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

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.
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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.
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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
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§ 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.
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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
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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
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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.