               IN THE SUPREME COURT OF IOWA
                                No. 15–1032

                             Filed May 19, 2017


TOBY THORNTON,

      Appellee,

vs.

AMERICAN INTERSTATE INSURANCE COMPANY,

      Appellant.



      Appeal from the Iowa District Court for Pottawattamie County,

Jeffrey L. Larson, Judge.



      Workers’ compensation insurer appeals judgment on jury verdict

awarding actual and punitive damages after district court on summary

judgment found insurer in bad faith as a matter of law.       DISTRICT

COURT JUDGMENTS AFFIRMED IN PART AND REVERSED IN PART;

CASE REMANDED FOR NEW TRIAL.



      Mark McCormick and Stephen H. Locher of Belin McCormick, P.C.,

Des Moines, for appellant.



      Tiernan T. Siems, Karen M. Keeler, and MaKenna J. Dopheide of

Erickson & Sederstrom, P.C., Omaha, Nebraska, for appellee.



      Deborah M. Tharnish and Sarah E. Crane of Davis Brown Law

Firm, Des Moines, for amicus curiae Property Casualty Insurers

Association of America.
                                2

     Richard J. Sapp and Ryan G. Koopmans, until withdrawal, of

Nyemaster Goode, P.C., Des Moines, for amici curiae Chamber of

Commerce of the United States and Iowa Association of Business and

Industry.
                                     3

WATERMAN, Justice.

      In this appeal, we must resolve a workers’ compensation insurer’s

multipronged challenge to a judgment on a jury verdict awarding

$25 million in punitive damages and $284,000 in compensatory

damages. The plaintiff was paralyzed below his chest in an on-the-job

accident. The insurer disputed whether the employee was permanently

and totally disabled (PTD) and contested his petition for a partial

commutation (lump-sum) award while it continued to pay full weekly

PTD benefits and explore settlement. The Iowa Workers’ Compensation

Commissioner determined the employee was PTD and granted his

petition for partial commutation.    The employee sued the insurer for

common law first-party bad faith.

      On cross-motions for summary judgment, the district court

determined the insurer, by contesting PTD and commutation, acted in

bad faith as a matter of law by March 11, 2013 (nearly four years after

the accident). The court instructed the jury the insurer had acted in bad

faith for those actions and instructed the jury to decide whether other

actions by the insurer were in bad faith and determine damages. The

jury found the insurer’s bad-faith conduct began several months after

the accident and awarded punitive and compensatory damages at a ratio

of 88:1.   The insurer appealed after its posttrial motions were denied.

The plaintiff cross-appealed the denial of attorney fees incurred

prosecuting the bad-faith action. We retained the case.

      The insurer argues that (1) it cannot be found in bad faith when it

voluntarily and continuously paid stipulated weekly PTD benefits due

under its policy, (2) the district court erred by deciding the insurer acted

in bad faith as a matter of law, (3) insufficient evidence supports the

compensatory damage awards, and (4) the punitive damage award is
                                     4

unconstitutionally excessive under the Federal Due Process Clause. For

the reasons explained below, we conclude the insurer knew or should

have known it lacked any reasonable basis to dispute this quadriplegic’s

PTD status and affirm summary judgment for the plaintiff on that issue.

But the district court erred by ruling the insurer was in bad faith as a

matter of law for resisting the commutation.       It should have granted

summary judgment for the insurer on that issue.            We reverse the

judgments for compensatory and punitive damages without reaching the

constitutional challenge and remand the case for a new trial on the

remaining bad-faith claims. Applying the American rule, we affirm the

district court’s ruling denying plaintiff an award of attorney fees incurred

prosecuting the bad-faith action.

      I. Background Facts and Proceedings.

      A. Initial Care. Thirty-one-year-old Toby Thornton worked as an

over-the-road truck driver for Clayton County Recycling (CCR). His job

duties included picking up scrap metal in Iowa and Wisconsin and

delivering it to CCR’s salvage yard.     On June 25, 2009, Thornton lost

control of his semitruck when the load shifted. The truck rolled over,

crushing the cab with Thornton inside. Thornton injured his spinal cord,

face, left leg, and ribs.   First responders extracted Thornton using the

Jaws of Life™.     He was rushed by ambulance to Mercy Hospital in

Dubuque and airlifted to the University of Iowa Hospitals in Iowa City,

where he underwent multiple surgeries.        The accident left Thornton

permanently paralyzed from the chest down with no use of his left hand

and limited use of his right hand.

      American Interstate Insurance Company (American Interstate) was

the workers’ compensation insurer for CCR and specialized in insuring

high-risk employers. It learned of Thornton’s accident the next day, and
                                       5

its claims adjuster, Luann Baum, contacted Thornton’s wife, Tara, by

telephone.    On June 27, Baum traveled to the University of Iowa

Hospitals and assured Thornton’s family that workers’ compensation

benefits would begin immediately.

      Baum gathered wage information and calculated Thornton’s weekly

benefits, assuming PTD.       American Interstate issued the first benefit

check to Thornton on July 2 and weekly thereafter. Two weeks after the

accident, American Interstate received a medical opinion from Thornton’s

examining physician that Thornton was PTD.               It set reserves for

Thornton’s care at $762,644, an amount based on PTD.             Baum later

testified she did so because she “believed that the injury was severe

enough . . . to easily classify as a perm total.”

      Thornton retained counsel for his workers’ compensation claim.

On July 8, his attorney wrote Baum requesting the “calculations used to

arrive at Toby’s weekly compensation rate” and a “wage statement for

Toby’s earnings for the year prior to the injury in accordance with Iowa

Code Section 85.40.” On August 7, counsel again wrote to Baum, noting

Baum had not responded to the prior request. The second letter referred

the insurer to Iowa Code section 85.41, which states the failure to

furnish wage information upon request within thirty days is a simple

misdemeanor.      On August 25, counsel sent a third letter to Baum,

stating Baum had supplied wage information but had missed the last full

week Thornton worked before the accident.           On September 1, counsel

mailed another letter, again inquiring about weekly wages and requesting

medical records.     On September 24, counsel for American Interstate

responded by letter, stating,

            After we talked on the phone, I obtained the additional
      wage information from the employer. I recalculated the wage
      information and changed the rate based on the updated
                                       6
         information. The new rate will be $513.18 per week. This
         resulted in a $7.44 per week increase and we had issued 15
         weeks so far, so I also issued a check today for an additional
         $111.60 to bring current.
               Here are the weeks and the hours I used for the
         calculations.

The letter then listed thirteen weeks of wage information, including

June 15 to 21, the week missed in the earlier statement. Thornton later

stipulated that $513.18 was the correct weekly benefit.

         After multiple surgeries and aggressive physical, occupational, and

respiratory rehabilitation, Thornton was released from the hospital in

October. Thornton moved into his in-laws’ home. At Thornton’s request,

Baum arranged for modifications to make the house handicap-

accessible. American Interstate paid to install a shower and hospital bed

and specially ordered a wheelchair and van matched to Thornton’s height

and weight.      Thornton told Baum he was pleased, stating, “[V]an was

great, equipment is good, bed is a little small for turning, but . . . [the

new mattress] should be in by next week.”

         Initially, Tara provided in-home care to Thornton. In June 2010,

Baum arranged for a home healthcare nurse so Tara could return to

work.      That month, Thornton indicated an interest in purchasing a

home, and Baum met with him to discuss housing options.             In July,

Baum received an email from Thornton that he needed to move out of his

in-laws’ home “immediately” because he and Tara were separating.

Baum arranged for home-aide care, modifications to a new apartment,

and for Thornton to take a disabled driver’s license test. By November,

Thornton had received his driver’s license and a van outfitted so he could

drive.     He reported to Baum he was doing “great” and “ha[d] no

complaints at this time.”     Throughout this period, American Interstate

continued to pay Thornton weekly benefits at the PTD rate.
                                    7

        Meanwhile, Thornton’s mother passed away. She left him a small

inheritance, about $3000, which Thornton used to purchase a headstone

for her grave and a TV for his home for his children to watch after school.

Thornton complained to his physician that he was depressed.             In

February 2011, Thornton attempted suicide by overdosing on pain

medication. He was admitted to St. Mary’s Hospital for inpatient mental

health treatment.    After his discharge, Thornton received outpatient

counseling to cope with his depression.     Thornton’s treatment records

show he attributed his mental problems to his mother’s death and his

separation from his wife, without mentioning American Interstate.

Thornton did not tell Baum about his overdose or mental health

treatment. Baum and American Interstate were unaware of Thornton’s

treatment for depression until months later when bills for payment were

submitted.

        In March, Dr. Michael Rogge, Thornton’s treating physician,

concluded Thornton had reached maximum medical improvement (MMI).

Thornton told Baum he did not want to discuss settlement options with

American Interstate until his divorce was finalized. American Interstate

honored his request, continuing to pay him weekly benefits at the PTD

rate.   In July, when internally discussing Thornton’s file, Baum noted

she had not assigned a permanent partial disability percentage to

Thornton because “[t]his [claimant] is now a quadriplegic. . . . [H]e will

be a perm[anent] total case.”     In January 2012, Thornton contacted

Baum and told her his divorce was finalized and he was ready to discuss

settlement.

        The next month, Baum and John Cantwell, who handles annuities,

met with Thornton to discuss settlement.         In preparation for this

meeting, Baum noted a lump-sum payment would be important to
                                     8

Thornton because he had been trying to purchase a home.              At the

meeting, Baum and Cantwell presented Thornton with two alternative

proposals for settlement.    Each proposal included payment of weekly

indemnity benefits (an upfront payment and annuity) and the creation of

a Medicare Set Aside (MSA) and Custodial Medical Account (CMA) for

future medical expenses.    The MSA covered Medicare expenses; if the

account was exhausted, the expenses would be picked up by Medicare.

The CMA account covered other expenses. If the CMA was exhausted,

Thornton would become personally liable for ongoing expenses.          Both

proposals also included a “Miscellaneous Medical” section, entitling

Thornton to an immediate cash payment, a smaller annuity to offset

Medicare deductibles, and a series of lump sums for future van

purchases.

      In both proposals, American Interstate sought a “closed file”

settlement to end its liability for future weekly benefits or medical

expenses.    Upon Thornton’s death, any remaining indemnity, MSA, or

CMA funds reverted to American Interstate. This structured settlement

proposed by American Interstate substantially reduced its own cost of

settlement. Thornton understood that “[i]t was just [the] first offer on the

table, and [he] wanted to show it to [his] lawyer and get some legal

representatives on it.”

      B. PTD Claim.       In May, Thornton, through counsel, filed a

petition before the Iowa Workers’ Compensation Commissioner seeking a

determination of permanent total disability. Baum retained counsel for

American Interstate, Cory Abbas.         Baum disclosed to Abbas that

“[American Interstate] ha[d] voluntarily accepted this claim as PTD

exposure.”   In June, Abbas emailed Baum his initial evaluation of the

claim, acknowledging that “there is not a strong argument that Claimant
                                          9

is not a permanent total disability.”          American Interstate nevertheless

denied PTD in its answer to the petition.

       Counsel engaged in settlement discussions for several months.

Thornton did not want to pursue a closed-file settlement, fearing that the

medical funds may run out and he would become personally liable for his

healthcare needs. In September, Abbas emailed Tiernan Siems, counsel

for Thornton, urging a closed-file settlement for a quicker resolution

because, as it could be “2–3 years before a final award is entered

(considering potential appeals to the Commissioner, and potentially

much longer with appeals to the Courts).”               The parties proceeded to

mediation in October, where Siems claimed Abbas said American

Interstate would “deny, delay, appeal, and drive-up the costs” of litigation

if Thornton refused to settle. Abbas denied making such a statement.

The mediation was unsuccessful.

       American      Interstate    deposed     Thornton      in   February      2013.

Thornton testified that “[s]ome day [he’d] like to get a job” if someone

could be found who would employ him “in the condition that [he was] in.”

On March 4, Abbas contacted Siems and informed him that Phil Davis, a

vocational counselor, had been authorized by American Interstate to

provide vocational rehabilitative services “if Mr. Thornton ha[d] any

interest in such.” 1 Siems responded by questioning the motives of Abbas

for offering vocational training so close to the hearing on Thornton’s PTD




         1This later turned out to be incorrect.   Davis actually had been hired by
American Interstate to opine whether Thornton could return to some sort of work, not
to provide rehabilitative services. Davis submitted a report at the arbitration hearing
opining that Thornton could return to work if he so desired. However, Davis later
testified that his opinion in no way should have been used to undercut that Thornton
was PTD.
                                   10

claim. Meanwhile, Dr. Rogge informed Abbas that he would not release

Thornton to participate in vocational rehabilitation because he was PTD.

      On March 11, after conferencing with Dr. Rogge, Abbas emailed

Jami Rodgers, who had succeeded Baum at American Interstate. Abbas

stated, “Due to Dr. Rogge’s opinions not being favorable to our defense, a

follow-up written report will not be requested.” He added, “As originally

evaluated, there really is no possible situation where Claimant is not

going to be found to be permanently and totally disabled in this matter.”

Abbas recommended American Interstate agree to a settlement for PTD

and warned that the deputy commissioner may find “the defense

unreasonable, issuing sanctions for the costs of the litigation.” American

Interstate nevertheless elected to proceed with the hearing contesting

PTD. Rodgers explained, “[W]e may not have had a reasonable defense,

but I still felt we had the right to go to hearing.” On May 23, the deputy

found Thornton PTD and ordered American Interstate to continue paying

Thornton weekly benefits of $512.62.

      C. Partial Commutation Claim.         Eleven days later, Thornton

petitioned for a partial commutation of benefits. See Iowa Code § 85.48

(2013) (allowing partial payment of lump-sum benefits with reduced

weekly benefits continuing).   He sought commuted benefits in a lump

sum of $761,957 to purchase a home, pay attorney fees, and invest with

the assistance of a money manager. Siems had emailed Abbas over a

week earlier, asking if American Interstate would agree to the partial

commutation.    Siems accused American Interstate of raising “frivolous

defenses suggesting [Thornton] was not [PTD],” despite agreeing that he

was likely entitled to a commutation.    Abbas responded the next day,

stating,
                                         11
       While I may have agreed/stated that Mr. Thornton has a
       significant chance of being awarded a partial commutation
       by a Deputy and the Commissioner (based upon the results
       of many current partial and full commutation decisions), I
       never have stated that anyone is “entitled” to a partial
       commutation.

American Interstate resisted the petition for partial commutation.

       In July, Thornton received a letter from a financial advisor,

explaining how a lump-sum commutation would be invested to generate

a regular monthly income. The plan included a 1.8% annual fee. It also

assumed no change in tax treatment, although the investment income

would be taxable, unlike weekly workers’ compensation payments.                     In

November, Thornton testified at his deposition that he had not previously

owned any investments, he and his wife had incurred overdraft charges

before the accident, he was only “so-so” with finances, his “[c]redit cards

don’t get taken care of as good as they should,” he connected with this

financial advisor through his brother, he had never met with any other

financial advisor, he had spent a $3000 inheritance from his mother on

bills and “a couple of things,” and he had never put together or operated

under a monthly budget. 2

       American Interstate retained an expert, Michael Alexander, to
address whether the commutation would be in Thornton’s best interest.

Alexander’s report noted Thornton’s proposed monthly budget used a

       2Prior  to the commutation hearing, American Interstate filed three discovery-
related motions against Thornton—all of which were granted by the deputy
commissioner. In a September 2013 order granting American Interstate’s motion to
compel, the deputy characterized Thornton’s resistance as resting on “wholly frivolous
grounds” that “do little to foster timely and economic resolution of contested case
litigation.” The deputy granted the insurer’s motion to quash a discovery deposition in
November, reasoning that Thornton “appears, as defendants contend, to ‘fish’ for
information potentially useful in other litigation.” Finally, in March 2014, the deputy
granted American Interstate’s motion to quash on the basis that “the information
sought by [Thornton] is unnecessary to get to the truth and provide the parties rough,
speedy justice.”
                                      12

significantly lower housing cost than the anticipated cost of Thornton’s

home.     Even without considering the taxability of investment returns,

Alexander noted the lump-sum payment would have to generate a 4.44%

annual return to match current weekly payments. Alexander expressed

concern about Thornton’s ability to avoid tapping into the principal.

Alexander concluded, “A sound game plan hasn’t been completed to

protect or justify this lump sum commutation.”

        Thornton’s counsel asked to depose Alexander.         Abbas emailed

Rodgers, warning that Alexander’s testimony may not help the insurer’s

resistance:

               Claimant’s counsel has requested a deposition of our
        financial expert, Michael Alexander. He is likely to tear up
        Mr. Alexander pretty good, as Toby’s case presented a
        difficult position for Mr. Alexander to argue that it was not in
        his best interests to receive a lump sum versus weekly
        payments.       I will keep you informed as to when the
        deposition is scheduled, as well as the outcome.
              . . . Unfortunately, as we have previously discussed, no
        matter how well I am able to depose [Thornton’s] experts, it
        will be unlikely to bring forth significant evidence that will
        sway a Deputy and/or the Commissioner from awarding a
        commutation.

Alexander testified at his deposition “the crux” of his opinion was that a

commutation would not be in Thornton’s best interest because he could

“take withdrawals whenever he wanted to.” But Alexander acknowledged

that if Thornton avoided invading the principal, commutation would be

in his best interest. He noted without the partial commutation, Thornton

could be unable to keep up with his expenses:

              Q. There’s risk that Mr. Thornton’s rent and cost of
        food will outpace his budget unless he gets a partial
        commutation. A. Yes. There’s also interest rate risk and
        market risk tied with these investments and liquidity risk if
        he taps the principal.
              ....
                                    13
              Q. Notwithstanding all of those risks you mentioned,
      . . . it is still your opinion as we sit here today that if
      Mr. Thornton does not invade that principal of this 611- or
      751,000 or potentially one million if it had been paid out
      earlier, [if he] doesn’t invade that principal, his best bet is
      getting that partial commutation? A. Yes.
            Q. Even with all those risks we mentioned? A. Yes.

      At the partial commutation hearing on March 21, 2014, Thornton

presented testimony from two experts that the commutation would be in

his best interest. Thornton also presented the budget prepared by his

brother, an accountant, showing how Thornton would use the commuted

benefits. American Interstate pointed out the proposed budget did not

account for taxes or home repair. American Interstate argued Thornton

was a poor money manager, noting he had spent the $3000 inheritance

without conferring with a financial advisor.         It questioned whether

Thornton could resist dipping into the principal of any commuted funds

and referred to Thornton’s children as his “vice.”

      On May 16, 2014, the deputy granted a partial commutation. The

deputy found the risk of Thornton depleting the funds to be “minimal”

and stated, “It would be hard to imagine a clearer scenario where a

partial commutation should be granted.” The deputy further noted, “The

arguments of the defendants are weak at best and appear mostly

designed to delay the inevitable commutation of benefits.”       Thornton

asked the deputy to award him the costs of both of his experts. See Iowa

Code § 86.40 (2014) (“All costs incurred in the hearing before the

commissioner shall be taxed in the discretion of the commissioner.”);

Iowa Admin. Code r. 876—4.33 (noting assessment of costs may include

“the reasonable costs of obtaining no more than two doctors’ or

practitioners’ reports”).   The deputy awarded Thornton costs for two

expert witnesses and signaled his disapproval of the insurer’s conduct:
                                   14
      In this case, the defendants refused to agree to a partial
      commutation and provided a vigorous, albeit weak defense.
      Partial commutations are fairly rare. Claimant’s counsel had
      to decide how much to invest in pursuing this claim, and it
      was unknown exactly how much evidence would be
      required. . . . The defendants essentially forced the claimant
      to prove his case instead of simply agreeing to what appears
      to be an obviously reasonable partial commutation in the
      best interests of the claimant.

American Interstate issued the commutation check one week later and

did not appeal the deputy’s commutation decision.

      Meanwhile, on January 10, 2014, while Thornton’s petition for

commutation was pending, he learned he had been approved by his bank

for a loan to purchase a home. Thornton testified he lost the chance to

buy that home because it was sold to another person while he awaited

his lump-sum payment.

      D. Alternate Medical Care. In July, Dr. Rogge wrote Thornton a

prescription for a wheelchair replacement. Dr. Rogge wrote in his notes,

“Did recommend he receive new wheelchair . . . . We did give him a new

script for this today.” These notes were received by Rodgers. However,

Rodgers did not receive an order or copy of the prescription. Dr. Rogge

sent the prescription to St. Luke’s Hospital in Cedar Rapids.          On

September 10, Rodgers was deposed.        She stated she did not know

Thornton needed a new wheelchair, but if she was “ordered to get him

one, she would do so.” On September 17, Thornton went to St. Luke’s

Hospital to be measured.       Two days later, Dr. Rogge signed the

paperwork setting forth the specifications of the new wheelchair.

      On October 12, Thornton was hospitalized for bursitis in both

elbows.   Hospital records stated that his left elbow was “swollen” and

“reddened” and that his pain was “very intense and he felt like his arm

was on fire.” According to hospital records, Thornton told the hospital
                                   15

staff he thought “he did bump into something last week with his elbow,

but [did] not remember anything specific.”

      On October 20, Rodgers learned that the wheelchair was “in the

process of being ordered.” A vendor had inquired about the status of the

authorization and copied Thornton’s counsel, who then forwarded the

email to Abbas.   The next day, Thornton filed a petition for alternate

medical care. See Iowa Code § 85.27(4) (“If the employer and employee

cannot agree on such alternate care, the commissioner may, upon

application and reasonable proof of the necessity therefor, allow and

order other care.”). At the hearing on November 4, American Interstate

conceded that “a replacement wheelchair is reasonable and necessary”

and that it had already “authorized and ordered the wheelchair.”     The

deputy found that “[b]oth parties were in agreement” and ordered

American Interstate to provide a new wheelchair.

      E. Bad-Faith Claim.     On December 26, 2013, Thornton filed a

civil action against American Interstate alleging common law bad faith

based on its handling of his workers’ compensation claims. American

Interstate filed an answer denying bad faith. After conducting discovery,

the parties filed cross-motions for summary judgment.          American

Interstate argued summary judgment was appropriate because it was

undisputed that Thornton was paid full PTD weekly benefits throughout,

and that as a matter of law, it acted reasonably in handling Thornton’s

claims.   Thornton argued American Interstate unreasonably denied he

was PTD and entitled to commutation, which delayed his lump-sum

payment.

      The district court partially granted Thornton’s motion for summary

judgment on the bad-faith claim and denied American Interstate’s

motion. The court rejected American Interstate’s position that bad faith
                                       16

could not occur without a denial of payment.       The court stated, “Any

difference between payments owed and payments made is properly a

question of damages, not denial.”       The court acknowledged American

Interstate paid Thornton the weekly workers’ compensation benefits to

which he was entitled, but concluded the insurer denied him benefits

when it refused to classify him as PTD, denied PTD status at the hearing,

moved for reconsideration of the commissioner’s adverse PTD finding,

and failed to agree to a commutation. The district court concluded,

      Defendant embarked upon a course of action which first
      challenged and ultimately denied Plaintiff’s PTD status and
      eligibility for partial commutation, and if successful would
      have cancelled Plaintiff’s benefits. Each of those is a ‘denial’
      within the ambit of the bad faith tort.

The court further determined American Interstate had no reasonable

basis for denial. American Interstate was advised by counsel early on

that Thornton was likely PTD and a partial commutation was in his best

interests. Thus, the court found by March 11, 2013, American Interstate

was in bad faith as a matter of law.

      The issues of damages and bad faith prior to March 11, 2013, were

tried to a jury.     Thornton presented evidence on American Interstate’s
refusal to disclose wage statements and actions in resisting Thornton’s

PTD claim and partial commutation.            Particularly, evidence was

presented to the jury that Baum, while working as a claims adjuster for

Thornton, had never “uncover[ed] any facts suggesting that Toby was not

permanently and totally disabled” or that “the payment of a lump sum, a

partial commutation” was not in Thornton’s best interest.         Similarly,

Rodgers testified,

            Q. Now, let’s go backwards from that date. From that
      date up until the inception of this claim, are you aware of
      any evidence that supported the conclusion that Toby
      Thornton was not entitled to partial commutation? A. No.
                                   17
             Q. Perm total, same question: From the date of trial
      all the way back to the date of injury, are you aware of any
      information supporting the conclusion that Toby Thornton
      was anything other than permanently and totally disabled?
      A. No.

      Abbas testified that American Interstate acted in good faith

because it had a legal right to allow the deputy to decide the issues of

PTD and partial commutation.      In addition, defense experts described

Abbas’s statements to opposing counsel—about litigation taking two to

three years if the claim did not settle—as a common negotiation tactic,

not bad faith.

      Both parties presented evidence concerning the delay in Thornton’s

wheelchair and resulting hospital visit. When asked if the bursitis was

caused by the worn wheelchair armrests, Thornton stated, “Hard to tell if

it was the armrests or bumping into stuff.     Not for sure.”   Dr. Rogge

testified he suspected the arms of the wheelchair were the cause of the

bursitis, and he “hope[d]” a new wheelchair would alleviate the problem.

Regarding the delay in securing the wheelchair, Rodgers testified,

      A. It’s my understanding Dr. Rogge sent the order to
      St. Luke’s to work up on—with the wheelchair program,
      whatever, to get his exact specifications so we could order
      the wheelchair. And as soon as that was provided with exact
      orders like a 10-page specification so he could get exactly
      what he needed, we ordered it.
            Q. Reconcile that for me with your sworn deposition
      testimony in September that you knew nothing about a
      wheelchair. A. I didn’t know anything about the wheelchair
      at the first deposition. I didn’t know anything until you sent
      me—you [sent] Cory, your e-mail—
             Q. Tell us again what Dr. Rogge said about a
      wheelchair July 1, 2014. A. “His wheelchair is causing
      problems. It is over five years of age. We did give him a new
      script for this today.”
            Q. That’s what you received July 15, 2014. A. I could
      guess July 15. I don’t know when we received it.
                                    18

Thornton acknowledged he needed to go to St. Luke’s to be measured

before the wheelchair could be ordered because “they had to figure out

what [he] needed before it could be ordered.”

      At the close of the evidence, defense counsel moved for directed

verdict, which the district court denied. The jury was instructed that the

court had already determined American Interstate committed bad faith

by disputing Thornton’s PTD status and request for commutation.

Instruction No. 1 stated,

             Members of the jury, this trial concerns a claim by
      Plaintiff, Toby Thornton, that the Defendant, American
      Interstate Insurance Company, acted in bad faith in failing
      to pay certain workers’ compensation insurance benefits
      Mr. Thornton was entitled to.
            Prior to this trial, this court determined that the
      defendant, American Interstate Insurance Company[,]
      committed bad faith in its dealings with Mr. Thornton
      beginning March 11, 2013.
            It is up to you, the jury, to determine whether the
      defendant committed bad faith prior to March 11, 2013. It is
      also your duty to determine whether plaintiff, Toby
      Thornton, was damaged by defendant’s actions and the
      amount of those damages.

(Emphasis added.) Instruction No. 18 explained the elements of a bad-

faith claim, including that the plaintiff was required to prove “[t]here was

no reasonable basis for denying the claim.” Instruction No. 19 referred

back to Instruction No. 18, explaining,

            With respect to proposition No. 2 in the foregoing
      instruction, there has been a previous determination by the
      Court that beginning March 11, 2013, the defendant did not
      have a reasonable basis for its refusal to pay the Workers’
      Compensation claim for permanent total disability benefits
      and for a partial commutation of those benefits.       That
      determination is binding upon you in this case. The plaintiff
      does not have to prove this element and the defendant may
      not contest it. You, the jury, must determine if there was
      bad faith before March 11, 2013.

(Emphasis added.)
                                      19

        The jury instructions also included an explanation of damages that

could be awarded. American Interstate objected to instructions allowing

the jury to award damages for past mental pain and suffering, past

physical pain and suffering, and loss of equity in the home he had

planned to buy. Defense counsel argued, “There’s no evidence of that,

Judge.” The court overruled its objections.

        The jury found American Interstate had committed bad faith as of

September 1, 2009, a date coinciding with its refusals to give wage

information and its internal recognition of PTD.           The jury awarded

$284,000 in compensatory damages and $25 million in punitive

damages.      Compensatory damages included past pain and suffering

($125,000), loss of use of money ($14,000), consequential damages for

attorney fees in the workers’ compensation proceeding ($118,000), and

lost home equity ($27,000).

        American Interstate moved for judgment notwithstanding the

verdict, remittitur, and new trial.        American Interstate renewed its

argument the district court erred in granting summary judgment and

erred    in   overruling   American   Interstate’s   objections   to   the   jury

instructions allowing awards for pain and suffering and loss of equity

damages.      The district court denied the motions.      American Interstate

appealed, and we retained the appeal.

        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., 702

N.W.2d 468, 473 (Iowa 2005). “We likewise review a district court ruling

on a motion for judgment notwithstanding the verdict for correction of

errors at law.” Gibson v. ITT Hartford Ins., 621 N.W.2d 388, 391 (Iowa

2001).
                                    20

      “A party moving for summary judgment has the burden of

establishing the absence of any genuine issue of material fact and that it

is entitled to judgment as a matter of law.” Johnson v. Farm Bureau Mut.

Ins., 533 N.W.2d 203, 205–06 (Iowa 1995).         “In reviewing both the

summary judgment and directed verdict, we review the evidence in the

light most favorable to the resisting party.” Id. at 206. “The court must

consider on behalf of the nonmoving party every legitimate interference

that can be reasonably deduced from the record.” McIlravy v. N. River

Ins., 653 N.W.2d 323, 328 (Iowa 2002). Inferences are legitimate when

they are “rational, reasonable, and otherwise permissible under the

governing substantive law.”    Id. (quoting Butler v. Hoover Nature Trail,

Inc., 530 N.W.2d 85, 88 (Iowa Ct. App. 1994)). “If reasonable minds may

differ on the resolution of an issue, a genuine issue of material fact

exists.” Id.

      We review for correction of errors at law American Interstate’s

claim that the evidence did not support the jury instructions. Rowling v.

Sims, 732 N.W.2d 882, 885 (Iowa 2007). “When reviewing a claim that

an instruction was not supported by substantial evidence, we view the

evidence in the light most favorable to the party seeking the instruction.”

Id. “Questions of jurisdiction, authority, and venue are legal issues to be

reviewed for corrections of errors at law.” Kloster v. Hormel Foods Corp.,

612 N.W.2d 772, 773 (Iowa 2000).

      III. Analysis.

      A. Bad-Faith Directed Verdict.       We first address whether the

district court erred in denying American Interstate’s motion for a directed

verdict on the bad-faith claim. American Interstate contends the district

court erred in granting Thornton partial summary judgment establishing

the insurer’s bad faith and in submitting the remaining case to the jury.
                                           21

The insurer notes Thornton did not submit the workers’ compensation

policy as an exhibit and, it contends, cannot show he was deprived of a

benefit “under the policy” or that American Interstate breached any term

of the insurance contract.           American Interstate argues the bad-faith

claim fails as a matter of law because Thornton at all times was paid full

weekly PTD benefits. Alternatively, American Interstate argues it had a

reasonable basis for resisting commutation because, under Iowa Code

section 85.45, the commissioner must approve a partial commutation of

benefits.

       1. Error preservation. Thornton contends error was not preserved.

We find error was preserved when American Interstate moved for directed

verdict and judgment notwithstanding the verdict, reiterating the

grounds asserted in its summary judgment filings. American Interstate

consistently asserted substantially the same arguments now made on

appeal, i.e., it did not deny Thornton benefits and it had a reasonable

basis for resisting commutation. Its arguments were “both raised and

ruled upon by the district court.” Tetzlaff v. Camp, 715 N.W.2d 256, 258

(Iowa 2006).       Our precedent requires no more.            See Otterberg v. Farm

Bureau Mut. Ins., 696 N.W.2d 24, 28 (Iowa 2005) (“[I]f a motion for

summary judgment presented the issue to the district court and the

district court ruled on it, the rule requiring the district court to first

consider issues raised on appeal is satisfied.”). 3


       3Thornton    relies on State v. Ritchison, 223 N.W.2d 207, 213 (Iowa 1974). In
Ritchison, a defendant waited until his motion for directed verdict at the close of all
evidence to claim that a statute was unconstitutional. Id. We held that “in order to
preserve for review any alleged error in ruling on the constitutionality of a statute, the
party challenging the statute must do so at the earliest available opportunity in the
progress of the case.” Id. at 214. Ritchison is inapposite. American Interstate moved
for summary judgment well before trial, moved for a directed verdict at the close of
plaintiff’s evidence, and makes no claim that a statute is unconstitutional.
                                         22

        2. Did American Interstate deny Thornton a benefit under the

policy? 4 We begin our analysis with an overview of our insurance bad-

faith precedent to provide context for deciding the fighting issue whether

a workers’ compensation insurer that pays weekly benefits can be found

in bad faith. “Insurance contracts contain an implied covenant of good

faith that ‘neither party will do anything to injure the rights of the other

in receiving the benefits of the agreement.’ ” Johnson, 533 N.W.2d at 207

(quoting Kooyman v. Farm Bureau Mut. Ins., 315 N.W.2d 30, 33 (Iowa

1982)).    An insured may bring a third-party bad-faith claim when “an

insurer’s bad faith refusal to settle a third-party’s claim against the

insured within the policy limits exposes the insured to monetary liability

exceeding policy limits.”      Id. A first-party bad-faith claim involves “an

insured’s attempt to recover for his or her own losses allegedly covered

under the insurance policy.” Id. We view bad-faith claims by employees

against their employers’ workers’ compensation insurers as first-party

bad-faith claims, even though “[a]t first blush, a cause of action for bad

faith   pursued     by   an    employee       against   an   employer’s     workers’

compensation carrier appears to be a matter of ‘third-party’ bad faith

more than one of ‘first-party’ bad faith.” McIlravy, 653 N.W.2d at 329

n.2.

        [W]hen first adopting the bad faith cause of action in the
        workers’ compensation context, we determined that such a
        suit is more accurately considered as one for first-party bad
        faith given “the obligations that [the Code] and
        administrative regulations place on the insurer.”


        4Thornton speciously argues a waiver or estoppel resulted from trial testimony
by Abbas and William Scherle, an attorney and expert for American Interstate, voicing
disagreement with the court’s summary judgment ruling. We cannot fathom how their
testimony waived or estopped American Interstate from arguing it was entitled to a
directed verdict.
                                        23

Id. (quoting Boylan v. Am. Motorists Ins., 489 N.W.2d 742, 743 (Iowa

1992)).

      To establish a first-party bad-faith claim against a workers’

compensation insurer, the plaintiff must show “(1) that the insurer had

no reasonable basis for denying benefits under the policy and, (2) the

insurer knew, or had reason to know, that its denial was without basis.”

Id. at 329 (quoting United Fire & Cas. Co. v. Shelly Funeral Home, Inc.,

642 N.W.2d 648, 657 (Iowa 2002)).               We have defined “benefit” for

purposes of the workers’ compensation penalty provision as “[f]inancial

assistance that is received from an employer, insurance, or a public

program (such as social security) in time of sickness, disability, or

unemployment.” Schadendorf v. Snap-On Tools Corp., 757 N.W.2d 330,

338 (Iowa 2008) (alteration in original) (quoting Benefit, Black’s Law

Dictionary (7th ed. 1999)) (referring to Iowa Code section 86.13). “The

two-part   test    for   first-party   bad   faith   applies     ...   [to]   workers’

compensation [insurance].” McIlravy, 653 N.W.2d at 329.

      In Dolan v. Aid Insurance Co., we recognized a common law action

in tort for bad faith against a first-party insurer because “traditional

damages for breach of contract will not always adequately compensate

an insured for an insurer’s bad faith conduct.”            431 N.W.2d 790, 794

(Iowa 1988). We concluded allowing a remedy in tort was “justified by

the nature of the contractual relationship between the insurer and

insured.” Id. Insurance policies are contracts of adhesion, exemplifying

“inherently unequal bargaining power between the insurer and insured,

which persists throughout the parties’ relationship and becomes

particularly acute when the insured sustains a physical injury or

economic loss for which coverage is sought.”                   Id.   We viewed the

“contractual      relationship   between     the     insurer     and   insured    [as]
                                     24

sufficiently special to warrant providing the insured with additional

protection.” Id. at 792.

      In Boylan, we extended the tort of first-party insurer bad faith to

workers’ compensation insurers. 489 N.W.2d at 743–44. Robert Boylan

alleged his employer’s workers’ compensation insurer “delayed and then

terminated [his] workers’ compensation weekly benefits and medical

benefits, arbitrarily and capriciously, without notice and in bad faith.”

Id. at 742 (alteration in original). The district court dismissed the action,

ruling Boylan failed to state a claim. Id. We reversed and reinstated his

bad-faith action. Id. at 744. We noted the Iowa workers’ compensation

statute, by imposing a civil penalty on insurers for an unreasonable

delay or termination of benefits, demonstrated an “affirmative obligation

on the part of the employer and insurance carrier to act reasonably in

regard to benefit payments in the absence of specific direction by the

commissioner.”    Id. at 743; see also Iowa Code § 86.13(4)(a) (imposing

penalty for “a denial, a delay in payment, or a termination of benefits

without reasonable or probable cause or excuse known to the employer

or insurance carrier”).     We acknowledged the Act’s administrative

regulations “impose[d] an affirmative obligation to furnish medical and

hospital supplies to an injured employee,” even though the penalty

provision only applied to a denial of weekly compensation benefits.

Boylan, 489 N.W.2d at 743; see also Iowa Code § 85.27(4) (“The

treatment must be offered promptly and be reasonably suited to treat the

injury without undue inconvenience to the employee.”). “As a result of

the obligations that these statutes and administrative regulations place

on the insurer,” we concluded the relationship between a workers’

compensation insurer and employee was similar to the special, first-party

contractual relationship in Dolan. Boylan, 489 N.W.2d at 743. Thus, we
                                     25

recognized a common law first-party bad-faith action against a workers’

compensation insurer apart from the statutory penalties provided in

section 86.13. Id. at 744.

      Subsequent cases shaped the contours of common law bad-faith

claims in the workers’ compensation context.           In Reedy v. White

Consolidated Industries, Inc., we concluded that self-insured employers

could be held liable for common law bad faith because they “voluntarily

assume[d] a recognized status under the workers’ compensation laws as

an insurer.”   503 N.W.2d 601, 603 (Iowa 1993).          But, in Bremer v.

Wallace, we declined to expand the claim to uninsured employers,

focusing on the “common thread” in our previous decisions of “the

defendant’s status as an insurer.”     728 N.W.2d 803, 805 (Iowa 2007).

We noted that central to imposing liability for bad faith was “the

traditional insurer/insured relationship.”      Id. at 806.     The reason

“underlying our imposition of tort liability” was the “the adhesive nature

of the insurance contract.” Id.

      In McIlravy, we explained that “[b]ad faith claims are applicable to

workers’ compensation insurers because they hold the discretionary

power to affect the statutory rights of workers, which clearly reflects their

obligation to act in good faith in the exercise of this authority.”      653

N.W.2d at 329–30 (concluding that commissioner’s decision to assess

penalty under the statute did not result in issue preclusion in common

law bad-faith action because of different burden of proof). Similarly, in

Brown v. Liberty Mutual Insurance, we held that because a workers’

compensation bad-faith claim “rests on Liberty Mutual’s alleged breach

of its statutory good-faith obligation to pay benefits in advance of a

specific directive by the industrial commissioner,” the five-year statute of

limitations in Iowa Code section 614.1(4) applied, rather than the two-
                                   26

year limitations period in section 614.1(2).   513 N.W.2d 762, 764–65

(Iowa 1994) (emphasis added).

      Thus, our decisions indicate it is the nature of the workers’

compensation insurer’s relationship with the insured employees and

corresponding statutory duties that give rise to bad-faith tort liability.

For that reason, Thornton was not required to offer American Interstate’s

insurance contract into evidence at the jury trial. The fighting liability

issues concerned American Interstate’s conduct in light of its statutory

obligations, not the wording of a specific provision of its insurance

contract.

      But American Interstate argues there can be no bad faith without a

breach of a specific policy term. In Bagelmann v. First National Bank, we

stated parties could not maintain a bad-faith action against their bank

when there was no “contract term to which [the bad faith could] be

attached.”   823 N.W.2d 18, 34 (Iowa 2012).      When refinancing their

home, the Bagelmanns received a flood risk determination from the

bank, stating the property was not in a flood zone. Id. at 21. The bank

had hired a third party to conduct the flood-zone determination and

charged the Bagelmanns a small fee for the service. Id. After substantial

flooding damaged their home, it was discovered that the property

actually was in a flood zone. Id. at 22. We rejected the Bagelmanns’

bad-faith claim, noting,

      An implied duty of good faith and fair dealing is recognized
      in all contracts. But the covenant does not “give rise to new
      substantive terms that do not otherwise exist in contract.”
            As we have already discussed, the 2003 mortgage . . .
      authorized the mortgagee to charge for a flood hazard
      determination. But this section of the mortgage and the
      determination itself make clear that the determination was
      for the mortgagee’s protection, not the mortgagors’. There
      was no promise to notify (let alone update) the Bagelmanns
                                    27
      concerning their flood zone status, so any allegation of bad
      faith here lacks a contract term to which it can be attached.

Id. at 34 (emphasis added) (citations omitted) (quoting Mid-Am. Real
Estate Co. v. Iowa Realty Co., 406 F.3d 969, 974 (8th Cir. 2005)); cf.

Villarreal v. United Fire & Cas. Co., 873 N.W.2d 714, 728–29 (Iowa 2016)

(concluding first-party bad-faith claim based on denial of insurance

benefits arose out of the same conduct as the breach-of-contract claim).

Bad-faith claims typically arise from a breach of the insurance contract.

See Bellville, 702 N.W.2d at 474.      Nonetheless, “[d]ue to the unique

nature of the insured/insurer relationship, the duty of good faith and fair

dealing . . . emanates from the special relationship which exists between

the parties, not necessarily from the terms of the contract.”      Mary G.

Leary, 97 Am. Jur. Trials § 211, Westlaw (database updated May 2017).

      Courts in other jurisdictions are divided on whether bad faith can

be proven without a specific breach of a policy term. See 14 Steven Plitt

et. al., Couch on Insurance § 204:20 (3d ed.), Westlaw (database updated

Dec. 2016). Some courts hold a breach of contract is a prerequisite to

liability for bad faith. See Karas v. Liberty Ins., 33 F. Supp. 3d 110, 116

(D. Conn. 2014); Parks v. Safeco Ins. Co. of Ill., 376 P.3d 760, 766 (Idaho

2016); Dave’s Inc. v. Linford, 291 P.3d 427, 436 (Idaho 2012); In re United

Fire Lloyds, 327 S.W.3d 250, 254 (Tex. App. 2010); Brethorst v. Allstate

Prop. & Cas. Ins., 798 N.W.2d 467, 480 (Wis. 2011). As the California

Court of Appeals concluded, “[T]here can be no breach of the implied

covenant of good faith and fair dealing if no benefits are due under the

policy.”   Brehm v. 21st Century Ins., 83 Cal. Rptr. 3d 410, 417 (2008).

“Absent [a] contractual right [to policy benefits], the implied covenant has

nothing upon which to act as a supplement, and ‘should not be endowed

with an existence independent of its contractual underpinnings.’ ”       Id.
                                     28

(quoting Waller v. Truck Ins. Exch., Inc., 900 P.2d 619, 639 (Cal. 1995)).

In these states, if benefits are “fully and promptly paid” there can be no

bad faith “no matter how hostile or egregious the insurer’s conduct

toward the insured may have been prior to such payment.” Love v. Fire

Ins. Exch., 271 Cal. Rptr. 246, 255 n.10 (Ct. App. 1990) (emphasis

omitted). The covenant of good faith “only ‘requir[es] that neither party

[to a contract] do anything that will injure the right of the other to receive

the benefits of the agreement,’ ” so if conduct does not affect the parties’

contractual rights, there is no bad faith.     Capstone Bldg. Corp. v. Am.

Motorists Ins., 67 A.3d 961, 987 (Conn. 2013) (alterations in original)

(quoting Home Ins. v. Aetna Life & Cas. Co., 663 A.2d 1001, 1008 (Conn.

1995)).

      Other courts recognize a claim for bad faith does not require a

breach of contract. Goodson v. Am. Standard Ins. Co. of Wis., 89 P.3d

409, 414 (Colo. 2004) (en banc); Enoka v. AIG Haw. Ins., 128 P.3d 850,

862 (Haw. 2006); LeRette v. Am. Med. Sec., Inc., 705 N.W.2d 41, 48 (Neb.

2005).    These decisions focus on the special relationship between the

insurer and insured as giving rise to the good-faith obligation, rather

than the express terms of a contract.

      [T]he tort of bad faith is not a tortious breach of contract, but
      rather a separate and distinct wrong which results from the
      breach of a duty imposed as a consequence of the relationship
      established by contract. Therefore, the tort of bad faith
      allows an insured to recover even if the insurer performs the
      express covenant to pay claims.

Enoka, 128 P.3d at 862. This rationale has been used to extend the tort

of common law bad faith to workers’ compensation insurers.                See

Travelers Ins. v. Savio, 706 P.2d 1258, 1272–73 (Colo. 1985) (en banc)

(equating relationship between workers’ compensation carriers and
                                      29

claimants to that of insurer and insured); Hough v. Pac. Ins., 927 P.2d

858, 869 (Haw. 1996) (same).

       Under Iowa law, to be liable for common law bad faith, a workers’

compensation insurer must have “denied” the employee benefits under

the policy. See Gibson, 621 N.W.2d at 396. We conclude the requisite

“denial” may occur when an insurer unreasonably contests a claimant’s

PTD status or delays delivery of necessary medical equipment.              Cf.

Keystone Nursing Care Ctr. v. Craddock, 705 N.W.2d 299, 310 (Iowa

2005) (Cady, J., dissenting) (“[A] delay in the payments of benefits can

occur . . . when the employer utilizes unreasonable investigative or other

stonewalling tactics that needlessly prolong the ultimate payment of

benefits . . . .”).   This rationale comports with our long-held view that

first-party bad faith arises out of the breach of the affirmative good-faith

obligations      “that   [our   workers’   compensation]      statutes   and

administrative regulations place on the insurer.” Boylan, 489 N.W.2d at

743.

       3. Did the district court err in deciding American Interstate was in

bad faith as a matter of law for resisting PTD status and partial

commutation? To affirm the district court’s summary judgment, we must

conclude Thornton demonstrated that no genuine issue of material fact

existed on two essential elements of his bad-faith claim: American

Interstate had no reasonable basis for denying benefits under the policy

and knew or had reason to know the denial was without basis. McIlravy,

653 N.W.2d at 329.          The first element is objective; the second is

subjective. Rodda v. Vermeer Mfg., 734 N.W.2d 480, 483 (Iowa 2007). “A

reasonable basis for denying insurance benefits exists if the claim is

‘fairly debatable’ as to either a matter of fact or law.” Id. (quoting Gibson,

621 N.W.2d at 396).        A fairly debatable claim is one that is “open to
                                      30

dispute on any logical basis.” Id. (quoting Bellville, 702 N.W.2d at 473).

“Stated another way, if reasonable minds can differ on the coverage-

determining facts or law, then the claim is fairly debatable.”     Bellville,

702 N.W.2d at 473.

            The fact that the insurer’s position is ultimately found
      to lack merit is not sufficient by itself to establish the first
      element of a bad faith claim. The focus is on the existence of
      a debatable issue, not on which party was correct.

Id. (citations omitted).

      Whether an issue of fact is debatable can ordinarily be decided by

the court. Id. “That is because ‘[w]here an objectively reasonable basis

for denial of a claim actually exists, the insurer cannot be held liable for

bad faith as a matter of law.’ ”      Id. (quoting Gardner v. Hartford Ins.

Accident & Indem. Co., 659 N.W.2d 198, 206 (Iowa 2003)). “[C]ourts and

juries do not weigh the conflicting evidence that was before the insurer;

they decide whether evidence existed to justify denial of the claim.” Id. at

474 (quoting State Farm Lloyds, Inc. v. Polasek, 847 S.W.2d 279, 285

(Tex. App. 1992)).         In many cases, a directed verdict or summary

judgment for the insurer dismissing the bad-faith claim may be

appropriate because some evidence existed to justify its denial as a

matter of law. See, e.g., id.; Sampson v. Am. Standard Ins., 582 N.W.2d

146, 152 (Iowa 1998) (holding district court properly decided bad faith as

a matter of law when insured’s injuries were debatable); Thompson v.

U.S. Fid. & Guar. Co., 559 N.W.2d 288, 292 (Iowa 1997) (deciding as a

matter of law a claim is fairly debatable when evidence showed that

claimant ingested drugs the day before his work injury); Cent. Life Ins. v.

Aetna Cas. & Sur. Co., 466 N.W.2d 257, 263 (Iowa 1991) (holding motion

for directed verdict by insurer should have been granted because of

reasonable dispute as to value of claim).
                                   31

      Here, the district court granted summary judgment establishing

bad faith in favor of the insured, not the insurer. In so doing, the court

determined that as a matter of law no reasonable basis existed justifying

the denial and the insurer knew or recklessly disregarded that fact by

March 11, 2013.    “[D]eterminations of good faith which involve intent

and motive ‘ordinarily’ are not resolvable on a motion for summary

judgment.” Nelson v. Lindaman, 867 N.W.2d 1, 13 (Iowa 2015) (quoting

Rite Aid Corp. v. Hagley, 824 A.2d 107, 119 (Md. 2003)). Bad faith can

be established as a matter of law “only when the evidence is undisputed

and only one inference can be drawn from the evidence.” McIlravy, 653

N.W.2d at 333.

      First, we address whether there was a reasonable basis for

American Interstate’s denial that Thornton was PTD.             American

Interstate does not argue on appeal it had a reasonable basis for denying

Thornton’s PTD status. Indeed, it would be hard-pressed to do so, since,

as early as two weeks after Thornton’s accident, it had received opinions

from a medical professional and its claims adjustor that Thornton, a

quadriplegic, was PTD. See Bellville, 702 N.W.2d at 481 (“Certainly there

may be cases in which the . . . undisputed damage items [are] so high

that there would be no reasonable basis to refuse payment . . . .”).

American Interstate internally recognized as much when setting reserves,

and its outside counsel expressly recommended that American Interstate

concede PTD status.    We agree with the district court that contesting

Thornton’s PTD status under these facts constituted bad faith as a

matter of law. See Arp v. AON/Combined Ins., 300 F.3d 913, 917–18 (8th

Cir. 2002) (reinstating bad-faith claim against workers’ compensation

insurer because “[t]he medical evidence . . . conclusively demonstrates

that James has been permanently and totally disabled since the date of
                                          32

his accident” and “[b]y denying James’s status . . . AON forced the Arps

to hire attorneys to litigate this issue before the South Dakota

Department of Labor, when this was completely unnecessary.”).

        The district court, however, went too far in criticizing American

Interstate for offering to settle Thornton’s PTD claim with a closed-file

Medicare set-aside account and an annuity. The district court stressed

these    payments       “would   end   for     all   time   [American    Interstate’s]

responsibilities with respect to Plaintiff’s claim” and found that the

settlement offer would give Thornton “less than that to which [American

Interstate] knew he was entitled.”             We do not view such settlement

negotiations as bad-faith conduct.             To the contrary, such structured

settlements can be mutually beneficial to claimants and insurers.

        Iowa Code section 85.35 specifically contemplates closed-file

settlements.      Iowa Code § 85.35(3) (“The parties may enter into a

compromise settlement of the employee’s claim to benefits as a full and

final disposition of the claim.”). These settlements must be approved by

the workers’ compensation commissioner. Id. § 85.35(1). According to

the     Centers   for    Medicare   and      Medicaid       Services   (CMS),   “[t]he

recommended method to protect Medicare’s interests” in a workers’

compensation settlement is a Medicare set-aside account.                    Workers’

Compensation Medicare Set Aside Arrangements, Ctrs. for Medicare &

Medicaid       Servs.,      https://www.cms.gov/Medicare/Coordination-of-

Benefits-and-Recovery/Workers-Compensation-Medicare-Set-Aside-

Arrangements/WCMSA-Overview.html (last visited Apr. 19, 2017). 5 Set-


       5The CMS also offers to review and approve a Medicare set-aside proposal for

reasonableness. See Workers’ Compensation Medicare Set Aside Arrangements, Centers
for Medicare & Medicaid Servs., https://www.cms.gov/Medicare/Coordination-of-
Benefits-and-Recovery/Workers-Compensation-Medicare-Set-Aside-Arrangements/
                                          33

aside funds are secure and unaffected by any future financial difficulties

of the insurer. Additionally, an annuity offers a lower up-front cost to

the insured, which lowers costs overall and allows win-win settlements.

An annuity may offer some tax benefits to the claimant. See W. United

Life Assurance Co. v. Hayden, 64 F.3d 833, 839 (3d Cir. 1995) (“[A]

structured settlement effectively shelters from taxation the returns from

the investment of the lump-sum payment.”). Some injured workers may

prefer periodic payments rather than a lump sum that could be

squandered.

       All parties, including insurers, are entitled to engage in settlement

negotiations.     Thornton testified he understood at the first settlement

meeting in February 2012 that American Interstate’s proposals were “just

a first offer on the table” and that he was free to have his attorney review

them. At mediation shortly thereafter, American Interstate restructured

its proposals, increasing the amount of the annuity it offered. 6 American

Interstate’s bad faith was in contesting Thornton’s PTD status, not in

offering structured settlement proposals.

       Next, we turn to whether there was a reasonable basis for

American Interstate’s resistance to Thornton’s petition for commutation.
Commutation of benefits is governed by Iowa Code section 85.45, which

requires the commissioner (not the employer or insurer) to determine

whether commutation is in the best interest of the worker:
_______________________
WCMSA-Overview.html (last visited Apr. 19, 2017). It is recommended that the parties
submit such proposals to the CMS for review. Id.
        6The district court specifically noted Thornton was statutorily entitled to

indemnity of $760,000 in present-day value, and American Interstate’s initial offer only
provided a payment of $600,000 on a lump-sum/annuity basis. However, American
Interstate at the mediation in October 2012 increased its lump sum offer to $800,000,
while Thornton’s last demand as of the following February was for a lump sum of
$1,160,000. The commissioner determined Thornton was PTD on May 23, 2013.
                                          34
              1. Future payments of compensation may be
       commuted to a present worth lump sum payment on the
       following conditions:
            a. When the period during which compensation is
       payable can be definitely determined.
              b. When it shall be shown to the satisfaction of the
       workers’ compensation commissioner that such commutation
       will be for the best interest of the person or persons entitled
       to the compensation, or that periodical payments as
       compared with a lump sum payment will entail undue
       expense, hardship, or inconvenience upon the employer
       liable therefor.

Iowa Code § 85.45(1) (emphasis added). 7 In short, Iowa law allows for

commutation when it has been shown to the commissioner’s satisfaction

to be in the best interest of the worker.           This showing must be made

whether the insurer stipulates to commutation or not.              Reeves v. Nw.

Mfg. Co., 202 Iowa 136, 141, 209 N.W. 289, 291 (1926) (“In the absence

of the approval of the industrial commissioner, the terms of the

stipulation could not be enforced as a commutation of the future

payments of weekly compensation.”); 15 James R. Lawyer, Iowa Practice

Series™: Workers’ Compensation § 27:1, at 339–40 (2016–2017 ed.).

       [T]he decision [of the commissioner] whether to allow
       commutation must turn on the statutory guideline, best
       interest of the claimant, and the focus should be on the
       worker’s personal, family, and financial circumstances, and
       the reasonableness of the worker’s plans for using the lump
       sum proceeds.

Dameron v. Neumann Bros., Inc., 339 N.W.2d 160, 164 (Iowa 1983).

“While we encourage parties to negotiate fair settlements, we will not


       7This Code section was amended this year. H.F. 518, 87th G.A., 1st Sess. § 16
(Iowa 2017). The new provision states,
       Future payments of compensation may be commuted to a present worth
       lump sum payment only upon application of a party to the commissioner
       and upon written consent of all parties to the proposed commutation or
       partial commutation, and on the following conditions . . . .
Id. The amendment is inapplicable to the claims in this appeal.
                                    35

penalize those who prefer a final judicial determination of their rights.”

Kendall v. Lowther, 356 N.W.2d 181, 191 (Iowa 1984).

      We have never decided whether a workers’ compensation insurer

can be sued in bad faith because it fails to smooth the employee’s path to

commutation by stipulating to it.         American Interstate relies on an

unpublished federal trial court decision, Laughlin v. IBP, the only case

addressing whether an insurer can be sued for bad faith under Iowa law

for resisting a petition for commutation.         No. C99–2105, 2001 WL

34148156 (N.D. Iowa July 23, 2001).           Robert Laughlin filed several

applications for commutation that were resisted by his self-insured

employer, IBP. Id. at *1. The commissioner denied each of Laughlin’s

applications for commutation.     Id.     Laughlin filed a bad-faith lawsuit

against IBP based on its position resisting his applications. 8     Id.   IBP

moved for summary judgment.         Id.    The court granted IBP’s motion

dismissing the bad-faith claim, stating,

            Iowa Code § 85.45 clearly requires the industrial
      commissioner to make the determination of whether the
      commutation of benefits is appropriate. . . . Even if an
      insurer could be held liable for resisting the application for
      commutation under a bad faith standard, the statute’s
      requirement that the industrial commissioner make the
      decision, and not the insurer, provides IBP with a
      “reasonable basis” for resisting the application.

Id. at *3.   Thornton cites no contrary authority from any jurisdiction

imposing bad-faith liability on a workers’ compensation insurer or

employer for resisting commutation. But unlike the Laughlin court, we

elect to decide this case based on the factual record presented, without




     8Self-insured employers are treated as insurers under the Iowa Workers’

Compensation Act. Laughlin, 2001 WL 3414 8156, at *2.
                                      36

foreclosing the possibility that a bad-faith claim may arise for resisting

commutation under different facts.

      In Rodda, we evaluated when a claim can be considered reasonably

debatable on a point of law.     734 N.W.2d at 485.      David Rodda, an

injured employee, sued his employer for bad faith in denying him

workers’ compensation benefits. Id. at 482. The district court granted

summary judgment dismissing the bad-faith claim. Id. at 483–84. We

affirmed the summary judgment on grounds that it was “fairly debatable

whether Rodda could simultaneously receive both workers’ compensation

benefits and unemployment benefits” under Iowa law. Id. at 484. We

reasoned,

      Perhaps the most reliable method of establishing that the
      insurer’s legal position is reasonable is to show that some
      judge in the relevant jurisdiction has accepted it as correct.
      The favorable decision need not have been available to the
      insurer at the time it acted on the claim. After all, if an
      impartial judicial officer informed by adversarial presentation
      has agreed with the insurer’s position, it is hard to argue
      that the insurer could not have reasonably thought that
      position viable.

Id. at 485 (quoting William T. Barker & Paul E.B. Glad, Use of Summary

Judgment in Defense of Bad Faith Actions Involving First-Party Insurance,

30 Tort & Ins. L.J. 49, 83 (1994)). We noted that several unpublished

cases from the workers’ compensation commissioner had reached the

same conclusion as the position taken by the employer. Id. at 484–85.

In addition, there were no Iowa court decisions on point, and the wording

of the statute was unclear.     Id.    We held, “This, reinforced by the

opinions by the workers’ compensation commissioner’s office, makes the

question of whether a worker can receive both forms of benefits at least

fairly debatable.” Id. at 485; see also Wilson v. Farm Bureau Mut. Ins.,

714 N.W.2d 250, 263 (Iowa 2006) (“We agree with Farm Bureau that with
                                           37

no Iowa law on the issue, its duty to consent to be bound by the

amended judgment entry was fairly debatable.”). 9                Similarly, American

Interstate argues the Laughlin decision alone provided a reasonable basis

for American Interstate to oppose Thornton’s commutation.

       Commutation is unlike the payment of weekly benefits in which

the statute commands the employer (or insurer) to take action and, thus,

establishes the type of statutory duty for which a willful and deliberate

breach can give rise to bad-faith liability in the workers’ compensation


       9American   Interstate argues it would not have been on notice that its conduct
resisting commutation could constitute bad faith and expose it to extra-contractual
damage claims. In wrongful-termination cases, we repeatedly have refused to allow
punitive damages the first time we hold a particular statute or regulation codifies a
public policy protecting against retaliatory discharge. For example, in Jasper v. H.
Nizam, Inc., we held punitive damages were not recoverable when we had not previously
held the requisite public policy could be based on an administrative regulation. 764
N.W.2d 751, 773–74 (Iowa 2009). We explained,
       The rationale behind this rule is an employer cannot willfully and
       wantonly disregard rights of an employee derived from some specific
       public policy when the public policy has not first been declared by the
       legislature or our courts . . . .
Id. at 774. We therefore concluded,
               Although the tort of wrongful discharge in violation of public
       policy has been recognized in Iowa for over twenty years, this case is
       the first time we have specifically recognized a cause of action for
       wrongful discharge arising from the refusal of the employee to violate
       administrative rules.    Additionally, there has otherwise been no
       declaration that the subject matter of the administrative rules in
       dispute in this case were of the type that would support a tort of
       wrongful discharge. Consequently, we agree with the district court that
       punitive damages were not recoverable in this case.
Id.; see also Dorshkind v. Oak Park Place of Dubuque II, L.L.C., 835 N.W.2d 293, 308
(Iowa 2013) (“[A]n employer cannot willfully and wantonly disregard the rights of an
employee based upon a violation of an administrative rule when at the time of
discharge, we did not recognize administrative rules as a source of public policy.”); Lara
v. Thomas, 512 N.W.2d 777, 782 (Iowa 1994) (“We agree that punitive damages should
not be awarded when a new cause of action for retaliatory discharge is recognized.”);
Smith v. Smithway Motor Xpress, Inc., 464 N.W.2d 682, 687 (Iowa 1990) (“[M]any of the
courts confronted with the issue have held that punitive damages should not be
awarded in the case that first recognizes the tort of retaliatory discharge due to a
workers’ compensation claim.”).
                                     38

field.   See, e.g., Iowa Code § 85.33(1) (“[T]he employer shall pay to an

employee . . . .”); id. § 85.34 (“Compensation . . . shall be payable to an

employee as provided in this section.”). By contrast, future benefits “may

be commuted” by the commissioner only if preconditions are met.          Id.

§ 85.45(1). Section 85.45 imposes an affirmative burden on the employee

to demonstrate commutation is in his or her best interest.        Id.   This

determination involves a weighing by the commissioner of individual and

personal considerations that may be clarified when the employee testifies

at the commutation hearing.         See Dameron, 339 N.W.2d at 163

(“[A]nalysis [of commutation] involves a benefit-detriment balancing of

factors, with the worker’s preference and the benefits to the worker of

receiving a lump sum payment weighed against the potential detriments

that would result if the worker invested unwisely, spent foolishly, or

otherwise wasted the fund so it no longer provided the wage-substitute

intended by our worker’s compensation law”).

         Against that legal backdrop, we conclude that American Interstate

was not in bad faith for resisting commutation because Thornton’s

petition for commutation was fairly debatable on its facts.             The

reasonable basis element of a bad-faith claim “is an objective one.”

Bellville, 702 N.W.2d at 473. “A claim is ‘fairly debatable’ when it is open

to dispute on any logical basis.”    Id.   Thornton had never managed a

large lump sum of money. Alexander testified commutation would be in

Thornton’s best interest only if Thornton could avoid invading the lump-

sum principal.      But that begs the question whether Thornton would

invade the principal. Omissions in Thornton’s proposed budget, his past

spending habits, and his lack of experience with investments gave

American Interstate a reasonable basis to question the commutation.
                                    39

       The commissioner’s role in approving commutation is not a rubber

stamp. Commutations have been denied based on concerns like those

that   American   Interstate   raised    here.   See,   e.g.,   Stoddard   v.

ADM/Growmark, Iowa Workers’ Comp. Comm’n No. 1140792, 2016 WL

845695, at *1 (Feb. 26, 2016) (denying a request for commutation in part

because “neither the claimant nor his wife have even read the proposed

financial plans for investing, combined with the claimant’s poor financial

choices”); Deleon v. John Morrell & Co., Iowa Workers’ Comp. Comm’n

No. 5007832, 2013 WL 5508544, at *4 (Oct. 2, 2013) (finding that

claimant’s “lack of experience with any sophisticated financial dealings”

was a “significant detriment[]” in denying a partial commutation); Boner

v. Bethany Lutheran Home, Iowa Workers’ Comp. Comm’n No. 5022480,

2012 WL 3158931, at *4 (Aug. 2, 2012) (“A commutation should not be

granted if the evidence shows that claimant is a poor money manager or

is incapable of making wise investments.”).

       We hold the district court erred by denying American Interstate’s

motion for directed verdict on the commutation claim and erred by

instructing the jury that American Interstate acted in bad faith opposing

Thornton’s commutation. That error requires a new trial on liability and

damages.    Much of Thornton’s $284,000 compensatory damage award

was directly attributable to the delay in the commutation award,

including $14,000 in loss-of-use of money damages, $27,000 in loss of

home equity, and part of the $118,000 in consequential damages for

attorney fees incurred in the commutation proceedings.

       In Bryant v. Parr, we held that an inconsistent verdict on two

damage claims—awarding $16,937 for past medical specials but only one

dollar for past pain and suffering—required a new trial on “all elements

of damage.”    872 N.W.2d 366, 376–78, 381–82 (Iowa 2015).           Neither
                                     40

party sought a new trial on liability.      Id. at 380.    We rejected the

defendant’s argument that the verdict awarding no future damages

should stand. Id. at 382. We noted the “general rule is that when a new

trial is granted, all issues must be retried.” Id. at 380 (quoting McElroy v.

State, 703 N.W.2d 385, 389 (Iowa 2005)). We also noted “the award for

one element of damages may affect another,” and “our general reluctance

to engage in speculation to uphold findings in an inconsistent verdict.”

Id. at 382.

      We cannot let the jury verdict stand on liability for the surviving

bad-faith claims.   In Central Life Insurance, we held a jury verdict on

first-party bad faith could not stand because the court erroneously

instructed the jury the insurer acted in bad faith by challenging an

appraisal award.     466 N.W.2d at 263.        We concluded “the court’s

instructions tainted any consideration of [the insurer’s] claim that it may

have acted in good faith.” Id. Here, the trial was fatally tainted by the

erroneous instruction that “there has been a previous determination by

the Court that the defendant did not have a reasonable basis for

[contesting] a partial commutation.” The other bad-faith claims do not

cure the taint from the bad instruction.

      We reverse the judgment on the jury verdict and remand the case

for an order dismissing the claim American Interstate acted in bad faith

by opposing commutation and for a new trial on the remaining bad-faith

claims.

      B. Allowable Damages. “Because this case must be retried, we

will consider [American Interstate’s] other challenges to the jury

instructions.”   State v. Hoyman, 863 N.W.2d 1, 16 (Iowa 2015).

American Interstate argues the court lacked subject-matter jurisdiction

to award damages for delaying the purchase of Thornton’s new
                                            41

wheelchair because the commissioner has exclusive jurisdiction for a

claim alleging the failure to provide satisfactory care.                    It separately

argues there was insufficient evidence to support instructing the jury on

damages for physical and emotional pain and suffering. 10                             Both

American Interstate and Thornton have fully briefed these issues, and

they are likely to arise on remand. See State v. Dudley, 766 N.W.2d 606,


       10Thornton contests error preservation on these arguments. American Interstate

objected to instruction No. 29, outlining damages, during the jury instruction
conference. Thornton contends this objection was insufficient to preserve error because
an instruction was later eliminated at the conference, resulting in renumbering that
instruction to No. 28. Thornton argues a bill of exceptions was necessary to clarify to
which instruction American Interstate referred. We disagree.
        Under Iowa Rule of Civil Procedure 1.924, “all objections to giving or failing to
give any instruction must be made in writing or dictated into the record, . . . specifying
the matter objected to and on what grounds.” If the district court revises instructions
after objections are made, “similar specific objection to the revision or addition may be
made in the motion for new trial, and if not so made shall be deemed waived.” Id.
Objections must be “sufficiently specific to alert the trial court to the basis of the
complaint.” Olson v. Sumpter, 728 N.W.2d 844, 849 (Iowa 2007) (quoting Boham v. City
of Sioux City, 567 N.W.2d 431, 438 (Iowa 1997)).
        A bill of exceptions is necessary “only to show material portions of the record of
the cause not shown by the court files, entries, or legally certified shorthand notes of
the trial, if any.” Iowa R. Civ. P. 1.1001(1). Its purpose is to “provide a factual record of
the proceedings in the event this cannot be shown in the court file or reporters’ notes.”
8 Tom Riley & Peter C. Riley, Iowa Practice Series™, Civil Litigation Handbook § 76:30,
at 866 (2016 ed.); see also Thomas A. Mayes & Anuradha Vaitheswaran, Error
Preservation in Civil Appeals in Iowa: Perspectives on Present Practice, 55 Drake L. Rev.
39, 48–49 (2006) (stating counsel may submit a bill of exceptions to preserve the record
when “the grounds for appeal concern matters presented in the unreported hearing”).
When the record before the district court is sufficient to alert the appellate court of the
grounds for appeal, no bill of exceptions is necessary to preserve error.
        The jury instruction conference was reported. American Interstate objected to
instruction No. 29, the damages instruction. Specifically, American Interstate objected
as to part A of the instruction, mental pain and suffering, stating, “There’s no evidence
of past mental pain and suffering, nor is there any medical record or testimony to
establish that.” American Interstate echoed these objections as to parts B and H,
physical pain and suffering and home equity damages, respectively. Although the
number on the instruction later changed from 29 to 28, no other instruction spoke to
the types of damages recoverable.        These objections were renewed in American
Interstate’s posttrial motion. We conclude American Interstate preserved error. No bill
of exceptions was required. It is patently obvious that the trial lawyers and court all
knew which instruction was at issue.
                                           42

615 (Iowa 2009) (remanding case for new trial but addressing issues

likely to arise on remand).            If we determine there was insufficient

evidence as a matter of law to instruct on certain damages, the district

court must decline to give such instructions on remand. See Coker v.

Abell-Howe Co., 491 N.W.2d 143, 150 (Iowa 1992) (reversing on other

grounds but addressing whether there was sufficient evidence to submit

jury instruction “on remand”).

       1. Subject-matter jurisdiction.          American Interstate argues the

district court lacked subject-matter jurisdiction to award damages

arising out of the delay in ordering the new wheelchair. 11                    We have

previously dismissed claims by employees alleging deficient care on the

ground that the workers’ compensation commissioner has exclusive

jurisdiction over challenges to the reasonableness of medical care

provided by the employer.           See Kloster, 612 N.W.2d at 775 (holding

employee dissatisfied with chiropractic care provided by employer was

required to exhaust administrative remedies with commissioner); Harned

v. Farmland Foods, Inc., 331 N.W.2d 98, 101 (Iowa 1983) (affirming

dismissal of tort action arising from employer’s failure to provide

chiropractic care to employee based on exclusive jurisdiction of
commissioner). However, these cases did not involve first-party bad-faith

claims against the workers’ compensation insurer.

       In Kiner v. Reliance Insurance, we expressly held the district court

had subject-matter jurisdiction over a claimant’s bad-faith claim against

a workers’ compensation insurer arising from an unreasonable denial of


        11Although American Interstate failed to argue lack of subject-matter jurisdiction

at the district court, a challenge to subject-matter jurisdiction “may be made at any
time.” See Kloster, 612 N.W.2d at 773–74; Bailey v. Batchelder, 576 N.W.2d 334, 337–
38 (Iowa 1998) (holding the exclusivity of the Workers’ Compensation Act goes to the
court’s subject-matter jurisdiction and can be raised at any time).
                                   43

medical benefits. 463 N.W.2d 9, 11–12 (Iowa 1990). Ronald Kiner fell

while on the job and obtained a prescription for pain medications. Id. at

11.   When his workers’ compensation insurer refused to pay for the

medications, he filed a bad-faith claim.     Id.   Rejecting the insurer’s

argument that Iowa Code chapter 85 provided the exclusive remedy, we

stated,

             It is axiomatic that an employee’s rights and remedies
      arising from an injury suffered in the course of employment
      are exclusively provided under Iowa Code chapter 85. A
      district court would ordinarily have no subject matter
      jurisdiction over a claim that an employee is entitled to
      workers’ compensation benefits.         But this exclusivity
      principle is limited to matters surrounding a job-related
      injury and does not extend to subsequent dealings during
      which a tort may arise by reason of bad faith on the part of
      an employer’s insurer.

Id. (citation omitted) (quoting Tallman v. Hanssen, 427 N.W.2d 868, 870

(Iowa 1988)).

      In Boylan, we again clarified that bad-faith claims supplement the

workers’ compensation statute. 489 N.W.2d at 744. We noted,

      [I]t is unlikely that the legislature intended the penalty
      provision in section 86.13 to be the sole remedy for all types
      of wrongful conduct by carriers with respect to
      administration of workers’ compensation benefits. By its
      terms, it applies only to delay in commencement or
      termination of benefits. It contemplates negligent conduct
      rather than the willful or reckless acts that are required to
      establish a cause of action under Dolan. In addition, no
      remedy is provided under section 86.13 for delay or failure to
      pay medical benefits.

Id. We specifically held that the workers’ compensation statute did not

preclude a common law bad-faith action.      Id.; see also Southerland v.

Argonaut Ins., 794 P.2d 1102, 1106 (Colo. App. 1990) (stating “ongoing

difficulties in securing rehabilitation were merely a continuation of the

same difficulties that preceded the filing of the complaint and were
                                    44

relevant as evidence of defendant’s habitual pattern in dealing with

plaintiff”).   Accordingly, common law bad-faith tort claims do not fall

within the commissioner’s exclusive jurisdiction.     We hold the district

court has subject-matter jurisdiction over Thornton’s bad-faith claim

alleging American Interstate unreasonably delayed the delivery of his new

wheelchair.

       We now turn to whether there was insufficient evidence to submit

certain elements of damages resulting from American Interstate’s bad-

faith conduct.

       2. Sufficiency of the evidence. “Proposed instructions must enjoy

support in the pleadings and substantial evidence in the record.”

Vasconez v. Mills, 651 N.W.2d 48, 52 (Iowa 2002).             “Evidence is

substantial if a reasonable person would accept it as adequate to reach a

conclusion.” Id. If at the close of the evidence “the record is insufficient

to support a party’s theory of recovery or defense, the court need not

submit the theory to the jury and may direct a verdict on the issue as a

matter of law.” Id.

       We conclude there was sufficient evidence to submit the claims for

physical and emotional pain and suffering. We view the evidence in the

light most favorable to Thornton. A reasonable jury could find American

Interstate’s delay in ordering a replacement wheelchair was a cause of

Thornton’s pain.        Rodgers knew     Thornton needed a wheelchair

replacement every five years. Rodgers received Dr. Rogge’s notes stating

he wrote a prescription for a new wheelchair, yet she failed to order one

or inquire about the status of the order.           Medical records from

Thornton’s hospitalization for bursitis indicate he felt like his “arm was

on fire.” Dr. Rogge testified he “suspect[ed]” the bursitis was “most likely

due to chronic irritation.” He further explained,
                                    45
      The arms of his old chair are very firm and hard. We’ve even
      talked about the other day when he was in, I told him he
      needs to get some type of towel or extra padding on it
      because it’s just—it’s in such grave condition that it
      probably did not do him any favors with this infection, and
      he was hospitalized because of it.

Dr. Rogge noted he “hope[d]” a new chair would alleviate the problem

because the new chair was “going to be padded better.” This evidence

was minimally sufficient for a jury to find Thornton suffered painful

injuries attributable to American Interstate’s delay in ordering his new

wheelchair.

      We decline to address the sufficiency of the evidence to support

instructions on the loss of use of money and home equity.          American

Interstate’s bad faith in contesting Thornton’s PTD status delayed his

application for commutation and ultimate lump-sum award he needed to

purchase a home, but the insurer was not in bad faith for opposing

commutation. The district court will have to determine on a new trial

record whether the evidence is sufficient to submit those elements of

damage.

      C. Attorney Fees.     Finally, we address Thornton’s cross-appeal

requesting attorney fees incurred litigating the bad-faith action.     The

district court denied Thornton’s request to submit the issue of attorney

fees incurred in the bad-faith litigation to the jury as damages.      The

court also denied Thornton’s posttrial motion for attorney fees.

      Thornton cites no cases allowing recovery of the attorney fees

incurred prosecuting the bad-faith action against a first-party insurer,

and we found none. Iowa follows the American rule: “the losing litigant

does not normally pay the victor’s attorney’s fees.”         Rowedder v.

Anderson, 814 N.W.2d 585, 589 (Iowa 2012)). “Generally, attorney fees

are recoverable only by statute or under a contract.” Miller v. Rohling,
                                     46

720 N.W.2d 562, 573 (Iowa 2006).          There is a “rare” common law

exception to this rule, permitting recovery of attorney fees when the

defendant “has acted in bad faith, vexatiously, wantonly, or for

oppressive reasons.” Id. (quoting Hockenberg Equip. Co. v. Hockenberg’s

Equip. & Supply Co. of Des Moines, 510 N.W.2d 153, 158 (Iowa 1993)).

        Thornton does not assert any statute or contract allows attorney

fees in this matter. Rather, Thornton relies on New Hampshire Insurance

Co. v. Christy, 200 N.W.2d 834, 845 (Iowa 1972).            In Christy, we

recognized

        an insurer who refuses, contrary to its contractual
        obligation, to defend a third-party action against its insured
        on the ground the policy involved affords no coverage is
        liable for reasonable attorney fees incurred by the insured in
        defense of the action brought against him.

Id. In such circumstances, insureds are “thrust into litigation” by reason

of the insurance company’s refusal, in breach of contract, to defend the

suit.   Id. at 841.   Additionally, we noted the insured may recover “an

award for expenses incurred in an action to establish insurance

coverage” when the insurance company acted in bad faith denying a

claim. Id. at 845.

        Christy allows Thornton to recover his attorneys fees incurred in

the workers compensation proceedings as consequential damages caused

by American Interstate’s bad faith. These fees are akin to attorney fees

incurred to “establish insurance coverage.” Id.; see also Goodyear Tire &

Rubber Co. v. Haeger, 581 U.S. ___, ___, 137 S. Ct. 1178, 1184 (2017)

(allowing recovery of the “fees the innocent party incurred solely because

of the misconduct—. . . [that is], the fees that party would not have
                                          47

incurred but for the bad faith”). 12 But Christy does not support awarding

additional fees incurred in prosecuting the bad-faith action.                      The

American rule controls. Indeed, after Christy, we made clear in Brown

Township Mutual Insurance Association v. Kress that “under the

American rule which is followed in this jurisdiction attorney fees are

ordinarily not recoverable by the prevailing party in absence of statute.”

330 N.W.2d 291, 300 (Iowa 1983). 13             As the Colorado Supreme Court

held,

        Unless we are prepared to abandon the American rule for the
        English rule of automatically awarding attorney fees to the
        prevailing party, it would be difficult to carve out an
        exception that allows an award of attorney fees that are
        incidental to the bringing of a bad faith breach of contract
        action. Attorney fees are incurred by most parties to most
        lawsuits. If the goal were always to make the prevailing
        party genuinely whole, these fees would be an element of
        damage. But such is not the law.

Bernhard v. Farmers Ins. Exch., 915 P.2d 1285, 1291 (Colo. 1996)

(en banc) (“[W]e hold that Bernhard’s claim for attorney fees incurred in

bringing a bad faith breach of insurance contract action does not fit into

any exception to the American rule recognized in Colorado.”). We reach

the same conclusion.

        Thornton argues this case falls into the rare common law

exception. We disagree.


        12Thornton can submit the fees he incurred to establish his PTD status but not
the additional fees he incurred to obtain the commutation award. If the jury finds
American Interstate acted in bad faith in delaying the new wheelchair, Thornton may
also submit his fees incurred filing his petition for alternate medical care through the
hearing on November 4, 2014, when the wheelchair was ordered.
        13TheKress court gave an additional reason for denying attorney fees: we had
not yet recognized the tort of first-party insurance bad faith. 330 N.W.2d at 300. We
recognized that cause of action five years later. See Dolan, 431 N.W.2d at 794. But the
Kress court’s alternative holding on the American rule remains good law. 330 N.W.2d
at 300.
                                    48
      [A] plaintiff seeking common law attorney fees must prove
      that the culpability of the defendant’s conduct exceeds the
      “willful and wanton disregard for the right of another”; such
      conduct must rise to the level of oppression or connivance to
      harass or injure another.

Hockenberg Equip. Co., 510 N.W.2d at 159–60.            We have defined

oppressive conduct as conduct that is “difficult to bear, harsh,

tyrannical, or cruel.”    Id. at 159.     Likewise, connivance requires

“voluntary blindness [or] an intentional failure to discover or prevent the

wrong.” Id. (quoting Connivance, Black’s Law Dictionary (6th ed. 1990)).

“These terms envision conduct that is intentional and likely to be

aggravated by cruel and tyrannical motives.        Such conduct lies far

beyond a showing of mere ‘lack of care’ or ‘disregard for the rights of

another.’ ” Id. This threshold is difficult to meet. See Van Sickel, 659

N.W.2d at 581 (awarding common law attorney fees when public official

fabricated documents to benefit herself to the detriment of others, but

limiting recovery to fees incurred after the forgery); Wolf v. Wolf, 690

N.W.2d 887, 896 (Iowa 2005) (“Although the defendant’s conduct in this

case was clearly willful and demonstrated a wanton disregard for

[plaintiff’s] rights, we do not believe the evidence meets the heightened

standard of oppression or connivance under the Hockenberg test.”).

      On our de novo review, we find American Interstate’s conduct does

not satisfy the Hockenberg test. American Interstate continually paid the

stipulated weekly benefits for PTD.       Thornton points to American

Interstate’s failure to provide certain documents and delays during the

agency proceedings, but we find none that rose to the level of oppression

or connivance required to award common law attorney fees. More than

mere bad faith is required for this common law exception to the

American rule. Wolf, 690 N.W.2d at 896. We affirm the district court’s

rulings denying Thornton fees incurred prosecuting his bad-faith action.
                                   49

      IV. Disposition.

      For those reasons, we affirm the partial summary judgment that

American Interstate contested Thornton’s PTD status in bad faith. We

reverse the district court’s partial summary judgment that the insurer

acted in bad faith for disputing Thornton’s petition for commutation. We

reverse the judgments for actual and punitive damages and remand the

case for a new trial on the remaining claims for bad faith. We affirm on

cross-appeal the ruling denying an award of attorney fees incurred

prosecuting this bad-faith action. Costs of this appeal shall be assessed

equally to each party.

      DISTRICT COURT JUDGMENTS AFFIRMED IN PART AND

REVERSED IN PART; CASE REMANDED FOR NEW TRIAL.
