In Paulino v. Chartis, Paulino was injured at work, resulting in Paulino becoming a paraplegic. As a result, Paulino needed certain living accommodations when he was discharged from rehabilitative services. Since no specialized living accommodations were available, Paulino remained in the rehabilitative hospital, and Chartis quit paying. The workers compensation court initially denied Paulino’s claim for more time in the hospital, and then reversed its decision. Later, Paulino sued Chartis for bad faith. The trial court granted summary judgment to Chartis and the 8th Circuit affirmed.
Under Iowa law, a prima facie claim of bad-faith denial of insurance benefits requires proof of two elements: (1) that the insurance company “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 a reasonable basis.” Bellville v. Farm Bureau Mut. Ins. Co., 702 N.W.2d 468, 473 (Iowa 2005). A court may find as a matter of law that the defendant had a reasonable basis if the claim is “fairly debatable.” A claim is fairly debatable if “it is open to dispute on any logical basis”—that is, “if reasonable minds can differ on the coverage-determining facts or law.”
The Eighth Circuit, like the trial court, found the actions of Chartis “fairly debatable” thus affirming summary judgment.