On July 23, 2025, the Iowa Court of Appeals gave us a stark reminder that a deceptively intricate statutory framework governs workers’ compensation subrogation in Iowa, and even seasoned litigators can find themselves ensnared by its procedural pitfalls. In Midwest Builders’ Casualty Mutual Co. v. RP Constructors, LLC, 2025 WL 2057804 (Iowa App. 2025), an injured employee failed to bring a third-party tort action after receiving workers’ compensation benefits. His workers’ compensation carrier, Midwest Builders, attempted to preserve its subrogation rights by notifying the employee of its intent to sue the negligent third party, but failed to issue the statutorily required “90-day demand.” Instead, the insurer waited only forty-one days after sending a general notification that it intended to file a subrogation suit. The Court of Appeals, adhering to nearly a century of Iowa precedent, held that Midwest Builders’ failure to issue a proper 90-day demand under Iowa Code § 85.22(2) destroyed its subrogation rights, dooming the insurer’s subrogation suit entirely.
This ruling illustrates a broader and recurring theme in Iowa subrogation law—even the smallest procedural missteps can nullify large liens. This isn’t the first time that Iowa courts have warned subrogation practitioners to follow the rules. In Rollins Corp. v. Guessford, 741 N.W.2d 822 (Iowa App. 2007), the employee settled his third-party claim without filing suit and thereafter failed to reimburse a workers’ compensation lien of $59,221. Although the carrier attempted to pursue both the third party and the employee under indemnification and unjust enrichment theories, its failure to issue a timely and proper 90-day demand to the employee under § 85.22(2) meant it had no direct right of action against the third party. The court emphasized that subrogation rights only arise if the carrier makes a formal demand and the employee fails to file suit within the statutory 90-day window. The absence of such a “demand” left the carrier unable to sue the tortfeasor and with only a limited remedy against the settling employee who had already spent most of his recovery.
In both Midwest Builders and Guessford, the courts reaffirmed the necessity of strictly following the statutory notice provisions set forth in § 85.22. These provisions do not allow for constructive notice or equitable exceptions. They do not allow subrogation counsel to mince words or almost comply. If a carrier wishes to obtain subrogation rights under § 85.22(2), it must issue a written “demand” explicitly requiring the employee to file suit, and then wait 90 days. Failure to do so leaves the carrier unable to assert a third-party claim, regardless of the merits of its underlying reimbursement interest. Counsel engaged to protect workers’ compensation liens must be meticulous. Simply being involved or generally aware of the injury is not sufficient to trigger or preserve statutory rights. Formal compliance is key.
Another equally treacherous trap lies within § 85.22(1), which governs the preservation of liens in third-party suits filed by the employee. If the employee brings a third-party action, the employer or insurer must file a notice of lien within thirty (30) days of receiving notice of the suit. This obligation arises only after the carrier receives the original notice of the suit with sufficient detail to allow for proper filing. And this “notice” is often hidden in the exchange of emails or other communication between the workers’ compensation adjuster (who may be oblivious to this trap) and the employee’s attorney. In Firstar Bank of Burlington, Iowa v. Hawkeye Paving Corp., 558 N.W.2d 423, 426–27 (Iowa 1997), the court clarified that merely settling a claim does not trigger this deadline; actual initiation of suit by the employee is a condition precedent. However, once suit is filed and notice is received, failure to meet the 30-day deadline can extinguish the carrier’s lien rights entirely or limit its ability to claim a future credit.
Indemnification Right vs. Statutory Lien
These nuanced statutory requirements function as more than just technicalities—they embody a legislative preference for employee control of litigation and a narrowly circumscribed subrogation right. The Iowa Supreme Court has repeatedly underscored that the right to reimbursement (referred to as “indemnification”) under § 85.22(1) and the right to a lien are distinct. The right to indemnification is the carrier’s basic substantive right to be reimbursed from any third-party recovery made by the injured employee. This right arises automatically under § 85.22(1) when (1) the carrier pays benefits, and (2) the employee makes a third-party recovery. The carrier does not have to file anything or serve any sort of notice to obtain this right of indemnity. It is automatic. On the other hand, the right to a lien is a procedural mechanism to secure a subrogation recovery. The former may survive procedural mistakes, but the latter will not. Accordingly, failing to timely file a notice of lien after receiving notice of the third-party suit may not destroy the right to seek reimbursement altogether, but it may eliminate the lien’s enforceability against third-party proceeds and compromise the carrier’s ability to assert a future credit against ongoing benefits.
These decisions reinforce the guidance that subrogation counsel must act quickly and decisively upon learning of a potential third-party recovery. The best practice is to issue a 90-day demand immediately—whether or not the employee has retained counsel or expressed an intention to sue. Do not wait. Similarly, if an employee has filed a third-party suit, counsel must file a notice of lien with the court within 30 days after it has notice of this suit in order to preserve reimbursement and credit rights. Even where the underlying injury is undisputed and the third party is clearly at fault, procedural noncompliance will render subrogation efforts futile.
In sum, the Midwest Builders case and its predecessors send an unequivocal message to claims professionals and subrogation counsel: in Iowa, procedure is everything. When in doubt or when the lien is large, obtain subrogation counsel to help navigate through the shallow Iowa waters. A failure to issue a proper 90-day demand or to timely file a notice of lien can destroy otherwise meritorious subrogation claims. To avoid these traps, a subrogation professional must internalize the statutory structure of § 85.22 and act with speed, precision, and legal accuracy. The difference between preserving a six-figure lien and watching it vanish can hinge on a single letter, an off-hand reference to filing suit hidden deep within a long email in the middle of a voluminous claim file, or a missed deadline.
