Recent Case Law

Iowa Workers' Compensation Decisions of Note

 

McIlravy v. North River Insurance Co., 653 N.W.2d 323 (Iowa 2002).

 
McIlravy worked as a laborer and injured his knee at work when he fell while merely walking over flat, level concrete.  McIlravy was not wearing a tool belt or carrying anything at the time of his fall.  North River interviewed McIlravy and denied his work comp claim stating the injury was idiopathic and only coincidentally occurred at work.  The examining doctor then wrote an opinion to North River opining it was a work related injury and later explained in his deposition that laborers are put at a greater risk of injury than people engaged in less labor intensive activities.  North River failed to get a second opinion or conduct any other investigation and as a result the industrial commissioner awarded McIlravy penalties for an unreasonable denial of benefits.

 McIlravy then filed this (second) action, which was a bad faith tort claim, against North River for refusal to pay his workers' compensation benefits.  To recover under this theory, McIlravy must show (1) there was no reasonable basis for denial, and (2) the insurer knew, or had reason to know, that its denial was without basis.

This case presents two issues for an insurance company.  First, a work comp claimant can be awarded penalties for an unreasonable denial of benefits and then sue the insurance carrier for a bad faith denial in an attempt to obtain punitive damages.  However, the establishment of penalties in the work comp court does not automatically result in a finding of bad faith in the tort action.  Second, an insurance company needs to continue to monitor the reasonableness of its denial of benefits, especially when new evidence is received linking the injury to work.  The Court here did not find it was unreasonable to continue the denial after the doctor's initial opinion, but that it became unreasonable once the doctor explained the connection to work.  Thus, if new evidence is received that calls in to question the reasonableness of the denial, the insurance company should conduct its own investigation and may want to consult with legal counsel.  Finally, it is important to note that a delay in payment of benefits is permissible if (1) the delay is necessary for the insurer to investigate the claim or (2) the employer had a reasonable basis to contest the employee's entitlement to benefits.