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An injured employee cannot hold a third-party claims administrator liable for failure to pay workers compensation benefits, the Iowa Supreme Court held Friday.
In De Dios v. Indemnity Insurance Co. of North America, the state’s high court held in a 5-2 decision that a worker cannot pursue a bad-faith cause of action against a third-party claims administrator of a workers comp insurance company.
Samuel De Dios worked for Brand Energy & Infrastructure Services and was injured on a construction site when he was rear-ended at the security gate. The company maintained a workers compensation insurance policy through Philadelphia-based Indemnity Insurance Co. of North America, a subsidiary of ACE American Insurance Co., which utilized Peachtree Corners, Georgia-based Broadspire Services Inc. as its third-party administrator. Mr. De Dios claimed that his manager said he could go where he liked for treatment, and over the next few days said his back pain worsened. He claimed that from the day of the accident, April 8, 2016, through May 9, 2016, his employer failed to provide him with light duty work. He alleged that the insurer and TPA knew or should have known he had work restrictions as a result of his injury, and were required to pay him temporary total disability benefits and/or healing period benefits until a determination of maximum medical improvement was made by a medical expert.
Mr. De Dios argued that neither the TPA nor the insurer interviewed him, his treating physicians nor the colleague who witnessed the accident before denying him workers comp benefits, and filed a claim with the Iowa Workers Compensation Commissioner against Indemnity and Broadspire; the insurer and TPA jointly denied liability for his work injury. He later filed a bad-faith claim against Broadspire in the U.S. District Court for the Northern District of Iowa. The court declined to rule but instead certified a question to the Iowa Supreme Court to determine whether Mr. De Dios’ claim against Broadspire could proceed.
The court held that Broadspire, as a TPA, is not an issuer or the equivalent of an insurer, and therefore bad-faith tort liability for failure to pay workers compensation benefits cannot be imposed without an insurer/insured relationship.
Although the court noted that Iowa workers comp law refers to TPAs, it “imposes no obligations on them relative to the handling of workers compensation claims.”
Mr. De Dios argued that an insurer could completely delegate its authority to a TPA, which could “arbitrarily deny coverage and delay payment of a claim to an injured worker with minimal consequences,” but the court said an insurer cannot delegate its duty of good faith. Therefore, the court held that there was no basis in law for extending bad-faith liability to TPAs on workers comp and remanded the case to the district court for further proceedings.
Two justices dissented from the majority. In his dissent opinion, Justice Brent Appel said that when third-party intermediaries “have the power to affect the insurance interests of the claimant, they should be answerable in tort for their bad-faith actions.”
He argued that there was nothing in Iowa case law that precluded the court from recognizing a bad-faith tort when an insurance intermediary is the functional equivalent of the insurer and said it was critical to have direct accountability in insurance.
“To me, one of the essential functions of our tort system is to ensure that parties responsible for the foreseeable injuries that they cause through their misconduct, particularly those done in bad faith, are held directly accountable,” he said, arguing that the court “should recognize a potential bad-faith claim against third-party administrators in the insurance context when they, in essence, undertake the essential functions of an insurance company as alleged in this case.”
Broadspire declined to comment. The attorneys in the case did not immediately respond to requests for comment.
Last May, the City of Manhattan, Kan., began soliciting proposals for a third-party administrator to provide services this year.