Court of Appeals Concludes that Entire Third-Party Tort Recovery is Subject to Reimbursement Under Iowa Code 85.22(1)

McKoy v. Twin City Fire Insurance Company, No 22-1787 (Iowa App. Dec. 20, 2023) 

Claimant was paid workers' compensation benefits for medical care and disability in the amount of $148,501.60.  She subsequently pursued a third party tort claim and settled with those parties for $175,000.  The insurance carrier filed an action under 85.22, seeking reimbursement of the entire amount of the workers' compensation settlement less a pro rata share of attorney's fees.  Claimant contested this action, arguing that the tort settlement represented a payment for pain and suffering and thus was not subject to reimbursement under 85.22.  The commissioner disagreed and awarded $116,666.67 to the employer.  The commissioner affirmed this order.

Before the the district court and Court of Appeals, claimant argued that 85.22(1) only allows for reimbursement of benefits covered by workers' compensation, such as medical benefits and disability, but not for items such as pain and suffering.  The Court notes that in Sourbier v. State, 498 N.W.2d 720, 723 (Iowa 1993), the Supreme Court had squarely addressed this question and concluded that the "statute allows the employer or insurer to be reimburssed out of damages for pain and suffering because such construction furthers the purpose of the statute."  The Court finds no reason that Sourbier would not apply to this case and upholds the decision of the agency and district court.  The Court specifically concludes that pain and suffering awards can be reimbursed under 85.22.  The Court also rejects claimant's argument that the release precluded reimbursement and finds that since the insurance carrier on the workers' compensation claim had not signed the release, there was no way it could be bound by that document.