Legal Memorandum: Determination of Bad Faith Claim in IA

Issue: Under Iowa law, is the determination of whether a denial of benefits was in bad faith a question of fact that precludes summary judgment?

“Iowa law recognizes a common-law bad faith claim against an insurer for an insurer’s bad faith refusal for payment of benefits.”  Adam v Stonebridge Life Ins. Co., 612 F.3d 967, 974 (8th Cir. 2010) TA l "Adam v Stonebridge Life Ins. Co., 612 F.3d 967 (8th Cir. 2010)" s "Adam v Stonebridge Life Ins. Co. (8th Cir. 2010)" c 1 .  Iowa has extended this common-law tort to workers’ compensation cases.  Boylan v. American Motorists Ins. Co., 489 N.W.2d 742, 744 (Iowa 1992) TA l "Boylan v. American Motorists Ins. Co., 489 N.W.2d 742 (Iowa 1992)" s "Boylan v. American Motorists Ins. Co. (Iowa 1992)" c 1 .

Generally, to establish such a claim, the plaintiff must show:  (1) that the insurer had no reasonable basis for denying benefits under the policy and (2) that the insurer knew, or had reason to know, that its denial was without basis.  Rodda v. Vermeer Mfg., 734 N.W.2d 480, 483 (Iowa 2007) TA l "Rodda v. Vermeer Mfg., 734 N.W.2d 480 (Iowa 2007)" s "Rodda v. Vermeer Mfg. (Iowa 2007)" c 1 .  “Of course, implicit in the first element of a bad-faith claim is the requirement that the insurer actually relied on the reasonable basis in denying coverage.”  Liberty Mut. Ins. Co., 650 F.3d at 1177 TA s "Liberty Mutual Ins. Co. v. Pella Corp. (8th Cir. 2012)"  (emphasis in original).

When the defendant in a bad faith case brings a motion for summary judgment, the insurer “must demonstrate that a […]