Thornton v. Am. Interstate Ins. Co.

• Citation: 940 N.W.2d 1
• Decision Date: 28 February 2020
• Docket Number: No. 18-0809,18-0809
• Parties: Toby THORNTON, Appellee, v. AMERICAN INTERSTATE INSURANCE COMPANY, Appellant.
• Court: Iowa Supreme Court

940 N.W.2d 1

Toby THORNTON, Appellee,

v.AMERICAN INTERSTATE INSURANCE COMPANY, Appellant.

No. 18-0809

Supreme Court of Iowa.

Filed February 28, 2020

Stephen H. Locher, Mark McCormick, and Matthew D. Callanan of Belin McCormick, P.C., Des Moines, for appellant.

Tiernan T. Siems and Karen M. Keeler (until withdrawal) of Erickson Sederstrom, P.C., Omaha, Nebraska, for appellee.

APPEL, Justice.

This case involves an appeal by a workers’ compensation insurance carrier on retrial of a lawsuit where a severely injured plaintiff, indisputably injured at work, claimed that the insurance carrier acted in bad faith to delay the receipt of benefits to which the injured worker was entitled. The jury returned a verdict in favor of the plaintiff for $382,000 in compensatory damages and $6,750,000 in punitive damages. The insurer appealed.

On appeal, the insurer claims there was insufficient evidence to support the amount of compensatory damages awarded by the jury. The insurance company asserts we should remit the $382,000 in compensatory damages to a total of no more than $57,145.

In addition, the insurance company challenges the jury’s award of $6,750,000 in punitive damages as violating due process under the Due Process Clauses of both the Iowa and the United States Constitutions. Indeed, the insurance company claims that under applicable caselaw, the jury’s award of punitive damages should be remitted to a roughly 1:1 ratio with the compensatory damages.

For the reasons expressed below, we conclude that the compensatory award must be reduced to $58,452.42. On the question of punitive damages, we conclude that under the Federal Due Process Clause, the maximum amount of punitive damages that may be awarded under the facts and circumstances of this case is $500,000. For reasons expressed below, the case is remanded to the district court to enter judgment for the plaintiff in the amount of $558,452.42.

I. Procedural and Factual Background.

A. The Accident and Its Aftermath. On June 25, 2009, Toby Thornton was driving a truck for Clayton County Recycling in northeast Iowa. Thornton v. Am. Interstate Ins. (Thornton I ), 897 N.W.2d 445, 452 (Iowa 2017). Thornton lost control of the rig when the load he was transporting shifted. Id. His truck rolled over, crushing the cab with Thornton inside. Id. As a result of the accident, Thornton sustained serious injuries resulting in paralysis below the chest, no use of his left hand, and only limited use of his right hand. Id.

There was no dispute that the injury incurred in the course of his employment. Clayton Recycling’s workers’ compensation insurer was American Interstate Insurance Company. Id.

B. Workers’ Compensation Benefits and Proceedings. Shortly after the accident, American Interstate began providing workers’ compensation benefits to Thornton. Id. Thornton initially hired counsel who engaged in correspondence with American Interstate regarding wage information for Thornton for a year prior to the accident. Id. No formal proceedings arose from these communications. Ultimately, however, Thornton, through new counsel, sought the intervention of the Iowa Workers’ Compensation Commissioner on three occasions in order to enforce what he saw as his rights to benefits under Iowa law. Id. at 454–57.

First, Thornton obtained a ruling from a deputy commissioner on May 23, 2013, that he was permanently and totally disabled (PTD) as a result of the work-related accident. Id. at 455. Second, Thornton obtained a grant of partial commutation of his workers’ compensation benefits from a deputy commissioner by petition on May 16, 2014. Id. at 456. Finally, on October 21, Thornton filed a petition for alternate medical care with the commissioner related to Thornton’s need for a new wheelchair. Id. at 457. With respect to the wheelchair, American Interstate conceded that a replacement wheelchair was "reasonable and necessary," leading the deputy commissioner to order American Interstate to provide a new wheelchair on November 4, with the observation that both parties were in agreement on the matter. Id.

C. First Bad-Faith Action. On December 26, 2013, Thornton filed a bad-faith action against American Interstate. Id. at 457. The parties filed cross-motions for summary judgment. Id. The district court granted Thornton’s motion for summary judgment in part and denied American Interstate’s motion. Id. at 458. The district ruled, as a matter of law, that American Interstate acted in bad faith with respect to its challenge to Thornton’s claim for PTD benefits and for partial commutation. Id. The question of any bad faith prior to March 11, 2013, and the issue of damages was left to the jury. Id.

In this first trial of the bad-faith claim, the jury found that American Interstate acted in bad faith as of September 1, 2009, correlating with the alleged refusal of American Interstate to provide wage information and intracompany recognition of PTD. Id. at 459. The jury awarded the following damages:

Past pain and suffering:	$125,000
Loss of use of money:	$14,000
Lost home equity:	$27,000
Consequential damages:	$118,000
TOTAL	$284,000

Id. at 460. In addition, the jury awarded punitive damages of $25 million. Id. The district court denied American Interstate’s posttrial motions for judgment notwithstanding the verdict, remittitur, and new trial. Id.

D. Appeal of First Bad-Faith Action. American Interstate appealed denial of their posttrial motions, and Thornton cross-appealed denial of attorney fees related to the bad-faith claim. Id. at 451. On appeal, we held that the district court had properly found, as a matter of law, that American Interstate knew or should have known it lacked any reasonable basis to dispute Thornton’s PTD status. Id. at 466.

At the same time, we found the district court erred in concluding that American Interstate committed bad faith by offering to settle the matter on a closed-file basis. Id. We also held that American Interstate was entitled to a motion for directed verdict and that the district court erred in instructing the jury on Thornton’s claim that it improperly resisted his claim for partial commutation. Id. at 470. We concluded that "American Interstate was not in bad faith for resisting commutation because Thornton’s petition for commutation was fairly debatable on its facts." Id. (emphasis omitted).

On a third issue, we held there was sufficient evidence for a reasonable jury to conclude that the delay in replacing Thornton’s wheelchair caused him to suffer from bursitis and cellulitis which led to a hospitalization. Id. at 473. We did not address any questions related to liability of American Interstate with respect to the wheelchair question.

With respect to damages, however, we declined to address a number of issues. Specifically, we declined to address the sufficiency of the evidence to support instructions on the loss of the use of money and home equity. Id. at 474. We also had no occasion to address the question of punitive damages, as the case was remanded for a new trial.

On the question of whether Thornton’s attorney fees for the bad-faith action may be recovered from American Interstate, we concluded that the district court correctly refused to instruct the jury that these fees were allowable damages and denied Thornton’s posttrial motion for fees. Id. at 474–75.

E. Overview of Second Trial of Bad-Faith Claim. As a result of the ruling of this court in the first bad-faith proceeding, four legal parameters were established for the second trial. First, as a matter of law, American Interstate, beginning at least as soon as March 11, 2013, engaged in bad faith on the PTD question. Id. at 466. Second, also as a matter of law, American Interstate did not engage in bad faith related to the issue of partial commutation. Id. Third, with respect to causation, a triable issue was generated on the question of mind and body damages arising from the alleged bad-faith delay in the provision of a new wheelchair to Thornton. Id. at 476. Fourth, attorney fees related to the bad-faith claims of Thornton were not recoverable from American Interstate. Id. at 475–76.

The matter was retried in a five-day trial in February 2018. The evidence was similar, but not identical, to that in the first bad-faith trial. The jury returned a verdict in favor of Thornton. The jury determined that the bad faith of American Interstate began on October 25, 2012. The jury then provided for compensatory damages as follows:

Past mental pain and suffering:	$40,000
Past pain and suffering:	$40,000
Loss of use of money:	$150,000
Loss of full mind and body – past	$100,000
Consequential damages:	$52,000
TOTAL	$382,000

The jury also found by a preponderance of clear, convincing, and satisfactory evidence the conduct of American Interstate constituted willful and wanton disregard for the rights or safety of another. Further, the jury determined the conduct of American Interstate was specifically directed toward Thornton. The jury awarded punitive damages in the amount of $6.75 million.

II. Standard of Review.

A motion for judgment notwithstanding the verdict should be granted if there is not substantial evidence to support the elements of the plaintiff’s claim. Doe v. Cent. Iowa Health Sys. , 766 N.W.2d 787, 790 (Iowa 2009). A motion for new trial should be granted pursuant to Iowa Rule of Civil Procedure 1.1004(6), (8), and (9) if the "verdict, report or decision is not sustained by sufficient evidence, or is contrary to law" or in the event of "[e]rror[ ] of law occurring in the proceedings, or mistake[ ] of fact by the court," or "[o]n any ground stated in rule 1.1003, the motion specifying the defect or cause giving rise thereto."

Where damages are not supported by the evidence, the court may "order a remittitur as a condition to avoiding a new trial." Jasper v. H. Nizam, Inc. , 764 N.W.2d 751, 777 (Iowa 2009). When ordering remittitur, the court "award should be reduced ‘to the maximum amount proved’ under the record." Id. (quoting In re...