The court denied the insurer's motion for partial summary judgment seeking to dismiss claims for bad faith and for punitive damages. Van Der Weide v. Cincinnati Ins. Co., 2017 U.S. Dist. LEXIS 101735 (N.D. Iowa June 30, 2017).

    The homeowner sued the insured general contractor after water was found leaking into the home, causing significant water damage. Cincinnati rejected the general contractor's tender and denied any duty to defend, contending that the alleged defects were discovered after Cincinnati's policy period had ended. Cincinnati was advised that two experts for the insured would testify that the property damage occurred due to construction defects and that the damage began shortly after completion of the home. Cincinnati still refused to defend.

    The homeowner and the general contractor settled, and the policy rights were assigned to the homeowner, who sued Cincinnati. In a prior decision, this court had granted partial summary judgment to the homeowner, determining that Cincinnati must defend claims of faulty workmanship by a subcontractor causing consequential damages beyond the defective work product itself. The prior decision was discussed in a post here. The decision relied upon the Iowa Supreme Court's ruling in National Surety Corp. v. Westlake Investments, LLC, 880 N.W. 2d 724 (Iowa 2016) [see prior post here]. 

    Now, the insurer filed a motion for partial summary judgment seeking dismissal of the bad faith and punitive damage claims. Bad faith under Iowa law required a showing that; (1) the defendant had no reasonable basis for denying the plaintiff's claim; and (2) the defendant knew or had reason to know that its denial or refusal was without reasonable basis.

    Here, Cincinnati was informed that the homeowner's experts would testify that the damage began shortly after completion of the house and during the policy period. Even after receiving this information, Cincinnati failed to investigate and dismissed the experts' input by stating: "I don't understand why you think your 'paid expert's' opinion changes anything." Cincinnati's failure to investigate the new information permitted an inference that it denied the claim in bad faith. The court could not find, as a matter of law, that the claim was fairly debatable as to the facts. 

    Moreover, the court could not find in Cincinnati's favor as a matter of law on the knowledge element. Upon being advised that experts would testify that the damage began shortly after completion, during the policy perod, Cincinnati took no steps to investigate the new information. Based on the record, reasonable jurors could find that Cincinnati knew, or should have known, that the basis for denying the insured's claim was unreasonable. 

    Finally, the court denied Cincinnati's motion in regards to punitive damages. The jury could find that the conduct of Cincinnati constituted willful and wanton disregard for the rights of the insured.