WILLIAM A. FLANAGAN, Employee, v. SOUTHERN MINN. CONSTR. CO. and CNA/TRANSP. INS., Employer-Insurer, and MN DEP=T OF ECONOMIC SEC., Intervenor, and HMO MINN. d/b/a BLUE PLUS, Intervenor/Petitioner.

 

WORKERS= COMPENSATION COURT OF APPEALS

MARCH 8, 2002

 

HEADNOTES

 

VACATION OF AWARD - MISTAKE.  Where, in reliance upon coverage guarantees set forth in the stipulation at issue, the employee underwent a very costly fusion surgery that he would not have undergone had he known he would be personally at risk for payment, and where, despite having knowledge that the employee=s coverage might well be terminating prior to the employee=s impending surgery, the petitioning HMO had taken no action prior to the employee=s surgery to advise him that the surgery might not be covered, and where vacation of the award at issue could not possibly return the employee to the position that he was in before the award on settlement, the petitioning HMO failed to establish a mutual mistake of fact, based on the lapse of the employee=s medical coverage between the date of the settlement and the date of the surgery, sufficient to constitute cause to vacate a stipulation for settlement under which the HMO was to pay for the employee=s surgery and be reimbursed half of its costs by the workers= compensation insurer.

 

Petition to vacate award denied.

 

Determined by Pederson, J., Johnson, J., and Rykken, J.

 

OPINION

 

WILLIAM R. PEDERSON, Judge

 

HMO Minnesota, d/b/a Blue Plus [Blue Plus] petitions to vacate an Award on Stipulation served and filed December 9, 1998, on the ground that it was based on a mutual mistake of fact.  We conclude that Blue Plus has failed to establish cause sufficient to set aside the Award and, accordingly, deny the Petition to Vacate.

 

BACKGROUND

 

William Flanagan [the employee], currently forty-three years of age, sustained an admitted work-related injury to his back as a result of a motor vehicle accident that he was involved in while working for Southern Minnesota Construction Company [the employer] on January 18, 1996.  On that date, the employee was earning a weekly wage of $512.30.  As a result of his injury, the employee was subsequently diagnosed with an L4-5 disc herniation and underwent a lumbar laminectomy at the L4-5 level in March of 1996.  CNA/Transportation Insurance Company [the insurer] paid temporary total disability benefits, compensation for a 14% whole body permanent partial disability, and related medical expenses.

 

In January of 1998, the employee=s treating physician, Dr. Gregg Dyste, opined the employee was in need of a two-level BAK lumbar spine fusion at the L4-5 and L5-S1 levels.  The employer and insurer=s medical examiner, Dr. Richard Strand, opined that the need for a fusion at L5-S1 had nothing to do with the work injury of January 18, 1996.  He further opined that Athere is also a very significant argument that the need for his two-level lumbar fusion, which I agree with at this time, is related to the degenerative disc disease from years of doing heavy construction work and not due to one incident in a motor vehicle accident.@

 

On June 5, 1998, the employee filed a medical request seeking authorization and payment for the proposed low back surgery.  The employer and insurer responded by denying that the proposed surgery was reasonable, necessary, or causally related to the January 18, 1996, work injury.  An administrative conference under Minn. Stat. ' 176.106 was held on August 24, 1998.  On September 23, 1998, a mediator/arbitrator from the Department of Labor and Industry issued a Decision and Order determining that the need for surgery at the L4-5 level was causally related to the admitted work injury and was reasonable and necessary.  The need for the surgery at the L5-S1 level, however, was determined to be not causally related to the work injury.  The employee filed a Request for Formal Hearing, seeking payment for the surgery at both the L4-5 and L5-S1 levels.

 

The issue of liability for the proposed fusion surgery was scheduled for trial on December 11, 1998.  During calendar year 1998, the employee was covered under a health insurance policy through MinnCare, administered for the state by Blue Plus.  Prior to trial, the parties in this case, including MinnCare/Blue Plus, entered into a compromise settlement and submitted a Stipulation for Settlement to the Office of Administrative Hearings.  Page 4 of that Stipulation provided in part as follows:

 

A.  The parties hereto stipulate and agree the Employee will undergo the proposed two-level fusion.

 

B.  The cost of the proposed two-level fusion will be paid by MinnCare administered by Blue Cross/Blue Shield.

 

C.  The Employer and Insurer shall reimburse MinnCare administered by Blue Cross/Blue Shield for 50 percent of all costs paid to or on behalf of the Employee related to the proposed two-level fusion, subject to the Workers= Compensation Fee Schedule and the Minnesota workers= compensation treatment parameters.

 

An Award on Stipulation in accordance with this agreement was issued on December 9, 1998, and that Award was served on all signatories to the Stipulation, including Blue Plus.

 

The employee evidently underwent the surgery in question on February 15, 1999, and, according to the Employee=s Response to Petition to Vacate, ultimately incurred over $37,000.00 in medical expenses related to the surgery.  The bills were submitted to Blue Plus for payment but were denied on grounds that, at the time the bills were incurred, the employee was no longer an eligible enrollee under the medical plan, his coverage having ended effective January 1, 1999.

 

On February 16, 2000, the employee filed a Motion with the Office of Administrative Hearings, seeking an order compelling Blue Plus to make payment in accordance with the Award on Stipulation.  On June 9, 2000, Compensation Judge Danny P. Kelly, having received no response from Blue Plus to the employee=s Motion, signed an Order Compelling Compliance with Award on Stipulation [Order to Compel].  Three days later, on June 12, 2000, Blue Plus filed a response to the employee=s motion, which evidently crossed in the system with Judge Kelly=s order, which was served and filed on June 13, 2000.^[1]

 

On September 13, 2000, having been informed of but never served with the Order to Compel, Blue Plus filed a Notice of Appeal and a Motion to Vacate the Order to Compel, contending that the Order to Compel was prejudicial to their defense, was issued on the merits of the case without an evidentiary hearing, and was not supported by substantial evidence.  Blue Plus requested that this court vacate the Order to Compel and remand the matter to the Office of Administrative Hearings for an evidentiary hearing.  Concluding that the Order to Compel was superfluous, in that it simply directed Blue Plus to make payment in accordance with an already existing order contained in the Award served and filed December 9, 1998, this court dismissed the appeal.  In our decision issued March 2, 2001, we noted that we were troubled by Blue Plus=s failure either to comply with the terms of the Award on Stipulation to which it was a party or to take any affirmative action to assert its alleged defenses.

 

More than nine months later, on December 28, 2001, Blue Plus filed a Petition to Vacate the December 9, 1998, Award on Stipulation, on the ground that it was based on a mutual mistake of fact.  The employee and the employer and insurer filed objections to the petition to vacate, alleging that the petition fails to demonstrate a mutual mistake as to any facts material to their settlement.

 

DECISION

 

This court=s authority to vacate an award on settlement is found in Minn. Stat. '' 176.461 and 176.521, subd. 3.  A party must show good cause in order for us to exercise this authority.  Stewart v. Rahr Malting Co., 435 N.W.2d 538, 539, 41 W.C.D. 648, 649 (Minn. 1989).  AGood cause@ to vacate an award is limited by Minn. Stat. ' 176.461 to (1) a mutual mistake of fact, (2) newly discovered evidence, (3) fraud, or (4) a substantial change in medical condition since the time of the award that was clearly not anticipated and could not reasonably have been anticipated at the time of the award.

 

Blue Plus contends first that, at the time the Stipulation was entered into, all of the parties involved believed the employee was covered by the MinnCare policy and would continue to be covered by that policy through the date of surgery.  It asserts that the law imposes an implied covenant of good faith and fair dealing into every non-sales contract to prevent one party from unjustifiably hindering the other party=s performance of the contract.  See Sterling Capital Advisors, Inc. v. Herzog, 575 N.W.2d 121, 125 (Minn. App. 1998).  In the present case, Blue Plus contends that implicit in the parties= settlement agreement was the employee=s willingness to maintain the requirements for coverage.  But for the employee=s failure to comply with the policy provisions, it argues, Blue Plus would have covered the cost of the employee=s fusion surgery.  As such, it contends, the parties were mistaken as to a material fact--the employee=s continued eligibility for coverage.  We do not agree.

 

AA mutual mistake of fact occurs when opposing parties to the stipulation both misapprehend some fact material to their intended settlement of a claim or claims.@  Shelton v. Schwan=s Sales Enter., 53 W.C.D. 110, 113 (W.C.C.A. 1995), summarily aff=d (Minn. Sept. 5, 1995).  In a mutual mistake case, Athe inquiry focuses on what the situation was and what was known about it at the time of settlement.@  Franke v. Fabcon, Inc., 509 N.W.2d 373, 377, 49 W.C.D. 520, 525 (Minn. 1993).

 

It is undisputed that, at the time of settlement, the employee was an eligible enrollee under a policy of health insurance issued by MinnCare and administered by Blue Plus.  As to any  alleged mutual mistake of fact, neither the employee nor the employer and insurer concede that they misapprehended any fact material to their intended settlement.  In an affidavit attached to the employer and insurer=s Response to Petition to Vacate, counsel for the employer and insurer, who alone negotiated the compromise with Blue Plus, asserted that he did not contemplate the employee=s future eligibility for MinnCare coverage in negotiating the settlement.  The Stipulation itself is silent as to continuing coverage under MinnCare and contains no requirement that such coverage remain a condition of the settlement.  The settlement simply provides that the employee will undergo the proposed two-level fusion, that the cost will be borne by MinnCare/Blue Plus, and that the employer and insurer shall reimburse MinnCare/Blue Plus for 50% of the cost of the surgery.  The plain language of the Stipulation requires MinnCare/Blue Plus to cover the initial cost of the surgery, and we cannot agree with Blue Plus that the agreement somehow contains an implicit requirement that the employee maintain coverage through some unknown date in the future.  Even if the law imposes an implied covenant of good faith into the settlement agreement, we detect no evidence of bad faith on the part of the employee or the employer and insurer.  At the time of the settlement, it was known that the employee sought coverage for a two-level lumbar fusion recommended by his doctor.  Both the employer and insurer and Blue Plus were aware of the impending surgery and the legal dispute regarding liability.  Rather than face the uncertainties of litigation, the parties opted for settlement.  Contrary to Blue Plus=s assertion, in the face of its agreement to pay the cost of the proposed surgery, there was no reason for the employee or the employer and insurer to contemplate any issue of coverage relative to the MinnCare policy.  If continuing coverage of the employee by MinnCare was a precondition to performance, it was incumbent upon Blue Plus to include the necessary language in the Stipulation.  Yet, according to the employer and insurer=s counsel, continued coverage was never mentioned.  We find no ambiguity in the language of the Stipulation and no basis to conclude that there has been a mutual mistake of fact.

 

Blue Plus also argues that, even assuming that the parties contemplated a lack of future coverage, Athere is still a mutual mistake of fact as to the legality of entering into a settlement requiring BSBSM to fund a surgery after the employee is no longer eligible for MinnCare coverage.@  Blue Plus asserts that the MinnCare program maintains strict eligibility requirements that must be complied with in order for a person to obtain benefits and that, under Minn. Stat. ' 256.L18, it is illegal for a party to obtain MinnCare benefits if that party is not eligible under the statute.  It is also illegal, Blue Plus argues, to aid in procuring benefits to which a person is not entitled.  Blue Plus contends that it is this requirement that prevents Blue Plus from even processing the employee=s request, as there is absolutely no legal mechanism allowing Blue Plus to pay any benefits to a MinnCare participant who is no longer eligible for benefits.  It contends that the parties would have been mutually mistaken to suppose that Blue Plus could legally enter into a settlement binding it to provide benefits to the employee if the employee was no longer eligible for coverage through MinnCare.  We are not persuaded.

 

As noted by the employer and insurer in their brief, any false assumption by Blue Plus at the time of the stipulation for settlement as to the employee=s future right to MinnCare benefits was at least not a Amutual@ mistake of fact.  They argue that Blue Plus may have unilaterally mistakenly entered into the Stipulation for Settlement where there was no provision requiring ongoing insurance through MinnCare, but this does not constitute a mutual mistake as required by Minn. Stat. ' 176.461.  Whether Blue Plus=s agreement to pay medical benefits in this case creates an internal dispute between MinnCare and Blue Plus is not an issue for our consideration.  Such problems would not be a basis for vacating the Stipulation for Settlement and would not relieve Blue Plus from its obligation to make payment pursuant to the terms of the Stipulation for Settlement.

 

Generally, vacation of an award places the parties in the same position that they were in prior to the issuance of the award.  In this case, however, it is not possible to return the employee to the position he was in before the award.  In reliance upon the guarantees set forth in the Stipulation for Settlement, the employee underwent a very costly fusion surgery, a procedure he most certainly would not have undergone had he known he would be at risk for payment.  Despite presumably having knowledge that the employee=s coverage would be terminating effective January 1, 1999, and was in the process of being terminated at the time of settlement, Blue Plus took no action prior to the employee=s surgery to advise him that the surgery would not be covered.  Because Blue Plus has failed to establish a mutual mistake of fact known to the parties at the time of settlement, and because we can find no other grounds in the workers= compensation act for vacating this settlement, we deny the petition to vacate.  We further order Blue Plus to make payment in accordance with the Stipulation for Settlement and Award on Stipulation issued December 9, 1998.