Opinion
W.C. No. 4-236-951
January 7, 1997
FINAL ORDER
The claimant seeks review of a final order of Administrative Law Judge Stuber (ALJ) declining to impose penalties against the respondents pursuant to § 8-43-304(1), C.R.S. (1996 Cum. Supp.). We affirm.
The claimant filed a motion for imposition of penalties based upon the respondents' denial of his claim for workers' compensation benefits. Specifically, the claimant alleged that, in contravention of § 8-42-105(2)(a), C.R.S. (1996 Cum. Supp.), the respondents denied liability for his injury without any reasonable factual or legal basis for doing so. Moreover, the claimant contended that the respondents exploited the denial of his claim in an attempt to "extort" a compromise concerning the claimant's alleged violation of a safety rule.
The ALJ did not hold a hearing concerning the claimant's factual allegations. Instead, the ALJ assumed the truth of the claimant's allegations, and ruled that they were insufficient to support imposition of a penalty under § 8-43-304(1). Relying on Allison v. Industrial Claim Appeals Office, 916 P.2d 623 (Colo.App. 1995), the ALJ held that § 8-42-105(2)(a) does not create a duty to act in "good faith" in deciding whether to admit or deny liability.
Therefore, the ALJ concluded that the respondents' alleged conduct did not constitute a violation of the Act within the meaning of § 8-43-304(1).
On review, the claimant contends that the ALJ erred in holding that the respondents' alleged conduct does not justify the imposition of a penalty under § 8-43-304(1). The claimant reasons that, although § 8-42-105(2)(a) does not create an express obligation to act in good faith in determining whether to admit or deny liability, such a duty should be implied from the legislative declaration found at § 8-40-102(1), C.R.S. (1996 Cum. Supp.). Moreover, the claimant contends that the ALJ's reliance on Allison v. Industrial Claim Appeals Office is misplaced since there was no assertion in Allison that the respondents had acted in bad faith. We are not persuaded.
Section 8-43-304(1) provides for imposition of a penalty where a person or party "violates any provision of articles 40 to 47 of this title, or does any act prohibited thereby." Imposition of a penalty under this provision requires a two-step analysis. First it must be determined whether the challenged conduct violates any "provision" of the Act . Allison v. Industrial Claim Appeals Office, 916 P.2d 623 (Colo.App. 1995). If the disputed action violated the Act, it must be determined whether, under the circumstances, the action was unreasonable as measured by an objective standard. Pueblo School District No. 70 v. Toth, 924 P.2d 1094 (Colo.App. 1996).
Here, the claimant alleged that the respondents violated § 8-42-105(2)(a). This statute provides that, "The first installment of compensation shall be paid no later than the twentieth day after the insurance carrier or self-insured employer has written notice or knowledge of the claim, unless the claim is denied." As the claimant concedes, the statute contains no express requirement that the respondents act in "good faith" when deciding whether to admit or deny a claim, nor does it purport to regulate respondents' conduct when deciding to admit or deny.
Under such circumstances, we agree with the ALJ that Allison v. Industrial Claim Appeals Office is persuasive, if not dispositive, of the claimant's argument. In Allison, the respondents admitted liability for temporary total disability benefits, but unilaterally reduced the weekly payment based on their contention that they were entitled to offset their liability by the claimant's receipt of proceeds from a structured settlement. Ultimately it was determined that the respondents were not entitled to the offset, and the claimant sought penalties because the respondents reduced his benefits, "without legal justification," in violation of § 8-42-105(1), C.R.S. (1996 Cum. Supp.).
However, the Allison court rejected the claim for penalties and held that § 8-42-101(1) does not "mandate a legal duty upon the employer to pay that rate without regard to any claimed offset prior to the ALJ's determination of benefits." Thus, Allison stands for the proposition that, when imposing penalties for "violations" of the Act, an ALJ must look to the express duties and prohibitions imposed by the statutory language, and should not create implied duties and responsibilities. It is true that Allison did not involve an assertion that the respondents acted in "bad faith," but the case clearly involved the allegation that the respondents acted without "legal justification." However, the court indicated that it would not look to the supposed justification for the respondents' action because § 8-42-105(1) did not concern itself with the respondents' motivation for claiming the offset.
It follows that, in this case, the ALJ ruled correctly in concluding that the respondents' alleged "bad faith" conduct does not support imposition of a penalty under § 8-43-304(1). Section 8-42-105(2)(a) does not create standards of conduct governing the respondents' motivation when deciding whether to admit or deny liability. It merely prescribes the time for paying compensation unless the respondents deny liability. Cf. Silence-Boaz v. Carpet Clearance Warehouse, W.C. No. 4-172-786, December 26, 1996 [respondents' alleged bad faith conduct in identifying the authorized treating physician did not justify imposition of a penalty for "abuse of the IME process" in violation of §§ 8-42-107(8)(b) and (c)].
In any event, we disagree with the claimant's assertion that the Act creates an implicit duty of "good faith" pertaining to all aspects of the adjustment of claims. In Travelers Insurance Co. v. Savio, 706 P.2d 1258 (Colo. 1985), the court stated the following:
"The duty of an insurer under the Act to provide benefits and compensation is factually and analytically distinct from its duty to deal in good faith with claimants, even though such duties necessarily involve a common underlying physical injury. The right to compensation depends on the resolution of specific factual and legal issues between carriers and claimants. Whether in a particular case disputes involving those issues are entertained in good faith presents a related, but quite different, question, the resolution of which does not depend on the validity of the underlying compensation claim." 706 P.2d at 1270.
The court went on to indicate that the duty to adjust claims in good faith derives from the insurance contract itself, and not any provision of the Act. Moreover, the Savio court recognized that a respondent which adjusts claims in bad faith runs the risk of incurring penalties under § 8-43-304(1) in addition to tort liability, but concluded that these liabilities are not coextensive. Travelers Insurance Co. v. Savio, 706 at 1266-1267.
Even if Savio were not dispositive of the claimant's assertion that the Act creates an implied duty of good faith, we would decline to create such a duty. Generally, when construing statutes the overriding objective is to effectuate the legislative intent. This objective is accomplished by first looking to the language of the statute itself while giving the words their plain and ordinary meanings. If no ambiguity results, it is unnecessary to resort to interpretive rules of statutory construction. City of Thornton v. Replogle, 888 P.2d 782 (Colo. 1995). To the extent a statute is ambiguous, we should construe the entire statutory scheme in a manner that gives consistent, harmonious, and sensible effect to all of its parts. Henderson v. RSI, Inc., 824 P.2d 91 (Colo.App. 1991).
Section 8-43-304(1) provides for imposition of a penalty against a party who violates any "provision" of the Act, or does any "act prohibited thereby." The statute makes no reference to implied duties or prohibitions, and we, like the Allison court, decline to find any ambiguity in these words which would create an "implied duty" to act in good faith. See Kraus v. Artcraft Sign Co., 710 P.2d 480 (Colo. 1985) (court should not read non-existent provisions into the Act).
We do not dispute the claimant's assertion that, under the legislative declaration, one of the purposes of the Act is to provide benefits in a "quick and efficient" manner without the need for litigation. Section 8-40-102(1). However, another one of the legislative objectives is to insure that the benefits are delivered at a "reasonable cost to the employer." Section 8-40-102(1).
When the issue is whether or not the Act should be read to create "an implied duty" of good faith, these legislative objectives tend to cancel each other out. On the one hand, the claimant is correct in stating that creation of an implied duty to act in good faith might prevent some insurers from denying liability on frivolous grounds. Conversely, creation of such a general duty would promote penalty litigation concerning numerous actions or inactions, thereby increasing costs to employers. Thus, we can draw no meaningful conclusion based upon the legislative declaration.
Finally, we note that creation of an implied duty to act in good faith would not promote a harmonious reading of § 8-43-304(1). As we noted at the outset, the penalty statute requires both a "violation" of the Act, and that the violation be "unreasonable" under an objective standard. Consequently, the penalty statute itself establishes the respondents' standard of conduct, and it would appear to be illogical to conclude that the General Assembly intended to subject respondents to some other undefined standard resulting from "implied" duties.
IT IS THEREFORE ORDERED that the ALJ's order dated June 24, 1996, is affirmed.
INDUSTRIAL CLAIM APPEALS PANEL
________________________________ David Cain
________________________________ Kathy E. DeanNOTICE This Order is final unless an action to modify or vacate the Order is commenced in the Colorado Court of Appeals, 2 East 14th Avenue, Denver, Colorado 80203, by filing a petition to review with the court, with service of a copy of the petition upon the Industrial Claim Appeals Office and all other parties, within twenty (20) days after the date the Order was mailed, pursuant to §§ 8-43-301(10) and 307, C. R. S. (1996 Cum. Supp.).
Copies of this decision were mailed January 7, 1997 to the following parties:
Antolin Villa, 2712 Federal Blvd., Denver, CO 80211
Wayne Gomez Demolition Excavating, Inc., 401 N. Kuner Rd., Brighton, CO 80601-2841
Colorado Compensation Insurance Authority, Legal Dept. (Interagency Mail)
Steven U. Mullens, Esq., 90 S. Cascade St., Colorado Springs, CO 80903 (For the Claimant)
Ralph Ogden, Esq., 1750 Gilpin St., Denver, CO 80218 (For the Claimant)
Douglas A. Thomas, Esq., 1700 Broadway, Ste. 1700, Denver, CO 80290-1701 (For the Respondents)
By: __________________________________________