ROBERT SCONZERT, Applicant

BAY ENGINEERED CASTINGS, Employer

TRAVELERS INSURANCE COMPANY, 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 agrees with the decision of the ALJ, and it adopts the findings and order in that decision as its own.

The findings and order of the administrative law judge are affirmed.

Dated and mailed October 28, 2003
sconzwe . wsd : 101 : 1    ND § 7.20

/s/ David B. Falstad, Chairman

/s/ James T. Flynn, Commissioner

/s/ Robert Glaser, Commissioner

1. Posture.

In March 2000, the applicant filed an application for hearing seeking compensation for an Achilles tendon injury. At the first hearing before ALJ Roberta Arnold, the primary issue was the extent of disability. The employer and its insurer (collectively, the respondent) contended the applicant had sustained no permanent disability based on the report of Richard Lemon, M.D. The applicant, meanwhile, claimed permanent partial disability at 45 percent compared to amputation of the foot at the ankle based on his doctor's report.

ALJ Arnold awarded permanent partial disability at seven percent, as well as medical expenses, by order dated February 12, 2001. The applicant appealed to this commission, seeking permanent partial disability compensation at the full 45 percent rated by his doctor. The respondent did not appeal, and affirmatively asked the commission to affirm the ALJ's decision. The commission did, by order dated June 28, 2001.

However, the insurer did not pay anything toward permanent partial disability or medical expense as ordered by ALJ Arnold, pending appeal to the commission, even though the insurer asked the commission to affirm her decision. Indeed, the insurer did not pay until July 11, 2001 (within the 30 day period for appealing the commission's order), even though the applicant's attorney sent a letter demanding payment in accordance with the ALJ's order in April 2001. See exhibit A.

The claim now before the commission arose when the applicant filed a second hearing application in August 2001 seeking the statutory penalties for bad faith and unreasonable delay in payment under Wis. Stat. § § 102.18(1)(bp) and 102.22(1). The applicant contends that the respondent's liability for the permanent disability and medical expenses awarded by ALJ Arnold were not "fairly debatable" once it did not appeal her order.

ALJ Thomas Landowski heard the bad faith/unreasonable delay claim. In his decision ALJ Landowski observed that Wis. Admin. Code § DWD 80.15 -- at least the version in effect during the period of nonpayment back from February 12 to July 11, 2001 -- required a party to pay an ALJ's award unless "that party" filed a petition for commission review. Noting that "that party," i.e., the respondent, did not file a petition for commission review of ALJ Arnold's compensation order in this case, ALJ Landowski found an unreasonable delay in payment resulting in a 10 percent penalty under Wis. Stat. § 102.22(1). Noting further that the insurer's refusal to pay continued even after the applicant's counsel demanded payment, the ALJ found the requisite intent to support a bad faith failure to pay and awarded a 200 percent penalty as well (subject to the $15,000 maximum) under Wis. Stat. § 102.18.

The insurer appeals.

2. Applicable law.

a. Bad faith/unreasonable delay generally.

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).

b. The duty to pay pending appeal to LIRC.

The issue of an insurer's duty to pay pending appeal to LIRC has, as noted above, been subject to recent statutory changes. The old administrative code provision, Wis. Admin. Code § DWD 80.15 (effective until December 1, 2002) provided:

DWD 80.15 Payments after an order. Except for a stipulation or compromise, unless a party has filed a petition for review under s. 102.18 (3), Stats., that party shall pay an administrative law judge's order awarding compensation within 21 days after the department mails a copy of the administrative law judge's finding and order to that party's last known address. For payments ordered by stipulation or compromise, a party shall pay within 10 days after the department mails a copy of the order to that party's last known address. [Emphasis supplied.]

Current Wis. Stat. § 102.18(1)(e), effective January 1, 2002, provides:

102.18(1) (e) Except as provided in s. 102.21 [dealing with municipal employers], if the department orders a party to pay an award of compensation, the party shall pay the award no later than 21 days after the date on which the order is mailed to the last-known address of the party, unless a party files a petition for review under sub. (3). This paragraph applies to all awards of compensation ordered by the department, whether the award results from a hearing, the default of a party, or a compromise or stipulation confirmed by the department. (1) [Emphasis supplied.]

As a result of the statutory change, new Admin. Code DWD § 80.15 (effective after December 1, 2002) now provides:

DWD 80.15 Payments after an order. Except as provided in s. 102.21, Stats., if the department orders a party to pay an award of compensation, the party shall pay the award no later than 21 days after the date on which the order is mailed to the last-known address of the party, unless a party files a petition for review under s. 102.18 (3), Stats. This section applies to all awards of compensation ordered by the department, whether the award results from a hearing, the default of a party, or a compromise or stipulation confirmed by the department. [Emphasis supplied.]

3. The insurer's position.

On appeal, the insurer makes three arguments. First, it points out that when a case is appealed to the commission, Wis. Stat. § 102.18(3) contemplates a broad review giving the commission the latitude to review the entire record, not simply the parts challenged by the applicant. As the court of appeals, citing Wis. Stat. § 102.18(3), has noted:

LIRC, not the ALJ, bears the ultimate responsibility for finding facts.... The position taken by the parties at the administrative proceedings does not control the agency's ultimate resolution of the case.... LIRC has the duty to "find the facts and determine the compensation irrespective of the presentation of the case by the attorneys. [Citations omitted.]

UPS v. Lust, 208 Wis. 2d 306, 313-14 (Ct. App., 1997). Thus, the insurer contends, the fact that the commission could have reduced or reversed the ALJ's award, gave the insurer a basis not to pay pending appeal. (2)

Second, the insurer points out that Wis. Admin. Code § DWD 80.15, the rule the ALJ relied on was amended to reflect a recent statutory enactment at Wis. Stat. § 102.18(1)(e). The new statute says "if the department orders a party to pay an award..., the party shall pay [within 21 days of the order], unless a party files a petition for review..." The critical distinction between old DWD § 80.15 and new Wis. Stat. § 102.18(1)(e) is that the former rule uses a definite adjective in the phrase "unless that party files a petition for review," while the new statute uses an indefinite article "unless a party files a petition for review."

The insurer acknowledges that the change in the law with the enactment of new Wis. Stat. § 102.18(1)(e) occurred after the commission's affirmance of ALJ Arnold's original order, so that ALJ Landowski correctly applied the old rule which was in effect at the time. However, the insurer goes on to suggest that the change with Wis. Stat. § 102.18(1)(e) was not a real change in the law, but simply a clarification of what the law has always been -- that if any party appeals an ALJ's order, the insurer does not have to pay pending appeal.

Third, the insurer argues that even if its interpretation of Wis. Stat. § 102.18(3) and old Wis. Admin. Code § DWD 80.15 is wrong, it was still a fairly debatable position and so there can be no finding of bad faith or inexcusable delay.

4. Discussion.

The commission begins by concluding that ALJ Landowski correctly applied old Wis. Admin. Code 80.15 in this case. The creation of Wis. Stat. § 102.18(1)(e) by 2001 Wis. Act 37 was not effective until January 1, 2002, or well after the period in which the insurer refused to pay (from ALJ Arnold's order of February 12, 2001 to the insurer's eventual payment on July 11, 2001.)

Second, the commission believes the ALJ properly reads old Wis. Admin. Code § DWD 80.15 -- which uses the definite adjective "that" in the phrase "unless that party files a petition for review" -- to require payment by the insurer in this case unless the insurer itself appealed. The language in the old rule is clear, and if anything its meaning is made clearer by the Legislature's deliberate change to the indefinite article "a" in the phrase "unless a party files a petition" in the new Wis. Stat. § 102.18(1)(e).

Third, from what the commission can tell from the legislative history, new Wis. Stat. § 102.18(1)(e) was not intended somehow to conform old Wis. Admin. Code DWD 80.15 to what the law always was, as the insurer suggests. To the contrary, it appears the use of the indefinite article "a" in new Wis. Stat. § 102.18(1)(e) was itself an error. (3)     Even if this were not the case, however, the commission would be disinclined to resort to extrinsic interpretative aids given the clear meaning of former Wis. Admin. Code § DWD 80.15. (4)

Fourth, Wisconsin Stat. § 102.18(3) does, of course, give the commission a broad scope of review which allows the commission to determine compensation irrespective of the arguments raised by counsel. However, that review authority does not change or limit the plain directive in old Wis. Admin. Code § DWD 80.15 requiring a non-appealing insurer to pay an award pending appeal of that award by the applicant.

Nor can the commission conclude that old Wis. Admin. Code § DWD 80.15 somehow conflicted with Wis. Stat. § 102.18(3) and so exceeded DWD's delegated rule-making authority. Former Wis. Admin. Code § DWD 80.15 did not purport to limit the commission's authority to review, but merely required the insurer held liable by the ALJ to pay pending commission review where the liable insurer itself did not appeal. If the commission were to take the relatively unusual step of ordering less compensation than the amount essentially conceded in briefing by the insurer, the resulting overpayment by error of fact or law could be offset against future payments, if any, or reduced to judgment to the extent allowed by Wis. Stat. § 102.20.

Finally, the commission cannot accept the insurer's argument that its interpretation of Wis. Stat. § 102.18(3) and old Wis. Admin. Code § DWD 80.15 -- even if perhaps wrong -- is still a fairly debatable position. This argument parallels the unsuccessful rationale used by the commission to dismiss a bad faith claim recently. In Bosco v. AT Polishing, WC claim no. 1996-055448 (June 28, 2002), rev'd sub nom. Bosco v. LIRC, case no. 03-0662 (September 3, 2003), the commission held that an insurer's refusal to pay pending judicial appeal based on its interpretation of Wis. Stat. § 102.23(5) was not unreasonable or in bad faith where the statute had not previously been interpreted by the courts or by clear DWD or LIRC precedent. The court of appeals -- in a decision recommended for publication -- did not accept that reasoning in that case and reversed the commission.

In so doing, the court of appeals noted that "the basic purpose of the worker's compensation act is to provide prompt justice for injured workers to prevent, as far as possible, the delays that might arise from protracted litigation." Bosco v. LIRC, at 33 (citing Employers Health Ins. Co. v. Tesmer, 161 Wis. 2d 733, 738, 469 N.W.2d 203 (Ct. App. 1991).) In another case where the court of appeals reversed the commission's refusal to assess bad faith and unreasonable delay penalties, the court noted "it is well settled that the basic purpose of the Worker's Compensation Act is to give prompt relief to injured employees who are entitled to compensation and it must be liberally construed to effectuate that policy." Brown v. LIRC, 2003 WI App 56, 18, 260 Wis. 2d 788, 803. (5)    In this case, as with the statute at issue in Bosco, the meaning of the rule was clear and it required immediate payment by the insurer.

In sum, the version of Wis. Admin. Code DWD 80.15 in effect between the date of ALJ Arnold's decision and the insurer's eventual payment was unambiguous. The insurer's failure to comply with the terms of that rule, after a demand by the applicant's attorney, constituted bad faith and unreasonable delay.

cc: 
Attorney William B. Kulkoski
Attorney Stuart F. Roitburd

Appealed to Circuit Court. Affirmed October 11, 2004. Appealed to the Court of Appeals.  Affirmed, per curiam unpublished decision, November 9, 2005.

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(1)( Back ) The department's explanatory footnote provides: Section 102.18(1)(e) creates a uniform 21 day payment standard for all orders awarding compensation, including awards resulting from hearings, defaults of parties, and compromises and stipulations confirmed by the department. This subsection was created by Chapter 37, Laws of 2001, effective January 1, 2002.

(2)( Back ) In Lust, supra, the ALJ had awarded no compensation, and the applicant appealed. The commission reversed the ALJ and awarded compensation, albeit not on the basis argued by the applicant on appeal. The respondent argued to the court of appeals that it had been blind-sided by LIRC. However, the court of appeals, noting the basis for LIRC's award was in the record, did not credit that argument. Lust, thus, presents a case where the commission reviewed the whole record irrespective of counsels' argument. However, Lust is not a case where the commission awarded a lesser amount than conceded by an insurer in a brief to LIRC.

(3)( Back ) The commission reviewed the Worker's Compensation Council plain language summary and the LRB analysis for 2001 Wis. Act 37 with regard to the creation of Wis. Stat. § 102.18(1)(e).  Neither document explains why new Wis. Stat. § 102.18(1)(e) uses the indefinite article "a" rather than the definite adjective "that" as used in old Wis. Admin. Code DWD 80.15.

(4)( Back ) Marshall-Wis. v. Juneau Square, 130 Wis. 2d 112, 133 (1987).

(5)( Back ) The observation of the courts of appeals regarding the policy of prompt payment is reflected as well in Wis. Admin. Code § DWD 80.01 which essentially requires a WC insurer to pay a claim promptly or identify the basis for nonpayment.

uploaded 2003/10/31