Boylan v. American Motorists Ins. Co.

• Decision Date: 23 September 1992
• Docket Number: No. 91-1520,91-1520
• Citation: 489 N.W.2d 742
• Parties: Robert BOYLAN, Appellant, v. AMERICAN MOTORISTS INSURANCE COMPANY, Appellee.
• Court: Iowa Supreme Court

Page 742

489 N.W.2d 742

Robert BOYLAN, Appellant, v. AMERICAN MOTORISTS INSURANCE COMPANY, Appellee.

No. 91-1520.

Supreme Court of Iowa.

Sept. 23, 1992.

Rehearing Denied Oct. 23, 1992.

Lyle A. Rodenburg, Council Bluffs, for appellant.

Craig A. Levien and Vicki L. Seeck of Betty, Neuman & McMahon, Davenport, for appellee.

Considered by HARRIS, P.J., and LARSON, CARTER, LAVORATO, and SNELL, JJ.

CARTER, Justice.

Plaintiff, Robert Boylan, appeals from an order granting a motion to dismiss his bad-faith tort claim against his employer's workers' compensation insurance carrier, defendant, American Motorist Insurance Company (American). After considering the arguments presented, we reverse the district court's order.

Plaintiff's petition claimed that he was entitled to continuing workers' compensation benefits as a result of industrial injuries sustained in the course of his employment with Cresline Plastic Pipe Company. He alleged that the defendant "delayed and then terminated [his] workers' compensation weekly benefits and medical benefits, arbitrarily and capriciously, without notice and in bad faith." He further claimed that as a consequence of the acts and omissions of Cresline's insurance carrier, American, his original injuries were aggravated. He sought recovery of compensatory damages, including consequential damages for aggravated injuries, punitive damages, and attorney fees.

The district court granted American's motion to dismiss for failure to state a claim upon which relief can be granted. It concluded that the relationship between an injured employee and the employer's workers' compensation carrier is not analogous to those first-party insurance claims for which this court in Dolan v. AID Insurance Co., 431 N.W.2d 790 (Iowa 1988), recognized tort liability for bad faith. The court determined that the relationship between a workers' compensation claimant and the employer's insurer is more analogous to the relationship between a tort victim and the tortfeasor's liability insurer. This court has refused to recognize bad-faith tort liability on the part of the liability insurer in the latter situation. See Long v. McAllister, 319 N.W.2d 256, 262 (Iowa 1982).

The district court also concluded that the presence of a statutory remedy for unreasonably delayed or terminated workers' compensation benefits in Iowa Code section 86.13 (1991) militates against recognition of a common-law tort remedy. As might be expected, American urges on appeal that the reasons given by the district court for dismissing the petition provide an adequate basis on which to sustain that ruling. Plaintiff, on the other hand, urges that none of those reasons were sufficient to warrant dismissal of his claim on the pleadings.

In Long, we refused to recognize a victim's bad-faith tort claim against the tortfeasor's insurer even though we acknowledge that tort victims are technically third-party beneficiaries of the tortfeasor's insurance. We based our holding in Long on the fact that

[t]he insurer has a fiduciary duty to the insured but an adversary relationship with the victim. The effect of the policy is to align the insurer's interests with those of the insured. In meeting its duty to the insured, the insurer must give as much consideration to the insured's interests as it does to its own.

Id. at 262. In seeking to apply Long, the district court determined that an employer or workers' compensation insurance carrier is not required to pay weekly benefits or to pay medical service providers prior to the time the industrial commissioner has determined the employee's entitlement to benefits. We do not believe that characterization is entirely accurate.

As a result of 1982 amendments to the workers' compensation act, Iowa Code section 86.13 (1991) now provides in part:

If a delay in commencement or termination of benefits occurs without reasonable or probable cause or excuse, the industrial 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.

1982 Iowa Acts ch. 1161, § 23. Section 86.13 does not require that the unreasonable delay or termination of benefits for which a penalty may be ordered occur after a determination of benefit eligibility by the industrial commissioner. It recognizes, at least with respect to temporary disability or healing period benefits, an affirmative obligation on the part of the employer and insurance carrier to act reasonably in regard to benefit payments in the absence of specific direction by the commissioner.

The act also imposes an affirmative obligation to furnish medical and hospital supplies to an injured employee. See Iowa Code § 85.27 (1991) ("The treatment must be offered promptly and be reasonably suited to treat the injury without undue inconvenience to the employee."). Although the latter statute speaks only of the obligation of the employer, the commissioner's regulations consign these obligations to the employer's insurance carrier. 343 Iowa Admin.Code 2.3, 4.10. As a result of the obligations that these statutes and administrative regulations place on the insurer, this case is more similar to Dolan than it is to Long.

A number of well-reasoned decisions from other jurisdictions have recognized the potential tort liability of workers' compensation insurers for willful or reckless disregard of their obligation to pay benefits to injured employees. Hollman v. Liberty Mut. Ins. Co., 712 F.2d 1259, 1261-62 (8th Cir.1983) (applying South Dakota law); Stafford v. Westchester Fire Ins. Co., 526 P.2d 37, 43-44 (Alaska 1974), overruled on...