Opinion
W.C. No. 4-540-553.
March 21, 2007.
FINAL ORDER
The claimant seeks review of an order on remand of Administrative Law Judge Stuber (ALJ) dated September 26, 2006 that denied statutory penalties for the employer's alleged unreasonable refusal to approve a settlement with a third-party tortfeasor. We affirm.
The order presently under review was entered by the ALJ pursuant to a remand from the court of appeals. ALJ Mattoon previously entered an order striking the claimant's application for hearing on the issue of penalties. The claimant had sought a hearing on penalties for the employer's alleged refusal to approve a settlement of the claimant's third party suit against a tortfeasor who allegedly caused her compensable injury. The claimant sought review of ALJ Mattoon's order striking the application for hearing and a panel of the Industrial Claim Appeals Office affirmed. The Colorado Court of Appeals set aside our order, however, and remanded with instructions to permit the claimant to go to hearing on the penalties issue.
A hearing was held therefore held on remand on the issue of whether the claimant was entitled to statutory penalties under § 8-43-304, C.R.S. 2006 for the respondent's alleged violation of § 8-41-203(2), C.R.S. 2006. Following the hearing, the ALJ entered findings of fact that for the purposes of this order may be summarized as follows. The claimant sustained compensable injuries on April 23, 2002, when she was bitten by a dog while performing her job duties as a meter reader. The employer admitted liability and paid workers' compensation benefits. The claimant retained Steven Mullens, Esq. (Mullens) to represent her in the workers' compensation proceeding and Lee Rosenbaum, Esq. (Rosenbaum) to represent her in the third party proceeding against the owner of the dog. Joseph Irwin, Esq. (Irwin) represented the self-insured employer for purposes of its subrogation lien with regard to the claimant's third-party suit. In October 2002, and March 2003, Irwin sent letters to Rosenbaum requesting information concerning the third party suit. Rosenbaum failed to respond to either. However, following another letter in August 2003, Rosenbaum telephoned Irwin, who offered on behalf of the employer to waive any subrogation rights against the proceeds of the third party suit in return for a waiver by the claimant of any further workers' compensation benefits. Irwin believed that he insisted upon a settlement of "all claims," while Rosenbaum did not recall any discussion of any claim but the workers' compensation claim. Rosenbaum and the third party's insurance carrier eventually settled the third-party suit for $49,500. Rosenbaum and Mullens had discussed Irwin's offer to settle the workers' compensation claim in exchange for a waiver of all subrogation rights. Rosenbaum telephoned Irwin and related to him that Mullens wanted additional money in order to settle the claim. Irwin declined that counter-offer. On October 1, 2003, Mullens and Irwin met at a hearing scheduled on the issue of penalties for the employer's alleged refusal to admit for disfigurement benefits. During their discussions, Mullens made a demand for $2000 for disfigurement and Irwin rejected that offer. Mullens then stated to Irwin that the claimant would accept his previous proposal. The ALJ resolved conflicting evidence and expressly found that, at that time, Irwin did not raise any other claims that were being waived in the settlement. On October 2, 2003, Irwin sent to Rosenbaum a proposed written stipulation that contained a provision waiving "any and all claims" including bad faith claims. Rosenbaum sent the proposed stipulation to Mullens, who crossed out the paragraph waiving other claims and sent the stipulation back to Rosenbaum, who then sent it back to Irwin. On November 6, 2003, Irwin communicated to Rosenbaum that the employer would not agree to the deletion of the disputed language. Although Rosenbaum was amenable to the waiver of all claims, Mullens refused to agree to the proposed language. On November 7, 2003, Rosenbaum was in receipt of Irwin's correspondence and was aware that a "problem" existed with the settlement of the workers' compensation claim. During this time, Rosenbaum was negotiating with the insurer liable on the third-party suit. Sometime around December 5, 2003, Rosenbaum agreed to the settlement of the third party suit, although the workers' compensation claim had not by then been settled. The claimant executed the release on January 12, 2004, and Rosenbaum received the funds disbursed by the alleged tortfeasor's carrier, a portion of which he has retained in a trust account. On January 5, 2004, Irwin inquired by letter to Rosenbaum regarding the status of the third-party suit and any settlement. Rosenbaum informed Irwin at that time that the suit had settled. On November 23, 2003, the claimant applied for a hearing to compel the employer to "honor" the settlement agreement resolving the workers' compensation claim. Pursuant to the employer's motion, that application for a hearing was stricken and the claimant did not appeal that order.
The ALJ further expressly found that the employer did not unreasonably refuse to approve the settlement with the third party tortfeasor. The ALJ noted that the settlement was for an amount greater than the lien, and that nothing the employer did impeded or otherwise affected the settlement of the third party suit. The ALJ found that the claimant did not provide notice to the employer of the settlement until after it was entered into and finalized by execution of the written agreement and disbursement of the proceeds of the settlement.
Based upon his factual findings, the ALJ concluded that the claimant was not entitled to penalties pursuant to § 8-43-304. The ALJ concluded that the employer did not violate § 8-41-203(2) and that, in any event, no penalty under § 8-43-304 is available because § 8-41-203(2) specifically provides for a penalty, thereby making § 8-43-304 inapplicable.
The claimant appealed the ALJ's order and argues that the ALJ erred in refusing to impose a penalty for the employer's violation of § 8-41-203(2) and the "rule of reasonable refusal." Specifically, the claimant argues that the employer's refusal to execute the workers' compensation settlement in the form it was originally negotiated interfered with the claimant's right to settle the third-party suit because the two settlements were "a single agreement. . . each part contingent upon the other." Brief in Support of Petition to Review at 10. We disagree that the ALJ erred and therefore we affirm his order.
Whether statutory penalties may be imposed under § 8-43-304(1), C.R.S. 2006 involves a two-step process. That section provides for the imposition of penalties of up to $500 per day where the insurer
"violates any provision of articles 40 to 47 of [title 8], or does any act prohibited thereby, or fails or refuses to perform any duty lawfully enjoined within the time prescribed by the director or panel, for which no penalty has been specifically provided, or fails, neglects, or refuses to obey any lawful order made by the director or panel. . . ."
Therefore, the ALJ must first determine that the insurer's conduct constituted a violation of the Workers' Compensation Act (the Act), a rule, or an order. However, the conduct constituting the violation must also have been objectively unreasonable. Therefore, if the ALJ finds that a violation occurred, penalties may only be imposed if the ALJ concludes that the insurer's conduct was not reasonable under an objective standard. E.g., Colorado Compensation Insurance Authority v. Industrial Claim Appeals Office, 907 P.2d 676 (Colo.App. 1995). The reasonableness of the insurer's actions depends on whether it was predicated on a rational argument based in law or fact. Jiminez v. Industrial Claim Appeals Office, 107 P.3d 965 (Colo.App. 2003).
In reviewing the ALJ's order refusing to impose penalties, we are bound by his factual findings if they are supported by substantial evidence in the record. ?8-43-304(8), C.R.S. 2006; City of Durango v. Dunagan, 939 P.2d 496 (Colo.App. 1997). Substantial evidence is probative evidence which would warrant a reasonable belief in the existence of facts supporting a particular finding, without regard to the existence of contradictory testimony or contrary inferences. See F.R. Orr Construction v. Rinta, 717 P.2d 965 (Colo.App. 1985). The substantial evidence standard requires that we view evidence in the light most favorable to the prevailing party, and defer to the ALJ's assessment of the sufficiency and probative weight of the evidence. Thus, the scope of our review is "exceedingly narrow." Metro Moving Storage Co. v. Gussert, 914 P.2d 411 (Colo.App. 2003). This narrow standard of review also requires that we defer to the ALJ's resolution of conflicts in the evidence, credibility determinations, and plausible inferences drawn from the record. Wilson v. Industrial Claim Appeals Office, 81 P.3d 1117 (Colo.App. 2003).
Here, because the ALJ determined that the employer's conduct had not violated the Act, a rule, or an order, it was unnecessary for him to determine whether that conduct was objectively reasonable. Contrary to the claimant's arguments, we agree with the ALJ that the factual findings and the record do not establish a violation of § 8-41-203(2). The version of that subsection in effect at the time of the claimant's injury referred to a suit against a third party whose negligence or other wrong caused the injury and stated that:
"A compromise of any such cause of action by the employee or the employee's dependents at an amount less than the compensation provided for by articles 40 to 47 of this title shall be made only with the written approval of the manager of the Colorado compensation insurance authority fund, if the deficiency of compensation would be payable from the Colorado compensation insurance authority fund, and otherwise with the written approval of the person, association, corporation, or insurance carrier liable to pay the same." § 8-41-203(2), C.R.S. 2001.
In Eckhardt v. Village Inn, 826 P.2d 855 (Colo. 1992), the Colorado Supreme Court fashioned a "rule of reasonable refusal" which imposed upon a carrier an obligation to act reasonably when an injured employee requests approval of a settlement in a suit against a third-party tortfeasor. The court held that once the carrier has notice of the suit against the third party, the carrier "must fairly and reasonably evaluate the suit before refusing approval of the settlement." Eckhardt, 826 P.2d at 861. (As the ALJ noted, the statute has since been substantially amended, including the insertion of the express provision that "[s]uch written approval shall not be unreasonably withheld." 2003 Colo. Sess. Laws at 2615, ch. 406. Those amendments are specifically made applicable only to injuries occurring on and after July 1, 2003.)
We assume for purposes of our review that unreasonably withholding the employer's approval of the third-party settlement would violate the "rule of reasonable refusal" set forth in Eckhardt, and by implication would therefore constitute a violation of the Act for purposes of § 8-43-304(1). However, here the ALJ found, with ample factual support in the record, that the employer did not unreasonably refuse to approve the proposed settlement of third-party suit. Indeed, the ALJ also found, again with support in the evidentiary record, that the claimant only provided notice of the settlement after it had been finalized. And, as the ALJ concluded, the undisputed facts that the proceeds from the third-party settlement exceeded the amount of the employer's workers' compensation lien, and that Rosenbaum conceded that the employer did not interfere with the claimant's settlement establish that the claimant failed to establish any violation of § 8-41-203(2).
Finally, we reject the claimant's argument that the employer's conduct violated § 8-41-203(2) because the settlement of the third-party suit was so inextricably intertwined with the settlement of the workers' compensation claim that refusal to settle the latter was, in effect, an unreasonable refusal to approve the former. Whatever the claimant's perception of the two settlements and their relationship, or her opinions regarding the unity of the two claims for settlement purposes, we are constrained by the plain language of the Act. The ALJ's conclusion that the employer here did not violate the Act is amply supported by his factual findings and by the applicable law. We therefore may not disturb the order.
Because of our resolution of this matter, it is unnecessary for us to address the question whether, as the ALJ concluded, § 8-43-304(1) does not permit penalties for a violation of § 8-41-203(2) because the latter statute specifically provides for a penalty within its terms. IT IS THEREFORE ORDERED that the ALJ's order dated September 26, 2006, is affirmed.
INDUSTRIAL CLAIM APPEALS PANEL
____________________________________ Dona Halsey
____________________________________ Curt Kriksciun
City of Colorado Springs, Lori Stillmunks, Colorado Springs, CO,
Steven U. Mullens, Esq., Colorado Springs, CO, (For Claimant).
Ritsema Lyon, P.C., Joseph C. Irwin, Esq., Colorado Springs, CO, (For Respondents).