Background
On August 13, 2021, Sarah Kingsbury sustained a work injury at Walmart when she tripped over a box while working as a pharmacy technician, injuring her right shoulder and right knee. She filed a petition for workers’ compensation benefits in May 2023 against Walmart and its insurer. In January 2024, she amended her petition to include a claim against the Second Injury Fund of Iowa, alleging a prior work-related injury to her left lower extremity from 2009 that had resulted in a 7% impairment rating.
On January 24, 2024, the workers’ compensation commissioner approved a compromise settlement between Kingsbury and Walmart for $52,500 as “full and final” compensation. The settlement stated that the parties disputed “the extent of [Kingsbury’s] permanent disability” from the August 2021 injury, with the employer asserting only temporary exacerbation of pre-existing conditions while Kingsbury claimed significant permanent disability. The settlement did not establish the specific degree of permanent disability for which Walmart would be liable.
The Second Injury Fund moved for summary judgment, arguing that Kingsbury could not establish Fund liability without first proving the employer’s fixed liability for permanent disability—a determination the settlement left unresolved. The workers’ compensation commissioner granted the motion. On judicial review, the district court reversed, holding that the Fund’s claim was separate from the employer settlement. The Iowa Supreme Court granted review.
The Court’s Holding
The Iowa Supreme Court reversed the district court and held that Kingsbury’s compromise settlement with Walmart barred her subsequent claim against the Second Injury Fund. Writing for a 4-2 majority, Chief Justice Christensen explained that triggering Fund liability requires proving three elements: (1) a prior loss or loss of use of a hand, arm, foot, leg, or eye; (2) a subsequent work-related compensable injury to another listed member; and (3) some permanent disability from that injury. Critically, the Fund’s obligation arises only “in addition to” employer compensation and “after the expiration of the full period provided by law for the payments thereof by the employer.” Thus, the employer’s fixed liability must first be established.
Because Kingsbury’s settlement with Walmart did not fix the employer’s liability for any degree of permanent disability—the parties explicitly disagreed on this point and settled “in lieu of additional litigation”—Kingsbury could not satisfy the statutory prerequisite to Fund liability. The court applied Iowa Code § 85.35(10), which provides that an approved compromise settlement “shall constitute a final bar to any further rights arising under” the Iowa Workers’ Compensation Act “regarding the subject matter of the compromise.” The subject matter here included whether Kingsbury suffered permanent disability from the workplace injury, precluding further litigation on that issue.
The court distinguished Tweeten v. Tweeten, where a settlement with the Fund did not bar a separate claim against the employer, because the Fund’s obligation is not a prerequisite to employer liability, whereas employer liability is a statutory prerequisite to Fund liability. The court noted that alternative settlement structures—such as commutation agreements identifying a specific permanent disability percentage, or global settlements involving both employer and Fund—could preserve Fund rights, but Kingsbury had not pursued these options.
Key Takeaways
- An injured worker cannot pursue the Second Injury Fund if the settlement with the employer does not establish the degree of permanent disability from the workplace injury.
- The Fund’s obligation is statutorily dependent on proof of the employer’s fixed liability for permanent disability; a settlement that leaves this issue unresolved bars Fund claims under the statutory finality bar.
- Claimants seeking to preserve Fund benefits must structure settlements carefully—full commutation agreements specifying permanent disability percentages or global settlements including the Fund itself are permissible alternatives.
- The court declined to address policy arguments about settlement encouragement, directing such concerns to the legislature rather than resolving them judicially.
Why It Matters
This decision creates a significant procedural trap for injured workers with potential Second Injury Fund claims. Any worker who settles with an employer without explicitly establishing permanent disability percentages effectively abandons Fund rights, even though the Fund was not a party to the settlement. This structure may discourage reasonable settlements and could incentivize injured workers to litigate longer against their employers to preserve Fund claims—outcomes that seem to conflict with Iowa’s stated policy favoring voluntary settlements. The decision establishes a strict asymmetry: settlements with the Fund don’t bar employer claims, but settlements with employers do bar Fund claims, because the Fund’s obligation depends on prior employer liability.
Justice Waterman’s dissent, joined by Justice McDermott, warned that this holding undermines settlement policy and will have a “chilling effect” on negotiations. The dissent, supported by the Iowa Defense Counsel Association as amicus curiae, argued that the statutory bar in § 85.35(10) should protect only the parties to the settlement (Walmart), not non-parties (the Fund), and that Kingsbury should be able to prove permanency in a separate Fund proceeding using medical evidence. Going forward, claimants, employers, and their counsel will need to carefully coordinate settlements to include permanency determinations or involve the Fund directly—a significantly higher bar than before this decision.