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



Claim No. 1994016019

The applicant submitted a petition for commission review alleging error in the administrative law judge's Findings and Order issued in this matter on January 20, 1999. The insurance carrier submitted an answer to the petition and briefs were submitted by the parties. At issue is whether the insurance carrier is liable for a bad faith penalty for failure to make timely payment of permanent partial disability attributable to the work injury to the applicant's low back which occurred on February 22, 1994. Also at issue is whether the insurance carrier is liable for an inexcusable delay penalty relative to the same delay in payment for the same injury.

The commission has carefully reviewed the entire record in this matter, and after consultation with the administrative law judge regarding the credibility and demeanor of the witnesses, hereby reverses his findings with regard to the bad faith penalty but affirms his findings with regard to the inexcusable delay penalty. The commission makes the following:


The applicant sustained a conceded low back injury on February 22, 1994, which led to laminotomies and removal of disc material at L4-5 and L5-6 on April 14, 1994. Dr. W. M. Hebble performed the surgery. Pursuant to Wis. Admin. Code Ch. DWD 80.32, a double-level surgery such as this entitles an injured worker to a minimum permanent partial disability award of 10 percent, unless reduction of the award is in order for a preexisting disability. Dr. Hebble indicated in a clinic note dated June 6, 1994, that the applicant still had profound weakness in his right leg, but on August 24, 1994, recommended a functional capacities evaluation to attempt to get the applicant back to light duty within his restrictions.

On September 28, 1994, the applicant was involved in a serious motorcycle accident, which Dr. Hebble later indicated had resulted in extensive first and second degree abrasions to the applicant's right leg. Dr. Hebble also indicated on October 5, 1994, that the applicant's lumbar and thoracic spine ranges of motion were excellent. The applicant had returned to work on October 3, 1995, but after a dispute with the employer was terminated on November 14, 1995.

The applicant's claim was initially handled by the insurer's claims adjuster, Susan Van Riper, who did not ask Dr. Hebble for an opinion regarding permanent disability before passing the file on to the insurer's attorney, Guy DeBeau, on or about January 10, 1995. On December 7, 1994, Dr. Hebble had completed a WC- 16-B in which he gave a partially illegible response to the question asking whether there was any permanent disability. The legible portion of the response indicated "further eval" was needed. This WC-16-B was filed with the department so it was available to Attorney DeBeau, but he was never asked in testimony when he first saw it. Given the other facts of record in this case, the commission does not find the question of when Attorney DeBeau first saw this WC-16-B to be determinative.

Ms. Van Riper and Attorney DeBeau questioned whether the applicant's medical records would show that he had sustained any permanent disability to his back in a 1992 motor vehicle accident of which they were aware. By March or April of 1995, Attorney DeBeau had received the medical records of the 1992 accident, which revealed that the applicant had sustained massive facial trauma and a fracture of his left tibia. The applicant made no mention to the treating physician of back pain, nor did that physician's record of examination reveal any such symptoms. Nevertheless, the insurer did not authorize payment of any permanent disability to the applicant at that time.

On November 21, 1994, the applicant, then unrepresented, filed an application for hearing which included a claim for permanent partial disability in an "unknown" percentage. In respondents' answer dated January 18, 1995, Attorney DeBeau denied liability for permanency indicating "none claimed." On October 16, 1995, the applicant, who was then represented by Attorney Joseph Politio, refiled an application for hearing which referenced his injury and subsequent surgery, and claimed 90 percent permanent partial disability. In the alternative the application claimed permanent total disability. In respondents' answer, dated November 16, 1995, Attorney DeBeau denied liability for permanent partial disability "pending IME."

Thereafter, the applicant secured representation from Attorney Rodney Kimes, and there were ongoing disputes between the applicant and respondents concerning temporary disability and vocational rehabilitation, as well as attempts at compromise. Remarkably, neither Attorney Politio nor Attorney Kimes ever asked the respondents for the 10 percent permanent partial disability due the applicant as a minimum award under DWD 80.32(11). The applicant exhibited an instinctive appreciation for his right to permanent partial disability in a letter he wrote to Administrative Law Judge Thomas McSweeney on February 23, 1995. In that letter, after arguing for additional temporary disability, the applicant also noted that he had a WC-16-B on file with the department and that his permanent partial disability was "guarded" at that time. It is inferred that this was in reference to Dr. Hebble's indication in block 17 of the WC-16-B that the applicant's prognosis was "guarded."

Attorney DeBeau asserted in testimony that despite his review of the medical records concerning the 1992 accident, which at the hearing in this matter he incorrectly recalled as containing a complaint by the applicant of back soreness, his "concern" was not eliminated. He also asserted that even though he was aware of the minimum permanent partial disability due for surgeries pursuant to DWD 80.32(11), he believed he had a legal defense as outlined in Vernon County v. ILHR department, 60 Wis. 2d 736, 211 N.W.2d 441 (1973). Neither in his testimony at the hearing, nor in his brief to the commission, has Attorney DeBeau attempted to explain the alleged theory of defense under Vernon County. No such defense exists. In Vernon County, the court affirmed the commission's decision which had found "no present permanent disability" after a cervical fusion surgery, but had left the order interlocutory with respect to the possibility of permanency in the future. The injury causing the fusion had occurred in 1970, and the "minimum percentages" language was not added to DWD 80.32 until 1975. Accordingly, Vernon County can have no relevance to a case such as the applicant's, to which the "minimum percentages" apply.

On March 11, 1997, the applicant secured representation from Attorney John D. Neal. He immediately recognized that the applicant was due a minimum of 10 percent permanent partial disability for the two-level laminotomy and disc removal, and contacted the insurer to request payment. After consultation with Attorney DeBeau, the insurer made payment of the 10 percent permanent partial disability on April 4, 1997. Subsequently, an additional five percent permanent partial disability to the whole body was conceded based on the opinion of the insurer's physician, Dr. James G. Gmeiner. On July 17, 1998, the applicant filed an application for bad faith and inexcusable delay penalties.

The insurer makes several arguments disputing the applicant's claims, none of which can survive the test of reason. The insurer argues that the 1992 injury gave it reason not to pay the minimum percentage for the surgery. But as previously noted, Attorney DeBeau had learned by April of 1995 that no permanency to the applicant's low back had resulted from the 1992 injury. The insurer argues that there was no medical opinion assessing permanency, but Attorney DeBeau and the insurer knew the surgery had been done and that DWD 80.32(11) provides for a minimum award of 10 percent permanent partial disability for such surgery. Dr. Hebble had provided a December 1994 WC-16-B which declined to assess the percentage of permanency at that time, but it was clear under the law that at least 10 percent permanent partial disability was due for the surgery.

The insurer argues that on March 14, 1997, the DVR sent Attorney DeBeau copies of medical records from Shawano Clinic, and that according to Attorney DeBeau, these showed "positive radiological findings" compared to "no narrowing of the disc" in the 1992 radiological evidence. Attorney DeBeau asserts that he then "knew we would have to pay." Attorney DeBeau is not a physician. For him to assert that he made the legal decision to authorize disability payment in accordance with the Wis. Admin. Code, based only on his own "medical" analysis of the radiological evidence, is not credible or reasonable. At another point in the hearing, Attorney DeBeau testified:

"When you got to Susan Van Riper, I felt it was appropriate to concede 10 percent as we felt we would need to pay something . . . Now, looking back, I would like to review the medical records, but I knew we would be paying at least 10 percent minimal."

Presumably, Attorney DeBeau would argue that this was another reference to the alleged fact that it was only after he received the Shawano Clinic records that he knew a 10 percent award would be due. Assuming that it is such a reference, that allegation is once again rejected as an incredible and unreasonable defense.

Attorney DeBeau also claimed that his suspicions were aroused by the confused and dilatory manner in which the applicant and his first two attorneys pursued his various claims arising from the 1994 work injury, the employer's admonition to him that the applicant was not a credible individual, and by the fact that at one time Attorney Kimes offered to settle the applicant's loss of earning capacity claim for "$15,000 to $20,000." In his brief to the commission, Attorney DeBeau indicates that he was surprised by this compromise offer since it was "for less than the usual permanency associated with a laminectomy." The argument that the compromise offer was for less than the "usual permanency" highlights the fact that Attorney DeBeau was aware that 10 percent permanent partial disability was due for the applicant's surgery. The low compromise offer, the details of which are not in the record, might have reasonably alerted Attorney DeBeau to the fact that Attorney Kimes was underestimating his client's claim. But it provided no evidence of an exception to the applicability of DWD 80.32(11) to such claim. Neither did the applicant's methods of pursuing his claims for temporary disability, vocational rehabilitation, and medical expense, or vague suspicions about the applicant's overall credibility, have any bearing on the fact that the applicant had undergone two-level surgery concededly related to the 1994 work injury, and was therefore due 10 percent permanent partial disability.

The commission consulted with the administrative law judge, who indicated that he found Attorney DeBeau's explanations credible, and that for the reasons detailed in his decision issued on January 20, 1999, he believed Attorney DeBeau had a right to be suspicious of the applicant's claim. For the reasons noted above, the commission did not find Attorney DeBeau to have been credible with regard to his stated reasons for not making timely payment of the permanent partial disability. The evidence shows that after investigating the medical records describing the applicant's 1992 motor vehicle accident, Attorney DeBeau and the insurer lacked a reasonable basis for delaying payment of the 10 percent permanent partial disability award, and had knowledge of this lack of a reasonable basis. Their behavior also evinced a reckless disregard for this lack of a reasonable basis. Accordingly, the insurer acted in bad faith in delaying payment of the award for almost two full years. However, because no formal request was made for payment of the award until Attorney Neal made it in March 1997, the penalty will be assessed at 100 percent of the award instead of 200 percent. The ten percent permanent partial disability award was for $15,800, and therefore the maximum penalty for bad faith is reached at $15,000.

The commission also finds, as did the administrative law judge, that the insurer delayed payment of the permanent partial disability award without a bona fide justification or motivation. Accordingly, it was also guilty of inexcusable delay in payment, triggering assessment of a 10 percent penalty in the amount of $1,580.

A 20 percent attorney's fee will be subtracted from both penalty amounts. This decision is limited to the issues of bad faith and inexcusable delay.



The Findings and Order of the administrative law judge are affirmed in part and reversed in part. Within 30 days from this date, Reliance Insurance Company shall pay to the applicant the sum of Thirteen thousand two hundred sixty-four dollars ($13,264); and to applicant's attorney, John D. Neal, fees in the amount of Three thousand three hundred sixteen dollars ($3,316).

Dated and mailed July 21,1999
penneja.wrr : 185 : 3 ND 7.22

/s/ David B. Falstad, Chairman

/s/ Pamela I. Anderson, Commissioner

/s/ James A. Rutkowski, Commissioner




Appealed to Circuit Court.  Affirmed March 14, 2000.

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