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Sharon Moad, Individually and As Personal Representative of the Estate v. Dakota Truck Underwriters

May 17, 2013


On review from the Iowa Court of Appeals. Appeal from the Iowa District Court for Johnson County, Nancy A. Baumgartner, Judge.

The opinion of the court was delivered by: Appel, Justice.

A workers' compensation carrier appeals orders extinguishing its subrogation lien and denying its motion to vacate an order approving settlement. DECISION OF COURT OF APPEALS VACATED, JUDGMENT OF DISTRICT COURT REVERSED, AND CASE REMANDED WITH INSTRUCTIONS.

The question in this case is whether the law of Iowa or South Dakota should apply to determine whether a South Dakota workers' compensation carrier is entitled to subrogation for payments made to its insured by underinsured and uninsured insurance carriers arising out of a settlement resulting from third-party litigation in Iowa. Because we determine that the district court utilized the wrong standard in resolving the conflict of laws question, we reverse the judgment of the district court and remand for further proceedings.

I. Background Facts and Prior Proceedings.

Douglas Moad worked as a truck driver for Gary Jensen Trucking Company. On December 1, 2008, Douglas was driving his truck within the course of his employment on Interstate 80 near Iowa City when Matthew Libby drove his vehicle across the median. Libby's vehicle struck Douglas's truck head-on. Tragically, Libby died at the scene and Douglas died roughly three months later due to complications resulting from his injuries.

At the time, Jensen Trucking maintained workers' compensation insurance coverage with Dakota Truck Underwriters, Risk Administrative Services, Inc. (DTU), a South Dakota corporation with its principal place of business in South Dakota. DTU issued that policy in South Dakota. Jensen Trucking also maintained underinsured and uninsured motorist liability coverage with Northland Insurance Company (Northland), a Minnesota corporation with its principal place of business in Minnesota. Douglas and his wife, Sharon Moad, a South Dakota resident, maintained automobile insurance with Property and Casualty Insurance Company of Hartford (Hartford), a Connecticut corporation with its principal place of business in Connecticut.

Following the accident, DTU filed an "employer's first report of injury" notice with the South Dakota department of labor and regulation. DTU also filed a "calculation of compensation" form with the department. The calculation of compensation form indicated DTU would pay Douglas $534.97 per week from December 2, 2008, until terminated in accordance with the workers' compensation laws of South Dakota.

On February 8, 2011, Sharon filed a petition, individually, as the personal representative of Douglas's estate, and as the personal representative of their two children, also South Dakota residents, in Iowa district court.*fn1 Moad sought damages from Libby's estate, Northland, and Hartford. Moad's claims against Northland and Hartford were for uninsured motorist benefits. Moad notified DTU of the petition on February 25. On May 4, DTU filed notice of a subrogation lien, asserting, under South Dakota law, that it was entitled to reimbursement from any proceeds obtained by Moad as a result of the damages action.

During the pendency of the damages action, Moad filed a claim with the Iowa workers' compensation commissioner on August 10, 2011, seeking benefits resulting from her husband's accident and death.

Moad then reached a settlement agreement with Northland and Hartford in the damages action. Northland agreed to pay $300,000, and Hartford agreed to pay $2000. Northland agreed to provide an additional $100,000 to cover DTU's asserted workers' compensation subrogation lien in the event the district court determined it was valid and enforceable. In exchange, Moad agreed to file a motion to strike or extinguish DTU's subrogation lien.

On September 12, Moad sought the district court's approval to accept the settlement. The next day, Moad filed a motion to strike or extinguish DTU's lien, asserting that DTU failed to timely file notice of its subrogation lien within thirty days of receiving notice of the suit, see Iowa Code § 85.22(1) (2011), and that DTU had no right of subrogation under Iowa law. The district court approved the settlement on September 14.

On September 20, DTU filed a motion to vacate the order approving the settlement on the grounds the district court had approved the settlement before DTU could file a resistance. DTU then sought the district court's approval to intervene. The district court granted DTU's motion to intervene and set a hearing on the motion to vacate.

DTU conceded it did not have a right to reimbursement under Iowa law. It urged the district court to apply section 145 of the Restatement (Second) of Conflict of Laws, the most-significant-relationship test. In the alternative, it urged the court to apply section 185 of the Restatement (Second), which calls for application of the workers' compensation law of the state in which the employee received an award, but noted Iowa courts had yet to adopt it. The application of either test, DTU argued, would lead to the conclusion South Dakota law governed the dispute. DTU attached the calculation of compensation form to its motion as well as a balance sheet indicating it had paid $159,589.46 in benefits, which included medical payments and lost wages, between December 2, 2008, and October 3, 2009. In response, Moad argued application of either section 145 or section 185 led to the conclusion Iowa law applied.

After ordering additional briefing on the conflict of laws issue, the district court granted Moad's motion to extinguish DTU's lien and denied DTU's motion to vacate the order approving the settlement. The district court first concluded DTU failed to preserve any lien interest it had because DTU filed notice of its lien more than thirty days after it received notice of the suit. The district court then concluded that, in the event DTU's untimely filing did not bar its interest, section 145 of the Restatement (Second) led to the conclusion that Iowa law applied and barred DTU's recovery. The district court reasoned that the injury occurred in Iowa, that Iowa was the state where the conduct causing the injury occurred, and that Iowa was the state where the workers' compensation claim was filed. It cited our decision in Veasley v. CRST International, Inc., 553 N.W.2d 896, 897 (Iowa 1996), in support of its decision to apply the most-significant-relationship test.

DTU appealed, again arguing sections 145 and 185 of the Restatement (Second), the latter of which it urged us to adopt, led to the conclusion South Dakota law applied. In response, Moad asserted Iowa law applied because she filed the workers' compensation claim in Iowa and because application of section 145 led to the conclusion that Iowa law applied. DTU replied, arguing South Dakota had the most significant interest in deciding the dispute, which it characterized as contractual. We transferred the case to the court of appeals.

The court of appeals concluded Moad's claims for uninsured motorist benefits arose in contract, not tort, and therefore section 145 was inapplicable because the issue was one sounding in contract, not tort. Consequently, the court of appeals remanded the case for an application of the factors listed in section 188 of the Restatement (Second), which applies to contract actions. It also noted this court has yet to adopt section 185. Moad filed an application for further review, which we granted.

Moad's Iowa workers' compensation claim is still pending.

II. Scope of Review.

This appeal is premised upon whether the district court applied the correct legal standard in determining which state's law to apply. Therefore, our review is for correction of errors at law. See Comes v. Microsoft Corp., 709 N.W.2d 114, 117 (Iowa 2006); Walters v. Herrick, 351 N.W.2d 794, 796 (Iowa 1984). The district court's findings of fact are binding on us to the extent they are supported by substantial evidence. Iowa R. App. P. 6.904(3)(a).

III. Analysis.

A. Introduction. DTU asserts it is entitled to a subrogation lien on proceeds paid by underinsured and uninsured insurance carriers to a claimant as a result of DTU's previous payment of workers' compensation benefits. The parties agree DTU is not entitled to subrogation from the settlement proceeds if Iowa law applies. See Michael Eberhart Constr. v. Curtin, 674 N.W.2d 123, 129 (Iowa 2004); March v. Pekin Ins. Co., 465 N.W.2d 852, 854 (Iowa 1991). They also agree, however, that DTU has a valid and enforceable subrogation lien if South Dakota law applies. See Kaiser v. N. River Ins. Co., 605 N.W.2d 193, 198 (S.D. 2000).

If South Dakota law applies, DTU argues it would have a substantial interest in challenging the settlement agreement of the parties to the Iowa litigation. DTU asserts the allocation of the settlement proceeds between injuries to DTU's insured and the consortium claim of the insured spouse were unreasonable. If DTU is entitled to ...

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