Iowa Supreme Court Reduces Jury Award of $6 Million in Punitive Damages to $500,000 following Bad Faith Trial

Posted on: March 2nd, 2020

Plaintiff, Toby Thornton, sustained injuries while operating a work vehicle.  There was no dispute the injury occurred during the course of his employment.  However, during the course of workers’ Compensation benefits, the insurer, American Interstate, challenged Thornton’s claim for PTD benefits.  Thornton filed a Petition alleging bad faith on the part of American Interstate. The District Court denied American Interstate’s motion for summary judgment, ruling that American Interstate acted in bad faith as a matter of law with respect to its challenge to Thornton’s claim for PTD benefits and for partial commutation.  The jury awarded punitive damages of $25 million.  The district court denied American Interstate’s posttrial motions for judgment notwithstanding the verdict, remittitur, and new trial.

American Interstate appealed the denial of their posttrial motions, and Thornton cross-appealed denial of attorney fees related to the bad-faith claim.  The Iowa Supreme Court 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.  The Supreme Court 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.  The Supreme Court concluded that “American Interstate was not in bad faith for resisting commutation because Thornton’s petition for commutation was fairly debatable on its facts.”  Following this ruling, the case was remanded for a second trial.

At the second trial, the jury had four legal parameters: (1) As a matter of law, American Interstate engaged in bad faith on the PTD questions, (2) American Interstate did not engage in bad faith related to the issue of partial commutation, (3) 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, and (4) attorney fees related to the bad-faith claims of Thornton were not recoverable from American Interstate.  After a five-day jury trial, the jury provided compensatory damages to Thornton and awarded punitive damages of $6.75 million.  The parties appealed.

The Supreme Court held that the record provided substantial evidence that Thornton needed a wheel chair as of July 1, 2014. However, the evidence did not reflect that this information was communicated to American Interstate. When American Interstate was notified of a delay in Thornton receiving this wheel chair, American Interstate’s counsel contacted American Interstate and American Interstate contacted its vendor immediately. Under these facts, the Iowa Supreme Court held that Thornton failed to establish American Interstate acted in bad faith.  As a result, there was no legal basis for awarding $100,000 in damages for loss of mind and body and $80,000 in damages for physical and mental pain and suffering that Thornton claimed he suffered as a result of American Interstate’s alleged bad faith.

In examining the punitive damages claim, American Interstate argued that that while its motivations were not legally justified under the bad-faith standard, they do not demonstrate reprehensible conduct.  The Iowa Supreme Court concluded that the highest punitive damage award that could be maintained based on the record in this case was $500,000.

Thornton v. American Interstate Insurance Co., No. 18–0809, (Iowa 2020).

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