ROBERT E. STANZEL, Applicant
EMERSON ELECTRIC COMPANY, Employer
EMERSON ELECTRIC COMPANY, Insurer
The applicant filed an application for hearing in August 2006 seeking penalties for bad faith and inexcusable delay under Wis. Stat. § 102.18(1)(bp) and 102.22(1). Administrative law judge (ALJ) Cathy Lake of the Worker's Compensation Division of the Department of Workforce Development heard the matter on November 15, 2006. Prior to the hearing, the self-insured employer, Emerson Electric Company, conceded jurisdictional facts.
By order dated November 21, 2006, the ALJ awarded $2,637.11 for inexcusable delay under Wis. Stat. 102.22(1)(a) and $15,000 for bad faith under Wis. Stat. § 102.18(1)(bp). Emerson Electric Company filed a timely petition for commission review.
The commission has considered the petition and the positions of the parties, reviewed the evidence submitted to the ALJ, and consulted with the presiding ALJ
concerning witness credibility and demeanor. Based on its review, the commission makes the following:
1. Facts and posture.
The applicant was injured on March 30, 1999, when he walked face first into an open tool drawer. He suffered significant cosmetic damage to his face and injured his cervical spine.
The applicant's disability claim was heard by ALJ Richard Smith, whose decision awarding compensation was appealed to the commission. By order dated July 21, 2005, the commission reduced the disability compensation paid but affirmed the medical expense award. The commission's order required the self-insured employer, Emerson Electric Company (Emerson Electric), to pay the amounts awarded within 30 days. The thirtieth day was August 20, 2005.
The applicant's claim was processed or administered by Emerson Electric's third party administrator, Sedgwick Claims Management (Sedgwick). A document showing what Sedgwick paid, and when, is at exhibit 57. The parties raise no significant dispute about the dates in exhibit 57.
Sedgwick paid the applicant the accrued indemnity compensation in a timely fashion on August 3, 2005. It paid the attorney's costs timely on August 5, 2005. There was then a hiatus in payments until October 2005. Sedgwick's claims examiner, Judy Walbruck, explained at the hearing this hiatus in payment arose because of a dispute between the applicant's lawyers regarding the fee. When Ms. Walbruck learned of the dispute, she not only withheld the attorneys fees but stopped making any payments in connection with the claim -- including the still unpaid medical expenses that had been ordered paid by the commission.
On September 29, 2005, the applicant's attorney, Robert Gray, mailed an application for hearing to the department seeking compensation for delayed payments and bad faith relating to the outstanding medical bills. On October 4, 2005, Emerson Electric's attorney, David Weber, responded by letter reciting that the applicant had been considering an appeal, that "we have been focusing exclusively on the attorney's fee issue," and that Mr. Gray had filed a hearing application without telling him (Weber) that the applicant did not intend to appeal or reminding him that the medical bills should be paid. Mr. Weber concluded "suffice it to say that I have instructed Sedgwick to pay the bills immediately." Indeed, Mr. Weber, or someone from his office, contacted Ms. Walbruck and explained that she was to pay the medical bills, the fee dispute notwithstanding.
Thus, on October 14, 2005, according to exhibit 57, Sedgwick issued checks to the following:
However, at the time of these October 2005 payments, Sedgwick did not issue checks for the following entities that had been awarded medical expenses in the commission's July 2005 order:
According to Ms. Walbruck's testimony (and an e-mail dated October 13, 2005, from Ms. Walbruck to Emerson Electric's attorney, Mr. Weber), the reason these entities had not been paid was that Sedgwick did not have their tax information ID or phone number (and in one case the address.) Transcript, pages 36 et seq and exhibit 20. Mr. Weber sent a letter to Mr. Gray on October 14, 2005, asking him for the address of Commercial Insurance. Exhibit 19. A few days later, on October 17, 2005, Attorney Weber's office provided to Ms. Walbruck the phone numbers and addresses for all the entities but Commercial Insurance. See exhibit 20.
Shortly after receiving this information from Attorney Weber's office on October 17, 2005, Ms. Walbruck went on disability leave. The Sedgwick employee who was to cover for her did nothing to pay the bills.
Consequently, no more payments were made with respect to the outstanding medical bills until February 7, 2006, by which time the applicant had returned from her disability leave. At this point, Sedgwick sent checks to the providers listed above, but for amounts other than specified in the commission order. The commission infers that these checks were for interest payments, as assessed by the Worker's Compensation Division (the WC Division) by letter dated January 19, 2005, on the principal amounts awarded by the commission that either had been paid late or were still outstanding. Exhibits 24 and 25.
In some cases, these February 7, 2005 payments were made to entities to whom the underlying principal medical expenses still had not been made by Sedgwick. For example, exhibit 57 indicates that the interest payments were made to Commercial Union Insurance, Bellin Memorial, and N.E.W. Curative Rehab on February 7, 2006, even though the principal amounts were not paid until September 2006. Since these interest checks were cashed by the payees, it must be assumed that Sedgwick had the correct addresses for those entities as of February 2006.
In March and June 2006, the applicant's attorney, Mr. Gray, wrote to Emerson Electric's attorney, Mr. Weber, asking why the bills were not paid. In the March 2006 letter (exhibit 27), Mr. Gray identified as outstanding the following:
It appears from exhibit 57 that Central Anesthesiology had in fact been paid by this point. On the other hand, Commercial Insurance was still owed $2,212.01. Attorney Gray also includes the bill of Dr. Szmanda -- the check Sedgwick had sent to him was never cashed as he billed under another entity which applicant's attorney Gray identified as "Healthcare Billing Services of Wausau (HBSW)." Attorney Gray's letter also includes a billing from N.E.W. Curative Rehab for $217.50, presumably because Sedgwick had mis-sent the check meant for that provider to a similarly-named but separate entity back in October 2005.
Apparently, another attempt to pay Dr. Szmanda was made on July 10, 2006, but exhibit 57 indicates the check was sent to Raymond Szmanda personally not to "Healthcare Billing Services of Wausau (HBSW)." Again, this check was not cashed. Then, on July 11, 2006, Sedgwick issued a check to Langlade Memorial Hospital for $1,548.62, which equals $1,302.20 awarded to Dr. Szmanda by the commission plus $246.42 assessed in interest by the WC Division in January 2006. The applicant does not dispute that Langlade Memorial collects for Dr. Szmanda, so the principal on his bill was paid at this point.
In August 2006, the applicant filed an application for hearing alleging bad faith. The application identified the compensation being sought as "102.18(1)(bp) Bad Faith 102.22 Delayed Payments" and explained:
The LIRC decision was dated July 22, 2005. To date, the conditions of that order have not been fulfilled by the Respondent Carrier. The applicant's medical bills still remain outstanding.
Attached to his application, he included a copy of the commission's order with the bills to Aquatic Therapy, Bellin Health, N.E.W. Curative Rehabilitation, Inc., Fit 4 Life, Dr. Mark Szmanda, and U.W. Health/University Physicians highlighted by marker. The amount due to Commercial Insurance was not highlighted, but it too had not been paid.
At the hearing on the bad faith/inexcusable delay claim, the applicant testified that the unpaid outstanding bills were negatively affecting the applicant's credit rating. He added that he had been turned down for a loan as a result.
In September and October, 2006, Sedgwick issued checks for the rest of the still outstanding principal amounts awarded in medical expense by the commission in its July 2005 order:
See exhibit 57.
By the date of the hearing on the bad faith claim before ALJ Cathy Lake in November 2006, then, all the expenses awarded by the commission in its July 21, 2005 decision had finally been paid. None, however, had been paid when due on August 20, 2005.
To summarize the payee, principal amounts awarded by the commission in its July 21, 2005 order, and when paid:
2. The law.
As noted above, the applicant seeks an award for the inexcusable delay under Wis. Stat. § 102.22(1) and for bad faith under Wis. Stat. § 102.18(1)(bp).
The ten percent penalty for unreasonable or inexcusable delay is provided for in Wis. Stat. § 102.22(1), which states in part:
102.22(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 employee, the payments as to which the delay is found may be increased by 10%....
Bad faith is dealt with in Wis. Stat. § 102.18(1)(b). Until April 1, 2006, that section provided:
102.18(1)(bp) The department may include a penalty in an award to an employee 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% 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.
As recently amended by 2005 Wisconsin Act 172, SECTION 17, and the statute now reads:
102.18 (1) (bp) The department may include a penalty in an award to an employee if it If the department determines that the employer's or insurance carrier's suspension of, termination of or failure employer or insurance carrier suspended, terminated, or failed to make payments or failure failed to report an injury resulted from as a result of malice or bad faith , the department may include a penalty in an award to an employee for each event or occurrence of malice or bad faith . This penalty is the exclusive remedy against an employer or insurance carrier for malice or bad faith. If this penalty is imposed for an event or occurrence of malice or bad faith that causes a payment that is due an injured employee to be delayed in violation of s. 102.22 (1) or overdue in violation of s. 628.46 (1), the department may not also order an increased payment under s. 102.22 (1) or the payment of interest under s. 628.46 (1). The department may award an amount which that it considers just, not to exceed the lesser of 200% 200 percent of total compensation due or $15,000 $30,000 for each event or occurrence of malice or bad faith. 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.
2005 Wisconsin Act 172, which took effect on April 1, 2006, further provides:
SECTION 74. Initial applicability.
...
(3) Malice Or Bad Faith. The treatment of section 102.18 (1) (bp) of the statutes first applies to events or occurrences of malice or bad faith that take place on the effective date of this subsection.
In addition, the department has also promulgated a rule which provides in relevant part:
DWD 80.70 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.
The court of appeals has previously discussed the interplay between the "inexcusable delay" penalty under Wis. Stat. § 102.22(1), and the "bad faith" penalty under Wis. Stat. § 102.18(1)(bp):
"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 percent.' (Emphasis added.) The fact that only 'inexcusable' delay is subject to the 10 percent 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 percent 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).
The supreme court cited the North American Mechanical holding with approval in Brown v. LIRC, 2003 WI 142, ¶ 27, 267 Wis. 2d 31, 671 N.W.2d 279. Emphasizing that the knowledge element is a prerequisite to the imposition of the bad faith penalty, the supreme court reiterated that the legislature contemplated that some delay could be excusable and that not all inexcusable delays rise to the level of bad faith. Brown v. LIRC, 267 Wis.2d 31, ¶ 28.
3. Discussion
In its July 21, 2005 decision, the commission ordered Emerson Electric to pay medical expenses totaling $26,371.12 within 30 days. As of the thirtieth day, August 20, 2005, none of the expenses had been paid. Like ALJ Lake, the commission concludes that there is no excuse for the late payment of the medical expenses. Ms. Walbruck's inaccurate belief that the attorney fee dispute warranted non-payment of the medical bills does not suffice. Nor does the applicant's failure to affirmatively inform Emerson Electric that the appeal period had ended by August 20, 2005, or his failure to remind Emerson Electric that the bills were overdue. The commission finds inexcusable delay with respect to all of the medical expenses, occurring as of August 20, 2005, and affirms ALJ Lake's award of $2,637.11 under Wis. Stat. § 102.22(1).
The next issue is whether the payments were delayed in bad faith. Again, while none of the medical expenses at issue were paid within 30 days as the commission ordered, most of the expenses, $22,040.01 worth, were paid by October 14, 2005, about two months after the deadline for payment. The excuse given by Ms. Walbruck -- that she misunderstood the instruction not to pay the attorney fee to cover all expenses -- suggests she acted with negligence rather than knowledge or recklessness, at least with respect to the bills that were paid by October 14, 2005. During the credibility conference, the ALJ stated she believed Ms. Walbruck misunderstood the instruction from the attorney and did not use it as a pretext to delay payment of the bills. Because the commission cannot conclude the Emerson Electric acted in knowing or reckless disregard of the lack of a reasonable basis with respect to these bills, it declines to award the bad faith penalty on them.
The commission further finds that the payment of two of the remaining items of medical expenses that went unpaid after October 2005 also was not delayed in bad faith. Sedgwick sent a check for $217.50 paid to "N.E.W. Rehabilitation" rather than "N.E.W. Curative Rehabilitation" in October 2005, and also sent a check for $1,302.20 to Dr. Szmanda (rather than Langlade) in that same month. While the correct payees did not actually receive proper amounts until many months later, it is hard to see how this could have been intentional or reckless. With respect to Dr. Szmanda's bill particularly, the applicant's own WKC-3 medical expense form (exhibit 38) indicates that payment should be made to Dr. Szmanda personally, not to Langlade Memorial or some other billing agent.
This leaves the $2,811.41 in payments to the remaining providers that were not made until September and October 2006. These payments were over one year late. Ms. Walbruck knew they were outstanding, yet she took little or no action to pay them. Her claim of being unable to find the proper addresses or tax information does not justify the delay given that Emerson Electric's attorney provided Ms. Walbruck with phone numbers for all these entities except Commercial Union Insurance back in October 2005. Again, Sedgwick made interest payments to some of these same payees in March 2006 -- including by this point Commercial Union Insurance -- yet the principal amounts went unpaid for another six months thereafter.
Sedgwick's continuing delay in payment of these bills was made-at the very least-in reckless disregard of the lack of a reasonable basis for the delay. While the commission has the authority to fix the bad faith assessment in any percentage up to 200 percent, the delay of more than one year under these circumstances warrants an assessment of the maximum penalty. Consequently, the commission awards a penalty for bad faith delay of payment of $5,622.82 (200 percent of $2,811.41) under Wis. Stat. § 102.18(1)(bp) with respect to these bills.
Emerson Electric asks the commission to specify whether the unreasonable delay and bad faith penalties are assessed against it, against its third party administrator, Sedgwick, or against both. The ALJ's order identified Emerson Electric as the liable party. However, Emerson Electric asserts that the facts supporting the findings of bad faith and inexcusable delay arise from the actions of Sedgwick's employee, Ms. Walbruck.
Sedgwick was Emerson Electric's agent in the processing and administration of the applicant's claim in this case. Under the doctrine of
respondeat superior, a master is subject to liability for the tortious acts of his or her servant.
Karl v. Dennis Rasmussen, Inc., 2004 WI 86,
¶18, 273 Wis. 2d 106. A more limited rule applies with respect to an "agent" who is not a "servant". In such a case, the principal may be held liable for a non-servant agent's tortious acts if the agent was performing responsibilities of the principal that are so important that the principal should not be permitted to bargain away the risks of performance.
Karl v. Dennis Rasmussen, Inc., 273 Wis. 2d 106,
¶20, note 2. Applying that standard, the commission concludes that, regardless of whether Sedgwick is considered Emerson Electric's "servant," Sedgwick is Emerson Electric's agent and Emerson Electric is liable for the acts of Sedgwick and its employee, Ms. Walbruck.
The commission acknowledges the authority holding that a principal may be held liable for punitive damages because of an act by an agent only in limited circumstances. See: Restatement Second, Agency § 217C. One of those circumstances is when the agent is employed in a managerial capacity and was acting in the scope of employment. Restatement Second, Agency § 217C (c). The commission concludes that Sedgwick (1), was employed to manage Emerson Electric's WC claims, and so employed in "a managerial capacity." Assuming, then, the Restatement rule regarding punitive damages applies with respect to the statutory penalties under Wis. Stat. § 102.18(1)(bp) and 102.22(1), the commission concludes the Restatement rule does not conflict with the award in this case.
In short, Emerson Electric is liable for the acts of Sedgwick and Ms. Walbruck in handling the applicant's claim. Like the ALJ in this case, the commission has followed this course in the past, assessing bad faith and inexcusable delay penalties against a worker's compensation insurer based on the acts of its third party administrator. See
Salzman v. Customized Transportation, Inc., WC claim no. 1999-004125 (LIRC, August 28, 2001).
The commission considered, but rejected, the argument that Sedgwick could be made jointly liable with Emerson Electric for the statutory penalties. The recent supreme court decision in
Aslakson v. Gallagher Basset Services, 2007 WI 39, ___ Wis. 2d ___, 729 N.W.2d 712, suggests that the commission's statute-based authority to award the inexcusable delay penalty and bad faith penalty is limited
to the parties listed in Wis. Stat. § § 102.18(1)(bp) and 102.22(1): an
employer, an insurer, and a self-insured employer.(2) As the self-insured employer, Emerson Electric, not its agent Sedgwick, is the party against whom the statutes authorize the inexcusable delay and bad faith penalties.
In sum, the penalties awarded under this order total $8,259.93. The applicant has agreed to an attorney fee set under Wis. Stat. § 102.26 at 20 percent of that amount, or $1,651.99. Emerson Electric shall, within 30 days, pay that sum to the applicant's attorney and the remainder ($6,607.94) to the applicant.
NOW, THEREFORE, the Labor and Industry Review Commission makes this
The findings and order of the administrative law judge are modified to conform to the foregoing and, as modified, are affirmed in part and reversed in part.
Within 30 days, self-insured employer Emerson Electric Company shall pay all of the following:
1. To the applicant, Robert E. Stanzel, ($6,607.94) Six thousand, six hundred seven dollars and ninety-four cents in penalty assessments under Wis. Stat. § § 102.18(1)(bp) and 102.22.
2. To the applicant's attorney, Robert J. Gray, ($1,651.99) One thousand, six hundred fifty-one dollars and ninety-nine cents in attorney fees.
Dated and mailed July 12, 2007
stanzel . wrr : 101 : 1
ND § 7.20
/s/ James T. Flynn, Chairman
Robert Glaser, Commissioner
/s/ Ann L. Crump, Commissioner
On appeal, Emerson Electric asserts that the award should be limited because the applicant failed to point out precisely which payments were delayed in the highlighted page from the July 2005 commission decision that was attached to the hearing application. However, the actual words used by the applicant in his hearing application:
To date the conditions of [the commission's July 22, 2005 decision] has not been fulfilled by the respondent carrier. The applicant's medical bills remain outstanding.
This language covers all unpaid medical expenses and does not expressly limit the claim to the expenses highlighted in the attachment to the hearing application. Emerson Electric had adequate notice of the applicant's full claim and may be reasonably expected to have been aware of its duty to pay under the July 22, 2005 commission's order and whether it had fulfilled that duty. The commission is satisfied that the penalty should be based on the facts as proven at the hearing and not limited to those highlighted in the attachment to the hearing application.
Emerson Electric also asserts that the bad faith penalty applies only when a payment has been suspended or a claim has been denied -- not when payment is merely delayed. This contention cannot be sustained. While the statute refers to a denial or suspension of payments, the language in the case law (particularly North American and the discussion of that case in Brown (3) ) refers to bad faith delays of payment. None of the cases specifically say that bad faith is limited to situations were the claim is formally denied. Indeed, such a construction would make no sense: an insurer could delay forever payment with impunity provided it never said it was formally denying the claim.
The parties also raise the recent amendments to Wis. Stat. § 102.18(1)(bp) effective April 1, 2006. As set out above, the changes to Wis. Stat. § 102.18(1)(bp) include the increased $30,000 maximum penalty for bad faith, and the language stating there cannot be simultaneous awards for bad faith and inexcusable delay. Each party argues that the commission should apply at least part of the new law changes in their favor.
2006 Wisconsin Act 172 provides that the changes to Wis. Stat. § 102.18(1)(bp) first apply to events or occurrences of malice or bad faith that take place on the effective date of April 1, 2006. Since the inexcusable delay occurred with the failure to pay the medical expenses awarded in the commission's July 2005 order by August 20, 2005, the full ten percent penalty applies to the medical expenses overdue as of that date. In other words, the inexcusable delay penalty had fully accrued in the later part of 2005 -- well before the new law changes went into effect and began to first apply. Further, because the $5,622.82 now awarded by the commission for bad faith does not approach either the $15,000 old cap or $30,000 new cap, the recent statutory change would not matter on that point either.
Finally, the commission conferred with the presiding ALJ concerning witness credibility. The ALJ explained that while she believed Ms. Walbruck was sincere in her apology for the late payment of the medical expenses, that did not change the fact that some of the payments were still many months late. The ALJ observed that worker's compensation carriers are required to know the laws of the states in which they provide coverage and that Ms. Walbruck should have known that the attorney fee dispute did not justify nonpayment of medical expenses. The ALJ felt, too, that Ms. Walbruck gave insufficient attention to her duty to timely pay the medical expense. However, the ALJ added that she did not believe Ms. Walbruck used the attorney fee dispute as a pretext for not immediately paying the compensation due.
The commission does not disagree with the ALJ's credibility impression in any respect. It agrees that Ms. Walbruck -- and through her Sedgwick -- neglected her duty to the applicant, based on her incorrect understanding about the effect of the attorney fee dispute. However, as explained above, the commission concluded that the bad faith penalty was warranted as to only a portion of the medical bills at issue.
cc:
Attorney Robert J. Gary
Attorney David L. Weber
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