Robert Bremer Vs. Jerry Wallace And Iowa Great Lakes Lifts ( 2007 )


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  •                  IN THE SUPREME COURT OF IOWA
    No. 84 / 04-1176
    Filed February 16, 2007
    ROBERT BREMER,
    Appellee,
    vs.
    JERRY WALLACE and IOWA GREAT LAKES LIFTS,
    Appellants.
    On review from the Iowa Court of Appeals.
    Appeal from the Iowa District Court for Dickinson County, David A.
    Lester, Judge.
    Defendants seek further review of court of appeals decision affirming
    district court judgment awarding plaintiff compensatory and punitive
    damages for defendants’ failure to pay award of workers’ compensation
    benefits.   DECISION OF COURT OF APPEALS VACATED; DISTRICT
    COURT JUDGMENT REVERSED AND CASE REMANDED.
    Michael H. Johnson of Stoller & Johnson, Spirit Lake, for appellants.
    Pete Leehey and Kent Smith of Pete Leehey Law Firm, P.C.,
    Cedar Rapids, for appellee.
    2
    TERNUS, Chief Justice.
    Appellants, Jerry Wallace and Iowa Great Lakes Lifts, have appealed a
    district court judgment awarding compensatory and punitive damages to
    appellee, Robert Bremer, based on the defendants’ failure to pay an award
    of workers’ compensation benefits. A divided court of appeals affirmed the
    judgment, and this court granted further review. Upon consideration of the
    arguments of the parties and the governing legal principles, we vacate the
    court of appeals decision, reverse the district court judgment, and remand
    for entry of judgment in favor of the defendants.
    I. Background Facts and Proceedings.
    While working for Jerry Wallace, d/b/a Iowa Great Lakes Lifts, Robert
    Bremer sustained a work-related injury. Wallace did not carry workers’
    compensation insurance, had not met the statutory requirements for self-
    insured status, and had not complied with the procedures to be relieved of
    the obligation to carry workers’ compensation insurance. 1 See generally
    Iowa Code §§ 87.1, .4, .11 (2001). Because Wallace was uninsured, Bremer
    had the option of suing Wallace in “an action at law for damages” or
    collecting workers’ compensation benefits. See 
    id. § 87.21.
    Bremer chose to
    pursue a claim under the workers’ compensation statute.                           He was
    1As   we did in Reedy v. White Consolidated Industries, Inc., 
    503 N.W.2d 601
    (Iowa
    1993), we use the term “self-insured” to refer to an employer who has complied with section
    87.4, which allows an employer to meet the liability insurance requirement of Iowa Code
    section 87.1 by participating in a “self-insured program.” Iowa Code § 87.4 (2001) (cited in
    
    Reedy, 503 N.W.2d at 603
    ). Some confusion in the use of this term may arise from the
    same or similar appellation being used in reference to an employer who has been granted
    relief from the requirement of carrying workers’ compensation insurance as authorized by
    section 87.11. See, e.g., Iowa Code § 87.11 para. 4 (referring to employer relieved from
    insurance requirement as a “self-insured employer”); Iowa Admin. Code r. 191—57.2(4)
    (administrative rule of the insurance commissioner defining a “self-insurer” as an employer
    relieved from carrying workers’ compensation insurance (emphasis added)). In contrast,
    rules of the workers’ compensation commissioner refer to such employers as “employers
    relieved from insurance pursuant to Iowa Code section 87.11.” Iowa Admin. Code r. 876—
    2.3; accord 
    id. r. 876—4.48(3);
    id. r. 876—10.3(2); 
    id. r. 876—11.2.
    
                                           3
    successful and obtained an award of healing period benefits and permanent
    partial disability benefits.
    Thereafter,    Wallace   paid   no    benefits   as    required   by   the
    commissioner’s arbitration award, so Bremer brought this suit claiming
    damages as a result of his employer’s failure “to pay workers’ compensation
    benefits as ordered by the Iowa workers’ compensation commissioner.”
    Bremer also sought punitive damages based on Wallace’s reckless disregard
    in unreasonably refusing to pay the benefits awarded. Bremer ultimately
    obtained a judgment against Wallace and Iowa Great Lakes Lifts for
    compensatory and punitive damages. On the employer’s appeal, the court
    of appeals affirmed the district court’s judgment.          We granted further
    review.
    The parties agree one issue is presented: Does Iowa recognize a
    common-law claim for bad-faith refusal to pay workers’ compensation
    benefits by an uninsured employer?         We review this legal question for
    correction of errors of law. See Wiedmeyer v. Equitable Life Assurance Soc’y,
    
    644 N.W.2d 31
    , 33 (Iowa 2002).
    II. Discussion.
    Although the question presented in this appeal is a matter of first
    impression, the plaintiff relies on two prior decisions of this court to support
    his claim against the defendants: Boylan v. American Motorists Insurance
    Co., 
    489 N.W.2d 742
    (Iowa 1992), and Reedy v. White Consolidated
    Industries, Inc., 
    503 N.W.2d 601
    (Iowa 1993). In Boylan, we held an injured
    worker could sue the employer’s workers’ compensation insurer for a bad-
    faith failure to pay or for a bad-faith delay in paying workers’ compensation
    
    benefits. 489 N.W.2d at 744
    . We rejected the argument that the statutory
    penalty for unreasonably delayed or terminated workers’ compensation
    benefits was the employee’s exclusive remedy.           
    Id. (citing Iowa
    Code
    4
    § 86.13). In Reedy, we said a self-insured employer could also be held liable
    for a bad-faith failure to pay a workers’ compensation 
    claim. 503 N.W.2d at 603
    (citing Iowa Code § 87.4).
    In this case, the plaintiff asks us to extend Boylan even further by
    imposing bad-faith liability on an uninsured employer. For reasons we now
    discuss, we decline to do so.
    This court first recognized an insurer’s tort liability for bad-faith
    conduct relating to a claim made by its own insured in Dolan v. Aid
    Insurance Co., 
    431 N.W.2d 790
    (Iowa 1988). Our decision to impose liability
    was based on two considerations: (1) our belief that “traditional damages
    for breach of contract will not always adequately compensate an insured for
    an insurer’s bad faith conduct”; and (2) the fact that “insurance policies are
    contracts of adhesion . . . due to the inherently unequal bargaining power
    between the insurer and insured.” 
    Dolan, 431 N.W.2d at 794
    . As we noted
    in Boylan, the “recognition of tort liability on the part of workers’
    compensation insurance carriers guilty of the type of bad-faith conduct for
    which tort liability was recognized in Dolan [was] a logical extension of that
    decision.” 
    Boylan, 489 N.W.2d at 744
    (emphasis added). We explained our
    application of tort liability to self-insured employers in Reedy as follows:
    “For purposes of a bad-faith tort claim, we see no distinction between a
    workers’ compensation insurance carrier for an employer and an employer
    who voluntarily assumes self-insured status under the [workers’
    compensation] act.” 
    Reedy, 503 N.W.2d at 603
    (citing Iowa Code § 87.4).
    The common thread in these decisions is the defendant’s status as an
    insurer, or in the case of a self-insured employer, the substantial equivalent
    of an insurer. This status reflects and is consistent with the rationale
    underlying our decision in Dolan.
    5
    The plaintiff here argues there is no reason to differentiate between
    the self-insured employer in Reedy and the uninsured employer in this
    case. We do not agree, however, that an uninsured employer is equivalent
    to an insurer or a self-insured employer. See 
    id. (“A self-insured
    employer
    under the Workers’ Compensation Act is not an employer who fails to
    secure insurance against workers’ compensation liability.”).            The
    dissimilarity of the uninsured employer to the defendants in Boylan and
    Reedy is perhaps best illustrated by examining what is required for self-
    insured status.
    A self-insured employer must meet precise requirements to acquire
    that standing. Under section 87.4, “groups of employers by themselves or
    in an association with any or all of their workers, may form insurance
    associations,” as provided in that statute “[f]or the purpose of complying
    with [chapter 87].” Iowa Code § 87.4. These “self-insurance associations”
    must submit a plan to the insurance commissioner for approval.           
    Id. Approval is
    conditioned on meeting rigorous financial requirements. See
    Iowa Admin. Code r. 191—56.3. Once a certificate of approval has been
    issued by the insurance commissioner, “the workers’ compensation self-
    insurance association” is authorized “to provide workers’ compensation
    benefits.” 
    Id. r. 191—56.8(1).
    Thereafter, the association is subject to the
    continuing supervision of the insurance commissioner. 
    Id. rs. 191—56.9,
    191—56.13.
    As this regulatory scheme shows, self-insured employers are not
    simply employers who declare they will be responsible for paying workers’
    compensation benefits owed to their employees. Self-insured employers are
    members of a highly regulated formal insurance association that is
    responsible for paying workers’ compensation benefits owed to employees of
    association members.     When the true nature of self-insured status is
    6
    examined, it is apparent why this court held in Reedy that there was “no
    distinction between a workers’ compensation insurance carrier for an
    employer and an employer who voluntarily assumes self-insured 
    status.” 503 N.W.2d at 603
    .
    The defendant in this case stands in a much different position. He
    did not purchase workers’ compensation insurance or join a self-insurance
    association. Thus, he is not an insurer, nor is he the substantial equivalent
    of an insurer. Consequently, the actual issue in this case is whether bad-
    faith tort liability for failing to pay workers’ compensation benefits should be
    imposed under circumstances that do not involve an insurer/insured
    relationship.
    In concluding such liability should not be imposed, we begin with an
    examination of the reasons underlying our imposition of tort liability for
    bad-faith conduct in Dolan. One of those reasons—the adhesive nature of
    the insurance contract—is obviously not present here. We are also not
    persuaded that the second basis for imposing tort liability—the inadequacy
    of other remedies—is a sufficient reason to extend the tort of bad faith
    outside the traditional insurer/insured relationship. The plaintiff in this
    case is in no different position than any other plaintiff who has an
    unsatisfied judgment against a person legally liable for the plaintiff’s
    injuries. Although Bremer has apparently not obtained a court judgment
    against the defendant for the benefits awarded by the workers’
    compensation commissioner, that remedy is available to him. See Iowa
    Code § 86.42. Moreover, as noted above, the plaintiff initially had the
    option of foregoing workers’ compensation benefits altogether and suing his
    employer in a civil action for damages. See 
    id. § 87.21.
    In either situation,
    the plaintiff had the same opportunities for enforcement of the judgment
    that are available to any other successful plaintiff. To find these remedies
    7
    inadequate would mean any defendant who in bad faith fails to promptly
    pay a judgment would arguably be subject to liability for damages flowing
    from this failure.   We have found no authority for extending bad-faith
    liability on this ground.
    III. Conclusion.
    An uninsured employer is not subject to bad-faith tort liability for
    failing to pay workers’ compensation benefits awarded to an employee. We
    vacate the court of appeals’ contrary decision and reverse the district court’s
    judgment awarding damages under this theory of liability. This case is
    remanded for entry of an order of dismissal.
    DECISION OF COURT OF APPEALS VACATED; DISTRICT COURT
    JUDGMENT REVERSED AND CASE REMANDED.
    All justices concur except Hecht and Appel, JJ., who take no part.