Mark Wells Paine and Denise Ann Paine v. American Family Mutual Insurance Company

IN THE COURT OF APPEALS OF IOWA

No. 16-0429
Filed March 22, 2017

MARK WELLS PAINE and DENISE ANN PAINE,
Plaintiffs-Appellants,

vs.

AMERICAN FAMILY MUTUAL INSURANCE COMPANY,
Defendant-Appellee.
________________________________________________________________

Appeal from the Iowa District Court for Cerro Gordo County, Christopher

C. Foy, Judge.

The plaintiffs appeal adverse summary judgment rulings on their claims

against the defendant and the denial of their post-trial motion for additur.

AFFIRMED.

Steve J. Crowley and Edward J. Prill of Crowley, Bunger & Prill,

Burlington, for appellants.

Joel T.S. Greer of Cartwright, Druker & Ryden, Marshalltown, and Mark S.

Brownlee of Kersten Brownlee Hendricks L.L.P., Fort Dodge, for appellee.

Heard by Danilson, C.J., and Vogel and Vaitheswaran, JJ.
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VAITHESWARAN, Judge.

An injured motorcyclist and his wife appeal adverse summary judgment

rulings on their claims for early underinsured motorist (UIM) payments, bad faith,

and punitive damages against American Family Mutual Insurance Company and

the denial of their post-trial motion for additur.

I. Background Facts and Proceedings

Mark Paine was injured when a vehicle driven by Marlys Wendel turned in

front of the moped he was driving, resulting in a collision that sent him airborne.

Paine was taken to the emergency room of a local hospital. He testified to

“excruciating” pain in his ribs, hip, knee, arms, and right shoulder. Paine was

transferred to the Mayo Clinic in Rochester, Minnesota, where he underwent

surgery to repair a fracture in his hip. In time, Paine developed necrosis in the

femoral head and underwent hip replacement surgery.

Paine had a motorcycle insurance policy with American Family Mutual

Insurance Company providing for bodily injury coverage of $250,000. Paine also

had a $1,000,000 umbrella policy with the insurer. He and his wife sued

American Family for underinsured motorist coverage. They alleged that they

settled with Wendel for her insurance limit of $100,000 and were now entitled to

“the full UIM limits” of the motorcycle policy. The Paines also alleged American

Family acted in bad faith by refusing to make any UIM payments despite its

admission that Paine’s damages exceeded the limits of Wendel’s coverage.

Both sides moved for partial summary judgment. American Family asked

the court to reject the Paines’ bad faith claim and request for punitive damages

as a matter of law. The Paines sought a declaration that the motorcycle policy
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imposed a legal obligation on American Family to make immediate payment of

the UIM benefits available under their policy. The district court granted American

Family’s motion on the bad faith and punitive damage claims and denied the

Paines’ motion on immediate UIM coverage. The court dismissed the request for

declaratory relief and set the UIM claim for trial.

Following trial, the jury found in favor of the Paines and awarded damages

of $256,847.69. The Paines filed a motion for new trial and alternative motion for

additur. The district court denied the motions, reduced the damage award by

another insurer’s payments, and entered judgment in favor of the Paines for

$156,847.69.

The Paines appealed the summary judgment and post-trial rulings.

II. Denial of Paines’ Summary Judgment Motion – UIM Claim

The Paines contend the district court should have concluded as a matter

of law that American Family had a “duty to promptly pay any amount of UIM

benefits as soon as the policy holder has reasonably established their right to

receive them.” See Iowa R. Civ. P. 1.981(3) (stating summary judgment shall be

granted “if the pleadings, depositions, answers to interrogatories, and admissions

on file, together with the affidavits, if any, show that there is no genuine issue as

to any material fact and that the moving party is entitled to a judgment as a

matter of law”). They cite the undisputed evidence that Paine’s damages

exceeded Wendel’s policy limit as well as the following policy language: “We will

pay compensatory damages for bodily injury which an insured person is legally

entitled to recover from the owner or operator of an underinsured motor vehicle.”

(Emphasis added.)
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The phrase “legally entitled to recover” derives from our underinsured

motorist statute, which requires coverage “for the protection of persons insured

under such policy who are legally entitled to recover damages from the owner or

operator of an uninsured motor vehicle.” Iowa Code § 516A.1 (2013). The

supreme court has stated, “[T]his language is simply meant to limit UIM benefits

to what the injured person would have been entitled to recover from the

underinsured motorist if the underinsured motorist had been adequately insured

and if a tort suit against the underinsured motorist had been pursued.” Waits v.

United Fire & Cas. Co., 572 N.W.2d 565, 574 (Iowa 1997). The language

“requires the insured to prove the damages he or she would have been entitled

to recover had a lawsuit against the underinsured motorist been taken to

judgment.” Id.; accord Wetherbee v. Econ. Fire & Cas. Co., 508 N.W.2d 657,

660 (Iowa 1993) (“[T]he statute requires the claimant to prove that the ‘insured’ is

‘legally entitled to recover damages’ from the underinsured motorist.”(citation

omitted)). This requirement “is an element of the insured’s claim.” Wetherbee,

508 N.W.2d at 660. “[T]he plaintiff must be able to establish fault on the part of

the uninsured or underinsured motorist which gives rise to damages and to prove

the extent of those damages.” Id. at 661; see also Am. Family Mut. Ins. Co. v.

Petersen, 679 N.W.2d 571, 584 n.3 (Iowa 2004) (“[T]he insured has the burden

to prove the uninsured motorist was liable and the extent of the damages.”).

Although American Family agreed Paine sustained damages “in some

amount,” the insurer did not agree on the extent of those damages. This was a

matter to be proven at trial. Because the total damages had yet to be

determined, the district court did not err in denying the Paines’ summary
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judgment motion on the UIM claim and setting the matter for trial to determine

precisely what the Paines were “entitled to recover.”

III. Grant of American Family’s Summary Judgment Motion – Bad Faith

and Punitive Damages1

The Paines contend the district court erred in granting American Family’s

summary judgment motion on their bad faith claim and request for punitive

damages. They assert American Family had no reasonable basis for denying

UIM benefits because “[t]he company’s own claims lawyers valued the case as

high as $500,000” and American Family agreed Paine’s damages exceeded

Wendel’s policy limit.

The Paines correctly frame the elements of bad faith as whether

(1) American Family had no reasonable basis for denying their claim or for

refusing to consent to settlement, and (2) American Family knew or had reason

to know that its denial or refusal was without reasonable basis. See Bellville v.

Farm Bureau Mut. Ins. Co., 702 N.W.2d 468, 473 (Iowa 2005). A reasonable

basis exists to deny “policy benefits if the insured’s claim is fairly debatable either

on a matter of fact or law.” Id. “A claim is ‘fairly debatable’ when it is open to

dispute on any logical basis” or “if reasonable minds can differ on the coverage-

determining facts or law.” Id. “Whether a claim is fairly debatable can generally

be decided as a matter of law by the court.” Id.

1
The Paines couch this issue in terms of the denial of their motion for summary
judgment on their bad faith claim, but they simultaneously contend they should have
been allowed to go to trial on that claim. We read their argument as a challenge to the
court’s grant of American Family’s summary judgment motion on that claim.
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American Family conceded Wendel’s liability and conceded the existence

of damages but, as noted, did not concede the extent of those damages. In its

response to Paine’s statement of undisputed facts, American Family stated,

“[N]either a settlement evaluation nor a settlement offer constitutes an agreement

or admission of the amount of damages insureds are legally entitled to recover.”

American Family also asserted, “[T]he parties have not been able to reach an

agreement regarding the total value [of] damages which Plaintiffs are ‘legally

entitled to recover.’” In a brief supporting its partial motion for summary judgment

and resisting the Paines’ motion, American Family reiterated: “The amount of the

tortfeasor’s ‘legal liability’ to Plaintiffs remains to be established and no duty

exists to pay part of such unestablished amount without a release and proceed to

litigate the total amount of UIM benefits payable under the policy.” The insurer

pointed out that only Paine’s past medical expenses were undisputed; Paine’s

future medical expenses and past and future loss of earnings remained at issue.

American Family stood on firm ground in declining to make partial UIM

payments before the extent of damages was conclusively established. See id. at

480 (addressing insurer’s consideration of prior settlements in assessing

reasonable value of present claim and stating “legal liability is measured by what

a jury would award; it is not measured by the amount for which such a case could

be settled”); Voland v. Farmers Ins. Co. of Arizona, 943 P.2d 808, 811-12 (Ariz.

Ct. App. 1997) (“[T]he settlement offer was simply a proposal to compromise and

resolve the claim, nothing more and nothing less. . . . As [the insurer] correctly

notes, ‘an unaccepted settlement offer does not liquidate the amount of damages

or constitute an admission of “undisputed amounts” owed.’”); Williams v.
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Nationwide Mut. Ins. Co., 750 A.2d 881, 887 (Pa. Super. Ct. 2000) (“We cannot

conclude that settlement offers or reserves set aside for insureds’ claims equate

to ‘undisputed amounts’ of benefits due under the policies.”). Notably, the Paines

agreed certain damage requests were disputed, and they presented expert

testimony on those damages, including the cost of future hip replacement

surgery and past and future earnings. Given the uncertainty associated with

these and other damage categories, the district court correctly determined, “[N]o

reasonable trier of fact could conclude [American Family] lacked a reasonable

basis for denying any of the demands for UIM benefits made by [the Paines] to

this point without receiving a full release from [the Paines] in exchange.” We

discern no error in the district court’s rejection of the Paines’ bad faith claim and

punitive damages request as a matter of law. See Bellville, 702 N.W.2d at 482

(“An insurance company simply cannot be expected, at its peril, to predict the

exact amount a jury will award.”).

IV. Motion for New Trial or Additur

The jury awarded the Paines the following damages:

1. Past medical expense $ 136,847.69
2. Future medical expense $ 15,000.00
3. Past loss of function of body $ 15,000.00
4. Future loss of function of body $ 5,000.00
5. Past lost wages $0
6. Future loss of earning capacity $ 5,000.00
7. Past pain and suffering $ 45,000.00
8. Future pain and suffering $ 15,000.00
9. Past loss of spousal consortium $ 20,000.00
10. Future loss of spousal consortium $0
TOTAL $ 256,847.69

The Paines contend the verdict bore “no reasonable relationship to the evidence”

and was “the product of passion and unfair prejudice, likely injected by American
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Family’s misconduct before and during trial.” See Iowa R. Civ. P. 1.1004

(providing grounds on which to grant a new trial). They specifically argue (A)

American Family’s decision to call Marlys Wendel as a witness “intentionally

misle[d] the jury”; (B) American Family failed to produce Mr. Paine’s massage

therapy records before using them on cross-examination; and (C) American

Family’s additional conduct “created unfair prejudice to [their] right to a fair trial

on the amount of their damages.”

A. Wendel’s Testimony

American Family listed Marlys Wendel as a witness. The Paines filed a

motion in limine seeking the exclusion of Wendel’s testimony on the ground that

American Family admitted she was entirely at fault for the accident. The district

court ruled she could provide limited testimony on “her recollection of the

accident.”

As a preliminary matter, American Family contends the Paines failed to

preserve error on their arguments concerning Wendel because they did not

object to the questions and answers as they were elicited. We disagree.

The Paines challenged Wendel’s testimony in its entirety. Although the

court advised the Paines’ attorney he would still need to lodge objections to

specific questions, the court’s ruling on the propriety of Wendel’s testimony as a

whole—which is what the Paines now challenge—was preserved for our review.

Turning to the merits, we agree with the Paines that American Family had

no reason to call Marlys Wendel as a witness except to evoke sympathy.2

2
Wendel was a seventy-eight-year-old woman who, according to the Paines’ attorney,
used an oxygen tank.
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Wendel admitted liability and American Family’s managing attorney testified

Wendel was at fault for the accident and Mr. Paine had no fault for the crash.

That said, American Family only put Wendel on the stand after the district court

ruled she could testify. As for the substance of her testimony, the Paines do not

argue that it exceeded the bounds of the court’s ruling.

We recognize American Family’s attorney made a remark during closing

argument that arguably did exceed those bounds—when he stated Wendel

would have to pay the Paines. We view this assertion as an isolated

misstatement in what the Paines conceded was a relatively clean record. And

we agree with the district court that there was no prejudicial impact from any

statements that might have “crossed the line.” The jury awarded all the past

medical expenses the Paines sought. Although the jury reduced other categories

of damages, the evidence on those damages was disputed. For example, a

physician testified Mr. Paine might need to undergo another hip-replacement

surgery “if he live[d] long enough.” The cost of the future hip surgery was

estimated to be between $42,821 and $45,381 or “a little less than $40,000

today.” The jury awarded $15,000. Given the question of Mr. Paine’s life span

and the uncertainty surrounding whether he would in fact require the additional

surgery, we conclude the jury acted reasonably in awarding a lower amount than

requested. See Cowan v. Flannery, 461 N.W.2d 155, 158 (Iowa 1990) (“A

verdict should not be set aside as either too large or too small simply because

the reviewing court would have reached a different conclusion.”).
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B. Discovery

A pretrial discovery order required American Family to produce “medical

records.” At trial, American Family questioned Paine about massage therapy

sessions he attended but failed to produce Paine’s massage therapy records.

The Paines now argue “the net effect . . . was to prejudice or confuse the jury

enough to depress the jury verdict below what the evidence established.” We

disagree.

Neither side viewed the massage therapy records as medical records

subject to disclosure under the discovery order. American Family’s attorney

stated he would introduce those records only to refresh Paine’s recollection.

Ultimately, the records were not offered or admitted for this or any other purpose.

The trial testimony on massage therapy was limited and elicited by both

sides. On direct examination, the Paines’ attorney questioned Mr. Paine about

his experience with massage therapy, eliciting a response that he obtained full

body massages to alleviate back and shoulder pain. Mr. Paine characterized the

massages as “relaxation therapy.” On cross-examination, American Family’s

attorney asked Paine whether the massages included his shoulder area. He

responded that they did. This was the sum and substance of the massage

therapy discussion. We discern no discovery violation, no misconduct, and no

prejudice arising from the testimony or non-production of massage therapy

records.
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C. Defense Counsel’s Additional Conduct

The Paines argue American Family’s attorney “misrepresented additional

key facts to the jury” during closing argument. We will briefly address each

claimed misrepresentation.

First, the Paines take issue with defense counsel’s representation that one

of the physicians who testified for the Paines only saw Paine two years before

trial, when he was at his worst. In fact, the physician also saw Paine less than

two weeks before trial, a date counsel did not disclose in his closing argument.

American Family asserts counsel’s statement was not a misrepresentation

because the district court excluded the physician’s updated opinion as well as

any observations based on the recent appointment, after the Paines failed to

supplement their discovery responses. While it appears the date of the recent

appointment remained in the record, we are persuaded American Family’s failure

to mention it did not amount to a misrepresentation in light of the court’s

discovery ruling. See Rasmussen v. Thilges, 174 N.W.2d 384, 391 (Iowa 1970)

(noting “trial court has broad discretion in passing on the propriety of jury

argument and we will not reverse unless there has been a clear abuse of such

discretion”). In any event, the omission was non-prejudicial for the reasons

outlined above.

Second, the Paines challenge defense counsel’s questions of Ms. Paine

concerning whether she would have to “pay back” her health insurer for medical

expenses it covered. The Paines objected to this line of questioning, the

objection was overruled, and Ms. Paine answered that she did not know whether

she would have to pay back the health insurer. American Family asked the
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question again in a different way, and the Paines’ attorney objected again, at

which point American Family’s attorney withdrew the question. The Paines

sought a cautionary instruction stating they would “be required to reimburse their

health insurance plan because it’s an ERISA-funded plan regardless of what is

awarded to them.” The district court declined to give the instruction. During

deliberations, the jury inquired whether the health insurer would be “paid out of

the full settlement or just the amount on Line 1” of the verdict form addressing

“[p]ast medical expenses.” The court responded that the insurer was “to be paid

out of the full settlement.” On appeal, the Paines contend the line of questioning

resulted in “unfair prejudice.”

We question the relevancy of this line of questioning and agree with the

Paines that it may have caused confusion. Cf. Buhr v. Mayer’s Digging Co., No.

15-0211, 2016 WL 894563, at *3 (Iowa Ct. App. Mar. 9, 2016) (finding evidence

of indemnification irrelevant, improper, and prejudicial). But the Paines’ attorney

informed the jurors in closing argument that “if you award money, [the health

insurer] wants it back from the Paines,” and the jury awarded the Paines the full

amount they sought in past medical expenses. We conclude the Paines were

not prejudiced by the questions about their health insurer.

Finally, the Paines take issue with defense counsel’s questions about their

delay in filing tax returns. Because Paine’s earnings were a subject of debate,

we are not persuaded counsel’s references to their tax returns were beyond the

pale.

In sum, the jury award was indeed less than the sum the Paines

requested. But defense counsel’s conduct did not make it so. The evidence on
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all the categories of damages except past medical expenses was disputed, and

the jury reasonably could have credited American Family’s evidence in reducing

those damages. The district court appropriately denied the Paines’ new trial

motion and request for additur.

AFFIRMED.