There is something of an open question in insurance bad-faith law concerning denial of worker’s compensation claims. Some say that insurance bad-faith law should be applied; others contend that worker’s compensation coverage is unique and separate from other forms of insurance coverage and bad faith standards.
In the case of Paulino v. Chartis Claims, Inc.,[1] the Eighth Circuit applied the Iowa law of bad faith to denial of worker’s compensation benefits. The Court summarized Iowa bad faith law as follows:
Under Iowa law, a prima facie claim of bad-faith denial of insurance benefits requires proof of two elements: (1) that the insurance company “had no reasonable basis for denying the plaintiff's claim” and (2) “the defendant knew or had reason to know that its denial or refusal was without a reasonable basis.” Bellville v. Farm Bureau Mut. Ins. Co., 702 N.W.2d 468, 473 (Iowa 2005).[2]
Under this formulation of bad faith law, perfection is not required. “Rather, ‘[t]he focus is on the existence of a debatable issue, not on which party is correct.’”[3]
The Court applied this bad faith standard to Mr. Paulino’s claim that the defendant insurance company withdrew its authorization to pay his living expenses because he was “an undocumented Mexican national”. Mr. Paulino concluded that the carrier’s investigation of his immigration status means, in essence, “that Chartis sought to have him deported to avoid paying his claim.”
Further, Chartis did not pay Mr. Paulino’s living expenses after the Iowa Workers’ Compensation Commissioner issued a decision requiring Chartis to pay his claim, but while Chartis exercised its right to seek judicial review of the Commissioner’s decision.
After the Court applied this bad faith standard to each charge of bad faith alleged by Mr. Paulino, the Court held with regard to each charge that the District Court was correct in granting the carrier’s motion for summary judgment on Mr. Paulino’s bad faith claims. In sum, Mr. Paulino, the Court said, “raised no genuine issue of material fact as to whether Chartis had a reasonable basis to deny benefits”.[4]
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[1] Paulino v. Chartis Claims, Inc., 774 F.3d 1161 (8th Cir. 2014)(case involved Iowa substantive law).
[2] Paulino v. Chartis Claims, Inc., 774 F.3d 1161, 1163 (8th Cir. 2014).
[3] Paulino v. Chartis Claims, Inc., 774 F.3d 1161, 1164 (8th Cir. 2014), quoting Bellville v. Farm Bureau Mut. Ins. Co., 702 N.W.2d 468, 473 (Iowa 2005).
[4] Paulino v. Chartis Claims, Inc., 774 F.3d 1161, 1165 (8th Cir. 2014).