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IN THE SUPREME COURT OF IOWA
No. 69 / 06-0977 Filed October 5, 2007 CITY OF MADRID, IOWA, and EMC INSURANCE COMPANIES, Appellants, vs. ANGELA BLASNITZ, Appellee.

On review from the Iowa Court of Appeals.

Appeal from the Iowa District Court for Polk County, Arthur E. Gamble, Judge.

Insurer remanding

seeks workers'

further

review

of

court to

of

appeals

decision for

compensation

case

commissioner

determination of insurer's liability for penalty benefits. COURT OF APPEALS VACATED.

DECISION OF

DISTRICT COURT JUDGMENT

AFFIRMED IN PART AND REVERSED IN PART; CASE REMANDED.

Lori A. Brandau and Michael L. Mock of Bradshaw, Fowler, Proctor & Fairgrave, P.C., Des Moines, for appellants.

Jim

Lawyer

of

Lawyer,

Lawyer,

Dutton

&

Drake,

LLP,

West Des Moines, for appellee.

2 TERNUS, Chief Justice. This appeal involves a workers' compensation insurer's challenge to an award of penalty benefits by the workers' compensation commissioner. The district court ruled the commissioner had applied an incorrect standard in determining the employer's liability for penalty benefits under Iowa Code section 86.13 (2003) and concluded the case should be remanded to the commissioner for reconsideration of penalty benefits under the appropriate test. court of appeals affirmed the Upon the employer's appeal, the district court's remand to the

commissioner. We conclude the commissioner's award of penalty benefits was not supported by substantial evidence because the underlying workers' compensation claim was fairly debatable as a matter of law under the record before the commissioner. Therefore, we vacate the court of

appeals decision, affirm the judgment of the district court in part and reverse in part, and remand the case for entry of a judgment consistent with this opinion. I. Background Facts and Proceedings. On August 1, 2003, the appellee, Angela Blasnitz, filed a petition for arbitration seeking workers' compensation benefits for a shoulder injury she was ultimately found to have sustained on January 17, 2003. Her employer, City of Madrid, Iowa, and its workers' compensation insurer, EMC Insurance Companies, denied her claim, contending she had not sustained a shoulder injury on the date alleged. (We will refer to these parties jointly as the insurer.) An arbitration decision was

eventually entered by a deputy workers' compensation commissioner, awarding disability, medical, and penalty benefits.

3 On intra-agency appeal, the workers' compensation commissioner affirmed, adopting the deputy's decision with some "additional analysis" concerning the penalty benefits issue. Before reviewing the

commissioner's analysis of this issue, it is helpful to summarize the pertinent facts found by the commissioner, as well as the relevant documentary evidence and testimony introduced at the hearing. In January 2003 the claimant was employed as a police officer for the City of Madrid. On January 17, 2003, she was dispatched to a call at the home of Michael and Susan Palmer to investigate a domestic disturbance. The claimant testified at her workers' compensation

hearing that she slipped and fell in the Palmer home, striking her right shoulder and elbow. At the time of the incident, the claimant was

wearing a remote microphone for her patrol vehicle recording system, and she can be heard to fall on the tape. Her fall was not visible on the tape, however. The claimant stated in answers to interrogatories that she had immediate pain in her shoulder and elbow. The patrol car tape shows her conducting a vehicle stop after her fall, sometimes using her right arm above her shoulder. She does say "ouch" once while searching the vehicle. The claimant did not record that she sustained an injury when she completed her patrol activity report for her January 17, 2003 shift. The claimant had been injured three times while working for the city before the January 17, 2003 incident, and on each occasion, she had noted her injury in her patrol activity log on the day the injury occurred. The claimant testified she had a discussion with the police chief the day after her fall regarding an injury to her shoulder. The chief,

however, denied he had a conversation with the claimant on January 18 or January 19, as he did not work on either date.

4 The police chief gave the claimant a three-day suspension on February 19, 2003, for failing to follow an office directive with respect to an unrelated matter. On the final day of her suspension, February 24, 2003, the claimant sought her initial treatment for her shoulder, neck and arm. She reported to her chiropractor on that date that she had her first symptoms after a fall on her right shoulder approximately three weeks earlier. The claimant wrote a note to her employer the next day, February 25, 2003, stating that she fell "at the 10-16" and hurt her back and shoulder. In response to this note, the insurer authorized medical care with a Dr. Kirkland, who the claimant saw on March 19, 2003. The claimant reported to Dr. Kirkland that she slipped and fell on either January 17, 2003, or December 17, 2002, while responding to a call, but according to his records, she really could not remember. Also on

March 19, 2003, the claimant reported to Therapeutic Associates that the injury occurred ninety days prior. On March 26, 2003, she told a physical therapist that she injured her shoulder on January 17, 2003, when responding to a domestic-dispute call. She gave the same history to a physician she consulted on May 7, 2003, who determined the claimant had a rotator cuff tear in her right shoulder. subsequently had two surgeries to repair the tear. On three occasions in April 2003, the insurer made surveillance videos of the claimant. In one video, she can be seen bridling, leading, and grooming three horses for approximately ninety minutes, using both arms, sometimes above shoulder level. At one point, she appears to The claimant

briefly shake her right arm and hold her right shoulder. On May 21, 2003, the insurer took a recorded statement from Mr. Palmer, one of the subjects of the claimant's January 17 domestic-disturbance call. Mr. Palmer told the insurer that the claimant fell straight down on

5 January 17, 2003, and landed on her bottom. The insurer wrote to the claimant on May 22, 2003, denying her claim. On June 2, 2003, the claimant called Mr. Palmer and asked him to sign a statement for her because "she was having trouble with the workmen's comp." The next day, June 3, 2003, Mr. Palmer gave a

second statement to the insurer, stating that on January 17, 2003, "he had turned slightly and he turned back around and claimant had her feet in the air and her back was against the wall." He explained that he "just wasn't thinking right" when he gave his first statement. Eventually, Mr. Palmer's deposition was taken on March 12, 2004. He testified that he did not see the claimant fall on January 17, 2003, but he did offer to help her up after her fall. He further testified she said she was fine, she did not act like she had been injured, and she did not rub her right arm or shoulder. Mr. Palmer also suggested in his deposition that the parties should question his wife about the incident as she was sitting on the couch facing the door where and when the claimant slipped. The insurer then contacted Mrs. Palmer, who gave a statement on March 17, 2004. Mrs. Palmer stated that she saw the claimant fall and did not recall that the claimant struck her right shoulder or arm in the course of her fall. Mrs. Palmer testified consistently with her statement when her deposition was subsequently taken on May 11, 2004. She

testified she saw the claimant fall, but did not see her hit anything. She said the claimant fell straight down on her bottom with her feet straight out in front of her. Mrs. Palmer said her husband asked the claimant if she was okay, and the claimant said she was okay and did not act injured. In addition to the testimony of the Palmers, the police chief testified at the hearing that the claimant told him in mid-2002 that she

6 had been kicked in the right arm by her horse. The police chief said he observed a large bruise on her arm at that time. The police chief and another officer also testified they believed the claimant had been untruthful in the past. Finally, the claimant's surgeon stated there are activities involved in caring for and showing horses that could cause a rotator cuff tear. In affirming the deputy's decision to award penalty benefits, the commissioner stated: Not every defense or factual dispute is sufficient to constitute the reasonable or probable cause or excuse as contemplated by section 86.13. Only a very unimaginative mind would be unable to find a shred of evidentiary fact that could be pointed to as a reason to deny compensability of any claim. Eyewitness accounts of the same incident commonly vary. Memories fade. A view of the totality of the evidence is required to determine whether reasonable or probable cause Substantial evidence that has a or excuse existed. reasonable chance of prevailing is required . . . . (Emphasis added.) The commissioner then briefly reviewed the evidence, noting the record "contains some inconsistencies." these inconsistencies, he concluded, Claimant was employed as a peace officer, a position that judges and juries typically consider to be one that brings credibility. . . . When the totality of the facts in this case are considered and weighed, I find that it was not reasonable to consider the untimely evidence from Ms. Palmer to be of sufficient import and reliability to have a reasonable chance of outweighing all the contrary evidence that supported the compensability of claimant's claim. It cannot be stated better than how the deputy characterized it on page 14 of his decision, "In light of the overwhelming weight of other evidence, Ms. Palmer's statements do not make claimant's claim fairly debatable." (Emphasis added.) The insurer sought judicial review of the commissioner's award of penalty benefits, claiming (1) the commissioner had erroneously imposed Notwithstanding

7 a burden on the insurer to show that its position had a reasonable chance of prevailing, and (2) the commissioner's award of penalty benefits was not supported by substantial evidence.

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