W.C. No. 4-543-591.Industrial Claim Appeals Office.
May 16, 2005.
FINAL ORDER
The respondents seek review of an order of Administrative Law Judge Harr (ALJ) which awarded statutory penalties pursuant to § 8-43-304(1), C.R.S. 2004. The respondents contend that the ALJ erred in finding that the respondents had violated an order and that, in any event, the amount of the penalty imposed was constitutionally excessive. We affirm.
The ALJ’s pertinent findings of fact are as follows. The claimant injured his back in an admitted work-related accident. He received medical treatment in the form of epidural steroid injections performed by Charles Sisson, M.D. Dr. Sisson was assisted by John Cronin, M.D. a radiologist, whose treatment was reasonable and necessary to cure and relieve the claimant’s compensable condition. Dr. Cronin’s bills for treatment rendered on October 10, 2003 and December 31, 2003 were paid by the respondent insurer; however, a bill for a radiologic examination of the claimant’s lumbar spine also performed on December 31, 2003 was denied. The parties entered into settlement discussions and eventually reached what they believed to be a full and final settlement of the claim. The claimant’s attorney wrote a letter to the claims adjuster enclosing bills from the McKee Medical Center and from Dr. Cronin and stating that the claimant’s attorney understood that those bills would be paid as well as any other bills for authorized, reasonable and necessary medical treatment. The respondents’ attorney forwarded proposed settlement documents to the claimant’s attorney, who amended the documents by adding language stating that all outstanding medical bills that are reasonable and necessary and related to the injury would be paid by the respondents. Along with the settlement documents the claimant’s attorney returned a letter to the respondents’ attorney stating in explanation for the amendment that he “want[ed] to make sure the two outstanding medical bills referenced in my last letter have been paid.”
The ALJ also found that the settlement agreement was executed by the parties and approved by the Director. He found that the respondent insurer, by submitting the documents for approval, had agreed that it would pay Dr. Cronin’s bill. Although the insurer paid the bill from the McKee Medical Center, it did not pay Dr. Cronin’s bill, nor did it respond to a letter from the claimant’s attorney demanding payment.
The ALJ found that the insurer violated the Director’s order to pay benefits pursuant to the settlement agreement, and that the insurer had no rational argument supporting its refusal to pay Dr. Cronin’s bill. The ALJ imposed statutory penalties pursuant to § 8-43-304(1), C.R.S. 2004 of $18.50 per day for 208 days, which amounted to $3,838.00.
On appeal the respondents argue that the ALJ erred in interpreting the settlement agreement to require payment of Dr. Cronin’s bill and that, in any event, the amount of the penalty is constitutionally excessive. We disagree.
First, the respondents argue that the amendment to the settlement agreement and the related correspondence establishes that the parties were referring to two separate and distinct categories of medical bills. The first category was the two disputed bills for treatment by Dr. Cronin and the McKee Medical Center. The second category was the outstanding bills for all other authorized, reasonable and necessary treatment. The respondents argue that the amendment to the agreement only addressed the latter category, which necessarily excluded the two disputed bills.
Settlement agreements are in the nature of contracts and the law governing the construction of contracts applies when interpreting them Cary v. Chevron U.S.A., Inc., 867 P.2d 117 (Colo.App. 1993). The interpretation of a contract is usually a matter of law and we may determine its meaning de novo, including whether it is ambiguous Fiberglas Fabricators, Inc. v. Klyberg, 799 P.2d 371 (Colo. 1990). In determining whether a contract provision is ambiguous, the instrument must be construed as a whole and the language must be given a harmonious effect, giving words and phrases their ordinary meanings. Allstate Insurance Co. v. Avis Rent a Car System, Inc., 947 P.2d 341 (Colo. 1997). If a provision is fairly susceptible to more than one interpretation, extrinsic evidence may be considered to resolve the ambiguity and effect the intent of the parties. Pepcol Manufacturing Co v. Denver Union Corp., 687 P.2d 1310 (Colo. 1984).
Here, we agree with ALJ Harr’s implicit determination that the amendment to the settlement agreement was ambiguous and, consequently, he properly considered the correspondence extrinsic to the agreement in construing it. Further, we agree with his conclusion that the parties intended Dr. Cronin’s bill to be included in the bills to be paid under the agreement. The correspondence in which the claimant’s attorney referred both to Dr. Cronin’s bills and to “any outstanding . . . medical expenses” was a letter dated April 1, 2004, in which the claimant’s attorney expresses his understanding that the bills will be paid and he additionally confirmed the terms of the settlement agreement reached. His subsequent letter to the respondents’ attorney dated April 8, 2004 notes that a change had been interlineated in the agreement. In the sentence immediately following that one the claimant’s attorney explained, “I want to make sure the two outstanding medical bills referenced in my last letter have been paid.” The respondents then executed the amended agreement and submitted it for approval by the division. It was a reasonable interpretation of the correspondence to the respondents’ attorney that the claimant intended his amendment to include the two specific bills to which he had repeatedly referred. The ALJ’s inference that the communications between the parties amended the agreement to specifically provide that those two bills would be paid is entirely plausible and we decline to interfere with that construction of the contract.
Nor do we perceive any error in the imposition of penalties for the respondents’ refusal to pay Dr. Cronin’s bill pursuant to the settlement agreement. Section 8-43-304, C.R.S. 2004 authorizes an ALJ to impose a penalty of up to $500 per day for each day a party violates any provision of the Workers’ Compensation Act, fails or refuses to perform any duty lawfully enjoined within the time prescribed by the director, or refuses to obey any lawful order made by the director or the panel. The imposition of penalties under § 8-43-304 is a two-step process, first requiring the ALJ to determine if the respondents’ conduct violated the Act, a rule, or an order. If a violation occurred the ALJ must determine whether the party’s actions were objectively reasonable. Colorado Compensation Insurance Authority v. Industrial Claim Appeals Office,
907 P.2d (Colo.App. 1995).
Here it is undisputed that the director entered an order approving the settlement and requiring payment pursuant to its terms. The ALJ found that the respondents violated that order by failing or refusing to pay Dr. Cronin’s bill. The ALJ further found that the respondents proffered no explanation for their failure to pay the bill, other than the statement in their response to application for hearing that the bill had previously been denied as not reasonable or related to the claimant’s compensable condition. However, because payment of Dr. Cronin’s specific bill was contemplated by the parties as part of the settlement agreement, the ALJ characterized that defense as “disingenuous.” He then noted that the respondents offered no other explanation for not paying the bill. Under these circumstances the ALJ could infer that the claimant sustained his burden to show that the violation of the director’s order was objectively unreasonable. See Human Resource Co v. Industrial Claim Appeals Office, 948 P.2d 1194 (Colo.App. 1999) (failure to offer a reasonable factual or legal explanation for conduct permits the inference that the opposing party carried its burden to prove that the violation was objectively unreasonable).
The respondents also argue that the amount of the statutory penalty exceeds that permissible under the Fourteenth and Eighth Amendments of the United States Consitution. They argue that the ratio between the amount of the bill and the penalty is greater than that approved by the federal courts as permitted by the Constitution. We are not persuaded.
Relying upon the court of appeals’ opinion in Northern Telecom, Inc v. Industrial Claim Appeals Office, (Colo.App. No. 02CA2052, December 24, 2003) (not selected for publication), we have previously concluded that it is appropriate for us to review the amount of a penalty awarded under § 8-43-304(1) under an abuse of discretion standard. See also Cooper Industries v. Leatherman Tool Group, 532 U.S. 424, 433 (2001) (judicial decision imposing penalties within legislatively defined guidelines are typically reviewed under an abuse of discretion standard). An abuse of discretion exists if an order exceeds the bounds of reasons, as where it is unsupported by the evidence or contrary to law. Pizza Hut v. Industrial Claim Appeals Office, 18 P.3d 867 (Colo.App. 2001). Moreover, the due process clause and the excessive fines clause impose a constitutional limit on the amount of a fine. That constitutional limit incorporates the concept of proportionality, measuring the severity of the penalty against the conduct of the offender, and considering the harm to the victim. See Cooper Industries v. Leatherman Tool Group, supra.
We do not consider the imposition of the penalty in this case to be an abuse of discretion. In arriving at the amount of the penalty the ALJ considered that the insurer offered no explanation for its failure to pay the bill, except one that the ALJ characterized as “disingenuous.” The ALJ further found that the claimant was repeatedly billed by Dr. Cronin’s office for the outstanding balance, and that the bill was referred to a collection agency. Moreover, at $18.50 per day, the amount of the penalty was far below the permissible limit set by § 8-43-304(1) of $500.
Further, we believe that when considering the constitutional limits of a potential penalty, we should consider the legislative scheme underlying the Act. In 1991 the General Assembly significantly amended the Act, in many ways limiting litigation and benefits in an effort to reduce the costs of the workers’ compensation system. See Colorado AFL-CIO v. Donlon, 914 P.2d 396 (Colo.App. 1995). Those amendments, however, substantially increased the amount of penalties available under §8-43-304(1), from $100 per day to $500 per day. We infer from these amendments that the General Assembly intended greater penalties to deter conduct that, in part, increased litigation.
Considering these factors, we cannot say that the penalty imposed in this case was excessive or disproportionate to the insurer’s conduct. The ALJ did not abuse his discretion in fixing the amount of the penalty.
IT IS THEREFORE ORDERED that the ALJ’s order December 8, 2004 is affirmed.
INDUSTRIAL CLAIM APPEALS PANEL
___________________ Kathy E. Dean
___________________ Curt Kriksciun
Cory France, Loveland, CO, Radio Shack Stores, Loveland, CO, Michael Ketter, Liberty Mutual Insurance Company, Irving, TX, Kat Pennucci, Subsequent Injury Fund, Division of Workers’ Compensation — Interagency Mail, W.M. Busch, Jr., Esq., Loveland, CO, (For Claimant).
David G. Kroll, Esq., Denver, CO, (For Respondents).