Opinion ID: 1596181
Heading Depth: 1
Heading Rank: 4

Heading: Are Materials in an Insurer's File Postdating a Denial of Benefits Relevant?

Text: Iowa Rule of Civil Procedure 122 governs the scope of discovery in contested case proceedings before the industrial commissioner. Iowa Code § 17A.13(I) (1993) (Discovery procedures applicable to civil actions are available to all parties in contested cases before an agency.); Iowa Admin.Code r. 343-4.35 (1994) (rules of civil procedure govern contested case proceedings before industrial commissioner). Rule 122(a) allows, with some exceptions, discovery of any matter relevant to the subject matter involved in the pending action. The subject matter of the action involved here is Pickering's entitlement to penalty benefits under Iowa Code section 86.13. The industrial commissioner must award penalty benefits if payment of benefits is delayed without reasonable or probable cause or excuse. Iowa Code § 86.13 (1993). We have observed that section 86.13 is not violated if the workers' compensation insurer has a good faith dispute over the legal or factual validity of a claim for benefits. Covia v. Robinson, 507 N.W.2d 411, 412 (Iowa 1993). Thus, we must decide whether anything in the claim file subsequent to the denial of benefits would be relevant to these issues. In arguing that postdenial materials are irrelevant, Liberty Mutual relies on our decision in Brown v. Liberty Mutual Insurance Co., 513 N.W.2d 762 (Iowa 1994), a case involving the tort of first-party bad faith denial of workers' compensation benefits. In Brown, we held that a claim for bad-faith failure to pay benefits accrues when the claimant receives notice of the insurer's refusal to pay. Brown, 513 N.W.2d at 764. We rejected an argument that a bad-faith refusal to pay was a continuing tort. Id. Based on these concepts, Liberty Mutual argues that the tort is complete when the claim is denied and anything that occurs thereafter is irrelevant. However, this argument ignores the possibility that a denial may be supportable at the time it is made but later lacks a reasonable basis in light of subsequent information. In other words, a continued delay in payment may be unreasonable even though the original denial was not. Thus, some of the documents in the claim file prepared after the denial may conceivably contain relevant information. Mid-American Nat'l Bank, 599 N.E.2d at 705. On the other hand, we do not think that this possibility opens up the insurer's file to discovery of documents prepared on the eve of the hearing for penalty benefits. When a claimant files a claim for penalty benefits, we presume that there is a reasonable basis in fact for the claim. See Iowa R.Civ.P. 80(a) (requiring certification that pleading filed is well grounded in fact). Either the refusal to pay is wrongful by then, or the penalty claim should not be filed. Therefore, we conclude that documents in the claim file after that date are irrelevant to the reasonableness of the insurer's conduct giving rise to the claim for penalty benefits. In summary, any documents showing new information coming to the attention of Liberty Mutual after its denial would be relevant to whether it was reasonable for the company to persist in its denial of benefits. However, any materials prepared after the claim for penalty benefits was filed with the industrial commissioner are irrelevant and not discoverable. Thus, the deputy industrial commissioner abused his discretion (1) in ordering production of that part of the claim file prepared after Pickering filed suit for penalty benefits on August 9, 1989, and (2) in ordering production of all documents prepared between the denial of the claim and the filing of this suit without conducting an in camera review to determine which documents contain facts relevant to the reasonableness of the company's continued denial.