 35
• Parties: David SEEMAN, Plaintiff, v. LIBERTY MUTUAL INSURANCE COMPANY, Defendant.
• Court: Iowa Supreme Court

Page 35

322 N.W.2d 35

David SEEMAN, Plaintiff, v. LIBERTY MUTUAL INSURANCE COMPANY, Defendant.

No. 66706.

Supreme Court of Iowa.

July 21, 1982.

John R. Ward of Hedberg, Brick, Tan, Pratt & Ward, and Thomas P. Hyland, Des Moines, for plaintiff.

Ross H. Sidney and John Werner of Grefe & Sidney, Des Moines, for defendant.

Considered en banc.

SCHULTZ, Justice.

Pursuant to chapter 684A, The Code, and Iowa R.App.P. 451-461, the United States District Court for the Southern District of Iowa, ¹ on its own motion, has certified two questions of law for answer by this court:

1. Does section 507B.4(9)(f), The Code, create a cause of action for damages in the individual entitled to the insurance proceeds when the insurance carrier has violated that section?

2. Does an insurance carrier violate section 507B.4(9)(f) by following the general business practice of inexcusably delaying payment of the settlement sum after a prompt, fair and equitable settlement has been reached?

We answer the first question in the negative, which renders it unnecessary for us to reach the second question.

The statutory provision at issue provides:

The following are hereby defined as unfair methods of competition and unfair or deceptive acts or practices in the business of insurance:

....

9. Unfair claim settlement practices. Committing or performing with such frequency as to indicate a general business practice any of the following:

....

f. Not attempting in good faith to effectuate prompt, fair and equitable settlements of claims in which liability has become reasonably clear.

§ 507B.4(9)(f), The Code.

The facts relevant to the questions certified are as follows. Plaintiff, David Seeman, brought an action in the Polk District Court for money damages, claiming that defendant, Liberty Mutual Insurance Company as a part of its general business practice, unreasonably delayed payment of an agreed upon settlement of a workers' compensation claim by plaintiff. Defendant removed the case to the federal district court. At trial sufficient evidence was produced to support the jury's findings that the parties had reached a settlement agreement with respect to plaintiff's workers' compensation claim, that defendant unreasonably delayed making full payment to plaintiff, and that such unreasonable delay constituted a general business practice of defendant. The jury returned verdicts for plaintiff, awarding him both compensatory and punitive damages.

The district court stayed consideration of defendant's motions for judgment notwithstanding the verdict and for a new trial pending this court's resolution of the questions certified.

I. Chapter 507B does not specify whether an individual cause of action is authorized for the violation of section 507B.4(9)(f). The threshold inquiry, therefore, is the appropriate test for determining when a cause of action may and should be judicially implied from a statute that does not expressly provide for private suits.

Plaintiff contends that, under Iowa case law, a breach of a duty created by statute gives rise to a cause of action in tort. As plaintiff notes, on many occasions this court has been asked to determine whether a statute, rule, or ordinance that is silent with respect to the existence of a private remedy provides a duty or standard of care the violation of which results in liability in a tort action based upon negligence. E.g., Wilson v. Nepstad, 282 N.W.2d 664, 667-69 (Iowa 1979) (city can be held liable in negligence action for violation of duty created by state statutes and municipal ordinances to conduct building inspections); Lewis v. State, 256 N.W.2d 181, 188 (Iowa 1977) (negligence action maintainable against State for personal injuries caused by state liquor store employee's breach of statutory duty not to sell liquor to a minor); Harryman v. Hayles, 257 N.W.2d 631, 638 (Iowa 1977) (negligence action may be brought when violation of statutory duty to maintain roads causes personal injury); Koll v. Manatt's Transportation Co., 253 N.W.2d 265, 270 (Iowa 1977) (negligence action maintainable for employer's violation of standard of care imposed by OSHA or IOSHA); Montgomery v. Engel, 179 N.W.2d 478, 481 (Iowa 1970) (negligence action proper for breach of duty created by ordinance requiring landlord to install handrail on stairway); Lattner v. Immaculate Conception Church, 255 Iowa 120, 128-30, 121 N.W.2d 639, 644-45 (1963) (statutory fire-safety provision requiring exit door to open outward provided duty giving rise to negligence action by church visitor who sustained personal injuries when she fell down stairs); Kisling v. Thierman, 214 Iowa 911, 915-16, 243 N.W. 552, 554 (1932) (violation of statute governing operation of motor vehicles constitutes negligence per se ). Defendant's reliance on negligence cases to support his contention is misconceived, however.

Negligence is a common-law tort that is generally defined as conduct that "falls below the standard established by law for the protection of others against unreasonable risk of harm." Restatement (Second) of Torts § 282 (1965). An element of negligence is a duty or standard of care owed by the actor to the victim. Wilson, 282 N.W.2d at 667. Statutory enactment is one of the means by which such duty or standard of care may be created. Id.

A statutory duty or standard may thus establish an essential element for a negligence action. However, it does not provide the cause of action. The cause of action itself is a creation of the common law that is inherent in the tort of negligence. The duty or standard of care, statutory or otherwise, is merely an element of proof that comes into play after an action has been rightfully commenced pursuant to the preexisting common-law cause of action.

In support of his position that violation of a statutory duty gives rise to an individual cause of action in tort, plaintiff also relies on Hall v. Montgomery Ward & Co., 252 N.W.2d 421 (Iowa 1977). In Hall this court held that violation of a criminal statute gave rise to a civil cause of action. Id. at 424. This holding, however, was based on section 611.21, The Code, which provides: "The right of civil remedy is not merged in a public offense, but may be enforced independently of and in addition to the punishment of the latter." This provision, which appears to have been enacted to abolish the common-law rule that civil wrongs are merged in felonies, 252 N.W.2d at 423, was previously interpreted as itself providing a civil tort action for violation of a criminal statute, Call v. Larabee, 60 Iowa 212, 214, 14 N.W. 237, 238 (1882); Hall, 252 N.W.2d at 423. Consequently, the Hall holding was based upon legislative intent to create a civil tort action, and is therefore in accord with the general rule that violation of a criminal statute gives rise to a civil cause of action only if such an action appears, by express terms or clear implication, to have been intended by the legislature. Hall, 252 N.W.2d at 423.

Plaintiff's case authority does not support his contention that a private cause of action arises solely from the violation of a statutory duty. We therefore turn to defendant's contention that to determine whether a cause of action should be judicially implied from a statute that does not expressly authorize private suits this court should employ the test formulated by the United States Supreme Court in Cort v. Ash, 422 U.S. 66, 95 S.Ct. 2080, 45 L.Ed.2d 26 (1975). In Cort four factors were found to be relevant in determining whether a private remedy is implicit in a statute:

First, is the plaintiff "one of the class for whose especial benefit the statute was enacted," Texas & Pacific R. Co. v. Rigsby, 241 U.S. 33, 39, 36 S.Ct. 482, 484, 60 L.Ed. 874 (1916) (emphasis supplied)--that is, does the statute create a federal right in favor of the plaintiff? Second, is there any indication of legislative intent, explicit or implicit, either to create such a remedy or to deny one? See, e.g., National Railroad Passenger Corp. v. National Assn. of Railroad Passengers, 414 U.S. 453, 458, 460, 94 S.Ct. 690, 693, 694, 38 L.Ed.2d 646 (1974 (Amtrak )). Third, is it consistent with the underlying purposes of the legislative scheme to imply such a remedy for the plaintiff? See, e.g., Amtrak, supra; Securities Investor Protection Corp. v. Barbour, 421 U.S. 412, 423, 95 S.Ct. 1733, 1740, 44 L.Ed.2d 263 (1975); Calhoon v. Harvey, 379 U.S. 134, 85 S.Ct. 292, 13 L.Ed.2d 190 (1964). And finally, is the cause of action one traditionally relegated to state law, in an area basically the concern of the States, so that it would be inappropriate to infer a cause of action based solely on federal law? See Wheeldin v. Wheeler, 373 U.S. 647, 652, 83 S.Ct. 1441, 1445, 10 L.Ed.2d 605 (1963); cf. J.I. Case Co. v. Borak, 377 U.S. 426, 434, 84 S.Ct. 1555, 1560, 12 L.Ed.2d 423 (1964); Bivens v. Six Unknown Federal Narcotics Agents, 403 U.S. 388, 394-395, 91 S.Ct. [1999] 2003-2004, 29 L.Ed.2d 619 (1971); id. at 400, 91 S.Ct. at 2006 (Harlan, J., concurring in judgment).

Id. at 78, 95 S.Ct. at 2088, 45 L.Ed.2d at 36-37. For a history of the implied cause of action doctrine, see generally McMahon & Rodos, Judicial Implication of Private Causes of Action: Reapprisal and Retrenchment, 80 Dick.L.Rev. 167 (1976); Note, Implied Causes of Action in the State Courts, 30 Stan.L.Rev. 1243 (1978).

The Supreme Court has addressed the issue of implied causes of action on several occasions since Cort. See, e.g., Merrill Lynch, Pierce, Fenner & Smith, Inc. v. Curran, 456 U.S. 353, 102 S.Ct. 1825, 72 L.Ed.2d 182 (1982); Middlesex County Sewerage Authority v. National Sea Clammers Association, 453 U.S. 1, 101 S.Ct. 2615, 69 L.Ed.2d 435 (1981); Texas Industries, Inc. v. Radcliff Materials, Inc., 451 U.S. 630, 101 S.Ct. 2061, 68 L.Ed.2d 500 (1981); Transamerica Mortgage Advisors, Inc. v. Lewis, 444 U.S. 11, 100 S.Ct. 242, 62 L.Ed.2d 146 (1979); Touche Ross & Co. v. Redington, 442 U.S. 560...