STATE OF WISCONSIN
LABOR AND INDUSTRY REVIEW COMMISSION
P O BOX 8126, MADISON, WI 53708-8126 (608/266-9850)

MICHAEL PATRICK SCHEELE, Applicant

W & S OF WIS INC, Employer

CREDIT GENERAL INS CO, Insurer

WORKER'S COMPENSATION DECISION
Claim No. 1996-056962


In September 1999, the applicant filed an application for hearing seeking penalties for bad faith and unreasonable delay. The employer and its insurer (collectively, the respondent) filed an answer denying the claim. A hearing was held on the issue before an administrative law judge (ALJ) for the Worker's Compensation Division of the Department of Workforce Development on October 10, 2000, and the record was closed on December 10, 2000. On January 19, 2001, the ALJ issued his findings and order dismissing the application. The applicant filed a timely petition for review.

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 makes the following:

FINDINGS OF FACT AND CONCLUSIONS OF LAW

The applicant is a Minnesota resident. He suffered a conceded injury in 1996. The employer conceded and paid temporary disability in 1997, and paid permanent partial disability and medical expense thereafter.

On April 10, 1998, the office of the Ramsey County, Minnesota, Attorney issued a "Notice of Income Withholding to Payor of Funds." Exhibit 1. This states the payers of funds to the applicant are subject to an "Order on Notice of Order" for child support, and that the notice was provided to inform the payer of actions it must take in compliance with Minnesota law. (1) The notice directed the withholding of $202.03 per month, to satisfy $168.36 in current monthly child support, and an additional 20 percent of the monthly obligation "as Minnesota Statutes require." Accordingly, the respondent withheld the amounts listed in the notice from the applicant's permanent partial disability award. (2)

The applicant filed an application seeking additional disability compensation. A hearing on that claim was scheduled for July 21, 1999. The parties reached an agreement on a compromise on the day of the hearing. To deal with the possibility of an arrearage in child support obligations, the compromise agreement contains a provision stating:

"Employee certifies and represents that there is no outstanding child support or maintenance obligation or arrearage, which would entitle any party to an interest in the settlement moneys distributed herein, and further that should such interested party come forward in the future, Employee agrees to hold harmless and indemnify the Employer and Insurer for any costs or liability relating to such a claim."

Exhibit 3, Full Compromise Agreement, page 4. The compromise was signed by the last of the parties on August 9, 1999, and approved by ALJ James Lawrence on August 19, 1999.

ALJ Lawrence's language contains standard language directing the respondent to pay in accordance with the compromise within ten days. However, the insurer adjuster, concerned about the insurer's liability for a possible arrearage, contacted the Ramsey County Attorney's office on August 25, 1999.

On August 27, 1999, the respondent received a letter from Ramsey County Attorney, Support Enforcement Agency, stating that the applicant had an arrearage of over $18,824.78, and asking that settlement funds not be distributed until an affidavit could be prepared. Included with that letter, the Ramsey County Attorney also faxed an Order/Notice to Withhold Income for Child Support. Exhibit 7.

On August 30, 1999, the respondent paid the full fee to the applicant's attorney, and also paid the applicant what was due under the compromise, less $18,824.78. That same day, the respondent's attorney sent a letter to the applicant's attorney stating that the respondent intended to hold the $18,824.78 for 30 days. The applicant then asked Senior ALJ O'Malley to order the insurer to pay the rest of the funds directly to him, and ALJ O'Malley responded with a letter dated September 8, 1999, indicating that:

"For a workers compensation award to be assignable under sec. 102.27(2)(a) there must be an order for support issued by a circuit or family court commissioner. Out of state orders must be registered in Wisconsin under sec. 767.65 [sic] of the statutes (Uniform Reciprocal Enforcement of Support Act), for workers compensation benefits to be assignable under Sec. 102.27(2)(a).

"The facts of this case present an unusual question which is not clearly answered by sec. 102.27(2)(a) of the statutes. Mr. Michael Scheele is a resident of Minnesota. The carrier's claims office issuing payment is also located in Minnesota. With both Mr. Scheele and the insurance carrier's claims office located subject to the jurisdiction of the Minnesota District Court, it is my opinion that a support order from that court must be honored. In the absence of a court order for support from the appropriate court in Minnesota, the proceeds of the compromise settlement should be paid as specified in [ALJ Lawrence's] order dated August 19, 1999. Without an order for support from the appropriate court in Minnesota the insurance carrier may be subject to penalties for bad faith and delay of payment for not paying the proceeds of the compromise settlement as directed by the order approving the settlement."

Exhibit 11.

The respondent did not pay the withheld sum, but instead waited 30 days for Ramsey County to "register their out-of-state support order in accordance with Wisconsin Stat. 767.65 [sic]." Exhibit 13. The county did not register its order in Wisconsin, but filed an affidavit and continued to demand payment. Exhibits 15 and 16. Finally, after 30 days, the respondent paid the remaining $18,824.78 to the applicant on September 30, 1999.

In general, workers compensation awards may not be assigned, even to satisfy judgments on debt. Wisconsin Statute § 102.27. However, Wis. Stat § 102.27(2)(a) allows the assignment of benefits as provided under Wis. Stat. § 767.265(1).

Wisconsin Statutes § 767.265(1) in turn provides that orders and revised orders for child support under Wis. Stat., ch. 767 constitute assignments of benefits, including benefits under Wis. Stat., ch. 102. It also provides that the assignment shall be for an amount sufficient to ensure payment of the underlying order and to pay any arrearages due at a periodic rate, not to exceed 50 percent of the amount of support due under the order, so long as the addition of the amount towards arrearages does not leave the party below the federal poverty line. In addition, under Wis. Stat. § 767.265(3h) persons receiving a Notice of Assignment under Wis. Stat. § 767.265-or similar laws of other states- must withhold the amount specified in the notice from any money that person pays to the individual obligated to pay child support.

Wisconsin and Minnesota have both enacted the "Uniform Interstate Family Support Act" (see Wis. Stat., ch. 769.) This law deals specifically with the enforcement of child support income-withholding orders from other states. An employer is required to comply with income withholding orders issued in another state upon receiving a copy of the order by first class mail. Wis. Stat. § § 769.501 and 769.502. When the validity or administrative enforcement of an out-of-state order is challenged, a competent Wisconsin tribunal must register it. Wis. Stat. § 769.507(2). Registration of the order requires a sworn statement from the party seeking registration verifying the amount of the arrearage, as well as a certified copy of the order with any modifications. Wis. Stat. §§ 769.602. Registration requires a filing with a clerk of courts, and the registering tribunal in Wisconsin must be a court or court commissioner. Wis. Stat. §§ 769.101 (14), (15) and (22) and 769.102.

In this case, the applicant sought a penalty for bad faith and unreasonable delay. Wisconsin Statute § 102.22(1) provides for a ten 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 § DWD 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).

The ALJ refused to order an assessment of the bad faith and inexcusable delay penalties. He noted that the insurer acted reasonably and with dispatch in an unusual situation not clearly addressed by the statutes. The ALJ concluded the respondent was reasonably concerned about a potential violation of Minnesota law if it paid the applicant directly, noting the ongoing protestation from the Ramsey County Attorney. The ALJ noted, too, that it was not clear the applicant had the financial ability to live up to the hold harmless provision in the compromise agreement. Finally, the ALJ observed that the applicant himself had filed a petition for commission review-apparently to set aside the compromise agreement.

The commission agrees with the result reached by the ALJ. Under the facts of this case, it is not completely clear to the commission whether the Ramsey County Attorney's office was required to register its out-of-state order with a Wisconsin tribunal under the Uniform Act for it to be enforceable against the insurer on workers compensation benefits awarded under Wis. Stat. ch. 102. Indeed, the commission is unsure of the extent to which Wisconsin law governs -- given the Minnesota address of the applicant, the employer and the insurer's claims office. In any event, the commission agrees with the ALJ that the insurer's potential liability if it paid the arrearage directly to the applicant -- in light of the statutes cited above and the correspondence from the Ramsey County Attorney's office-- was sufficiently unclear to make the immediate payment of the withheld money "fairly debatable." In other words, the insurer had a reasonable basis for delaying payment for 30 days.

The commission realizes that the applicant had agreed to hold the respondent harmless, and that the respondent had agreed to that arrangement in the compromise agreement. However, the applicant had also certified as part of that specific provision in the compromise agreement that he was not in arrears, yet he owed approximately $18,000 at the time. He is thus in a weak position from which to argue that the respondent failed to observe the letter of the compromise agreement, much less from which to attempt to collect a monetary penalty on grounds of bad faith or inexcusable delay on that basis.

The application for delayed payment of compensation under Wis. Stat. § 102.22 and for bad faith under Wis. Stat. § 102.18 must therefore be dismissed.

NOW, THEREFORE, the Labor and Industry Review Commission makes this


ORDER

The findings and order of the administrative law judge are modified to conform to the foregoing and, as modified, are affirmed. The application is dismissed.

Dated and mailed July 10, 2001
scheele . wrr : 101 : 8 ND § 5.44  § 7.20 

/s/ David B. Falstad, Chairman

/s/ James A. Rutkowski, Commissioner


cc: 
Attorney Lisa A. Wiebusch
Attorney Charlene K. Feenstra


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Footnotes:

(1)( Back ) The notice states that a Court Order or Notice of Order was attached. Although the commission could locate no such order authorizing the withholding of $168.36 prior to April 1998, a July 30, 1997, order to that effect is mentioned in Judy Christensen's affidavit at Exhibit 15, and the existence of the order is not in dispute.

(2)( Back ) It appears that this additional 20 percent withholding may have been to recoup the then-existing arrearage. See Minn. Stat. § 518.6111, subd. 10, at Exhibit 7.


uploaded 2001/07/16