Sharon Moad, Individually and as Personal Representative of the Estate of Douglas Moad v. Richard Libby, as Personal Representative of the Estate of Matthew Libby, and Dakota Truck Underwriters, Intervenor-Appellee.

• Court: Court of Appeals of Iowa
• Decided: March 11, 2015
• Docket: 14-0290
• Status: Published

Opinion

IN THE COURT OF APPEALS OF IOWA

No. 14-0290 Filed March 11, 2015

SHARON MOAD, Individually and as Personal Representative of the ESTATE OF DOUGLAS MOAD, et al., Plaintiff-Appellant,

vs.

RICHARD LIBBY, as Personal Representative of the ESTATE OF MATTHEW LIBBY, et al., Defendant,

and

DAKOTA TRUCK UNDERWRITERS, et al., Intervenor-Appellee. ________________________________________________________________

Appeal from the Iowa District Court for Johnson County, Nancy A.

Baumgartner, Judge.

Appeal from an order denying the plaintiff’s motion to strike the

intervenor’s subrogation lien. AFFIRMED.

Martin Diaz and Elizabeth Craig of Martin Diaz Law Firm, Iowa City, for

appellant.

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

Rapids, for appellee.

Considered by Mullins, P.J., and Bower and McDonald, JJ. 2

MCDONALD, J.

This case involves a dispute between Dakota Truck Underwriters

(hereinafter “DTU”), a workers’ compensation carrier, and the plaintiff Sharon

Moad, in her individual capacity and as the representative of the estate of

Douglas Moad, relating to reimbursement of workers’ compensation benefits paid

to Douglas prior to his death. The question presented on appeal is “whether the

law of Iowa or South Dakota should apply to determine whether a South Dakota

workers’ compensation carrier is entitled to subrogation for payments made to its

insured by underinsured and uninsured insurance carriers arising out of a

settlement resulting from third-party litigation in Iowa.” Moad v. Dakota Truck

Underwriters, 831 N.W.2d 111, 112 (Iowa 2013).

I.

This is the second time this matter has been on appeal. The facts and

circumstances giving rise to the dispute and the procedural posture of the case

are set forth in sufficient detail in the supreme court’s prior opinion and need not

be repeated at any great length here. See Moad, 831 N.W.2d at 111-13. As

relevant here, Douglas Moad was a resident of South Dakota. He was employed

as a truck driver by a South Dakota trucking company. Pursuant to South

Dakota law, DTU voluntarily paid workers’ compensation benefits to Moad arising

out of a work-related traffic accident occurring in Iowa. We use the term

“voluntarily paid” to mean the workers’ compensation benefits were paid without

Moad’s entitlement to the benefits being challenged through a contested case or 3

similar proceeding. Douglas Moad accepted the workers’ compensation benefits

paid by DTU. Douglas deceased several months after the traffic accident.

Sharon sought workers’ compensation benefits in Iowa. She also filed this civil

suit against the motorist causing the traffic accident. DTU intervened in this

case, asserting a workers’ compensation subrogation lien for the benefits paid to

Douglas. Ultimately, Sharon settled this case with the underinsured and

uninsured motorist insurance carriers and moved to strike the subrogation lien on

the settlement proceeds. The parties agreed that DTU had a right to

reimbursement if South Dakota law controlled the subrogation question and no

right to reimbursement if Iowa law controlled the subrogation question. The

district court held Iowa law applied and “granted Moad’s motion to extinguish

DTU’s lien and denied DTU’s motion to vacate the order approving the

settlement.” Moad, 831 N.W.2d at 113. DTU appealed that decision.

In the first appeal, the supreme court concluded the district court and this

court incorrectly analyzed the conflict of laws issue. The court held Restatement

(Second) Conflict of Laws section 185 should be used to determine whether Iowa

law or South Dakota law applied to the subrogation issue. Id. at 118. The

supreme court also held “to the extent Restatement (Second) section 185 [did]

not apply,” then Restatement (Second) section 145 provided “the proper

approach to determining subrogation rules in a cause of action for personal

injuries.” Id. The supreme court remanded the case “to the district court to

consider the extent to which section 185 of the Restatement (Second) applies in

this case.” Id. 4

On remand, Sharon renewed her motion to strike DTU’s subrogation lien.

DTU resisted the motion to strike on the ground that the lien was allowed

pursuant to South Dakota law. The district court concluded Restatement

(Second) section 185 applied to this case, concluded that South Dakota law

controlled the subrogation question, and held that DTU had a valid lien against

the settlement proceeds under South Dakota law for compensation benefits

already paid to Moad. In the order denying the motion to strike, the district court

stated it believed the parties had stipulated that the amount of the subrogation

lien was $84,446.55. The district court also stated that if the parties had not

stipulated to the amount of the lien, the court would consider the matter further.

Sharon timely appealed the district court’s order, which is now before us. On

appeal, DTU disputes the amount of the lien and states it was not able to obtain

a hearing on the amount of the lien because the plaintiff filed her notice of appeal

before the issue could be resolved by the district court.

II.

Our review of the district court’s ruling is for corrections of errors at law.

See Iowa R. App. P. 6.907; see also Comes v. Microsoft Corp., 709 N.W.2d 114,

117 (Iowa 2006). On appeal, the plaintiff first contends the district court erred in

concluding Restatement (Second) section 185 was applicable to this case.

Section 185 provides as follows:

The local law of the state under whose workmen’s compensation statute an employee has received an award for an injury determines what interest the person who paid the award has in any recovery for tort or wrongful death that the employee may obtain against a third person on account of the same injury. 5

Restatement (Second) of Conflict of Laws § 185 (1971). The plaintiff contends

an “award” can only be paid following an adjudicative determination of

entitlement to benefits, i.e., the entitlement to benefits must have been

established in a contested case or similar proceeding. Here, the plaintiff argues,

DTU voluntarily paid workers’ compensation benefits pursuant to South Dakota

law without a contested case proceeding. Therefore, the plaintiff argues, section

185 is inapplicable. DTU contends that section 185 includes those situations in

which the employer or insurance carrier has paid and the employee accepted

workers’ compensation benefits without regard to whether there was a contested

case proceeding. We conclude DTU has the better of the argument.

The plaintiff’s interpretation of section 185 is too narrow. First, the plaintiff

has not cited any cases adopting the narrow definition of “award.” Second, there

is authority to the contrary. Kaiser v. North River Insurance Co., 605 N.W.2d

193, 196 (S.D. 2000), holds that benefits voluntarily paid under South Dakota’s

workers’ compensation statute give rise to a statutory lien for benefits already

paid. Third, parsing the text of the Restatement as if it were statutory authority is

misplaced. “In general, we look to the Restatement not as the law but as a

guide.” Heinz v. Heinz, 653 N.W.2d 334, 339 (Iowa 2002). Our courts adopt the

rules and rationale set forth in a particular Restatement only to the extent the

rules and rationale are deemed consistent with our body of law and have

persuasive force. See Thompson v. Kaczinski, 774 N.W.2d 829, 839 (Iowa

2009). Thus, although our court may adopt the rules or rationale set forth in a

particular Restatement, we do not necessarily do so jot-for-jot. 6

Most important, the plaintiff has not set forth any reason why an employer

or insurance carrier that voluntarily paid workers’ compensation benefits should

receive different treatment, for choice of law purposes, than an employer or

insurance carrier that paid benefits following a contested case proceeding.

Sound policy reasons actually militate against Moad’s interpretation of section

185. One purpose of the workers’ compensation law common to all states is to

encourage the efficient resolution of claims. See Moad, 831 N.W.2d at 118

(“[W]orker’s compensation is designed to be an efficient method for dealing with

workplace injuries . . . .”). It is at odds with workers’ compensation schema,

generally, to adopt a rule that incents employers and insurance carriers to

contest claims for no reason other than to preserve subrogation rights. Further, it

is at odds with workers’ compensation schema, generally, to force an employer

or insurance carrier to deny a claim without any factual or legal basis for doing

so, potentially subject to sanction, merely to protect a subrogation right. We thus

reject the plaintiff’s narrow interpretation of section 185.

The plaintiff also argues that South Dakota law should not determine the

subrogation issue because she filed in Iowa a workers’ compensation claim for

benefits related to Douglas’s death. There is no doubt that Moad was entitled to

file a claim for workers’ compensation benefits in Iowa even after receiving

benefits pursuant to the workers’ compensation scheme established in South

Dakota. See Reid v. Hansen, 440 N.W.2d 598, 602 (Iowa 1988). The fact that

Moad sought additional benefits in Iowa, however, is not at all relevant to

whether DTU has subrogation rights for benefits already paid pursuant to another 7

state’s law. Moad cites cases purporting to stand for the proposition that the

state in which the injured employee chooses to seek compensation benefits

controls the subrogation question. The cases do not bear such weight. In each

of the cases cited, the dispositive issue was not where the claimant chose to file

the case, the dispositive issue was under which state’s workers’ compensation

law were the compensation benefits paid. See Kolberg v. Sullivan Foods, Inc.,

644 N.E.2d 809, 811 (Ill. App. Ct. 1994) (“As to third-party actions, if

compensation has been paid in a foreign state and suit is brought against a third

party in the state of injury, the substantive rights of the employee, the subrogated

insurance company and the employer are ordinarily held governed by the law of

the foreign state.”); Langston v. Hayden, 886 S.W.2d 82, 85 (Mo. Ct. App. 1994)

(stating “the law generally states that the question of whether and to what extent

the employer or its insurer is entitled to subrogation or reimbursement is to be

determined according to the provisions of the workers’ compensation law under

which the compensation for the employee’s injury was paid”); Am. Interstate Ins.

Co. v. G & H Serv. Ctr., Inc., 861 N.E.2d 524, 527 (Ohio 2007) (stating “the laws

of the state in which the workers’ compensation benefits were paid are

controlling”); Allen v. Am. Hardwoods, 795 P.2d 592, 595 (Or. Ct. App. 1990)

(stating that the State law pursuant to which compensation was paid determines

the rights of subrogation).

There are sound policy reasons for concluding the law of the state

pursuant to which benefits were paid is the controlling law with respect to the

employer or insurance carrier’s subrogation rights: 8

First, subrogation rights in the worker’s compensation situation arise exclusively under the applicable worker’s compensation act. As a result, since the employer’s right to subrogation, if any, is created by statute, the state statute creating such rights should be applied to determine each of the employer’s rights and liabilities thereunder. Second, it has been determined that the state whose worker’s compensation program is most significantly involved has the most significant interest in the application of its policies. Finally, the application of the statute assures uniform and predictable results and does not allow one party to take advantage of the portion he likes and disregard those portions of which he disapproves.

Brown v. Globe Union, a Div. of Johnson Controls, Inc., 694 F. Supp. 795, 798

(D. Colo. 1988). The same rationale is set forth in the Restatement:

Situations arise where an employee while acting in the course of his employment is injured by the wrongful conduct of a third party who is not declared immune from liability for tort or wrongful death by an applicable workmen’s compensation statute (see § 184). In such situations, the third party remains liable even after an award has been rendered and paid. The workmen’s compensation statutes differ as to what interest the person who has paid the award has in the recovery on the cause of action against the third party. Under some statutes, acceptance of compensation by an injured employee or his dependents terminates his rights against the third party. In such a case, only the person who has paid the award (either the employer or an insurer) has an interest in the cause of action. Other statutes provide, however, that the person who has paid the award shall be reimbursed out of the proceeds of the judgment, and that the employee shall receive any sum that may remain. Under the rule of this Section, the local law of the state under whose workmen’s compensation statute the claimant has received an award for an injury determines what interest the person who paid the award has in the recovery on any cause of action for tort or wrongful death that the employee may have against a third person on account of the same injury.

Restatement (Second) of Conflict of Laws § 185, cmt. a.

We thus hold that the local law of the state under whose workers’

compensation statute an employee has received benefits determines what 9

interest the person who paid the statutory benefits has in any recovery for tort or

wrongful death that the employee may obtain against a third person on account

of the same injury. Here, DTU had an obligation to pay workers’ compensation

benefits pursuant to South Dakota law. See S.D. Codified Law § 62-8-6 (Supp.

1999) (subjecting all employers of workers subject to their workers’

compensation act to the act). DTU voluntarily paid the statutory benefits

pursuant to South Dakota law, and Moad accepted the same. South Dakota law

provides DTU is entitled to subrogation. See Kaiser, 605 NW.2d at 196.

Accordingly, the district court did not err in applying section 185 of the

Restatement (Second) of Conflict of Laws and did not err in denying the plaintiff’s

motion to strike the lien.

III.

We have considered each of the parties’ respective arguments, whether

explicitly discussed herein. For the foregoing reasons, the judgment of the

district court is affirmed. Because the amount of the subrogation lien is in

dispute, we remand this matter for determination of the amount of the statutory

lien pursuant to South Dakota law.

AFFIRMED AND REMANDED.