IOWA SUPREME COURT PROVIDES GUIDANCE ON SETTLING WORKERS’ COMPENSATION CLAIMS WHEN A SECOND INJURY FUND CLAIM IS INVOLVED

One of the most challenging aspects of managing a claim in which the employee is also alleging a Second Injury Fund claim is achieving a full and final settlement. Recently, the Iowa Supreme Court handed down a decision in Kingsbury v. Second Injury Fund, which has the potential to make the process a lot easier.

Previously in Iowa, if a claimant settled on a Compromise basis with the Fund or the employer independently under Section 85.35, the Claimant waived all other workers’ compensation claims, and the Division was deprived of jurisdiction after a compromise settlement under Section 85.35 was approved. United Fire & Cas. Co. v. St. Paul Fire and Marine Ins. Co., 677 N.W.2d 755 (Iowa 2004). The practical effect was that claimants would not settle with employers without concurrently settling with the Second Injury Fund for fear of waiving their claim against the Second Injury Fund.

Therefore, the only way to settle a claim in which there was also a claim against the Fund, absent the Fund signing on to the settlement, was via an Agreement for Settlement or a Commutation, both of which created challenges when a full and final settlement was desired with the employee.

In 2022, the legislature amended Section 85.35 to allow settlement on a Compromise basis with the Fund or the employer independently. Iowa Code § 85.35(10). The Supreme Court of Iowa had already ruled that settling with the Fund on a compromise basis under this new statutory provision does not waive the claim against the employer. Tweeten v. Tweeten, 999 N.W.2d 270, 278 (Iowa 2023). However, the question remained whether settling with the employer on a Compromise basis waived the claim against the Fund.  If the answer to that question was “yes,” most claimants would not settle their WC claims with the employers for fear of losing their Second Injury Fund claim.

In Kingsbury, the employee settled with Walmart via a compromise agreement. Kingsbury v. Second Injury Fund, File No.: 21012812.01 (App. Sep. 25, 2024). Walmart argued that the employee only had temporary exacerbation without any residual permanent disability. Id. The employee argued that she sustained a permanent injury to the right lower extremity of 36% and to her right upper extremity of 15%. Id. The parties agreed to settle the case for a lump sum of $52,000.00. Id. However, the settlement documents contained no information about how they reached that number. Id. The employer and claimant did not stipulate an impairment rating for settlement purposes. Id.

The Fund filed a motion for summary judgement after the settlement was approved on the argument that the claimant could not meet her burden of proof to sustain an award against the Second Injury Fund. Id. An award from the Fund cannot be assessed unless the employer’s liability is fixed. (i.e.: impairment) Id. The Fund argued that the changes to Section 85.35 for Compromise Settlements did not change the case law in Iowa that says that in order to establish liability against the Fund, the extent of impairment from the employer must be “fixed.” Id. (citing Eaton v. Second Injury Fund, 723 N.W.2d 452 (Iowa App. 2006) and Second Injury Fund v. Braden, 459 N.W.2d 467, 473 (Iowa 1990)).

Deputy Phillips found that since the compromise settlement documents did not contain any agreement on the extent of impairment to the body parts that the parties were agreeing to, the employer’s liability was not “fixed.” Id. Without any fixed amount of impairment from a first qualifying injury, the combined impairment could not be established with the second qualifying injury for Second Injury Fund benefit purposes. Id; see also Iowa Code § 85.65. As such, Deputy Phillips found that the employee could not, as a matter of law, meet her burden of proof since the extent of the first injury with the employer was not “fixed” in the settlement documents. Id. Therefore, the motion for summary judgement was granted. Id.

The decision was appealed to the Commissioner, who affirmed the decision. However, the ruling was appealed again to the District Court, who reversed the Commissioner’s holding. Finally, the parties appealed to the Supreme Court of Iowa.

The Supreme Court affirmed the Deputy and Commissioner. They held that settling via a Compromise with the employer, when liability and the extent of impairment was disputed, effectively waived the employee’s claim against the Fund.

The Supreme Court of Iowa explained that by settling with the employer, without any specific agreement on the extent of impairment for the injury, the employee could not prove the extent of impairment that was caused by the second qualifying injury. In order to recover Fund benefits, the employee must prove that they have both a first and second qualifying injury, both of which resulted in permanent functional impairment.  Iowa Code § 85.65. The Fund is only liable for the difference between the amount of disability caused by the second compensable injury and the total amount of current disability from both injuries. Iowa Code § 85.64(2).

Without an agreement with the employer about how much impairment resulted from the second qualifying injury, the employee in Kingsbury could not prove their entitlement to Fund benefits.

However, the Supreme Court of Iowa stated, in dicta, that if the extent of impairment had been agreed upon in the Compromise agreement, the result likely would have been different. In other words, all the employee needed to do in the Compromise agreement with the employer was to note an agreed upon amount of functional impairment that resulted from the second qualifying injury. If this was the case, the Court reasoned that the employee would have been able to maintain Kingsbury’s claim against the Fund.

It remains unclear how the claimants’ bar in Iowa will react to the same. Chances are many will view this as a reason not to try to settle with the employer absent concurrent settlement with the Fund. However, we believe that this opinion provides a path forward to avoid the need for concurrent settlement with the Fund. For questions on Iowa workers’ compensation law, please contact Micah Hawker Boehnke (MHawker-Boehnke@baylorevnen.com) or Paul Barta (PBarta@baylorevnen.com).