IOWA PENALTY STATUTE BREAKDOWN

Under the Iowa Workers’ Compensation Act employers and carriers must have a reasonable basis to deny a claim. Often times this rule gets talked about in the context of the common law tort actions for bad faith, but it is also important to remember that this rule also applies to penalties under the Iowa Workers’ Compensation Act.

In Iowa, penalty benefits are warranted when: (1) there is a denial, delay, or termination of benefits occurs; and (2), there is no reasonable or probable cause or excuse for the denial, delay, or termination. Iowa Code § 10A.315(4)(b)(2). If warranted, the Division can award a penalty of up to 50% of the amount of benefits that were unreasonably delayed or denied. Iowa Code § 10A.315(4)(a).

In order to seek entitlement to penalty benefits, all the employee needs to do is prove that there was a denial, delay, or termination of benefits. Iowa Code § 10A.315(4)(b)(1). The burden then shifts to the employer or carrier to prove that there was a reasonable basis for the denial, delay, or excuse. Iowa Code § 10A.315(4)(b)(2).

In order to prove that the employer or carrier had a reasonable basis to deny, delay, or terminate benefits, the employer or carrier must show: (1) the excuse was preceded by a reasonable investigation; (2) the results of that investigation were the actual basis upon which the employer or carrier relied on at the time for the denial, delay, or termination of benefits; and (3), that the excuse was conveyed to the employee at the time the denial, delay, or termination of benefit occurred. Iowa Code § 10A.315(4)(c)(1-3).

This does not mean that carriers and employers should automatically accept every claim that is received for fear of a penalty. Employers and carriers are allowed a reasonably amount of time to investigate a claim without incurring exposure for penalties or the possibility of a bad faith action. Christensen v. Snap-on Tools Corp., 554 N.W.2d 254, 260 (Iowa 1996). It is important in these situations, to inform the employee that you are investigating the compensability of their claim which is why you are delaying the payment of indemnity benefits. See id.

It is also important to remember that penalties cannot be awarded for the unreasonable denial, delay, or termination of payment of medical expenses. Huff v. ABF Freight System, Inc., File No.: 5010335 (App. Mar. 21, 2008). Penalties can only be awarded in relation to indemnity benefits. Id.

If you have questions about penalties or any other questions regarding Iowa Workers’ Compensation, please reach out to Tom Shires or Micah C. Hawker-Boehnke at (402) 475-1075.