Supreme Court Decides Subrogation Case Involving Choice of Law Issues

Moad v. Dakota Truck Underwriters, 831 NW2d 111 (Iowa 2013), involved the question of what law to apply (the law of Iowa or South Dakota) to determine whether a South Dakota WC carrier was entitled to subrogation for payments made to its insured by underinsured and uninsured carriers arising out of a settlement from third-party litigation.

Claimant died when the truck he was driving for his employer was struck by another vehicle near Iowa City.   WC benefits were paid under South Dakota law.  Claimant's wife filed a third party action in Iowa District Court.  Claimant's wife and children were South Dakota residents.  The WC carrier notified the parties that it was entitled to subrogation of any proceeds received by plaintiff as a result of the third party action.

A settlement agreement was reached with Northland agreeing to pay $300,000, plus $100,000 to cover the workers' compensation carrier's subrogation lien.  Plaintiff agreed to file a motion to strike or extinguish the lien.  Plaintiff filed the motion to strike, alleging that DTU, the comp carrier, had failed to file timely notice of its lien within 30 days after receiving notice of the suit.  The court approved the settlement.  DTU then sought to intervene, and argued that South Dakota law should apply and they should receive compensation for their lien.  The district court found that DTU's claim was barred because of the failure to timely file a response to the third party action.  Alternatively, the court applied Iowa law to bar the claim.  The court cited section 145 and 185 of the Restatement of Torts, which led to the conclusion that the law with the most significant contacts shoulder govern.  On appeal the court of appeals reversed, finding that the case sounded in contract rather than tort and thus the restatement did not apply.

Before the Supreme Court, the parties agreed that if Iowa law applied, DTU was not entitled to subrogation.  If South Dakota law applied, however, there was a valid lien.  The court undertook a lengthy examination of the conflict of law issues in Iowa and in other states.  The court noted that Iowa had rejected the conclusion that the place of the wrong automatically determined which state's law should apply in favor of a most significant relationship test.  Ultimately the court applied section 185 of the Restatement, which addressed the most significant relationship test in workers' compensation cases. Section 185 generally provided that in WC cases, the laws of the state in which the compensation was paid will always apply.  The court found that section 185 was superior to the more open-ended rules of the most significant relationship test.

The court remanded for further proceedings, and noted that if section 185 did not apply to all aspects of the subrogation issue, section 145 (the most significant contacts provision) would govern.  The court rejected the 30 day filing requirement on the grounds that this did not apply in underinsured and uninsured cases.  According to the court, section 85.22 had no application to DTU's effort to obtain a lien.

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