P O BOX 8126, MADISON, WI 53708-8126 (608/266-9850)




Claim No. 1996031413

An administrative law judge (ALJ) for the Worker's Compensation Division of the Department of Workforce Development issued a decision in this matter. A timely petition for review was filed.

The commission has considered the petition and the positions of the parties, and it has reviewed the evidence submitted to the ALJ. Based on its review, the commission agrees with the decision of the ALJ, and it adopts the findings and order in that decision as its own, except that it makes the following modifications:

1. Delete the seventh paragraph of the ALJ's Findings of Fact and substitute:

"In March 1997, the applicant's attorney (Hartley) forwarded the four bills related to the applicant's surgery to the respondent's attorney. The bills included a $26.25 bill from Racine County Pathology, a $7,378.80 bill from Burlington Hospital, and a $120.56 bill from Empi Inc. The bills, documented at exhibit C, are all for services related to the arthroscopic knee surgery in May 1996, services which had been rendered months before the compromise agreement was entered into.

"The respondent's attorney (Ward) responded with a March 19, 1997 letter. Mr. Ward objected to the format of the bills, and also stated that since the surgery was for the `old' ACL tear for which the respondent had all along denied liability, the bills should have been submitted to the applicant's group health insurer.

"Attorney Hartley evidently sent another letter demanding payment of the bills to Attorney Ward on April 16, 1997. Attorney Ward responded by letter dated April 18, 1997, in which he again asserted there was absolutely no reason why the bills should not have been paid by the applicant's health insurer. Mr. Ward demanded to know whether the bills had been submitted to the health insurer, and, if so, why the health insurer denied the claim.

"By letter dated April 30, 1997, Attorney Hartley responded that the bills had been submitted to the applicant's group health insurer (Compcare), had been rejected, and that the providers were now threatening legal action. Attorney Ward responded on May 2, 1997 by demanding to know when the bills had been submitted to the health insurer, when the health insurer rejected the bills, why the bills were rejected, and whether they had been resubmitted.

"Thereafter, on June 16, 1997, respondent's attorney Ward wrote to Burlington Memorial Hospital's billing service about a bill they had sent to him for service on May 24, 1996 (which would have been for the applicant's ACL repair surgery.) Mr. Ward suggested that Burlington Memorial Hospital submit the bill to the applicant's health insurer. Applicant's attorney Hartley followed-up by letter dated July 14, 1997 in which he trusted the bill had been forwarded again to the health insurer, and told Burlington Memorial Hospital that, if the health insurer denied the claim, the bill should be resubmitted to the respondent for payment pursuant to the compromise.

"On December 2, 1997, the applicant's group health insurer (Compcare) then wrote to the workers compensation insurer (Integrity) explaining that it had denied the Burlington Memorial Hospital bill for services from May 24-26, 1996, because the services were for a workers compensation injury. Compcare also indicated it had paid part of a bill under mistake of fact in July 1996. See respondent's exhibit 2.

"By letter dated January 7, 1998, workers compensation insurer Integrity responded to Compcare's letter. Integrity explained that it did not regard the May 1996 surgery as related to the work injury, and so the bill was Compcare's responsibility. Integrity provided a copy of a doctor's report to that effect.

"By letter dated February 20, 1998, Compcare essentially restated the substance of its December 1997 letter: it regarded the injury as a workers compensation injury. Compcare added that it had initially rejected the hospital bill as work-related back in August 1996. (1) Exhibit A. Compare also reported that the applicant had contacted Compcare about the bill in October 1997, and indicated his belief the bill was Integrity's responsibility.

"Meanwhile, on February 5, 1998, the respondent paid the Racine County Pathology bill and the Empi, Inc., bill. The Burlington Memorial Hospital bill, however, remained outstanding. On the date of the hearing (February 24, 1998), the respondent offered to pay the Burlington Memorial Hospital bill."

2. Delete the tenth paragraph of the ALJ's Findings of Fact and substitute:

"As noted above, on February 20, 1998, Compcare wrote to the applicant's counsel (with copy to respondent's counsel) concerning the Burlington Memorial Hospital bill. In that letter, Compcare reported that it rejected the hospital bill on August 9, 1996, and that the applicant had contacted Compcare about the bill on August 8, 1997. It must be concluded, then, the bills in dispute had been submitted to Compcare and rejected even before the compromise agreement had been entered into. Moreover, Integrity was informed beyond question that Compcare had received and rejected the bill by Compcare's letter to Integrity on December 9, 1997."


The findings and order of the administrative law judge, as modified, are affirmed.

Dated and mailed: June 30, 1998
baysido.wmd : 101 : 8 ND 7.24

/s/ David B. Falstad, Chairman

/s/ Pamela I. Anderson, Commissioner

/s/ James A. Rutkowski, Commissioner


1. Posture and applicable law.

The issue at the hearing and now before the commission is the respondent-insurer's (hereafter respondent) liability for a penalty or penalties on the unpaid medical expenses. ALJ Phillips ordered 110 percent penalty on the full amount of all three May 1996 bills (including the part it finally paid shortly before the hearing in February 1998). One hundred percent was assessed for bad faith under Wis. Stat. 102.18(1)(bp) and ten percent for inexcusable delay under Wis. Stat. 102.22(1).

The respondent appeals. It argues that it did not inexcusably delay payment because it did not know Compcare's position on the bill until the day before the hearing. It also argues it did not act in bad faith because the underlying issue of whether the ACL surgery was work-related was "fairly debatable." It argues that a 100 percent bad faith penalty was not permitted by law, and was unjust in any case. It also argues that it should not be liable for the hospital bill, let alone the penalty.

Wisconsin Statutes 102.22(1) provides for a 10% penalty for inexcusable delay in making payments. Wisconsin Statutes 102.18(1)(b) provides for a penalty of up to 25% for noncompliance with an interlocutory order or award, if the noncompliance is not in good faith. Wisconsin Statutes 102.18(1)(bp) provides for a penalty of up to 200% for a malicious or bad faith suspension, termination, or failure to make payments. Wisconsin Administrative Code 80.70(2) defines bad faith as a denial without credible evidence that the claim is "fairly debatable."

These sections have been discussed at length by the court of appeals in a number of recent decisions. Recently, the court of appeals noted the interplay between the "inexcusable delay" penalty under Wis. Stat. 102.22(1), Stats., and the "bad faith" penalty under Wis. Stat. 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 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).

In addition, once the department orders payment, the "fairly debatable" question has already been answered, so the "knowledge" test of Anderson would not be applicable under that circumstance. Wenz Foods, Inc. v. LIRC, case no. 89-1108, (Wis. Ct. App., January 18, 1990), slip. op., at 3-4. Thus, the court of appeals held in Wenz Foods that the circuit court should not have reversed LIRC's bad faith award on the excuse of "an administrative mix-up." Id., at 4. Second, the penalties apply, and have consistently been applied by the commission, to denial of payment of medical expense as well as disability payments. See Wis. Admin. Code 80.70, AMC v. LIRC and Michael Chamblee, case no. 94-2274 (LIRC, July 19, 1995), and Hicks v. Stoughton Trailers, WC case no. 90043598 (LIRC, November 18, 1996.)

2. Discussion.

The respondent first contends it did not inexcusably delay paying Burlington Memorial Hospital's bill because it was not provided with the Compcare (the applicant's group health insurer's) position with respect to payment until the day before the hearing. However, Exhibit 2 is a letter from Compcare to Integrity three months before the hearing explaining why it did not pay the Burlington Memorial Hospital bill.

The respondent's second argument is that it was fairly debatable whether the work injury caused the need for the knee injury. The respondent's assertion is that that the applicant's pre-existing knee condition caused the need for surgery, coincidentally about the time of the work injury, given "old" pathology noted during the surgery. With respect to this argument, the ALJ concluded that by compromising the claim, the respondent effectively abandoned its argument that the surgery was not compensable, and agreed that it would pay any medical expenses that the group health insurer (Compcare) would not.

On appeal, however, the respondent seems to argue that it did not agree to simply pay the expenses on submission of the bills. Rather, it agreed to "indemnify" and "hold harmless" the applicant with respect to the medical bills. Stated another way, the respondent's argument on appeal seems to be that the respondent agreed that, ultimately, the applicant would not have to pay the disputed bills, or would be reimbursed if he did. Viewed in that light, then, the hold harmless/indemnity language contemplates the possibility of some negotiation between the respondent and group health insurer Compcare about who would pay the bills.

In light of the respondent's position, the commission does not hold that the respondent's bad faith lies simply in failing to pay the bills immediately without further investigation. However, once the bills were submitted, the respondent could have taken the matter into its own hands, and attempted to adjust the claim itself. The respondent could have conveyed to the applicant's attorney that it was attempting to resolve the dispute with Compcare or the providers, that the matter would ultimately be resolved between the insurers, without payment by the applicant.

Instead, the correspondence from the respondent, if anything, indicates the opposite. As the ALJ found, the first three times the applicant submitted the bills, the respondent's attorney rejected them summarily and demanded more information from and further action by the applicant. Further, Attorney Ward's March 19, April 18 and May 2, 1997, letters to Mr. Hartley suggest that the respondent might continue to assert the "pre-existing injury" defense, and refuse to pay the Burlington Memorial Hospital on the basis the expenses were therefore covered by Compcare even if Compcare refused to pay as well. This could leave the applicant liable under the threatened collection action mentioned in Mr. Hartley's April 30, 1997 letter, effectively rendering meaningless the respondent's agreement to hold him harmless.

In short, the correspondence in the file leads to the reasonable inference that the applicant had to apply for a hearing to enforce the indemnity/hold harmless agreement and force the respondent to resolve the disputed bills and to prevent legal action against the applicant by the medical providers. However, the respondent's ultimate liability vis-…-vis the applicant is not "fairly debatable" under the terms of the compromise. Thus, the respondent's actions were not those of a good faith indemnitor under the terms of the compromise agreement, and indeed support findings of bad faith and unreasonable delay.

The respondent next argues that the bad faith award is limited by law to 25 percent under Wis. Stat. 102.18(1)(b). The respondent's argument is that Wis. Stat. 102.18(1)(b) (which allows a penalty of up to 25 percent), not Wis. Stat. 102.18(1)(bp) (which allows a penalty of up to 200 percent), applies here as the allegation here is bad faith failure to comply with an order. The commission cannot credit this argument.

First, of course, Wis. Stat. 102.18(1)(b) by its terms applies to "interlocutory orders." The order approving the compromise in this case was a final order. Second, nothing in the wording of Wis. Stat. 102.18(1)(b) suggests it is the exclusive penalty, even if it applied to final orders. Third, the 200 percent penalty under Wis. Stat. 102.18(1)(bp) has frequently been applied for noncompliance with ALJ or LIRC orders. See, for example, North American Mechanical Inc., supra; Wenz Foods, supra; and Neal & Danas, Workers Compensation Handbook, sec. 7.20 et seq.

The respondent finally argues that the ALJ should not have ordered it to pay the Burlington Memorial Hospital bill which it was still trying to negotiate with Compcare. However, the commission concludes that, given the history of the claim, it was appropriate to order the respondent to pay the underlying bill in this case. The commission does not read the ALJ's order to preclude the respondent from continuing to seek something similar to subrogation from Compcare if it desires, but that does not diminish its responsibility to the applicant under the compromise agreement. Finally, the respondent states at page 2 of its brief that it offered to pay the Burlington Memorial Hospital bill at the time of the hearing, so the commission cannot conclude it is prejudiced by the ALJ's finding on this point.

In connection with its final argument that payment of the underlying bill should not have been ordered, the respondent also argues that the applicant was shielded from personal liability under Wis. Stat. 102.16(2m), (2) presumably based on the fact the respondent notified Burlington Memorial Hospital that the bill was not work- related. However, Wis. Stat. 102.18(2m) does not shield an injured worker from liability when a workers compensation insurer claims that treatment expense was not work-related, but rather when the workers compensation insurer asserts that surgery to treat a work injury was unnecessary. It cannot be said the surgery was unnecessary; the debate here is whether work or something besides a work injury made it necessary.



Appealed to Circuit Court.  Remanded by Stipulation of the parties, March 10, 1999. Subsequent commission decision issued October 6. 1999.

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(1)( Back ) The applicant did not appeal the August 1996 rejection with Compcare. Of course, in August 1996 the parties had not yet signed the compromise, and there is little reason to expect the applicant to have raised the respondent's defense against his own interest.

(2)( Back ) This is the alternative dispute resolution procedure which allows insurers to dispute the reasonableness of charges and necessity of treatment rendered by medical providers.