Opinion
4:19-cv-00214
03-05-2020
Allen Michael LEWIS, Plaintiff, v. CAROLINA CASUALTY, INS. CO., Defendants.
Justin High, Daniel C. Wasson, Pro Hac Vice, Erin B. Fox, Pro Hac Vice, High & Younes, LLC, Omaha, NE, for Plaintiff Michael C. Richards, Davis Brown Law Firm (DSM) Des Moines, IA, Adam P. Joffe, Pro Hac Vice, Chicago, IL, Dana Aaron Rice, Pro Hac Vice, Traub Lieberman, Chicago, IL, Rubina Sahar Khaleel, Hennessy & Roach, PC, Omaha, NE, for Defendants.
Justin High, Daniel C. Wasson, Pro Hac Vice, Erin B. Fox, Pro Hac Vice, High & Younes, LLC, Omaha, NE, for Plaintiff
Michael C. Richards, Davis Brown Law Firm (DSM) Des Moines, IA, Adam P. Joffe, Pro Hac Vice, Chicago, IL, Dana Aaron Rice, Pro Hac Vice, Traub Lieberman, Chicago, IL, Rubina Sahar Khaleel, Hennessy & Roach, PC, Omaha, NE, for Defendants.
ORDER
ROBERT W. PRATT, Judge U.S. DISTRICT COURT
Before the Court is Defendant Carolina Casualty Insurance Company's Motion to Dismiss Plaintiff's Second Amended Complaint Pursuant to Rule 12(b)(6), filed on October 23, 2019, ECF No. 30. Plaintiff Allen Michael Lewis responded to the Motion on November 6, ECF No. 31, and Defendant replied on November 14, ECF No. 32. Although Defendant requested oral argument, the Court does not believe oral argument will substantially aid it in resolving the issues before the Court. Therefore, the matter is fully submitted.
I. BACKGROUND
On May 1, 2015, Plaintiff, a resident and citizen of Nebraska, suffered a severe workplace injury while employed with MBC Construction Co., Inc., a Nebraska corporation doing business in Iowa and Nebraska. ECF No. 26 ¶¶ 1, 2, 20. At all relevant times, MBC held a workers' compensation insurance policy with Defendant, an Iowa corporation doing business in Iowa, covering MBC's risk of operation in both states. Id. ¶¶ 3, 5. Defendant engaged another company, York Risk Services Group, Inc., a New York corporation with its principal office in New Jersey, as a third-party administer providing claims adjusting services for Defendant's workers' compensation claims. Id. ¶¶ 4, 7; ECF No. 30-3.
Plaintiff temporarily resided in Iowa from May to November 2017. ECF No. 26 ¶ 46.
Following disputes over benefits, Plaintiff sought recovery of denied benefits under Nebraska workers' compensation laws. ECF No. 26 ¶¶ 15, 42. The Nebraska Workers' Compensation Court determined Defendant had inappropriately delayed benefits and ordered that they be paid. Id. ¶¶ 42, 47. Plaintiff subsequently sustained further injury resulting in the amputation of his left leg. Id. ¶¶ 51–52. Following more disputes regarding whether this later injury related to Plaintiff's prior workplace injury, Plaintiff again sought an order from the Nebraska Workers' Compensation Court to recover benefits, which was granted. Id. ¶¶ 61–62, 67. Plaintiff's benefits remained unpaid, and Defendant then terminated Plaintiff's benefits including his weekly indemnity checks. Id. ¶¶ 73–75. Months later, Defendant agreed to pay all reasonable and necessary medical expenses resulting from Plaintiff's work injury but declined to pay benefits from the date of his subsequent injury. Id. ¶¶ 79–80. This prompted Plaintiff to file another complaint. Id. ¶ 81. The Nebraska Workers' Compensation Court penalized Defendant under Nebraska Revised Statutes section 48-125 by awarding substantial attorney's fees. Id. ¶¶ 96.
On October 2, 2019, Plaintiff filed a Second Amended Complaint in this Court, alleging Defendant delayed and denied payment of his workers' compensation benefits in bad faith. Id. ¶¶ 26, 55, 70, 84, 93. Alternatively, Plaintiff alleges Defendant is vicariously liable for York's bad faith denial and delay of his workers' compensation benefits. Id. ¶ 118. Plaintiff also seeks an award of punitive or exemplary damages. Id. ¶ 122.
II. STANDARD OF REVIEW
"Under Federal Rule of Civil Procedure 12(b)(6), the factual allegations in the complaint are accepted as true and viewed most favorably to the plaintiff." Hager v. Ark. Dep't of Health , 735 F.3d 1009, 1013 (8th Cir. 2013). In order "[t]o survive a motion to dismiss, a complaint must contain sufficient factual matter, accepted as true, to ‘state a claim to relief that is plausible on its face.’ " Ashcroft v. Iqbal , 556 U.S. 662, 678, 129 S.Ct. 1937, 173 L.Ed.2d 868 (2009) (quoting Bell Atl. Corp. v. Twombly , 550 U.S. 544, 570, 127 S.Ct. 1955, 167 L.Ed.2d 929 (2007) ). "A pleading that merely pleads ‘labels and conclusions,’ or a ‘formulaic recitation’ of the elements of a cause of action, or ‘naked assertions’ devoid of factual enhancement will not suffice." Hamilton v. Palm , 621 F.3d 816, 817–18 (8th Cir. 2010) (quoting Iqbal , 556 U.S. at 678, 129 S.Ct. 1937 ). "Determining whether a claim is plausible is a ‘context-specific task that requires the reviewing court to draw on its judicial experience and common sense.’ " Id. (quoting Iqbal , 556 U.S. at 679, 129 S.Ct. 1937 ).
III. ANALYSIS
A. Choice of Law
In cases based on diversity, the Court "appl[ies] the choice-of-law rules of the forum state." John T. Jones Constr. Co. v. Hoot Gen. Constr. Co. , 613 F.3d 778, 783 (8th Cir. 2010). "[B]ecause a state may have adopted different choice of law approaches depending on the nature of the claim," the Court "must first determine the nature of the causes of action." Jackson v. Travelers Ins. Co. , 26 F. Supp. 2d 1153, 1156 (S.D. Iowa 1998) (citing Drinkall v. Used Car Rentals, Inc. , 32 F.3d 329, 331 (8th Cir. 1994) ). The Court must then "decide whether there is any conflict or difference between the state laws regarding the claims presented." Id. at 1156–57 (citing Phillips v. Marist Soc'y , 80 F.3d 274, 276 (8th Cir. 1996) ). "When there is no conflict or difference between the laws, then the law of the forum applies without a choice of law analysis being necessary." Id. at 1157 n.5. Finally, the Court "identif[ies] the applicable choice of law principles of the forum state," before "apply[ing] those principles to decide which state's [substantive] law applies." Id. at 1157.
In this case, the parties agree that Iowa's choice-of-law rules govern the Court's determination of the applicable substantive law because Iowa is the forum state. Here, Plaintiff alleges insurance bad faith, vicarious liability, and punitive damages stemming from Defendant's handling of Plaintiff's workers' compensation claim. Specifically, Plaintiff alleges that Defendant delayed and denied authorization for medical treatment and payment of medical benefits. Plaintiff's claims for bad faith and vicarious liability for York's bad faith sound in tort under Iowa law. See id. Plaintiff's claim for punitive damages is incidental to his other two claims and is not recoverable as of right. If there is a conflict relating to this claim, the Court will apply Iowa's choice-of-law rules for damages. Id.
The parties agree that a conflict or difference exists between Nebraska's and Iowa's laws with regard to Plaintiff's claims for bad faith and vicarious liability. Under Nebraska law, a plaintiff cannot maintain a tort claim for common-law bad faith against an insurer of a workers' compensation policy. See Ihm v. Crawford & Co. , 254 Neb. 818, 580 N.W.2d 115, 119 (1998) (holding that the penalty provisions of section 48-125(1) of the Nebraska Workers' Compensation Act exclude the possibility of recovery in tort against an insurer for delay in authorizing or paying for medical expenses and the courts "are not free to create a separate and independent tort claim"). In contrast, Iowa law allows a plaintiff to bring a tort claim for first-party bad faith against a workers' compensation insurance carrier. See Boylan v. Am. Motorists Ins. Co. , 489 N.W.2d 742, 744 (Iowa 1992) ("[I]t is unlikely that the legislature intended the penalty provision in section 86.13 [of the Iowa Workers' Compensation Act] to be the sole remedy for all types of wrongful conduct by carriers with respect to administration of workers' compensation benefits."); see also Zimmer v. Travelers Ins. Co. , 521 F. Supp. 2d 910, 925 (S.D. Iowa 2007) ("Under Iowa law, an employee may sue an employer or the employer's workers' compensation carrier for a "bad faith" delay in the payment of benefits."); Buhmeyer v. Case New Holland, Inc. , 446 F. Supp. 2d 1035, 1040 (S.D. Iowa 2006) (same).
Additionally, there is a difference between the laws of Iowa and Nebraska regarding the right to pursue punitive or exemplary damages. Such damages are prohibited in civil cases in Nebraska, see Abel v. Conover , 170 Neb. 926, 104 N.W.2d 684, 688 (1960), while Iowa generally permits them, see Thornton v. Am. Interstate Ins. Co. , 940 N.W.2d 1, 26–27 (Feb. 28, 2020) (reducing, but nevertheless permitting, an award of punitive damages in a bad-faith action against a workers' compensation insurance carrier); see also Zimmer , 521 F. Supp. 2d at 934 ("Under Iowa law, punitive damages may be imposed to punish the defendant's willful and wanton conduct and to deter the defendant, or others, from repeating such conduct in the future.").
Because all three claims present conflicts between Iowa and Nebraska law, the Court must decide which state's substantive law applies using Iowa's choice-of-law rules. See John T. Jones Constr. Co. , 613 F.3d at 783. "The Iowa Supreme Court has repeatedly turned to the Restatement in analyzing choice of law issues." Washburn v. Soper , 319 F.3d 338, 342 (8th Cir. 2003). Iowa has adopted the "most significant relationship" test found in section 145 of the Restatement (Second) of Conflict of Laws for resolving choice-of-law questions in tort actions. See Veasley v. CRST Int'l, Inc. , 553 N.W.2d 896, 897 (Iowa 1996) ). "The theory behind this approach is that rather than focusing on a single factor, ‘the court of the forum should apply the policy of the state with the most interest in the litigants and the outcome of the litigation.’ " Id. (quoting Fuerste v. Bemis , 156 N.W.2d 831, 834 (Iowa 1968) ).
Iowa courts also utilize the "most significant relationship" test for conflict-of-law questions in claims for damages under tort actions. See Cameron v. Hardisty , 407 N.W.2d 595, 597 (Iowa 1987) ; Restatement (Second) of Conflicts of Laws §§ 145(1), 171 (Am. Law Inst. 1971).
The Restatement directs courts to look first to the statutory choice-of-law directives of their own state, and if none, suggests that courts look to the following general principles to determine which state has the most interest in the litigants and the outcome, including, but not limited to:
(a) the needs of the interstate and international systems,
(b) the relevant policies of the forum,
(c) the relevant policies of other interested states and the relative interests of those states in the determination of the particular issue,
(d) the protection of justified expectations,
(e) the basic policies underlying the particular field of law,
(f) certainty, predictability and uniformity of result, and
(g)ease in the determination and application of the rule to be applied.
Restatement (Second) Conflict of Laws § 6(2) (Am. Law Inst. 1971). Additionally, section 145 of the Restatement sets out the following specific factors to be taken into account in applying the principles of section 6 to tort actions:
(a) the place where the injury occurred,
(b) the place where the conduct causing the injury occurred,
(c) the domicil[e], residence, nationality, place of incorporation and place of business of the parties, and
(d) the place where the relationship, if any, between the parties is centered.
Restatement (Second) Conflict of Laws § 145(2). Some factors are less important in tort law while others are more important, and the weight given depends on the particular facts of the case. Jackson , 26 F. Supp. 2d at 1160 ; Restatement (Second) of Conflicts of Laws § 145, cmt. b. The Court will now apply these principles to the facts of this case to determine whether Nebraska or Iowa substantive law applies.
Defendant contends Nebraska law should control here. First, Defendant argues that it engaged York as a third-party administrator to handle its workers' compensation claims. York is a New York corporation with its principal office in New Jersey. Defendant contends no decisions regarding coverage for Plaintiff's workers' compensation were made in Iowa, and thus the alleged injury did not occur here. Second, Defendant argues that Nebraska has an interest in protecting a Nebraska employer who selected a non-Nebraska insurer because "Nebraska employers have a justified expectation that their liability and the liability of their insurers will be limited to the Nebraska Act." ECF No. 30-1 at 10 (quoting Jackson , 26 F. Supp. 2d at 1163 ). In other words, Plaintiff's employer, MBC, chose a non-Nebraska insurer, Defendant, with the expectation—and paid premiums based upon that expectation—that its own liability and the liability of its insurer would be limited under the Nebraska Workers' Compensation Act, Neb. Rev. Stat. §§ 48-101 – 48-1,118. Third, Defendant argues that Nebraska law should apply because Plaintiff is a Nebraska resident whose injury occurred in Nebraska. ECF No. 30-1 at 11–12 (citing Gardner v. Heartland Express, Inc. , No. 05-0037, 2006 WL 468690, at *4 (Iowa Ct. App. Mar. 1, 2006) ).
Plaintiff responds that Iowa law should apply in this case. Plaintiff argues that although Nebraska has a "general interest in limiting the liability of [its] employers and insurers," it has "little interest in limiting its own citizen's ability to access Iowa's system to recover for bad faith, unless the one to be held liable is a Nebraska company." ECF No. 31 at 2 (citing Jackson , 26 F. Supp. 2d at 1161–62 ). Instead, Plaintiff contends, Iowa has a stronger interest in regulating the activities of its insurance companies. Plaintiff further argues that because Defendant cannot delegate its duty of good faith to a third-party administrator, the location of where the claim was adjusted is not relevant. Plaintiff asserts that if choice-of-law decisions were based solely on where the bad faith occurred, then all Iowa insurance companies would contract with a third-party administrator outside of Iowa to avoid being subject to Iowa's laws. Additionally, Plaintiff asserts Iowa law applies because Defendant is an Iowa company, Defendant insured a company who did business in Iowa, Plaintiff resided in Iowa for part of the time that Defendant is alleged to have committed the bad faith, and Plaintiff could have brought his workers' compensation claim in Iowa. Alternatively, Plaintiff contends that if more factual information is required regarding the geographic location of Defendant's activities, then he should be permitted to conduct discovery related to that subject.
In Jackson , this Court recognized that "[b]oth Iowa and Nebraska obviously have a basic legislative interest in resolving conflicts arising out of or falling under their own workers' compensation systems." 26 F. Supp. 2d at 1162. This Court acknowledged that a state that offers fewer benefits to injured workers, such as Nebraska in this case, generally has little interest in denying the injured worker access to another state's benefits, except in cases involving a citizen insurer or employer, which is the case here where MBC is a citizen of Nebraska but conducts some business in Iowa. See id. In such cases, Nebraska may have an interest in protecting one of its employer's "justified expectation that [its] liability and the liability of [its] insurer will be limited" under Nebraska law even when the insurer is not a citizen of Nebraska. Id. Similarly, Iowa may have an interest in regulating the business activities of insurance carriers incorporated under its laws even when neither the injured worker nor the employer is a citizen of Iowa and the workplace injury did not occur here. See id. ; see also Boylan v. Am. Motorists Ins. , 489 N.W.2d 742, 743 (Iowa 1992) (recognizing "an affirmative obligation [in Iowa] on the part of the employer and insurance carrier to act reasonably in regard to benefit payments"). But the inquiry does not end here, this Court must determine not only whether Iowa and Nebraska have an interest in the litigants and the outcome, but which state has the dominant interest and therefore the most significant relationship. The Court thus turns to the specific factors set forth in section 145 of the Restatement.
Most courts examining the section 145 factors have held that the place of injury is where the plaintiff was when he was denied medical benefits. See Jamison v. Depositors Ins. Co. , No. 4:14-CV-3009, 2015 WL 11108869, at *3 (D. Neb. Apr. 15, 2015) (collecting cases); Jackson , 26 F. Supp. 2d at 1162 ; Jensen v. Champion Window of Omaha, L.L.C. , No. 17-0656, 2018 WL 347548, at *3 (Iowa Ct. App. Jan. 10, 2018). In this case, this factor weighs in favor of applying Nebraska law because Plaintiff lived in Nebraska during most of the time he alleges to have been denied medical benefits, although he temporarily resided in Iowa during this period. See Jackson , 26 F. Supp. 2d at 1162.
In a footnote, Plaintiff states that, if the Court is inclined to grant Defendant's Motion to Dismiss, Plaintiff requests leave to amend his complaint a third time to allege "additional facts regarding harm occurring in Iowa in the form of delayed or missed Child Support garnishment payments by York." ECF No. 26 at 16 n.1. Defendant does not respond to this request in its Reply. See ECF No. 32. The Eighth Circuit has addressed such conditional footnote requests and concluded that a district court properly denies such a request when the plaintiff fails to submit a proposed amended complaint or proffer the substance of the proposed amendment to the district court. See In re 2007 Novastar Fin. Inc., Sec. Litig. , 579 F.3d 878, 884–85 (8th Cir. 2009). In this case, Plaintiff has not submitted a formal motion for leave to amend nor a proposed amended complaint. And although he identifies what the proposed amendment will relate to—information that appears to the Court to have been within Plaintiff's control before this time—where the injury occurred is but one factor in the choice-of-law analysis and Plaintiff has already alleged that he suffered harm while residing for a short period in Iowa. Accordingly, the Court denies Plaintiff's conditional request for leave to amend his complaint for a third time.
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The second factor does not weigh in favor of applying either Nebraska or Iowa law. The conduct causing the injury—the decisions to delay and deny Plaintiff's claims—were made by Defendant's third-party administrator, York, and did not occur in either state. Plaintiff contends that Defendant's engagement of a third-party administrator does not absolve it of liability. He argues that the insurance carrier's duty "to act reasonably in regard to benefit payments," Boylan , 489 N.W.2d at 743, cannot be delegated to a third party to allow Defendant a "free pass," see De Dios v. Indemnity Ins. Co. of N.A. , 927 N.W.2d 611, 620–21 (Iowa 2019). This is true. But the certified question in De Dios was not whether Iowa law governed the case, but whether an action for bad faith for failure to pay workers' compensation benefits could be maintained against a third-party administrator, and the Iowa Supreme Court held it could not. 927 N.W.2d at 624. The Iowa Supreme Court's acknowledgement that insurance carriers owe a duty of good faith in workers' compensation cases that cannot be delegated to a third party does not logically lead to the conclusion that Iowa law must apply in this case. And the question here is not whether Defendant is absolved of liability because it was the third-party administrator it engaged who participated in the alleged bad-faith conduct. Rather, the Court must look at all of the factors and decide which state has the most significant relationship to the interests of the litigants and the outcome of this case.
In Jackson , this Court placed great emphasis on this factor. See 26 F. Supp. 2d at 1162. This Court found that Jackson's alleged injuries "were caused by actions occurring in Iowa," specifically that "[d]ecisions regarding [his] treatment and benefits were made by [the defendant's] representatives in Iowa" and that "telephone calls and letters communicating such decisions were initiated by [the defendant's] representatives in Iowa." Id. It is important to note that the defendant in Jackson was not an Iowa corporation, yet this Court held that Iowa had a more significant interest in the outcome of the litigation because the plaintiff's claims were adjusted in Iowa. Id. at 1155, 1162. Thus, for this factor, it is not whether Defendant is incorporated and does business in Iowa, but where the injury-causing conduct occurred—which in this case was not in either Iowa or Nebraska. Therefore, this factor is neutral.
Regarding the third factor, Plaintiff is a citizen of Nebraska and resided in Nebraska for all but six months of the relevant time period when he resided in Iowa. Defendant is incorporated in Iowa and does business both here and in Nebraska. This factor also appears neutral to the Court.
As to the fourth factor—where the relationship between the parties is centered—Plaintiff was living in Nebraska at the time of his work injury underlying this action and was working for a Nebraska employer in Nebraska when the injury occurred. Although Defendant is incorporated in Iowa it does business in Nebraska and engaged York, a New York corporation doing business in New Jersey, to administer its workers' compensation claims, including Plaintiff's claim. There is no allegation that York adjusted Plaintiff's claim from an office in Iowa. Plaintiff also sought medical treatment in Nebraska, and he filed multiple claims seeking the payment of benefits in Nebraska. It may be true that Plaintiff could have brought his workers' compensation claim in Iowa, but he chose not to. Instead, he chose to avail himself of the Nebraska workers' compensation laws and now appears to be forum shopping because Nebraska does not recognize a bad-faith claim against insurance carriers in such actions. The Court thus concludes that this fourth factor weighs strongly in favor of applying Nebraska law to this case.
After considering all of the Restatement's sections 6 and 145 factors, the Court concludes Nebraska has "the most interest in the litigants and the outcome of the litigation," and therefore, the "most significant relationship." Veasley , 553 N.W.2d at 897 (quoting Fuerste , 156 N.W.2d at 834 ). Thus, Nebraska law should apply to Plaintiff's claims for bad faith and vicarious liability.
Regarding Plaintiff's claim for punitive or exemplary damages, the Restatement provides, "[t]he law selected by application of the rule of [section] 145 determines the right to [punitive or] exemplary damages." Restatement (Second) Conflict of Laws § 171, cmt. d (Am. Law Inst. 1971). Although Iowa has not adopted section 171 of the Restatement, this Court continues to presume that the "most significant relationship" test also applies to Plaintiff's claim for damages. See Jackson , 26 F. Supp. 2d at 1165. The Court held above that Nebraska law should apply to Plaintiff's claims for bad faith and vicarious liability after considering the specific factors of section 145 and the policy considerations of section 6 of the Restatement. For similar reasons, the Court concludes Nebraska law should apply to Plaintiff's claim for punitive or exemplary damages. See id. Additionally, unlike in Jackson , in which this Court found that "Nebraska ha[d] no interest in preventing punitive awards from other states to Nebraska citizens," id. , here, Nebraska does have such an interest in this case because any damages paid by Defendant would likely be passed on to the employer, a Nebraska company, through increased premiums. Thus, although Iowa has a general interest in awarding "[p]unitive damages ... as punishment and as a deterrent to the wrongdoer and others," Lala v. Peoples Bank & Trust Co. of Cedar Rapids , 420 N.W.2d 804, 807 (Iowa 1988), Nebraska also has an interest in protecting its citizens. Nebraska substantive law applies.
B. Motion to Dismiss
Having determined that Nebraska substantive law applies to Plaintiff's claims, the Court must next consider whether Plaintiff has stated a claim upon which relief may be granted. Fed. R. Civ. P. 12(b)(6). As discussed above, it is well-settled law that Nebraska does not permit a plaintiff to maintain a common-law bad-faith claim against a workers' compensation insurer. See Ihm , 580 N.W.2d at 120 (citing Neb. Rev. Stat. § 48-125(1) ). For this reason, the Court concludes Plaintiff has failed to state a claim for relief and his Second Amended Complaint must be dismissed.
IV. CONCLUSION
For the foregoing reasons, Defendant's Motion to Dismiss for failure to state a claim (ECF No. 30) is GRANTED. Plaintiff's Second Amended Complaint (ECF No. 26) is DISMISSED WITHOUT PREJUDICE.
IT IS SO ORDERED.