Supreme Court Rules on Bad Faith Claim in Breach of Contract Action

01.09.2016

On January 8, 2016, the Supreme Court of Iowa ruled on a unique issue originally stemming from a breach-of-contract claim. Specifically, the Court was faced with the question of whether an insured is allowed to subsequently bring a bad faith claim against the insurer after the insured had already received a final judgment for policy benefits based on their original breach-of-contract claim. Ultimately, the Court denied the subsequent claim on the basis of claim preclusion.

Litigation arose after a Mason City restaurant was severely damaged by a fire. Approximately three months after fully litigating and trying a breach of contract claim arising out of the insurance policy, the restaurant commenced a bad faith claim against the insurance company.    During the second claim, the insurance company was represented by Whitfield & Eddy attorneys David Phipps, Steve Doohen, and S. Luke Craven. 

On January 28, 2014, the trial court granted the insurance company’s motion for summary judgment.  The trial court, however, was later reversed by the Iowa Court of Appeals.  The reversal by the Court of Appeals was taken up by the Iowa Supreme Court on further review. Ultimately, the Iowa Supreme Court reversed the decision of the Court of Appeals and upheld the decision of the Trial Court granting summary judgment.  In doing so, the Iowa Supreme Court held that the bad faith claim arose out of the same transaction as the breach-of-contract claim for denial of certain insurance benefits. The subsequent bad faith action was, therefore, precluded on the basis of claim preclusion.

All three Whitfield & Eddy attorneys were pleased with the outcome and were happy to assist their client throughout the course of litigation. For further information, contact Whitfield & Eddy at (515) 288-6041. 

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