only seek to satisfy the remaining judgment from USF proceeds. The Deters Estate retained the failure to defend and
bad faith claim and right to recover attorney fees from USF. Jon and Jason’s estates intervened in the Deters Estate
declaratory judgment action against USF.
Trial on the declaratory judgment action was bifurcated. On August 17, 2009, trial was held on the coverage is-
© 2011 Thomson Reuters. No Claim to Orig. US Gov. Works.
ties as officers, whether or not the character of the particular act at issue was managerial in nature. The [Martin ]
Court determined … “[The plant operator] was an ‘executive officer’ of [the city], and because he was performing
er Inc.] are not limited to the administrative function of signing documents like leases and mortgages or deciding
which health insurance to buy for employees. Leo‘s duties as an executive officer of [Tower Inc.] included the
day-to-day management of the company including the work that was performed on the date of the accident. Ac-
cordingly, the Court concludes that [Leo] was an insured under [USF’s] CGL.
The court next addressed USF’s claim its CGL employer’s liability exclusion precluded coverage.
sion to “any insured.”…
USF could have expanded the employer’s exclusion in Deters’ policy to include “any insured” but it did not. The
employer’s liability exclusion in the USF policy is limited to “the insured.” The USF policy is more like the policy
in Zenti than Corrigan. The additional language “or in any other capacity” does not equate to the “any insured”
been made and who is seeking coverage under the policy…. This point is seldom misunderstood in and of itself,
but sometimes becomes confused when the dual capacity language is taken out of the context of the rest of the ex-
clusion. ‘Liable as an employer or in any other capacity’ still refers only to the insured who is the employer of the
injured employee, but who may also have liability exposure connected to some additional relationship with the
employee.‘ “
bility exclusion identical to the UFS policy including the language “whether the insured may be liable as an em-
ployer or in any other capacity.”… Citing Zenti, the Hawaii Supreme Court held in a case with facts similar to the
[Deters Estate] case:
© 2011 Thomson Reuters. No Claim to Orig. US Gov. Works.
FN3. Later, the court criticizes Gabel’s failure to shepardize Zenti to locate/analyze the Tri-S case.
“Based on the foregoing, we adopt the majority rule and hold that where an insurance policy contains a severa–
bility-of–interests clause, the phrase ‘the insured’ in a policy exclusion must be read to refer to the insured seeking
coverage as opposed to the ‘named insured’ or ‘any insured.’ Here, the insured claiming coverage is Taft; thus the
phrase ‘employee of the insured’ under [the CGL] must be read ‘employee of Taft.’ However, [plaintiff] was not
an employee of Taft, but of Tri-S, so the exclusion does not apply.”
In this case, the insured claiming coverage is Leo‘s Estate. However, [Jon and Jason] were not employees of
Leo, but of [Tower Inc.], so the exclusion does not apply….
Finally, the court addressed and rejected USF’s contention the exclusion precludes coverage to the Deters Estate
under the severability of interest clause:
negligence claims brought by the Jon and Jason estates.
C. Bad Faith Litigation.
On November 12, 2009, UFS settled with the Jon and Jason estates for $500,000, and the estates dismissed their
claims against UFS. On November 16, 2009, the jury trial of the Deters Estate’s bad faith and attorney fees claims
was without reasonable basis; and (2) USF’s conduct constituted willful and wanton disregard for the rights of an-
other and was directed specifically at the Deters Estate. The jury awarded $1,000,000 in punitive damages.
UFS filed post-trial motions seeking judgment notwithstanding the verdict, a new trial, or remittitur. The trial
court denied UFS’s motions and entered judgment for the full amount of punitive damages awarded and for $68,908
in attorney fees: $22,224.97 (defending Jon and Jason lawsuits); $15,749.25 (establishing coverage); and $30,934
II. Standard of Review.
“We review the trial court’s ruling on a motion for directed verdict for the correction of errors of law.” Bellville
v. Farm Bureau Mut. Ins. Co., 702 N.W.2d 468, 473 (Iowa 2005). Appellate review of a punitive damage award on
bad faith only arises when the insurance company intentionally denies or fails to process a claim without a reasona-
ble basis for such action.” Reuter v. State Farm Mut. Auto. Ins. Co., 469 N.W.2d 250, 251 (Iowa 1991). To establish
UFS’s bad faith, the Deters Estate was required to prove two elements, one objective and one subjective: (1) objec-
tive-UFS “had no reasonable basis” for denying benefits under the policy; and (2) subjective–UFS “knew or had
reason to know that its denial or refusal was without reasonable basis.” Bellville, 702 N.W.2d at 473.
reliable method of establishing that the insurer’s legal position is reasonable is to show that some judge in the rele-
vant jurisdiction has accepted it as correct.” Id. at 484 (citation omitted).
[2] UFS argues the trial court confused the subjective and objective elements when it discussed the inadequate
investigation by UFS in analyzing the objective element. The Iowa Supreme Court has ruled:
Although subjective bad faith may be inferred from an insurer’s flawed investigation, an improper investigation,
facts and circumstances that a proper investigation would have revealed, would not have denied payment of the
claim.
Pace, 838 F.2d at 584. Therefore, the trial court correctly considered whether a reasonable insurer, proceeding
under the facts and circumstances revealed by a proper investigation, would have defended the Deters Estate and
provided indemnification.FN4
IS AN INSURED: … Your ‘executive officers‘ and directors are insureds, but only with respect to their duties as
your officers and directors.” UFS argues: “Leo’s decisions regarding the equipment to be used on the fatal job were
not broad-based executive decisions involving the design of corporate policy but merely daily operational or mana-
© 2011 Thomson Reuters. No Claim to Orig. US Gov. Works.
gerial decisions.” Therefore, “[b]ecause no settled Iowa law exists on the issue of when a ‘hands on’ “ executive acts
“with respect to their duties as [the corporation’s] officers and directors,” under the policy language, the Deters Es-
tate was not entitled to a directed verdict.
We disagree. The existing law and treatises discussed/analyzed above reveal no jurisdiction or treatise support-
ing UFS‘s denial. We conclude that after a proper investigation, reasonable minds would not disagree on the cover-
age-determining facts and law and the issue is not fairly debatable. We adopt the district court’s analysis of the ob–
jective element in its ruling on the parties’ cross–motions for directed verdict:
[UFS argued Leo is] not an insured because he’s a co-employee, without ever considering whether or not [Leo]
was not only acting solely in his capacity as a tower maintenance worker slash co-employee, but whether he was
working in his capacity as the president of the company, making executive decisions on the date in question. It
never really occurred to them because it was irrelevant. And for that reason, there is no reasonable basis to deny
rectors are insureds, but only with respect to their duties are your officers and directors.”
It may be difficult to draw the line between Leo Deters, the tower worker, and Leo Deters, the president, but at
least the insurance company has a duty to investigate it, to think about it, if they’re going to claim that as a reason–
able basis for denial of the claim, and they didn’t do that because, as they said, it was irrelevant.
The Zenti case was authority for the proposition that there was coverage for claims made by the [Jon and Jason
[UFS’s] position was not fairly debatable either on the law or the facts. It was not open to dispute on any logical
basis. They claim they have a right to debate it, yet many of their positions that they assert now were never even
discussed at the time the coverage-determining facts were considered, and that specifically refers to … the execu-
tive officer analysis.
Focusing on the existence of a debatable issue and not whether, in fact, there was coverage, the Court finds and
IV. Punitive Damages.
[3] UFS argues the jury’s $1 million punitive damages award is unconstitutionally excessive. See State Farm
Mut. Auto. Ins. Co. v. Campbell, 538 U.S. 408, 417, 123 S.Ct. 1513, 1520, 155 L.Ed.2d 585, 600 (2003) (holding
evaluate:
(1) the degree of reprehensibility of the defendant’s misconduct; (2) the disparity between the actual or potential
harm suffered by the plaintiff and the punitive damages award; and (3) the difference between the punitive dam-
ages awarded by the jury and the civil penalties authorized or imposed in comparable cases.
Campbell, 538 U.S. at 418, 123 S.Ct. at 1520, 155 L Ed.2d at 601.
conduct evinced an indifference to or a reckless disregard of the health or safety of others;” (3) “the target of the
conduct had financial vulnerability;” (4) “the conduct involved repeated actions or was an isolated incident;” and (5)
“the harm was the result of intentional malice, trickery, or deceit, or mere accident.” See Campbell, 538 U.S. at 419,
123 S.Ct. at 1521, 155 L.Ed.2d at 602. The existence of any one of these factors weighing in favor of the Deters
Estate may not be sufficient to sustain a punitive damages award; and the absence of all of them renders the award
In this case, several of the aggravating factors associated with reprehensible conduct are present. The record re-
veals “infliction of economic injury … through affirmative acts of misconduct” done when the Deters Estate was
“financially vulnerable,” thereby warranting “a substantial penalty.” See id.
First, the Deters Estate, valued at $1.3 million, was financially vulnerable. UFS’s bad faith denial of coverage
and its refusal to defend the multi-million dollar wrongful death claims asserted by the Jon and Jason estates could
The court stated:
[Gabel’s discussion of] the definition of “insured” at page 1 of the policy and argument that that means “any in-
sured” within the employer’s liability exclusion is the first time, to my recollection, that that issue has ever been
addressed in this litigation….
© 2011 Thomson Reuters. No Claim to Orig. US Gov. Works.
do not mathematically compare the $68,908 compensatory damages to determine if the punitive damages awarded
violate due process. We consider also the potential harm resulting from USF‘s bad faith denial of coverage and find
it is in the range of the $1 million policy limits, if not more. Further, the actual harm was in the range of the total of
the $750,000 offers to confess judgment accepted by the Jon and Jason estates and the $500,000 settlement paid by
USF to satisfy the underlying judgments after the trial court’s declaratory judgment ruling. When all the relevant
this intentional tort and actual and punitive damages.” During oral argument USF conceded there are no comparable
civil penalties.
Accordingly, after our analysis of the three constitutional guideposts, we conclude the punitive damage award is
supported by the record and is not grossly excessive. See Wolf v. Wolf, 690 N.W.2d 887, 896 (Iowa 2005).
AFFIRMED.
ties as officers, whether or not the character of the particular act at issue was managerial in nature. The [Martin ]
Court determined … “[The plant operator] was an ‘executive officer’ of [the city], and because he was performing
er Inc.] are not limited to the administrative function of signing documents like leases and mortgages or deciding
which health insurance to buy for employees. Leo‘s duties as an executive officer of [Tower Inc.] included the
day-to-day management of the company including the work that was performed on the date of the accident. Ac-
cordingly, the Court concludes that [Leo] was an insured under [USF’s] CGL.
The court next addressed USF’s claim its CGL employer’s liability exclusion precluded coverage.
sion to “any insured.”…
USF could have expanded the employer’s exclusion in Deters’ policy to include “any insured” but it did not. The
employer’s liability exclusion in the USF policy is limited to “the insured.” The USF policy is more like the policy
in Zenti than Corrigan. The additional language “or in any other capacity” does not equate to the “any insured”
been made and who is seeking coverage under the policy…. This point is seldom misunderstood in and of itself,
but sometimes becomes confused when the dual capacity language is taken out of the context of the rest of the ex-
clusion. ‘Liable as an employer or in any other capacity’ still refers only to the insured who is the employer of the
injured employee, but who may also have liability exposure connected to some additional relationship with the
employee.‘ “
bility exclusion identical to the UFS policy including the language “whether the insured may be liable as an em-
ployer or in any other capacity.”… Citing Zenti, the Hawaii Supreme Court held in a case with facts similar to the
[Deters Estate] case:
© 2011 Thomson Reuters. No Claim to Orig. US Gov. Works.
FN3. Later, the court criticizes Gabel’s failure to shepardize Zenti to locate/analyze the Tri-S case.
“Based on the foregoing, we adopt the majority rule and hold that where an insurance policy contains a severa–
bility-of–interests clause, the phrase ‘the insured’ in a policy exclusion must be read to refer to the insured seeking
coverage as opposed to the ‘named insured’ or ‘any insured.’ Here, the insured claiming coverage is Taft; thus the
phrase ‘employee of the insured’ under [the CGL] must be read ‘employee of Taft.’ However, [plaintiff] was not
an employee of Taft, but of Tri-S, so the exclusion does not apply.”
In this case, the insured claiming coverage is Leo‘s Estate. However, [Jon and Jason] were not employees of
Leo, but of [Tower Inc.], so the exclusion does not apply….
Finally, the court addressed and rejected USF’s contention the exclusion precludes coverage to the Deters Estate
under the severability of interest clause:
negligence claims brought by the Jon and Jason estates.
C. Bad Faith Litigation.
On November 12, 2009, UFS settled with the Jon and Jason estates for $500,000, and the estates dismissed their
claims against UFS. On November 16, 2009, the jury trial of the Deters Estate’s bad faith and attorney fees claims
was without reasonable basis; and (2) USF’s conduct constituted willful and wanton disregard for the rights of an-
other and was directed specifically at the Deters Estate. The jury awarded $1,000,000 in punitive damages.
UFS filed post-trial motions seeking judgment notwithstanding the verdict, a new trial, or remittitur. The trial
court denied UFS’s motions and entered judgment for the full amount of punitive damages awarded and for $68,908
in attorney fees: $22,224.97 (defending Jon and Jason lawsuits); $15,749.25 (establishing coverage); and $30,934
II. Standard of Review.
“We review the trial court’s ruling on a motion for directed verdict for the correction of errors of law.” Bellville
v. Farm Bureau Mut. Ins. Co., 702 N.W.2d 468, 473 (Iowa 2005). Appellate review of a punitive damage award on
bad faith only arises when the insurance company intentionally denies or fails to process a claim without a reasona-
ble basis for such action.” Reuter v. State Farm Mut. Auto. Ins. Co., 469 N.W.2d 250, 251 (Iowa 1991). To establish
UFS’s bad faith, the Deters Estate was required to prove two elements, one objective and one subjective: (1) objec-
tive-UFS “had no reasonable basis” for denying benefits under the policy; and (2) subjective–UFS “knew or had
reason to know that its denial or refusal was without reasonable basis.” Bellville, 702 N.W.2d at 473.
reliable method of establishing that the insurer’s legal position is reasonable is to show that some judge in the rele-
vant jurisdiction has accepted it as correct.” Id. at 484 (citation omitted).
[2] UFS argues the trial court confused the subjective and objective elements when it discussed the inadequate
investigation by UFS in analyzing the objective element. The Iowa Supreme Court has ruled:
Although subjective bad faith may be inferred from an insurer’s flawed investigation, an improper investigation,
facts and circumstances that a proper investigation would have revealed, would not have denied payment of the
claim.
Pace, 838 F.2d at 584. Therefore, the trial court correctly considered whether a reasonable insurer, proceeding
under the facts and circumstances revealed by a proper investigation, would have defended the Deters Estate and
provided indemnification.FN4
IS AN INSURED: … Your ‘executive officers‘ and directors are insureds, but only with respect to their duties as
your officers and directors.” UFS argues: “Leo’s decisions regarding the equipment to be used on the fatal job were
not broad-based executive decisions involving the design of corporate policy but merely daily operational or mana-
© 2011 Thomson Reuters. No Claim to Orig. US Gov. Works.
gerial decisions.” Therefore, “[b]ecause no settled Iowa law exists on the issue of when a ‘hands on’ “ executive acts
“with respect to their duties as [the corporation’s] officers and directors,” under the policy language, the Deters Es-
tate was not entitled to a directed verdict.
We disagree. The existing law and treatises discussed/analyzed above reveal no jurisdiction or treatise support-
ing UFS‘s denial. We conclude that after a proper investigation, reasonable minds would not disagree on the cover-
age-determining facts and law and the issue is not fairly debatable. We adopt the district court’s analysis of the ob–
jective element in its ruling on the parties’ cross–motions for directed verdict:
[UFS argued Leo is] not an insured because he’s a co-employee, without ever considering whether or not [Leo]
was not only acting solely in his capacity as a tower maintenance worker slash co-employee, but whether he was
working in his capacity as the president of the company, making executive decisions on the date in question. It
never really occurred to them because it was irrelevant. And for that reason, there is no reasonable basis to deny
rectors are insureds, but only with respect to their duties are your officers and directors.”
It may be difficult to draw the line between Leo Deters, the tower worker, and Leo Deters, the president, but at
least the insurance company has a duty to investigate it, to think about it, if they’re going to claim that as a reason–
able basis for denial of the claim, and they didn’t do that because, as they said, it was irrelevant.
The Zenti case was authority for the proposition that there was coverage for claims made by the [Jon and Jason
[UFS’s] position was not fairly debatable either on the law or the facts. It was not open to dispute on any logical
basis. They claim they have a right to debate it, yet many of their positions that they assert now were never even
discussed at the time the coverage-determining facts were considered, and that specifically refers to … the execu-
tive officer analysis.
Focusing on the existence of a debatable issue and not whether, in fact, there was coverage, the Court finds and
IV. Punitive Damages.
[3] UFS argues the jury’s $1 million punitive damages award is unconstitutionally excessive. See State Farm
Mut. Auto. Ins. Co. v. Campbell, 538 U.S. 408, 417, 123 S.Ct. 1513, 1520, 155 L.Ed.2d 585, 600 (2003) (holding
evaluate:
(1) the degree of reprehensibility of the defendant’s misconduct; (2) the disparity between the actual or potential
harm suffered by the plaintiff and the punitive damages award; and (3) the difference between the punitive dam-
ages awarded by the jury and the civil penalties authorized or imposed in comparable cases.
Campbell, 538 U.S. at 418, 123 S.Ct. at 1520, 155 L Ed.2d at 601.
conduct evinced an indifference to or a reckless disregard of the health or safety of others;” (3) “the target of the
conduct had financial vulnerability;” (4) “the conduct involved repeated actions or was an isolated incident;” and (5)
“the harm was the result of intentional malice, trickery, or deceit, or mere accident.” See Campbell, 538 U.S. at 419,
123 S.Ct. at 1521, 155 L.Ed.2d at 602. The existence of any one of these factors weighing in favor of the Deters
Estate may not be sufficient to sustain a punitive damages award; and the absence of all of them renders the award
In this case, several of the aggravating factors associated with reprehensible conduct are present. The record re-
veals “infliction of economic injury … through affirmative acts of misconduct” done when the Deters Estate was
“financially vulnerable,” thereby warranting “a substantial penalty.” See id.
First, the Deters Estate, valued at $1.3 million, was financially vulnerable. UFS’s bad faith denial of coverage
and its refusal to defend the multi-million dollar wrongful death claims asserted by the Jon and Jason estates could
The court stated:
[Gabel’s discussion of] the definition of “insured” at page 1 of the policy and argument that that means “any in-
sured” within the employer’s liability exclusion is the first time, to my recollection, that that issue has ever been
addressed in this litigation….
© 2011 Thomson Reuters. No Claim to Orig. US Gov. Works.
do not mathematically compare the $68,908 compensatory damages to determine if the punitive damages awarded
violate due process. We consider also the potential harm resulting from USF‘s bad faith denial of coverage and find
it is in the range of the $1 million policy limits, if not more. Further, the actual harm was in the range of the total of
the $750,000 offers to confess judgment accepted by the Jon and Jason estates and the $500,000 settlement paid by
USF to satisfy the underlying judgments after the trial court’s declaratory judgment ruling. When all the relevant
this intentional tort and actual and punitive damages.” During oral argument USF conceded there are no comparable
civil penalties.
Accordingly, after our analysis of the three constitutional guideposts, we conclude the punitive damage award is
supported by the record and is not grossly excessive. See Wolf v. Wolf, 690 N.W.2d 887, 896 (Iowa 2005).
AFFIRMED.