ENUS BROWN, Applicant



Claim No. 89-043390

The insurer submitted a petition for Commission review alleging error in the Administrative Law Judge's Findings and Order issued on February 23, 1990. At issue is whether the insurance carrier was late in making payments which resulted in inexcusable delay under section 102.22, Stats.

Having carefully reviewed the entire record in this matter, the Commission has concluded, for the reasons set forth in the attached Memorandum Opinion, that the Administrative Law Judge's Findings and Order must be set aside.



That the Findings and Order of the Administrative Law Judge dated February 23, 1990 are set aside, and this matter is remanded to the Worker's Compensation Division.

Dated and mailed July 2, 1990
ND 8.9

/s/ Kevin C. Potter, Chairman

Carl W. Thompson, Commissioner

/s/ Pamela I. Anderson, Commissioner


Facts - Date of injury of this case was April 21, 1989. No compensation had been paid by September 19, 1989, when the Department issued a letter to the insurer asking it to indicate what unusual circumstances, if any, were preventing completion of the investigation. Compensation was paid on September 21, 1989. On October 4, 1989, the Department issued another letter to the insurer, requesting it to either provide an explanation for the delay of over 14 days between the date of injury and date of first compensation or to pay the ten percent penalty provided for in sec. 102.22, Stats. It appears that a repetition of this request was made on December 4, 1989, but there is no copy of this in the file. By December 28, 1989 the Department had evidently received some type of response indicating that the delay was caused by certain questions the insurer had about the claim which prompted it to schedule an independent medical exam; on that date, a representative of the Department wrote to the insurer indicating that it could not hold up temporary total disability payments while waiting for the results of an independent medical exam, and "assessing" the ten percent penalty for "unreasonable" delay in making payment (presumably, reference was intended to sec. 102.22, Stats., and "inexcusable" delay, which that section speaks of.) On January 8, 1990 the insurer responded in writing, explaining at somewhat more length its reasons for delaying payment of benefits. The next thing that occurred was the issuance, on February 23, 1990, of the order from which the petition for review has been taken.

Discussion - This case implicates a practice of the Department, of issuing "default" orders based on failures to respond, or to respond "adequately", to correspondence from the Department. Although it can arise in other contexts, it appears to occur most frequently with respect to issues of delay in payment of compensation.

One of the responsibilities of the Department, through its Worker's Compensation Division, is to insure that compensation through the Worker's Compensation Act is paid promptly when due. When payment is inexcusably delayed, sec. 102.22, Stats. requires that a ten percent penalty be added to the compensation due. The Department carries out this responsibility by regularly monitoring the process of payment after injury. Although in the great majority of cases compensation is paid both when it is due and in the correct amounts, there are inevitably cases in which payment of compensation does not follow promptly upon the occurrence of injury. In some cases the liability for the underlying compensation is eventually conceded, so that there is no dispute that a delay occurred, and the issue is only whether it was "inexcusable". In other cases, there is a continuing dispute about liability for the compensation which has been paid, so that the very existence of a delay is in dispute.

When the Department notes an undisputed delay, or what it considers to be a delay, it may advise the insurer or the employer or both that the delay must either be explained or the ten percent penalty paid. In some cases, an explanation for the delay is not submitted within what the Department considers a reasonable time; in other cases, an explanation is submitted which the Department considers either inadequate as a matter of law or doubtful as a matter of fact. In such cases, it will generally be the view of the Department that the ten percent penalty ought to be paid. In those cases in which there is a continuing dispute about the underlying liability, the Department will wish to see that amount paid as well.

The Department has only one way to compel such payment, however, and that is by the issuance of a formal order of an Administrative Law Judge which may, if and when it becomes final, be reduced to a judgment in court pursuant to sec. 102.20, Stats. Thus, in cases in which a Department representative has concluded that an employer or insurer should pay the ten percent penalty, the mater is typically assigned to an Administrative Law Judge, who issues an order to that effect. Typically, these orders are issued without notice or hearing. As decisions awarding compensation, these orders are subject to appeal to the Labor and Industry review Commission by the filing of a petition for review, pursuant to section 102.18 (3), Stats.

Section 102.18 (3), Stats., requires that action taken by the Commission on petition for review "shall be based on a review of the evidence submitted". In most cases before the Commission for review, a hearing has been held, and "the evidence submitted," on the basis of which the review is conducted, is the record made at the hearing. However, there are also cases in which the Commission can carry out an appropriate review of a decision awarding compensation, even when the decision has been arrived at without hearing. Section 102.18 (1)(a), Stats., provides:

"All parties shall be afforded opportunity for full, fair, public hearing after reasonable notice, but disposition of an application may be made by compromise, stipulation, agreement, or default without hearing."

The Department generally recites (as it did in this case) that its "default" orders in excusable delay cases are issued pursuant to this section. However, consideration of the overall statutory scheme shows that these orders do not represent conventional "default" situations.

The type of "default" which the statutes and the Department's administrative rules (Wis. Admin. Code Ch. Ind. 80.05 (2)) appear to anticipate, is the failure of a respondent to timely answer an application. Review based on "the evidence submitted" poses no problem in these cases because the factual assertions of the application can be viewed as the "evidence submitted" on the basis of which the Commission's order would rest. This is suggested by Ind. 80.05 (2), which indicates that in the case of such a default, an order may be issued "in accordance with the application".

Thus, if a case involving the assessment of a ten percent penalty for inexcusable delay in making payment came before the Commission as a conventional "default", the fact that there had been no hearing and was thus no "evidence submitted" on which to base the review would not pose a problem. Inexcusable delay in payment issues might, for example, come before the Commission in a conventional "default" posture, in cases in which an employe had filed an application for hearing including a request for the ten percent penalty, and that application had not been timely answered. Alternatively, such issues might come before the Commission in a conventional "default" posture, in cases in which the Department, in fulfilling its responsibility to monitor promptness of payment, took advantage of the procedures of sec. 102.17 (2), Stats. This section allows the Department, when it has reason to believe that payment of compensation has not been made, to give notice to the parties on its own motion, "in the manner provided for service of an application", of a hearing on the issue. See, Valentine v. Ind. Comm., 246 Wis. 297 (1944). This section provides that after the giving of such notice, all other provisions governing proceedings on application shall attach insofar as they may be applicable; presumably, the potential for default (by failing to respond to the Department's "application") is one procedure that would attach.

However, despite the availability of the procedures of section 102.17 (2), Stats., it is not the Department's current practice to pursue timely payment of benefits and imposition of the inexcusable delay penalty by way of a formal section 102.17 (2), Stats., "application" and notice of hearing. The reason for this is a practical one: the hearing case load is already high, and it is considered by the Department that the volume of cases in which there is an apparently inexcusable delay in payment of benefits is such that it does not permit it to notice these cases for hearing. Therefore, the Department has adopted the less formal but more expeditious method described above, whereby, if an employer or insurer will not comply with a Department representative's request that the penalty be paid, and if it fails to respond or responds "inadequately" to a request for an explanation, an order for payment is summarily issued by an Administrative Law Judge.

When these orders are appealed, however, it presents the Commission with a difficult situation. Since there has been no hearing and there is thus no hearing record, and since a conventional, statutory "default" under section 102.18 (1)(a) is not presented, there is no statutory or other form of guidance for the Commission as to what its review should be based on in these cases. Additionally, significant issues of fairness and due process are raised by the issuance of these orders.

Accepting that this practice is one that is considered necessary by the Department and that can therefore be expected to continue, the Commission considers it appropriate to articulate a number of standards which will govern its review of these types of orders.

As reflected by the decision of the Commission in Luedke v. Lakewood Filters and Fireman's Fund Insurance Co., (Claim No. 89-040356, LIRC, March 27, 1990), fairness requires that, before an order is issued on a default basis, the party against whom the order is to be issued should be warned. In the case of a conventional, statutorily-anticipated default situation in which the application for hearing is not timely answered, this concern is presently being met. The existence of Wis. Admin. Code ch. 80.05 (2) provides notice to respondents that failure to timely answer the application will result in the issuance of a default order. The Department also makes it a practice to include a form for filing an Answer when it serves an application; that form advises that the answer should be made within 20 days. Most importantly, as was noted in Luedke, the Department does not generally issue default orders for late answers unless the employer has been formally warned that a default order is imminent. However, based on this case and other similar cases now before it, and on its review of what it understands to be a current edition of the Worker's Compensation Division's forms for letters and correspondence, including those used in "inexcusable delay" cases such as those discussed herein, the Commission concludes that adequate warnings are not being provided in such cases.

The Commission concludes that, in cases in which an order awarding compensation is issued against a respondent on the basis of that party's failure to respond to correspondence from the Department, it will be necessary before such an order can be affirmed that materials in the file of the case on review before the Commission adequately demonstrate that the party against whom the order was issued:

(1) Was provided written notice by the Department that it was required, unless certain action was earlier taken, to provide certain information or explanation to the Department within a certain stated period of time;

(2) Was warned that failure to do so could result in the issuance, without notice or hearing, of an order by an Administrative Law Judge which would, in the case of an order awarding compensation, be reduced to a court judgment upon becoming final; and

(3) Did not in fact respond within the required time period.

The Commission further concludes that, in a case in which an order awarding or denying compensation is issued against a party based on a conclusion by the Department that an explanation provided by the party in response to a request by the Department is in some respect "inadequate", the materials in the file of the case before the Commission on review must, in order to support affirmance of the order, disclose that the party against whom the order is issued:

(1) Was provided written notice by the Department that it was required, unless certain action was earlier taken, to provide certain information or explanation to the Department within a certain stated period of time;

(2) Was warned that upon receipt of such information or explanation an order might be issued by an Administrative Law Judge without further notice or hearing, determining whether the information or explanation provided by the party was adequate as a matter of law, and potentially ordering payment of compensation which order could, upon being final, become reduced to a judgment in court; and

(3) Provided information or explanation which, even if all factual representations made by the party were assumed to be true, was no adequate as a matter of law to justify its actions or failures to act.

As a general matter, it will not be possible, consistent with requirements of minimal due process, to make a finding that a party has been guilty of an inexcusable delay in payment of benefits (or is liable to pay some other type of compensation or penalty) based on a conclusion that, although the representations as to the party's conduct might be adequate if true, the explanation was not in fact true. Generally, factual issues are not capable of resolution without hearing, consistent with due process.

Applying these standards to the case at hand, the Commission concludes that the Order must be set aside. The letter sent to the insurer in this case on September 19, 1989, although soliciting an explanation for the length of the investigation, contained no warning of the possibility of a "default" order. Similarly, the October 4, 1989 letter contained no warning. The letter issued to the insurer on December 28, 1989, purporting to assess the ten percent delay penalty, provided no indication to the insurer that, if it responded by providing an explanation of its reasons for the delay, that explanation might result in and form the basis for the issuance of an order of an Administrative Law Judge, determining the legal adequacy of the explanation, without further notice or hearing. On January 8, 1990, the insurer submitted a written explanation to the Department. Thereafter, without further notice or hearing, the order on review herein was issued. Without intending thereby to express any opinion on the adequacy of the insurer's explanation for its delay in payment of benefits, the Commission concludes that the absence of a warning to the insurer that an order of an Administrative Law Judge might be issued by "default" based on the content of the insurer's explanation, requires that the order in this case be set aside.

110 : CD6207

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