McIlravy v. North River Ins. Co.

• Decision Date: 09 October 2002
• Docket Number: No. 01-0008.,01-0008.
• Citation: 653 N.W.2d 323
• Parties: David McILRAVY, Appellant, v. NORTH RIVER INSURANCE COMPANY and Crum & Forster Insurance, Appellees.
• Court: Iowa Supreme Court

653 N.W.2d 323

David McILRAVY, Appellant, v. NORTH RIVER INSURANCE COMPANY and Crum & Forster Insurance, Appellees.

No. 01-0008.

Supreme Court of Iowa.

October 9, 2002.

Maureen Roach Tobin of Whitfield & Eddy, P.L.C., Des Moines, for appellant.

Stephen D. Hardy and Michael A. Carmoney of Grefe & Sidney, P.L.C., Des Moines, for appellees.

Mark S. Soldat, Algona, and David D. Drake of Lawyer, Lawyer, Dutton & Drake, West Des Moines, filed a brief on behalf of amicus curiae Iowa Trial Lawyers Association, by the Core Group of its Workers' Compensation Section.¹

CADY, Justice.

The primary issue we face in this appeal is whether an injured worker presented a viable cause of action against his employer's workers' compensation carrier for bad faith in denying his claim for workers' compensation benefits. The district court granted the carrier's motion for summary judgment and the court of appeals affirmed the decision. On further review, we vacate the decision of the court of appeals, affirm the decision of the district court in part and reverse in part, and remand for further proceedings.

I. Background Facts and Proceedings.

David McIlravy was employed by Ace Construction Company as an iron worker. His work commonly required him to bend, lift, stoop, carry, and climb. He normally wore a tool belt that weighed approximately twenty pounds.

On August 7, 1997, McIlravy injured his right knee while working at a job site in Ames. McIlravy was helping erect a building at the time. The injury occurred after McIlravy descended from a ladder and was walking across a level cement floor to pick up some items some distance away. While walking, he felt and heard a pop in his knee. He was not wearing his tool belt at the time, and was not carrying anything. He had experienced no prior problems with his knee. McIlravy felt no pain at the time and completed his work tasks for the day. That evening, however, after returning home, his knee began to swell. It was extremely sore and stiff the following morning. McIlravy went to the work site in the morning, but the condition of his knee prevented him from working after a short period of time. His employer directed him to a medical clinic in West Des Moines, where he was referred to Jon C. Gehrke, M.D., an orthopedic surgeon.

On August 12, 1997, a claims examiner employed by the workers' compensation carrier for Ace Construction, North River Insurance Company/Crum & Forster Insurance Company, interviewed McIlravy for the purpose of determining whether to pay benefits for the injury. On August 18 the claims examiner sent McIlravy a letter advising him that benefits were denied. The letter explained that the knee injury was idiopathic and only coincidentally occurred during working hours.

On August 25, 1997, Dr. Gehrke sent a letter to the claims examiner indicating he performed an MRI on McIlravy's right knee. The procedure revealed the injury was a torn medial meniscus. He further expressed his opinion, without explanation, that the injury was "work-related." After conservative treatment failed, Dr. Gehrke performed partial medial menisectomy surgery to repair the knee. North River made no effort to obtain an independent medical examination to dispute or corroborate Dr. Gehrke's opinion on the cause of the injury. The company also did not consult an attorney to determine whether Dr. Gehrke's letter had any impact on the denial of McIlravy's claim.

North River continued to deny benefits and McIlravy filed a contested case proceeding with a demand for penalty benefits. The parties deposed Dr. Gehrke in February 1998, who explained he believed the injury sustained by McIlravy was work-related because McIlravy was working when the injury occurred and his job involved heavy labor activities, which placed him at greater risk for such injuries than workers engaged in less labor intensive activities. North River did not obtain a medical expert to review Dr. Gehrke's opinion following the deposition, and conducted no further investigation.

The industrial commissioner awarded benefits to McIlravy, and assessed a penalty for the unreasonable denial of benefits. The district court affirmed the decision of the industrial commissioner on its review of the case, and our court of appeals affirmed the decision of the district court on appeal.

On August 3, 1999, McIlravy filed a tort action against North River for bad faith refusal to pay the workers' compensation benefits. North River moved for summary judgment, and McIlravy moved for partial summary judgment. North River argued that McIlravy's action was required to be dismissed because the workers' compensation claim was fairly debatable as a matter of law. McIlravy argued that the element of the bad faith tort requiring him to establish the absence of a reasonable basis for denying benefits was established as a matter of law under the doctrine of issue preclusion when the industrial commissioner awarded penalty benefits as a part of its decision to award workers' compensation benefits.

The district court denied McIlravy's motion for a partial summary judgment and granted summary judgment for North River. It found that the doctrine of issue preclusion was inapplicable to the case, and further found there was no substantial evidence presented to establish the absence of a reasonable basis by North River for denying benefits. The district court found the claim for benefits was fairly debatable at the time of denial because the cause of injury was idiopathic. The court of appeals affirmed. It found there was a reasonable debate whether the injury was caused by McIlravy's individual susceptibility to the injury or the heavy labor activities associated with his job because McIlravy was not engaged in any work activity that placed stress or trauma on his knee at the time of the injury.

II. Scope of Review.

We review a ruling on a summary judgment motion for errors at law. Harvey v. Care Initiatives, Inc., 634 N.W.2d 681, 683 (Iowa 2001); Crippen v. City of Cedar Rapids, 618 N.W.2d 562, 565 (Iowa 2000); Swartzendruber v. Schimmel, 613 N.W.2d 646, 649 (Iowa 2000). A district court properly grants summary judgment when there is no genuine issue of material fact and the moving party is entitled to judgment as a matter of law. Iowa R. Civ. P. 1.981(3); State ex rel. Palmer v. Unisys Corp., 637 N.W.2d 142, 149 (Iowa 2001); Crippen, 618 N.W.2d at 565; Swartzendruber, 613 N.W.2d at 649. A factual issue is "material" when "the dispute is over facts that might affect the outcome of the suit." Fouts ex rel. Jensen v. Mason, 592 N.W.2d 33, 35 (Iowa 1999) (citation omitted). The burden is on the party moving for summary judgment to prove the facts are undisputed. Interstate Power Co. v. Ins. Co. of N. Am., 603 N.W.2d 751, 756 (Iowa 1999); Sandbulte v. Farm Bureau Mut. Ins. Co., 343 N.W.2d 457, 464 (Iowa 1984).

In ruling on a summary judgment motion, the facts must be viewed in a light most favorable to the party resisting the motion. McNally & Nimergood v. Neumann-Kiewit Constructors, Inc., 648 N.W.2d 564, 570 (Iowa 2002) (citation omitted); State ex rel. Palmer, 637 N.W.2d at 149; Crippen, 618 N.W.2d at 565. The court must consider on behalf of the nonmoving party every legitimate inference that can be reasonably deduced from the record. State ex rel. Palmer, 637 N.W.2d at 149; Crippen, 618 N.W.2d at 565; Shivvers v. Hertz Farm Mgmt., Inc., 595 N.W.2d 476, 479 (Iowa 1999). An inference is legitimate if it is "rational, reasonable, and otherwise permissible under the governing substantive law." Butler v. Hoover Nature Trail, Inc., 530 N.W.2d 85, 88 (Iowa Ct.App.1994) (citation omitted). On the other hand, an inference is not legitimate if it is "based upon speculation or conjecture." Id. If reasonable minds may differ on the resolution of an issue, a genuine issue of material fact exists. Swartzendruber, 613 N.W.2d at 649; Shivvers, 595 N.W.2d at 479.

III. Applicability of Issue Preclusion.

McIlravy argues that the element of the bad faith tort requiring him to establish the absence of a reasonable basis for denying benefits was established as a matter of law under the doctrine of issue preclusion when the industrial commissioner awarded penalty benefits as a part of its decision to award workers' compensation benefits. In so arguing, McIlravy seeks to intermingle two distinct methods by which a self-insured employer or an employer's workers' compensation carrier may be penalized due to their delay in payment of workers' compensation benefits.

The first method is described by statute. It arises from the language of Iowa Code section 86.13, which states in part:

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 (1999) (emphasis added).

The determination of whether a delay "occurs without reasonable or probable cause or excuse," requires an examination of the employer's or the carrier's actions in response to the employee's claim. Id. A delay in commencement of benefits is permissible if "(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." Christensen v. Snap-On Tools Corp., 554 N.W.2d 254, 260 (Iowa 1996) (emphasis added). "A `reasonable basis' for denial of the claim exists if the claim is `fairly debatable.'" Id. In every section 86.13 claim, "[t]he focus is on whether timely payment of the benefits due was made and if not, whether there was a reasonable excuse for the failure to make timely payment of the amount owed." Id.

The second method by which a self-insured employer or employer's workers' compensation carrier may be...