LUKAS B. AMUNDSON, Employee, v. MAC=S RENTAL & SALES, INC., d/b/a MAC=S LANDSCAPING CTR., and WESTERN NAT=L MUT. GROUP, Employer-Insurer/Appellants, and ORTHOPAEDIC ASSOCS. OF DULUTH, P.A., HERITAGE MANOR, ST. LUKE=S HOSP. & REG=L TRAUMA CTR., ST. LUKE=S CLINICS, WESTERN NAT=L INS. CO., MAYO FOUND., JC CHRISTENSEN FOR RADIOLOGICAL ASSOC., and LAKEWALK SURGERY CTR., Intervenors.
WORKERS= COMPENSATION COURT OF APPEALS
NOVEMBER 1, 2005
PENALTIES. Where the employer and insurer=s denial of primary liability was made following a good faith investigation of the facts, as referred to in Minn. Stat. ' 176.225, subd. 1, and although the employer and insure did not ultimately prevail on their defense to the claim, that defense was not frivolous nor made in bad faith, and therefore the award of penalties for maintaining a frivolous defense, or for a frivolous denial of payment, is reversed.
Determined by: Rykken, J., Johnson, C.J., and Stofferahn, J.
Compensation Judge: Nancy Olson
Attorneys: John W. Zweber, Arden Hills, MN, for the Respondent. Krista L. Twesme and Brad Kulseth, Aafedt, Forde, Gray, Monson & Hager, Minneapolis, MN, for the Appellants.
MIRIAM P. RYKKEN, Judge
The employer and insurer appeal from the compensation judge=s award of penalties for a frivolous denial of claims. We reverse the award of penalties.
This claim arises from a work-related injury that Mr. Lukas Amundson, the employee, sustained on June 30, 2003, while he was driving a truck owned by his employer, Mac=s Rental & Sales, Inc., d/b/a Mac=s Landscaping Center, in order to deliver landscaping products to a job site. The sole issue on appeal is whether the compensation judge erred by awarding penalties pursuant to Minn. Stat. ' 176.225, subd. 1, based on the finding that the employer and insurer frivolously denied payment of the employee=s temporary total and permanent partial disability benefits based on their defense that the injury did not arise out of and in the course and scope of employment.
The employer has a retail store near Duluth and also provides landscaping services to customers. On June 30, 2003, the employer had four employees, Mr. Amundson and three co-workers, who performed landscaping work at various job sites. The employees typically met with the employer=s owner, Patrick McDonald, at the beginning of a work day to discuss the work to be done that day. The employees then traveled to the job site in trucks owned by the employer which were loaded with materials and tools needed at the site. Although lunch was usually eaten at the job site, the employees were expected to bring a lunch. Toilet facilities were sometimes available at customers= homes or employees would use the restrooms at a service station.
On June 30, 2003, the four employees met with Mr. McDonald early in the morning, and were advised that they would be working at a home on Schultz Lake, located near the Duluth area, with a goal of finishing that project and a nearby project by July 4th. The crews planned to proceed to the new job site on Schultz Lake in two trucks that were loaded with dirt and sod. Mr. Amundson, the employee, drove one of the employer=s trucks to a Super America station about a half mile from the employer=s premises; the employee testified that he needed to use the restroom and wanted to buy some cigarettes and food for lunch. He then left the station, and proceeded east, but collided with another vehicle at an intersection, resulting in injuries to both the employee and his passenger, a co-worker, Brian Gunderson.
The service station where the employees stopped was apparently not on the most direct route between the employer=s premises and the work at Schultz Lake but how far off the route the service station might be is not clear from the record. The intersection where the collision occurred is on the most direct route, although the trucks would have approached the intersection from the south and not from the west if they had taken the most direct route.
As the result of the collision, the employee sustained injuries to his right knee, wrist, shoulder, liver and spleen. The employer filed a First Report of Injury the next day, July 1, 2003. On July 9, 2003, the insurer, Western National Mutual Group, filed a Notice of Insurer=s Primary Liability Determination, accepting liability for the employee=s injury. The insurer also initiated an investigation into the facts surrounding the accident, and interviewed three co-workers who had witnessed the accident. An investigator sought specific details on the condition of the truck prior to the accident, the route taken which led to the accident, the reason for stopping at the Super America store, and the details of the vehicle collision. The insurer also interviewed Patrick McDonald, the owner, concerning the instructions he provided to the employees on the morning of June 30, 2003, company policies regarding stopping for both business and personal reasons while en route to a job site, and his knowledge of what caused the accident. Because the employee was hospitalized during this period of time, no statement was taken from the employee during the initial investigation.
Following the investigatory period, the insurer determined that it had a valid defense to the workers= compensation claim, and took the position that the employee=s injuries did not arise out of nor occur in the course and scope of his employment. As a result, the insurer filed an Amended Notice of Insurer=s Primary Liability Determination on July 18, 2003, denying the employee=s claim. The employer and insurer contended that at the time of the accident, the employee had deviated from the normal and expected work route, and was instead engaged in a personal errand unrelated to his work activities for the employer.
On August 7, 2003, the employee filed a claim petition for payment of workers= compensation benefits. A claim petition had also been filed by Mr. Brian Gunderson, the employee=s co-worker and passenger at the time of the accident. Mr. Gunderson=s claim proceeded to an evidentiary hearing first, on April 4, 2004. The primary issue at that hearing was whether Mr. Gunderson=s injury arose out of and in the course of his employment with the employer; the employee=s entitlement to certain benefits was also at issue. The record in that matter closed on June 15, 2004, and the compensation judge issued his Findings and Order on August 4, 2004, determining that the employee=s injuries, sustained as a result of the June 30, 2003, motor vehicle accident, arose out of and in the course of his employment, and that the employee was entitled to payment of workers= compensation benefits. The employer and insurer appealed from that decision. On appeal, this court affirmed the compensation judge=s decision in its entirety. See Gunderson v. Mac=s Landscaping Center, slip op. (W.C.C.A. Feb. 15, 2005).
Meanwhile, litigation on Mr. Amundson=s claim was pending, and an evidentiary hearing was held on his claim on January 19, 2005. The primary issue at that hearing, as well, was whether the employee=s injury arose out of and in the course and scope of his employment on June 30, 2003. Also at issue at the hearing were the employee=s claim for various benefits, and his claim for penalties pursuant to Minn. Stat. ' 176.225, subd. 1, based upon the employer and insurer allegedly maintaining a frivolous denial or defense to the employee=s claim for benefits.
In her Findings and Order served and filed on March 21, 2005, the compensation judge determined that the accident arose out of and in the course and scope of employment, and awarded temporary total and temporary partial disability benefits, as well as medical expenses. The compensation judge also awarded penalties based on the employer and insurer=s denial of the employee=s benefits from June 30 to October 30, 2003, and their denial of payment for 4% permanent partial disability rating relevant to the employee=s right knee injury, a rating that had been assigned by Dr. Jack Drogt, their independent medical examiner. In her memorandum, the compensation judge concluded that, based on the facts of the case and the testimony presented at the hearing, this was not Aa borderline or questionable liability case@ and the employer and insurer should have admitted liability and paid the claim.
The employee also sought payment of penalties for a delay in payment of temporary partial and temporary total disability benefits between May and July 2004. The compensation judge denied that portion of the claim, concluding that although the employer and insurer=s defense for that period of benefits was not accepted, it was not a frivolous defense.
The employer and insurer appeal from the award of penalties, having paid the other benefits awarded by the compensation judge.
The employee claimed entitlement to various penalties against the employer and insurer; the compensation judge awarded a portion of the employee=s claims, concluding that employer and insurer frivolously denied the employee=s benefits from June 30, 2003, to October 30, 2003, and therefore were required to pay a 30 percent penalty, based on benefits due for that period, pursuant to Minn. Stat. ' 176.225, subd. 1(a)(e). The compensation judge also found that the employer and insurer frivolously denied paying benefits based upon the 4% rating for permanent partial disability of the whole body, related to the employee=s right knee condition.
The compensation judge outlined the basis for her decision in her memorandum, explaining that this was a rare case where penalties were appropriate. The compensation judge concluded that the employer and insurer=s own witnesses did not support their theory of the case and that they did not bring in witnesses to the hearing before her but simply relied on that testimony provided in the Gunderson case heard before another compensation judge. The compensation judge outlined specific portions of the witnesses= testimony that supported her conclusion that the injury arose out of and in the course and scope of employment. The compensation judge further concluded that even if she had accepted the employer and insurer=s argument that the stop at the Super America store was a deviation from the route assigned by the employer, that deviation ended when the employee entered the intersection where the accident occurred. The compensation judge concluded that APutting all of these factors together the compensation judge did not believe that this was a borderline or questionable liability case,@ and that the employer and insurer should have paid the claim, or, at a minimum, should have paid benefits for periods when the employer and insurer=s independent medical examiner, Dr. Drogt, determined that the employee had been disabled, and also for the permanent partial disability rating assigned by Dr. Drogt.
Minn. Stat. ' 176.225 provides for a penalty for delays in payment of benefits, and outlines circumstances in which payment of a penalty is appropriate, as follows:
Subdivision 1. Grounds. Upon reasonable notice and hearing or opportunity to be heard, the commissioner, a compensation judge, or upon appeal, the court of appeals or the supreme court shall award compensation, in addition to the total amount of compensation award, of up to 30% of that total amount where an employer or insurer has:
(a) instituted a proceeding or interposed a defense which does not present a real controversy but which is frivolous or for the purpose of delay; or,
(b) unreasonably or vexatiously delayed payment; or,
(c) neglected or refused to pay compensation; or,
(d) intentionally underpaid compensation; or
(e) frivolously denied a claim; or
(f) unreasonably or vexatiously discontinued compensation in violation of sections 176.238 and 176.239.
For the purpose of this section, "frivolously" means without a good faith investigation of the facts or on a basis that is clearly contrary to fact or law.
Minn. Stat. ' 176.225, subd. 1. The issue before us is whether the compensation judge erred by concluding that the employer=s actions gave rise to a penalty claim as outlined in the provisions of Minn. Stat. ' 176.225.
The employer and insurer argue that they had a colorable defense to the employee=s claim, conducted a full investigation after the accident, and then, only after their good faith investigation, denied primary liability. Where there are colorable factual or legal arguments related to issues, a penalty or frivolous defense in not appropriate. Minter v. Ford Motor Company, slip op. (W.C.C.A. June 6, 1991). Although the employer and insurer did not ultimately prevail on their defense to this claim and to that sought by Brian Gunderson, the fact that the employer and insurer did not ultimately prevail on their defenses, however, does not necessarily create a basis for the imposition of penalties. Greene v. Independent School District No. 202, 36 W.C.D. 601 (1984).
On appeal, the employee argues that notwithstanding the investigation conducted by the employer and insurer following the accident, the facts and the actual testimony in the case did not in any way support the employer and insurer=s defense. The employee, therefore, argues that the employer and insurer=s contention that they conducted a good faith investigation before denying benefits should not be confused with the testimony and the other factors that support the ultimate determination that the injury was work-related. We do not agree. It is uncontroverted that the employee did not take the most direct route to the job site on June 30, 2003. This is the essence of an employment deviation defense. In general, a deviation from a business trip made for personal reasons takes an employee out of the course of employment until the business trip is resumed. 1 A. Larson and L. Larson, Larson=s Workers= Compensation Law, ' 17.00 (2000). If an employee who is traveling for business purposes takes a severable side trip, compensation Ais suspended until the employee completes the side trip or resumes travel towards his business goal.@ Williams v. Hoyt Construction Co., 28 W.C.D. 101, 237 N.W.2d 339 (1975) (cites omitted). Thus there was a legal issue before the compensation judge whether the deviation removed the employee from the course of his employment at the time of the truck accident. The employer and insurer had a colorable defense to the employee=s claim, and therefore the imposition of penalties was improper.
The employer and insurer also argue that the timing of the compensation judge=s and this court=s decisions rendered in the Gunderson case is particularly relevant to the issue of whether, in this case, penalties should be imposed. At the time that this employee=s claim was addressed at an evidentiary hearing, the findings and order issued on the companion case instituted by co-worker Brian Gunderson were on appeal to this court. It was not until after the hearing in this case at the Office of Administrative Hearings, and after the hearing record had closed, that this court=s decision was issued on Mr. Gunderson=s claim. As a result, between the injury date of June 30, 2003, and the WCCA decision in Gunderson, slip op. (W.C.C.A. Feb. 15, 2005), no final determination had been made on the legal issue of whether the employee=s injury arose out of and in the course and scope of his employment.
During the periods when the compensation judge concluded that benefits were frivolously denied, the employer and insurer had a colorable defense to the employee=s claim and it was improper to determine that the denial of benefits had been frivolous. In addition, the employer and insurer=s denial of primary liability was made following a good faith investigation of the facts, as referred to in Minn. Stat. ' 176.225, subd. 1. We therefore cannot conclude that the defense to the employee=s claim was frivolous nor made in bad faith, as the employee alleges. Although the employer and insurer did not ultimately prevail on their defense, that defense did not constitute a frivolous denial of the employee=s claim. We therefore reverse the compensation judge=s award of penalties.
 Dr. Jack Drogt issued a report dated November 19, 2003, which was date-stamped as received by counsel for the employer and insurer on December 13, 2003. In his report, Dr. Drogt concluded that the employee had injured his right knee as a result of his truck accident on June 30, 2003, and assigned a rating of 4% permanent partial disability of the whole body relative to his right knee.