Legal Update: Iowa Code 10A.315(4) and Penalty Exposure for Employers

An appeal decision recently issued by Interim Iowa Workers’ Compensation Commissioner Grell in Van Otterloo v. Staples serves as a reminder of the importance of understanding the requirements of Iowa Code Section 10.315(4) for any employer who wishes to avoid owing penalties to any claimant to whom they deny benefits.

Iowa Code Section 10A.315(4)(a) states that if a defendant-employer denies, delays, or terminates benefits without reasonable or probable cause, the Agency “shall award benefits in addition to those benefits payable under this subchapter or chapter 85…up to fifty percent of the amount of benefits that were denied, delayed, or terminated without reasonable and or probable cause or excuse.” The Agency can award claimants these penalty benefits whenever the commissioner finds that a defendant-employer denied, delayed, or terminated benefits without proving that they had “a reasonable cause or excuse” for doing so.

If a defendant-employer has “a reasonable or probable cause or excuse” for refusing to pay benefits, it can avoid having to pay a penalty. However, the legal definition of “a reasonable or probable cause or excuse” is quite narrow. In accordance with the terms of 10.315(4)(c), it must “satisfy all of the following criteria”—

1. (1) The excuse was preceded by a reasonable investigation and evaluation by the employer or insurance carrier into whether benefits were owed to the employee.

1. (2) The results of the reasonable investigation and evaluation were the actual basis upon which the employer or insurance carrier contemporaneously relied to deny, delay payment of, or terminate benefits.

1. (3) The employer or insurance carrier contemporaneously conveyed the basis for the denial, delay in payment, or termination of benefits to the employee at the time of the denial, delay, or termination of benefits.

Iowa Code § 10A.315(4)(c).

Defendant-employers who have denied benefits and wish to avoid owing a penalty should be mindful to comply with all the provisions of 10A.315(4)(c). In Van Otterloo v. Staples, recently affirmed in its entirety on appeal, Interim Commissioner Grell found that the defendant failed to prove that it had a reasonable basis for its denial of benefits. While Staples sent Van Otterloo a letter explaining that they were denying her petition for benefits, this letter did not establish “the scope” of their investigation into her claim “or that the investigation was reasonable.” Van Otterloo, File No. 24002844.01 (App. 4/22/2026) at 5. The letter also didn’t “establish that the investigation conducted is the actual basis for denial.” Id. As Interim Commissioner Grell puts it, “[d]efendants essentially ask claimant and this agency to assume the basis they now assert for their denial was the actual basis for the denial without ever putting forth evidence that Is accurate.” Id. As such, Interim Commissioner Grell found that “the basis for denial was weak and…unreasonable” and upheld the 50% penalty levied against Staples by Deputy Cleereman.  

The rulings by Interim Commissioner Grell and Deputy Cleereman serve as a reminder of what employers must do if they wish to avoid owing penalties to claimants. It is not sufficient merely to notify the claimants of the denial; they must also make the scope of their investigation clear, and base their decision based upon the results of their investigation.