White v. Northwestern Bell Telephone Co.

• Decision Date: 23 March 1994
• Docket Number: No. 93-210,93-210
• Parties: Richard Lee WHITE, Appellee, v. NORTHWESTERN BELL TELEPHONE COMPANY a/k/a Mountain States Telephone and Telegraph Company a/k/a US West Communications, Inc., Appellants.
• Court: Iowa Supreme Court

Page 70

514 N.W.2d 70

Richard Lee WHITE, Appellee, v. NORTHWESTERN BELL TELEPHONE COMPANY a/k/a Mountain States Telephone and Telegraph Company a/k/a US West Communications, Inc., Appellants.

No. 93-210.

Supreme Court of Iowa.

March 23, 1994.

George A. Carroll, Minneapolis, MN, for appellants.

Joel W. Bittner, Des Moines, for appellee.

Considered by McGIVERIN, C.J., and HARRIS, LARSON, LAVORATO, and NEUMAN, JJ.

NEUMAN, Justice.

This appeal stems from a dispute between an employee and his former employer over payment of medical expenses under a settlement agreement approved by the Iowa Industrial Commissioner. The main issue is whether settlement approval under Iowa Code section 85.35 (1991) terminates the commissioner's jurisdiction over subsequent claims arising from the agreement. The district court assumed jurisdiction over the dispute and awarded the employee compensatory and punitive damages. We affirm in part, reverse in part, and remand for entry of judgment in accordance with this opinion.

Until his retirement in 1979, appellee Richard White worked for thirty-one years as a telephone installer for appellant US West. ¹ He claimed to have incurred a work-related back injury, and sought workers' compensation benefits. US West disputed both the source of White's injury and the degree of his disability. Eventually the parties negotiated a compromise case settlement pursuant to Iowa Code section 85.35 (1979), which was approved by the industrial commissioner in March 1980.

Under the settlement, US West agreed to

furnish future medical care to the claimant of the same kind and to the same degree as would be required of the employer under the Iowa Workers' Compensation Act had settlement not been approved and had claimant's injuries been held by the industrial commissioner to have been compensable.

The agreement further provided:

Furnishing of future medical care by the employer is not a determination of entitlement to such care under the Iowa Workers' Compensation Act, but rather, is furnished under denial of liability and pursuant to the agreement of the parties in full, final and complete settlement of their disputes.... This approval is binding upon the parties and shall not be construed as an original proceeding. This approval constitutes a final bar to any further rights arising under chapters 85, 85A, 86 and 87 Code of Iowa, except further medical treatment under § 85.27 of the 1979 Code of Iowa. Payment under this Order shall not be construed as the payment of weekly compensation.

Until 1985, the parties proceeded without relative incident under the agreement. During most of this time, White submitted his medical bills for review by US West's benefits committee; on approval, payment was made directly to White, who in turn paid the health care provider. Sometime in 1984, however, US West changed its payment policy. Thereafter White's bills were reviewed at US West's Des Moines office by its workers' compensation manager, Kathie Hungerford. Hungerford's position evolved to the point of possessing nearly total discretion to approve or deny a claim and, upon her approval, payment was sent directly to the provider. This change in practice proved to be the catalyst for the controversy now before us.

For a number of years, White's doctors prescribed the drug Percodan for pain control. US West approved payment. In September 1985, however, US West informed White that, despite objections from his attending physician, the company would no longer pay for Percodan prescriptions. Dr. Lawrence Staples, US West's medical director, cited the addictive potential of the narcotic drug as the ground for the decision. Dr. Staples offered White alternatives to Percodan such as pain clinic therapy or treatment with less addictive analgesics. White sought the advice of Dr. James Blessman, a physician at Mercy Hospital's pain clinic, who recommended against such therapy because of the age of White's injury. White testified at trial that he told Hungerford of Dr. Blessman's recommendation, but she denied such knowledge. She did admit, however, that she reviewed and authorized payment of Dr. Blessman's consultation bill.

White remained on Percodan and continued until 1990 to submit his prescription bills to Hungerford. Dr. Burton Routman, White's treating physician, testified that he kept White on Percodan because he knew of no other viable means to control White's pain. Despite this information, US West remained steadfast in its policy of denying Percodan coverage. Blue Cross/Blue Shield, administrator of White's health insurance plan, ² also denied payment because the prescription was related to an on-the-job injury properly covered by workers' compensation insurance. US West was fully aware of the bind this created for White, but his Percodan bills continued to go unpaid.

Further controversies arose between the parties. In May 1986, White received a prescription for a therapeutic contour chair to alleviate his back pain. Hungerford forwarded the prescription to Dr. Staples, who advised her that US West would likely have to approve the chair as part of White's continued treatment. Upon receiving this response, Hungerford wrote to Dr. Staples, stating, "I don't know if it makes any difference, but do you realize this chair is $3,220! " After further consultation with US West's legal department, Hungerford rejected the claim on the basis that the chair was not a "reasonable and necessary" medical appliance.

By 1988, White was living part of each year with his daughter in Phoenix, Arizona. Dr. D.C. Delbridge, White's treating physician in Phoenix, opined that White would benefit from regular use of a jacuzzi or hot tub. Given this recommendation, White approached Hungerford about the idea of a health club membership. Hungerford reluctantly approved the $400 annual membership fee. Later that year, when the health club went bankrupt and White requested a new membership at a different facility, Hungerford denied the request. She cited the lack of proven medical benefit and suggested White consult a physical therapist for appropriate care.

In 1989, US West began what Hungerford described as "aggressive case management" in an effort to control costs in all its workers' compensation files. Hungerford wrote White to inform him that:

No more unauthorized medical expenses will be paid by Northwestern Bell/US West Communications for your treatment. All prescriptions, examinations and medical "appliances" ... must be authorized in advance except in the event of a true medical emergency.

Hungerford described a "true medical emergency" as a "life-threatening" situation necessitating hospital care. She did not consider White's regular course of treatment such an emergency. Hungerford also testified that the company wanted White to establish an authorized primary care physician. Although White had consistently sought treatment from Dr. Routman in Des Moines and Dr. Delbridge in Phoenix, and US West had previously authorized their care, Hungerford expressed uncertainty whether US West would have chosen these particular physicians. Therefore, she concluded, it was necessary for White to obtain pre-approval before future consultation.

White testified that, pursuant to this new policy, he obtained authorization from US West's medical director in Arizona for appointments with Dr. Marjorie Auerbach. US West, however, never paid Dr. Auerbach's bills. US West paid Dr. Delbridge's bills until January 1990, but thereafter refused compensation for any unauthorized treatments. In what became a test of wills, White continued consulting Dr. Routman and a physician in Davenport, but all bills from these physicians were rejected by US West. Hungerford testified that the rejection was based on White's persistent failure to obtain prior approval and US West's belief that it could settle the matter without litigation.

In March 1990, White brought an action before the industrial commissioner concerning his various disputes with US West under the settlement agreement. The industrial commissioner ruled that it lacked jurisdiction to resolve the disputes pursuant to Iowa Code section 85.35. White then filed an original action in district court, alleging breach of the settlement agreement, bad-faith failure to pay medical claims, and intentional infliction of emotional distress. US West's motion to dismiss for lack of subject matter jurisdiction was denied. The court found that US West breached the settlement and awarded White $8949.46 plus interest for unpaid medical and pharmaceutical bills. It also ruled that US West's breach was intentional and wrongful and awarded White $50,000 in punitive damages. The court denied White's claim of severe emotional distress. It further denied recovery for bad-faith failure to pay workers' compensation benefits, noting that the law had not yet extended the tort to a self-insured employer. This appeal followed.

US West asserts on appeal that the district court erred (1) by failing to find it lacked subject matter jurisdiction over the controversy, (2) in ruling that US West had breached the settlement agreement, (3) in its assessment of compensatory damages, and (4) by awarding punitive damages. White cross-appeals the court's denial of his bad-faith claim. We shall consider the parties' arguments in turn.

I. Subject matter jurisdiction. In overruling US West's motion to dismiss for lack of jurisdiction, the district court found the language of the settlement agreement dispositive. It determined that White's right to medical benefits arose solely from the agreement, and not from the workers' compensation act; the industrial commissioner made no determination that White's injuries were work-related. We review the court's ruling on subject matter jurisdiction for the correction of errors at law. Iowa R.App.P. 4; Tigges v. City of Ames, 356 N.W.2d 503, 512 (Iowa 1984).

US West asserts that only the...