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




Claim No. 1998001441

The applicant seeks the assessment of penalties for bad faith and inexcusable delay in payment under Wis. Stat. 102.18(1)(bp) and 102.22. The matter was presented on stipulated facts to Administrative law judge (ALJ) Edward W. J. Falkner of the Worker's Compensation Division of the Department of Workforce Development. ALJ Falkner issued a decision in this matter on December 8, 2000. A timely petition for review was filed.

The commission has considered the petition, the record, and the positions of the parties. Based on its review, the commission makes the following:


This case arises from a disagreement between the commission and the Worker's Compensation Division as to the appropriate construction of the administrative rule setting the "code minimum" payment for a surgery including discectomy and fusion procedures at the cervical spine. The applicant underwent these procedures in December 1997, following a compensable occupational injury of October 16, 1997.

Following the applicant's surgery, the insurer paid five percent permanent disability compared to the body as a whole for these procedures. That payment was in accordance with the way the Worker's Compensation Division interpreted Wis. Admin. Code DWD 80.32(11) at the time. The commission, however, interpreted that provision of the administrative code to require a ten percent minimum disability rating. The applicant then filed a hearing application, seeking additional permanent partial disability in accordance with the commission's interpretation.

A hearing was held on the applicant's disability claim on October 27, 1999. On November 10, 1999, ALJ Thomas J. McSweeney awarded permanent partial disability of ten percent. Shortly thereafter, the insurer paid in accordance with ALJ McSweeney's order.

The applicant now claims that, given the commission's prior holdings on this issue, the insurer's failure to pay the additional five percent permanent partial disability until it was ordered to do so by ALJ McSweeney constituted bad faith and an inexcusable delay in payment. The insurer asserts the matter was "fairly debatable," at least as of the time of ALJ McSweeney's order. The commission agrees with the insurer, and so affirms ALJ Falkner's December 8, 2000 order finding no bad faith or inexcusable delay in payment.

Prior to certain changes to Wis. Admin. Code DWD 80.32(11) (formerly Ind. 80.32(11)) effective July 1, 1997, the Worker's Compensation Division and the commission consistently held the "code minimum" for an operation including cervical discectomy and fusion procedures was 5 percent, while the code minimum for an operation including lumbar discectomy and fusion procedures was 10 percent. Indeed, the "old" code expressly specified a 10 percent minimum rating for an L5-S1 (one level) fusion with good results and a five percent minimum rating for a successful cervical fusion.

Then, in 1994, a Worker's Compensation Division subcommittee made changes to the rule. In its current form, the rule continues to specify a five percent minimum rating for successful cervical fusion. However, the rule as redrafted now specifies a five percent minimum per level for a "spinal fusion" with good results. In addition, the rule specifies a five percent minimum for removal of disc material without undue complaints or any objective findings.

In addition, the subcommittee also appended a note to the rule which appears below the text of the rule itself in the administrative code. The note expresses an intent to pay a separate minimum five percent allowance for each procedure done to relieve disc lesion or spinal cord pressure. The subcommittee's note also explicitly states that since "a fusion involves two procedures a 1) laminectomy (discectomy) and a 2) fusion procedure, 10% permanent total disability will apply when the 2 surgical procedures are done at the same time or separately."

The note does not distinguish between cervical and lumbar procedures, nor do examples subsequently provided. Indeed, the 1994 amendments to the text of the rule itself substituted the more general term "spinal fusion" for the prior language that referred to an "L5-S1 fusion." As noted above, the subcommittee also reduced the ten percent rating for an "L5-S1 fusion" to a five percent rating for a "spinal fusion," evidently to account for the fact that a separate five percent rating would be added in for a simultaneously-performed procedure to remove disc material.

Under the Worker's Compensation Division's interpretation of the new rule, a lumbar fusion performed with a discectomy would still get a minimum ten percent rating by adding together the new code minimum five percent for a "spinal fusion" procedure and the new code minimum five percent for a procedure to remove disc material, as indicated in the subcommittee's note. However, the Worker's Compensation Division interpreted the code to set a total minimum rating of five percent compared to permanent total disability for simultaneous cervical discectomy and fusion procedures. The Worker's Compensation Division concluded that the subcommittee's note providing for "a separate minimum five percent allowance for each procedure done to relieve disc lesion or spinal cord pressure" did not apply to simultaneous discectomy and fusion procedures involving the cervical spine.

On the other hand, the commission, seeing no language in the new administrative code provision or the subcommittee's interpretative note that permitted treating lumbar fusions differently than cervical fusions, construed the provision differently. Citing the subcommittee's note, the commission observed in passing that a ten percent rating would apply for a cervical fusion performed in conjunction with a cervical discectomy. (1)   Then, in Terry Manka v. Bill Wittman Builders, WC claim no. 940522401 (LIRC, November 25, 1997), the commisison modified an ALJ's order to award an additional five percent for permanent partial disability, pointing out that Wis. Admin. Code DWD 80.32(11) by its terms and by its note require a minimum rating of ten percent when a cervical discectomy and cervical fusion are done at the same time. The Manka decision was subsequently annotated in Neal & Danas, Workers Compensation Handbook 5.24 (July 2000 supplement), which states:

"In Manka... the commission found that the minimum disability for a cervical discectomy with fusion is ten percent. This finding overruled DWD's interpretation of Wisconsin Administrative Code section DWD 80.32(11), clarifying that five percent is the minimum rating applicable to each of the cervical procedures."

Neal & Danas, July 2000 supplement, 5-3.  Since Manka, LIRC holdings (2)  that the "code minimum" for simultaneous cervical discectomy and fusions procedures is ten percent have been referred to as applying "the Manka rule."

The Worker's Compensation Division did not immediately embrace the Manka rule. The commission, like ALJ Falkner and the parties, observes that some ALJs followed the Manka rule while others did not. Officially, however, the Worker's Compensation Division's policy was that the code minimum for simultaneous cervical discectomy and fusion procedures was five percent.

Recently, however, the Workers Compensation Division has stated it will follow the commission's interpretation of Wis. Admin. Code DWD 80.32(11) and the Manka rule. The division announced this policy in an August 21, 2000 Workers Compensation Insurance Letter from WC Division administrator Judy Norma-Nunnery to WC claims handling offices. To summarize the division's position as stated in the letter:   the division did not intend the change envisioned by the Manka rule; the commission's decisions do not create legal precedents that the division is required to follow; the division initially declined to apply the Manka rule but that LIRC continued to apply it; but, for the sake of consistency, the division would thereafter follow the Manka rule.

In the case now before the commission, the applicant's underlying disability claim arose, was heard, and was decided, well before the Worker's Compensation Division's August 2000 change in position regarding Manka. Nonetheless, the applicant now seeks a penalty for bad faith and inexcusable delay. He asserts that under the Manka rule and subsequent cases, the insurer had the duty to pay ten percent, and its refusal to do so was bad faith or inexcusable delay.

Wisconsin Statute 102.22(1) provides for a 10 percent penalty for inexcusable delay in making payments. Wis. Stat. 102.18(1)(bp) provides for a penalty of up to 200 percent for a malicious or bad faith suspension, termination, or failure to make payments. Wis. Admin. Code 80.70(2) defines bad faith as a denial without credible evidence that the claim is "fairly debatable."

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).

Like ALJ Falkner, the commission concludes that, because the matter was "fairly debatable," the insurer's failure to pay compensation for the additional five percent permanent partial disability until ordered by ALJ McSweeney did not amount to bad faith or inexcusable delay. This is not a case where an insurer has failed to follow an established, widely-held or undisputed interpretation. As Worker's Compensation Division Administrator Norman-Nunnery said at page 2 of her August 2000 letter "[u]ntil recently, the Department declined to apply LIRC's interpretation in Terry Manka v. Bill Wittman Builders."

The applicant's contention on appeal is that by the time of the applicant's disability hearing before ALJ McSweeney, the controlling LIRC authority required a ten percent rating, as recognized by the comment in Neal & Danas that Manka overruled the Worker's Compensation Division's five percent interpretation. The applicant essentially argues that the insurer's apparent reliance on the Worker's Compensation Division's interpretation was not merely misplaced but so groundless as to constitute bad faith. The applicant goes on to cite Pennewell v. Reliance Insurance, WC claim no. 1994016019 (LIRC, July 21, 1999), a case involving a lumbar discectomy and fusion, for the proposition that failing to pay in accordance with the code minimums for a conceded injury constituted bad faith.

However, the Worker's Compensation Division asserts the right to decline to follow commission decisions announcing precedent beyond what is sometimes referred to as "the law of the case." Administrative agencies like the commission are not bound by their own prior determinations, Nick v. State Highway Commission, 21 Wis. 2d 489, 495 (1963), nor are such agencies bound by the strict doctrine of stare decisis, Nelson Bros. v. Revenue Dept., 152 Wis. 2d 746, 756 (Ct. App. 1989) and Robertson Transport Company v. PSC, 39 Wis. 2d 653, 661 (1968). The Worker's Compensation Division argues that if the commission is not bound by its own prior determinations, the division should not be either.

In any event, at all times relevant to this case, the Worker's Compensation Division's official policy was to decline to apply Manka and to apply a "code minimum" of only five percent for cervical discectomy and fusion procedures done at one time. The commission declines to find that the insurer in this case acted in bad faith or inexcusably delayed by paying in accordance with the Worker's Compensation Division's policy. Because the commission and the division were in such clear disagreement as to whether the applicable "code minimum" for simultaneous cervical discectomy and fusion procedures was five or ten percent compared to disability to the body as a whole, the matter must be considered to have been "fairly debatable" as to third parties who looked to both agencies for guidance. Consequently, the insurer in this case cannot be held to have acted unreasonably in paying in accordance with the lower five percent rating until ordered otherwise.


The findings and order of the administrative law judge are modified to conform to the foregoing and, as modified, are affirmed. The applicant's claims under Wis. Stat. S 102.18(1)(bp) and 102.22(1) with respect to the permanent partial disability award discussed above are dismissed.

Jurisdiction is retained to permit future orders and awards as are appropriate.

Dated and mailed May 7, 2001
stagedo . wrr : 101 : 3 ND 7.21

/s/ David B. Falstad, Chairman

/s/ James A. Rutkowski, Commissioner

Attorney Tony Welhouse
Attorney Steve Cotton

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(1)( Back ) Lavern Scharmer v. La Crosse Truck Center Inc., WC claim no. 95042798 (LIRC, August 28, 1997), footnote 2 (LIRC decision held that that the disability in that case did not occur from a compensable injury.)

(2)( Back ) See, for example, Sonneberg v. Valley Business Equipment, WC Claim no. 1996-063029 (LIRC, June 30, 1999); William Freeman v. Wausau Paper Mills, WC Claim nos. 1995012033 and 1998017514 (LIRC, May 20, 1999); and Poli v. Midwest Transport, WC claim no. 1997017248 (LIRC, May 11, 1999).

uploaded 2001/05/09