In an action alleging bad-faith denial of insurance benefits filed by an undocumented worker who sustained severe injuries in a work-related accident, the Eighth Circuit Court of Appeals, construing Iowa law, affirmed summary judgment in favor of a workers’ compensation insurer that had stopped paying the benefits that were associated with plaintiff’s living expenses [see Paulino v. Chartis Claims, Inc., 2014 U.S. App. LEXIS 23964 (Dec. 19, 2014)]. Agreeing with the federal district court that the insurer had a reasonable basis for denying the claim because the expenses had included the worker’s rent, utilities, groceries, and cable television during his stay at a rehabilitation center, the court concluded that it was not readily apparent that those living expenses were similar to the medical services and supplies listed in Iowa Code § 85.27 or to the appliances found to be compensable in the Iowa Supreme Court cases.
Following months of medical treatment and intensive rehabilitation, the undocumented worker moved into a facility offering post-acute rehabilitation services. Subsequently, after the worker was capable of basic self-care, community access, and independent meal preparation, the facility set an anticipated discharge date. The case manager could not find suitable housing for the worker; because of his paraplegia, he required wheelchair-accessible housing equipped with an electric hospital bed, access to public transportation, and other accommodations. The primary difficulty was the fact that while the worker received approximately $400 per week from workers’ compensation, he was not eligible for state and federal assistance programs due to his status as an undocumented Mexican national. The discharge date passed, but the rehab facility refused to discharge him to a temporary residence that was not adequately adapted to his needs. The workers’ compensation insurer continued to pay for the worker’s medical bills and was prepared to pay for modifications to a permanent home, but it then notified him that it would not pay for his living expenses at the rehab facility after the discharge date.
Petition Before the Workers’ Compensation Commission
The worker filed a petition with the Iowa Workers’ Compensation Commission seeking payment of his living expenses under Iowa Code § 85.27. The Deputy Commissioner denied the petition, finding the worker had not established that the disputed costs were reasonable or compensable under Iowa law. The Commissioner reversed, noting that the special circumstances of the worker’s case made his continued stay at the rehab center both appropriate and compensable. The Commissioner required the insurer to pay for the worker’s living expenses at at the facility until suitable housing could be found. The insurer appealed, but the state appellate court affirmed the Commissioner’s decision.
Civil Action Alleging Bad-Faith Denial of Benefits
The undocumented worker then sued the insurer in state court alleging bad-faith denial of benefits and sought consequential and punitive damages. The case was removed to federal court where the insurer was granted summary judgment. The worker appealed to the 8th Circuit. The 8th Circuit indicated there was some Iowa case law that could reasonably be construed to support the insurer’s position. Indeed, the Deputy Commissioner had ruled the living expenses were not the sort that were compensable under the Iowa statute. The insurer’s position was “fairly debatable” and the federal district court appropriately granted summary judgment in favor of the insurer, held the 8th Circuit.