An eleven year old girl, K.N.T., was seriously injured in an ATV accident. The drivers of the ATV were uninsured, so K.N.T.’s mother filed an uninsured motorist claim with her own insurance provider, American Family. The American Family claims manager responsible for the claim denied it, citing an exclusion contained in a generic American Family policy. That exclusion was not part of the UM coverage, and was not contained in K.N.T.’s policy. The manager then consciously determined the claim should be denied on at least three additional occasions despite the plaintiffs’ submission of documents showing the policy provided coverage and showing the extent of K.N.T.’s medical expenses. K.N.T.’s mother filed a first-party bad faith lawsuit against American Family, and included a claim for punitive damages. At trial, the claims manager admitted he never read the applicable policy before denying the claim.
In discovery, plaintiffs requested information on American Family employee compensation. The American Family documents showed that the claims manager’s compensation was in part based on a pay-for-performance program, which provides incentives based on the amount of money American Family pays out on its policyholders’ claims.
The jury returned a verdict in favor of plaintiffs with regard to their bad faith and punitive damages claims. The district court, however, granted American Family’s directed verdict on the award of punitive damages. On appeal, the Iowa Court of Appeals in K.N.T. v. American Family Mutual Insurance Co., No. 14-0926 (July 9, 2015), reversed the district court’s directed verdict, holding the evidence of the manager’s handling of the claim alone was “sufficient for a reasonable mind to conclude American Family’s denial was in willful and wanton disregard for the rights of the policy holders and K.N.T.’s medical well-being.”
The court also held that evidence of the pay-for-performance program created a reasonable inference that American Family created a work environment in which the manager’s instinctual inclination would be to deny claims if a cursory review appeared to allow him to do so. This inference, the court stated, “should be made or rejected by a jury” with regard to the allegation that American Family’s conduct constituted willful and wanton behavior.