Justin Loew v. Menard, Inc., and XL Insurance America

IN THE SUPREME COURT OF IOWA

No. 22–1894

Submitted November 16, 2023—Filed February 9, 2024

JUSTIN LOEW,

Appellant,

vs.

MENARD, INC. and XL INSURANCE AMERICA,

Appellees.

Appeal from the Iowa District Court for Polk County, Samantha

Gronewald, Judge.

A workers’ compensation claimant appeals the district court’s order

denying his petition for judicial review of agency decision denying his claim for

workers’ compensation benefits. DISTRICT COURT JUDGMENT REVERSED AND

REMANDED WITH INSTRUCTIONS.

McDonald, J., delivered the opinion of the court, in which all participating

justices joined. May, J., took no part in the consideration or decision of the case.

Paul Thune of Thune Law Firm, West Des Moines, for appellant.

Kent Smith and Rachael D. Neff (until withdrawal) of Smith Mills Law, P.C.,

Cedar Rapids, for appellees.

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MCDONALD, Justice.

Justin Loew suffered two lower back injuries in the course of his

employment with Menard, Inc. With respect to the first injury, Loew filed a

petition for workers’ compensation benefits, and the commissioner found the

injury caused 20% functional impairment to Loew’s lower back. Loew received

compensation for that injury based on a 30% reduction in his earning capacity.

With respect to the second, later injury, the commissioner found the injury

caused an 8% functional impairment to Loew’s lower back, increasing his

functional impairment from 20–28%. Based on statute, Loew was entitled to

compensation for this new injury based “upon [his] functional impairment

resulting from the injury, and not in relation to [his] earning capacity.” Iowa Code

§ 85.34(2)(v) (2018). The commissioner concluded, however, that Menard was

not required to pay compensation in this case. The commissioner reasoned

Menard was entitled to an offsetting credit because the 30% reduction in Loew’s

earning capacity was greater than the 28% functional impairment to Loew’s

back. The commissioner erred in crediting Menard in this case for its prior

payment. Compensation based on loss of earning capacity and compensation

based on functional impairment are incommensurables; offsetting one against

the other is like determining “whether a particular line is longer than a particular

rock is heavy.” Bendix Autolite Corp. v. Midwesco Enters., Inc., 486 U.S. 888, 897

(1988) (Scalia, J., concurring in the judgment).

I.

Iowa’s workers’ compensation system dates to 1913. See 1913 Iowa Acts

ch. 147; Baker v. Bridgestone/Firestone, 872 N.W.2d 672, 676 (Iowa 2015). The

principles and purposes of the workers’ compensation system are well

understood. See Baker, 872 N.W.2d at 676. Generally, the workers’

compensation system rests on the policy judgment “that the disability of a

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work[er] resulting from an injury arising out of and in the course of his [or her]

employment is a loss that should be borne by the industry itself . . . and not

suffered alone by the work[er] or the employer.” Id. (alterations and omission in

original) (quoting Tunnicliff v. Bettendorf, 214 N.W. 516, 517–18 (Iowa 1927)).

The system imposes a series of tradeoffs on employers and employees. “In the

grand bargain removing workers’ compensation matters from the civil justice

system, employers receive immunity from potentially large tort lawsuits . . . on

the condition that they pay compensation benefits for injuries arising out of and

in the course of employment without regard to fault.” Id. at 676–77. Under this

system, employers have an “obligation to pay compensation benefits in the

correct amount promptly when they are owed to injured employees.” Id. at 678.

To that end, it is “a rule of statutory interpretation deeply embedded throughout

our caselaw” that “[w]e liberally construe workers’ compensation statutes in

claimants’ favor to effectuate the statute’s humanitarian and beneficent

purpose.” Id.

Under Iowa law, “[e]very employer . . . shall provide, secure, and pay

compensation according to the [Code] for any and all personal injuries sustained

by an employee arising out of and in the course of the employment.” Iowa Code

§ 85.3(1). Compensation for an injury resulting in any permanent disability

“shall be payable to an employee” pursuant to Iowa Code section 85.34.

Compensation for an injury resulting in a permanent partial disability,

specifically, is governed by section 85.34(2). When an employee suffers a

permanent partial disability, the employee’s “compensation shall be based upon

the extent of the disability and upon the basis of eighty percent per week of the

employee’s average spendable weekly earnings.” Id. § 85.34(2). “For all cases of

permanent partial disability[,] compensation shall be paid” in one of two ways.

Id.

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First, in certain cases, compensation for permanent partial disability shall

be based on functional impairment to the injured body part and limited to the

percentage loss of the physiological capacity of the injured body part based on a

set number of weeks. See id. § 85.34(2)(a)–(v); Chavez v. MS Tech. LLC, 972

N.W.2d 662, 667 (Iowa 2022); Second Inj. Fund of Iowa v. Bergeson, 526 N.W.2d

543, 547 (Iowa 1995). In these cases, the “extent of loss or percentage of

permanent impairment shall be determined solely by utilizing the guides to the

evaluation of permanent impairment, published by the American medical

association, as adopted by the workers’ compensation commissioner.” Iowa Code

§ 85.34(2)(x). Iowa Code section 85.34(2)(a)–(u) lists different body parts and the

corresponding weeks of compensation that must be paid for an impairment to

the scheduled body part. To illustrate, section 85.34(2)(a) provides that for the

loss of a thumb, an employee is entitled to compensation for sixty weeks. Id.

§ 85.34(2)(a). If an employee suffered a work injury resulting in a 10% functional

impairment to the thumb, the employee would be entitled to six weeks’

compensation (10% of sixty weeks). Permanent partial disabilities compensated

pursuant to paragraphs (a)–(u) are referred to as scheduled injuries.

Second, in “all cases of permanent partial disability other than those . . .

described or referred to in paragraphs ‘a’ through ‘u’ . . . , the compensation shall

be paid” based on “the number of weeks in relation to five hundred weeks as the

reduction in the employee’s earning capacity caused by the disability.” Id.

§ 85.34(2)(v). Determining an injured employee’s compensation based on the

employee’s reduction in earning capacity is known as the industrial method. See

Mortimer v. Fruehauf Corp., 502 N.W.2d 12, 14–15 (Iowa 1993) (stating the

industrial method measures “the loss to the employee’s earning capacity”).

Functional impairment to the body is only one of many factors considered in

measuring an employee’s reduction in earning capacity. See Sherman v. Pella

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Corp., 576 N.W.2d 312, 321 (Iowa 1998). “Measuring the employee’s loss of

earning capacity requires the commissioner to consider the employee’s

functional impairment, age, education, work experience, and adaptability to

retraining, to the extent any of these factors affect the employee’s prospects for

relocation in the job market.” Id. Our caselaw calls a permanent partial disability

compensated on the reduction in the employee’s earning capacity an “industrial

disability.” See id. at 320–21 (“[U]nscheduled injuries are compensated by

determining the employee’s industrial disability. One arrives at industrial

disability by determining the loss to the employee’s earning capacity.”); Second

Inj. Fund of Iowa v. Shank, 516 N.W.2d 808, 813 (Iowa 1994) (“Industrial

disability goes beyond body impairment and measures the extent to which the

injury impairs the employee’s earning capacity.”).

Until 2017, all nonscheduled injuries were compensated using the

industrial method. In 2017, the general assembly changed the method for

determining compensation for nonscheduled injuries. 2017 Iowa Acts ch. 23, § 8

(codified at Iowa Code § 85.34(2)(u) (2018)). When an employee suffers a

nonscheduled injury that results in a permanent partial disability and does not

return to work or does not return to work at the same or greater compensation,

the employee’s compensation is determined by the industrial method based on

the reduction in the employee’s earning capacity. See id. When an employee

suffers a nonscheduled injury that results in a permanent partial disability,

returns to work after the injury, and receives at least the same compensation,

the “employee shall be compensated” for the injury “based only upon the

employee’s functional impairment resulting from the injury, and not in relation

to the employee’s earning capacity.” Iowa Code § 85.34(2)(v).

When an employee suffers from a second injury with the same employer

resulting in a new disability, the Code makes sure that the employer pays

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compensation only for the second injury resulting in a disability and does not

pay compensation for the first injury twice. Iowa Code § 85.34(7).

Section 85.34(7) provides that an “employer is not liable for compensating an

employee’s preexisting disability that arose out of and in the course of

employment from a prior injury with the employer, to the extent that the

employee’s preexisting disability has already been compensated.” Id. The

legislature’s stated purpose in enacting section 85.34(7) was to “prevent all

double recoveries and all double reductions in workers’ compensation benefits

for permanent partial disability.” 2004 Iowa Acts 1st Extraordinary Sess.

ch. 1001, § 20. “The general assembly intend[ed] that an employer shall fully

compensate all of an injured employee’s disability that is caused by work-related

injuries with the employer without compensating the same disability more than

once.” Id.

II.

With that background, we turn to the facts of this case. Loew has worked

for Menard, a home improvement store, since 2008. In March 2015, Loew

sustained a lower back injury arising out of and in the course of his employment

while unloading patio chairs from the back of a truck. He underwent therapy,

work hardening, and two surgeries to try and resolve the pain and other

symptoms associated with the injury.

In January 2017, Loew filed a petition for workers’ compensation benefits

against Menard and its insurance carrier, XL Insurance America, for his 2015

lower back injury. Loew suffered a 20% functional impairment to his lower back.

Because this was a nonscheduled injury, the commissioner calculated Loew’s

compensation using the industrial method under a prior version of the law. See

Iowa Code § 85.34(2)(u) (2015). After considering all the relevant factors,

including, but not limited to Loew’s functional impairment, the commissioner

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found Loew suffered a 30% reduction in earning capacity and was entitled to

compensation for the same.

In July and August of 2020, Loew filed two new petitions for workers’

compensation benefits for new injuries arising out of and in the course of his

employment with Menard. In the petitions, Loew alleged he suffered an injury to

his lower back on August 13, 2018, and sustained a cumulative injury to his

lower back, right leg, and right foot on March 13, 2019. The petitions were

consolidated. The parties agreed that the above-discussed 2017 amendments to

section 85.34(2)(v) were applicable. Pursuant to this provision, the parties

stipulated that “[i]f the alleged injury is found to be a cause of permanent

disability, Loew [was] only entitled to recover the functional impairment rating

since he returned to work at the same or greater salary, wages, or earnings.”

After the arbitration hearing, the deputy commissioner found that Loew

sustained a new injury to his lumbar spine on August 13, 2018. The deputy

commissioner found the injury caused an 8% permanent functional impairment

to Loew’s lower back, increasing his functional impairment from 20% to 28%.

The deputy commissioner concluded, however, that Loew was not entitled to

compensation for his new permanent partial disability. Relying on

section 85.34(7), deputy the commissioner reasoned:

This case involves a new injury Loew sustained to his lumber spine

. . . while working for Menards. Under the 2017 changes to the

statute, Loew is only entitled to functional loss in this case because

he remains employed by Menards and he is earning greater wages

. . . . Loew’s total functional loss for his combined injuries while

working for Mendards is 28 percent, which is less than the prior 30

percent award he received . . . following the 2015 work injury. Under

the plain meaning of Iowa Code section 85.34(7), Menards is entitled

to a credit for the prior award and Loew is entitled to no additional

benefits for the 2018 work injury at this time.

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Loew filed an intra-agency appeal. The commissioner affirmed the “finding

that claimant sustained permanent functional impairment of eight percent of the

body as a whole as a result of the August 13, 2018, work injury.” The

commissioner affirmed that Menard was entitled to a credit. The commissioner

reasoned “that because claimant was awarded 30 percent industrial disability

for the 2015 work injury, and because claimant’s total functional impairment for

the 2015 and 2018 injuries is 28 percent, . . . [the] defendants are entitled to a

credit for the prior 30 percent award.” Thus, according to the commissioner,

Loew was “not entitled to receive any additional benefits for the eight percent

functional impairment sustained by claimant as a result of the August 13, 2018,

work injury.”

Loew filed a petition for judicial review of the commissioner’s decision. He

argued that the commissioner erred in crediting Menard for the 30% industrial

disability payment. In Loew’s view, section 85.34(7) did not apply here because

he did not seek compensation for a preexisting disability. Instead, he sought

compensation only for a new permanent partial disability, to wit, the 8% increase

in functional impairment caused by his new injury. Further, Loew argued, the

commissioner’s application of section 85.34(7) did not make sense here. The

commissioner compared incommensurables: Loew’s prior injury was

compensated in apples of reduced earning capacity, but his current injury was

to be compensated in oranges of increased functional impairment. The parties

also stipulated that compensation was to be based on functional impairment

rating. The district court rejected Loew’s arguments and affirmed the

commissioner’s decision.

III.

“An individual adversely affected by an action of the workers’

compensation commissioner is entitled to judicial review under the Iowa

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Administrative Procedures Act (IAPA).” Coffey v. Mid Seven Transp. Co., 831

N.W.2d 81, 88 (Iowa 2013). Iowa Code section 17A.19(10) “governs judicial review

of administrative agency decisions.” Id. Our review of the commissioner’s

interpretation of statutes is contingent. If “the legislature clearly vested the

agency with the authority to interpret the statute at issue,” we give deference to

the agency’s interpretation and will reverse the agency’s decision only when its

interpretation is “irrational, illogical, or wholly unjustifiable.” NextEra Energy

Res. LLC v. Iowa Utils. Bd., 815 N.W.2d 30, 36–37 (Iowa 2012) (quoting Doe v.

Iowa Dep’t of Hum. Servs., 786 N.W.2d 853, 857 (Iowa 2010)). If the legislature

did not clearly vest the agency with interpretive authority over the statute at

issue, we review the agency’s decision for the correction of errors at law. Id. at 37.

We have previously concluded the legislature has not vested the workers’

compensation commissioner with interpretive authority regarding Iowa Code

chapter 85. Waldinger Corp. v. Mettler, 817 N.W.2d 1, 4–5 (Iowa 2012). Therefore,

we “review the commissioner’s interpretation of Iowa Code chapter 85 for

correction of errors at law instead of deferring to the agency’s interpretation.”

Brewer-Strong v. HNI Corp., 913 N.W.2d 235, 243 (Iowa 2018).

We first address Loew’s entitlement to compensation under Iowa Code

section 85.34(2)(v) (2018). Section 85.34(2)(v) provides two methods for

calculating compensation for a nonscheduled permanent partial disability.

Compensation shall be paid using the industrial method based on “the reduction

in the employee’s earning capacity caused by the disability.” Id. However, when

an employee returns to work at the “same or greater salary, wages, or earnings

than the employee received at the time of the injury,” then “the employee shall

be compensated based only upon the employee’s functional impairment resulting

from the injury, and not in relation to the employee’s earning capacity.” Id. Here,

Loew suffered a nonscheduled injury to his lower back, and he returned to work

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at the same or greater compensation. Because Loew returned to work at the

same or greater compensation, he was entitled to compensation “based only

upon [his] functional impairment resulting from the injury.” Id. The

commissioner found the August 13, 2018 work injury caused an 8% permanent

functional impairment to his lower back. Pursuant to the plain language of the

statute, Loew “shall be compensated” for the additional 8% functional

impairment “resulting from the injury.” Id. That equates to forty weeks’

compensation (8% of 500 weeks).

We conclude the commissioner erred in interpreting section 85.34(7) to

preclude compensation for this new permanent partial disability. The statute

does not establish a credit system where an employer gets to avoid paying for a

new disability. Rather, the statutory text limits an employer’s liability for

preexisting disabilities: the employer “is not liable for compensating an

employee’s preexisting disability” but only “to the extent that the employee’s

preexisting disability has already been compensated under this chapter.” Id.

§ 85.34(7). Loew does not seek to hold Menard liable for a preexisting disability.

Instead, Loew seeks to hold Menard liable for a new permanent partial disability:

his work injury of August 2018 that resulted in an 8% functional impairment to

his lumbar spine. See Warren Props. v. Stewart, 864 N.W.2d 307, 320 (Iowa

2015) (“A new or additional permanent impairment must be established for an

impairment to be the sole basis of a new award.”); Reeves v. Plymouth Cnty. Solid

Waste, Iowa Workers’ Comp. Comm’n No. 21006846.02, 2023 WL 6953980, at

*28 (Oct. 16, 2023) (concluding that employer is liable only for the increased

functional impairment). Loew has not been compensated for this permanent

partial disability. Menard is thus liable for the same. The commissioner erred in

concluding otherwise.

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Our interpretation of the statute is consistent with the general assembly’s

stated purpose in enacting section 85.34(7). The purpose of section 85.34(7) was

to “prevent all double recoveries and all double reductions in workers’

compensation benefits for permanent partial disability.” 2004 Iowa Acts 1st

Extraordinary Sess. ch. 1001, § 20. This case is not a double recovery case. Loew

suffered an injury in 2015, resulting in a 20% functional impairment to his lower

back and a permanent partial disability. The commissioner found Loew suffered

a new injury in August 2018, resulting in a new permanent partial disability,

and Loew has not been compensated for his new permanent partial disability.

There is no risk of double recovery here.

Our conclusion that Iowa Code section 85.34(7) does not preclude

compensation here is bolstered by another consideration: the offset of a 30%

industrial disability makes no sense under the circumstances presented. Loew’s

prior permanent partial disability was compensated based on the reduction in

his earning capacity, but his new permanent partial disability must be

compensated based on his loss of functional impairment. These are

incommensurable, and it makes no logical sense to use one award to offset the

other. If Loew had sought compensation for his preexisting functional disability

by seeking to be compensated for more than an 8% functional impairment, then

section 85.34(7) would apply to limit Loew’s compensation for just an 8%

functional impairment.

The workers’ compensation commissioner reached a similar conclusion in

an analogous case. Prior to 2017, injuries to the shoulder were categorized as

nonscheduled and based on the reduction in the employee’s earning capacity.

See Chavez, 972 N.W.2d at 667. In 2017, the legislature changed the law and

made shoulder injuries scheduled member injuries compensated based on loss

of functional impairment. In Rife v. P.M. Lattner Manufacturing Co., a claimant

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suffered a shoulder injury under the prior law and was compensated using the

industrial method, and he then suffered a subsequent shoulder injury to be

compensated based on loss of functional impairment. Iowa Workers’ Comp.

Comm’n No. 1652412.02, 2022 WL 265661, at *2 (Jan. 21, 2022). The employer

claimed it was entitled to credit for payment of the prior permanent partial

disability. Id. The commissioner rejected that argument, concluding that

offsetting compensation based on functional impairment by a prior payment

based on a reduction in earning capacity was comparing apples to oranges. Id.

We quote the commissioner’s decision at length:

Not only is there no mechanism in the statute for apportioning

past compensation for industrial disability against compensation for

a scheduled member, . . . but the statute, as amended, does not

support such an apportionment. . . .

Because claimant’s prior shoulder injury occurred before the

legislature’s 2017 overhaul of chapter 85, it was not compensated

as a scheduled member. Instead, claimant’s pre-existing disability

was compensated under former Iowa Code section 85.34(2)(u) (now

subsection (2)(v)), which is the section for unscheduled losses that

provides compensation based on a reduction in earning capacity.

In determining a claimant’s reduction of earning capacity,

functional impairment is an element to be considered, but

consideration must also be given to the injured employee’s age,

education, qualifications, experience, motivation, loss of earnings,

severity and situs of the injury, work restrictions, inability to engage

in employment for which the employee is fitted and the employer’s

offer of work or failure to so offer. Before the 2017 amendments, this

agency stated in countless decisions over several decades that

“[t]here are no weighting guidelines that indicate how each of the

industrial disability factors is to be considered.”

In this case, the parties agreed upon a settlement for

claimant’s prior right shoulder injury. While part of the settlement

was certainly for claimant’s functional impairment, the agreed-upon

compensation exceeded what would have been payable for

claimant’s functional impairment alone. In other words, the parties

considered other industrial disability factors when arriving at their

settlement.

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Claimant’s current right shoulder injury, however, is a

scheduled member under the newly added Iowa Code section

85.34(2)(n). Claimant’s compensation under this section is limited

only to the extent of loss or permanent impairment of the shoulder

itself. . . .

Thus, if defendants in this case were entitled to a credit for the

entirety of their settlement, which was for industrial disability,

against claimant’s current scheduled member injury, they would

receive an unfair excess credit for considerations and factors that are

not applicable to claimant’s current injury. Put differently, their credit

would be for apples against an award for oranges.

I agree with the deputy commissioner that defendants could

arguably be entitled to a credit based solely upon the functional

impairment attributable to claimant’s preexisting shoulder injury—a

credit for oranges against an award for oranges.

Id. at *1–*2 (alteration in original) (emphasis added) (citations omitted).

The commissioner’s interpretation of § 85.34(7) set forth in Rife was

correct, and the same reasoning applies in this case. As the commissioner

explained in Rife, the application of the apportionment statute under these

circumstances could result in the employer receiving an excess credit. In

addition, application of the apportionment statute under these circumstances

could also result in the employer receiving insufficient credit. “A claimant may

suffer a functional disability but have no industrial disability if the functional

disability does not impede his ability to perform the duties of his employment.”

Whiddon v. S. Concrete Pumping, LLC, 114 So. 3d 18, 22 (Miss. Ct. App. 2013).

A claimant’s industrial disability can thus be lower than the claimant’s

functional impairment. See Cowell v. All-American, Inc., 308 N.W.2d 92, 95–96

(Iowa 1981) (holding that it was error to hold as a matter of law that industrial

disability had to be greater than or equal to functional impairment); 15 John

Lawyer & James R. Lawyer, Iowa Practice Series Workers’ Compensation § 13:6,

at 175 (2022–2023 ed. 2022) (“There is a common misconception that industrial

disability is greater than functional impairment and is an add-on, i.e., something

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to be examined on top of functional impairment, but such is not the case.

Industrial disability can be equal to, less than, or greater than functional

impairment.” (footnotes omitted)). Imagine if Loew suffered a 20% functional

impairment due to his 2015 lower back injury but was found to have only a 10%

loss of earning capacity. Under Menard’s interpretation of the statute, would

Loew now be entitled to 18% permanent partial disability benefits? We do not

think so. Either case—excess liability or insufficient liability—demonstrates the

error in the commissioner’s decision to interpret section 85.34(7) to require a

credit for incommensurables rather than as a statute that merely precludes

double liability for a permanent partial disability.

IV.

For these reasons, we reverse the judgment of the district court and

remand this case with instructions to remand this matter to the workers’

compensation commissioner for further proceedings consistent with this

opinion.

DISTRICT COURT JUDGMENT REVERSED AND REMANDED WITH

INSTRUCTIONS.

All justices concur except May, J., who takes no part.