City Of Madrid, Iowa, And Emc Insurance Companies Vs. Angela Blasnitz ( 2007 )


Menu:
  •                  IN THE SUPREME COURT OF IOWA
    No. 69 / 06-0977
    Filed October 5, 2007
    CITY OF MADRID, IOWA, and EMC INSURANCE COMPANIES,
    Appellants,
    vs.
    ANGELA BLASNITZ,
    Appellee.
    On review from the Iowa Court of Appeals.
    Appeal from the Iowa District Court for Polk County, Arthur E.
    Gamble, Judge.
    Insurer     seeks    further   review   of   court     of    appeals   decision
    remanding       workers’       compensation    case     to        commissioner    for
    determination of insurer’s liability for penalty benefits.             DECISION OF
    COURT OF APPEALS VACATED.                     DISTRICT COURT JUDGMENT
    AFFIRMED IN PART AND REVERSED IN PART; CASE REMANDED.
    Lori A. Brandau and Michael L. Mock of Bradshaw, Fowler, Proctor
    & Fairgrave, P.C., Des Moines, for appellants.
    Jim   Lawyer        of   Lawyer,   Lawyer,      Dutton       &   Drake,    LLP,
    West Des Moines, for appellee.
    2
    TERNUS, Chief Justice.
    This appeal involves a workers’ compensation insurer’s challenge
    to an award of penalty benefits by the workers’ compensation
    commissioner. The district court ruled the commissioner had applied an
    incorrect standard in determining the employer’s liability for penalty
    benefits under Iowa Code section 86.13 (2003) and concluded the case
    should be remanded to the commissioner for reconsideration of penalty
    benefits under the appropriate test.           Upon the employer’s appeal, the
    court    of   appeals   affirmed   the       district   court’s   remand   to   the
    commissioner.
    We conclude the commissioner’s award of penalty benefits was not
    supported by substantial evidence because the underlying workers’
    compensation claim was fairly debatable as a matter of law under the
    record before the commissioner.          Therefore, we vacate the court of
    appeals decision, affirm the judgment of the district court in part and
    reverse in part, and remand the case for entry of a judgment consistent
    with this opinion.
    I. Background Facts and Proceedings.
    On August 1, 2003, the appellee, Angela Blasnitz, filed a petition
    for arbitration seeking workers’ compensation benefits for a shoulder
    injury she was ultimately found to have sustained on January 17, 2003.
    Her employer, City of Madrid, Iowa, and its workers’ compensation
    insurer, EMC Insurance Companies, denied her claim, contending she
    had not sustained a shoulder injury on the date alleged. (We will refer to
    these parties jointly as the insurer.)             An arbitration decision was
    eventually entered by a deputy workers’ compensation commissioner,
    awarding disability, medical, and penalty benefits.
    3
    On intra-agency appeal, the workers’ compensation commissioner
    affirmed, adopting the deputy’s decision with some “additional analysis”
    concerning     the   penalty   benefits   issue.    Before   reviewing   the
    commissioner’s analysis of this issue, it is helpful to summarize the
    pertinent facts found by the commissioner, as well as the relevant
    documentary evidence and testimony introduced at the hearing.
    In January 2003 the claimant was employed as a police officer for
    the City of Madrid. On January 17, 2003, she was dispatched to a call at
    the home of Michael and Susan Palmer to investigate a domestic
    disturbance.     The claimant testified at her workers’ compensation
    hearing that she slipped and fell in the Palmer home, striking her right
    shoulder and elbow.      At the time of the incident, the claimant was
    wearing a remote microphone for her patrol vehicle recording system,
    and she can be heard to fall on the tape. Her fall was not visible on the
    tape, however.
    The claimant stated in answers to interrogatories that she had
    immediate pain in her shoulder and elbow. The patrol car tape shows
    her conducting a vehicle stop after her fall, sometimes using her right
    arm above her shoulder. She does say “ouch” once while searching the
    vehicle. The claimant did not record that she sustained an injury when
    she completed her patrol activity report for her January 17, 2003 shift.
    The claimant had been injured three times while working for the city
    before the January 17, 2003 incident, and on each occasion, she had
    noted her injury in her patrol activity log on the day the injury occurred.
    The claimant testified she had a discussion with the police chief
    the day after her fall regarding an injury to her shoulder.      The chief,
    however, denied he had a conversation with the claimant on January 18
    or January 19, as he did not work on either date.
    4
    The police chief gave the claimant a three-day suspension on
    February 19, 2003, for failing to follow an office directive with respect to
    an unrelated matter. On the final day of her suspension, February 24,
    2003, the claimant sought her initial treatment for her shoulder, neck
    and arm. She reported to her chiropractor on that date that she had her
    first symptoms after a fall on her right shoulder approximately three
    weeks earlier. The claimant wrote a note to her employer the next day,
    February 25, 2003, stating that she fell “at the 10-16” and hurt her back
    and shoulder. In response to this note, the insurer authorized medical
    care with a Dr. Kirkland, who the claimant saw on March 19, 2003. The
    claimant reported to Dr. Kirkland that she slipped and fell on either
    January 17, 2003, or December 17, 2002, while responding to a call, but
    according to his records, she really could not remember.           Also on
    March 19, 2003, the claimant reported to Therapeutic Associates that
    the injury occurred ninety days prior. On March 26, 2003, she told a
    physical therapist that she injured her shoulder on January 17, 2003,
    when responding to a domestic-dispute call. She gave the same history
    to a physician she consulted on May 7, 2003, who determined the
    claimant had a rotator cuff tear in her right shoulder.       The claimant
    subsequently had two surgeries to repair the tear.
    On three occasions in April 2003, the insurer made surveillance
    videos of the claimant. In one video, she can be seen bridling, leading,
    and grooming three horses for approximately ninety minutes, using both
    arms, sometimes above shoulder level.       At one point, she appears to
    briefly shake her right arm and hold her right shoulder. On May 21,
    2003, the insurer took a recorded statement from Mr. Palmer, one of the
    subjects of the claimant’s January 17 domestic-disturbance call.
    Mr. Palmer told the insurer that the claimant fell straight down on
    5
    January 17, 2003, and landed on her bottom. The insurer wrote to the
    claimant on May 22, 2003, denying her claim.
    On June 2, 2003, the claimant called Mr. Palmer and asked him to
    sign a statement for her because “she was having trouble with the
    workmen’s comp.”     The next day, June 3, 2003, Mr. Palmer gave a
    second statement to the insurer, stating that on January 17, 2003, “he
    had turned slightly and he turned back around and claimant had her
    feet in the air and her back was against the wall.” He explained that he
    “just wasn’t thinking right” when he gave his first statement. Eventually,
    Mr. Palmer’s deposition was taken on March 12, 2004. He testified that
    he did not see the claimant fall on January 17, 2003, but he did offer to
    help her up after her fall. He further testified she said she was fine, she
    did not act like she had been injured, and she did not rub her right arm
    or shoulder. Mr. Palmer also suggested in his deposition that the parties
    should question his wife about the incident as she was sitting on the
    couch facing the door where and when the claimant slipped.
    The insurer then contacted Mrs. Palmer, who gave a statement on
    March 17, 2004. Mrs. Palmer stated that she saw the claimant fall and
    did not recall that the claimant struck her right shoulder or arm in the
    course of her fall. Mrs. Palmer testified consistently with her statement
    when her deposition was subsequently taken on May 11, 2004.            She
    testified she saw the claimant fall, but did not see her hit anything. She
    said the claimant fell straight down on her bottom with her feet straight
    out in front of her. Mrs. Palmer said her husband asked the claimant if
    she was okay, and the claimant said she was okay and did not act
    injured.
    In addition to the testimony of the Palmers, the police chief
    testified at the hearing that the claimant told him in mid-2002 that she
    6
    had been kicked in the right arm by her horse. The police chief said he
    observed a large bruise on her arm at that time. The police chief and
    another officer also testified they believed the claimant had been
    untruthful in the past. Finally, the claimant’s surgeon stated there are
    activities involved in caring for and showing horses that could cause a
    rotator cuff tear.
    In affirming the deputy’s decision to award penalty benefits, the
    commissioner stated:
    Not every defense or factual dispute is sufficient to constitute
    the reasonable or probable cause or excuse as contemplated
    by section 86.13. Only a very unimaginative mind would be
    unable to find a shred of evidentiary fact that could be
    pointed to as a reason to deny compensability of any claim.
    Eyewitness accounts of the same incident commonly vary.
    Memories fade. A view of the totality of the evidence is
    required to determine whether reasonable or probable cause
    or excuse existed.       Substantial evidence that has a
    reasonable chance of prevailing is required . . . .
    (Emphasis added.) The commissioner then briefly reviewed the evidence,
    noting the record “contains some inconsistencies.”          Notwithstanding
    these inconsistencies, he concluded,
    Claimant was employed as a peace officer, a position that
    judges and juries typically consider to be one that brings
    credibility. . . . When the totality of the facts in this case are
    considered and weighed, I find that it was not reasonable to
    consider the untimely evidence from Ms. Palmer to be of
    sufficient import and reliability to have a reasonable chance
    of outweighing all the contrary evidence that supported the
    compensability of claimant’s claim. It cannot be stated
    better than how the deputy characterized it on page 14 of his
    decision, “In light of the overwhelming weight of other
    evidence, Ms. Palmer’s statements do not make claimant’s
    claim fairly debatable.”
    (Emphasis added.)
    The insurer sought judicial review of the commissioner’s award of
    penalty benefits, claiming (1) the commissioner had erroneously imposed
    7
    a burden on the insurer to show that its position had a reasonable
    chance of prevailing, and (2) the commissioner’s award of penalty
    benefits was not supported by substantial evidence.                 See Iowa Code
    § 17A.19(10)(c), (f).       The claimant argued in response that the
    commissioner’s standard was merely a restatement of the fairly
    debatable test and substantial evidence in the record supported the
    commissioner’s penalty-benefits award. The district court concluded the
    commissioner had applied an incorrect legal standard and reversed the
    award of penalty benefits. The court was unwilling, however, to rule as a
    matter of law that the compensability of the claimant’s claim was fairly
    debatable. Instead, the court decided “it would be more appropriate to
    remand” the case to the commissioner for reconsideration “in light of the
    appropriate legal standard.” The court observed the commissioner may
    determine on remand that the issue was fairly debatable or may award
    penalty benefits in a different amount, and that “decision would then be
    subject to subsequent judicial review on a substantial evidence
    standard.”
    The insurer appealed the district court’s ruling on the substantial-
    evidence issue, and the case was transferred to the court of appeals.
    That court agreed with the district court, ruling the appropriate relief
    was to remand the case to the commissioner so he could have an
    opportunity to consider an award of penalty benefits under the correct
    test.    The insurer filed an application for further review, which we
    granted.       The sole issue on appeal is whether the record before the
    commissioner provides substantial evidence to support an award of
    penalty benefits.1 See 
    id. § 17A.19(10)(f).
    Stated another way, we must
    1The  claimant does not contend on appeal that it would be inappropriate to
    address the substantial-evidence issue in view of the commissioner’s application of the
    incorrect legal standard, which appeared to be the concern prompting the district court
    8
    decide whether the compensability of the claimant’s claim was fairly
    debatable as a matter of law.          See Garcia v. Naylor Concrete Co., 
    650 N.W.2d 87
    , 91 (Iowa 2002) (“However, in challenging an agency finding, a
    party may not succeed merely by showing that the evidence would
    support a different conclusion than the one that the agency reached. In
    order to succeed, it must be demonstrated that, as a matter of law, the
    finding that the agency made was not supported by substantial
    evidence.” (Citation omitted.)).
    II. Standard of Review.
    “Under the Iowa Administrative Procedure Act, a reviewing court
    may reverse the decision of the workers' compensation commissioner if it
    is unsupported by substantial evidence in the record . . . .” Univ. of Iowa
    Hosps. & Clinics v. Waters, 
    674 N.W.2d 92
    , 95 (Iowa 2004) (citing Iowa
    Code § 17A.19(10) (2001)). “Substantial evidence”
    means the quantity and quality of evidence that would be
    deemed sufficient by a neutral, detached, and reasonable
    person, to establish the fact at issue when the consequences
    resulting from the establishment of that fact are understood
    to be serious and of great importance.
    Iowa Code § 17A.19(10(f)(1).         “In assessing evidentiary support for the
    agency's factual determinations, we consider evidence that detracts from
    the agency's findings, as well as evidence that supports them, giving
    deference to the credibility determinations of the presiding officer.”
    Lange v. Iowa Dep’t of Revenue, 
    710 N.W.2d 242
    , 247 (Iowa 2006) (citing
    Iowa Code § 17A.19(10)( f )(3)).
    to remand the case back to the commissioner. Therefore, we proceed directly to a
    discussion of whether there is substantial evidence in the record to support the award
    of penalty benefits. See generally Mosher v. Dep’t of Inspections & Appeals, 
    671 N.W.2d 501
    , 514, 518 (Iowa 2003) (concluding (1) agency had incorrectly interpreted the term
    “dependent adult” as used in governing statute and (2) agency’s finding that the nursing
    home resident was a “dependent adult” was not supported by substantial evidence).
    9
    III. Applicable Law.
    Penalty benefits in a workers’ compensation case are authorized by
    section 86.13, which states:
    If a delay in commencement or termination of benefits
    occurs without reasonable or probable cause or excuse, the
    workers’ compensation commissioner shall award benefits in
    addition to those benefits payable under this chapter or
    chapter 85, 85A, or 85B, up to fifty percent of the amount of
    benefits that were unreasonably delayed or denied.
    Iowa Code § 86.13, para. 4. A claimant seeking to recover under this
    statute must establish “a delay in the commencement of benefits or a
    termination of benefits.”   Keystone Nursing Care Ctr. v. Craddock, 
    705 N.W.2d 299
    , 307 (Iowa 2005). The burden then shifts to the insurer “to
    prove[] a reasonable cause or excuse” for the delay or denial.
    Christensen v. Snap-On Tools Corp., 
    554 N.W.2d 254
    , 260 (Iowa 1996).
    “A reasonable cause or excuse exists if either (1) the delay was necessary
    for the insurer to investigate the claim or (2) the employer had a
    reasonable basis to contest the employee’s entitlement to benefits.” 
    Id. The claimant
    does not argue the insurer took too long to
    investigate the claim before its May 23, 2003 denial.         Rather, the
    claimant contends the insurer did not have a reasonable basis to contest
    her entitlement to benefits. In the Christensen case, we held the “fairly
    debatable” standard used in the tort of bad faith denial of insurance
    claims should be used for purposes of section 86.13 penalty benefits in
    determining whether a workers’ compensation insurer had a reasonable
    basis to deny a claimant’s claim. 
    Id. This court
    recently stated the following principles with respect to
    the reasonable-basis element of a bad-faith tort claim:
    A reasonable basis exists for denial of policy benefits if the
    insured’s claim is fairly debatable either on a matter of fact
    or law. A claim is “fairly debatable” when it is open to
    10
    dispute on any logical basis.          Stated another way, if
    reasonable minds can differ on the coverage-determining
    facts or law, then the claim is fairly debatable.
    The fact that the insurer’s position is ultimately found
    to lack merit is not sufficient by itself to establish the first
    element of a bad faith claim. The focus is on the existence of
    a debatable issue, not on which party was correct.
    Whether a claim is fairly debatable can generally be
    decided as a matter of law by the court. That is because
    “ ‘where an objectively reasonable basis for denial of a claim
    actually exists, the insurer cannot be held liable for bad faith
    as a matter of law.’ ” As one court has explained, “[c]ourts
    and juries do not weigh the conflicting evidence that was
    before the insurer; they decide whether evidence existed to
    justify denial of the claim.”
    Bellville v. Farm Bureau Mut. Ins. Co., 
    702 N.W.2d 468
    , 473-74 (Iowa
    2005) (citations omitted) (emphasis added).
    IV. Discussion.
    It is apparent the commissioner erroneously weighed the evidence
    in deciding whether the claimant’s claim was fairly debatable. Moreover,
    the commissioner focused on only one item of evidence—Mrs. Palmer’s
    statement—in evaluating the reasonableness of the insurer’s denial.
    Finally, the commissioner improperly suggested the employer should
    have considered the claimant to be credible simply because she was
    employed as a peace officer. Using the proper analysis and considering
    all the facts before the commissioner that would support the insurer’s
    denial, we conclude the insurer cannot be held liable for penalty benefits
    as a matter of law.
    Several facts and circumstances supported the insurer’s position
    that the claimant did not injure her shoulder in her January 17, 2003
    fall, including the following: (1) Mr. Palmer initially stated the claimant
    fell straight down and landed on her bottom; (2) Mr. Palmer modified his
    account of this incident only after the claimant called him, and even
    then, he continued to testify that the claimant said she was not injured
    11
    immediately after her fall (in contrast to the claimant’s testimony that
    she felt immediate pain); (3) Mrs. Palmer stated the claimant fell straight
    down on her bottom; (4) the claimant’s surgeon testified that if the
    claimant fell flat on her bottom and did not hit her arm on anything, the
    fall would not have caused the injury for which he treated her; (5) the
    claimant failed to record her injury in her activity log, in contrast to three
    prior work-related injuries that she noted in her activity logs on the day
    the injuries occurred2; (6) the police chief denied he was told of the
    claimant’s injury the day after it occurred, as claimed by the claimant; (7)
    the claimant failed to seek medical treatment until five weeks after her
    fall; (8) the claimant gave inconsistent statements to treatment providers
    as to the date of her injury; (9) although at the hearing the claimant
    denied using her right arm above shoulder level to conduct a sobriety
    test in a stop three hours after her fall, her patrol car video tape shows
    the claimant using her right arm above shoulder level several times
    during the stop; (10) the claimant stated to the police chief in mid-2002
    that she had been kicked in the right arm by her horse and the police
    chief observed a large bruise on her arm; (11) the claimant’s surgeon
    testified there are activities involved in caring for and showing horses
    that could cause a rotator cuff tear; and (12) the police chief and another
    police officer believed the claimant had been untruthful at times. Only
    one conclusion can be drawn from the undisputed existence of the
    foregoing statements, testimony, and records:                 the insurer had a
    2On February 20, 2002, the claimant noted in her patrol activity log that she
    twisted her left ankle on large rocks in a parking lot. On August 2, 2002, she noted in
    her log that she was assaulted by a suspect and subsequently seen at the Boone
    County Hospital. On November 30, 2002, the claimant recorded in her activity log that
    she had dropped a clipboard on the top of her left foot, causing it to turn black and
    blue.
    12
    reasonable basis to contend the claimant did not sustain a rotator cuff
    tear when she fell on January 17, 2003.
    The claimant argues that many of the facts shown at the hearing
    were unknown to the insurer when it denied payment for the claimant’s
    surgery on June 20, 2003, and the facts known by the insurer on that
    date were not sufficient to render the insurer’s denial reasonable.
    Contrary to the claimant’s contention, it is uncontroverted in the record
    that, by June 20, 2003, the insurer had a statement from Mr. Palmer in
    which he stated the claimant fell straight down on her bottom, and it had
    medical records in which the claimant gave inconsistent histories of her
    injury. These facts made the claimant’s claim fairly debatable. Those
    facts arising later or coming to the attention of the insurer subsequent to
    June 20, 2003, merely provided further support for the insurer’s decision
    to persist in its denial.
    We note the claimant, in discussing the facts pertinent to the
    validity of her claim for benefits, ignores Mr. Palmer’s initial statement,
    apparently due to the fact that he subsequently gave a second statement
    more favorable to the claimant. But the insurer is not required to accept
    the evidence most favorable to the claimant and ignore contradictory
    evidence.     See 
    Bellville, 702 N.W.2d at 479
    (stating insurer is not
    required to view the facts in a light most favorable to the claimant);
    Gilbert v. USF Holland, Inc., 
    637 N.W.2d 194
    , 200 (Iowa 2001) (stating
    employer could reasonably argue later inconsistent version of incident
    was   a     fabrication).   Here,   reasonable   persons   could   discount
    Mr. Palmer’s assertion that he “just wasn’t thinking right” when he gave
    his first statement and disbelieve his second statement, concluding
    Mr. Palmer changed his account of what happened to assist the claimant
    in recovering workers’ compensation benefits. Similarly, the insurer was
    13
    not required to believe the claimant simply because she was a police
    officer, as implied by the commissioner.
    The claimant also relies on the fact the commissioner rejected the
    insurer’s evidence when the commissioner ruled the claimant sustained
    a shoulder injury on January 17, 2003. But the fact the commissioner
    was not convinced by the evidence supporting the insurer’s denial does
    not negate the existence of a genuine dispute with respect to whether the
    claimant’s January 2003 fall was the cause of her injury. 
    Bellville, 702 N.W.2d at 473
    (stating the fact the insurer’s position is ultimately found
    to lack merit will not by itself establish the insurer had no reasonable
    basis for its denial of benefits); 
    Gilbert, 637 N.W.2d at 200
    (same).
    In view of the facts that created a genuine dispute with respect to
    the cause of the claimant’s rotator cuff tear, we conclude the claimant’s
    claim was fairly debatable as a matter of law. See 
    id. at 474
    (“[I]f it is
    undisputed that evidence existed creating a genuine dispute . . . , a court
    can almost always decide that the claim was fairly debatable as a matter
    of law.”).   Consequently, the commissioner’s award of penalty benefits
    was not supported by substantial evidence. See 
    Gilbert, 637 N.W.2d at 201
    (“In conclusion, we hold as a matter of law there was a reasonable
    factual dispute as to the manner in which Gilbert's injury occurred.
    Therefore, there is not substantial evidence in the record to support a
    finding that the compensability of his injury was not fairly debatable.”).
    The district court should have remanded this case to the commissioner
    for entry of an order denying penalty benefits.
    V. Disposition.
    The record before the commissioner established that the claimant’s
    entitlement to benefits was fairly debatable as a matter of law.
    Consequently, there is not substantial evidence to support a finding that
    14
    the insurer’s denial of that claim was “without reasonable or probable
    cause or excuse” so as to entitle the claimant to penalty benefits.
    Because there is not substantial evidence to support the commissioner’s
    award of such benefits, that part of the commissioner’s decision must be
    reversed.
    We vacate the court of appeals decision because that court
    concluded the penalty-benefits issue should be remanded for a ruling by
    the commissioner.   We affirm that part of the district court’s decision
    reversing the commissioner’s award of penalty benefits. We reverse that
    part of the district court judgment remanding the matter to the
    commissioner for reconsideration of the penalty-benefits claim. Finally,
    we remand this case to the district court for entry of an order reversing
    the commissioner’s award of penalty benefits and directing the
    commissioner to deny the claimant’s request for penalty benefits.
    DECISION OF COURT OF APPEALS VACATED.                   DISTRICT
    COURT JUDGMENT AFFIRMED IN PART AND REVERSED IN PART;
    CASE REMANDED.