Opinion
No. 1-758 / 00-998.
Filed August 14, 2002.
Appeal from the Iowa District Court for Dubuque County, ALAN L. PEARSON, Judge.
An employee appeals from the district court's dismissal of a common law action against his uninsured employer for bad faith denial of his worker's compensation claim. REVERSED AND REMANDED.
Les V. Reddick and Todd L. Stevenson of Kane, Norby Reddick, P.C., Dubuque, for appellant.
Michael J. Coyle and Norman J. Bangberg of Fuerste, Carew, Coyle, Juergens Sudmeier, P.C., Dubuque, for appellee.
Heard by SACKETT, C.J., and ZIMMER and VAITHESWARAN, JJ.
Can an injured employee maintain a common law action against his uninsured employer for bad faith failure to pay workers' compensation benefits? The district court said no. We disagree and, accordingly, reverse and remand.
I. Background Facts and Proceedings
The facts are essentially undisputed. David Clements worked for Alternative Workforce, Inc. "Alternative" in Dubuque. Clements was injured on the job. Alternative had no workers' compensation coverage in Iowa and declined to pay Clements any benefits.
Clements sued Alternative, claiming the employer acted in bad faith. Alternative answered and asserted in part that Iowa had not recognized a common law bad faith action against an uninsured employer. Alternative subsequently filed a motion for adjudication of law points. The district court initially denied but later granted the motion and dismissed Clements' petition. This appeal followed.
II. Scope and Standard of Review
Our rules of civil procedure allow a court to "separately hear and determine any point of law raised in any pleading which goes to the whole or any material part of the case." Iowa R. Civ. P.1.454. Such a ruling is known as an adjudication of law points. Id. Ordinarily, it must be based only on the uncontroverted facts in the pleadings. Explore Info. Servs. v. Iowa Info. Sys., 636 N.W.2d 50, 56 (Iowa 2001). Our review of the ruling is on error. Westfield Ins. Co. v. Economy Fire Cas. Co., 623 N.W.2d 871, 876 (Iowa 2001).
III. Bad Faith Claim
In deciding what type of redress an injured employee has against an employer who lacks workers' compensation insurance, we turn first to Iowa's workers' compensation statutes. Those statutes provide different remedies for insured and uninsured employers.
The liability of an insured employer is limited to the remedies authorized under the workers' compensation statutes. Iowa Code § 85.20. Those remedies are "the exclusive and only" remedies "on account of injury." Id.
Section 85.20 states in pertinent part:
The rights and remedies provided in this chapter, chapter 85A or chapter 85B for an employee, . . . on account of injury . . . shall be the exclusive and only rights and remedies of the employee . . . at common law or otherwise, on account of such injury, . . . against any of the following: 1. Against the employee's employer.
An uninsured employer, in contrast, has more expansive liability. Iowa Code § 87.21. An employee may seek compensation for "personal injury" either as authorized under the workers' compensation statutes or "by an action at law for damages." Id. The employer does not receive protection against common law personal injury actions and cannot avail itself of certain defenses to which an insured employer would be entitled. Id.
Section 87.21 provides in relevant part:
Any employer, except an employer with respect to an exempt employee under section 85.1, who has failed to insure the employer's liability in one of the ways provided in this chapter, unless relieved from carrying such insurance as provided in section 87.11, is liable to an employee for a personal injury in the course of and arising out of the employment, and the employee may enforce the liability by an action at law for damages, or may collect compensation as provided in chapters 85, 85A, 85B, and 86.
There is, however, a limitation on the liability of uninsured employers: an employee can only pursue one of the remedies set forth in section 87.21. See Stroup v. Reno, 530 N.W.2d 441, 443 (Iowa 1995) (holding that once an employee has chosen to pursue one of two methods of recovery, statute forecloses later pursuit of other remedy). An employee may either file a statutory workers' compensation claim before the workers' compensation commissioner or may file a common law personal injury action in court, but cannot do both. Id.
Clements elected to pursue the administrative option, but when Alternative refused to pay statutory benefits, Clements filed this common law bad faith action. Alternative maintains the election of remedies language of section 87.21 prevents Clements from maintaining this action. We disagree.
Section 87.21, by its terms, pertains to remedies for personal injury. Iowa Code § 87.21. Clements' lawsuit does not seek compensatory damages for injuries sustained in the accident but punitive damages based on what he contends was Alternative's bad faith refusal to comply with Iowa's workers' compensation laws. Such a claim is beyond the purview of the workers' compensation commissioner. See Doyle v. Dugan, 229 Iowa 724, 729, 295 N.W.2d 128, 131 (1940) (holding commissioner had no jurisdiction to determine question of employer's fraud). Therefore, section 87.21 does not foreclose this lawsuit. Id. (the fraud action "is one for another tribunal to determine and decide").
Our conclusion finds support not only in Dugan, but also in a line of cases since then. In Harned v. Farmland Foods, Inc., 331 N.W.2d 98, 100-01 (Iowa 1983), the Iowa Supreme Court distinguished between lawsuits that challenge the "manner or type of health care" and lawsuits involving the intentional withholding of benefits. Id. at 101. The court noted other states have expressly permitted suits involving the latter. The court held, though, that Harned's common law action against the employer and its insurance carrier fell into the former category and was precluded by the exclusivity language of Iowa Code section 85.20.
In Tallman v. Hanssen, 427 N.W.2d 868, 870 (Iowa 1988), the court held that an employee could maintain an action against her employer's insurance carrier for its alleged tortious refusal to pay benefits. The court stated that the exclusivity language of Iowa Code section 85.20 "is limited to matters surrounding a job-related injury and does not extend to subsequent dealings during which a tort may arise by reason of bad faith on the part of an employer's insurer." Id.
Four years later, the court in Boylan v. American Motorist Ins. Co., 489 N.W.2d 742, 744 (Iowa 1992) explicitly recognized a bad faith tort action against an employer's workers' compensation carrier. The court noted that, although there was a statutory remedy for delayed payment of benefits, the provision contemplated "negligent conduct rather than the willful or reckless acts" required to sustain a bad faith claim. Id.; cf. Dolan v. Aid Ins. Co., 431 N.W.2d 790, 790 (Iowa 1988) (recognizing insured's bad faith cause of action against its insurer).
In Reedy v. White Consol. Indus., Inc., 503 N.W.2d 601, 603 (Iowa 1993), the court extended Boylan by recognizing an action against a self-insured employer for bad faith failure to pay workers' compensation benefits. The court reasoned, that, "[f]or purposes of a bad-faith tort claim" it saw "no distinction between a workers' compensation insurance carrier for an employer and an employer who voluntarily assumes self-insured status under the act." Id.
Clements states the next logical extension of Reedy is the recognition of a bad faith tort claim against an uninsured employer. We agree with Clements that such a claim should be recognized, but do not view our holding as an extension of Reedy but as a reaffirmation of Dugan, which held more than half a century ago that the election language of the then-existing workers' compensation statute did not preclude an employee from bringing a common law fraud action against his uninsured employer. Dugan, 229 Iowa at 731, 295 N.W.2d at 131.
In reaching this conclusion, we are mindful of the Iowa Supreme Court's more recent attempts to distinguish employers from insurance carriers in the workers' compensation setting. In Reedy, for example, the court stated:
A self-insured employer under the Workers' Compensation Act is not an employer who fails to secure insurance against workers' compensation liability. Without more, an employer who fails to secure insurance against such claims merely waives the protection of the act against common-law claims. Iowa Code § 87.21 (1993). To be a qualified self-insured employer under the act, it is necessary to voluntarily assume a recognized status under the workers' compensation laws as an insurer. Iowa Code § 87.4 (1987).Id. See also Boylan, 489 N.W.2d at 743-44 (reading Tallman for the proposition "that the exclusive remedy provision of our workers' compensation act is applicable only to claims against the employer and does not extend to the employer's compensation carrier."). Alternative reads this language to mean that an employee may not bring any type of common law claim against an uninsured employer, once the employee has elected to seek statutory workers' compensation benefits. Based on our reading of pre- Boylan case law, however, we are not convinced the court's statements in Boylan and Reedy can be read so broadly.
While we agree sections 85.20 and 87.21 limit the liability of employers, those provisions by their terms only limit employer liability for personal injury. Additionally, section 87.21 expressly refers to employee claims involving negligent rather than willful acts of the employer. See Iowa Code § 87.21(1)(a). Given the express language of these code provisions and our highest court's construction of this language in Dugan, Harned and Tallman, we conclude that neither section 85.20 nor section 87.21 precludes this action against an uninsured employer.
We recognize that, in White v. Northwestern Bell Telephone Co., 514 N.W.2d 70, 77 (Iowa 1994), our highest court discussed Reedy and suggested the holding was based on the unequal bargaining power between insured and insurer, a situation technically not existing here because Alternative is uninsured. However, unlike White, where the action arose from a settlement agreement between employer and employee, the action here, as in Reedy, arises from an insurance contract, albeit one that was never made.
We also are not persuaded by Alternative's argument that a remedy already exists under the statute. Although section 86.13 does authorize penalty benefits for the unreasonable delay or withholding of workers' compensation benefits, our highest court has rejected the notion that this provision constitutes the sole remedy for all types of wrongful conduct. See Gibson v. ITT Hartford Ins. Co., 621 N.W.2d 388, 397 (Iowa 2001); Boylan, 489 N.W.2d at 744.
Finally, we reject Alternative's argument that our holding would invade the province of the legislature by creating a remedy not authorized by statute. Our holding is based on a reading of what the legislature said in section 87.21. The legislature said that an employee would have to elect a remedy to obtain compensation for personal injury. It did not state or imply that, by electing the statutory remedy, an employee would relinquish all causes of action against an employer unrelated to that injury.
For these reasons, we reverse the district court's dismissal of Clements' lawsuit and remand for further proceedings consistent with this opinion.
REVERSED AND REMANDED.
ZIMMER, J., concurs; SACKETT, C.J., dissents.
I would affirm the district court.