Rodda v. Vermeer Mfg.

• Decision Date: 29 June 2007
• Docket Number: No. 05-1371.,05-1371.
• Citation: 734 N.W.2d 480
• Parties: David RODDA, Appellant, v. VERMEER MANUFACTURING and EMC RISK SERVICES, INC., Appellees.
• Court: Iowa Supreme Court

734 N.W.2d 480

David RODDA, Appellant, v. VERMEER MANUFACTURING and EMC RISK SERVICES, INC., Appellees.

No. 05-1371.

Supreme Court of Iowa.

June 29, 2007.

Donald G. Beattie of Beattie Law Firm, P.C., Des Moines, for appellant.

Dale A. Knoshaug and Lu Ann White of Hanson, Bjork & Russell, L.L.P., Des Moines, for appellee Vermeer Manufacturing.

Matthew G. Novak of Pickens, Barnes & Abernathy, Cedar Rapids, for appellee EMC Risk Services, Inc.

LARSON, J.

David Rodda, the plaintiff in this case, sued his former employer, Vermeer Manufacturing, and its risk manager (collectively Vermeer) for alleged bad-faith failure to pay healing-period benefits under Iowa Code section 85.34(1) (2001). The district court rejected his claim, entering summary judgment against him, and he appealed. The court of appeals reversed, and we granted further review. We vacate the decision of the court of appeals and affirm the judgment of the district court.

I. Facts and Prior Proceedings.

David Rodda was injured in his job with Vermeer on August 25, 2000. Rodda had been working assembling tractors at the time of his injury, and after his injury, he was placed on light duty in accordance with work restrictions imposed by his doctors. Rodda received appropriate healing-period benefits pursuant to Iowa Code section 85.34 until he was laid off on March 8, 2001, as part of a company-wide layoff. Rodda then received unemployment benefits from March 8 through July 1, 2001, pursuant to Iowa Code section 96.4(3). He did not, however, receive workers' compensation healing-period benefits for this time period, and this is the primary basis of his bad-faith suit. Additionally, Rodda complains he did not receive healing-period benefits for one additional day, January 29, 2001. A deputy workers' compensation commissioner ruled that Rodda was entitled to healing-period benefits for both periods of time, and this decision was affirmed on agency appeal.

On March 13, 2003, Rodda filed a petition at law, alleging Vermeer acted in bad faith in denying healing-period benefits for these time periods. The district court granted Vermeer's motion for summary judgment, concluding the defendants acted reasonably as a matter of law in denying Rodda's claim for healing-period benefits for the period between March 8 and July 1, 2001. As to the one-day healing-period issue, the court found that there would be no reasonable basis to deny Rodda's claim for healing-period benefits for that day had Vermeer been aware of the claim, but there was no evidence it had been notified of the claim until the date of the hearing.

The court of appeals reversed, concluding Vermeer's denial of Rodda's healing-period benefits for the period of March 8 to July 1, 2001, was unreasonable as a matter of law. Further, it concluded a genuine issue of material fact existed as to whether Vermeer acted in bad faith in denying benefits for January 29, 2001.

On appeal, Vermeer contends the court of appeals erred in failing to apply the "fairly debatable" standard in determining whether Vermeer's denial of Rodda's healing-period benefits was reasonable. Vermeer also contends the court of appeals erred in finding a genuine issue of material fact existed as to whether Vermeer acted in bad faith in denying benefits for January 29, 2001.

II. Standard of Review.

Review of a district court's ruling on a motion for summary judgment is for correction of errors at law. McIlravy v. North River Ins. Co., 653 N.W.2d 323, 327 (Iowa 2002). Summary judgment is appropriate when there is no genuine issue of material fact and the moving party is entitled to judgment as a matter of law. Id. The burden is on the moving party to establish there is no genuine issue of material fact, and the facts must be viewed in the light most favorable to the nonmoving party. Id. at 327-28. Review of a district court's ruling on a motion for summary judgment in a bad-faith claim is the same as for other types of cases. Galbraith v. Allied Mut. Ins. Co., 698 N.W.2d 325, 328 (Iowa 2005). "[T]o succeed on such motions the [employer] must demonstrate that a reasonable trier of fact could not determine that the [employer] lacked a reasonable basis for denying or for delaying payment of the claim." Id.

III. Discussion.

Iowa law recognizes a common-law cause of action against an insurer for bad-faith denial or delay of insurance benefits. Dolan v. Aid Ins. Co., 431 N.W.2d 790, 794 (Iowa 1988). We extended this common-law tort to workers' compensation cases in Boylan v. American Motorists Insurance Co., 489 N.W.2d 742, 744 (Iowa 1992). Accord McIlravy, 653 N.W.2d at 329 ("Bad faith claims are applicable to workers' compensation insurers because they hold the discretionary power to affect the statutory rights of workers, which clearly reflects their obligation to act in good faith in the exercise of this authority.").

To establish a claim for first-party bad faith, in the analogous area of insurance law, we have said a plaintiff (the insured) must prove "`(1) that the insurer had no reasonable basis for denying benefits under the policy[, and] (2) the insurer knew, or had reason to know, that its denial was without basis.'" McIlravy, 653 N.W.2d at 329 (quoting United Fire & Cas. Co. v. Shelly Funeral Home, Inc., 642 N.W.2d 648, 657 (Iowa 2002)). "The first element is an objective one; the second element is subjective." Bellville v. Farm Bureau Mut. Ins. Co., 702 N.W.2d 468, 473 (Iowa 2005).

A reasonable basis for denying insurance benefits exists if the claim is "fairly debatable" as to either a matter of fact or law. Gibson v. ITT Hartford Ins. Co., 621 N.W.2d 388, 396 (Iowa 2001); see also Covia v. Robinson, 507 N.W.2d 411, 416 (Iowa 1993). "A claim is `fairly debatable' when it is open to dispute on any logical basis." Bellville, 702 N.W.2d at 473. Whether a claim is "fairly debatable" can generally be determined by the court as a matter of law. Id. (quoting Gardner v. Hartford Ins. Accident & Indem. Co., 659 N.W.2d 198, 206 (Iowa 2003)) ("That is because `[w]here 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.'"). If the court determines that the defendant had no reasonable basis upon which to deny the employee's benefits, it must then determine if the defendant knew, or should have known, that the basis for denying the employee's claim was unreasonable.

Vermeer contends that, as a matter of law, it had a reasonable basis for denying Rodda's healing-period benefits for the period between March 8 and July 1, 2001. This argument is premised on two theories—first, that Rodda's certification that he could work, in order to obtain unemployment compensation, was the equivalent of an admission that he was no longer entitled to workers' compensation benefits, and second, it was fairly debatable under Iowa Code section 96.5(5) whether Rodda could receive workers' compensation and unemployment-compensation benefits at the same time.

A. Rodda's certification. Vermeer contends it was "fairly debatable" that Rodda was unable to return to work similar to that which he was performing prior to his injury. The district court agreed with Vermeer and concluded that Rodda's certification that he was able to work in order to receive unemployment benefits was a sufficient basis for the defendants to question whether Rodda was still entitled to healing-period benefits. Compare Iowa Code § 85.34(1) (an employee is entitled to healing-period benefits "until the employee has returned to work or it is medically indicated that significant improvement from the injury is not anticipated or until the employee is medically capable of returning to employment substantially similar to the employment in which the employee was engaged at the time of injury") with id. § 96.4(3) (an employee is entitled to unemployment benefits when the employee "is able to work, is available for work, and is earnestly and actively seeking work").

We do not agree with the district court's ruling that Rodda's certificate in his unemployment compensation application, stating he was able to work, may reasonably be translated to mean that he was not entitled to healing-period benefits because he could perform the necessary work. This is especially so in this case, in which all inferences must be afforded to the party resisting summary judgment. A reasonable fact finder could conclude that Rodda's certification that he could work at some job (perhaps some form of light work) did not mean that he could work at the job in which he had been employed prior to his injury—assembly of heavy tractors. It is undisputed that Rodda's injury was work-related. It is also undisputed that Vermeer paid Rodda healing-period benefits for any time missed due to his work-related injury up until he was laid off on March 8, 2001, and began receipt of unemployment benefits. At no time did Vermeer receive medical information or...