Mr. De Dios sued Broadspire and Indemnity. The U.S. District Court for the Northern District of Iowa certified the following question to the Supreme Court of Iowa:

In what circumstances, if any, can an injured employee hold a third party claims administrator liable for the tort of bad faith for failure to pay workers' compensation benefits?

The Iowa Supreme Court's Decision

The court ruled that a common law cause of action for bad faith failure to pay worker's compensation benefits was not available against a third party claims administrator of a worker's compensation insurance carrier.

In its decision, the court explained that although a worker's compensation insurer may be subject to bad faith tort liability, a third party administrator was “not in an insurer/insured relationship with anyone.”

Moreover, the court continued, unlike a self-insured employer, a third party administrator did not have to meet “rigorous financial requirements” and was not under the “ongoing supervision” of Iowa's worker's compensation commissioner.

The court added that Iowa's worker's compensation law, although referring to third party administrators, did not impose “affirmative obligations” on third party administrators with respect to the handling of worker's compensation claims.

Accordingly, the court found that a third party administrator was “not an insurer” and was not “the substantial equivalent of an insurer,” and it concluded that Mr. De Dios could not assert a bad faith claim against Broadspire.

The case is De Dios v. Indemnity Ins. Co. of North America, No. 18-1227 (Iowa May 10, 2019). Attorneys involved include: Anthony J. Bribriesco of Bribriesco Law Firm, PLLC, Bettendorf, for appellant. Jeana Goosmann and Anthony Osborn of Goosmann Law Firm, PLC, Sioux City, for appellees. Keith P. Duffy of Nyemaster Goode, P.C., Des Moines, for amici curiae Iowa Defense Counsel Association and the American Insurance Association.

Insurance Coverage Law Center Comment

It appears that Colorado is the only jurisdiction that has allowed bad faith claims against third party administrators or other entities retained by worker's compensation carriers. In Scott Wetzel Services, Inc. v. Johnson, 821 P.2d 804, 811 (Colo. 1991), the Colorado Supreme Court held the bad faith tort was available against independent claims adjusters. The court explained:

[A]n independent claims adjusting company . . . acting on behalf of a self-insured employer owes a duty of good faith and fair dealing to an injured employee in investigating and processing a workers' compensation claim even in the absence of contractual privity with the employee.

Most jurisdictions to have considered the issue have declined to recognize bad faith claims against third party administrators and other entities that were not in privity with the insured. See Lodholtz v. York Risk Servs. Grp., Inc., 778 F.3d 635, 640- 41, 641 n.11 (7th Cir. 2015) (finding that Indiana law did not impose a duty running from a claims adjuster to an insured and that this was “the rule adopted by the majority of American jurisdictions”); The William Powell Co. v. Nat'l Indem. Co., 141 F. Supp. 3d 773, 782-83 (S.D. Ohio 2015) (“Ohio law most strongly points to the conclusion that, absent privity, an insured may not sue a third party claims administrator for adjusting its claim in bad faith.”); McLaren v. AIG Domestic Claims, Inc., 853 F. Supp. 2d 499, 511 (E.D. Pa. 2012) (noting that Pennsylvania did not allow bad faith claims against third party administrators); Simmons v. Cong. Life Ins., 791 So.2d 360, 365-66 (Ala. Civ. App. 1998) (affirming summary judgment in favor of a third party administrator on a bad faith claim based on lack of privity), aff'd in part, vacated in part, rev'd in part on other grounds, Ex Parte Simmons, 791 So.2d 371 (Ala. 2000); Sanchez v. Lindsey Morden Claims Servs., Inc., 84 Cal. Rptr. 2d 799, 803 (Ct. App. 1999) (“Our decision is consistent with the majority of cases in other states, which hold that an independent adjuster hired by the insurer owes no duty of care to the insured.”); Charleston Dry Cleaners & Laundry, Inc.v. Zurich Am. Ins., 586 S.E.2d 586, 588 (S.C. 2003) (holding that “no bad faith claim can be brought against an independent adjuster or independent adjusting company” due to the lack of privity); Natividad v. Alexsis, Inc., 875 S.W.2d 695, 697-98 (Tex. 1994) (finding that a claims adjustment firm could not be sued in bad faith by the injured employee because it was not part of the special relationship among the employee, the employer, and the insurer); Carpenter v. Sw. Med.Examination Servs., Inc., 381 S.W.3d 583, 588-89 (Tex. App. 2012) 381 S.W.3d at 588-89 (summarizing Texas authority that barred actions against adjusting and administrative services firms for bad faith because of a lack of privity); Hamill v. Pawtucket Mut. Ins., 892 A.2d 226, 230 (Vt. 2005) (“We concur with the majority view that public policy considerations do not favor creating a separate duty on the part of independent adjusters that would subject them to common-law tort actions by insureds who have suffered economic loss as the result of allegedly mishandled claims.”).