W.C. Nos. 3-815-100, 4-170-231, 4-176-876Industrial Claim Appeals Office.
January 26, 1998
FINAL ORDER
The claimant, and the self-insured employer, Colorado Compensation Insurance Authority (CCIA), filed separate petitions to review an order of Chief Administrative Law Judge Felter (ALJ). We modify the order, and as modified, affirm it.
This matter was before us previously. Our Order of Remand dated April 15, 1997, contains a statement of the facts. We incorporate that statement by reference.
Our Order of Remand held that the claim for penalties, predicated on the failure timely to pay medical benefits, is governed by § 8-43-401(2)(a), C.R.S. 1997, not § 8-43-304(1), C.R.S. 1997. Consequently, we remanded the matter to the ALJ with directions to make “specific determinations of fact concerning whether or not the CCIA `willfully’ and `wrongfully’ delayed payment of medical benefits.” We also directed the ALJ to determine whether he intended to impose any penalty on the CCIA’s third-party claims adjuster, Hewitt, Coleman Associates (Hewitt).
On July 24, 1997, the ALJ entered an order in response to our remand. The ALJ incorporated the findings of fact contained in his prior order dated July 9, 1996. In addition, the ALJ specifically found that Hewitt, while it was acting as CCIA’s third-party claims adjuster, willfully and deliberately failed to pay for a medically prescribed hot tub, and the claimant’s mileage expenses related to obtaining medical treatment. The ALJ went on to find there is insufficient evidence to prove that the CCIA engaged in any conduct establishing that it acted with deliberate intent in delaying payment of the claimant’s medical expenses.
However, the ALJ held that, in view of the fact that Hewitt acted with “deliberate intent” as contemplated by §8-43-401(2)(a), “the 8% penalty (interest) provision must be applied against Hewitt.” The ALJ further stated that the “8% interest penalty” is a “strict standard” that does not require proof of willfulness or deliberate intent, and therefore, the “8% penalty is applicable against” the CCIA. The ALJ then ordered that the penalty be paid to the claimant.
Additionally, the ALJ set forth a procedure to be followed with respect to submission of future medical bills. The ALJ ordered the claimant to submit mileage statements to the CCIA’s insurance adjuster within three months. The ALJ then ordered the CCIA to “promptly pay this mileage within one week of receipt.”
It is significant that in addition to the petitions to review filed by the claimant and the CCIA, Hewitt filed a separate petition. However, on September 2, 1997, the ALJ dismissed Hewitt’s petition stating that Hewitt is not subject to a penalty under his order.
I.
On review, the CCIA first contends that the ALJ erred in penalizing it for the acts of Hewitt. The CCIA argues that it is not subject to a penalty in view of the ALJ’s finding that the CCIA did not willfully or deliberately delay payment of the claimant’s medical benefits. In support of this contention, the CCIA notes that independent adjusting agencies owe claimants a duty to act in good faith when adjusting claims. See Scott Wetzel Services v. Johnson, 821 P.2d 804 (Colo. 1991). We find no error.
Section 8-43-401(2)(a) provides that if any:
“self-insured employer willfully delays payment of medical benefits for more than thirty days or willfully stops payments such . . . self-insured employer shall pay a penalty to the division of eight percent of the amount of wrongfully withheld benefits.”
To impose a penalty under § 8-43-401(2)(a), the ALJ must find that the self-insured employer’s conduct was the result of “deliberate intent,” and that it was “unlawful” or “unjust.” Sears v. Penrose Hospital, 942 P.2d 1345 (Colo.App. 1997).
Here, the ALJ found that Hewitt was the CCIA’s “agent” for the adjustment of workers’ compensation claims. (Order of July 9, 1996, paragraph 4). Since the CCIA does not dispute that Hewitt’s delay in the payment of the medical benefits was willful and unjust, the question is whether Hewitt’s conduct may be imputed to the CCIA. We agree with the claimant that it may.
As a general matter, an employer is primarily liable for payment of workers’ compensation benefits unless it obtains insurance covering such liability. Tri-State Insurance Co. v. Industrial Commission, 151 Colo. 494, 379 P.2d 388 (1963). Where an employer chooses to be self-insured for workers’ compensation, it may not divest itself of its primary liability simply by hiring an agent to adjust the claims of its employees. Denny’s Restaurant, Inc. v. Husson, 746 P.2d 63 (Colo.App. 1987). Moreover, it has been held that a self-insured employer may not relieve itself of the obligation of “good faith and fair dealing by contracting out its responsibilities” to a third-party adjustment firm. Scott Wetzel Services v. Johnson, 821 P.2d at 811.
Thus, we conclude that the CCIA is responsible for the actions or inactions of an independent adjusting firm in handling the CCIA’s self-insured claims. The entire purpose of the penalty established by § 8-43-301(2)(a) would be negated if self-insured employers could simply insulate themselves from improper adjusting practices by hiring a third-party adjusting firm. Consequently, the ALJ correctly determined that Hewitt’s willful and wrongful conduct is imputed to the CCIA for purposes of imposing a penalty under § 8-43-301(2)(a).
It follows that we find no error in the ALJ’s statements that the CCIA is subject to a “strict standard” of liability and it was not necessary to prove that the CCIA itself acted willfully and deliberately. Read in context, the ALJ was merely elaborating on his conclusion that Hewitt was the CCIA’s agent, and therefore, the CCIA is strictly liable for Hewitt’s conduct.
II.
The CCIA next contends that the ALJ erred in ordering it to pay the penalty to the claimant rather than to the Division of Workers’ Compensation (Division) for transmission to the State Treasurer. In response, the claimant argues that the CCIA does not have “standing” to raise this issue. In any event, the claimant contends that the ALJ confused the penalty prescribed by § 8-43-401(2)(a) with the provision for interest under §8-43-410(2), C.R.S. 1997, and that the ALJ should have awarded both a penalty and interest. We modify the ALJ’s order with respect to payment of the penalty and assessment of interest.
Section 8-43-401(2)(b), C.R.S. 1997, provides that penalties collected under § 8-43-402(2)(a) are to be collected by the Division and “transmitted to the state treasurer who shall credit the same to the workers’ compensation cash fund created in §8-44-112.” Accordingly, the CCIA is correct in arguing that the penalty assessed against it should be paid to the Division in accordance with subsection (2)(b), not to the claimant as ordered by the ALJ. The ALJ’s order shall be modified accordingly.
In reaching this conclusion, we reject the claimant’s assertion that the CCIA does not have standing to raise the payment issue. A party has standing if it has “both an injury in fact and a cognizable legal right.” Bradley v. Industrial Claim Appeals Office, 841 P.2d 1071 (Colo.App. 1992). Under §8-43-301(2), C.R.S. 1997, the CCIA has a legal right to appeal because it has been ordered to pay a penalty. Moreover, the CCIA would sustain an injury in fact if the Division subsequently seeks imposition of the penalty arguing that it, rather than the claimant, is entitled to the eight percent. Put another way, the ALJ’s order could result in the CCIA sustaining a double liability.
However, we agree with the claimant that the ALJ appears to have erroneously concluded that § 8-43-401(2)(a) concerns the payment of “interest” rather than a “penalty.” By its own terms, §8-43-401(2)(a) provides that the self-insured employer must pay a “penalty” equal to “eight percent of the amount of wrongfully withheld benefits.” Conversely, § 8-43-410(2) provides that an employer “shall pay interest at the rate of eight percent per annum upon all sums not paid upon the date fixed by the award of the director or administrative law judge for the payment thereof.” As noted in Subsequent Injury Fund v. Trevethan, 809 P.2d 1098
(Colo.App. 1991), § 8-43-410(2) is not designed “to impose a penalty or award an additional benefit, but merely to secure to claimants the value of the benefits to which they are entitled.”
Section 8-43-401(2)(a) creates a one time penalty to be paid when an insurer or self-insured employer fails to pay medical benefits in a timely fashion. However, as a separate matter, interest may be assessed on the penalty from the date the penalty becomes due and owing. See Beatrice Foods Co., Inc. v. Padilla, 747 P.2d 685 (Colo.App. 1987). If there is any dispute concerning the date from which interest should run on the penalty, the matter may be submitted to the ALJ for resolution. See Gallegos v. Green Construction Co., W.C. No. 3-033-796 (July 29, 1988) (it is proper to assess interest on penalties because penalties constitute “sums not paid” under § 8-43-410).
III.
The CCIA’s final argument is that the ALJ erroneously ordered it to reimburse the claimant for mileage within one week of the receipt of the billings. However, we do not consider this portion of the order to be final and reviewable. This provision does not require the CCIA to pay any specific benefit or penalty for mileage, nor does it deny the claimant any benefit or penalty. Section 8-43-301(2). Thus, the provision is interlocutory and not currently subject to our review. See Oxford Chemicals, Inc. v. Richardson, 782 P.2d 843 (Colo.App. 1989).
IV.
For her part, the claimant contends that our prior order remanding the matter to the ALJ was erroneous because Sears v. Penrose Hospital, supra, was wrongly decided. At the time the claimant filed her brief, the validity of Sears was pending before the Supreme Court in the case of Malloy v. Lincoln Community Hospital, (Colo.App. No. 96CA1757, May 22, 1997) (not selected for publication). However, the Supreme Court subsequently denied the petition for writ of certiorari in the Malloy case. Therefore, we are bound by the decision in Sears v. Penrose Hospital, and find no error in our application of Sears. C.A.R. 35(f).
V.
The claimant also reiterates her previous argument that the CCIA waived the right to rely on § 8-43-401(2). However, we see no reason to depart from our prior ruling that the CCIA did not waive this issue.
IT IS THEREFORE ORDERED that the ALJ’s order dated July 24, 1997, is modified to reflect that the eight percent penalty for failure timely to pay medical benefits shall be paid to the Division of Workers’ Compensation, not the claimant.
IT IS FURTHER ORDERED that the ALJ’s order is modified to reflect that statutory interest shall be assessed from the date the penalty became due and owing.
IT IS FURTHER ORDERED that the ALJ’s order is otherwise affirmed.
INDUSTRIAL CLAIM APPEALS PANEL ________________________________ David Cain ________________________________ Kathy E. Dean
NOTICE
This Order is final unless an action to modify or vacate the Order is commenced in the Colorado Court of Appeals, 2 East 14th Avenue, Denver, Colorado 80203, by filing a petition to review with the court, with service of a copy of the petition upon the Industrial Claim Appeals Office and all other parties, within twenty (20) days after the date the Order was mailed, pursuant to §§ 8-43-301(10) and 307, C. R. S. 1997.
Copies of this decision were mailed January 26, 1998 to the following parties:
Vicky Brawner Ahlstrom, 0301 Shannon Rd., Texas Creek, CO 81223
Colorado Compensation Insurance Authority, Attn: Curt Kriksciun, Esq. (Interagency Mail)
Hewitt, Coleman Associates, Attn: Richard A. Hurley, P.O. Box 3808, Greenville, SC 29608
Alexsis Risk Management Services, One Park Central Bldg., Ste. 410, 1515 Arapahoe St., Denver, CO 80202-2117
OHMS, P.O. Box 173682, Denver, CO 80217-3682
Subsequent Injury Fund (Interagency Mail)
Steven U. Mullens, Esq., P.O. Box 2940, Colorado Springs, CO 80901-2940 (For the Claimant)
Ralph Ogden, Esq., 1750 Gilpin St., Denver, CO 80218 (For the Claimant)
Thomas Kanan, Esq., 1700 Broadway, #1910, Denver, CO 80290 (For the Respondents)
Attorney General’s Office, Attn: Michael Serruto, Esq., 1525 Sherman St., 5th Flr., Denver, CO 80203 (For SIF)
Bernard Woessner, Esq. and Anne Smith Myers, Esq., 3900 E. Mexico, Ste. 1000, Denver, CO 80210 (For Hewitt, Coleman Associates)
By: ________________________________