Iowa Statute Granting Immunity to Carriers for Faulty Inspections is Constitutional

Last Friday, the Supreme Court of Iowa, affirming a trial court’s earlier decision, held that Iowa Code § 517.5 (2017), which provides immunity to insurance companies and their inspectors from tort liability based upon allegations of negligent or faulty inspection, is constitutional. Accordingly, the trial court’s dismissal of a civil action was appropriate where multiple employees and former employees of a wind blade manufacturing facility sued the company’s workers’ compensation carrier alleging that the latter failed to conduct or negligently conducted an insurance inspection at the company’s facility and that the omission or action caused serious health problems for plaintiffs [Clark v. Insurance Co. of Pa., 2019 Iowa Sup. LEXIS 50 (May 3, 2019)].

Background

TPI Iowa, LLC is a wind blade manufacturing facility, employing hundreds of employees at a plant in Newton, Iowa. The Insurance Company of the State of Pennsylvania (“the carrier”) is TPI’s workers’ compensation insurer. Plaintiffs filed a petition in district court naming as defendants the carrier, TPI, and various TPI affiliates, officers and employees. Plaintiffs’ petition included a variety of claims against the various defendants, but the only claims against the carrier were based on the failure to inspect the premises, or in the alternative, negligent inspection.

The carrier moved to dismiss, asserting that it enjoyed statutory immunity under Iowa Code § 517.5. Plaintiffs responded that the statute was unconstitutional. The trial court dismissed the case against the carrier and the Supreme Court granted interlocutory review.

Plaintiffs’ Essential Allegations

Plaintiffs’ primary argument was one of equal protection under the law, that nonemployee tortfeasors are ordinarily subject to common law liability, but that ICSOP was a nonemployee tortfeasor and yet it received absolute immunity under Iowa Code § 517.5. Plaintiffs further asserted that the distinction between nonemployee tortfeasor insurance companies and other nonemployee tortfeasors impacted a fundamental interest in access to the courts, and as a result, the classification was subject to strict scrutiny.

High Court: Intersection of Two Important “Currents” in American Law

Iowa’s Supreme Court initially observed that the case involved the intersection of two important currents in American law: (a) the development of workers’ compensation systems and (b) the extension of tort liability to parties who engage in gratuitous or voluntary undertakings. The Court noted that from its beginnings, the workers’ compensation system had been subjected to constitutional challenges, yet, as a general proposition, courts had sustained the substance of the workers’ compensation grand bargain against a variety of constitutional attacks.

Iowa’s Fabricius Decision

The Court noted its much earlier decision in Fabricius v. Montgomery Elevator Co., 254 Iowa 1319, 121 N.W.2d 361 (1963). In Fabricius, the plaintiff’s decedent died after the employer’s workers’ compensation insurance carrier allegedly negligently inspected or failed to inspect the workplace, machinery, and equipment of the employer. The insurance company resisted liability, claiming it stood “in the shoes” of the employer and that it could not be considered a “third party” or “some person other than the employer” as those terms were used under a liability statute.

The Fabricius court rejected the insurer’s argument, holding in pertinent part that the insurer was outside the “grand bargain” of the workers’ compensation law and that a statute would not be interpreted as taking away a common law right unless imperatively required.

Legislative Reaction to Fabricius

The Court said that after Fabricius, the Iowa legislature enacted a statutory provision designed to overrule the Court’s holding. The current legislative approach to inspections was now embraced in § 517.5.

Other Relevant Precedents

The Court pointed to two other important precedents: Seivert v. Resnick, 342 N.W.2d 484 (Iowa 1984) and Suckow v. NEOWA FS, Inc., 445 N.W.2d 776 (Iowa 1989).

In Seivert, the Court considered the statutory classification that provided coemployees with immunity except for acts or omissions that amounted to “gross negligence” while non-coemployee tortfeasors had no similar immunity. The plaintiff in Seivert sought to sue coemployees based on a simple negligence theory. The Seivert court affirmed the trial court’s dismissal of the simple negligence claim, reasoning that the provision of limited immunity to coemployees was rational because coemployees worked at the direction of the employer, and as a result, providing limited immunity to coemployees could be considered part of the quid pro quo for the workers’ compensation scheme.

In Suckow, the plaintiff asserted that because a coemployee could be liable for workplace injuries based on gross negligence under Iowa Code § 85.20 (1985), the employer should also be subject to liability under a gross negligence theory. The plaintiff attacked the distinction between employers and coemployees both under a strict scrutiny and a rational basis analysis. The Suckow court determined that a fundamental right was not involved and that the statute had a rational basis. As a result, the Suckow court affirmed the district court’s dismissal of the claim.

Grand Bargain Should Not Be Narrowly Construed

The Court said that under Seivert and Suckow the grand bargain embraced in the state’s workers’ compensation statute was not to be so narrowly construed as to include only provisions related to the employer and the employee. Indeed, Suckow stood for the proposition that the legislature may include a limitation on the liability of coemployees as part of the grand bargain of our workers’ compensation scheme. Moreover, the logical extension of Suckow is that the legislature may reasonably provide immunity for inspections performed by a workers’ compensation carrier as part of the grand bargain.

The Court stressed that the consequence of including immunity for workers’ compensation carriers’ inspections in the grand bargain is that the proper standard of review under article I, section 6 of the Iowa Constitution is the rational basis test. That test has been satisfied on reasonable policy grounds.

Other Constitutional Challenges Also Denied

The Court added that because the immunity for workers’ compensation insurance companies’ inspections was part of the grand bargain behind workers’ compensation schemes, plaintiffs’ challenge to the provision under Iowa Constitution article I, section 1 also failed. The thrust of plaintiffs’ claim was that the absolute immunity provision abolished a claim otherwise available under common law. But, if viewed as part of the workers’ compensation scheme, that claim lacked merit, said the Court.