Opinion
W.C. No. 4-439-660
April 28, 2003
FINAL ORDER
The respondent insurer (Liberty) seeks review of a Corrected Order of Administrative Law Judge Felter (ALJ) imposing penalties for failure timely to admit or deny liability, and failure to pay medical benefits and temporary disability benefits. Liberty argues, inter alia, that it was denied due process of law because it did not receive adequate notice of the issues to be adjudicated. We agree, and set the order aside.
In January 2002, the claimant filed an application for a hearing and placed an "X" next to the issues of medical benefits-related to injury, and penalties-other violations. In a space labeled "OTHER ISSUES TO BE HEARD AT HEARING ARE:," the claimant made the following notation:
Penalties for bad faith adjusting for failure to reimburse Claimant for prescriptions, mileage, medical bills paid and lost time from work due to 5-16-00 surgery; Payment of outstanding medical bills to Memorial Hospital, Penrose Hospital Emergency Room ( 11-27-99), HealthSouth, Dr. Timothy Hart.
The respondent filed a response to the application for hearing. The response contains the following notation:
The application does not state a claim for a penalty. It is unclear what statute, rule or order is asserted to have been violated.
A hearing was conducted on September 3, 2002. Liberty's counsel reiterated the objection to proceeding on any claim for penalties stating the claimant was seeking penalties for "bad faith adjusting" and that this was inadequate to clarify the basis of the claim. The claimant's counsel responded there had been discovery, including a deposition of an adjuster, and the claimant explained exactly what the claimant was complaining about. The ALJ ruled, as a preliminary matter, that he lacked jurisdiction to rule on "bad faith adjusting," but held the application for hearing and discovery were sufficient to notify Liberty of the basis of the claim for penalties.
On September 30, 2002, the ALJ entered an initial order assessing penalties. The ALJ ruled the claimant was not required to cite statutes or rules "chapter and verse" in order to adequately notify Liberty of the basis of the claim for penalties. Instead, the ALJ ruled that a "reasonable person" reviewing the application for hearing on penalties would have known the claimant was seeking penalties for failure to pay medical benefits and lost time benefits in accordance with the Workers' Compensation Act and the Workers' Compensation Rules of Procedure. That, taken with the fact the claimant made demands for payment of medical expenses and/or temporary disability benefits in late 2000 and early 2001, convinced the ALJ that Liberty was given notice of the allegations that it was required to defend against.
The ALJ then imposed penalties, pursuant to § 8-43-401(2)(a), C.R.S. 2002, because Liberty refused to pay various medical benefits within thirty days of the date the bills were submitted to Liberty. This amounted to a penalty of $83.19, or 8 percent of the wrongfully withheld medical expenses.
The ALJ also found that claimant's counsel mailed a letter to Liberty's counsel on February 9, 2001, requesting payment for 24.75 hours of lost time, which the claimant allegedly sustained following a surgery during the week of May 15, 2000. The ALJ found that contrary to § 8-42-105, C.R.S. 2002, and/or § 8-42-106, Liberty did not respond to this request and raised no persuasive explanation or excuse for the failure to pay the temporary disability benefits within 20 days of the request. Thus, the ALJ imposed penalties of $300 per day from March 1, 2001, through July 9, 2002, the date the benefits were finally paid. The aggregate penalty was $148,500. The ALJ rejected Liberty's statute of limitations argument, finding Liberty waived the issue by failing to plead it.
The ALJ also found the insurer failed to admit or deny liability within 20 days of learning of the February 2001 request for temporary disability benefits. Consequently, relying on § 8-43-203(1)(a), C.R.S. 2002, the ALJ imposed penalties of one day's compensation for 365 days, or a total of $9,116.66.
Liberty moved for a corrected order, arguing that the claimant filed an application for hearing in October 2000 requesting temporary disability benefits. Liberty reasoned by that date the claimant knew or reasonably should have known of the claim for penalties based on Liberty's failure to pay the requested temporary disability benefits. Liberty also argued it had admitted and/or denied liability as required by § 8-43-203(1)(a). In support, Liberty attached to its motion a copy of the claimant's October 2000 application for hearing, November 2000 discovery responses, and a Final Admission of Liability dated May 15, 2001, in which the respondent admitted liability for temporary total disability benefits from January 26, 2000, through February 9, 2000.
On October 17, 2002, the ALJ entered the Corrected Order currently under review. The Corrected Order did not significantly alter the ALJ's final order, except to note the claimant applied for a hearing on temporary disability benefits in October 2000, and that the claimant did not file the application for hearing seeking penalties until February 12, 2002, more than one year after the claimant knew or reasonably should have known the payment of temporary disability benefits was untimely. These additional findings were apparently based on the Motion for Corrected Order and accompanying documents filed by Liberty.
On review Liberty contends, inter alia, that the assessment of penalties in this case denied procedural due process because Liberty was not sufficiently notified of the basis of the claim(s) for penalties prior to the hearing. We agree with Liberty's argument.
The fundamental requirements of due process are notice and an opportunity to be heard. Due process contemplates that the parties will be apprised of the evidence to be considered, and afforded a reasonable opportunity to present evidence and argument in support of their positions. Inherent in these requirements is the rule that parties will receive adequate notice of both the factual and legal bases of the claims and defenses to be adjudicated. See Hendricks v. Industrial Claim Appeals Office, 809 P.2d 1076, 1077 (Colo.App. 1990).
The ALJ's conclusion notwithstanding, we hold the claimant's application for hearing did not sufficiently notify Liberty of the legal bases of the claims for penalties which were ultimately assessed by the ALJ. The application for hearing identified the failure to pay various medical benefits and a period of temporary disability benefits in May 2000 as the factual bases for the imposition of penalties. The application also identified "bad faith adjusting" as the legal basis for imposing penalties.
Under these circumstances, Liberty's response to the application for hearing stated the defense that "bad faith adjusting" does not provide a legal basis for imposing penalties under the Act. In fact, we have previously held the Act does not contain any statute authorizing the imposition of penalties for acts allegedly constituting "bad faith adjusting." To the contrary, the imposition of penalties is restricted to the violation of provisions of the Act or orders, while damages for bad faith adjusting are left to the civil law and courts. See Allison v. Industrial Claim Appeals Office, 916 P.2d 623 (Colo.App. 1995). Villa v. Wayne Gomez Demolition and Excavating, Inc., W.C. No. 4-236-951 (January 7, 1997).
At the hearing, the ALJ correctly recognized that the claim for penalties based on "bad faith adjusting" was beyond his jurisdiction. However, the ALJ concluded, based on the contents of the application for hearing and the course of discovery and depositions, that Liberty should reasonably have recognized the claim for penalties was actually based on violations of previously unidentified provisions of the Act and Rules of Procedure.
However, we find the ALJ's reasoning to be unpersuasive. First, the application for hearing and the course of discovery and depositions were perfectly consistent with the claimant's stated legal theory of "bad faith adjusting." Indeed, the entire course of discovery, including the deposition of the adjuster, focused on Liberty's alleged failure to respond to various letters inquiring about the medical benefits and temporary disability benefits. Although Liberty might or might not have recognized that these actions, if proven, could constitute violations of various provisions of the Act or rules, it was not required to assume that the claimant was raising such legal theories as the basis of the claim for penalties. Neither was Liberty required to foresee that at the time of the hearing the ALJ would shift the entire legal basis of the inquiry away from "bad faith adjusting" and focus on whether or not Liberty violated any of the previously unidentified statutes and rules.
Neither do we view the failure to notify Liberty of the specific bases of the claims for penalties as harmless. With respect to the failure to pay medical bills and benefits, there was no specificity concerning the legal basis of the claim until the ALJ identified, at least inferentially, § 8-43-401(2)(a), C.R.S. 2002 (penalty of 8 percent of wrongfully withheld medical benefits) as the grounds on which he might choose to impose penalties. (Tr. P. 8).
We note that failure to pay medical benefits in a timely fashion and in accordance with the Rules of Procedure may provide the factual basis for the imposition of penalties under any number of theories, many of which do not involve § 8-43-301(2)(a). Giddings v. Industrial Claims Office, 39 P.3d 1211 (Colo.App. 2001) (imposing penalties under § 8-43-304(1) for violation of an order to pay medical benefits, and indicating rules issued by the Director may constitute "orders"). Indeed the Giddings court stated that when the issue involves the payment of medical benefits pursuant to an order, the "ALJ may, in his or her discretion, order penalties based on either statute." Id. At 1213. We note the Director of the Division of Workers' Compensation has adopted extensive, detailed regulations governing requests for the payment of medical benefits. Rule of Procedure XVI, 7 Code Colo. Reg. 1101-3 at 70-84.01. Significantly, each legal theory for the imposition of penalties, whether predicated on § 8-43-401(2)(a) or § 8-43-304(1) for violation of the Act or Rules of Procedure, is subject to specific and unique defenses depending on the particular theory and statute employed. Here, the important point is that Liberty was entitled to reasonable notice of the specific legal bases of the claims for penalties in order that it be given a fair opportunity to prepare the appropriate defenses.
In the context of this case, we cannot say that Liberty was afforded fair notice that the ALJ would rely on § 8-43-401(2)(a) as the basis for the imposition of penalties for the failure to pay the medical benefits. Liberty did not call any witnesses, and the adjuster deposed by the claimant was not the adjuster on the claim when the medical bills were originally submitted for payment. If Liberty had known the penalties were to be adjudicated under § 8-43-401(2)(a) rather than the legally indefinite "bad faith adjusting" theory, Liberty might have presented additional evidence or testimony bearing on its actions. Conversely, Liberty may have concluded additional testimony or evidence was not required in light of the legal theory actually advanced by the claimant before the hearing. Liberty was certainly not afforded a fair opportunity to decide what evidence and testimony to present because it received inadequate notice of the legal theory on which penalties were ultimately imposed.
Similarly, the ALJ denied procedural due process by altering the basis of the claim for penalties predicated on Liberty's failure to pay temporary disability benefits. As Liberty argues, it had a potentially valid defense to the claim for penalties under § 8-43-304(1) based on the statute of limitations contained in § 8-43-304(5), C.R.S. 2002. Indeed, the ALJ's Corrected Order strongly hints that the defense would have prevailed but for Liberty's failure to plead the defense or raise it at the hearing.
However, Liberty's failure to raise the statute of limitations was itself a product of the inadequate notice of the basis of the claim for penalties. Because the stated basis of the claim was "bad faith adjusting," not a violation of § 8-42-105, Liberty did not know that § 8-43-304(1) would provide the ultimate basis of the award, or what specific actions might have triggered the running of the statute of limitations.
Neither did Liberty's actions at the hearing constitute a waiver of the statute of limitations defense. Where, as here, the ALJ shifts the entire basis of the claim and identifies a new statutory basis for the imposition of penalties, the respondent is not tasked with immediately recognizing and advancing every defense which, upon later reflection, might be applicable. Moreover, Liberty's counsel objected to proceeding on any penalty issue except the theory of "bad faith adjusting," and we do not construe any action by Liberty's counsel as tacit agreement to try the penalty claims under the statutes identified by the ALJ. The ALJ's ruling notwithstanding, it was not Liberty's responsibility to determine the basis of the claim for penalties was other than that stated in the application, nor to consent to trying issues other than the one raised in the claimant's application for hearing. See Bill Dreiling Motor Co. v. Shultz, 168 Colo. 59, 450 P.2d 70 (1969) (amendment to pleadings to conform to the evidence permitted only if there is no reasonable doubt issue was intentionally and actually tried).
Finally, we agree with Liberty that the issue of penalties under § 8-43-203(1)(a) (failure timely to admit or deny liability) was not sufficiently pled for purposes of providing the requisite notice. On the application for hearing the claimant did not place an "X" in the space which identifies the issue of penalties for "failure to admit/deny." Moreover, the ALJ did not raise the issue at the time of the hearing. The first notice that the ALJ was considering the imposition of penalties for failure timely to admit or deny liability was when the ALJ issued the first order. It follows that Liberty was not given sufficient notice of this issue to meet standards of procedural due process.
Moreover, the record suggests Liberty had at least a partial defense against the imposition of penalties for failure timely to admit or deny. The assessment of penalties for failure timely to admit or deny was predicated on the letter which claimant's attorney sent to Liberty's attorney on February 9, 2001. (Corrected Order, Finding of Fact 9; Conclusion of Law d). However, the Motion for Corrected Order filed by Liberty after the ALJ's first order alleges that on May 15, 2001, Liberty filed an Admission of Liability admitting for a period of temporary disability benefits. However, because the issue of penalties for failure timely to admit or deny liability was not timely raised, Liberty was not afforded a fair opportunity to present this evidence at the time of the hearing.
Under these circumstances, the ALJ's Corrected Order assessing penalties must be set aside. Liberty did not receive sufficient notice of the bases of the claims for penalties to satisfy standards of due process. In light of this determination, we need not reach Liberty's remaining arguments.
We have considered the claimant's argument that the allegations and attachments to the Motion for Corrected Order may not to be considered evidence in the case because they were not presented at the time of the hearing. It is perhaps true that these documents are not properly considered to be "evidence" in the case. However, they are part of the pleadings contained in the record and are relevant to the issue of whether Liberty was accorded due process of law. We have considered the documents for this purpose. Cf. Delaney v. Industrial Claim Appeals Office, 30 P.3d 691 (Colo.App. 2000) (court considers contents of post-hearing DIME report in determining whether claimant denied due process by ALJ's refusal to consider the report).
IT IS THEREFORE ORDERED that the ALJ's Corrected Order dated October 17, 2002, is set aside.
INDUSTRIAL CLAIM APPEALS PANEL
___________________________________ David Cain
___________________________________ Kathy E. Dean
NOTICE
This Order is final unless an action to modify or vacate this Order is commenced in the Colorado Court of Appeals, 2 East 14th Avenue, Denver, CO 80203, by filing a petition for review with the Court, within twenty (20) days after the date this Order is mailed, pursuant to § 8-43-301(10) and § 8-43-307, C.R.S. 2002. The appealing party must serve a copy of the petition upon all other parties, including the Industrial Claim Appeals Office, which may be served by mail at 1515 Arapahoe Street, Tower 3, Suite 350, Denver, CO 80202.
Copies of this decision were mailed April 28, 2003 to the following parties:
Carlee Carson, 7655 Pinery Circle, Colorado Springs, CO 80908
Academy School District #20, 7610 N. Union Blvd., Colorado Springs, CO 80920
Jennifer Thompson, Liberty Mutual Insurance, 10770 E. Briarwood Ave., #200, Englewood, CO 80155
Kat Pennucci, Special Funds, Tower 2, #630, Division of Workers' Compensation — Interagency Mail
Steven U. Mullens, Esq., P. O. Box 2940, Colorado Springs, CO 80901-2940 (For Claimant)
David G. Kroll, Esq., 1120 Lincoln St., #1606, Denver, CO 80203 (For Respondents)
By: A. Hurtado