JAMES MORZENTI, Applicant

CITY OF ASHLAND, Employer

AMERICAN MOTORISTS, Insurer

This is a request for review under Wis. Stat. § 102.18(4)(c) of a default order issued by an administrative law judge (ALJ) for the Worker's Compensation Division of the Department of Workforce Development (the department). The default order was based on the failure of the employer (the City of Ashland) and its insurer (American Motorists) (collectively, the respondent) to file an answer to the applicant's hearing application seeking compensation for occupational hearing loss based on a January 3, 2002 date of injury.

The commission has considered the positions of the parties, and reviewed the documentary record underlying the default order. Based on its review, the commission makes the following:

1. Facts and posture.

On July 27, 2006, before the applicant filed his hearing application, the department sent a letter to American Motorists, setting out its computation of permanent partial disability due on the applicant's occupational hearing loss claim. The department asked for an immediate response if American Motorists disagreed with the calculation and did not make the payment as calculated. The department also asked for a report on form WKC-13 when final payment was made. The department sent its letter to American Motorists, in care of Kemper Insurance, at:

"American Motorists
c/o Kemper Insurance
PO Box 850
Brookfield WI 53008-0850"

Apparently, there was no response to the department's July 2006 letter, as on September 22, 2006, the department sent another letter asking for an overdue report on form WKC-13, and assessing a $100 late fee. However, the department sent this letter addressed to American Protection Ins. Co. in care of a different third party administrator, Sedgwick Claims Management Services, at:

"American Protection Ins. Co.
c/o Sedgwick Claims Management Services
PO Box 804417
Chicago IL 60680-4105"

The applicant filed his application for hearing with the department by mail together with a letter dated November 17, 2006. See Wis. Admin. Code, DWD § 80.05(2). The department received the application on November 20, 2006. The hearing application listed the employer as the City of Ashland. The hearing application also identified the insurer as American Motorists, using the same address as that originally used by the department:

"American Motorists
c/o Kemper Insurance
PO Box 850
Brookfield WI 53008-0850"

According to his letter transmitting the hearing application to the department, the applicant's attorney sent a copy of the hearing application and attached materials to American Motorists, in care of Kemper Insurance in Brookfield, when he sent the application to the department on November 17, 2006.

The department then served the application on December 1, 2006. It served American Motorists, in care of Sedgwick Claims Management in Chicago, according to the courtesy copy address in a copy of the Notice of Application addressed to applicant's attorney.

Under Wis. Admin. Code, DWD 80.05(2), an adverse party must answer a hearing application within 20 days. However, neither American Motorists nor the City of Ashland filed an answer within 20 days of December 1, 2006.

On December 5, 2006, the department sent another demand letter to American Motorists--again in care of Sedgwick Claims Management in Chicago--seeking payment of the permanent partial disability as calculated.

Next, on January 27, 2007, the department sent a letter to American Motorists, c/o Sedgwick Claims Management in Chicago, informing it that:

"According to our records, the following parties have not filed an answer to the application with the Department for the above-referenced claims:

"AMERICAN MOTORISTS

"The above-named parties are hereby directed to file an answer within 20 days from the date of this letter. Failure to answer may result in the department issuing an order by default without further notice or hearing, in accordance with the application, as provided by s. 102.18(1)(a), Wis. Stats. If the parties believe this letter has been issued in error, please notify the Department in writing and attach a copy of the Answer.[(1)]"

A copy of this letter was sent to the employer, the City of Ashland.

On March 6, 2007, department ALJ John Minix sent a letter to American Motorists, c/o Sedgwick Claims Management in Chicago, informing it that since the department still had not received an answer within 20 days, it would issue a default order against American Motorists and the City of Ashland in the amount of $2,319.28. A copy of this letter was sent to the employer, the City of Ashland.

There was still no response from American Motorists. On April 18, 2007, ALJ Minix issued a default order against the employer, City of Ashland, and the insurer, American Motorists, c/o Sedgwick Claims Management.

When no payment was made on the default order by October 17, 2007, the applicant sent a letter to the department stating no payment had been made on the default order and asking that a hearing be set for bad faith and inexcusable delay.

This letter was treated as an amended hearing application, and on October 24, 2007, the department served it on the City of Ashland and American Motorists at:

"American Motorists
c/o Broadspire
PO Box 850
Brookfield WI 53008-0850"

This, of course, is the same address as Kemper Insurance in Brookfield where the department had sent its initial computation letter of July 27, 2006, and which the applicant listed in his hearing application in November 2006. For the purposes of this decision, the commission assumes that Broadspire and Kemper Insurance are the same entity.

Broadspire filed a timely answer to this application on November 7, 2007. On December 3, 2007, the bad faith and inexcusable delay claim was scheduled for hearing on February 12, 2008.

On December 12, 2007, the City of Ashland and Broadspire sent a letter to the commission asking the commission to set aside ALJ Minix's April 18, 2007 default order under Wis. Stat. § 102.18(4)(c).

2. Position of the parties on the default order

In support of its request to have the default order set aside, American Motorist states:

"The reason for our request is simple: DWD did not serve the correct carrier or its third party administrator (Broadspire Services, Inc.) in the original claim that was the basis for the default order. Rather DWD mistakenly served Sedgwick Claims Management Services in Chicago when it issued the following documents:

"[Here American Motorists identifies the correspondence discussed above, including the notice of application, demand letter, letters warning of default, and default order.]

"Since none of the above letters were ever served on the proper carrier or its agent, then the carrier never had notice of the claim and could not have responded. The carrier became aware of the original claim when the applicant filed his current penalty claim. For whatever reason, the DWD began serving the correct carrier agent - Broadspire Services, Inc. Clearly, this is a mistake by DWD and the default order must be set aside."

The applicant's attorney responded, pointing out that:

1. When he mailed the original hearing application to the department for filing back in November 2006, the applicant's attorney mailed a copy--together with the supporting medical records--to American Motorists at the address (PO Box 850, Brookfield WI 53008-0850) it now claims is the correct address for Broadspire.

2. Many of the notices, including both letters warning of default, were sent to the employer, the City of Ashland, who is also a liable party--and no one claims those letters were misaddressed.

3. He faxed the City of Ashland a copy of the default order in May 2007, and the city clerk called that day to say she would look into the matter, but the applicant's attorney heard nothing more until he filed the applicant's penalty claim application in October 2007.

In response, the respondent reiterated its main point that Broadspire--whom it now asserts was the proper third party administrator--did not receive notice from DWD before the default order was issued on the hearing application. The respondent added that even if the applicant did send his application to Broadspire's address--which the respondent did not concede--that was irrelevant because the hearing application must be served by the department under the applicable statute and administrative rule.

3. Legal standards.

The relevant statutory sections provide:

"102.17 Procedure; notice of hearing; witnesses, contempt; testimony, medical examination. (1) (a) Upon the filing with the department by any party in interest of any application in writing stating the general nature of any claim as to which any dispute or controversy may have arisen, it shall mail a copy of such application to all other parties in interest and the insurance carrier shall be deemed a party in interest. The department may bring in additional parties by service of a copy of the application. The department shall cause notice of hearing on the application to be given to each party interested, by service of such notice on the interested party personally or by mailing a copy to the interested party's last-known address at least 10 days before such hearing. In case a party in interest is located without the state, and has no post-office address within this state, the copy of the application and copies of all notices shall be filed with the department of financial institutions and shall also be sent by registered or certified mail to the last-known post-office address of such party. Such filing and mailing shall constitute sufficient service, with the same effect as if served upon a party located within this state. The hearing may be adjourned in the discretion of the department, and hearings may be held at such places as the department designates, within or without the state. The department may also arrange to have hearing held by the commission, officer or tribunal having authority to hear cases arising under the worker's compensation law of any other state, of the District of Columbia, or of any territory of the United States, the testimony and proceedings at any such hearing to be reported to the department and to be part of the record in the case. Any evidence so taken shall be subject to rebuttal upon final hearing before the department.

"102.18 Findings, orders and awards. (1) (a) All parties shall be afforded opportunity for full, fair, public hearing after reasonable notice, but disposition of application may be made by compromise, stipulation, agreement, or default without hearing."

The administrative code provides:

"DWD 80.05 Procedure on claim. (1) In cases of disputes in matters coming under the jurisdiction of ch. 102, Stats., ... any party to the dispute may apply to the department for relief and the department shall make such order or award as shall be lawful and just under the circumstances.

"(2) In all such cases under sub. (1), the party complaining shall file his or her application with the department, along with sufficient copies of the application for service on the adverse parties. The department shall thereupon serve the adverse parties with a copy of the application and the adverse parties shall file an answer to the application with the department within 20 days after the service and likewise serve a copy of the answer on the party making application. The department shall thereupon notify the parties of the time and place of hearing, at least 10 days prior to the hearing. If no answer is mailed by the respondent within 20 days of mailing by the department, the department may issue an order by default, without hearing, in accordance with the application, as provided by s. 102.18 (1) (a), Stats."

When an insurer fails to file a timely answer, the department and commission exercise their discretion in determining whether to issue a default order. In Verhaagh v. LIRC, 204 Wis. 2d 154 (Ct. App. 1996), the court of appeals, in affirming the commission's exercise of discretion, stated:

"Section 102.18(1)(a), Stats., provides: 'All parties shall be afforded opportunity for a full, fair, public hearing after reasonable notice, but disposition of application may be made by a compromise, stipulation, agreement, or default without hearing.'

"The use of the term 'may' in the foregoing statute clearly submits the issue of default orders to the LIRC's discretion.

"Because of the limited application of the rules of civil procedure to the administrative agencies of this state, we reject Verhaagh's contention that the appropriate legal standard to be applied by LIRC in determining whether to grant his motion for a default order is based upon a finding of surprise, mistake, or excusable neglect. Rather, the agency is entitled to exercise its discretion based upon its interpretation of its own rules of procedure, the period of time elapsing before the answer was filed, the extent to which the applicant has been prejudiced by the employer's tardiness and the reasons, if any, advanced for the tardiness. [Underlining supplied.]"

Verhaagh, at 204 Wis. 2d 160-61. In Verhaagh, the court of appeals affirmed the commission's reversal of a default order based on an insurer's failure to file a timely answer.

4. Discussion.

May a default order be issued under Wis. Stat. s 102.18(1)(a) and DWD 80.05(2) under the circumstances present in this case? The commission addressed a similar situation in Verhey v. H. Lorleberg Company, Inc., WC claim no. 2003-025881 (LIRC, October 24, 2004). That case involved an insurer's failure to answer where the application and amended application were sent to the wrong third party administrator, but the department subsequently sent its default warnings to the correct address. Citing Verhaagh, the commission affirmed the default order in Verhey noting:

"...even if Hartford [the insurer] never received the original application for hearing, it received three separate notices that an application had been filed, including two demanding an answer. Its failure to file an answer under these circumstances is not reasonable. In this case, the department followed its procedure in sending Hartford letters warning it of its default. Hartford does not deny getting those letters nor does it explain why it did not act upon them. The Notice of Application was sent to Hartford on July 16, 2003, yet it filed no answer until over four months later on November 21, 2003."

Here, of course, the department served its copy of the hearing application--and its subsequent correspondence warning of default--on Sedgwick Claims Management in Chicago. However, the record does not establish that Sedgwick Claims Management was a proper party for service on American Motorists. On the other hand, the applicant states that he mailed a copy of the hearing notice to the address of Broadspire in Brookfield, the entity whom American Motorists identifies as the correct third party administrator, and some of the department's correspondence--including two letters warning of imminent default--were sent to the employer, the City of Ashland. However, the fact remains that Wis. Stat. § 102.18(1)(a) and Wis. Admin. Code § DWD 80.05(2) specifically require service of the hearing application on the insurer by the department. Technically, it is service of the hearing application by the department that triggers the duty to answer.

In this case, the record does not demonstrate that the department properly served American Motorists. Nor has it been established that the failure to take the statutorily-required step of department service on the insurer was (as in Verhey) remedied by a subsequent notice that warned of imminent default sent directly to the correct third party administrator or American Motorists directly. Under the facts of this case, the commission also declines to find that the correspondence sent to the City of Ashland serves as a substitute for requirement of service on American Motorists.

The commission therefore concludes that it has jurisdiction to review this case, whether under Wis. Stat. § 102.18(4)(c) or because the respondent has shown probable good cause that the failure to file a timely petition review of the default order was beyond its control under Wis. Stat. § 102.18(3). Because the default order was issued under mistake of fact, the order must be set aside.

The findings and order of the administrative law judge are set aside. The matter is remanded to the department for further appropriate action.

Dated and mailed January 15, 2008
morsent . wrr : 101 : 1 ND § 8.8

James T. Flynn, Chairman

/s/ Robert Glaser, Commissioner

/s/ Ann L. Crump, Commissioner

cc:
Attorney Stephen J. McManus
Attorney Daniel R. Schoshinski

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(1)( Back ) If properly addressed, this is sufficient warning to support a default order "In the case of a conventional, statutorily-anticipated default situation in which the application for hearing is not timely answered." See Enus Brown v. Select Staff, WC claim no. 89-043390 (LIRC, July 2, 1990).

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