                    IN THE COURT OF APPEALS OF IOWA

                                  No. 16-1134
                           Filed December 20, 2017


B&F JACOBSON LUMBER & HARDWARE, L.L.P.,
     Plaintiff-Appellant,

vs.

ACUITY, A Mutual Insurance Company,
     Defendant-Appellee.
________________________________________________________________


      Appeal from the Iowa District Court for Monona County, Jeffrey L.

Poulson, Judge.



      B&F Jacobson Lumber & Hardware, L.L.P. appeals from a jury verdict in

favor of Acuity, A Mutual Insurance Company, on B&F’s claim for bad faith in the

adjustment of a property-damage claim. AFFIRMED IN PART, REVERSED IN

PART, AND REMANDED.




      Bruce Stoltze of Stoltze & Stoltze, P.L.C., Des Moines, Travis J. Burk of

Hope Law Firm, P.L.C., and Jeffrey S. Carter of Jeff Carter Law Office, P.C., Des

Moines, for appellant.

      Dustin T. Zeschke and Stephen J. Powell of Swisher & Cohrt, P.L.C.,

Waterloo, for appellee.



      Heard by Danilson, C.J., and Doyle and Mullins, JJ.
                                         2


DANILSON, Chief Judge

       B&F Jacobson Lumber & Hardware, L.L.P. (B&F) appeals from a jury

verdict in favor of Acuity, A Mutual Insurance Company (Acuity), on B&F’s claim

for bad faith in the adjustment of a property-damage claim. B&F contends the

district court improperly (1) denied B&F’s motion to compel evidence of post-

filing-of-litigation claim adjustment decisions on the basis it is protected by the

attorney-client privilege, (2) determined other evidence of post-filing-of-litigation

conduct was inadmissible, and (3) precluded B&F from presenting evidence as to

damages for loss of peace of mind. We conclude the district court abused its

discretion in denying B&F’s motion to compel and in making a blanket decision

that all evidence of post-filing-of-litigation conduct was inadmissible. The court

also erred in denying the admission of two damage estimates. We reverse and

remand for further proceedings and a new trial. We affirm the court’s ruling that

B&F may not present evidence as to loss of peace of mind or prejudgment

interest.

I. Background Facts & Proceedings.

       This matter arose on April 9, 2011, when a tornado caused significant

damage to the two buildings located on B&F’s business premises in Mapleton,

Iowa. B&F’s insurer, Acuity, sent an adjuster, Brad Werger, to Mapleton on April

12, 2011, to assess the damage.         On April 13, the owner of B&F, Bruce

Jacobson, discussed the damage estimate with Werger and signed the proof of

loss. A check was issued to B&F in the amount of $60,464.75 for the actual cash

value of loss to B&F’s buildings.       The check included a notation stating,

“Settlement in Full-ACV.”
                                             3


         Jacobson later realized the damage was more extensive and could not be

remedied with only $60,464.75.           In August 2011, Jacobson hired a public

adjuster, James Pierce, to review the claim including the damages.                    While

working together on an unrelated claim in February 2012, Pierce mentioned to

Werger that he had been hired by B&F to serve as its public adjuster. In his

second affidavit, Werger explained, “We had a conversation in which Mr. Pierce

stated it appeared we would be working another claim together, the lumber yard

claim. I believed Mr. Pierce was mistaken and informed him that the claim had

been settled back in April of 2011.” Pierce again contacted Werger by email on

August 6, 2012, stating, “I have another possible claim with you. The B[&]F

Jacobs[o]n lumber yard. You and I had talked about it previously and you had

mentioned that the client signed off on something. Could you send me that form

please at your convenience.”          Werger replied, “On vacation until the 13th.

Policyholders release so we are not opening up the claim. I can send when I get

back.”

         After the email exchange, B&F filed its petition on August 17, 2012,

asserting claims for breach of contract, unjust enrichment, reasonable

expectations, bad faith, and seeking punitive damages. On October 23, 2012,

counsel for B&F made a written request for appraisal1 as permitted by B&F’s



1
    Our supreme court has explained:
                 An appraisal is a supplementary arrangement to arrive at a
         resolution of a dispute without a formal lawsuit. Provisions for appraisal
         of an insurance loss, whether under policy terms or pursuant to
         independent agreement, are valid and binding on the parties. 6 J.
         Appleman & J. Appleman, Insurance Law and Practice §§ 3921, 3924
         (rev. 1972). Appraisal awards do not provide a formal judgment and may
         be set aside by a court. When reviewed, the award is supported by every
                                          4


insurance policy if the parties “disagree on the value of the property or the

amount of the loss.” Counsel for Acuity replied and refused appraisal. Acuity

filed both a motion for summary judgment and a motion to stay discovery and

appraisal requests on January 11, 2013. B&F filed a motion to compel appraisal

on February 7. The district court granted the motion for summary judgment in

May 2013 but did not address the motion to stay or the motion to compel

appraisal. B&F appealed. See B&F Jacobsen Lumber & Hardware, L.L.P. v.

Acuity, No. 13-0952, 2014 WL 1714968, at *1 (Iowa Ct. App. Apr. 30, 2014). On

appeal, this court concluded questions of fact existed as to a number of issues

raised regarding the notice provision and the bad-faith claim, reversed the

summary-judgment ruling, and remanded the case back to the district court. Id.

at *9-10.

       On August 5, 2014, B&F filed a second motion to compel appraisal, which

Acuity again resisted.     The court entered an order compelling appraisal on

October 13. The appraisal was completed on February 17, 2015, resulting in an

award requiring Acuity to pay B&F an additional $83,000 in damages. After the

appraisal was complete and payment was made, only B&F’s bad-faith claim

remained.

       On June 4, 2015, a deposition was taken of Acuity’s property-claims

manager, Marty Jaeger.        During the deposition, Acuity’s counsel asserted

attorney-client privilege in declining to allow Jaeger to answer a number of

questions respecting Acuity’s reliance on the “settled in full” language on the


       reasonable presumption and will be sustained even if the court disagrees
       with the result.
Central Life Ins. Co. v. Aetna Cas. & Sur. Co., 466 N.W.2d 257, 260 (Iowa 1991).
                                         5


check and the reasoning for its decision to refuse B&F’s requests for additional

payment and appraisal after the litigation was commenced.          Acuity’s counsel

stated any decision made after the filing of the petition was on advice of counsel

and maintained the reasoning for Acuity’s decisions was therefore protected by

attorney-client privilege.

       On October 12, 2015, B&F filed a third motion to compel. The third motion

requested an order to compel Jaeger to answer the questions avoided during his

deposition.   On November 19, pursuant to Iowa Rule of Evidence 5.104(a),

Acuity filed a motion to determine the admissibility of evidence requesting that

the court determine certain evidence inadmissible at trial including evidence of

post-filing-of-litigation conduct and evidence as to emotional damages or—as

B&F described it—loss of peace of mind from the purchase of property

insurance. The court entered an order ruling on both the motion to compel and

the motion to determine admissibility of evidence on February 5, 2016. The court

held counsel for Acuity’s assertion of attorney-client privilege during Jaeger’s

deposition was proper, and denied B&F’s motion to compel. The court also

determined evidence of Acuity’s post-filing-of-litigation actions were not

admissible.

       On March 4, B&F filed a motion regarding emotional-distress damages for

bad faith, asserting B&F was not claiming damages for emotional distress and

requesting B&F be permitted to seek damages for loss of peace of mind. The

court held B&F, being a limited liability partnership, could not experience a loss of

peace of mind, and thus evidence as to loss of peace of mind would not be

admitted.
                                          6


       The matter proceeded to jury trial, and on March 14, the jury rendered a

verdict finding Acuity had not acted in bad faith. B&F filed a motion for new trial

on April 27, which was denied. B&F now appeals, maintaining the district court

erred in (1) denying B&F’s motion to compel answers previously omitted from

Jaeger’s deposition, (2) limiting evidence as to Acuity’s post-filing-of-litigation

conduct, and (3) determining evidence as to loss of peace of mind was

inadmissible.

II. Standards of Review.

       “We review a district court’s ruling on a discovery matter for abuse of

discretion.” Mediacom Iowa, L.L.C. v. Inc. City of Spencer, 682 N.W.2d 62, 66

(Iowa 2004). “[W]e afford the district court wide latitude. We will reverse a ruling

on a discovery matter only for an abuse of discretion.” Exotica Botanicals, Inc. v.

Terra Int’l, Inc., 612 N.W.2d 801, 804 (Iowa 2000) (citation omitted). “There is

such an abuse when the grounds underlying a district court are clearly untenable

or unreasonable.” Mediacom Iowa, 682 N.W.2d at 66. There must also be a

showing that the alleged error resulted in prejudice to provide grounds for

reversal. Jones v. Univ. of Iowa, 836 N.W.2d 127, 140 (Iowa 2013). In Jones,

our supreme court summarized the applicable principles:

              It is well-settled that nonprejudicial error is never ground for
       reversal on appeal. See Bengford v. Carlem Corp., 156 N.W.2d
       855, 867 (Iowa 1968). Furthermore, we do not presume the
       existence of prejudice based on an erroneous discovery ruling.
       See James v. Hyatt Regency Chi., 707 F.3d 775, 784 (7th Cir.
       2013) (“We shall not reverse the district court’s ruling [on a motion
       to compel] absent a clear showing that the denial of discovery
       resulted in actual and substantial prejudice . . . .”); Team Cent., Inc.
       v. Teamco, Inc., 271 N.W.2d 914, 922 (Iowa 1978) (noting that an
       erroneous discovery ruling on privilege must be “of sufficient
       importance to justify a reversal”); Schroedl v. McTague, 169
                                          7


       N.W.2d 860, 865 (Iowa 1969) (holding that even if trial court’s
       discovery ruling on party’s request for admissions was erroneous,
       there was “no ground for a reversal as no prejudice therefrom
       appear[ed] in the record”). “[T]he burden rests upon the appellant
       not only to establish error but to further show that prejudice
       resulted.” In re Behrend’s Will, 10 N.W.2d 651, 655 (1943).

(Second and third alterations in original.)

       We also review the district court’s evidentiary rulings for an abuse of

discretion. State v. Olutunde, 878 N.W.2d 264, 266 (Iowa 2016). The same

abuse-of-discretion standard applies—we reverse if the district court exercised its

discretion on clearly untenable or unreasonable grounds.        Ranes v. Adams

Labs., Inc., 778 N.W.2d 677, 685 (Iowa 2010). “A ground or reason is untenable

when it is not supported by substantial evidence or when it is based on an

erroneous application of the law.” Id. (quoting Graber v. City of Ankeny, 616

N.W.2d 633, 638 (Iowa 2000)).

III. Motion to Compel—Deposition.

       B&F first contends the district court erred in refusing to compel those

portions of Jaeger’s deposition he declined to answer by asserting attorney-client

privilege. Acuity argues the privilege was properly invoked because the actions

taken by Acuity after the litigation commenced were all on the advice of counsel.

       B&F argued Acuity acted in bad faith because it had no reasonable basis

to deny B&F’s claim for additional damages. See Reuter v. State Farm Mut.

Auto. Ins. Co., Inc., 469 N.W.2d 250, 253 (Iowa 1991) (stating that to establish

the insurer acted in bad faith, the insured must “show the absence of a

reasonable basis for denying benefits of the policy and the [insurer’s] knowledge

or reckless disregard of the lack of a reasonable basis for denying the claim”).
                                              8


B&F also asserted Acuity’s bad faith was evidenced in part by Acuity’s issuance

of a check to B&F four days after the tornado, which indicated the claim was

“settled in full,” in violation of Iowa Administrative Code rule 191-15.41(10).2

         Acuity denied the allegations of bad faith, and, specifically with respect to

the “settled in full” language, Acuity maintained the language was harmless

because Acuity never intended the language to be binding.                 To rebut these

arguments, B&F sought to obtain answers from Jaeger during his deposition

respecting Acuity’s reasoning for denying B&F’s requests for additional payment

and appraisal and Acuity’s true position on the “settled in full” language. For

example:

                  Q. Mr. Jaeger, who has been the person in charge of
         adjusting the claim of BF Jacobson on this property loss since the
         time of the filing of this lawsuit? A. Mr. Werger and I.
                  ....
                  Q. Okay. Did you at any time become aware of a request for
         appraisal by Mr. Jacobson on or about October 23, of 2012? A. As
         part of the litigation, yes. I—my attorney shared a letter with me.
                  Q. All right. What is the reason Acuity refused to agree to
         the appraisal in October of 2012?
                  COUNSEL FOR ACUITY: Do not answer that question. I’m
         invoking the attorney-client privilege, and I’m advising my client not
         to answer this or any other question that you pose to him about
         what the reasons were for Acuity to do anything in response to
         litigation. And that’s exactly what you’re doing, and I am not going
         to let him answer that or any other question that’s directed toward
         decisions that were made while the litigation was pending.
                  ....
                  Q. Mr. Jaeger, would you tell me the reason that Acuity
         refused to conduct an appraisal when the request was made for
         one by Mr. Jacobson on October 23, 2012?

2
    Rule 191-15.41(10) provides:
                 No insurer shall indicate to a first-party claimant on a payment
         draft, check or in any accompanying letter that said payment is “final” or
         “a release” of any claim unless the policy limit has been paid or there has
         been a compromise settlement agreed to by the first-party claimant and
         the insurer as to coverage and amount payable under the contract.
                                            9


            ....
            A. Since this lawsuit was filed, every decision that we’ve
       made as a company has been under advice of counsel.

       B&F asserts the questions asked did not call for the disclosure of attorney-

client-protected information because B&F was not asking what conversations

Acuity’s representatives discussed with attorneys, but rather what the specific

reasons were for Acuity’s actions. B&F also argues the information falls outside

the umbrella of attorney-client-privilege protection because the information was

not intended to be confidential.

       “Any confidential communication between an attorney and the attorney’s

client is absolutely privileged from disclosure against the will of the client.” Keefe

v. Bernard, 774 N.W.2d 663, 669 (Iowa 2009) (quoting Shook v. City of

Davenport, 497 N.W.2d 883, 886 (Iowa 1993)); see Iowa Code § 622.10 (2011).

“The party seeking to assert the privilege bears the burden to show an attorney-

client relationship existed and that the communication was made in confidence.”

Keefe, 774 N.W.2d at 669.

       Counsel for Acuity sent letters to counsel for B&F on December 12, 2012,

and July 29, 2014, expressly stating reasons for Acuity’s denials of appraisal.3

Both letters were written by Acuity’s counsel. Thus, the reasoning for Acuity’s

continued denial of the requests for appraisal were clearly communicated to B&F


3
 Counsel for Acuity provided one of the reasons noted in the December 12, 2012 letter:
        As I am sure you are aware, the check was cashed by your client with the
        understanding that the check represented “settlement in full—ACV.” It is
        clear that the parties agreed to the value of the property and the amount
        of the loss which negates any implementation of the Appraisal provisions
        of the Policy.
The July 29, 2014 letter stated in part, “Our letter of December 12, 2012, contains further
explanation of our position on this issue and I would refer you to that letter as our
position remains the same as it did at the time of the original letter.”
                                               10


and were not intended to remain confidential. If the deponent would have relied

upon the same reasons as cited in the letters, it does not follow that Jaeger may

invoke the attorney-client privilege to decline to answer the questions regarding

Acuity’s reasoning for denying appraisal.            Further, we believe there is a

distinction between asking a party what their attorney advised them and asking

the party why they took the actions they did.              We find the court improperly

determined answers to these lines of questioning were protected by the attorney-

client privilege. See Miller v. Continental Ins. Co., 392 N.W.2d 500, 504-05 (Iowa

1986) (noting “voluntary disclosure of the content of a privileged communication

constitutes waiver as to all other communications on the same subject” and citing

Iowa Code § 622.10(2) (stating privilege does not apply “where the person in

whose favor prohibition is made waives the right[]”)). The attorney-client privilege

may be waived, and the waiver may be either express or implied. Brandon v.

West Bend Mut. Ins. Co., 681 N.W.2d 633, 642 (Iowa 2004). “An express waiver

occurs     when   a   client     voluntarily   discloses    the   content   of   privileged

communications.”      Squealer Feeds v. Pickering, 530 N.W.2d 678, 684 (Iowa

1995), abrogated on other grounds by Wells Dairy, Inc. v. Am. Indus.

Refrigeration, Inc., 690 N.W.2d 38, 48 (Iowa 2004). “[A]n implied waiver occurs

where the [client] has placed in issue a communication which goes to the heart of

the claim in controversy.” Id. (alterations in original) (citation omitted).

         We conclude questions pertaining to the information contained in the

October 23, 2012 or July 29, 2014 letters to B&F were not properly objectionable

on the basis of the attorney-client privilege and should have been fairly

discoverable by B&F.           See Iowa R. Civ. P. 1.503(1) (“Parties may obtain
                                            11


discovery regarding any matter, not privileged, which is relevant to the subject

matter involved in the pending action, whether it relates to the claim or defense of

the party seeking discovery or to the claim or defense of any other party, . . . . It

is not ground for objection that the information sought will be inadmissible at trial

if the information sought appears reasonably calculated to lead to the discovery

of admissible evidence.”); see also Fagen v. Grand View Univ., 861 N.W.2d 825,

833 (Iowa 2015).

       B&F also sought additional related information and argues even if the

additional information was protected by attorney-client privilege, Acuity waived

the privilege.4

       B&F contends Acuity placed in issue its advice of counsel by asserting it

relied on advice of counsel in making every post-filing-of-litigation decision.

Although our supreme court has not directly addressed this issue, other courts

have found the analysis in Hearn v. Rhay, 68 F.R.D. 574, 578-82 (E.D. Wash.

1975), persuasive in addressing implied waiver of the attorney-client privilege.5

Hearn provides there are three criteria to find an implied waiver of the attorney-

client privilege:

               (1) assertion of the privilege was a result of some
               affirmative act, such as filing suit [or raising an

4
  The additional information included questions pertaining to twice deducting the $5000
deductible, not paying interest on the $83,000, and who authorized Acuity’s counsel to
write the July 29, 2014 letter.
5
  See, e.g., Union Cty., Iowa v. Piper Jaffray & Co, Inc., 248 F.R.D. 217, 222 (S.D. Iowa
2008) (“The Hearn test . . . recognizes the importance of the attorney-client relationship,
but permits a balancing of that interest against the interests of fundamental fairness.
While critics of the Hearn approach argue that it is, for all practical purposes, a slippery
slope, over three decades of case law make clear that such concerns are without
substantial foundation. The reasonableness of the Hearn approach is particularly
evident where, as here, a defendant has no alternative means of defending a claim
brought by the party asserting the privilege.”).
                                         12


              affirmative defense], by the asserting party; (2)
              through this affirmative act, the asserting party put the
              protected information at issue by making it relevant to
              the case; and (3) application of the privilege would
              have denied the opposing party access to information
              vital to his defense.

68 F.R.D. at 581; accord Roehrs v. Minnesota Life Ins. Co., 228 F.R.D. 642, 646

(D. Ariz. 2005); State Farm Mut. Auto. Ins. Co. v. Lee, 13 P.3d 1169, 1173 (Ariz.

2000). Upon consideration of the Hearn test, the court in Roehrs determined:

       [The] adjusters . . . impliedly waived the privilege by their deposition
       testimony that each considered and relied upon, among other
       things, the legal opinions or legal investigation in denying that the
       Roehrs’ claims were covered under the reinstated policy. . . . Here,
       as in Lee, an Hearn-like affirmative act was made by the adjusters
       putting the privileged materials at issue. While the Defendants and
       the aforesaid three adjusters do not claim that they denied the
       Roehrs’ claims solely because of its/their lawyers’ advice,
       Defendants cannot reasonably deny that what these employees
       knew at the time they denied the Roehrs’ claims included
       information received from their lawyers.            What formed the
       subjective good faith beliefs and mental states of these three
       adjusters and the reasonableness of their decisions is critical in
       defense of the Roehrs’ bad faith claim. Application of the privilege
       here would deny the Roehrs vital information to test the
       reasonableness and good-faith basis of Defendants’ denial of their
       claims and would establish the shield-sword incongruity
       condemned in Lee.

228 F.R.D at 647.

       The district court determined the attorney-client privilege should remain

intact in this matter because: “Acuity has not asserted its attorney-client privilege

as a defense to the bad faith charge. Instead, Acuity only asserts privilege in

response to particular questions in a deposition, and admits that [it] had

consulted with said attorney on decisions [it] had made.”           However, in his

deposition, Acuity’s counsel repeatedly asserted Jaeger was relying on the

attorney-client privilege because “[e]ver since the lawsuit was filed, all decisions
                                        13


have been made under advice of counsel.” This broad assertion of the attorney-

client privilege, while not expressly identified as an affirmative defense, was used

by Acuity as a defense to the bad-faith claim. On this same issue, the Supreme

Court of South Dakota has held:

       [The defendant] has not expressly relied on the advice of counsel as
       an essential element of its defense.
               Nonetheless, “[a]n insurer need not expressly rely upon the
       advice of counsel to waive the attorney-client privilege.” An insurer
       may impliedly waive the attorney-client privilege “by injecting
       privileged communications into a case.” When “an insurer makes
       factual assertions in defense of a claim which incorporate, expressly
       or implicitly, the advice and judgment of its counsel, it cannot deny
       an opposing party ‘an opportunity to uncover the foundation for those
       assertions in order to contradict them.’” “A waiver is to be predicated
       not only when the conduct indicates a plain intention to abandon the
       privilege, but also when the conduct (though not evincing that
       intention) places the claimant in such a position, with reference to the
       evidence, that it would be unfair and inconsistent to permit the
       retention of the privilege.”

Andrews v. Ridco, Inc., 863 N.W.2d 540, 547-48 (S.D. 2015) (citations omitted).

Other courts have also recognized the “‘at issue’ doctrine,” that being “the

discovery of attorney-client privileged communications between an insurer and its

counsel is permitted where the insurer raises the advice of its counsel as a

defense in the action and the communication is necessary to establish the

defense.” See Genovese v. Provident Life & Accident Ins. Co., 74 So. 3d 1064,

1068 (Fla. 2011), and cases cited therein.

       We find Acuity placed the communications with its counsel at issue when

stating it relied upon counsel’s advice in reaching every decision made after the

litigation was filed. The court’s determination this information is protected by the

attorney-client privilege improperly prevented B&F from obtaining discovery on

issues at the heart of the bad-faith claim. See Brandon v. West Bend Mut. Ins.
                                            14

Co., 681 N.W.2d 633, 642 (Iowa 2004) (“[Waiver] may be based not only on

words expressing intent to waive, but conduct making it unfair for a client to

invoke the privilege.”).

       We conclude the district court abused its discretion in denying B&F’s

motion to compel. However, B&F must also establish the erroneous discovery

ruling was prejudicial before any relief may be afforded to B&F. Because the

district court also ruled all post-filing-of-litigation conduct was inadmissible, any

evidence gained from the discovery may also have been excluded by this

subsequent evidentiary ruling, thereby effectively nullifying any prejudice. Thus

we must address the evidentiary issue before addressing the claim of prejudice.

IV. Evidence as to Post-Filing-of-Litigation Adjustment Decisions.

       B&F also contends the district court abused its discretion in holding the

following documents and testimony were inadmissible: (1) the letter by Acuity’s

counsel refusing B&F’s October 23, 2012 request for appraisal, (2) the letter by

Acuity’s counsel refusing B&F’s request for appraisal following remand of the

case, (3) the fact that Acuity refused to consent to appraisal and only did so in

response to the court’s order, (4) Pierce’s December 29, 2011 estimate, and (5)

Werger’s April 13, 2011 estimate.

       All of this evidence fell under the categories of evidence labeled (b), (c),

and (d) of Acuity’s motion to determine admissibility of evidence.6 The court

addressed categories (b) through (d) in one section of its order, finding each of


6
  Acuity’s motion to determine the admissibility of evidence identified category (b) as
“[e]vidence of alleged conduct by Acuity following the alleged denial of plaintiff’s claim,”
category (c) as “[e]vidence of alleged post-litigation conduct,” and category (d) as
“[e]vidence regarding appraisal.”
                                          15


the categories contained evidence “related to Acuity’s conduct after the filing of

litigation.” The court cited to Roesler v. TIG Insurance Co., 251 Fed. Appx. 489,

498 (10th Cir. 2007), and Dakota, Minnesota & Eastern Railroad Corp. v. Acuity,

771 N.W.2d 623, 634 (S.D. 2009), for the proposition that post-litigation conduct

is irrelevant to a bad-faith claim and public policy prevents admissibility of such

evidence.    The court provided only the following additional reasoning for its

determination that all post-filing-of-litigation conduct is inadmissible in this matter:

“Though claim review continued after B&F Jacobson filed suit, this early filing

may not be used as an end run around the prohibition on the use of post-litigation

conduct as evidence of bad faith. Acuity’s litigation tactics may not be presented

as evidence at trial.”

       We are again faced with an issue not previously addressed by our

supreme court. Review of this issue as addressed in other states reveals it is not

clear that there is a bright-line rule precluding admission of post-filing-of-litigation

conduct by insurers. In Palmer by Diacon v. Farmers Insurance Exchange, the

Supreme Court of Montana explained:

               Courts have held, and we agree, that an insurer’s duty to
       deal fairly and not to withhold payment of valid claims does not end
       when an insured files a complaint against the insurer. Several
       courts have considered whether evidence of an insurer’s conduct
       during litigation of the underlying suit is admissible in a subsequent
       bad faith action. After examining the reasoning of courts that have
       considered the issue, we conclude that the continuing duty of good
       faith does not necessarily render evidence of an insurer’s post-filing
       conduct admissible. Indeed, courts rarely should allow such
       evidence and we have adopted a balancing test for those rare
       circumstances.
               Public policy favors the exclusion of evidence of an insurer’s
       post-filing litigation conduct in at least two respects.          First,
       permitting such evidence is unnecessary because during the initial
       action, trial courts can assure that the defendants do not act
                                         16


      improperly. Next, and more importantly, the introduction of such
      evidence hinders the right to defend and impairs access to the
      courts.
              ....
              To permit evidence of insurers’ litigation strategies and
      tactics is to impede insurers’ access to the courts and right to
      defend, because it makes them reluctant to contest coverage of
      questionable claims. . . . Public policy dictates, therefore, that
      courts must use extreme caution in deciding to admit such
      evidence even if it is relevant to the insurer’s initial decision to deny
      the underlying claim.
              . . . In general, an insurer’s litigation tactics and strategy in
      defending a claim are not relevant to the insurer’s decision to deny
      coverage. . . .
              ....
              In some instances, however, evidence of the insurer’s post-
      filing conduct may bear on the reasonableness of the insurer’s
      decision and its state of mind when it evaluated and denied the
      underlying claim.       Therefore, we do not impose a blanket
      prohibition on such evidence.
              We believe the correct approach is to strike a balance
      between deterring improper conduct by the insurer and allowing
      insurers to defend themselves against spurious claims. Rule
      [5.403] . . . provides for that balance. When the insurer’s post-filing
      conduct has some relevance, the court must weigh its probative
      value against the inherently high prejudicial effect of such evidence,
      keeping in mind the insurer’s fundamental right to defend itself.

861 P.2d 895, 913-15 (Mont. 1993) (citations omitted). Other courts have also

followed this approach:

      [W]e believe it would be a rare case where the insurer’s decisions
      and conduct in the underlying litigation would be admissible in a
      first party bad faith claim. The appropriate inquiry for the circuit
      court in determining the relevance of such evidence is whether the
      insurer’s post-filing conduct sheds light on the reasonableness of
      the insurer’s decision or conduct in denying insurance benefits.
      The tort of first party bad faith, as alleged in the instant case,
      “typically occurs when an insurance company engages in
      wrongdoing during its processing or paying of policy benefits to its
      insured.” As noted above, the relevant inquiry for such a claim is
      the insurer’s decision and actions “at the time it made the decision
      to deny coverage.” “[I]f ‘the focus of a bad faith claim is the
      insurer’s knowledge and belief during the time the claim is being
      reviewed,’ then the relevance of the litigation conduct is severely
      diminished.”
                                         17



Eastern R.R. Corp., 771 N.W.2d at 635-36 (citations omitted); see also Knotts v.

Zurich Ins. Co., 197 S.W.3d 512, 523 (Ky. 2006) (“Evidence of post-filing conduct

may often be of limited relevance to a claim of bad faith and raises distinct

concerns about prejudice to the insurance company. . . . Thus, while it will no

doubt further limit the admissibility of post-filing behavior, we want to emphasize

that before admitting evidence of post-filing behavior, courts must be careful to

weigh the probativeness of the proposed evidence against its potential for

prejudice, . . . .”); Barefield v. DPIC Cos., Inc., 600 S.E.2d 256, 277 (W. Va.

2004), Davis, J. (concurring) (“The general rule in other jurisdictions on this issue

is that, ‘while evidence of an insurer’s litigation conduct may, in some rare

instances, be admissible on the issue of bad faith, such evidence will generally

be inadmissible as it lacks probative value and carries a high risk of prejudice.’”

(quoting Timberlake Constr. Co. v. U.S. Fid. & Guar. Co., 71 F.3d 335, 341 (10th

Cir. 1995) (footnote omitted)).

       Some jurisdictions have determined that a complete ban on admission of

post-litigation conduct is appropriate. See Roussalis v. Wyo. Med. Ctr., Inc., 4

P.3d 209, 257 (Wyo. 2000) (finding doctors’ tort claim of breach of implied

covenant of good faith and fair dealing is not actionable); see also Parker v. S.

Farm Bureau Cas. Ins. Co., 935 S.W.2d 556, 562 (Ark. 1996) (finding that

because the bad-faith “cause of action must exist and be complete at the time

the action commenced . . . none of the conduct by [the insurer] after the filing of

the complaint, including legal positions asserted, can provide a basis for [the]

bad-faith claim”).   As noted by the court in Knotts, the blanket prohibition of
                                        18


admission of post-filing conduct “amounts to the denial of the continuing

existence of a duty of good faith once litigation begins.” 197 S.W.3d at 518 n.3.

      Oppositely, some courts have allowed admission of post-litigation conduct.

For example:

              The entire course of conduct between the parties is relevant
      to show malice in a bad faith claim. . . .
              In this case, the merits of John Deere’s appeal have already
      been decided by this Court. As a matter of law, John Deere
      prosecuted a meritless appeal. Sanctions have been assessed to
      compensate Conifer for its efforts in defending a frivolous appeal.
      However, no fact-finder has yet determined whether John Deere’s
      actions on appeal were part of an unfair claim settlement practice
      and, if so, whether Conifer was damaged by the actions. We
      conclude that Conifer was entitled to present proof to the jury that
      John Deere’s bad faith was a continuing course of conduct, and
      that its postjudgment conduct is admissible to prove malice.

Federated Mut. Ins. Co. v. Anderson, 991 P.2d 915, 923 (Mont. 1999), abrogated

on other grounds by Citizens Awareness Network v. Mont. Bd. of Envtl. Review,

227 P.3d 583, 587 (Mont. 2010); see also Barefield, 600 S.E.2d at 271.

      It is of note that the Iowa Supreme Court has previously acknowledged

actions constituting bad faith may arise after the filing of litigation.      See

Leuchtenmacher v. Farm Bureau Mut. Ins. Co., 460 N.W.2d 858, 861 (Iowa

1990) (“[A] bad-faith claim might well be based on events subsequent to the filing

of the suit on a policy and therefore could not be based on the ‘same’ facts.”);

see also Villarreal v. United Fire & Cas. Co., 873 N.W.2d 714, 729 (Iowa 2016).

Because the Iowa Supreme Court has recognized that bad-faith conduct may

arise both before and during litigation, our analysis does not end on the date the

petition was filed. We acknowledge in the worker’s compensation arena our

supreme court has stated that it has rejected the “argument that a bad-faith
                                          19

refusal to pay was a continuing tort.” Squealer Feeds, 530 N.W.2d at 683 (citing

Brown v. Liberty Mut. Ins. Co., 513 N.W.2d 762, 764 (Iowa 1994). We are not

sure how to square Leuchtenmacher and Villarreal with Squealer Feeds and

Brown. But we note that in Squealer Feeds the court stated, “[S]ome of the

documents in the claim file prepared after the denial may conceivably contain

relevant information.” 530 N.W.2d at 683.

       Here, without any Iowa Rule of Evidence 5.403 analysis or an in camera

review of the materials or testimony, the district court determined all evidence

after the filing of the petition was not admissible. Because post-filing-of-litigation

evidence may contain relevant information to Acuity’s decision to deny further

payment, so long as it is “not privileged” it certainly was discoverable. See Iowa

R. Civ. P. 1.503(1); Squealer Feeds, 530 N.W.2d at 683.

       Moreover, in its order, the district court determined that claim review

continued in this matter after the litigation was filed. B&F contends the decisions

to refuse an appraisal, refusal to pay interest on the second payment, and refusal

or delay in paying the deductible amount that had been already accounted for are

all adjusting decisions—not litigation tactics or strategies.

       Here, B&F was attempting to show the resistance to the appraisal was at

least in part, if not primarily, based upon Acuity’s position that the original

payment was a final resolution of the claim due to the language on the check,

“settlement in full—ACV.” Thus, B&F argues the actions in adjusting the claim

continued post filing of the petition, contrary to the administrative regulation

prohibiting “settlement in full” language on a check under these facts. B&F was

entitled to discover and present evidence on the issue of whether Acuity
                                           20

unreasonably delayed payment. See Squealer Feeds, 530 N.W.2d at 683 (“[A]

continued delay in payment may be unreasonable even though the original denial

was not.”).7

       We conclude the district court abused its discretion in ruling all post-filing-

of-litigation evidence was inadmissible rather than weighing the probative value

of the evidence against its potential for unfair prejudice under rule 5.403. As one

court has stated, it is of “critical importance” for the trial court to weigh “the

probative value of any potentially relevant litigation decisions against the danger

of unfair prejudice.” Eastern R.R. Corp., 771 N.W.2d at 636.8

       Our supreme court has previously concluded that where the district court

determined evidence inadmissible without performing a rule 5.403 balancing

analysis, the appellate court is not prevented from upholding the district court’s

exclusion of the evidence on an alternative ground. See Giza v. BNSF Ry., 843

N.W.2d 713, 724-25 (Iowa 2014). In Giza, the alternative ground examined was

whether the danger of unfair prejudice substantially outweighed the probative

value of the evidence. Id. at 725 (citing State v. Werts, 677 N.W.2d 734, 737-38

(Iowa 2004) (indicating the appellate court should weigh prejudicial effect against

probative value where the district court did not do so and rule 5.403 is raised as

an alternative ground for sustaining the district court's ruling)).       Here, Acuity




7
   In fact, the verdict form indicates B&F was required to establish “Acuity acted in bad
faith to [B&F] in denying the claim or delaying payment.”
8
   Acuity’s motion to determine admissibility of evidence acknowledges the court’s need
to perform a rule 5.403 analysis to determine the admissibility of the post-filing-of-
litigation evidence. During the hearing on the motion, B&F also noted the district court
“can use 403” to exclude any unfairly prejudicial evidence.
                                          21


raised the claim that such evidence was unfairly prejudicial under a 5.403

analysis both before the district court and on appeal.

       If adjusting conduct contrary to the administrative regulation continued

post-petition, the “conduct may bear on the reasonableness of the insurer’s

decision and its state of mind when it evaluated and denied the underlying claim”

and be probative of bad faith. Palmer, 861 P.2d at 915. The conduct may also

bear on the reasonableness of the continued delay in payment.

       In evaluating the admissibility of the evidence in question, we weigh the

probative value versus unfair prejudice pursuant to rule 5.403, being mindful of

the public-policy consideration that allowing evidence of post-litigation conduct

may permit jurors to penalize insurers for proper litigation strategy and tactics

that are perceived as evidence of bad faith and could prevent insurers from

zealously defending questionable claims.         See Knotts, 197 S.W.3d at 520.

Evidence of conduct that is clearly litigation strategy and tactics would be unfairly

prejudicial. Evidence of conduct clearly related to adjusting decisions required of

the contractual relationship would be admissible under the rule 5.403 analysis.

Evidence of conduct between those two extremes would require a closer

weighing or examination of probative value versus unfair prejudice and may

result in exclusion.

       Here, we conclude the probative value of any evidence that Acuity

continued to rely in part or in total upon the original payment being a final

resolution of the claim due to the language on the check, “settlement in full—

ACV,” was not substantially outweighed by the danger of unfair prejudice. This

basis for denial of the claim existed prior to the initiation of litigation, as well as
                                         22


before any evidence that Acuity had procured counsel, and could not be fairly

described as a litigation tactic. Thus, any such evidence would be probative that

Acuity denied the claim for an improper purpose, and would have had no effect

on Acuity or its counsel to zealously defend its claim.

       Moreover, any evidence of Acuity’s reasons to withhold payment of $5000

for the deductible that had previously been accounted for seems far removed

from any litigation tactic. The contract limited the claim deductible to $5000 and

we are unable to discern any trial strategy that would be jeopardized by the

admission of the reasons for Acuity’s delay in paying the $5000. We conclude

this evidence is more probative than prejudicial and is admissible.

       We are not able to reach the same conclusion, however, relative to the

evidence of why Acuity did not pay interest on the $83,000 payment. B&F’s

claim is for prejudgment interest, an issue for the court and not relevant to issues

presented to the factfinder. See Opperman v. Allied Mut. Ins. Co., 652 N.W.2d

139, 140-41 (Iowa 2002).

       Upon a separate evidentiary issue, we also find it significant that the two

estimates by Pierce and Werger that B&F sought to admit (but were determined

to be inadmissible) were completed prior to the filing of the suit. The district court

appears to have included the estimates in the category of post-filing-of-litigation

evidence because the estimates were submitted at appraisal.            However, the

estimates were completed prior to the litigation and thus do not fall under the

category of litigation conduct and do not draw the same public-policy concerns as

expressed in the cases cited above. The estimates are relevant and probative of

the issues and admissible.
                                          23


       Because much of B&F’s evidence was adjudged inadmissible without

reasonable or tenable grounds, we conclude B&F was prejudiced by being

unable to tell its full story. Accordingly, we reverse and remand for a new trial.

       B&F also asserts the district court should not have advised the jury of the

following:

              I am advising you that the court has taken judicial notice that
       on January 11, 2013, this court entered an order which stayed a
       request for an appraisal. You heard some testimony yesterday
       about an appraisal, which is a process that is provided for under the
       insurance policy. I am telling you that I stayed that appraisal
       process on January 11, 2013, and the stay remained in place until I
       entered a later order on October 13th, 2014, which ended the stay.
       As this matter has been taken judicial notice of, you may properly
       consider it as evidence in your deliberations.

       B&F argues “[t]he instruction by the court was erroneous and allowed the

jury to be misled into believing the delay was due to court action and not by

Acuity’s refusal to participate in appraisal and that Acuity had not resisted the

appraisal on grounds it was now contradicting at trial . . . .” B&F does not submit

any authority in support of its argument that “the moment the case was reversed,

the stay ended.” We will not address this claim. See Iowa R. App. 6.903(2)(g)(3)

(“Failure to cite authority in support of an issue may be deemed waiver of that

issue.”).

V. Evidence of Loss of Peace of Mind.

       B&F also maintains the district court improperly determined B&F may not

present evidence as to loss of peace of mind.9 Because this issue may arise

upon re-trial we choose to address it.


9
  B&F contends the court’s ruling was based on erroneous interpretation of law, and our
review should be on legal error. See Kurth v. Iowa Dep’t of Transp., 628 N.W.2d 1, 5
                                           24


       The district court determined the damages for loss of peace of mind were

not distinguishable from those for emotional distress as B&F asserted. The court

found although partners of a partnership, as individuals, may seek damages for

emotional distress, “[t]he rights and damages due to the partner are not available

to the partnership itself.” Because the partners were not named parties to the

suit, the court held B&F may not seek damages for loss of peace of mind or

emotional distress.

       B&F argues it sought damages for loss of peace of mind, not emotional

distress. In support of this distinction, B&F cites to Dolan v. Aid Insurance Co.,

431 N.W.2d 790, 792 (Iowa 1988). In Dolan, our supreme court cited to reasons

for adopting the first-party bad-faith tort, including: “‘When an insured purchases

insurance, she is purchasing more than financial security; she is purchasing

peace of mind,’ and ‘therefore, the extra remedy of bad faith is needed to insure

she receives the benefit of her bargain.’” 431 N.W.2d at 792 (citation omitted).

B&F acknowledges that insureds who are natural persons may seek emotional

damages, but “a limited liability company, certainly cannot suffer emotional

distress.” Barreca v. Nickolas, 683 N.W.2d 111, 124 (Iowa 2004). B&F simply

submits it did not seek damages for emotional distress and only sought damages

for loss of peace of mind.

       We agree with the court that B&F is not entitled to the damages sought.

The authority cited by B&F does not expressly provide for damages for loss of

peace of mind and only explains loss of peace of mind is one factor supporting



(Iowa 2001). However, because the district court’s ruling “is not based on any statute of
codified rule,” we review for an abuse of discretion. Id.
                                           25


the adoption of a first-party bad-faith tort. We agree with the court that “the two

ideas are not disparate concepts but part of the same potential damage claim.”

See Brandt v. Super. Ct., 693 P.2d 796, 824 (Cal. 1985) (“In Crisci [v. Security

Ins. Co. of New Haven, Connecticut, 426 P.2d 173 (Cal. 1967)], we discussed

the peace of mind of the insured as a basis for granting the type of damages

most appropriate to compensate an insure for the disturbance of his tranquility:

damages for emotional distress.”).       We conclude the court did not abuse its

discretion in precluding admission of evidence as to loss of peace of mind, and

affirm.

VI. Prejudice Resulting from the Discovery Ruling.

          Inasmuch as we have determined the district court’s evidentiary ruling

holding all post-filing-of-litigation evidence inadmissible was in error, we must

return to the issue of whether B&F was prejudiced by the district court’s

discovery ruling denying the motion to compel answers to questions avoided in

Jaeger’s deposition. Here, the case presented to the jury was essentially a shell

of the evidence B&F wanted to present in this action.         The district court’s

discovery ruling and evidentiary rulings hamstrung B&F’s ability to tell its story.

As we have indicated, the evidence B&F wanted to discover and wanted to

present at trial went to the heart of its bad-faith claim.

          As we have determined, B&F should be permitted to provide evidentiary

support for its claim that Acuity denied further damages or unreasonably delayed

payments on the basis of Acuity’s alleged reliance on the “settlement in full”

language on the check. For these reasons, the district court’s refusal to allow

B&F to seek additional evidence through discovery on this topic or subject
                                        26


resulted in both actual and substantial prejudice.   Because we have previously

concluded this action shall be reversed and remanded for a new trial, B&F shall

also be afforded discovery consistent with this opinion.

VII. Conclusion.

      We conclude the district court abused its discretion in denying B&F’s

motion to compel and in determining post-filing-of-litigation conduct was

inadmissible without first completing a proper rule 5.403 analysis. The court also

erred in denying the admission of the two estimates of damages. Upon our

balancing analysis, we conclude B&F is entitled to present post-filing-of-litigation

evidence on whether B&F’s claim for additional monies was denied or further

payment delayed due in whole or part to the language on the check, “settlement

in full—ACV.”      Accordingly, we reverse and remand this matter for further

proceedings and a new trial consistent with this opinion. We affirm on the issue

of the inadmissibility of evidence on prejudgment interest. We also affirm the

district court’s determination that evidence of loss of peace of mind is

inadmissible.

      AFFIRMED IN PART, REVERSED IN PART, AND REMANDED.
