The Settlement Trap: Why Claimants Who Compromise with Employers Can’t Come Back for the Fund

In the recent Kingsbury v. Second Injury Fund of Iowa decision, the Iowa Supreme Court held that a workers’ compensation claimant who entered a compromise settlement with her employer under Iowa Code section 85.35(3) that did not establish the employer’s liability for a specific degree of permanent disability cannot subsequently pursue a claim against the Second Injury Fund of Iowa. Kingsbury v. Second Injury Fund of Iowa, 34 N.W.3d 475 (Iowa 2026).

Sarah Kingsbury was injured while working as a pharmacy technician at Walmart. She filed a petition against Walmart for workers’ compensation benefits, later adding a claim against the Second Injury Fund of Iowa (SIF). Prior to the hearing, Kingsbury and Walmart agreed to a compromise settlement. Critically, the settlement identified the subject and nature of the dispute as the extent of Kingsbury’s permanent disability resulting from her work injuries. The settlement specifically stated that Walmart accepted compensability of the injuries but asserted Kingsbury “suffered only a temporary exacerbation of her pre-existing deconditioned and osteoarthritic shoulders and knees,” while Kingsbury claimed she sustained a 36% permanent impairment to her right lower extremity and a 15% permanent impairment to her right shoulder. Id. at 477. The settlement did not specify any agreed amount of permanent disability, and did not explain how the parties reached the settlement amount. Importantly, Walmart did not accept liability for any permanent disability. The settlement resolved all claims against Walmart with payment to Kingsbury “as a full and final compromised settlement, satisfaction, and final discharge of all workers’ compensation claims.” Id.

Kingsbury then attempted to continue her claim against SIF. However, SIF moved for summary judgment, arguing because Kingsbury had conceded in the employer’s settlement agreement that the extent of her permanent disability was disputed, she could establish neither a second qualifying loss nor the extent of Walmart’s liability in her action against SIF. The deputy commissioner agreed, reasoning “‘the obligation of the Fund cannot be considered until the liability of the employer is fixed,’ which was not possible given Kingsbury’s settlement with her employer.” Id. at 477-478 (quoting the arbitration decision). The commissioner affirmed, but the district court reversed on judicial review.

The Iowa Supreme Court held Kingsbury’s compromise settlement with Walmart barred her SIF claim for two separate reasons:

1. The statutory prerequisite for SIF liability was not met. Iowa Code section 85.64(1) imposes SIF liability only “in addition to…and after” the employer has compensated the claimant for a specified degree of permanent disability. Because Walmart never accepted liability for any permanent disability, the statutory requirement was not met, SIF liability was not triggered, and there was no fixed employer liability from which to calculate any SIF obligation. The Court cited Second Injury Fund of Iowa v. Braden, 450 N.W.2d 467, 473 (Iowa 1990), for the proposition that the “Fund’s obligation cannot be assessed until the employer’s liability is fixed.” at 478.
   
   
2. A compromise settlement bars any further recovery for the same injury. Iowa Code section 85.35(10) provides that a commissioner-approved compromise settlement is “a final bar to any further rights arising under the Iowa Workers’ Compensation Act regarding the subject matter of the compromise”. The stated subject matter in Kingsbury’s claim against her employer, which was whether and to what extent she suffered permanent disability from her work injury, was the same issue in her claim against SIF. Therefore, the settlement agreement barred her claim against SIF.

The Court distinguished Tweeten v. Tweeten, 999 N.W.2d 270 (Iowa 2023), where a claimant’s settlement with SIF did not bar his later claim against his employer. The key distinction between the two cases is that employer liability is a statutory prerequisite to SIF liability, but not the reverse.

Kingsbury confirms that the type of settlement and its specific language control what claims survive. The Kingsbury court expressly noted that parties can structure settlements that do establish employer liability for a specific degree of permanent disability, such as with section 85.35(2) agreements for settlement, section 85.35(4) combination settlements, or full commutations under section 85.45. Defendants should therefore weigh the full menu of settlement options and their consequences, and state precisely what is and is not conceded when drafting settlement agreements.

Gavin Norton, a 2026 Summer Associate with Nyemaster, assisted with the development of this article.