STATE OF WISCONSIN
LABOR AND INDUSTRY REVIEW COMMISSION
P O BOX 8126, MADISON, WI 53708-8126 (608/266-9850)


LINDA STARKL, Applicant

J C PENNEY MILWAUKEE CATALOG, Employer

LIBERTY MUTUAL INS CO, Insurer

WORKER'S COMPENSATION DECISION
Claim No. 90065879


The administrative law judge (ALJ) issued his written findings of fact and order in this case on November 22, 1995, following a hearing on November 13, 1995. The applicant submitted a timely petition for commission review of the ALJ's findings and order on December 1, 1995. Thereafter, the employer and the insurer (collectively, the respondent) and the applicant submitted briefs.

Prior to the hearing, the respondent conceded jurisdictional facts, an average weekly wage of $528.40, and a February 28, 1992 compensable injury. The respondent conceded and paid compensation and medical expenses for this injury as discussed below.

The issues are whether the insurer, Liberty Mutual Insurance Company, acted in bad faith or with unreasonable delay in making certain payments arising from the work injury.

The commission has carefully reviewed the entire record in this case, including the briefs submitted by the parties. Having done so, the commission sets aside the ALJ's findings of fact and order, and substitutes the following therefor:

FINDINGS OF FACT AND CONCLUSIONS OF LAW

1. Factual background.

The applicant who was born in 1949 has worked for the employer for 21 years as a printing press/xerox machine operator. In addition to operating the press or xerox machine, she had to lift boxes of paper, weighing up to 65 pounds each, on a fairly regular basis.

The applicant injured her back in 1990 lifting a box that, unbeknownst to her, was glued to the box below it. Evidently, medical expenses and some temporary disability was paid for this. A reinjury in February 1992 is causing the controversy in this case.

A physician's assistant treated the applicant under the supervision of Dr. Knight. The assistant's note for that injury, dated March 2, 1992, refers to a recurrence of back pain in the same spot where the applicant had pain in October 1990. The assistant assessed SI joint pain with musculolskeletal strain, probably aggravated by her occupational activities. An x-ray done about this time showed minor spina bifida occulta at S1.

Thereafter the applicant suffered several exacerbations of her back pain. However, the insurer denied its liability for medical expense and disability claims related to the February 1992 reinjury and subsequent exacerbation, on the belief they were related to the applicant's spina bifida occulta condition. See Exhibit G, letters from Jeffrey Kasperek dated June 8, 1993, from Pat Creasey dated July 16, 1993, and from Scott W. Mauer dated November 3, 1993.

The denial of the claim was apparently based only on the belief of the insurer's claims managers and adjuster that spina bifida caused or may have caused the applicant's disability. The record contains no expert medical opinion to that effect. In July 1993, treating doctor Knight stated that the applicant's back problems had nothing to do with spina bifida, but were caused by work. Dr. Knight reiterated this opinion not infrequently thereafter. Another treating doctor, James Wood, M.D., issued a similar opinion in the applicant's behalf on August 23, 1993.

Nonetheless, the insurer continued to deny the applicant's claim even though it had no medical opinion to support its personnel's theory that spina bifida caused or may have caused the applicant's disability. The insurer finally scheduled an independent medical examination with Harvey Wichman, M.D., on May 27, 1994.

In a report dated June 5, 1994, Dr. Wichman reviewed the applicant's medical records and specifically referred to the x-ray showing the spina bifida occulta. However, he unequivocally opined the applicant suffered from recurrent lumbar sprain, associated with her work for the employer. He went on to state:

"I am of the opinion that the patient has sustained a 5% permanent disability to the body as a whole as the result of her long term work activities at J.C. Penney. The spina bifida occulta as previously diagnosed on x-ray is a congenital abnormality and does not produce any symptoms in this patient."

The insurer did not get this report until July 1994.

However, despite Dr. Wichman's opinion, the insurer continued to deny the applicant's permanent partial disability claim. The insurer's witness, John Kuehn, explained that while Dr. Wichman's report stated that the applicant's spina bifida condition was not producing symptoms, Mr. Kuehn thought prior symptoms from the spina bifida condition may have affected the disability rating. Thus, beginning in August, Mr. Kuehn sent Dr. Wichman a series of letters asking him what portion of the five percent of permanent partial disability he attributed to the spina bifida condition. The doctor did not respond.

Eventually, on December 9, 1994, the insurer gave up on receiving a response from Dr. Wichman, and paid the five percent permanent partial disability, less the attorney fee. Thereafter, in January 1995, Dr. Wichman reported that none of the permanent partial disability he had rated was due to spina bifida. The insurer paid the attorney fee on the permanent partial disability in March 1995, shortly after the department of industry, labor and human relations (DILHR) authorized its payment.

Meanwhile, the insurer had conceded liability for the applicant's temporary disability at some point after receipt of Dr. Wichman's June 1994 report. The insurer's witness testified that it paid temporary partial disability as of July 21, 1994, although the temporary disability, less attorney fees, was paid in lump sum in March 1995. See transcript page 36-38 and insurer's brief. Although DILHR authorized payment of the attorney fee on the temporary disability in April 1995, the fee was not paid until October 1995.

Regarding temporary disability compensation, the applicant missed 291 hours of work, spread out from January 1, 1993 to December 9, 1994, because of her work injury. During this time, the applicant received sick pay from the employer. (1) As a result, when the insurer paid the temporary disability (other than that attributable to the attorney fee), it reimbursed the employer directly in accordance with the formula under sec. 102.30 (3), Stats., and the employer credited the applicant's sick time account in that amount. Any delay in paying the temporary disability (other than the attorney fee) adversely affected the employer rather than the applicant.

Likewise, the applicant's group health insurance evidently paid most of the applicant's medical expenses from 1992 to 1994. Thus, when the insurer finally paid this, it merely reimbursed the group health insurer. The insurer finally settled with the group health insurer at 90 cents on the dollar shortly before the November 1995 hearing. It asserts the delay was caused by the applicant's failure to submit the bills sooner.

The applicant testified that she had about $110 in out-of-pocket medical expenses in copayments and deductibles. However, the only documents the commission could find relating to the applicant's out-of-pocket expenses were two receipts for $3.00 copayments for prescriptions. Again, except for those copayments, the group health insurer, not the applicant, was adversely affected by any delay in payment of medical expenses.

However, as noted above, the insurer did not pay the attorney fee on the temporary disability portion of the award (which was paid to the employer) until October 1995, despite being authorized to pay the fee by DILHR in March 1995. The applicant's attorney demanded payment in August 1995, to which the insurer responded by saying it had paid the fee attributable to the permanent partial disability. When the applicant's attorney demanded payment again in October 1995, the insurer paid immediately.

The insurer blames this seven month delay on its confusion over whether the DILHR authorization referred to the fee on the permanent partial disability award (which it had already paid) or the fee on the temporary disability award (which it had not). Transcript, page 43. It also blames the applicant's attorney for not sending more than two demand letters after the DILHR authorization of the fee. Undercutting these arguments is that, despite its confusion, the insurer managed to remember to withhold money for the fee from both the permanent partial disability and temporary disability awards it paid to the applicant and the employer.

The applicant seeks bad faith and unreasonable delay penalties assessed on the awards for the temporary disability, permanent partial disability, and medical expenses.

b. The applicable law.

The statutes provide for two different penalties for late payments by insurers, (a) an "unreasonable delay" penalty of ten percent of the delayed payment, and (b) a "bad faith penalty" of 200 percent of the payment delayed by bad faith, up to a total of $15,000. The issue in this case is whether either or both of these penalties apply to part or all of the compensation due from the insurer.

Sections 102.22 (1) and 102.18 (1)(bp), Stats., deal respectively with "unreasonable delay" and "bad faith delay." They provide in relevant part:

"102.22 Penalty for delayed payments; interest.

"(1) ... If the employer or his or her insurer inexcusably delays for any length of time in making any other payment that is due an injured employe, the payments as to which the delay is found may be increased by 10 per cent. Where the delay is chargeable to the employer and not to the insurer s. 102.62 shall apply and the relative liability of the parties shall be fixed and discharged as therein provided. The department may also order the employer or insurance carrier to reimburse the employe for any finance charges, collection charges or interest which the employe paid as a result of the inexcusable delay by the employer or insurance carrier.

"102.18 Findings, orders and awards.

"(1) (bp) The department may include a penalty in an award to an employe if it determines that the employer's or insurance carrier's suspension of, termination of or failure to make payments or failure to report injury resulted from malice or bad faith. This penalty is the exclusive remedy against an employer or insurance carrier for malice or bad faith. The department may award an amount which it considers just, not to exceed the lesser of 200 per cent of total compensation due or $15,000. The department may assess the penalty against the employer, the insurance carrier or both. Neither the employer nor the insurance carrier is liable to reimburse the other for the penalty amount. The department may, by rule, define actions which demonstrate malice or bad faith.

In addition, the department has promulgated the following rule with respect to bad faith delays:

"IND 80.70 Malice or bad faith.

"(1) An employer who unreasonably refuses or unreasonably fails to report an alleged injury to its insurance company providing worker's compensation coverage, shall be deemed to have acted with malice or bad faith.

"(2) An insurance company or self-insured employer who, without credible evidence which demonstrates that the claim for the payments is fairly debatable, unreasonably fails to make payment of compensation or reasonable and necessary medical expenses, or after having commenced those payments, unreasonably suspends or terminates them, shall be deemed to have acted with malice or in bad faith."

These sections have been discussed at length by the court of appeals in a number of recent decisions. Recently, the court of appeals provided this summary of the law:

"In Kimberly Clark [Corp. v. LIRC, 138 Wis. 2d 58, 65 (Ct. App., 1987)], a worker's compensation case, the court adopted the criteria for a bad faith claim set forth in Anderson v. Continental Ins. Co., 85 Wis. 2d 675, 691, 271 N.W.2d 368, 376 (1978). .... In order to show a claim for bad faith, an employee must show the absence of a reasonable basis for denying benefits and the employer's knowledge or reckless disregard of the lack of a reasonable basis for denying the claim. ...

"The court in Kimberly-Clark went on to apply the Anderson criteria to sec 102.18(1)(bp), Stats.:

"`[T]he issue of bad faith is reached only after a final award has been made to the claimant. A hearing examiner then examines the record to determine if there was any credible evidence which would demonstrate that the claim was fairly debatable. If the examiner finds that there is no credible evidence which the employer or insurer could rely upon to conclude that the claim was fairly debatable, the examiner then determines if the employer's or insurer's actions in denying payment were reasonable. This test is an objective one from the standpoint of the employer or insurer: Would a reasonable employer or insurer under like or similar circumstances have denied or delayed payment on the claim.

`When deciding whether the employer's actions were reasonable, it is necessary to determine if the claim was properly investigated and if the results of the investigation were subject to a reasonable evaluation and review. Kimberly-Clark, 138 Wis. 2d at 65." [Citations omitted.]

AMC v. LIRC and Michael Chamblee, court of appeals case no. 94-2274, district II unpublished decision (July 19, 1995).

In another case, the court of appeals noted the interplay between the "inexcusable delay" penalty under sec. 102.22 (1), Stats., and the "bad faith" penalty under sec. 102.18 (1)(bp), Stats.:

"Chapter 102 contemplates three types of conduct stemming from a delay in payments: (1) excusable delay; (2) inexcusable delay, though not in bad faith; and (3) bad faith delay.

"Section 102.22(1), Stats., provides that `[w]here the employer or his or her insurer is guilty of inexcusable delay in making payments, the payments as to which the delay is found shall be increased by 10 per cent.' (Emphasis added.) The fact that only `inexcusable' delay is subject to the 10 per cent penalty indicates that the legislature contemplated that some delay could be excusable. See Coleman v. American Universal Ins. Co., 86 Wis. 2d 615, 625-26, 273 N.W.2d 220, 224 (1979).

"The potential 200 per cent penalty of sec. 102.18(1)(bp), Stats., is reserved only for cases where the employer or insurer acted in `bad faith.' Thus, the legislature contemplated that there could be a delay in payment that, while inexcusable, did not rise to the level of `bad faith.' We conclude that a finding of the `knowledge' element of the Anderson test is a prerequisite to imposition of `bad faith' penalties under sec. 102.18(1)(bp), Stats. ...

"LIRC should determine first if there was a reasonable basis for delay. See Anderson, 85 Wis. 2d at 691, 271 N.W.2d at 376. If LIRC concludes there was not a reasonable basis for the delay, it should next determine whether the employer had knowledge of the lack of a reasonable basis for delaying payments or if there was a reckless disregard of the lack of a reasonable basis. See id. If LIRC determines from the record, after finding no reasonable basis for the delay, that the `knowledge' element is satisfied, it may then conclude that the employer's delay of payments was in bad faith.

North American Mechanical, Inc., v. LIRC, 157 Wis. 2d, 801, 808-10 (Ct. App., 1990).

Finally, once the department orders payment, the "fairly debatable" question has already been answered, so the "knowledge" test of Anderson is no longer applicable in bad faith delay claims. Wenz Foods, Inc. v. LIRC, court of appeals case no. 89-1108, unpublished district I slip opinion, pages 3-4 (January 18, 1990.) Thus, the court of appeals held in Wenz Foods, the circuit court should not have reversed LIRC's bad faith award on the excuse of "an administrative mix-up." Id., slip op. at page 4.

3. Discussion.

The ALJ dismissed the applicant's claim for bad faith on the delayed temporary disability reimbursement to the employer and on the delayed medical expense reimbursement. He reasoned that both payments of reimbursement were mere "book-entries" which did not adversely effect the applicant one way or another. The commission agrees. No penalty, for inexcusable delay or bad faith delay, shall be assessed on that part of the temporary disability compensation paid to the employer or on the medical expenses.

On the other hand, the commission assesses the full 10 percent and 200 percent penalties on the permanent partial disability compensation and on that part of the temporary disability attributable to the attorney fees.

The insurer had no basis for failing to pay the permanent partial disability in July 1994 when it received the unequivocal report of its independent medical examiner, Dr. Wichman, assessing a five percent permanent partial disability attributable to work activities. Dr. Wichman's report was completely consistent with that of the treating doctors. The insurer should have paid then instead of seeking "clarification" of an already clear report.

Mr. Kuehn's explanation of why clarification was needed is not grounded in anything included in Dr. Wichman's report. Rather Mr. Kuehn explained he sought clarification, causing a significant delay in payment, based on his lay opinion that his own medical expert failed to consider all the medically-relevant factors in the applicant's condition. Whatever merit this explanation may have in other cases, it has none here; it is evident from the plain language of Dr. Wichman's first report that he had adequately considered the very factor Mr. Kuehn raised.

In short, the insurer's action in seeking "clarification" from Dr. Wichman of an already clear report was an inexcusable and unreasonable delay of payment. Taking Mr. Kuehn's testimony at face value, the insurer also acted with a reckless disregard of the lack of a reasonable basis for delaying payment of the applicant's claim, amounting to bad faith. With respect to the delayed payment of permanent partial disability compensation, therefore, the commission assesses both the 10 percent unreasonable delay penalty of $1,400 and the full 200 per cent bad faith penalty of $14,400.

The commission next considers the delay in paying the attorney fee on the temporary disability compensation. Once DILHR authorized the insurer to pay the attorney fee on temporary disability it had already conceded, the North American and Anderson "knowledge" requirement for the bad faith penalty drops out under Wenz v. LIRC, supra. Even if this were not the case, the insurer's actions in failing to pay the fee until October 1995, despite authorization from DILHR in April 1995 and an August 1995 demand for payment from the attorney, was unreasonable and at the very least made with reckless disregard of the lack of a reasonable basis for delaying payment. This is particularly true as the insurer had already withheld the fee from the temporary disability compensation paid to the employer in March 1995.

Therefore, the commission assesses a bad faith penalty and an inexcusable delay penalty with respect to the temporary disability attorney fee. The fee was $612.82, so a full 200 percent penalty would amount to $1,225.64 and the 10 percent penalty is $61.28.

Adding the bad faith penalties together in this case yields a sum in excess of the $15,000 limit for a bad faith penalty. Although there is authority for the proposition that the $15,000 maximum may be awarded more than once in a single claim involving successive bad faith offenses (2), the commission concludes the total bad faith penalty in this case should be limited to $15,000. The sum of the 10 percent inexcusable delay penalties is $1,501.28. The insurer is responsible for the payment of the penalties.

The commission therefore assesses a total amount in penalties under secs. 102.22 (1) and 102.18 (1)(bp), Stats., of $16,501.28. The applicant has authorized a twenty percent attorney fee under sec. 102.26, Stats. No costs were established. The amounts due the applicant and her attorney within 30 days are thus $13,201.02 and $3,300.26, respectively.

NOW, THEREFORE, the Labor and Industry Review Commission makes this

ORDER

The findings and order of the administrative law judge are reversed. Within 30 days from the date of this order, the insurer shall pay the following:

(1) To the applicant, Linda Starkl, the sum of Thirteen thousand two hundred one dollars and two cents ($13,201.02).

(2) To the applicant's attorney, Steven G. Kmiec, the sum of Three thousand three hundred dollars and twenty-six cents ($3,300.26).

Dated and mailed June 13, 1996
starkli.wrr : 101 : 8 ND 7.21  7.34

Pamela I. Anderson, Chairman

Richard T. Kreul, Commissioner

David B. Falstad, Commissioner

MEMORANDUM OPINION

The commission did not confer about witness credibility and demeanor with the ALJ who presided at the hearing. Transamerica Ins. Co. v. ILHR Department, 54 Wis. 2d 272, 283-84 (1972). In a note to the synopsis of the hearing testimony, the ALJ indicated that witness credibility was not a factor in his decision. Indeed, his decision bears this out. He did not find inexcusable delay with respect to the permanent partial disability compensation because he accepted Mr. Kuehn's belief that the first report of Dr. Wichman was not completely clear as to whether the pre-existing spina bifida condition contributed to the doctor's disability rating.

However, the commission does not share Mr. Kuehn's belief. The commission believes Dr. Wichman's June 5, 1994 report was clear, and that the doctor unequivocally related all of the permanent partial disability he assessed to the applicant's work activity. Other than the mere mention of the applicant's spina bifida condition, which shows that Dr. Wichman was aware of the condition, Dr. Wichman's report provides no basis for concluding that spina bifida played any role in the disability rating.

With respect to the attorney fees, the ALJ correctly noted that the applicant's attorney must always wait until DILHR acts to authorize the fee. In this case, however, DILHR acted with respect to the fee attributable to the temporary disability in April 1995, but the insurer did not pay them, despite a request from the applicant's attorney in August 1995, until the attorney's second request in October 1995. As explained above, the commission concludes the facts require an assessment of penalties on this delay as well.

In short, the commission's decision does not depend on an assessment of the credibility of the insurer's witness about what he believed Dr. Wichman's report meant. Rather, the commission reaches a different legal conclusion than the ALJ based on the insurer's actions based on that belief. Stated another way, while Mr. Kuehn may have believed that Dr. Wichman's report was unclear, delaying payment on Mr. Kuehn's belief in this case amounted to a reckless disregard of the lack of a reasonable basis for the delay in payment.

cc: ATTORNEY STEVEN G KMIEC
KMIEC LAW OFFICES

ATTORNEY ROBERT P OCHOWICZ
KASDORF LEWIS & SWIETLIK SC


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Footnotes:

(1)( Back ) The applicant testified that she lost additional work time for treatment which was not reimbursed by sick time or by temporary disability payments. She testified this unreimbursed loss amounted to $400 or $500. However, the commission cannot determine when this loss occurred, and the applicant admits she never reported it to the employer. The commission shall not consider this claimed additional loss further.

(2)( Back ) Advance Transportation, v. LIRC, court of appeals case no. 88-0621, unpublished decision dated (December 21, 1988). See also: Neal and Danas, Worker's Compensation Handbook, sec. 7.24 (3d ed. 1990).