Villarreal v. United Fire & Cas. Co.

• Decision Date: 14 January 2015
• Docket Number: No. 14–0298.,14–0298.
• Citation: 862 N.W.2d 413 (Table)
• Parties: Ben VILLARREAL Jr., Cleo Martinez, and Lacasa Martinez Tex Mex, Inc., Plaintiffs–Appellants, v. UNITED FIRE & CASUALTY COMPANY d/b/a United Fire Group, Defendant–Appellee.
• Court: Iowa Court of Appeals

862 N.W.2d 413 (Table)

Ben VILLARREAL Jr., Cleo Martinez, and Lacasa Martinez Tex Mex, Inc., Plaintiffs–Appellants

v.UNITED FIRE & CASUALTY COMPANY d/b/a United Fire Group, Defendant–Appellee.

No. 14–0298.

Court of Appeals of Iowa.

Jan. 14, 2015.

Bruce H. Stoltze and Eric Updegraff of Stoltz & Updegraff, P.C., Des Moines, for appellants.

Davis L. Phipps, S. Luke Craven, and Stephen Doohen of Whitfield & Eddy, P.L.C., Des Moines, for appellee.

Heard by MULLINS, P.J., and BOWER and McDONALD, JJ.

Opinion

BOWER, J.

The plaintiffs, Cleo Martinez, her husband Ben Villarreal Jr., and La Casa Martinez Tex Mex, Inc., appeal the district court order granting summary judgment to defendant United Fire & Casualty Company on their claim alleging the intentional tort of bad faith.¹ We reverse and remand for further proceedings.

I. Background Facts and Proceedings

In October 2006 the plaintiffs purchased commercial property insurance from United Fire for their restaurant, La Casa, with coverage limits of $386,400 (building replacement) and $374,400 (personal property replacement). The named insured on the policy was La Casa Martinez Tex Mex, Inc. On March 8, 2007, the plaintiffs' restaurant was destroyed in a fire. In November 2007 United Fire paid $108,310 under the policy to mortgagor Community National Bank for the next payment on the destroyed building.

On March 7, 2008, the plaintiffs filed a petition alleging United Fire breached the insurance contract by refusing to pay the amounts due. United Fire answered, alleging the “plaintiffs have been fully compensated for all covered damages.” Immediately prior to the March 2011 trial, the parties stipulated the jury did not need to resolve the facts that (1) the three plaintiffs “were insured for the value of the building and the personal property” with United Fire, and (2) an “accidental” fire “destroyed the property .” The jury awarded the plaintiffs $236,901.52 in compensatory damages, and the court entered judgment on the verdict. Four years after the fire, in April 2011, the plaintiffs filed a satisfaction of judgment.

In June 2011 the plaintiffs filed a petition against United Fire, alleging the intentional tort of bad faith. They claimed (1) United Fire “knew it had no objective reasonable basis for the denial or failure to make payment” on their insurance claim, and (2) United Fire's “bad faith was the proximate cause of damage,” including “lost profits, lost wages, [and] emotional distress.” Plaintiffs also sought punitive damages for United Fire's “willful and intentional disregard” of the plaintiffs' rights.

A. Motion to Dismiss. United Fire filed a pre-answer motion to dismiss, alleging it had paid all sums due “with respect to the fire loss” and the bad faith claim is barred by the doctrines of “res judicata” and “claim preclusion.” United Fire claimed because the plaintiffs did not assert their bad faith claim during the prior contract action, it is barred. In support, United Fire cited Arnevik v. University of Minnesota Board of Regents, 642 N.W.2d 315, 319 (Iowa 2002) (“A second claim is likely to be barred by claim preclusion where the ‘acts complained of, and the recovery demanded are the same or when the same evidence will support both actions.’ ”) (quoting Whalen v. Connelly, 621 N.W.2d 681, 685 (Iowa 2000) ). United Fire also claimed neither Villarreal nor Martinez is an insured under the policy and the policy's named insured is La Casa Martinez Tex Mex, Inc.

The plaintiffs resisted, contending the bad faith claim is not the “same claim” as the previously adjudicated breach of contract claim. They stated the tort claim is based on “facts that came into existence after March 7, 2007 (the date of loss) including the state of mind of the insurance adjustor,” the quality of United Fire's investigation of their claim, and “whether there exists a reasonable basis” for United Fire to deny payment. Those “facts are substantially different than the set of facts giving rise to the breach of contract claim,” which focused on the value of the insured property and whether the plaintiffs had a policy on March 7 and met the conditions of the policy. The plaintiffs also claimed the tort remedies were not the same because noneconomic damages such as emotional distress could be recovered only in their bad faith claim. In support, the plaintiffs cited Westway Trading Corp. v. River Terminal Corp., 314 N.W.2d 398, 401 (Iowa 1982) (“The right to join related causes of action does not bar subsequent litigation of a distinct cause of action that was not joined. The situation is the same as with a permissive counterclaim.”).

The district court framed the issue as “whether the doctrine of claim preclusion bars a bad faith claim against an insurance company when there has already been a prior law suit on the underlying policy.” Relying on an Iowa case resolving the same issue, the court denied United Fire's motion to dismiss. See Leuchtenmacher v. Farm Bureau Mut. Ins. Co., 460 N.W.2d 858, 859 (Iowa 1990) (“The issue here is whether an insured estate which has recovered in a suit against its own insurance company for uninsured motorist benefits is thereafter precluded from suing the company for its alleged bad-faith failure to settle the claim.”). The Leuchtenmacher defendant sought dismissal, claiming “an action for bad-faith failure to settle must be brought simultaneously with the claim to recover the policy proceeds, and a bad-faith claim not so joined is barred by claim preclusion.” Id. The district court agreed and ordered the case dismissed. Id. On appeal, our supreme court reversed and remanded, ruling:

Whether the cases arise out of a single transaction or a series of transactions turns on whether there is “a natural grouping or common nucleus of operative facts” and involves “a determination whether the facts are so woven together as to constitute a single claim.”

The question of whether the estate's “bad-faith” case was precluded by the prior suit depends on whether the cases arose out of the same facts. We cannot conclude as a matter of law that they did. In fact, a bad-faith claim might well be based on events subsequent to the filing of the suit on a policy and therefore could not be based on the “same” facts.

Id. at 861 (emphasis added and citations omitted). Based on Leuchtenmacher, the district court denied United Fire's motion to dismiss, recognizing events “during the course of the prior litigation could be evidence of bad faith” and “the elements to establish breach of an insurance contract are different than the elements to establish bad faith.”

B. Motion for Summary Judgment. Eighteen months later, United Fire filed a motion for summary judgment, contending (1) the plaintiffs' bad faith claim is barred by the doctrine of claim preclusion, and (2) neither Villarreal nor Martinez is an “insured” under the policy. The plaintiffs resisted. The district court first discussed the relationship between the breach of contract case and the tort case:

The breach of contract case arises out of the fire and the value of the business. The bad faith case relies upon facts occurring after the fire involving the company's handling of the case. While the two matters are related, the claims are different. The recovery demanded is also different. The first action involves damages based upon the value of the business. The bad faith action seeks damages outside of the terms of the contract. The evidence that would be presented in the breach of contract case depends largely upon evidence as to the value of the business. The bad faith case goes substantially beyond those facts and involves proof as to whether or not the insurance company's conduct was reasonable, and whether the insurance company knew or had reason to know its denial was without reasonable basis.

(Emphasis added.) The district court recognized the likelihood “the bad faith action would have been bifurcated from the breach of contract case” and the likelihood the “plaintiffs would have been denied access to the adjuster's file until the breach of contract case had been fully tried. Even if the cases were brought together, a second trial might ultimately be necessary.” Further:

[W]hile the plaintiffs largely rely upon decisions made by [United Fire] prior to filing suit, there were some facts that occurred following the filing of the breach of contract lawsuit. Although [United Fire] could have retained an expert witness to verify [its] in-house estimate of the value of La Casa, it did not do so. Not all the facts that might be necessary to pursue the bad faith case would have been available if both cases had been tried at the same time.

Recognizing “there is not any Iowa case on point,” the district court found persuasive a First Circuit decision—Porn v. National Grange Mutual Insurance Co. —and granted summary judgment to United Fire. 93 F.3d 31, 33–38 (1st Cir.1996) (stating federal res judicata principles precluded a second suit against the defendant insurance company raising bad faith claims that could have been resolved in the initial breach of contract suit.). The district court ruled:

[In Porn, ] [t]he attempt to characterize the breach of contract and bad faith claims as arising out of two transactions was described as “artificially narrow.” Id. at 35. Both actions arise from the insurance company's refusal to pay the claim. Just because the “two claims depend on different shadings of the facts or emphasize different elements of the facts,” there are still facts which support both claims. Id. The facts underlying the two claims are closely related in time, space, origin, and motivation.” Id.

Porn recognized that even if the two claims did not form a convenient trial unit, that any potential prejudice could be resolved by bifurcating the trial. Id. at 36. While this court questions whether both claims could be tried to the same jury, bringing both claims at once would allow a quicker resolution of both cases.

Finally, Porn

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