JANET M GREENWOOD, Applicant

WOODBRIDGE CORP, Employer

ZURICH AMERICAN INSURANCE CO, Insurer

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:

The employer and its insurer (collectively, the respondent) conceded a compensable injury from occupational asthma. The applicant's treating doctor, Stephen Lindahl, M.D., assessed permanent partial disability at 15 percent compared to disability to the body as a whole "based on occupational and personal restrictions." The respondent's independent medical examiner, Dennis Brown, M.D., had previously stated that permanent partial disability was "undetermined" as no second attempt had been made to reintroduce the applicant to the work environment.

Because she could not identify the physical functional limitations from Dr. Lindahl's report, the insurer's adjuster, Penny Young, refused to pay the permanent partial disability he rated. Ms. Young decided the matter should be left to an ALJ to clarify.

When the disability claim was heard by ALJ Janell Knutson, she observed that Dr. Lindahl's report mixed vocational and medical factors in what is supposed to be a purely medical or functional rating. She reduced Dr. Lindahl's functional permanent disability rating by 5 percent to 10 percent under Wis. Stat. § 102.18(1)(d), which states that an award within 5 percent of the highest in evidence is presumptively reasonable. Even that 10 percent, ALJ Knutson felt, was high given the limited evidence of actual physical restriction.

The applicant now claims that the insurer's failure to pay at least ten percent for functional permanent partial disability prior to ALJ Knutson's order was inexcusable and in fact in bad faith. Wisconsin Stat. § 102.22(1) provides for a 10 percent penalty for inexcusable delay in making payments. Wisconsin 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).

In this case, as ALJ Knutson realized, Dr. Lindahl's rating of permanent partial disability on a functional basis was not legally supportable, as it was based in part on vocational factors which the medical expert is not supposed to consider in assessing a functional rating. (1)   She chose to reduce the award by the 5 percent, the amount "presumed reasonable" under Wis. Stat. § 102.18(1)(d). (2)   However, that reduction did not necessarily cure the error in Dr. Lindahl's rating, nor did Wis. Stat. § 102.18(1)(d) necessarily prevent ALJ Knutson from reducing the award to an even lower figure if she chose. Indeed, she could have rejected Dr. Lindahl's report entirely and refused to award any permanent disability on a functional basis, at least until the applicant came up with a medical report not based on vocational factors.

The commission does not dispute that ALJ Knutson took the most practical approach here. Nonetheless, there is at least a reasonable basis for concluding that Dr. Lindahl's report was legally inadequate to support an award for permanent partial disability on a functional permanent at 15 percent. Indeed, the applicant is only seeking the penalty on the 10 percent functional permanent partial disability as reduced by ALJ Knutson. However, ALJ Knutson could have found the report inadequate to support any award or awarded a lower number. Under the circumstances, the commission concludes that there was a reasonable basis for the insurer to refuse to pay compensation for functional permanent partial disability based on Dr. Lindahl's report, Dr. Brown's inconclusive report notwithstanding.

Put another way, the insurer had a legal defense -- that is, one not dependent on a competing independent medical examiner's report -- to Dr. Lindahl's functional disability rating. ALJ Knutson gave credence to that defense by lowering the award for functional disability below Dr. Lindahl's rating, in a decision indicating that she believed that even the reduced award might be too high. The presence of a fairly debatable defense bars a penalty for bad faith or inexcusable delay under Wis. Admin. Code § DWD 80.70.

The findings and order of the administrative law judge are reversed. The application is dismissed with respect to the applicant's claims for bad faith and inexcusable delay under Wis. Stat. § § 102.18(1)(bp) and 102.22(1).

Dated and mailed September 10, 2002
greenwo . wrr : 101 : 8   ND § 7.20

/s/ David B. Falstad, Chairman

/s/ James A. Rutkowski, Commissioner

/s/ Laurie R. McCallum, Commissioner

The commission did not confer with ALJ Roberts concerning witness credibility. It accepts his findings that Ms. Young refused to pay permanent partial disability because she could not identify the physical functional limitations from Dr. Lindahl's report, and left it to an ALJ to clarify. However, applying the standard set out in North American, the commission concludes that the employer did not inexcusably delay payment, or fail to pay in bad faith, as a matter of law.

cc: 
Attorney James A. Meier
Attorney Daniel A. Kaplan

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(1)( Back ) The contrast between the "vocational" rating of permanent partial disability based on loss of earning capacity, and the "functional" rating based solely on physical factors, in cases of unscheduled disability is illustrated in Wis. Stat. § 102.44(6)(h).

(2)( Back ) Wis. Stat. § 102.18(1)(d) provides: 102.18(1)(d) Any award which falls within a range of 5% of the highest or lowest estimate of permanent partial disability made by a practitioner which is in evidence is presumed to be a reasonable award, provided it is not higher than the highest or lower than the lowest estimate in evidence. 

uploaded 2002/09/20