Court Opinion

ID: 3035721
Source: CourtListenerOpinion
Date Created: 2015-10-13 22:53:06.576366+00
Date Added: 2024-06-11T11:46:48.410493
License: Public Domain

United States Court of Appeals
                              FOR THE EIGHTH CIRCUIT
                                     ___________

                                     No. 03-2860
                                     ___________

Tamela J. Petrillo, et al.,               *
                                          *
       Plaintiffs - Appellants,           *
                                          * Appeal from the United States
       v.                                 * District Court for the
                                          * Northern District of Iowa.
Lumbermens Mutual Casualty                *
Company, et al.,                          *
                                          *
       Defendants - Appellees.            *
                                     ___________

                               Submitted: April 12, 2004
                                  Filed: August 5, 2004
                                   ___________

Before LOKEN, Chief Judge, RICHARD S. ARNOLD and FAGG, Circuit Judges.
                              ___________

LOKEN, Chief Judge.

        The principal issue presented by this appeal is whether Iowa law imposes tort
liability on a workers’ compensation insurer for bad-faith failure to monitor and direct
the medical treatment being furnished by the employer-insured to an injured
employee. Like the district court,1 we conclude that the insurer’s duty in this situation
is limited to paying the workers’ compensation benefits to which the employee is

       1
      The Honorable LINDA R. READE, United States District Judge for the
Northern District of Iowa.
entitled. Accordingly, the district court properly instructed the jury, and its judgment
entered on the jury’s verdict in favor of the insurer must be affirmed.

       Tamela Petrillo slipped and fell at work in February 1999. She reported the
accident to T.I. Group, her employer. T.I. Group sent her to a physical therapist who
treated Petrillo’s hip pain for two months and discharged her. T.I. Group also
notified its compensation insurer, Lumbermens Mutual Casualty Company.
Lumbermens paid for the two months of treatment and closed its file. Petrillo
continued working. In November she complained to T.I. Group that her hip pain had
returned. T.I. Group sent her back to the therapist and then to a physician, who
diagnosed a broken hip. Lumbermens reopened the file and resumed paying benefits.

       The physician referred Petrillo to an orthopedic surgeon, who concluded that
her hip pain was most likely related to a childhood condition known as Perthes.
When notified of this medical opinion, Lumbermens terminated benefits as of
March 4, 2000.2 Petrillo continued her medical treatment, eventually undergoing
three hip replacement surgeries and surgery to implant a spinal stimulator. She
experienced significant hip deterioration and developed chronic regional pain
syndrome. In June 2001, Lumbermens ordered an independent medical examination.
When the physician opined that Petrillo suffered from a preexisting hip condition
aggravated by the work injury, Lumbermens reinstated workers’ compensation
benefits and paid Petrillo’s medical bills retroactive to March 4, 2000, together with
interest.

     Petrillo and her family then commenced this diversity action against T.I. Group
and Lumbermens, asserting various claims. The district court dismissed all claims

      2
       Lumbermens terminated benefits because the Iowa workers’ compensation law
requires employers to pay only for injuries “arising out of and in the course of the
employment.” IOWA CODE ANN. § 85.3(1). That decision is not an issue on appeal.

                                          -2-
against T.I. Group and submitted the bad faith claim against Lumbermens to a jury.
Over Petrillo’s timely objection, the court instructed the jury that Iowa law imposes
a duty on a workers’ compensation carrier “to pay for reasonable and necessary
medical care” provided an employee for a compensable injury. The jury returned a
verdict in favor of Lumbermens. Petrillo appeals, contending that the jury should
have been instructed that Lumbermens had a duty to “furnish” as well as “pay for”
reasonable and necessary medical care. By limiting Lumbermens’s duty to paying for
her medical care, Petrillo argues, the court’s instruction foreclosed her claim that
Lumbermens acted in bad faith by not having her sent to a physician, rather than a
physical therapist, between February and November 1999, greatly enhancing her
injuries. We review the court’s jury instructions for abuse of discretion. “A district
court by definition abuses its discretion when it makes an error of law.” Computrol,
Inc. v. Newtrend, L.P., 203 F.3d 1064, 1070 (8th Cir. 2000).

       In Dolan v. Aid Insurance Co., the Supreme Court of Iowa recognized a cause
of action in tort against an insurance carrier for bad faith conduct in denying an
insured’s first-party claim for the “benefits of the policy.” 431 N.W.2d 790, 794
(Iowa 1988) (en banc). In Boylan v. American Motorists Insurance Co., the Court
extended this doctrine to an employee’s claim that a workers’ compensation insurance
carrier was “guilty of the type of bad-faith conduct for which tort liability was
recognized in Dolan.” 489 N.W.2d 742, 744 (Iowa 1992). Petrillo bases her bad
faith claim on Boylan, which limited an insurer’s liability to bad faith denial of
“benefits of the policy.” Here, Petrillo’s employer unilaterally made the decision to
send her to a physical therapist after she reported the workplace injury. It is
undisputed that the Lumbermens policy reserved to the employer-insured the
discretion to choose the medical provider who would provide services for which
Lumbermens was obligated to pay. Thus, Petrillo’s claim that Lumbermens was
guilty of bad faith in not overruling T.I. Group’s choice of the appropriate medical
provider is not a claim for bad faith denial of “benefits of the policy” within the
meaning of Dolan as applied in Boylan.

                                         -3-
       The Iowa workers’ compensation statute provides that “the employer is obliged
to furnish reasonable services . . . to treat an injured employee, and has the right to
choose the care.” IOWA CODE ANN. § 85.27(4). In deciding that an injured
employee’s bad faith claim is similar to the first-party claim in Dolan, the Supreme
Court of Iowa commented in Boylan: “Although the . . . statute speaks only of the
obligation of the employer, the commissioner’s regulations consign these obligations
to the employer’s insurance carrier.” 489 N.W.2d at 743. Similarly, the Court
recently stated that § 85.27 “imposes an affirmative duty on the part of the employer
and the workers’ compensation carrier to furnish reasonable and necessary medical
care to an injured employee.” Gibson v. ITT Hartford Ins. Co., 621 N.W.2d 388, 399
(Iowa 2001).

       Petrillo argues that these dicta establish that an employer and its workers’
compensation insurer have a joint obligation to furnish reasonable and necessary
medical care and therefore a bad faith action will lie if the insurer fails to overrule the
employer’s choice of an inadequate medical provider. We disagree. Both Boylan and
Gibson involved a workers’ compensation insurer’s alleged failure to pay benefits,
not a failure to furnish adequate medical treatment. The regulations cited in Boylan
provide only that licensed insurers must designate a knowledgeable local agent “to
expedite the handling of all matters,” and that the insurer “shall be deemed a party in
any action against the insured.” IOWA ADMIN. CODE §§ 876-2.3, -4.10. These
regulations do not establish that the insurer has a duty to supervise and control an
employer exercising its right under § 85.27(4) to choose the medical provider.
Petrillo cites no case in which an Iowa court has held a workers’ compensation
insurer liable for bad faith furnishing of medical care.3

      3
        The Court of Appeals of Iowa recently quoted a trial court’s observation that
“[u]p to now, all of the appellate decisions in our state considering bad faith torts in
the worker’s [sic] compensation context have involved a bad faith failure to pay
benefits.” Thielen v. Aetna Cas. & Sur. Co., 662 N.W.2d 370, 2003 WL 118204, at
*3 (Iowa App. Jan. 15, 2003) (unpublished).

                                           -4-
       We conclude that, under Iowa law, no claim for bad faith failure to furnish
medical services will lie against a workers’ compensation insurer where the employer,
consistent with the policy, has exercised its statutory duty “to furnish reasonable
services” and its right “to choose the care.” We need not consider whether the insurer
could be liable in bad faith if the policy delegated the employer’s right to choose the
care to the insurer, or if the insurer in fact chose the medical provider in a particular
case. In such a case, one question would no doubt be whether a bad faith claim would
lie for an employee who, like Petrillo, failed to file a petition for alternate care, the
statutory remedy in Iowa for an employee who is “dissatisfied with the care offered.”
IOWA CODE ANN. § 85.27(4).

      The judgment of the district court is affirmed.
                     ______________________________

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