PAULA K SALZMAN, Applicant

CUSTOMIZED TRANSPORTATION INC, Employer

RELIANCE NATIONAL INDEMNITY CO, Insurer

Customized Transportation Inc. and Reliance National Indemnity Company submitted a petition for commission review alleging error in the administrative law judge's Findings and Order issued in this matter on March 28, 2001. The applicant submitted an answer to the petition and briefs were submitted by the parties. At issue is liability for bad faith and/or inexcusable delay penalties associated with late payment of amounts due in accordance with a limited compromise agreement approved by the department on December 19, 2000.

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 affirms in part and reverses in part her Findings and Order. The commission makes the following:

The applicant sustained a conceded work injury to her back on November 18, 1998. Temporary disability benefits were paid as required up to the last payment made towards the end of September 2000. A limited compromise was reached between the parties in November 2000, and on December 19, 2000, ALJ Janell M. Knutson issued an order in accordance with the terms of the limited compromise, whereby the employer and its insurance carrier were ordered to pay $4,223.25 to the applicant and $1,146.75 in fees and costs to the applicant's attorney ($5,370.00 total). Payment was ordered to be made within ten days from the date of the order.

The insurance carrier (Reliance National Indemnity Company) administers its worker's compensation claims through a third-party administrator, Gallagher Bassett. Reliance instructed the department to send all correspondence regarding the applicant's claim to Reliance's address in Troy, Michigan, and Reliance routinely forwarded such correspondence to Gallagher Bassett in Arlington Heights, Illinois for processing. A senior claim representative at Gallagher Bassett, Joni Freise, handled the applicant's claim.

Copies of ALJ Knutson's order were sent to Reliance, the employer, and to their attorney, Thomas K. Mullins. Attorney Mullins testified that his office never received his copy, and there was no witness at the hearing to testify for Reliance or the employer. Neither the applicant nor her Attorney, James Meier, received payment. Accordingly, on January 16, 2001, Attorney Meier wrote a letter to Attorney Mullins indicating payment had not been made and requesting an explanation. Attorney Mullins received this letter on Wednesday, January 17, 2001, and immediately contacted Attorney Meier's office to obtain a copy of ALJ Knutson's order. Attorney Meier's office faxed him a copy of the order that same day, and he immediately faxed a copy to Ms. Freise, together with a letter to her indicating that payment was past due and she should expedite payment. Attorney Mullins also mailed this letter and a copy of the order to Ms. Freise.

Ms. Freise could not recall whether the fax first came to her attention later in the day on January 17, 2001, or whether it was the next day that she first saw it. She did not authorize issuance of the checks until Thursday, January 25, 2001, and the checks were not actually mailed until Friday, January 26, 2001. Ms. Freise testified that she delayed issuing the checks because she wanted to verify that the address for the applicant listed on the order was correct, and she also needed to obtain Attorney Meier's tax identification number. When asked how much time she spent working on these checks between June 17 and January 25, she testified that she "couldn't say exactly how much time." She indicated that she verified Attorney Meier's tax identification number (which was listed after his signature on ALJ Knutson's order) by telephoning Attorney Mullins' secretary. When Attorney Meier pointed out to Ms. Freise that she could have issued the applicant's check without knowing his tax identification number, and asked her why she had not done so, she replied that she didn't know why. Then she stated that it is her "process" to issue the applicant's and the attorney's checks together. She was aware of the fact that the applicant had not received a check since late September. When asked how long it took her to verify the applicant's address she replied that she had to make a phone call and wait for a return call, and she couldn't recall the specific amount of time it took. She also could not recall the exact date on which she first attempted to verify the address. Ms. Freise conceded that she had informed Attorney Mullins sometime before January 25, 2001, that the checks had already been sent. Attorney Mullins wrote a letter to the department dated January 25, 2001, in which he indicated that the checks had been issued. This was based upon what Ms. Freise had told him.

The standard for assessing the ten percent penalty for inexcusable delay under Wis. Stat. § 102.22(1) is whether the delay was "without bona fide justification or motivation." Milwaukee County v. DILHR, 48 Wis. 2d 392, 399, 180 N.W.2d 513 (1970). Ms. Freise's attempted explanations for delaying an overdue payment are not credible and do not amount to a bona fide justification for delay. In addition, Reliance presented no evidence that it failed to receive its copy of ALJ Knutson's order issued on December 19, 2000. Similarly, there is no evidence explaining why that order was not sent on to Gallagher Bassett. This too was inexcusable delay. Accordingly, the ten percent penalty for inexcusable delay, amounting in this case to $537.00, will be assessed against Reliance National Indemnity Company.

The standard for a bad faith penalty is that the conduct must include: (1) lack of a reasonable basis for the delay; and (2) knowledge or reckless disregard of the lack of a reasonable basis for the delay. North American Mechanical, Inc. v. LIRC and Craig Halverson, 157 Wis. 2d 801, 808, 460 N.W.2d 835 (Ct. App. 1990).

Given the evidence, the commission infers that Reliance received its copy of ALJ Knutson's order, but failed to send a copy to Gallagher Bassett or otherwise notify it that payment was due within ten days from December 19, 2000. No reasonable basis for this delay has been offered and the reasonable inference is that none existed. Reliance's defense is three-pronged. It argues that there was no bad faith because: (1) no copy of the order was sent to Gallagher Bassett; (2) the inference should be drawn that Reliance never received its copy of the order; (3) no copy of the order was received by Attorney Mullins.

The first argument is rejected because it is conceded that the department was directed to send all correspondence and orders to Reliance, not to Gallagher Bassett. The second argument is also rejected because Reliance brought no evidence to the hearing to support an inference that it did not receive its copy of the order. The third argument does merit consideration with regard to the severity of the bad faith penalty.

Both the administrative law judge and the commission found credible Attorney Mullins' testimony that he never saw a copy of ALJ Knutson's order prior to being contacted by Attorney Meier on January 17, 2001. Given Attorney Mullins' credible testimony concerning the care with which his office receives and routes its mail, it is inferred that for unknown reasons, his copy of ALJ Knutson's order was lost by the postal service. Balanced against this consideration is the fact that Reliance received its copy of the order and did nothing, and the fact that Ms. Freise's excuses for not acting faster once she had received the order are so poor. The evidence leads to the conclusion that Reliance and its agent, Gallagher Bassett, lacked a reasonable basis for delaying payment in this matter, and had knowledge of the lack of a reasonable basis for such delay. The fact that Attorney Mullins was not made aware of ALJ Knutson's order until January 17, 2001, is a significant consideration leading the commission to assess a 50 percent rather than a 200 percent bad faith penalty against Reliance Indemnity Company. This penalty amount is $2,685.00.

Now, therefore, this

The Findings and Order of the administrative law judge are affirmed in part and reversed in part. Within 30 days from this date, Reliance National Indemnity Company shall pay to the applicant the sum of two thousand five hundred seventy-seven dollars and sixty cents ($2,577.60); and to applicant's James A. Meier, fees in the amount of six hundred forty-four dollars and forty cents ($644.40).

This order addresses only the penalty claims brought in the amendment to the request for hearing. Jurisdiction is reserved with respect to all other claims which may arise from the conceded work injury of November 18, 1998.

Dated and mailed August 28, 2001
salzmpa . wrr : 185 : 8 ND § 7.20  § 7.24 

/s/ David B. Falstad, Chairman

/s/ James A. Rutkowski, Commissioner

In consultation with the commission, the administrative law judge indicated that she was uncertain of the reason Attorney Mullins did not see a copy of ALJ Knutson's order until he received a faxed copy from Attorney Meier, but she did not find him to have been an incredible witness. It is certainly possible that Attorney Mullins' office personnel received a copy of the order and lost it before Attorney Mullins saw it, but the commission inferred that it was more probable that the order was lost in the mail. This inference was based on Attorney Mullins' credible testimony concerning the care with which mail is received and routed at his office.

cc: 
Attorney James A. Meier
Attorney Karen L. Tidwall

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