IN THE SUPREME COURT OF IOWA
No. 69 / 06-0977
Filed October 5, 2007
CITY OF MADRID, IOWA, and EMC INSURANCE COMPANIES,
Appellants,
vs.
ANGELA BLASNITZ,
Appellee.
On review from the Iowa Court of Appeals.
Appeal from the Iowa District Court for Polk County, Arthur E.
Gamble, Judge.
Insurer seeks further review of court of appeals decision
remanding workers’ compensation case to commissioner for
determination of insurer’s liability for penalty benefits. DECISION OF
COURT OF APPEALS VACATED. DISTRICT COURT JUDGMENT
AFFIRMED IN PART AND REVERSED IN PART; CASE REMANDED.
Lori A. Brandau and Michael L. Mock of Bradshaw, Fowler, Proctor
& Fairgrave, P.C., Des Moines, for appellants.
Jim Lawyer of Lawyer, Lawyer, Dutton & Drake, LLP,
West Des Moines, for appellee.
2
TERNUS, Chief Justice.
This appeal involves a workers’ compensation insurer’s challenge
to an award of penalty benefits by the workers’ compensation
commissioner. The district court ruled the commissioner had applied an
incorrect standard in determining the employer’s liability for penalty
benefits under Iowa Code section 86.13 (2003) and concluded the case
should be remanded to the commissioner for reconsideration of penalty
benefits under the appropriate test. Upon the employer’s appeal, the
court of appeals affirmed the district court’s remand to the
commissioner.
We conclude the commissioner’s award of penalty benefits was not
supported by substantial evidence because the underlying workers’
compensation claim was fairly debatable as a matter of law under the
record before the commissioner. Therefore, we vacate the court of
appeals decision, affirm the judgment of the district court in part and
reverse in part, and remand the case for entry of a judgment consistent
with this opinion.
I. Background Facts and Proceedings.
On August 1, 2003, the appellee, Angela Blasnitz, filed a petition
for arbitration seeking workers’ compensation benefits for a shoulder
injury she was ultimately found to have sustained on January 17, 2003.
Her employer, City of Madrid, Iowa, and its workers’ compensation
insurer, EMC Insurance Companies, denied her claim, contending she
had not sustained a shoulder injury on the date alleged. (We will refer to
these parties jointly as the insurer.) An arbitration decision was
eventually entered by a deputy workers’ compensation commissioner,
awarding disability, medical, and penalty benefits.
3
On intra-agency appeal, the workers’ compensation commissioner
affirmed, adopting the deputy’s decision with some “additional analysis”
concerning the penalty benefits issue. Before reviewing the
commissioner’s analysis of this issue, it is helpful to summarize the
pertinent facts found by the commissioner, as well as the relevant
documentary evidence and testimony introduced at the hearing.
In January 2003 the claimant was employed as a police officer for
the City of Madrid. On January 17, 2003, she was dispatched to a call at
the home of Michael and Susan Palmer to investigate a domestic
disturbance. The claimant testified at her workers’ compensation
hearing that she slipped and fell in the Palmer home, striking her right
shoulder and elbow. At the time of the incident, the claimant was
wearing a remote microphone for her patrol vehicle recording system,
and she can be heard to fall on the tape. Her fall was not visible on the
tape, however.
The claimant stated in answers to interrogatories that she had
immediate pain in her shoulder and elbow. The patrol car tape shows
her conducting a vehicle stop after her fall, sometimes using her right
arm above her shoulder. She does say “ouch” once while searching the
vehicle. The claimant did not record that she sustained an injury when
she completed her patrol activity report for her January 17, 2003 shift.
The claimant had been injured three times while working for the city
before the January 17, 2003 incident, and on each occasion, she had
noted her injury in her patrol activity log on the day the injury occurred.
The claimant testified she had a discussion with the police chief
the day after her fall regarding an injury to her shoulder. The chief,
however, denied he had a conversation with the claimant on January 18
or January 19, as he did not work on either date.
4
The police chief gave the claimant a three-day suspension on
February 19, 2003, for failing to follow an office directive with respect to
an unrelated matter. On the final day of her suspension, February 24,
2003, the claimant sought her initial treatment for her shoulder, neck
and arm. She reported to her chiropractor on that date that she had her
first symptoms after a fall on her right shoulder approximately three
weeks earlier. The claimant wrote a note to her employer the next day,
February 25, 2003, stating that she fell “at the 10-16” and hurt her back
and shoulder. In response to this note, the insurer authorized medical
care with a Dr. Kirkland, who the claimant saw on March 19, 2003. The
claimant reported to Dr. Kirkland that she slipped and fell on either
January 17, 2003, or December 17, 2002, while responding to a call, but
according to his records, she really could not remember. Also on
March 19, 2003, the claimant reported to Therapeutic Associates that
the injury occurred ninety days prior. On March 26, 2003, she told a
physical therapist that she injured her shoulder on January 17, 2003,
when responding to a domestic-dispute call. She gave the same history
to a physician she consulted on May 7, 2003, who determined the
claimant had a rotator cuff tear in her right shoulder. The claimant
subsequently had two surgeries to repair the tear.
On three occasions in April 2003, the insurer made surveillance
videos of the claimant. In one video, she can be seen bridling, leading,
and grooming three horses for approximately ninety minutes, using both
arms, sometimes above shoulder level. At one point, she appears to
briefly shake her right arm and hold her right shoulder. On May 21,
2003, the insurer took a recorded statement from Mr. Palmer, one of the
subjects of the claimant’s January 17 domestic-disturbance call.
Mr. Palmer told the insurer that the claimant fell straight down on
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January 17, 2003, and landed on her bottom. The insurer wrote to the
claimant on May 22, 2003, denying her claim.
On June 2, 2003, the claimant called Mr. Palmer and asked him to
sign a statement for her because “she was having trouble with the
workmen’s comp.” The next day, June 3, 2003, Mr. Palmer gave a
second statement to the insurer, stating that on January 17, 2003, “he
had turned slightly and he turned back around and claimant had her
feet in the air and her back was against the wall.” He explained that he
“just wasn’t thinking right” when he gave his first statement. Eventually,
Mr. Palmer’s deposition was taken on March 12, 2004. He testified that
he did not see the claimant fall on January 17, 2003, but he did offer to
help her up after her fall. He further testified she said she was fine, she
did not act like she had been injured, and she did not rub her right arm
or shoulder. Mr. Palmer also suggested in his deposition that the parties
should question his wife about the incident as she was sitting on the
couch facing the door where and when the claimant slipped.
The insurer then contacted Mrs. Palmer, who gave a statement on
March 17, 2004. Mrs. Palmer stated that she saw the claimant fall and
did not recall that the claimant struck her right shoulder or arm in the
course of her fall. Mrs. Palmer testified consistently with her statement
when her deposition was subsequently taken on May 11, 2004. She
testified she saw the claimant fall, but did not see her hit anything. She
said the claimant fell straight down on her bottom with her feet straight
out in front of her. Mrs. Palmer said her husband asked the claimant if
she was okay, and the claimant said she was okay and did not act
injured.
In addition to the testimony of the Palmers, the police chief
testified at the hearing that the claimant told him in mid-2002 that she
6
had been kicked in the right arm by her horse. The police chief said he
observed a large bruise on her arm at that time. The police chief and
another officer also testified they believed the claimant had been
untruthful in the past. Finally, the claimant’s surgeon stated there are
activities involved in caring for and showing horses that could cause a
rotator cuff tear.
In affirming the deputy’s decision to award penalty benefits, the
commissioner stated:
Not every defense or factual dispute is sufficient to constitute
the reasonable or probable cause or excuse as contemplated
by section 86.13. Only a very unimaginative mind would be
unable to find a shred of evidentiary fact that could be
pointed to as a reason to deny compensability of any claim.
Eyewitness accounts of the same incident commonly vary.
Memories fade. A view of the totality of the evidence is
required to determine whether reasonable or probable cause
or excuse existed. Substantial evidence that has a
reasonable chance of prevailing is required . . . .
(Emphasis added.) The commissioner then briefly reviewed the evidence,
noting the record “contains some inconsistencies.” Notwithstanding
these inconsistencies, he concluded,
Claimant was employed as a peace officer, a position that
judges and juries typically consider to be one that brings
credibility. . . . When the totality of the facts in this case are
considered and weighed, I find that it was not reasonable to
consider the untimely evidence from Ms. Palmer to be of
sufficient import and reliability to have a reasonable chance
of outweighing all the contrary evidence that supported the
compensability of claimant’s claim. It cannot be stated
better than how the deputy characterized it on page 14 of his
decision, “In light of the overwhelming weight of other
evidence, Ms. Palmer’s statements do not make claimant’s
claim fairly debatable.”
(Emphasis added.)
The insurer sought judicial review of the commissioner’s award of
penalty benefits, claiming (1) the commissioner had erroneously imposed
7
a burden on the insurer to show that its position had a reasonable
chance of prevailing, and (2) the commissioner’s award of penalty
benefits was not supported by substantial evidence. See Iowa Code
§ 17A.19(10)(c), (f). The claimant argued in response that the
commissioner’s standard was merely a restatement of the fairly
debatable test and substantial evidence in the record supported the
commissioner’s penalty-benefits award. The district court concluded the
commissioner had applied an incorrect legal standard and reversed the
award of penalty benefits. The court was unwilling, however, to rule as a
matter of law that the compensability of the claimant’s claim was fairly
debatable. Instead, the court decided “it would be more appropriate to
remand” the case to the commissioner for reconsideration “in light of the
appropriate legal standard.” The court observed the commissioner may
determine on remand that the issue was fairly debatable or may award
penalty benefits in a different amount, and that “decision would then be
subject to subsequent judicial review on a substantial evidence
standard.”
The insurer appealed the district court’s ruling on the substantial-
evidence issue, and the case was transferred to the court of appeals.
That court agreed with the district court, ruling the appropriate relief
was to remand the case to the commissioner so he could have an
opportunity to consider an award of penalty benefits under the correct
test. The insurer filed an application for further review, which we
granted. The sole issue on appeal is whether the record before the
commissioner provides substantial evidence to support an award of
penalty benefits.1 See id. § 17A.19(10)(f). Stated another way, we must
1The claimant does not contend on appeal that it would be inappropriate to
address the substantial-evidence issue in view of the commissioner’s application of the
incorrect legal standard, which appeared to be the concern prompting the district court
8
decide whether the compensability of the claimant’s claim was fairly
debatable as a matter of law. See Garcia v. Naylor Concrete Co., 650
N.W.2d 87, 91 (Iowa 2002) (“However, in challenging an agency finding, a
party may not succeed merely by showing that the evidence would
support a different conclusion than the one that the agency reached. In
order to succeed, it must be demonstrated that, as a matter of law, the
finding that the agency made was not supported by substantial
evidence.” (Citation omitted.)).
II. Standard of Review.
“Under the Iowa Administrative Procedure Act, a reviewing court
may reverse the decision of the workers' compensation commissioner if it
is unsupported by substantial evidence in the record . . . .” Univ. of Iowa
Hosps. & Clinics v. Waters, 674 N.W.2d 92, 95 (Iowa 2004) (citing Iowa
Code § 17A.19(10) (2001)). “Substantial evidence”
means the quantity and quality of evidence that would be
deemed sufficient by a neutral, detached, and reasonable
person, to establish the fact at issue when the consequences
resulting from the establishment of that fact are understood
to be serious and of great importance.
Iowa Code § 17A.19(10(f)(1). “In assessing evidentiary support for the
agency's factual determinations, we consider evidence that detracts from
the agency's findings, as well as evidence that supports them, giving
deference to the credibility determinations of the presiding officer.”
Lange v. Iowa Dep’t of Revenue, 710 N.W.2d 242, 247 (Iowa 2006) (citing
Iowa Code § 17A.19(10)( f )(3)).
to remand the case back to the commissioner. Therefore, we proceed directly to a
discussion of whether there is substantial evidence in the record to support the award
of penalty benefits. See generally Mosher v. Dep’t of Inspections & Appeals, 671 N.W.2d
501, 514, 518 (Iowa 2003) (concluding (1) agency had incorrectly interpreted the term
“dependent adult” as used in governing statute and (2) agency’s finding that the nursing
home resident was a “dependent adult” was not supported by substantial evidence).
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III. Applicable Law.
Penalty benefits in a workers’ compensation case are authorized by
section 86.13, which states:
If a delay in commencement or termination of benefits
occurs without reasonable or probable cause or excuse, the
workers’ compensation commissioner shall award benefits in
addition to those benefits payable under this chapter or
chapter 85, 85A, or 85B, up to fifty percent of the amount of
benefits that were unreasonably delayed or denied.
Iowa Code § 86.13, para. 4. A claimant seeking to recover under this
statute must establish “a delay in the commencement of benefits or a
termination of benefits.” Keystone Nursing Care Ctr. v. Craddock, 705
N.W.2d 299, 307 (Iowa 2005). The burden then shifts to the insurer “to
prove[] a reasonable cause or excuse” for the delay or denial.
Christensen v. Snap-On Tools Corp., 554 N.W.2d 254, 260 (Iowa 1996).
“A reasonable cause or excuse exists if either (1) the delay was necessary
for the insurer to investigate the claim or (2) the employer had a
reasonable basis to contest the employee’s entitlement to benefits.” Id.
The claimant does not argue the insurer took too long to
investigate the claim before its May 23, 2003 denial. Rather, the
claimant contends the insurer did not have a reasonable basis to contest
her entitlement to benefits. In the Christensen case, we held the “fairly
debatable” standard used in the tort of bad faith denial of insurance
claims should be used for purposes of section 86.13 penalty benefits in
determining whether a workers’ compensation insurer had a reasonable
basis to deny a claimant’s claim. Id.
This court recently stated the following principles with respect to
the reasonable-basis element of a bad-faith tort claim:
A reasonable basis exists for denial of policy benefits if the
insured’s claim is fairly debatable either on a matter of fact
or law. A claim is “fairly debatable” when it is open to
10
dispute on any logical basis. Stated another way, if
reasonable minds can differ on the coverage-determining
facts or law, then the claim is fairly debatable.
The fact that the insurer’s position is ultimately found
to lack merit is not sufficient by itself to establish the first
element of a bad faith claim. The focus is on the existence of
a debatable issue, not on which party was correct.
Whether a claim is fairly debatable can generally be
decided as a matter of law by the court. That is because
“ ‘where 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.’ ” As one court has explained, “[c]ourts
and juries do not weigh the conflicting evidence that was
before the insurer; they decide whether evidence existed to
justify denial of the claim.”
Bellville v. Farm Bureau Mut. Ins. Co., 702 N.W.2d 468, 473-74 (Iowa
2005) (citations omitted) (emphasis added).
IV. Discussion.
It is apparent the commissioner erroneously weighed the evidence
in deciding whether the claimant’s claim was fairly debatable. Moreover,
the commissioner focused on only one item of evidence—Mrs. Palmer’s
statement—in evaluating the reasonableness of the insurer’s denial.
Finally, the commissioner improperly suggested the employer should
have considered the claimant to be credible simply because she was
employed as a peace officer. Using the proper analysis and considering
all the facts before the commissioner that would support the insurer’s
denial, we conclude the insurer cannot be held liable for penalty benefits
as a matter of law.
Several facts and circumstances supported the insurer’s position
that the claimant did not injure her shoulder in her January 17, 2003
fall, including the following: (1) Mr. Palmer initially stated the claimant
fell straight down and landed on her bottom; (2) Mr. Palmer modified his
account of this incident only after the claimant called him, and even
then, he continued to testify that the claimant said she was not injured
11
immediately after her fall (in contrast to the claimant’s testimony that
she felt immediate pain); (3) Mrs. Palmer stated the claimant fell straight
down on her bottom; (4) the claimant’s surgeon testified that if the
claimant fell flat on her bottom and did not hit her arm on anything, the
fall would not have caused the injury for which he treated her; (5) the
claimant failed to record her injury in her activity log, in contrast to three
prior work-related injuries that she noted in her activity logs on the day
the injuries occurred2; (6) the police chief denied he was told of the
claimant’s injury the day after it occurred, as claimed by the claimant; (7)
the claimant failed to seek medical treatment until five weeks after her
fall; (8) the claimant gave inconsistent statements to treatment providers
as to the date of her injury; (9) although at the hearing the claimant
denied using her right arm above shoulder level to conduct a sobriety
test in a stop three hours after her fall, her patrol car video tape shows
the claimant using her right arm above shoulder level several times
during the stop; (10) the claimant stated to the police chief in mid-2002
that she had been kicked in the right arm by her horse and the police
chief observed a large bruise on her arm; (11) the claimant’s surgeon
testified there are activities involved in caring for and showing horses
that could cause a rotator cuff tear; and (12) the police chief and another
police officer believed the claimant had been untruthful at times. Only
one conclusion can be drawn from the undisputed existence of the
foregoing statements, testimony, and records: the insurer had a
2On February 20, 2002, the claimant noted in her patrol activity log that she
twisted her left ankle on large rocks in a parking lot. On August 2, 2002, she noted in
her log that she was assaulted by a suspect and subsequently seen at the Boone
County Hospital. On November 30, 2002, the claimant recorded in her activity log that
she had dropped a clipboard on the top of her left foot, causing it to turn black and
blue.
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reasonable basis to contend the claimant did not sustain a rotator cuff
tear when she fell on January 17, 2003.
The claimant argues that many of the facts shown at the hearing
were unknown to the insurer when it denied payment for the claimant’s
surgery on June 20, 2003, and the facts known by the insurer on that
date were not sufficient to render the insurer’s denial reasonable.
Contrary to the claimant’s contention, it is uncontroverted in the record
that, by June 20, 2003, the insurer had a statement from Mr. Palmer in
which he stated the claimant fell straight down on her bottom, and it had
medical records in which the claimant gave inconsistent histories of her
injury. These facts made the claimant’s claim fairly debatable. Those
facts arising later or coming to the attention of the insurer subsequent to
June 20, 2003, merely provided further support for the insurer’s decision
to persist in its denial.
We note the claimant, in discussing the facts pertinent to the
validity of her claim for benefits, ignores Mr. Palmer’s initial statement,
apparently due to the fact that he subsequently gave a second statement
more favorable to the claimant. But the insurer is not required to accept
the evidence most favorable to the claimant and ignore contradictory
evidence. See Bellville, 702 N.W.2d at 479 (stating insurer is not
required to view the facts in a light most favorable to the claimant);
Gilbert v. USF Holland, Inc., 637 N.W.2d 194, 200 (Iowa 2001) (stating
employer could reasonably argue later inconsistent version of incident
was a fabrication). Here, reasonable persons could discount
Mr. Palmer’s assertion that he “just wasn’t thinking right” when he gave
his first statement and disbelieve his second statement, concluding
Mr. Palmer changed his account of what happened to assist the claimant
in recovering workers’ compensation benefits. Similarly, the insurer was
13
not required to believe the claimant simply because she was a police
officer, as implied by the commissioner.
The claimant also relies on the fact the commissioner rejected the
insurer’s evidence when the commissioner ruled the claimant sustained
a shoulder injury on January 17, 2003. But the fact the commissioner
was not convinced by the evidence supporting the insurer’s denial does
not negate the existence of a genuine dispute with respect to whether the
claimant’s January 2003 fall was the cause of her injury. Bellville, 702
N.W.2d at 473 (stating the fact the insurer’s position is ultimately found
to lack merit will not by itself establish the insurer had no reasonable
basis for its denial of benefits); Gilbert, 637 N.W.2d at 200 (same).
In view of the facts that created a genuine dispute with respect to
the cause of the claimant’s rotator cuff tear, we conclude the claimant’s
claim was fairly debatable as a matter of law. See id. at 474 (“[I]f it is
undisputed that evidence existed creating a genuine dispute . . . , a court
can almost always decide that the claim was fairly debatable as a matter
of law.”). Consequently, the commissioner’s award of penalty benefits
was not supported by substantial evidence. See Gilbert, 637 N.W.2d at
201 (“In conclusion, we hold as a matter of law there was a reasonable
factual dispute as to the manner in which Gilbert's injury occurred.
Therefore, there is not substantial evidence in the record to support a
finding that the compensability of his injury was not fairly debatable.”).
The district court should have remanded this case to the commissioner
for entry of an order denying penalty benefits.
V. Disposition.
The record before the commissioner established that the claimant’s
entitlement to benefits was fairly debatable as a matter of law.
Consequently, there is not substantial evidence to support a finding that
14
the insurer’s denial of that claim was “without reasonable or probable
cause or excuse” so as to entitle the claimant to penalty benefits.
Because there is not substantial evidence to support the commissioner’s
award of such benefits, that part of the commissioner’s decision must be
reversed.
We vacate the court of appeals decision because that court
concluded the penalty-benefits issue should be remanded for a ruling by
the commissioner. We affirm that part of the district court’s decision
reversing the commissioner’s award of penalty benefits. We reverse that
part of the district court judgment remanding the matter to the
commissioner for reconsideration of the penalty-benefits claim. Finally,
we remand this case to the district court for entry of an order reversing
the commissioner’s award of penalty benefits and directing the
commissioner to deny the claimant’s request for penalty benefits.
DECISION OF COURT OF APPEALS VACATED. DISTRICT
COURT JUDGMENT AFFIRMED IN PART AND REVERSED IN PART;
CASE REMANDED.