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De Dios v. Indemnity Insurance Company of North America

Supreme Court of Iowa

May 10, 2019

SAMUEL DE DIOS, Appellant,
v.
INDEMNITY INSURANCE COMPANY OF NORTH AMERICA and BROADSPIRE SERVICES, INC., Appellee.

          Certified questions of law from the United States District Court for the Northern District of Iowa, Mark W. Bennett, Judge.

         A federal district court certified a question of Iowa law in a bad-faith action brought by an injured worker against a workers' compensation carrier and a third-party claims administrator.

          Anthony J. Bribriesco of Bribriesco Law Firm, PLLC, Bettendorf, for appellant.

          Jeana Goosmann and Anthony Osborn of Goosmann Law Firm, PLC, Sioux City, for appellees.

          Keith P. Duffy of Nyemaster Goode, P.C., Des Moines, for amici curiae Iowa Defense Counsel Association and the American Insurance Association.

          MANSFIELD, JUSTICE.

         A worker was injured on the job when his vehicle was rear-ended. He filed a claim for benefits with the workers compensation commissioner. Later, he filed a bad-faith action in the district court against his employer's workers' compensation carrier and its third-party administrator. The action was removed to federal court.

         The federal district court has asked us to answer the following certified question of Iowa law: "In what circumstances, if any, can an injured employee hold a third-party claims administrator liable for the tort of bad faith for failure to pay workers' compensation benefits?"

         In Iowa, the bad-faith cause of action arises from (1) the special contractual relationship between insurer and insured, (2) the specific statutory and administrative duties imposed on insurers, or (3) some combination of the two. In workers' compensation, we have emphasized the statutory and administrative duties of workers' compensation carriers. As we discuss herein, a third-party administrator does not possess these attributes that have led to the imposition of bad-faith liability. Accordingly, we answer the question as follows: under Iowa law, a common law cause of action for bad-faith failure to pay workers' compensation benefits is not available against a third-party claims administrator of a worker's compensation insurance carrier.

         I. Background Facts and Proceedings.

         "When we answer a certified question, we rely upon the facts provided with the certified question," and therefore "restate the facts as set forth by the federal district court." Baldwin v. City of Estherville, 915 N.W.2d 259, 261 (Iowa 2018). The United States District Court for the Northern District of Iowa described the facts as follows:

          A. Factual Background

         1. The parties

[Samuel] De Dios alleges that, at all material times, he has been a resident of Woodbury County, Iowa, and that he was employed by Brand Energy & Infrastructure Services. He alleges that Brand had a workers' compensation insurance policy with defendant Indemnity Insurance Company of North America, but that Indemnity "delegated its authority of investigating, handling, managing, administering, and paying benefits under Iowa Workers' Compensation Laws to [defendant] Broadspire Services, Incorporated." Amended Complaint, ¶ 4.
More specifically, De Dios alleges the following about Broadspire's duties and its relationship with Indemnity:
5. At all times material to the Petition, the INSURANCE COMPANY and BROADSPIRE were responsible for making timely payment of workers' compensation benefits to employees of the EMPLOYER, including SAMUEL. Plaintiff will refer to both the INSURANCE COMPANY and BROADSPIRE collectively as "the Defendants."
6. BROADSPIRE and the INSURANCE COMPANY are essentially one and the same entity for purposes of the instant action.
7. The INSURANCE COMPANY lacked the necessary support staff to investigate on-the-job injuries in Iowa, including SAMUEL's on-the-job injury.
8. The INSURANCE COMPANY lacked the necessary support staff that had the experience or knowledge to make an informed decision on whether to pay benefits pursuant to Iowa Workers' Compensation Laws.
9. The INSURANCE COMPANY obligated BROADSPIRE to provide actuarial services for workers' compensation claims, including SAMUEL's workers' compensation claim.
10. The INSURANCE COMPANY obligated BROADSPIRE to provide underwriting services for workers' compensation claims, including SAMUEL's workers' compensation claim.
11. BROADSPIRE performed the tasks of a workers' compensation insurance company in Iowa.
12. BROADSPIRE received a percentage of the premiums that the EMPLOYER paid to the INSURANCE COMPANY.
13. BROADSPIRE's compensation package with the INSURANCE COMPANY was tied to the approval or denial of workers' compensation claims: BROADSPIRE received more of the EMPLOYER's premium as the payment of workers' compensation benefits decreased.
14. BROADSPIRE had a financial risk of loss for workers' compensation claims it administered on behalf of the INSURANCE COMPANY, including SAMUEL's workers' compensation claim.
15. The INSURANCE COMPANY had a financial risk of loss for workers' compensation claims that were administered by BROADSPIRE, including SAMUEL's workers' compensation claim.
16. The INSURANCE COMPANY entered into a reinsurance agreement with BROADSPIRE for payments made on behalf of workers' compensation claims, including SAMUEL's workers' compensation claim.

         Amended Complaint at ¶¶ 5-16.

         2. The accident and aftermath

De Dios alleges that, on April 8, 2016, he was assigned by Brand to work on a construction site located on the private property of CF Industries. To enter the property, he had to drive past a security gate and a security guard. He alleges that, after [he] enter[ed] the property, a vehicle driven by Jonathan Elizondo crashed into the back of his vehicle, damaging his vehicle and causing him injuries, including a lower back injury. The collision was witnessed by the security guard at the gate, Tina Gregg. De Dios reported the collision and his work injury to Brand's safety manager, Ismael Barba. He alleges that Brand authorized him to choose whatever medical provider he would like to provide care for the work injury. De Dios chose to be treated at St. Luke's Hospital, where Dr. Jeffrey O'Tool provided him with medical care for his work injury.
On April 11, 2016, De Dios returned to work with Brand, but his back pain worsened. On April 14, 2016, Brand sent De Dios home because of his work injury. On April 14, 2016, Brand authorized De Dios to choose whatever medical provider he would like to see to care for his work injury. On April 15, 2016, De Dios's family doctor, Alisa M. Olson, DO, treated De Dios for the work injury. De Dios alleges that, from April 8, 2016, through May 9, 2016, Brand refused to provide him with "light duty" work. He alleges that, from April 15, 2016, Indemnity and Broadspire knew or should have known that he had work restrictions as a result of his work injury; that Brand refused to provide "light duty work" within those restrictions; and that Indemnity and Broadspire were required to pay him Temporary Total Disability ("TTD") Benefits and/or Healing Period ("HP") Benefits until a determination of maximum medical improvement was made by a qualified medical expert.

         3. Denial of the claim

De Dios alleges that Broadspire or, in the alternative, Indemnity made the decision to deny him workers' compensation benefits. He alleges that, prior to doing so, neither Indemnity nor Broadspire interviewed him, or interviewed or contacted the security guard, Tina Gregg, who had witnessed the accident, or his treating physicians, Dr. O'Tool and Dr. Olson. He alleges that the defendants' failure to contact these people violated an insurance industry standard of "Three-Point Contact" before denying him workers' compensation benefits. On June 9, 2016, De Dios filed a workers' compensation claim with the Iowa Workers' Compensation Commissioner against Indemnity and Broadspire. On August 23, 2016, Indemnity and Broadspire filed a joint Answer with the Iowa Workers' Compensation Commissioner and denied liability for De Dios's work injury. De Dios alleges that Indemnity and Broadspire did not convey to him the basis for their decision to deny his claim at that time, that they, in fact, had no reasonable basis for denying his claim, and that they knew or should have known that no reasonable basis existed to deny his claim.

         II. Standard of Review and Criteria for Answering a Certified Question.

         Regarding this Court's power to answer certified questions of law, Iowa Code section 684A.1 provides,

The supreme court may answer questions of law certified to it by the supreme court of the United States, a court of appeals of the United States, a United States district court or the highest appellate court or the intermediate appellate court of another state, when requested by the certifying court, if there are involved in a proceeding before it questions of law of this state which may be determinative of the cause then pending in the certifying court and as to which it appears to the certifying court there is no controlling precedent in the decisions of the appellate courts of this state.

Iowa Code § 684A.1 (2018).

We have therefore held,
It is within our discretion to answer certified questions from a United States district court. We may answer a question certified to us when (1) a proper court certified the question, (2) the question involves a matter of Iowa law, (3) the question "may be determinative of the cause . . . pending in the certifying court," and (4) it appears to the certifying court that there is no controlling Iowa precedent.

Baldwin, 915 N.W.2d at 265 (quoting Roth v. Evangelical Lutheran Good Samaritan Soc'y, 886 N.W.2d 601, 605 (Iowa 2016) (omission in original)).

         In this case, the answer to the certified question will determine whether De Dios's claim against Broadspire can proceed, and it does not appear to us (nor did it appear to the federal district court) that there is any controlling Iowa precedent. We conclude we should answer the certified question.

         III. Analysis.

         In Dolan v. Aid Insurance Company, we first recognized the tort of first-party insurer bad faith. 431 N.W.2d 790, 790, 794 (Iowa 1988) (en banc). There, the plaintiff filed suit against his insurer, claiming bad-faith failure to settle for the underinsured motorist policy limit. Id. at 791. We found it was "appropriate to recognize the first-party bad faith tort to provide the insured an adequate remedy for an insurer's wrongful conduct" because traditional breach of contract damages would not always be adequate to compensate for bad faith and the alternative remedy of intentional infliction of emotional distress was inadequate due to its limited applicability. Id. at 794.

         We also found that recognition of the tort was justified "by the nature of the contractual relationship between the insurer and insured." Id. We explained,

Although we do not believe this relationship involves the same fiduciary duties as in the third-party situations, . . . we have frequently noted that insurance policies are contracts of adhesion. This is due to the 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. Recognition of the first-party bad faith tort redresses this inequality.

Id. (citations omitted). We adopted the test for bad faith applied by the Wisconsin Supreme Court in Anderson v. Continental Insurance Company:

To show a claim for bad faith, a plaintiff must show the absence of a reasonable basis for denying benefits of the policy and defendant's knowledge or reckless disregard of the lack of a reasonable basis for denying the claim.

Id. (quoting Anderson, 271 N.W.2d 368, 376 (Wis. 1978)). We ultimately reversed the district court's order denying the insurer's motion for summary judgment, finding as a matter of law that the insured had failed to show the lack of a reasonable basis for the insurer's actions under the Anderson test. Id. at 794-95.

         Four years later, we decided that our holding in Dolan logically extended to workers' compensation. Boylan v. Am. Motorists Ins., 489 N.W.2d 742, 744 (Iowa 1992). In Boylan v. American Motorists Insurance Company, we held that injured workers could pursue bad-faith claims against workers' compensation carriers. Id. There, we reversed an order dismissing a bad-faith tort claim brought by an employee against his employer's workers' compensation carrier. Id. at 742, 744. The district court had found "the relationship between an injured employee and the employer's workers' compensation carrier" was unlike the insurer/insured relationship in which we had recognized tort liability for bad faith. Id. at 742. The district court relied on our reasoning in Long v. McAllister, which held,

The insurer has a fiduciary duty to the insured but an adversary relationship with the victim. The effect of the policy is to align the insurer's interests with those of the insured. In meeting its duty to the insured, the insurer must give as much consideration to the insured's interests as it does to its own.

Boylan, 489 N.W.2d at 743 (quoting Long, 319 N.W.2d 256, 262 (Iowa 1982)). The district court had also observed that "an employer or workers' compensation insurance carrier is not required to pay weekly benefits or to pay medical service providers prior to the time the industrial commissioner has determined the employee's entitlement to benefits." Id.

         We found, however, that Iowa statutes and the Iowa administrative code placed obligations on insurers. Id. We recognized that Iowa Code section 86.13 (1991) imposed "an affirmative obligation on the part of the employer and insurance carrier to act reasonably in regard to benefit payments . . . ." Id. We also noted section 85.27 established an "affirmative obligation to furnish medical and hospital supplies to an injured employee," and "although [this] statute speaks only of the obligation of the employer, the commissioner's regulations consign these obligations to the employer's insurance carrier." Id.[1] The regulations at issue were Iowa Admin. Code r. 876-2.3 and r. 876-4.10.[2] Id. Rule 876-2.3 states,

Representative within the state. All licensed insurers, foreign and domestic, insuring workers' compensation and all employers relieved from insurance pursuant to Iowa Code section 87.11 shall designate one or more persons geographically located within the borders of this state, which person or persons shall be knowledgeable of the Iowa Workers' Compensation Law and Rules and shall be given the authority and have the responsibility to expedite the handling of all matters within the scope of Iowa Code chapters 85, 85A, 85B, 86, and 87.
The Iowa workers' compensation commissioner shall be advised by letter of the name, address, and telephone number of each of the persons so designated. Any change in the identity, address or telephone number of the persons so designated shall be reported to the Iowa workers' compensation commissioner within ten days after such change occurs.

(Emphasis added). Rule 876-4.10 states,

Insurance carrier as a party. Whenever any insurance carrier shall issue a policy with a clause in substance providing that jurisdiction of the employer is jurisdiction of the insurance carrier, the insurance carrier shall be deemed a party in any action against the insured.
This rule is intended to implement Iowa Code section 87.10.[[3]

(Emphasis added).

         Under Boylan, the predominant justification for recognizing a bad-faith tort against workers' compensation carriers was the existence of certain "affirmative obligations" placed upon them by our statutory and regulatory scheme. See 489 N.W.2d at 743; see also Joel E. Fenton, The Tort of Bad Faith in Iowa Workers' Compensation Law, 45 Drake L. Rev. 839, 847 (1997) ("This bundle of statutory and administrative obligations imposed on the insurance carrier creates a Dolan-like relationship between claimant and insurance carrier, which brings it into the circle of first-party relationships."). We also noted that the exclusive remedy defense found in Iowa Code section 85.20 (1991) was not available to insurance carriers.[4]See Boylan, 489 N.W.2d at 743-44 (citing Tallman v. Hanssen, 427 N.W.2d 868, 870 (Iowa 1988) ("This court . . . ...


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