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




Claim No. 1996-055448`

An administrative law judge (ALJ) for the Worker's Compensation Division of the Department of Workforce Development issued a decision in this matter. A timely petition for review was filed.

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:


1. Facts and posture.

This case began when the applicant filed an application seeking compensation for pulmonary problems due to occupational exposure. The application recited that the date of injury was "occupational; 7/22/96." The insurer on the risk as of that date was Shelby Mutual. In its answer to the application, Shelby Mutual initially contested the nature and extent of disability and whether the exposure caused the disability. However, Shelby Mutual conceded that the occupational exposure alleged in the application actually occurred on or about the time claimed. In other words, Shelby Mutual did not contest the date of injury or date of disability.

At the hearing, Shelby Mutual -- contending the date of disability was in 1993 --  tried to amend its answer to put the date of disability in issue. However, the ALJ declined to permit the insurer to amend. (1)   (Wis. Admin. Code § 80.08 permits amendments as a matter of right only until the date the hearing notice goes out.) He held Shelby Mutual liable for the applicant's permanent total disability based on a date of disability in November 1996, and the commission affirmed by order dated April 27, 1999.

Shelby Mutual appealed to circuit court. In its reply brief filed with the circuit court, Shelby Mutual specifically stated it did not contest the finding of permanent total disability from occupational exposure, but that the issue in dispute was the commission's legal conclusion that the applicant's last day of work was the date of disability. Exhibit L. Reply brief of Shelby Mutual dated October 29, 1999, page 4. The circuit court ultimately affirmed the commission's decision, as did the court of appeals.

Meanwhile, the applicant sought payment pending appeal under Wis. Stat. § 102.23(5), which provides:

102.23(5) The commencement of action for review shall not relieve the employer from paying compensation as directed, when such action involves only the question of liability as between the employer and one or more insurance companies or as between several insurance companies.

The applicant asserts that this section applied during judicial review of the commission's April 1999 order because the date of injury dispute necessarily implicates the question of liability between Shelby Mutual and another insurer. That is, the applicant asserts that Shelby Mutual's argument on appeal of the commission's order only raised the question of liability between Shelby Mutual and some other insurer on the risk in 1993 .

Shelby Mutual's position is that the statute contemplates the actual presence in the action of another insurer in the action. Shelby Mutual contends that Wis. Stat. § 102.23(5) should be read to contemplate a dispute between several insurers who are parties to the action about which is liable. Shelby Mutual contends the statute does not apply when one insurer unilaterally raises the issue of some unnamed insurer's liability.

Shelby Mutual's interpretation draws some support from the practical effect of a judicial finding that the commission lacked substantial and credible evidence or misapplied the law in imposing liability on a particular insurer. Ordinarily, the case would be remanded to the commission to issue another decision supported by the record, possibly holding another insurer liable. If the other insurer were already a party to the case and bound by the hearing record, the adjustment between insurers apparently contemplated by Wis. Stat. § 102.23(5) would be a simple matter.

In any event, Shelby Mutual did not pay compensation during judicial review of the commission's April 1999 order. In fact, it did not pay until the Supreme Court denied its petition for review of the court of appeals decision affirming the commission's order. The applicant now seeks a bad faith finding under Wis. Stat. § 102.18(1)(bp), arguing that Shelby Mutual unreasonably refused to pay pending appeal as required under Wis. Stat. § 102.23(5). (2)

The ALJ found that Shelby Mutual's interpretation of the statute was correct, and denied the applicant's claim for bad faith under Wis. Stat. § 102.18 (1)(bp). He also refused to reserve jurisdiction for any future claim for inexcusable delay under Wis. Stat. § 102.22(1).

2. Applicable standards.

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).

3. Discussion.

The applicant's claim for bad faith and inexcusable delay rests on Shelby Mutual's interpretation of Wis. Stat. § 102.23(5), and its application to the facts of this case. Whether a question is "fairly debatable," or a reasonable basis for delay, may seem more appropriate to factual questions (such as whether an injury happened or whether the injury as described could cause disability). However, the commission has applied the North American standard on legal questions as well. See: Stage v. Carver Boat Corporation, WC Claim no. Claim No. 1998001441 (May 7, 2001).

As the ALJ points out, in North American the court stated that whether the delay in penalty resulted from bad faith is a mixed question of fact and law. In so doing, the court emphasized the point that the decision-maker must determine what happened, and whether what happened meets the applicable legal standard. North American, at 157 Wis. 2d 809.

In this case, "what happened" was that Shelby Mutual refused to pay pending the court appeal, despite the applicant's demand it do so, based on its interpretation of Wis. Stat. § 102.23(5). The question now before the commission is whether "what happened" is bad faith under the applicable legal standard set out in North American.

To resolve this question, the commission need not determine whether Shelby Mutual correctly interprets Wis. Stat. § 102.23(5). Rather, the commission must first determine whether there was a reasonable basis for the delay. In other words, the commission must determine whether Shelby Mutual's interpretation of Wis. Stat. § 102.23(5) was unreasonable, or contrary to clear precedent or practice which Shelby Mutual unreasonably failed to follow. If it determines that Shelby Mutual in fact delayed unreasonably, the commission must then determine whether Shelby Mutual acted in bad faith, that is, whether Shelby Mutual refused to pay in knowing or reckless disregard of such a clear interpretation, precedent or practice.

The commission cannot conclude that Shelby Mutual's reading of Wis. Stat. § 102.23(5) is unreasonable or "lacked a reasonable basis." Neither of the parties has cited a case interpreting the statute on the point in question, and the commission's research disclosed none. In sum, the commission concludes that Wis. Stat. § 102.23(5) is susceptible to more than one reasonable reading, at least as to its application in this case.

Because there was a reasonable basis for its delay, Shelby Mutual cannot be said to have acted in knowing or reckless disregard of the lack of a reasonable basis for the delay. The application for compensation under Wis. Stat. § 102.18(1)(bp) must therefore be denied.

The commission's resolution of this case required consideration of the related, but unpleaded, issue of inexcusable delay under Wis. Stat. § 102.22(1). Because the commission resolves that issue against the applicant, and for the reasons of administrative economy cited by the ALJ, this order shall be final with respect to any claims arising under Wis. Stat. § 102.22(1) based on Shelby Mutual's failure to pay under Wis. Stat. § 102.23(5) as well.

Consistent with the ALJ's decision, however, this order shall be left interlocutory to permit orders and awards for future medical expense and all possible future claims, other than the penalty claims resolved herein.

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


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 as to the claims under Wis. Stat. § § 102.18(1)(bp) and 102.22(1).

Jurisdiction is reserved to permit future orders and awards consistent with this decision.

Dated and mailed June 28, 2002
boscoce . wrr : 101 : 1  ND 7.21

/s/ David B. Falstad, Chairman

/s/ James A. Rutkowski, Commissioner

/s/ Laurie R. McCallum, Commissioner

Attorney James A. Pitts
Attorney Michael C. Frohman

Appealed to Circuit Court. Set aside and remanded, December 30, 2002.  Appealed to the Court of Appeals by employer and insurer.  Circuit Court decision affirmed and cause remanded,  September 3, 2003, Bosco v. LIRC, A.T. Polishing and Shelby Ins. Co., 2003 WI App 219; 671 N.W.2d 331. Petition for review granted, November 17, 2003Court of Appeals decision affirmed, June 15, 2004,  Bosco v. LIRC, A.T. Polishing and Shelby Insurance Co.,  2004 WI 77, __ Wis.2d __, __ N.W.2d __ .

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(1)( Back ) Wis. Admin. Code 80.08 allows amendments until the hearing notice is mailed.

(2)( Back ) The applicant did not seek a penalty under Wis. Stat. 102.22(1) for inexcusable delay. 


uploaded 2002/07/03