Can you sue for bad faith failure to pay benefits while your workers' compensation case progresses through the Industrial Commission?

According to Leliefeld vs Liberty Mutual Insurance Company the answer is yes.

Leliefeld vs Liberty Mutual Insurance Company, No. 1-636 / 11/0047, Court of Appeals Of Iowa, November 9, 2011

Parties: James Leliefeld and Liberty Mutual Insurance Company (No surprise here.)

Attorneys: James C. Huber and Richard G. Book of Huber, Book, Cortese & Lanz,

P.C., West Des Moines, for appellant.

Sasha L. Monthei of Scheldrup, Blades, Schrock, Smith & Aranza, P.C., Cedar Rapids, for appellee (No surprise here.)

Bottom Line: Even the judges are getting sick and tired of the insurance industry business model that denies every claims, stalls in every possible way and thinks the court system is here for promoting the float and allowing huge pay bonuses to wealthy insurance CEO’s.

Here is the case.

IN THE COURT OF APPEALS OF IOWA

No. 1-636 / 11-0047

Filed November 9, 2011

JAMES LELIEFELD,

Plaintiff-Appellee,

vs.

LIBERTY MUTUAL INSURANCE,

Defendant-Appellant.

________________________________________________________________

Appeal from the Iowa District Court for Wright County,  James M. Drew,

Judge. 

A plaintiff appeals from the district court’s order denying in part his motion

to stay proceedings.  AFFIRMED.

James C. Huber and Richard G. Book of Huber, Book, Cortese & Lanz,

P.C., West Des Moines, for appellant.

Sasha L. Monthei of Scheldrup, Blades, Schrock, Smith & Aranza, P.C.,

Cedar Rapids, for appellee.

Heard by Danilson, P.J., and Tabor and Mullins, JJ.2

MULLINS, J.

James Leliefeld filed a claim before the workers’ compensation

commission and while that claim was being litigated,  he filed a civil suit against

his employer’s workers’ compensation insurer in district court.  The district court

denied the insurer’s request to stay the  entirety of the proceedings pending the

resolution of the administrative action.  The insurer appeals and asserts that the

district court should have stayed discovery and the setting of a trial date. 

Because we find the district court did not abuse its discretion, we affirm.

I. Background Proceedings.

On July 16, 2007, Leliefeld was in a work-related motor-vehicle accident. 

On June 4, 2009,  Leliefeld filed a workers’ compensation claim against  his

employer, Knife River, and Knife River’s workers’ compensation insurer, Liberty

Mutual Insurance. 

On July 19, 2010,  while his workers’ compensation  claim was being

litigated, Leliefeld filed a petition in district court seeking damages for bad-faith

denial of  workers’ compensation  benefits and negligent infliction of emotional

distress against Liberty Mutual.    On November 4, 2010, Liberty Mutual filed a

motion to stay proceedings, arguing that the issues on which the suit were based

were still pending before the workers’ compensation commissioner.  It stated that

“extensive paper discovery” had been filed upon it by Leliefeld and the civil claim

had already been set for trial.  Liberty Mutual requested the district court stay all

proceedings, including discovery, pending the resolution of the  workers’

compensation litigation.3

On December 8, 2010, the district court issued its ruling, which stated,

For the reasons stated in the defendant’s motion the court

agrees that this case should not be tried until the plaintiff’s

underlying workers’ compensation claim is resolved.  See Reedy v.

White Consolidated Industries, 503 N.W.2d 601 (1993).  However,

because the incidents that are the basis of the present action

occurred as early as 2007 the court believes it is unreasonable to

deny the parties the opportunity to conduct discovery in the

meantime.  The court recognizes that there might be some conflict

regarding the discoverability of certain information given the

pending workers’ compensation case.  The court believes any such

conflicts can be adequately addressed by way of objections to

discovery requests and hearings on those matters as they arise.

Additionally, the court believes that a trial scheduling

conference is appropriate.  Although there is no way of knowing

when the workers’ compensation case will be resolved it makes

sense to schedule a trial well into the future so that the case can

proceed with as little delay as possible once the other matter is

resolved.  Obviously, if the trial date approaches and the workers’

compensation case is not  yet finalized the trial in this matter will

have to be continued.

Thus the district court granted Liberty Mutual’s motion in part and denied it in

part.

Liberty Mutual filed an application for an interlocutory appeal and

requested the district court proceedings be stayed.  Liberty Mutual asserted that

the district court should have stayed all the proceedings and not allowed

discovery to continue or a trial to be scheduled until the workers’ compensation

case was finalized.   On January 19, 2011, the supreme court granted Liberty

Mutual’s requests.  The appeal was transferred to this court.

II. Standard of Review.

Our review is for correction of error at law.  Iowa R. App. P. 6.907. 

However, the district court is vested with discretion in ruling on a  request for a

stay and therefore, we examine whether the district court abused its discretion in 4

ruling on the motion to stay.  See Reedy, 503 N.W.2d at 603-04 (“[T]he goal of

having material issues of benefit entitlement decided in the first instance by the

industrial commissioner is best handled through a discretionary abstention policy

that operates to delay the consideration of those issues by a court.”).    “We find

such an abuse when the district court exercises its discretion on grounds or for

such reasons clearly untenable or to an extent clearly unreasonable.”   State ex

rel. Miller v. Nat’l Dietary Research, Inc., 454 N.W.2d 820, 822 (Iowa 1990)

(citations and internal quotations omitted).

III. Analysis.

Liberty Mutual asserts the district court abused its discretion, arguing it

was unreasonable to allow for discovery to proceed and a trial date to be set and

cites to  Reedy.    In  Reedy, the federal district court asked the Iowa Supreme

Court whether an employee must litigate and resolve his workers’ compensation

case before bringing a bad-faith claim against a self-insured employer in federal

court.  503 N.W.2d at 602.  The supreme court found that because the workers’

compensation commissioner did not have jurisdiction to consider the civil bad

faith claim, the statutory exhaustion-of-remedy doctrine was not applicable to the

independent tort and the district court  had jurisdiction  over the bad faith claim

prior to the resolution of the administrative proceedings.   Id. at 603;  see also

Brown v. Liberty Mut. Ins. Co., 513 N.W.2d 762, 763 (Iowa 1994).  However, “the

administrative agency has  jurisdiction to settle important factual questions that

may have a direct bearing on the bad-faith claim.”   Reedy, 503 N.W.2d at 603. 

The court held,5

[I]t would be clearly preferable to have the extent of the defending

party’s liability for such payments determined in the first instance by

the administrative agency entrusted with the administration of the

Iowa workers’ compensation laws.  Moreover, we believe that

decisions made through this administrative process that are

relevant to the issues in the bad-faith action will, in many instances,

carry preclusive effect under the principles we recognized in Board

of Supervisors v. Chicago & North Western Transportation Co., 260

N.W.2d 813, 815 (Iowa 1977).

We believe, however, that, within the context of a bad-faith

tort claim based on failure to provide workers’ compensation

benefits, the goal of having material issues of benefit entitlement

decided in the first instance by the industrial commissioner is best

handled through a discretionary abstention policy that operates to

delay the consideration of those issues by a court.  Cases filed prior

to the completion of the administrative process should not be

routinely dismissed on ripeness grounds.  That is a circumstance

that should encourage courts, whenever it is feasible to do so, to

permit the case to  remain on the docket while awaiting the

administrative determination.

Id. at 603-04;  see also  Brown, 513 N.W.2d  at 764 (explaining  that rather than

viewing the issue as one of adjudicative “ripeness,” it was “more an issue of case

management” and courts  were encouraged “to await final agency decision

whenever feasible”).

Liberty Mutual argues that under Reedy, all proceedings should be stayed

until a workers’ compensation claim is concluded.  While the supreme court held

“issue preclusion principles make it desirable to have the extent of an insurer’s

liability determined administratively before the district court entertains a bad-faith

action,” it did not mandate that a stay be granted or all proceedings be stayed.

Brown, 513 N.W.2d at 764; Reedy, 503 N.W.2d at 603-04.  Rather, the decision

to issue a stay was left to the discretion of the district court.  Reedy, 503 N.W.2d

at 603-04.   In the present case, the district court clearly considered the nature of

the case.  The workers’ compensation case had been  fully  submitted to the 6

administrative agency, and the discovery granted in the civil case would  not

affect the resulting agency decision.   While an administrative agency decision

may preclude the bad-faith claim, the issues  raised in the respective claims are

not identical.  See id. (explaining a bad-faith action focuses on the insurer’s predenial conduct, not benefit eligibility, and therefore, accrues upon receipt of

notification the insurer had denied the claim).  Further, the ruling ensures that the

extent of the insurer’s liability would be determined in the administrative agency

action before the bad-faith claim was tried.  We find no abuse of discretion and

affirm.

AFFIRMED.