Court Opinion

ID: 4249482
Source: CourtListenerOpinion
Date Created: 2018-02-28 21:18:56.872957+00
Date Added: 2024-06-11T07:48:11.869995
License: Public Domain

IN THE SUPREME COURT OF IOWA
                                No. 12–0126

                             Filed May 17, 2013

SHARON MOAD, Individually and as Personal Representative of
the ESTATE OF DOUGLAS MOAD, and as Personal Representative
on behalf of TRAVIS MOAD and HEATHER JOHNSON,

      Appellee,

vs.

DAKOTA TRUCK UNDERWRITERS, RISK ADMINISTRATIVE
SERVICES, INC.,

      Appellants.

      On review from the Iowa Court of Appeals.

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

Baumgartner, Judge.

      A workers’ compensation carrier appeals orders extinguishing its

subrogation lien and denying its motion to vacate an order approving

settlement.       DECISION    OF   COURT      OF   APPEALS    VACATED,

JUDGMENT          OF   DISTRICT    COURT      REVERSED,      AND   CASE
REMANDED WITH INSTRUCTIONS.

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

Cedar Rapids, for appellants.

      Martin A. Diaz and Elizabeth J. Craig of Martin Diaz Law Firm,

Iowa City, for appellee.
                                     2

APPEL, Justice.

      The question in this case 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.    Because we

determine that the district court utilized the wrong standard in resolving

the conflict of laws question, we reverse the judgment of the district court

and remand for further proceedings.
      I. Background Facts and Prior Proceedings.

      Douglas Moad worked as a truck driver for Gary Jensen Trucking

Company. On December 1, 2008, Douglas was driving his truck within

the course of his employment on Interstate 80 near Iowa City when

Matthew Libby drove his vehicle across the median.          Libby’s vehicle

struck Douglas’s truck head-on. Tragically, Libby died at the scene and

Douglas died roughly three months later due to complications resulting

from his injuries.

      At the time, Jensen Trucking maintained workers’ compensation

insurance coverage with Dakota Truck Underwriters, Risk Administrative

Services, Inc. (DTU), a South Dakota corporation with its principal place

of business in South Dakota. DTU issued that policy in South Dakota.

Jensen Trucking also maintained underinsured and uninsured motorist

liability coverage with Northland Insurance Company (Northland), a

Minnesota corporation with its principal place of business in Minnesota.

Douglas and his wife, Sharon Moad, a South Dakota resident,

maintained automobile insurance with Property and Casualty Insurance

Company of Hartford (Hartford), a Connecticut corporation with its

principal place of business in Connecticut.
                                              3

      Following the accident, DTU filed an “employer’s first report of

injury” notice with the South Dakota department of labor and regulation.

DTU also filed a “calculation of compensation” form with the department.

The calculation of compensation form indicated DTU would pay Douglas

$534.97 per week from December 2, 2008, until terminated in

accordance with the workers’ compensation laws of South Dakota.

      On February 8, 2011, Sharon filed a petition, individually, as the

personal representative of Douglas’s estate, and as the personal

representative of their two children, also South Dakota residents, in Iowa
district court.1     Moad sought damages from Libby’s estate, Northland,

and Hartford. Moad’s claims against Northland and Hartford were for

uninsured motorist benefits.              Moad notified DTU of the petition on

February 25. On May 4, DTU filed notice of a subrogation lien, asserting,

under South Dakota law, that it was entitled to reimbursement from any

proceeds obtained by Moad as a result of the damages action.

      During the pendency of the damages action, Moad filed a claim

with the Iowa workers’ compensation commissioner on August 10, 2011,

seeking benefits resulting from her husband’s accident and death.

      Moad then reached a settlement agreement with Northland and

Hartford in the damages action. Northland agreed to pay $300,000, and

Hartford agreed to pay $2000. Northland agreed to provide an additional

$100,000 to cover DTU’s asserted workers’ compensation subrogation

lien in the event the district court determined it was valid and

enforceable.      In exchange, Moad agreed to file a motion to strike or

extinguish DTU’s subrogation lien.

      On September 12, Moad sought the district court’s approval to

accept the settlement. The next day, Moad filed a motion to strike or

      1We   will refer to the plaintiffs collectively as Moad.
                                     4

extinguish DTU’s lien, asserting that DTU failed to timely file notice of its

subrogation lien within thirty days of receiving notice of the suit, see

Iowa Code § 85.22(1) (2011), and that DTU had no right of subrogation

under Iowa law.       The district court approved the settlement on

September 14.

      On September 20, DTU filed a motion to vacate the order

approving the settlement on the grounds the district court had approved

the settlement before DTU could file a resistance. DTU then sought the

district court’s approval to intervene. The district court granted DTU’s
motion to intervene and set a hearing on the motion to vacate.

      DTU conceded it did not have a right to reimbursement under Iowa

law. It urged the district court to apply section 145 of the Restatement

(Second) of Conflict of Laws, the most-significant-relationship test.     In

the alternative, it urged the court to apply section 185 of the Restatement

(Second), which calls for application of the workers’ compensation law of

the state in which the employee received an award, but noted Iowa

courts had yet to adopt it. The application of either test, DTU argued,

would lead to the conclusion South Dakota law governed the dispute.

DTU attached the calculation of compensation form to its motion as well

as a balance sheet indicating it had paid $159,589.46 in benefits, which

included medical payments and lost wages, between December 2, 2008,

and October 3, 2009.     In response, Moad argued application of either

section 145 or section 185 led to the conclusion Iowa law applied.

      After ordering additional briefing on the conflict of laws issue, the

district court granted Moad’s motion to extinguish DTU’s lien and denied

DTU’s motion to vacate the order approving the settlement. The district

court first concluded DTU failed to preserve any lien interest it had

because DTU filed notice of its lien more than thirty days after it received
                                     5

notice of the suit. The district court then concluded that, in the event

DTU’s untimely filing did not bar its interest, section 145 of the

Restatement (Second) led to the conclusion that Iowa law applied and

barred DTU’s recovery.      The district court reasoned that the injury

occurred in Iowa, that Iowa was the state where the conduct causing the

injury occurred, and that Iowa was the state where the workers’

compensation claim was filed. It cited our decision in Veasley v. CRST

International, Inc., 553 N.W.2d 896, 897 (Iowa 1996), in support of its

decision to apply the most-significant-relationship test.
        DTU appealed, again arguing sections 145 and 185 of the

Restatement (Second), the latter of which it urged us to adopt, led to the

conclusion South Dakota law applied. In response, Moad asserted Iowa

law applied because she filed the workers’ compensation claim in Iowa

and because application of section 145 led to the conclusion that Iowa

law applied. DTU replied, arguing South Dakota had the most significant

interest in deciding the dispute, which it characterized as contractual.

We transferred the case to the court of appeals.

        The court of appeals concluded Moad’s claims for uninsured

motorist benefits arose in contract, not tort, and therefore section 145

was inapplicable because the issue was one sounding in contract, not

tort.   Consequently, the court of appeals remanded the case for an

application of the factors listed in section 188 of the Restatement

(Second), which applies to contract actions. It also noted this court has

yet to adopt section 185. Moad filed an application for further review,

which we granted.

        Moad’s Iowa workers’ compensation claim is still pending.
                                     6

      II. Scope of Review.

      This appeal is premised upon whether the district court applied

the correct legal standard in determining which state’s law to apply.

Therefore, our review is for correction of errors at law.    See Comes v.

Microsoft Corp., 709 N.W.2d 114, 117 (Iowa 2006); Walters v. Herrick, 351
N.W.2d 794, 796 (Iowa 1984). The district court’s findings of fact are

binding on us to the extent they are supported by substantial evidence.

Iowa R. App. P. 6.904(3)(a).

      III. Analysis.
      A. Introduction. DTU asserts it is entitled to a subrogation lien

on proceeds paid by underinsured and uninsured insurance carriers to a

claimant as a result of DTU’s previous payment of workers’ compensation

benefits. The parties agree DTU is not entitled to subrogation from the

settlement proceeds if Iowa law applies. See Michael Eberhart Constr. v.

Curtin, 674 N.W.2d 123, 129 (Iowa 2004); March v. Pekin Ins. Co., 465
N.W.2d 852, 854 (Iowa 1991). They also agree, however, that DTU has a

valid and enforceable subrogation lien if South Dakota law applies. See

Kaiser v. N. River Ins. Co., 605 N.W.2d 193, 198 (S.D. 2000).

      If South Dakota law applies, DTU argues it would have a

substantial interest in challenging the settlement agreement of the

parties to the Iowa litigation.      DTU asserts the allocation of the

settlement proceeds between injuries to DTU’s insured and the

consortium claim of the insured spouse were unreasonable. If DTU is

entitled to subrogation, DTU argues it should be able to contest the

allocation of proceeds of the settlement.

      As a result, DTU asks us to reverse the district court order

extinguishing its subrogation lien and to reverse the district court’s order
                                      7

refusing to vacate its approval of the settlement to allow DTU to

challenge the settlement terms.

      B. Positions of the Parties.        DTU presents a double-barreled

argument related to the conflict of laws question. First, DTU asserts that

under the most-significant-relationship test of Restatement (Second) of

Conflict of Laws section 145, the district court should have applied the

law of South Dakota and refused to extinguish its lien.        Restatement

(Second) section 145 provides, in relevant part:

      (1) The rights and liabilities of the parties with respect to an
      issue in tort are determined by the local law of the state
      which, with respect to that issue, has the most significant
      relationship to the occurrence and the parties under the
      principles stated in § 6.

      (2) Contacts to be taken into account in applying the
      principles of § 6 to determine the law applicable to an issue
      include:

            (a) the place where the injury occurred,

            (b) the place where the conduct causing the injury
            occurred,

            (c) the domicil, residence, nationality, place of
            incorporation and place of business of the parties, and

            (d) the place where the relationship, if any, between
            the parties is centered.

      These contacts are to be evaluated according to their relative
      importance with respect to the particular issue.

Restatement (Second) of Conflict of Laws § 145, at 414 (1971)

[hereinafter Restatement (Second)].

      As can be seen above, section 145 incorporates section 6 of the

same restatement. Section 6 provides that factors to be considered in

choice-of-law determinations include:

      (a) the needs of the interstate and international systems,
                                      8
      (b) the relevant policies of the forum,

      (c) the relevant policies of other interested states and the
      relative interests of those states in the determination of the
      particular issue,

      (d) the protection of justified expectations,

      (e) the basic policies underlying the particular field of law,

      (f) certainty, predictability and uniformity of result, and

      (g) ease in the determination and application of the law to be
      adopted.

Id. § 6(2), at 10.
      In support of its argument under section 145, DTU notes the

subrogation dispute involves a South Dakota employer, a South Dakota

workers’ compensation carrier, a South Dakota employee, and workers’

compensation payments made in South Dakota.            DTU argues the fact

that the accident occurred in Iowa has little bearing on the resolution of

the conflict of laws issue on the question of whether DTU is entitled to a

subrogation lien for workers’ compensation benefits already paid.

      DTU zealously asserts the filing of a workers’ compensation claim

in Iowa should have no bearing on the question of which law applies to

determine the validity of its subrogation lien. DTU emphasizes that it is

seeking subrogation with respect to benefits paid prior to the filing of the

Iowa workers’ compensation claim.         The mere filing of the Iowa claim,

according to DTU, cannot somehow convert previously paid South

Dakota workers’ compensation benefits into Iowa benefits that are not

subject to South Dakota subrogation law.

      In the alternative, DTU argues the court should apply Restatement

(Second) of Conflict of Laws section 185. Section 185 provides:

      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
                                     9
        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.

Id. § 185, at 551.

        According to DTU, the workers’ compensation benefits already paid

by its workers’ compensation insurance carrier to Moad are South

Dakota benefits and, as a result, the law of South Dakota should apply

to determine the validity of the lien. In addition, DTU argues Iowa law

does not apply because Moad’s Iowa workers’ compensation claim is

barred by Iowa Code section 85.26.         According to DTU, Moad was

required to bring the Iowa workers’ compensation claim under this Code

section within two years of the occurrence or injury. DTU argues the

filing of the Iowa workers’ compensation claim on August 8, 2011, was

more than two years after the accident, which occurred on December 1,

2008.

        In contrast, Moad argues that under the most-significant-

relationship test of Restatement (Second) section 145, Iowa law should

apply on the subrogation question.       Moad points out that the injury

occurred in Iowa and that the conduct occurred in Iowa. Moad notes the

relationship with DTU is centered in Iowa because of the filing of the

workers’ compensation claim in this state.

        In the alternative, Moad argues Iowa law should apply even if the

court were to apply Restatement (Second) section 185. Moad argues the

ultimate determination of what benefits she will receive will be made

under Iowa law because she filed the workers’ compensation petition in

Iowa.     Moad argues the Iowa workers’ compensation system will

determine whether Douglas’s injuries and death arose out of and in the

course of employment and will determine what benefits she is entitled to

receive under the Iowa workers’ compensation system.
                                      10

      In addition, Moad asserts the Iowa workers’ compensation claim

was timely filed. Moad notes Iowa Code section 85.72(3) provides that

“[b]enefits   paid   in   another   state   or   country   constitute   weekly

compensation benefits for the purposes of sections 85.26 and 86.13.” As

a result, Moad argues the workers’ compensation claim is timely under

Iowa Code section 85.26.       Moad further notes that the Iowa workers’

compensation commissioner has denied a motion for summary judgment

based on timeliness and that DTU cannot collaterally attack the agency’s

ruling on the issue.
      C. Approaches of Other Jurisdictions to Conflict of Laws

Issues Involving Subrogation of Payments Made as a Result of

Underinsured or Uninsured Motorist Coverage.

      1. Lex loci delicti. Some jurisdictions use the rule of lex loci delicti

and apply the law of the state in which the accident occurred. See, e.g.,

Ne. Utils., Inc. v. Pittman Trucking Co., 595 So. 2d 1351, 1353–54 (Ala.

1992); Tyson Foods, Inc. v. Craig, 597 S.E.2d 520, 521 (Ga. Ct. App.

2004); see also O’Neal v. Kennamer, 958 F.2d 1044, 1046–47 (11th Cir.

1992); Maryland Cas. Ins. Co. v. Glomski, 437 S.E.2d 616, 617 (Ga. Ct.

App. 1993). The place-of-the-wrong rule stems from a characterization of

the action as one of tort because a tort, or alleged tort, ultimately gave

rise to the subrogation claim.      While this approach has the benefit of

clarity, it turns on the happenstance of geography, which may not fairly

reflect the interests of the parties or the jurisdictions involved.

      2. Restatement (Second) of Conflict of Laws section 145.          Other

jurisdictions apply the most-significant-relationship test of section 145 of

the Restatement (Second) in the context of a subrogation claim.           See,

e.g., ITT Specialty Risk Servs. v. Avis Rent A Car Sys., Inc., 985 P.2d 43,

47 (Colo. App. 1998). The advantage, and the disadvantage, of applying
                                       11

section 145 is its flexibility.    Section 145 is designed to give courts

maximum leeway in determining which law to apply, but because it

involves application of a multifactor test, predictability is undermined.

      3. Restatement    (Second)      of    Conflict   of   Laws   section   188.

Restatement (Second) section 188 generally relates to determining the

most significant relationship in the contractual context. The contacts to

be considered under section 188 are:

      (a) the place of contracting,

      (b) the place of negotiation of the contract,

      (c) the place of performance,

      (d) the location of the subject matter of the contract, and

      (e) the domicil, residence, nationality, place of incorporation
      and place of business of the parties.

Restatement (Second) § 188(2), at 575.

      The parties have not cited to us a subrogation lien case where a

court directly applied section 188.

      4. Restatement (Second) of Conflict of Laws section 185. A number

of jurisdictions apply section 185 of the Restatement (Second) to cases
involving subrogation in the context of workers’ compensation benefits.

Multiple jurisdictions have applied section 185 in cases involving the

subrogation rights of workers’ compensation carriers in out-of-state

litigation. See, e.g., Miller v. Dorr, 262 F. Supp. 2d 1233, 1237–38 (D.

Kan. 2003); Brown v. Globe Union, 694 F. Supp. 795, 798–99 (D. Colo.

1988); Langston v. Hayden, 886 S.W.2d 82, 85 (Mo. Ct. App. 1994);

Billingsley v. JEA Co., 836 P.2d 87, 90 (N.M. Ct. App. 1992); Am.

Interstate Ins. Co. v. G & H Serv. Ctr., Inc., 861 N.E.2d 524, 527 (Ohio

2007); Allen v. Am. Hardwoods, 795 P.2d 592, 595 (Or. Ct. App. 1990);
                                    12

see also Boyle v. Texasgulf Aviation, Inc., 696 F. Supp. 951, 953–54

(S.D.N.Y. 1988) (noting the law of New York is consistent with section

185); ITT Specialty Risk Servs., 985 P.2d at 47–48 (applying section 185

to supplement its conclusion under the section 145 tort analysis);

Kolberg v. Sullivan Foods, Inc., 644 N.E.2d 809, 811 (Ill. App. Ct. 1994)

(applying section 185 in attorney fee dispute between the claimant’s law

firm and the workers’ compensation provider’s law firm following

settlement with third-party tortfeasor).   But see Oberson v. Federated

Mut. Ins. Co., 126 P.3d 459, 462–63 (Mont. 2005) (refusing to apply
section 185 and determining an insurer was not entitled to subrogation

against a worker’s third-party personal injury award based on a

provision of the Montana Constitution prohibiting subrogation).

      Section 185 is one of three sections in the Restatement (Second)

pertaining to application of the most-significant-relationship test in cases

involving conflicting workers’ compensation statutes.         Anderson v.

Commerce Constr. Servs., Inc., 531 F.3d 1190, 1194 n.5 (10th Cir. 2008);

see also Restatement (Second) §§ 183–85, at 543–55.

      Support for application of section 185 is found in its comments:

      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
                                     13
      reimbursed out of the proceeds of the judgment, and that the
      employee shall receive any sum that may remain.

Id. § 185 cmt. a, at 551–52. As noted by the Supreme Court of Ohio,

“[T]he Restatement has eliminated the need to weigh states’ interests in

having their laws applied and has determined that when it comes to

workers’ compensation claims, the laws of the state in which the

compensation was paid will always apply.” Am. Interstate Ins. Co., 861
N.E.2d at 527. That court also noted its application of section 185 was

consistent with precedent recognizing “that workers’ compensation

statutes represent ‘a social bargain in which employers and employees
exchange their respective common-law rights and duties for a more

certain and uniform set of statutory benefits and obligations.’ ”         Id.

(quoting Holeton v. Crouse Cartage Co., 748 N.E.2d 1111, 1116 (Ohio

2001)).

      D. Iowa Caselaw.      While some jurisdictions cling to the lex loci

delicti approach in tort cases, we have abandoned the place-of-the-wrong

rule in tort actions in favor of the most-significant-relationship test found

in section 145 of the Restatement (Second). See Veasley, 553 N.W.2d at

897. As a result, even if the outcome in this case were to be determined

according to our conflict of laws analysis of tort cases, we would not

apply the place-of-the-wrong rule.

      While Veasley stands for the proposition that we will generally

apply section 145 of the Restatement (Second) in tort cases, it does not

provide controlling authority for the question we face in this case.

Veasley was a tort action brought by an employee against a vehicle

owner for the negligence of a coemployee. Id. Veasley did not involve the

question of which conflict of laws rule should be applied in the context of

a workers’ compensation carrier’s subrogation claim in an action
                                    14

involving recovery of insurance proceeds from underinsured and

uninsured insurance carriers.

      We have applied section 188 of the Restatement (Second) in a

number of contractual contexts.       For instance, in insurance cases

generally, we have applied section 188. See, e.g., Gabe’s Constr. Co. v.

United Capitol Ins. Co., 539 N.W.2d 144, 146 (Iowa 1995); Cole v. State

Auto & Cas. Underwriters, 296 N.W.2d 779, 781 (Iowa 1980).

      We have not as yet specifically adopted Restatement (Second)

section 185 in determining conflict of laws questions related to
subrogation in the context of workers’ compensation benefits.      Unlike

the more general sections of the Restatement directed at tort or contract

disputes, Restatement (Second) section 185 is narrowly tailored to

address the specific problem posed in this case.

      E. Discussion. Based on our review of the applicable provisions

of the Restatement (Second) and the conflict of laws caselaw, we

conclude there are sound reasons for applying section 185 to this case.

Although conflict rules are rarely perfect, section 185 in most cases will

provide a clear rule of decision for workers’ compensation carriers and

claimants alike.   Because workers’ compensation is designed to be an

efficient method for dealing with workplace injuries, we view the

application of section 185 as superior to the more open-ended

considerations of the most-significant-relationship tests.

      Because the district court did not apply section 185, we remand

the case for further proceedings. We note, however, that upon remand

section 185 may apply to all, part, or none of the lien asserted by DTU.

To the extent DTU’s lien is not within the scope of section 185, we

conclude the conflict issue is controlled by section 145 of the

Restatement (Second) rather than section 188. There is little authority
                                            15

for the proposition that subrogation claims arising out of tort cases are

subject to section 188. To the extent Restatement (Second) section 185

does not apply, we adopt the majority view that Restatement (Second)

section 145 provides the proper approach to determining subrogation

rules in a cause of action for personal injuries.

       Accordingly, we remand the case to the district court to consider

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

this case.2       The district court orders extinguishing DTU’s lien and

denying DTU’s motion to vacate the order approving the settlement are
vacated pending resolution of the conflict issue upon remand to the

district court.

       2The  district court also ruled the lien was invalid for failure to comply with the
requirement of Iowa Code section 85.22(1) that notice of the lien be filed within thirty
days of receipt of the original notice of the underlying action. In a footnote, DTU argues
that the question of whether the thirty-day limitation of section 85.22(1) applies
depends upon the ultimate issue in this case, namely, whether the law of South Dakota
or Iowa applies to determine the rights of DTU. Moad does not respond to this issue in
her brief. In any event, section 85.22 only applies to liens against recovery against a
“third party” which, under Iowa law, does not include recovery under uninsured and
underinsured motorist policies. See Michael Eberhart Constr. v. Curtin, 674 N.W.2d
123, 129 (Iowa 2004); March v. Pekin Ins. Co., 465 N.W.2d 852, 854 (Iowa 1991).
Because section 85.22 has no application to DTU’s effort to obtain a lien, the district
court erred in extinguishing the lien on this ground.
        DTU also asserts Moad’s Iowa workers’ compensation claim is not timely and
that, as a result, Iowa law does not provide a basis for deciding the conflict issue in this
case. DTU notes that under Iowa Code section 85.26(1), a workers’ compensation claim
must be brought within two years of the injury. DTU claims that since the Iowa
workers’ compensation claim was filed more than two years after the accident, it is time
barred. In Moad’s workers’ compensation petition, however, Moad seeks only payment
of additional death benefits that the insurer has not paid. With respect to any future
benefits ordered by the Iowa workers’ compensation commission, DTU disclaims any
lien rights. Thus, the issue of whether the Iowa workers’ compensation claim is timely
has no bearing on the key issue, namely, whether payments already made by the South
Dakota insurer constituted an “award” under South Dakota law. Accordingly, we need
not address the issue.
                                    16

      IV. Conclusion.

      For the reasons stated above, we vacate the decision of the court of

appeals, reverse the judgment of the district court, and remand to the

district court for further proceedings consistent with this opinion.

      DECISION OF COURT OF APPEALS VACATED, JUDGMENT OF

DISTRICT     COURT     REVERSED,       AND    CASE    REMANDED         WITH

INSTRUCTIONS.