Bad Faith

Process & Tips

Recent workers’ compensation law changes have resulted in substantially less benefits available to injured workers in Iowa. Workers’ compensation insurance companies feel emboldened by the new laws and are committing bad faith with much more frequency. Our firm stands up to this bad behavior by insurance companies.

When insurance companies fail to obey the law the injured party can sue the insurance company for acting in “bad faith.” These are known as bad faith claims. Insurance companies that fail to obey Iowa workers’ compensation laws subject themselves to first-party bad faith claims.

A workers’ compensation claim is a formal request that an employer (or the employer’s insurance company) pay for the necessary benefits and medical treatment resulting from an injury that occurred in the course of and arose out of the employment.

A bad faith claim is a separate claim against an insurance company that fails to obey Iowa’s workers’ compensation laws regarding the benefits and medical treatment an injured worker is entitled to.

Bad faith can apply to various types of insurance, including property, automobile, and life insurance. Some common examples include, but are not limited to:
  • Delaying sending payment to the insured
  • “Lowballing”, in which an insurer attempts to underpay on a claim
  • Outright refusal to pay a legitimate claim
  • Failure to protect the insured from excess policy judgments
Because each case is so unique, the length will depend on many variables, such as the specific legal issues, the number of parties involved, whether or not the case can be settled without a trial, etc. If it must go to trial, depending on the court, it takes approximately 12 to 24 months to get to trial once the lawsuit is filed.
Although the statute of limitations for a bad faith claim varies according to subject matter and jurisdiction, and is set by state law, an insurance policy may have its own contractual time frame. This could possibly require a claim or lawsuit be filed within a given time that may differ from Iowa law. It is critical that you do not let the statute of limitations period expire, so fill out our contact form or call our office to if you are unsure of your time limits.

The compensation amount for each claim depends on many factors, such as:

  • Extent of your injuries, and whether or not the injuries are permanent
  • Extent of the medical treatment needed
  • Cost of medical treatment needed
  • Amount of work and income lost due to injuries

Considering these factors, the exact worth of each case can vary a great deal, but Spaulding & Shaull is prepared to develop your claim to try to obtain the maximum recovery possible for the injury or injuries you’ve suffered.

Please fill out our short contact form, or call our office if you have questions, need advice, or would like to set up a free consultation. We will respond as soon as possible to discuss how we can help with your case.

We take cases on a contingency fee basis, which means that our attorney fee is a percentage of the recovery or judgment from your case. No fee is owed to us if no recovery or judgement is obtained. If administrative costs come up during your case, we advance the case expenses. At the conclusion of your case, Spaulding & Shaull will be reimbursed for those advanced case expenses.

We advise you to bring any documents (medical bills, letters, and records) relating to your employment for your attorney to review. This should include any communications with the insurance company or your employer, information on any hospital visits, medications, and other accident details. This list is not exhaustive, but it does serve as a starting point. There will be other relevant documents depending on your case. In short, try to bring everything you have relating to your employment and injury, and our team will determine whether or not the documents you have gathered are relevant to the case once we have sorted through them.

What Constitutes “Bad Faith”?

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’” McIlravy v. N. River Ins. Co., 653 N.W.2d 323, 329 (Iowa 2002). “A claim is ‘fairly debatable’ when it is open to dispute on any logical basis.” Bellville v. Farm Bureau Mut. Ins. Co., 702 N.W.2d 468, 473 (Iowa 2005)

The Advent of the Law

The Iowa Supreme Court first recognized the tort of first-party bad faith in Dolan v. AID Insurance Co., 431 N.W.2d 790 (Iowa 1988). The first case in Iowa to specifically recognize workers’ compensation insurance bad faith was Boylan v. American Motorists Ins. Co., 489 N.W.2d 742 (Iowa 1992). The Court held that there was “an affirmative duty for workers’ compensation insurance carriers to act reasonably when a claim is filed.” Id. at 744

Boylan was key for recognizing that the administrative remedy of penalty benefits within the workers’ compensation arena was insufficient to protect injured workers from abuses within that system. Since Boylan, the Court has advanced the law towards protecting injured workers from abuses by workers’ compensation insurance carriers. Thornton v. Am. Interstate Co., 897 N.W.2d 445 (Iowa 2017); McIlravy v. N. River Ins. Co., 653 N.W.2d 323 (Iowa 2002); Gibson v. ITT Hartford Ins. Co., 621 N.W.2d 388 (Iowa 2001); Kiner v. Reliance Ins., 463 N.W.2d 9 (Iowa 1990).

The “Affirmative Duty” to Investigate

Workers’ compensation insurance companies have an “affirmative duty” under Iowa law to comply with the statutory provisions of the Iowa Workers’ Compensation Act—Chapter 85 of the Code. It is now well-established law in Iowa that a workers’ compensation carrier has an affirmative duty to investigate (and conduct a continuing investigation) into a worker’s injury claims. Gibson v. ITT Hartford Ins. Co., 621 N.W.2d 388 (Iowa 2001)

“The insurance carrier’s duty to act reasonably includes the duty to fully and fairly investigate a claim rather than to stand back and deny a claim simply because they wish to deny it….It is a continuing duty that requires the carrier to reassess its position on the claim whenever additional information becomes available.” Pickering v. Squealer Feeds, 2000 WL 961920, *9 (Iowa Ct. App. 2000); Christensen v. Snap-On Tools Corp., 554 N.W.2d 254 (Iowa 1996).

Medical Treatment and Bad Faith

Iowa Code § 85.27(4) provides in relevant part that “the employer is obliged to furnish reasonable services and supplies to treat an employee.” That the employer is required to provide an injured employee with reasonable medical care under Iowa law is unquestioned. The question of whether an insurance carrier (on behalf of its insured-employer) can be subject to bad faith liability for its unreasonable denial or delay in providing care is more interesting.

As addressed in Gibson, to be liable for common law bad faith in Iowa, a workers’ compensation insurer must have “denied” the employee benefits under the policy. In Thornton v. American Interstate Insurance Co., the Court concluded that the requisite “denial” included when an insurer unreasonably delayed delivery of necessary medical equipment. 897 N.W.2d 445, 465 (Iowa 2017)

In reaching their decision, the Thornton Court served reminder of the Boylan holding that bad-faith claims are intended to supplement the workers’ compensation system, noting:

[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 DolanIn addition, no remedy is provided under section 86.13 for delay or failure to pay medical benefits. Boylan, 489 N.W.2d at 744 (emphasis added)

Based on the foregoing, the Court in Thornton confirmed that common law bad-faith tort claims do not fall within the Iowa Workers’ Compensation Commissioner’s exclusive jurisdiction, and therefore held that district courts have subject-matter jurisdiction over bad-faith claims alleging unreasonable delay in providing medical benefits.

Punitive Damages

Because workers’ compensation bad faith is a district court tort, the nature of the claim avails the injured worker to potentially-substantial non-economic damages (i.e. mental pain and suffering and emotional distress) that are not available before the Iowa Industrial Commissioner under the traditional workers’ compensation setting. It is due to this significantly-increased exposure of liability that insurance carriers are especially intimidated by claims of bad faith being brought against their companies.

Regarding these damages, the Gibson court also held that the denial of benefits and failure to abide by the statutory terms of Iowa Code Chapter 85 was “sufficient to constitute willful and wanton conduct for punitive damages.” Such punitive damages are designed to punish the defendant insurance carrier for their past wrong-doing with the hopes of preventing such action in the future by the particular Defendant-insurance carrier involved in the lawsuit, as well as other insurance companies—by sending a message that unreasonable claim adjustment behavior will not be tolerated.

The case of Zimmer v. Travelers Ins. Co. illustrates what elements of damage an Iowa jury can consider in a bad faith case. 521 F. Supp. 2d 910 (S.D. Iowa 2007) There, the jury awarded $500,000 for past loss of function of body or mind, $3,000,000 for future loss of function of body or mind, $1,500,000 for past emotional distress, and $3,000,000 for future emotional distress. In addition, the jury in Zimmer punished the defendants for their unreasonable actions by awarding a total of $3,000,000 in punitive damages against them.

The attorneys at S&S Law live for the opportunity and love holding incompetent and malfeasant insurance companies and their representatives accountable for their acts. If you feel you have been wronged by an insurance company’s handling of your claim, or should you have any questions on this subject, please contact us. We look forward to helping you.
- The Team at S&S Law

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