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May 27, 2006

Penalties In Workers’ Compensation

An issue that arises all too often for Employers in a workers’ compensation matter is that of penalties. Section 435 of the Workers’ Compensation Act provides that penalties shall be established in order to 1) expedite the reporting and processing of injury cases, 2) ensure full payment of compensation when due, 3) expedite the hearing and determination of claims for compensation and petitions filed with the Department, 4) provide the disabled employee or his dependents with timely notice and information of his or her rights under the Act, and 5) explain and enforce the provisions of the Act. Originally, the penalty was not to exceed 10% of the amount awarded but may be increased for unreasonable delay. Section 435 was amended to increase the amount of penalty for unreasonable or excessive delay from 20% to 50%.

The Pennsylvania Commonwealth Court had ruled the imposition of penalties and the amount of penalties under Section 435 were discretionary. Department of Labor and Industry v. WCAB (Robinson), 407 A.2d 139 (Pa. Cmwlth. 1979). Furthermore, the Court held that while there must be a finding as to whether there was a violation of the Act, such a finding does not mandate the imposition of a penalty. There must be a specific finding as to whether or not penalties are to be assessed. Department of Labor and Industry v. WCAB (Taylor Lock Company), 410 A.2d 1325 (Pa. Cmwlth. 1980). The Court also held that the burden in seeking the penalty was on the Employee to produce evidence that a violation of the Act had occurred. Sanders v. WCAB (Marriott Corp.), 756 A.2d 129 (Pa. Cmwlth. 2000).

Typically, we see penalties are assessed in two situations. The first situation involves a violation of the Act as it pertains to the Claimant’s right to indemnity and related expenses. In these cases, penalties have been assessed against Employers for unilaterally stopping compensation without a Judge’s Order or for failing to make timely payment of compensation or counsel fees. Thomas v. WCAB (Delaware County), 746 A.2d 1202 (Pa. Cmwlth. 2000). Unilateral stoppage of compensation benefits in cases like these occur where either the adjuster has filed the wrong form or the Claimant may have really slipped off of auto pay. However, the Courts have also assessed penalties when the Employer had sent a check to a wrong address where there had been proof where the insurer had the correct address. Graves v. WCAB (LaFrance Corp.), 680 A.2d 489 (Pa. Cmwlth. 1996).

Another area in which penalties are often assessed is for the failure of the Employer to timely pay benefits. The Courts have held an Employer violates Section 428 of the Act if the Employer does not begin payments within 30 days of the date on which its obligation to pay arises. This typically happens following the entry of a Stipulation of Fact accepting liability in a claim where the Claimant is owed past TPD or past TTD benefits, or where the parties have an agreement to settle the matter via Compromise and Release and the Judge issues a final Order approving the settlement. These are often the cases where we see an imposition of a penalty of 10% and in some cases upwards to the maximum of 50% penalty. Penalties have also been awarded when the Employer fails to issue a Notice of Denial within 21 days of receiving notice of the injury. Orenich v. WCAB (Geisinger Wyoming Valley Medical Center), 863 A.2d 165 (Pa. Cmwlth. 2004). And even when there has been failure to notify the Employer within 21 days that the claim has been denied. Johnstown Housing Authority v. WCAB (Lewis), 865 A.2d 999 (Pa. Cmwlth. 2005). The Courts have even assessed penalties for failure to make prompt payment of attorney’s fees for failure to establish a reasonable basis for contest. Varkey v. WCAB (Cardone Industries and Fireman’s Fund), 827 A.2d 1267 (Pa. Cmwlth. 2002). Interestingly, the Court has held it is within the discretion of the WCJ whether to impose penalties and the failure to take such action for not paying counsel fees or not paying a medical bill is not an abuse of discretion. Devault Packing Company v. WCAB (Allen Jones), 670 A.2d 741 (Pa. Cmwlth. 1996).

The other instance where we see penalties assessed on the Employer is for failure to pay medical expenses. Act 44, pertaining to the payment of medical expenses, significantly affects Penalty Petitions filed for the nonpayment of medical expenses. Act 44 provides that disputes regarding reasonableness and necessity of treatment by healthcare providers shall be resolved through utilization review procedures set forth in Section 306(f.1)(6) 77 P.S. Section 531(6). Therefore, the Courts have clarified that the Employer is subject to penalties where it unilaterally ceases payment of medical expenses and fails to file a Petition to Review the reasonableness and/or necessity of those expenses. Loose v. WCAB (John H. Smith Arco Station), 601 A.2d 491 (Pa. Cmwlth. 1991). The Courts have held where an Employer unilaterally stops paying an employee’s medical expenses based solely on causation, it assumes the risk of exposure to penalty liability contingent upon a WCJ’s ruling concerning the causal relation of the medical costs. Listino v. WCAB (INA Life Insurance Company), 659 A.2d 485 (Pa. Cmwlth. 1995). The Courts have also held that an assessment of penalties will be appropriate if the Employer fails to pay interest on medical bills paid by a third party insurer. Gattuso v. WCAB (McKeesport Candy Company), 646 A.2d 611 (Pa. Cmwlth. 1994). The Court has held that penalties are payable to the insured worker and not to the healthcare provider or the insurer. Lincow v. WCAB (Prudential Securities, Inc.), 832 A.2d 569 (Pa. Cmwlth. 2003).

When discussing penalties, a common question that arises is how much. The Courts have held that the imposition of penalties is completely discretionary, and the WCJ cannot apply “rough justice” or cite “extenuating circumstances” in denying or accepting a claim for penalties. Lakomy v. WCAB (DER and PIMCO), 720 A.2d 492 (Pa. Cmwlth. 1998). However, oftentimes, it does depend on the reasonableness of the Judge that the matter happens to be in front of. Some Judges take the hard line approach the Employer should be severely punished as the Claimant had suffered economic harm, such as he was unable to pay his mortgage payment because his workers’ compensation check was not on time or had been referred to a collection agency because his medical bills were overdue. Most Judges will view the circumstances surrounding the penalty situation in ruling most cases where there has not been a showing of malice on the part of the Employer and rule that a 10% penalty is proper. However, there are those Judges who are extremely Claimant-oriented and will view any situation as an extreme situation and assess the full 50% penalty as allowed under law. 

What It Means to You

In the end, the only way to assess a penalty situation with any degree of certainty is to avoid one by making sure that payments of medical and indemnity benefits are timely paid and documents accepting, denying, suspending or terminating benefits are timely filed. The lawyers at Cipriani & Werner can help you navigate any potential penalty situations that may arise in your practice.
 

Sources

Section 435 of the Act