The issue of whether Iowa’s common law cause of action for bad faith failure to pay workers compensation claims applied to third party claim administrators (TPAs) in the workers comp context was recently addressed by the Iowa Supreme Court by way of certified question in DeDios v. Indemnity Ins. Co. of North America, 927 N.W.2d 611, 2019 WL 2063289 (IA 5/10/19), as amended 5/14/19.
In DeDios, the Iowa Supreme Court found that the reason for applying bad faith liability to workers compensation insurers and self-insured employers did not apply to TPAs. This was so because the relevant workers compensation statutes and regulations did not impose any “affirmative obligations” on TPAs, unlike the obligations imposed on workers compensation insurers. Additionally, TPAs were not required to meet the rigorous financial requirements applicable to self-insured employers and TPAs were not subject to workers compensation commissions. The Court also noted that foreclosing bad faith liability against TPAs would not leave insureds unprotected because (1) if the TPA was an agent of the insurer, then the insurer would be vicariously liable for the TPA’s conduct; and (2) the non-delegable duties imposed by Iowa’s workers compensation statutes and administrative regulations remained applicable to carriers irrespective of any attempt by the carriers to pass those obligations to a third party. Put simply, an insurance company could not delegate its duty of good faith to a TPA.
There was a dissenting opinion. The dissent noted that there was nothing in the case law of Iowa precluding the Court from recognizing a bad faith tort when a TPA was involved. In fact, courts in other jurisdictions, i.e., Colorado, had extended bad faith tort liability to TPAs. The dissent also noted that while the insurance company might be vicariously liable for the conduct of the TPA, that should not be a justification for insulating the TPA from liability.