W.C. No. 3-101-431.Industrial Claim Appeals Office.
September 8, 2004.
FINAL ORDER
The respondents seek review of an order of Administrative Law Judge Felter (ALJ) which held the claimant did not forfeit her right to future workers’ compensation benefits because she failed to procure the respondents’ written approval of a settlement. The respondents also seek review of the order insofar as it denied penalties for failure to give notice of the third-party action and settlement. The claimant seeks review of the order insofar as it determined the respondents are entitled to a subrogation credit of $17,653.90. We affirm.
This case presents a complex fact pattern. The ALJ entered comprehensive findings of fact. Insofar as relevant, we summarize those findings here.
The claimant sustained a compensable back injury in September 1991. She underwent spinal fusion surgery in July 1992, and the surgeon implanted orthopedic “pedicle screws” manufactured by AcroMed. In September 1993 a second fusion surgery was performed and new pedicle screws were implanted. It is undisputed that the respondents are liable for these surgeries as part of the workers’ compensation claim.
In November 1995, the claimant was one of a number of plaintiffs which initiated a class action lawsuit against AcroMed claiming that the pedicle screws were defective and caused various injuries. At this time, the respondents were not notified of the lawsuit.
The class action lawsuit came under the supervision of the U.S. District Court for the Eastern District of Pennsylvania (District Court). In January 1997, the parties proposed a comprehensive settlement under which AcroMed would contribute to a settlement fund and all claims against it would be released. The agreement provided, pursuant to a provision of the Federal Rules of Civil Procedure, that no party could “opt-out” of the agreement. On October 17, 1997, the District Court approved the settlement after reviewing it for fairness.
The claimant timely “registered” as a class member prior to the deadline of May 1, 1997. The respondents did not register any subrogation claim because they were unaware of the litigation.
On March 24, 1999, the claimant signed a proof of claim which contained a provision releasing all claims against AcroMed. On November 17, 1999, the claimant’s workers’ compensation attorney first notified the Division of Workers’ Compensation (DOWC) and respondents’ counsel of the claimant’s participation in the AcroMed litigation and that the parties were “nearing settlement.”
Thereafter, respondents’ counsel attempted to obtain information concerning the litigation and settlement by requesting the information from claimant’s counsel, but claimant’s counsel had substantial difficulty in obtaining this information from the claimant’s third-party counsel. In January 2001, the claimant was ordered to provide discovery including documents that she sent to the District Court to prove her claim in the third-party litigation.
On November 1, 2000, the claimant received a partial distribution of settlement proceeds in the amount of $8,899.30, and respondents’ counsel was notified of claimant’s receipt of proceeds on March 5, 2001. The claimant received a second distribution of $8,842.13 on January 14, 2002. On June 12, 2002, the respondents filed an application for penalties based on the claimant’s failure timely to disclose the third-party action and failure to obtain the respondents’ written approval of the settlement.
On April 22, 2003, the ALJ entered an order resolving the matters in dispute. First, ALJ Felter held that the claimant’s failure to procure the respondents’ written approval of the settlement did not work a forfeiture of the right to all future workers’ compensation benefits. The ALJ ruled that the claimant lacked any genuine control over the settlement proceedings, and that the respondents suffered no prejudice by the claimant’s failure to procure approval. Further, the ALJ held that resolution of the class action suit was in the nature of a judgment rather than a a settlement.
The ALJ also denied the claims for penalties. First the ALJ ruled the claims are barred by the statute of limitations found at § 8-43-304(5), C.R.S. 2003, because the respondents did not file the request for penalties within one year of learning of the possible claims. The ALJ reasoned that the respondents were aware of the possible claim for penalties in November 1999, when the claimant’s attorney mailed the notice of the third-party claim and possible settlement. The ALJ also denied the claim for penalties based on failure to procure approval of the settlement because failure to procure approval “has a remedy under Section 8-41-203,” and is unfounded because the class action was in the nature of a judgment, not a settlement.
Finally, the ALJ held the respondents are entitled to a credit for the entire amount of the proceeds which the claimant received from the third-party action. In support, the ALJ found the distribution of the Claims Administrator for the District Court provided no basis for allocating any of the proceeds between “medical benefits and pain and suffering.”
I.
On review, the respondents contend the claimant’s failure to procure written approval of the settlement of the third-party lawsuit requires forfeiture of all workers’ compensation benefits. The respondents’ theory is that the claimant compromised the claim on March 24, 1999, when she executed the release. (Tr. April 28, 2003, P. 53). We conclude forfeiture is not warranted here because the claimant did not “compromise” the third-party claim within the meaning of § 8-41-203(2), C.R.S. 2003.
In cases where the workers’ compensation insurer has provided benefits and consequently acquired an “assignment” of the claimant’s cause of action against a third party, § 8-41-203(2)provides that a “compromise of any such cause of action by the employee” in an “amount less that the compensation provided in articles 40 to 47 of this title shall be made only with the written approval” of the compensation carrier “liable to pay the same.” (Emphasis added). This provision has been interpreted as creating an implied forfeiture of all future workers’ compensation benefits if the claimant fails to procure the insurer’s written permission to settle a third-party claim lawsuit. The rationale for this holding is that the insurance carrier is entitled to protection against improvident settlements of third-party liability which reduce the insurer’s capacity to recover from the third party. Peterkin v. Curtis, Inc., 729 P.2d 977 (Colo. 1986); Sullivan v. Industrial Claim Appeals Office, 796 P.2d 31 (Colo.App. 1990).
We agree with the ALJ that the rationale for Peterkin does not apply in this case, and that § 8-41-203(2) should not be construed as imposing the drastic remedy of forfeiture under these circumstances. As a general proposition, the statute should be construed to effect the legislative purpose of quickly and efficiently delivering benefits to injured workers at a reasonable cost to employers. Section 8-40-102(1), C.R.S. 2003. Words and phrases in a statute should be given their ordinary meanings, but if there is some ambiguity we may resort to other principles of statutory construction. Weld County School District RE-12 v. Bymer, 955 P.2d 550 (Colo. 1998). The Act should be liberally construed to effect its remedial and beneficent purpose. Davison v. Industrial Claim Appeals Office, 84 P.3d 1023, 1029 (Colo. 2004). Conversely, forfeitures are disfavored as a matter of public policy and statutes imposing them must be strictly construed. Wolford v. Pinnacol Assurance, 81 P.3d 1079, 1082 (Colo.App. 2003), cert. granted, January 12, 2004. It is assumed the General Assembly intended a just and reasonable result, and absurd outcomes are to be avoided. Guido v. Industrial Claim Appeals Office,
___ P.3d ___ (Colo.App. No. 03CA1519, August 26, 2004). Consequently, a statute should not be construed as mandating compliance when compliance is impossible. See Lobato v. Industrial Claim Appeals Office, 94 P.3d 1173 (Colo.App. 2003), cert. granted, 03SC556, August 2, 2004.
Section 8-41-203(2) contains no express provision imposing the remedy of forfeiture. As noted, the legislative purpose of the requirement for written approval by the insurer is to protect its interest against improvident settlements initiated by the claimant. Considering the fact that forfeiture is not favored and such statutes are strictly construed, we conclude the Peterkin does not extend to cases such as this where it was not the claimant who actually “compromised” the claim, and the insurer’s interest could not have been preserved or the result altered if the claimant had given notice that she intended to sign the release.
Here, the ALJ found on substantial evidence that the claimant had no control over the decision to settle the third-party suit, the various deadlines for submitting claims, or the dates on which the settlement would be approved by the District Court. (Finding of Fact 8). Indeed, as the ALJ found, the global settlement including the “no opt-out” provision was approved by the District Court on October 17, 1999, apparently without any direct participation by the claimant. Thus, it was not the claimant who decided to “compromise” the third-party suit, but instead it was the attorneys for the class and AcroMed subject to review by and approval of the District Court. Cf. Woodward v. Nor-Am Chemical Co., (S. Dist. of Alabama, May 23, 1996) (class action settlements are not subject to workers’ compensation consent requirement because they are akin to judgments in which court scrutinizes settlements for fairness). In this sense, it was not possible for the claimant to honor the respondents’ interests by procuring their written “approval” of the settlement since the settlement would have proceeded regardless of the claimant’s or the respondents’ position.
Rather, once the District Court approved the “no opt-out” provision, the claimant could not have withdrawn from the class to protect the respondents’ independent interests. To have “opted out” would have rendered the claimant ineligible for any recovery, and would have cut off the respondents’ interest in the claimant’s recovery. (Finding of Fact 9).
Moreover, as the ALJ found, the respondents were not prejudiced by the claimant’s failure to obtain written approval prior to agreeing to the settlement and releasing all claims. Indeed, as the ALJ recognized, for the respondents to have recovered under a subrogation theory the District Court would have required them to show a “reasonable relationship” between a defect in the pedicle screws and the medical expenses they were claiming. As the ALJ found, the record contains no evidence the respondents could have made such a showing. (Finding of Fact 11). In contrast, the claimant was entitled to compensation under a point system which did not require a showing of actual causation. (Welsh Depo. Pp. 31-36, 56). Thus, we reject the respondents’ assertion that the ALJ “incorrectly assumed” they could not recover their subrogation interest if they had filed a separate claim. Cf. Clementi v. Nationwide Mutual Fire Insurance Co., 16 P.3d 223 (Colo. 2001) (adopting “notice-prejudice” rule in case where insured failed to give timely notice of uninsured motorist claim as required by policy).
II.
The respondents next contend the ALJ erred in declining to impose penalties under § 8-43-304(1), C.R.S. 2003, based on the claimant’s failure to give notice of the third-party lawsuit and failure to procure written permission to settle the third-party lawsuit. We find no error.
Apparently, the respondents’ request for penalties based on failure to notify the respondents that the claimant initiated the third-party lawsuit is based on Rule of Procedure XI (H), 7 Code Colo. Reg. 1101-3 at 42. That rule requires the claimant to notify the DOWC and “all interested parties” when a “third party action or demand is initiated.”
Section 8-43-304(5) establishes a statute of limitations for commencement of penalty claims. The party seeking a penalty must file the request for penalties within “one year after the date the requesting party first knew or reasonably should have known the facts giving rise to the penalty.” The duty to file the request commences when the party first becomes aware of circumstances constituting a violation, even in cases where the violation is continuing. Spracklin v. Industrial Claim Appeals Office, 66 P.3d 176 (Colo.App. 2003).
As the ALJ found, claimant’s counsel wrote to respondents’ counsel on November 17, 1999, advising that he had “recently learned that an actio was filed” on the claimant’s behalf in the AcroMed litigation, and that it was his understanding “this is a class-action suit and the parties are nearing settlement.” (Emphasis added). The ALJ logically inferred that this letter provided sufficient information that a reasonable person would have known, or reasonably should have known, that the claimant did not provide notice of the third-party lawsuit when it was initiated as required by Rule XI (H). Nevertheless, the respondents waited more than two years to file the penalty claim. The record supports the ALJ’s application of the statute of limitations.
The respondents also contend the ALJ erred in failing to assess penalties under § 8-43-304(1) for failure to procure the respondents’ written permission to settle the claim as required by § 8-41-203(2). We disagree for several reasons.
First, as determined above, the claimant was not required to procure the respondents’ written permission to settle the claim. Consequently, there was no violation of § 8-41-203(2), and hence no violation of the Act for purposes of imposing penalties under § 8-43-304(1). See Allison v. Industrial Claim Appeals Office, 916 P.2d 623 (Colo.App. 1995) (no penalty absent proof of violation of Act).
Moreover, as the ALJ determined, the effect of the Peterkin decision is to read § 8-41-203(2) as creating the specific penalty of forfeiture of future benefits if a claimant fails to procure the respondents’ written approval of a third-party settlement. We have previously interpreted §8-43-304(1) to mean that if the Act creates a specific penalty for violation of a statute, the general penalty provision of § 8-43-304(1) does not apply. This is true because, in our opinion, the qualifying phrase “for which no penalty has been specifically provided,” applies to penalty claims based on an alleged violation of the Act. See Pena v. Family Dollar Stores, Inc., W.C. No. 4-412-966 (February 11, 2003). Thus, the ALJ correctly ruled that no penalty may be imposed under §8-43-304(1) because “the penalty claim already has a remedy under” §8-41-203.
Finally, we agree with the ALJ that any possible claim is barred by the statute of limitations. As noted, the respondents were notified that settlement was near in November 1999. In January 2001, respondents’ counsel wrote to claimant’s counsel that he received information from the claimant’s third-party attorney that the claimant had received $8,816.00 as partial settlement of the third-party lawsuit. On March 5, 2001, claimant’s counsel confirmed the claimant’s receipt of the settlement proceeds. (Finding of Fact 15). The ALJ could plausibly infer from this evidence that more than one year before June 12, 2002, the respondents had sufficient information to lead a reasonably prudent person to conclude the claimant had “possibly” violated § 8-41-203(2) by failing to procure the respondents’ permission to settle the third-party lawsuit for an amount less than the compensation which the respondents had paid under the Act.
III.
The claimant contends the ALJ erred in holding that the respondents are subrogated to all of the proceeds of the third-party settlement, totaling $17,653.90 (excluding attorney fees). The claimant reasons that some of the proceeds were paid for non-economic damages in the form of pain and suffering, and that there was no showing that the screws caused the respondents to pay any medical expenses. We perceive no error.
The ALJ found that the third-party settlement contained no apportionment between economic and non-economic damages. The ALJ inferred that the settlement awarded the claimant was “based primarily on medical costs.” Under these circumstances, the ALJ determined the respondents are subrogated to the entire amount.
The respondents were subrogated to all medical and hospital expenses paid to the claimant because of the industrial injury. Section 8-41-203(1)(c), C.R.S. 2003. Of course, the respondents are not subrogated with respect to non-economic damages and medical costs incurred for reasons not causally-related to the industrial injury. See Colorado Compensation Insurance Authority v. Jorgensen, 992 P.2d 1156
(Colo.App. 2000); American Guarantee and Liability Insurance Co. v. King, ___ P.3d ___ (Colo.App. No. 02CA0927, October 23, 2003). A claimant may not unilaterally ascribe settlement proceeds to non-economic loss in an attempt to avoid subrogation. See Kennedy v. Industrial Commission, 735 P.2d 891 (Colo.App. 1986). Further, an ALJ lacks jurisdiction to attempt apportionment of settlement proceeds. Jordan v. Fonken Stevens, P.C., 914 P.2d 394 (Colo.App. 1995).
The record reveals that the respondents paid medical expenses for treatment of the claimant’s symptoms, including ongoing pain, both before and after the removal of the pedicle screws. Further the April 13, 2000, letter of the District Court claims administrator indicates the claimant’s third-party award was based on disability and pain status, hardware failure, and the “number of explant surgeries.” This document supports the ALJ’s inference that the third-party settlement award was at least partially based on medical expenses associated with removing the screws and the cost of treating pain associated with the effects of the screws. These were costs incurred by the respondents. Therefore, the record supports the inference that some of the medical expenses paid by the respondents were also compensated by the third-party settlement, and the potential for double recovery arises if subrogation is not permitted. Because the claimant failed to provide a basis for apportionment, and could not do so unilaterally, the ALJ correctly permitted subrogation for the entire amount of the third-party proceeds.
IT IS THEREFORE ORDERED that the ALJ’s order dated April 22, 2003, is affirmed.
INDUSTRIAL CLAIM APPEALS PANEL
____________________ David Cain
____________________ Kathy E. Dean
Wendy Brownson-Rausin, Rifle, CO, Valley View Hospital, Greenwood Village, CO, Colorado Hospital Trust Association, c/o Mary Ann Donelson, Support Services, Englewood, CO, Timothy Quinn, Esq., Denver, CO, (For Claimant).
David J. Dworkin, Esq., Denver, CO, (For Respondents).