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In recent years, attorneys representing injured employees have asserted a seemingly increasing number of penalty benefit claims in worker's compensation cases. It also seems as though penalty benefit awards have been made on an incresingly frequent basis by the Iowa Workers' Compensation Commission. This increasingly frequent litigation and awards likely were the result of a string of cases from the Iowa Supreme Court that seemed to encourage and command penalty benefits in many cases. However, the Iowa Supreme Court now appears to be saying that these penalty benefit claims and awards have run a astray of the statutory langauge and basis. It seems as though the Court is now attempting to inject some reason and restore some reservation to the award of penalty benefits. In a decision issued October 5, 2007, the Iowa Supreme Court appears to be taking a practical and reserved approach to the award of penalty benefits in Iowa.
In order to understand the significance of the recent decision, a review of how these claims developed is important. In 1982, the Iowa legislature amended the Iowa Workers' Compensation Act to include a statory penalty that could be assessed against employers and insurance carriers that acted unreasonably in denying or failing to pay injured worker's their weekly benefits. Pursuant to that statute, Iowa Code section 86.13, penalty benefits are permitted, indeed mandatory, in worker's compensation cases when an employer or insurance carrier unreasonably delays in the commencement or termination of weekly benefits to an injured employee. Typically, this arises when an insurance carrier ignores its own physician's opinions and fails to commence payment of weekly benefits on a clearly compensable work injury claim. When the employer or insurance carrier fails to properly adjust a claim, they can be penalized up to 50% of the weekly benefits delayed or denied.
The statutory authority for these penalty benefit claims is Iowa Code section 86.13, which provides that
[i]f a delay in commencement or termination of benefits occurs without reasonable or probable excuse, the workers' compensation commissioner shall award benefits ... up to fifty percent of the amount of benefits that were unreasonably delayed or denied.
The intention or purpose of this statutory penalty provision is to encourage timely and prompt payment of weekly benefits to injured workers.
While no reasonable person would argue that the intention and purpose of Iowa's penalty statute is wrong, it seems as though the Iowa Supreme Court is now reflecting on the implementation of that statute and questioning whether it has been implemented and applied too often and in inappropriate ways.
The trend for many years was expansion of the interpretation and application of Iowa's penalty benefit statute. However, in 2005, the Iowa Supreme Court took a step back and reviewed the statutory language, intent, and perhaps recognized that the statute was being applied too frequently and resulting in odd results.
In a case entitled Keystone Nursing Care Center v. Craddock, 705 N.W.2d 299 (Iowa 2005), the Iowa Supreme Court revisited the penalty benefit statute. In that case, an injured worker was offered treatment and ultimately the treating neurosurgeon authored a report indicating that the worker could return to work without restrictions. The case involved an injury to an
unscheduled
member of the body (the back). Accordingly, the proper analysis or inquiry for the Commissioner was to determine whether there was any loss of future earning capacity as a result of the injury.
The employer took the position that the employee had no loss of future earning capacity because she had no medical restrictions and could perform all pre-injury work. In fact, the employee returned to work for the employer. However, the employee testified that the treating surgeon had verbally told her to be careful with certain work duties. The employee claimed that the verbal medical restriction would potentially preclude future work opportunities.
Ultimately, the Iowa Workers' Compensation Commissioner accepted the injured worker's version and concluded that an oral medical restriction had been given by the physician. Based on that medical restriction, the Commissioner awarded benefits to compensate the injured worker for a future loss of earning capacity. In addition, the Commissioner concluded that, since an oral medical restriciton was given, it was unreasoanble for the employer to deny weekly benefits for a permanent partial disability claim (loss of future earning capacity). Therefore, the Commissioner sanctioned the insurance carrier by awarding penalty benefits.
The insurance carrier appealed the award of penalty benefits. Taking a chance to ponder the applicable standard for an award of penalty benefits, the Iowa Supreme Court reversed the penalty benefit award as a matter of law. In doing so, the Court noed that the employer/insurance carrier need only have facts present that would justify an award in their favor, if those facts were hypothetically accepted by the Commissioner. The Craddock decison was an important change in the law but its ramifications and implementation were yet to be seen.
On October 5, 2007, the Iowa Supreme Court issued a decision entitled City of Madrid v. Blasnitz, ___ N.W.2d ___ (Iowa Ocotber 5, 2007). In the Blasnitz case, the Iowa Supreme Court appears to be telling attorneys as well as the Commissioner that it meant what it said in Craddock. It appears that the Iowa Supreme Court has reviewed the frequency and breadth of the Commissioner's application of the penalty benefit statute and determined that this issue is too often litigated and that penalty benefits are awarded in too many cases.
In Blasnitz, the Iowa Supreme Court clarified and reiterated that
the insurer is not required to accept the evidence most favorable to the claimant and ignore contradictory evidence.
This case appears to be a victory for the employers and insurance carriers of Iowa. Blasnitz appears to be reiterating that employers need not "roll over" and accept all claims at face value. If an employer has facts that can reasonably be disputed, even if the employer's version of events ultimately is not acceptd by the Commissioner, then the employer/insurance carrier is entitled to and justified in denying and challenging entitlement to a claim.
From this author's viewpoint, the Blasnitz case also reiterates that the Commissioner must decide the underlying factual and legal disputes to determine first whether the injured worker is entitled to any benefits. Then, if the Commissioner awards benefits to the injured worker, the Commissioner must return to the evidence and determine whether the employer and insurance carrier introduced any evidence into the record, which if it had been accepted, would have resulted in a denial of weekly benefits. The Iowa Supreme Court appears to be indicating that the evidence produced by Claimant is not relevant to this inquiry and that the Commissioner is not supposed to again
weigh
the competing evidence. Instead, this is an objective test in which the Commissioner simply determines whether the employer produced any evidence, which if accepted, would have resulted in a different result.
From a practical standpoint, the Blasnitz decision may reduce the number of penalty benefit claims asserted. It may enable the Iowa Workers' Compensation Commissioner to dismiss many of the pending penalty benefit claims against employers as a matter of law without wasting time trying and briefing these issues. It is yet to be seen how the Commissioner will apply the Blasnitz decision to future penalty benefit claims. However, it seems as though the trend has turned and the Iowa Supreme Court has realized that penalty benefits are too frequently awarded and that, if not checked, the penalty benefit awards will stiffle employers from asserting otherwise legitmate defenses for fear of being penalized.
As an attorney that represents employers and insurance carriers before the Commission, I can relay personal experience that penalty benefits are a significant concern for employers. Even when an employer believes it has a reasonable defense, it must consider the potential that the Commissioner may find against the employer and later determine that the defense was unreasonable. While the worker's compensation system was established for the benefit of the injured worker, it often seems that the employer is precluded from asserting valid challenges to entitlement. It appears to me that the Iowa Supreme Court has recognized this problem and is attepting to "right the ship" to permit full and legitimate defense of work comp claims without repeated and realistic threats of bad faith and penalty benefits. I believe the Iowa Supreme Court has gotten it right in Blasnitz and hope that this is a trend that allows for the more vigorous defense of questionable worker's compensation claims.
Ideally, all claims asserted would be legitimate, litigation would be unnecessary, and all injured employees would be paid their entitled benefits immediately. In the real world, however, not all claims are legitimate, not all employees or employers are honest, and litigation is necessary for an orderly dispostiion of disputes in a civilized society. Given that there are individuals that will try to make inappropirate claims, it must be remembered that payment of claims that are not owed results in higher worker's compensation costs for employers, lower wages for employees, and higher cost of goods for everyone. Permitting employers to challenge questionable claims may make it more difficult for some legitimate claims to be paid. However, the benefit to society of challenging questionable claims must be recognized. It appears that the Iowa Supreme Court
gets it
and I congratulate the Court for its practical approach and understanding in the Blasnitz case.
Posted by William H. Grell on October 9, 2007 6:27 PM
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