Opinion
BOARD No. 03148693
Filed: May 7, 1998
REVIEWING BOARD DECISION
(Maze-Rothstein, Judges McCarthy and Smith).
APPEARANCES
Thomas C. McDonough, Esq., for the employee.
Jean M. Shea, Esq., for the insurer at hearing.
Allen Whitestone, Esq., for the insurer on brief.
The insurer's appeal challenges the propriety of penalties imposed. The underlying decision ordered G.L.c. 152, § 8(1) sanctions for noncompliance with the terms of a prior hearing decision; imposed § 14(1) costs and double back benefits for defending a claim without reasonable grounds; and awarded the employee a § 13A attorney's fee. The insurer submits that the § 8(1) penalty was based on a factual conclusion that lacked any support in the record, and that both the § 14(1) sanction and the attorney's fee award were erroneous as a matter of law. We agree. The decision is reversed and the case is recommitted for further findings.
The error in this case began with an inaccurate compensation rate assigned in a prior hearing decision dated July 20, 1995. The employee was a 60 year-old union waterproofer when he was injured at work on August 4, 1993. The insurer accepted this work injury and paid the employee § 34 benefits in the amount of $543.30 based on his average weekly wage of $1010.83. Eventually, the insurer sought to modify the benefits from § 34 total to a § 35 partial entitlement. Following a § 10A conference, the judge assigned a $280.00 earning capacity and ordered § 35 benefits payment at the rate of $438.50. Realizing there was an error in the calculation of the § 35 award, the insurer filed a motion requesting an amended order. The judge allowed the motion and issued an amendment correcting the § 35 rate to $407.48 (75% of the § 34 rate). (Dec. 6.) See G.L.c. 152, § 35 (partial incapacity benefits shall not be "more than seventy-five percent of what such employee would receive if he or she were eligible for total incapacity benefits" under § 34).
The employee appealed to a hearing de novo. A decision issued on July 20, 1995, dismissing the insurer's complaint for modification and directing it to resume payment of § 34 benefits retroactive to the date of injury. However, the actual § 34 compensation rate was erroneously stated in the decision as $407.48 (the § 35 rate) rather than $543.30 (the true § 34 rate). The insurer continued to pay the employee $407.48 per week. The insurer appealed this decision to the reviewing board.
Several months later, the employee notified his attorney that he was still receiving partial incapacity benefits instead of the § 34 award ordered. On November 17, 1995, he filed a claim for payment of the § 34 benefits, and penalties under §§ 8(1) and (5). (Dec. 6.) The insurer resisted this claim, but prior to conciliation paid the attorney's fee and costs awarded by the July 1995 decision. Meanwhile, on December 12, 1995, the insurer withdrew its appeal of the 1995 hearing decision, and the reviewing board issued a memorandum of disposition acknowledging the withdrawal. (Dec. 6.)
The record reveals that the employee also claimed medical benefits under §§ 13 and 30, attorney's fees under § 13A and a § 51 adjustment to his average weekly wage.
At conference on the claim for payment of the correct § 34 rate together with penalties, the same judge who had issued the prior hearing decision apologized for the "scrivener's error" and "chided" both counsel for not bringing the error to his attention immediately for correction. (Dec. 7.) He then ordered the insurer to pay retroactively the correct § 34 benefit and ordered it to pay § 14(1) double back benefits and costs for waging a defense without reasonable grounds; awarded § 50 interest on the additional compensation due; and awarded employee's counsel a one-half fee. (Dec. 7-8.)
The insurer appealed to a hearing de novo. At hearing, the employee's only claim was for penalties via §§ 8(1), 8(5) and 14(1), which the insurer denied. There was no further contest on the § 34 rate. Testimony was had from the employee and from the insurer's case manager. Despite the "scrivener's error" regarding the benefit rate, the judge found that:
. . . [E]ven a cursory reading of the Decision clearly indicates: that the employee had prevailed in his appeal at the Hearing de novo; that he was temporarily and totally disabled; that the insurer was ordered to "resume paying 34 benefits . . . based on an average weekly wage of $1010.83"; and that "the insurer's request to modify benefits be and is, denied and dismissed.
(Dec. 8.)
With that the judge imposed a $10,000 § 8(1) penalty on the insurer for failure to comply with all the terms of the 1995 decision and for not paying the benefits ordered within ninety days. (Dec. 12.) Noting that untimely payment of attorney's fees and expenses does not trigger the penalty provisions, the judge nevertheless found that the "egregious nature of the insurer's refusal to comply with all the terms of [the decision] . . . warrants imposition of the appropriate penalty under § 8(1) in the amount of $10,000.00 for failure to pay ordered benefits within ninety days." (Dec. 11.)
To justify his order of a § 14(1) penalty for asserting an unreasonable defense, the judge wrote:
Based solely upon those portions of the documentary evidence before me at Hearing that also were offered by the employee at the April 1996 Conference and those Department records in the Board File (of which I have taken Judicial Notice), I find that no outcome in this matter other than awarding the employee § 34 benefits in the correct amount of $543.30 was possible. I also find that Liberty Mutual was, or should have been, aware of this sole outcome when they withdrew their appeal to the Reviewing Board in December 1995. Therefore, I find that the assessment of penalties under § 14(1) for defending a claim without reasonable grounds at the April 2, 1996 Conference was an appropriate determination and should have brought closure to the dispute.
. . . .
I further find that the insurer has offered no new evidence nor legal argument at this Hearing de novo which could alter this sole outcome. I therefore find that these additional proceedings at Hearing represent an additional instance of defending a claim without reasonable grounds . . .
(Dec. 9-10.)
He then awarded a full hearing fee to employee's counsel.
On appeal the insurer argues that the § 8(1) penalty hinged on key factual findings for which there was no supporting evidence. We agree. In addition one finding was based on a violation of the attorney-client privilege.
Only an insurer's failure to promptly pay all benefits due an employee under the terms of an order, decision, or agreement warrants assessment of § 8(1) penalties. The phrase "all payments due an employee" means only those monies paid directly to the employee. Diaz v. Western Bronze Co., 9 Mass. Workers' Comp. Rep. 528 (1995). Thus, the section does not apply to late payment of medical bills owed to medical providers, Id., to late payment of an attorney's fee, Cordeiro v. Friendly Ice Cream, 10 Mass. Workers' Comp. Rep. 478, 480 (1996) or to costs owed to the employee's attorney. Ngo v. Jeffco Fibres Inc., 10 Mass. Workers' Comp. Rep. 286 (1996), aff'd. Ngo's Case, 12 Mass. App. Ct. 1108 (1997) (Smith, single justice). In the case at bar, a § 8(1) penalty can only apply to the failure to timely pay the appropriate § 34 benefits rate to the employee.
General Laws § 8(1) reads in pertinent part:
Any failure of an insurer to make all payments due an employee under the terms of [a] . . . decision, . . . within fourteen days of the insurer's receipt of such document, shall result in a penalty of two hundred dollars, payable to the employee to whom such payments were required to be paid by the said document; provided, however, that such penalty shall be one thousand dollars if all such payments have not been made within forty-five days, two thousand five hundred dollars if not made within sixty days, and ten thousand dollars if not made within ninety days.
Amended by St. 1991, c. 398, §§ 23 to 25.
Though, as noted above, the judge seemed to be aware that late payments of attorney's fees and expenses is not a sustainable basis for an order of penalty, he nevertheless appeared to dwell on the insurer's delay in this area in assessing a § 8(1) penalty. He wrote:
I find Liberty Mutual failed to pay the (non-disputed) fees and expenses ordered by the Decision of July 20, 1995 until January 4, 1996 — five months beyond the statutory requirement of § 8(1). 452 CMR 1.05(3) clearly states: "Orders, decisions, arbitrator's decisions and agreements for compensation are not divisible and failure to comply with all relevant terms thereof in a timely fashion shall, where applicable, constitute a violation under M.G.L.c. 152, § 8(1)." The Reviewing Board has held that failure to pay medical providers, or attorneys does not trigger a penalty. [See Ruiz's Case.] However, no penalty under this provision was assessed against the insurer at Conference for failure to pay the employee his full § 34 benefits, as well as the ordered fees and expenses, that issue is still properly before me upon appeal. The egregious nature of the insurer's refusal to comply with all the terms of that Decision, as convincingly demonstrated at this Hearing, warrants imposition of the appropriate penalty under § 8(1) in the amount of $10,000.00 for failure to pay ordered benefits within ninety days.
(Dec. 10-11.) (Emphasis added.)
To the extent that the § 8(1) penalty is based on late payment of attorney's fees and expenses, it is contrary to law, and is reversed.
"Findings made must be adequately supported by the evidence and inferences drawn therefrom must be reasonable." Moretti v. Moretti Construction Co., 10 Mass. Workers' Comp. Rep. 98, 99 (1996), citing Judkins's Case, 315 Mass. 226, 228 (1943). Absent such support, findings are arbitrary. Id. "If the factual finding goes to a central contention of the case, then it prejudices a party's substantial rights. . . . Errors which injuriously affect substantial rights of a party vitiate the decision, mandating a new hearing." Brown v. Strathmore Paper Co., 9 Mass. Workers' Comp. Rep. 191, 196 (1995).
In determining that the insurer failed to pay the correct § 34 amount, the judge erred by making key findings of fact with no basis in the record. He erroneously found that the employee had tried to resolve the issue of the incorrect § 34 payment with the insurer prior to filing a claim for penalties. (Dec. 6.) He wrote "[a]fter unsuccessfully attempting to resolve the result of what appeared to be an obvious typographical error by the Administrative Judge, the employee's counsel notified Liberty Mutual by Certified Mail on November 17, 1995 that he was filing a claim for the benefits due, plus penalties under § 8(1) and § 8(5)." (Dec. 6.) He further found that the insurer's case manager was aware of the scrivener's error regarding the rate, and was aware that "the previously used mechanism of a Motion to the Administrative Judge was available to resolve this claim before litigation commenced." (Dec. 10.) The insurer correctly maintains that there is no support in the record for either of these findings.
The only evidence on point in the record is as follows. The employee testified that he contacted his attorney approximately two months after he received the 1995 hearing decision, and informed him that he was still receiving checks at his § 35 rate. (Tr.22-23.) The insurer's case manager testified that she first became aware that the decision had specified an incorrect § 34 rate in December 1995, after the employee filed his claim. (Tr. 34-35, 42, 53, 99.) There was absolutely no evidence introduced to show that, prior to filing the penalties claim, the employee had attempted to reach an agreement with the insurer to correct the benefit rate. Moreover, nothing in the record affirmatively indicates that the insurer, on its own, had found that mistake prior to said filing. The findings made were central to the § 8(1) determination; but they diametrically oppose the actual evidence.
The judge was quite correct that the appropriate action for counsel was the one not taken — to notify him immediately when the error came to light and to request an amended order of payment. (Dec. 7.) However, he seems to fault the insurer's attorney because when the conference order § 35 rate awarded was too high, the insurer lost no time in requesting an amended order, which was granted. (Dec. 10.) But it was the employee himself who first realized the error and notified his counsel approximately two months after the filing of the 1995 decision. During the additional two months that elapsed prior to filing a penalty claim, the employee's attorney could have contacted the judge to request an amended decision. He represented the employee when the insurer sought correction of the conference order and was equally aware — or should have been — of this option.
A second area of § 8(1) findings lacks any support in the record. Moreover, the error was compounded by an invasion of the attorney-client privilege. The judge encroached on this privilege in a finding, which erroneously assumed discussions on handling of the case between the insurance case manager and its attorney. To wit:
. . . [B]y her own testimony . . . she [the case manager] was fully aware of the four Findings/Orders . . . [regarding payment and award of § 34 benefits] when she discussed with Liberty Mutual's Attorney . . . both the withdrawal of the insurer's appeal before the Reviewing Board and the attempts by employee's counsel to resolve the matter without litigation before the Department.
(Dec. 9.)
The record reveals that there was no testimony admitted regarding any conversations between the case manager and the insurer's attorney with one inconsequential exception. The employee's counsel attempted to elicit testimony from the insurer's case manager about her discussions with the insurer's attorney regarding whether to pay the employee the correct § 34 rate. (Tr. 64.) The judge overruled the insurer's objections on the basis that no attorney-client privilege existed because both the attorney and the case manager worked for the insurer. (Tr. 66.) A lengthy colloquy ensued (Tr. 66 — 81), which culminated in the witness' not responding to the objectionable questions and finally invoking the attorney-client privilege herself. (Tr. 81.)
There was an affirmative answer, to a question about whether the reviewing board appeal was withdrawn after consultation. (Tr. 54.)
During the exchange, the judge suggested to the insurer's attorney that she might want to be represented by counsel so she could testify. (Tr. 71.) He also threatened that if she continued to invoke the attorney-client privilege in an area which he thought was questionable, ". . . [y]ou should be aware that you may get what you asked for. And if your witness does not testify fully and answer questions, legitimate questions under cross-examination, that her whole testimony might indeed be stricken" pursuant to the employee's motion. (Tr. 74-75.) The judge never ruled on the motion to strike the witness' testimony.
The attorney-client privilege is intended to "encourage full and frank communication between attorneys and their clients and thereby promote broader public interests in the observance of law and administration of justice." Upjohn Co. v. United States, 449 U.S. 383, 389 (1981). The privilege may be exercised at the option of the client. See Pannell v. Rosa, 228 Mass. 594, 596-597 (1917). "Client" may mean an agent or employee of a client. Ellingsgard v.Silver, 352 Mass. 34 (1967). The attorney-client privilege may thus apply to communications between a corporation's counsel and its employees. Upjohn Co. v. United States, supra at 386, 389-397.
Here, the fact that no testimony in a privileged area was admitted over the objections was due solely to the strenuous efforts of the insurer's counsel, and not to any respect for the privilege exhibited by the judge. The decision to impose § 8(1) penalties is arbitrary. We reverse it.
The insurer asserts as well that the imposition of a § 8(1) penalty in the context of a decision whose orders are irreconcilably inconsistent is contrary to law. We agree.
Punitive statutes must be narrowly applied. Collatos v. Boston Retirement Board, 396 Mass. 684 (1986). "It is an ancient rule . . . that in order to charge a party with a penalty, he must be brought within its operation, as manifested by express words or necessary implication." Id. at 686-687. Section 8(1) authorizes penalties where an insurer fails "to make all payments due an employee under the terms of a . . . decision." G.L.c. 152, § 8(1). (Emphasis added). Aware of this statutory language, the judge assigned § 8(1) penalties for the "egregious nature of the insurer's refusal to comply with all the terms" of the decision. (Dec. 11.) (Emphasis added). The conundrum of course, was the impossibility of literal compliance with all of its terms. Payment of the correct § 34 rate would have ignored the incorrect figure also ordered. As a matter of law, under such circumstances, use of § 8(1) is an inappropriate remedy. Nonetheless, since the decision was otherwise clear as to the total incapacity benefits awarded, the reasonableness of the insurer's actions are properly called into question. This brings us to the issue of § 14(1).
The employee also raised § 8(5) penalties are hearing. The decision lists the issue (Dec. 2) but disposes of it as inapplicable because of the § 8(1) award. (Dec. 12.) See DeFilippo v. Univ. of Mass/Amherst, 11 Mass. Workers' Comp. Rep. 383 (1997) (§ 8(1) and § 8(5) concurrent awards). The statutory language for § 8(1) and (5) differ in the particular discussed here. The employee has not appealed. We decline to reach any issue as to § 8(5)'s application to the facts of this case.
The insurer contends that the judge applied an incorrect legal standard in awarding costs and double back benefits pursuant to § 14(1). It alleges that assessment of § 14 penalties was premised on the legal error that the argument made at hearing was the same one advanced at conference. We agree that the use of the same argument at those two distinct levels of the dispute resolution process will not per se support a § 14(1) penalty.
Section 14(1) provides for a penalty where proceedings have been defended by an insurer without reasonable grounds. We have been guided in our interpretation of this statute by an analogous statute, G.L.c. 231, § 6F, which provides for an award of counsel fees and costs where the prosecution or defense of a claim has been "wholly insubstantial, frivolous and not advanced in good faith." Brown v. Massachusetts Correctional Inst. — Norfolk, 10 Mass. Workers' Comp. Rep. 58, 60 (1996). We have consistently stated that § 14 penalties are to be cautiously imposed. See, e.g.Ruiz v. Beaumont Nursing Home, 11 Mass. Workers' Comp. Rep. 417, 419 (1997).
General Laws, c. 152, § 14(1) provides, in pertinent part:
. . . [I]f any administrative judge or administrative law judge determines that any proceedings have been brought, prosecuted, or defended by an insurer without reasonable grounds:
(a) the whole cost of the proceedings shall be assessed upon the insurer; and
(b) if a subsequent order requires that additional compensation be paid, a penalty of double back benefits of such amount shall be paid by the insurer to the employee, and such penalty shall not be included in any formula utilized to establish premium rates for workers' compensation insurance.
Here, the decision that the insurer defended without reasonable grounds appears to be based on a finding that it offered no new evidence or arguments at the hearing which could have changed the outcome of the case. (Dec. 10.) The judge also stated that his assessment of penalties at conference should have ended the dispute. (Dec. 9-10.) This ignores the fact that a party is entitled, as a matter of right, to an evidentiary hearing under § 11 and § 11B. A conference does not confer the twin due process safeguards of cross-examination and sworn testimony, which are integral to the hearing proceeding. Hendricks v. Federal Express, 10 Mass. Workers' Comp. Rep. 660, 662-663 (1996). "[T]here is no sworn testimony, witnesses are not heard, no record is created, and orders are not 'supported by reasoned opinion[s].'" Id., quoting Heredia v. Simmons Co., 10 Mass. Workers' Comp. Rep. 490, 492 (1996). "Since the hearing is a de novo proceeding and not an extension or continuation of the conference, the conference order is not part of the hearing evidence and should not in any way bear on the judge's ultimate disposition of the case." Grande v. T. Equipment Constr. Co., 10 Mass. Workers' Comp. Rep. 379, 381 (1996).
Here, the judge did not treat the hearing as a de novo proceeding. Rather, he treated both the conference and hearing as unitary. This is clear error. Parties should not be subjected to § 14 penalties for reasonably exercising their due process right to a § 11 hearing. If § 14 penalties are to be assessed, there must be a finding, supported by the evidence, that the insurer had no reasonable grounds on which to defend the case, not merely that it made the same arguments at hearing as at conference. We, therefore, reverse the award of § 14(1) penalties on this basis, and recommit the case for further findings on this issue.
Whether there was a § 14(1) violation may lead the judge to this query: in tying the correction of the judge's clerical error to the penalty did either or both counsel act unreasonably?
Finally, the insurer challenges the award of a § 13A(5) attorney's fee at hearing. Given the outcome arrived at here, we need go no further than to say, there is no fee entitlement yet. See Talbot v. Stanton Tool Mfg. Inc., 11 Mass. Workers' Comp. Rep. ___ (October 30, 1997). We therefore reverse the fee award and recommit that issue.
So ordered.
____________________ Susan Maze-Rothstein Administrative Law Judge
____________________ William A. McCarthy Administrative Law Judge
____________________ Suzanne E.K. Smith Administrative Law Judge
Filed: May 7, 1998