Iowa Supreme Court Rules Third-Party Administrators Cannot Be Liable for Bad Faith Cause of Action

Posted on: June 25th, 2019

In a case pending in the United States District Court for Northern District of Iowa, the Iowa Supreme Court answered a certified question by federal district court Judge Mark Bennett regarding whether a Third-Party Administrator for workers’ compensation insurance carriers may not be held liable for bad faith causes of action brought by workers’ compensation claimants. In deciding the case, the Iowa Supreme Court looked to its prior decisions with respect to bad faith claims against insurers. Iowa first recognized the tort of first party bad faith in Dolan v. Aid Insurance Company, 431 N.W.2d 790 (Iowa 1988) (en banc). In Dolan, the Court recognized that insurance contracts are contracts of adhesion, thus recognition of first party bad faith causes of action helped level the playing field to redress the inherent inequality such contracts present. A few years later, in 1992, Boylan v. Am. Motorists Ins., 489 N.W.2d 742 (Iowa 1992), the Court expanded the rationale of Dolan and applied first party bad faith claims to workers’ compensation insurers. A year later, the tort was expanded to self-insured employers. See Reedy v. White Consolidated Industries, Inc., 503 N.W.2d 601 (Iowa 1993).

Ultimately, the Court looked at the position of a third-party administrator relative to the relationship of insurer/insured and opined that a “third-party administrator is not in an insurer/insured relationship with anyone. And unlike a self-insured employer, a third-party administrator does not have to meet rigorous financial requirements and is not under the ongoing supervision of the workers’ compensation commissioner.”

In the answering Judge Bennett’s certified question, the Court held “under Iowa law, a common law cause of action for bad-faith failure to pay workers’ compensation benefits is not available against a third-party claims administrator of a worker’s compensation insurance carrier.”

Samuel De Dios v. Indemnity Insurance Company of North America & Boardspire Services, Inc., No. 18-1227 (Iowa May 14, 2019)

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