Haag v. Minnesota Dep't of Labor & Indus./Workers' Comp. Div.

This claim arises from two penalties assessed by the Department of Labor and Industry, Workers= Compensation Division, against the employer and insurer for failure to comply with statutory requirements for discontinuance of benefits. The employer and insurer objected to the penalty assessment, and, following a hearing before a compensation judge, the judge dismissed the notice of a penalty assessment in its entirety. The issue on appeal is whether the compensation judge=s decision is legally erroneous.

The penalties were assessed in relation to admitted injuries sustained by Martin Haag, the employee, on January 14, 2002. At that time, the employee worked for D.S. Brown Company, which was insured by American International Insurance Company. The employee fractured his left hip, received orthopedic treatment from Dr. Gary Wyard, and underwent surgery on the day of the injury. The employer and insurer admitted primary liability for this injury, paid medical expenses on behalf of the employee, paid the employee temporary total disability benefits between January 15 and August 11, 2002, and provided rehabilitation assistance.

On August 6, 2002, the employee consulted Dr. Wyard, reporting that he was walking without a limp. Upon examination, Dr. Wyard concluded that the employee had full range of motion of his hips and no pain with pushing and pulling. X-rays showed that his fracture had healed and was in excellent alignment, and Dr. Wyard concluded that the employee could return to work for the employer as of August 12, 2002. The only physical work restriction assigned by Dr. Wyard was that the employee should avoid climbing. Dr. Wyard requested that the employee return in January 2003 for a final disability assessment.

The employee apparently suffered a stroke sometime after his doctor=s visit on August 6 but before August 12, 2002, his projected date of return to work. As a result of that stroke, the employee was precluded from returning to work; there is no evidence in the record either way as to whether the stroke was work-related, although the employee has made no such claim. The insurer apparently did not learn about what had happened until September 5, 2002, when the employee=s QRC notified the insurer that the employee had not yet returned to work. On September 20, 2002, the insurer served the employee with a notice of intention to discontinue benefits (NOID), which was received by the Department of Labor and Industry (DOLI) on September 25, 2002. The notice indicated that payment was being made through August 11, 2002, and that benefits were being discontinued for reasons other than return to work, stating:

Temp total disability benefits were paid through August 12, 2002 [sic]. The Employee was released to return to work with restrictions, and the Employer provided work within the treating doctor=s restrictions to commence 8/12/02. Employee, however, sustained a superseding, intervening non-work-related stroke which has left him totally incapacitated.

The employee did not file an objection to discontinuance and made no claim for benefits after August 11, 2002. However, the NOID was reviewed by DOLI for compliance with appropriate statutes. On October 9, 2002, DOLI sent the insurer a letter stating that the NOID did not comply with Minn. Stat. ' 176.238, subd. 2(b), since the insurer did not pay temporary total disability benefits through the date it served the NOID on the employee.^[1] Although DOLI requested that the insurer file an amended NOID indicating payment through the date of the NOID, the insurer did not comply, instead sending a letter outlining its basis for the discontinuance of temporary total disability benefits.

On November 27, 2002, DOLI assessed a penalty against the insurer for violation of Minn. Stat. ' 176.238, in accordance with Minn. R. 5220.2720, subp. 2C, and calculated that penalty on the basis of Minn. Stat. ' 176.221, subd. 3. DOLI determined that the delay in payment of benefits, resulting from an improper discontinuance of benefits, exceeded 60 days and therefore assessed the penalty at the maximum allowable rate--100 percent of the benefits it contended should have been paid between August 11 and September 25, 2002, in the amount of $2,975.02--payable to the assigned risk safety account. DOLI also assessed an additional $892.51 penalty payable to the employee under Minn. Stat. ' 176.225, subd. 1(f), for improper discontinuance, calculated as 30% of the amount that DOLI contended was due but not paid (30 percent of $2,975.02 is $892.51). The insurer filed an objection to the penalty assessment.

A hearing was held on January 13, 2004. In Findings and Order served and filed on January 22, 2004, the compensation judge found that the employee was not entitled to any temporary total disability benefits after those benefits were discontinued in August 2002, and that penalties were inappropriate. The compensation judge found that the employee had not claimed any benefits after August 10, 2002,^[2] nor had any benefits been awarded and therefore that the employee could not be awarded any additional percentage as a penalty under Minn. Stat. ' 176.225, subd. 1(f). The compensation judge also found that Minn. Stat. ' 176.221, subd. 3, was inapplicable since that statute refers to failure to properly begin payments, and not to a failure to properly discontinue benefits. The compensation judge set aside the penalties and dismissed the notice of penalty. DOLI appeals.

STANDARD OF REVIEW

A decision which rests upon the application of a statute or rule to essentially undisputed facts generally involves a question of law which the Workers= Compensation Court of Appeals may consider de novo. Krovchuk v. Koch Oil Refinery, 48 W.C.D. 607, 608 (W.C.C.A. 1993), summarily aff=d (Minn. June 3, 1993).

DECISION

The employer and insurer argue that penalties were inappropriate because the employee was released to return to work by August 12, 2002, and, because Minn. Stat. ' 176.238 allows discontinuance on the date of return to work without prior written notice, they were not required to provide earlier notice of discontinuance. The employee, however, did not return to work, due to his disability resulting from his stroke. On September 20, 2002, the insurer served the employee with a NOID, indicating that payment was made through August 11, 2002, and that benefits were being discontinued for reasons other than return to work, specifically, that the employee=s disability resulted from a non-work-related condition. The issue on appeal, therefore, concerns the legal effect of the employer and insurer=s retroactive discontinuance of benefits and corresponding failure to continue payments through the date the NOID was filed with DOLI.

The Minnesota Workers= Compensation Act outlines requirements and procedures for employers and insurers to follow when discontinuing payment of temporary disability benefits to an employee. Minn. Stat. ' 176.238, subds. 1 and 2, read in pertinent part as follows:

Subdivision 1. Necessity for notice and showing; contents. Except as provided in section 176.221, subdivision 1, once the employer has commenced payment of benefits, the employer may not discontinue payment of compensation until it provides the employee with notice in writing of intention to do so. A copy of the notice shall be filed with the division by the employer. The notice to the employee and the copy to the division shall state the date of intended discontinuance and set forth a statement of facts clearly indicating the reason for the action. Copies of whatever medical reports or other written reports in the employer=s possession which are relied on for the discontinuance shall be attached to the notice.

Subd. 2. Continuance of employer=s liability; suspension.

(a) Discontinuance because of return to work. If the reason for discontinuance is that the employee has returned to work, temporary total compensation may be discontinued effective the day the employee returned to work. Written notice shall be served on the employee and filed with the division within 14 days of the date the insurer or self-insured employer has notice that the employee has returned to work.

(b) Discontinuance for reasons other than return to work. If the reason for the discontinuance is for other than that \the employee has returned to work, the liability of the employer to make payments of compensation continues until the copy of the notice and reports have been filed with the division. When the division has received a copy of the notice of discontinuance, the statement of facts and available medical reports, the duty of the employer to pay compensation is suspended, except as provided in the following subdivisions and in section 176.239.

(Emphasis added.) This statute indicates that an employer and insurer must continue to pay benefits through the date of filing of the NOID except in cases of discontinuance based on a return to work. Douville v. Joann Stores, Inc., 62 W.C.D. 593 (W.C.C.A. 2002), summarily aff=d (Minn. Oct. 10, 2002). In this case, the employer and insurer argue that the employee=s release to return to work was tantamount to an actual return to work, as the employee agreed to and planned to return to work and his return to work was scheduled to take place on August 12, 2002. There is no dispute, however, that the employee did not return to work. Minn. Stat. ' 176.238 requires continued payment of benefits through the filing date of the NOID in cases where the employee has not yet returned to work. The statute does not allow Aretroactive@ discontinuances as attempted here by the employer and insurer. Id. (penalty permissible where insurer improperly discontinued benefits before filing NOID). See also, Ansari v. Harold Chevrolet, 336 N.W.2d 276, 36 W.C.D. 49 (Minn. 1983) (where insurer discontinued benefits before filing a NOID, temporary total disability benefits awarded until date NOID filed); Minn. R. 5220.2720, subp. 1E (providing for imposition of a penalty for retroactive discontinuance).

Both the statute and rules provide for penalties to be assessed against an employer and insurer for an improper discontinuance. DOLI assessed a penalty for violation of Minn. Stat. ' 176.238, and calculated the amount of the penalty in accordance with Minn. R. 5220.2720, subp. 2C, and on the basis of Minn. Stat. ' 176.221, subd. 3. The rule on which DOLI relied, Minn. R. 5220.2720, subp. 2C, provides alternative calculation methods; subp. 2.C states that Aa penalty may be assessed under Minnesota Statutes, section 176.221, subdivision 3, payable to the assigned risk safety account, of up to 100 percent of the amount of compensation to which the employee is entitled.@ Minn. R. 5220.2720, subp. 2.C.

The corresponding statutory section on which DOLI relied, Minn. Stat. ' 176.221, subd. 3, provides for a penalty if benefit payments are not commenced on a timely basis. That provision states as follows:

Subd. 3. Penalty. If the employer or insurer does not begin payment of compensation within the time limit prescribed under subdivision 1 or 8, the commissioner may assess a penalty, payable to the commissioner for deposit in the assigned risk safety account, which shall be a percentage of the amount of compensation to which the employee is entitled to receive up to the date compensation payment is made.

The amount of penalty shall be determined as follows:

Numbers of days late Penalty

1 - 15 30 percent of compensation due,

not to exceed $500,

16 - 30 55 percent of compensation due,

not to exceed $1,500,

31 - 60 80 percent of compensation due,

not to exceed $3,500,

61 or more 105 percent of compensation due,

not to exceed $5,000.

(Emphasis added.)

The compensation judge set aside the penalty, concluding that Minn. Stat. ' 176.221, subd. 3, and the corresponding rule were inapplicable since they specifically apply to failure to begin payment and not to an failure to properly discontinue benefits.

We agree that Minn. Stat. ' 176.221, subd. 3, itself is not applicable because it applies to a failure to Abegin payment,@ and this is a discontinuance case. At the same time, Minn. R. 5220.2720, subp. 2.C, specifically indicates that a penalty may be assessed under Minn. Stat. ' 176.221, subd. 3, in the alternative, for Aimproper discontinuance.@^[3] We take this to mean that a penalty under Minn. R. 5220.2720, subp. 2.C, may be calculated as provided by Minn. Stat. ' 176.221, subd. 3, up to 100% of the benefits to which the employee is entitled. The commissioner of DOLI clearly has the authority to adopt rules concerning discontinuances. See Minn. Stat. ' 176.83, subd. 7. However, Minn. R. 5220.2720, subp. 2.C, potentially conflicts with Minn. Stat. ' 176.238, subd. 10, which indicates that an insurer who violates 176.238 or 176.239 is subject to a fine of Aup to $1,000.@ Where a rule conflicts with the statute, the statute must prevail. See Green v. Whirlpool Corp., 389 N.W.2d 5404, 507 (Minn. 1986); Scalf v. LaSalle Convalescent Home, 481 N.W.2d 364, 46 W.C.D. 283 (Minn. 1992). Because of the maximum set by Minn. Stat. 176.238, the rule cannot be used to impose a fine greater than $1,000; otherwise, the rule is inconsistent with the statute. We therefore affirm the compensation judge=s finding that no penalty is payable to the assigned risk safety account under Minn. Stat. 176.221, subd. 3, but reverse his finding that no penalty is allowed under the rules for improper discontinuance. We reinstate the penalty assessed by DOLI pursuant to Minn. R. 5220.2720, subp. 2, but modify the amount to the permissible level of $1,000.

DOLI also assessed an additional penalty payable to the employee under Minn. Stat. ' 176.225, subd. 1(f), for improper discontinuance, in the amount of $892.51, which is 30% of the amount that DOLI contended was due between August 11, 2002, and the date when the NOID was filed. Minn. Stat. ' 176.225, subd. 1(f) provides that

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 percent of that total amount where an employer or insurer has:

* * * * *

(f) unreasonably or vexatiously discontinued compensation in violation of sections 176.238 and 176.239.

In this case, the compensation judge found that no penalty was due to the employee under Minn. Stat. ' 176.225 because there were no benefits due to the employee after August 11, 2002. He concluded that since there was no amount of benefits awarded, there can be no requirement for payment of an additional amount. The compensation judge also concluded that there had been no unreasonable or vexatious conduct on the part of the insurer, as Ainsurers cannot be expected to personally call all employers and follow up on return to work@ and as Ait was reasonable for the claims people to rely on the QRC to advise them if there was a problem with the return to work.@ The compensation judge summarized his conclusions in his memorandum as follows:

In this case, clearly the employee has not been shown to be entitled to benefits. There has been no prejudice shown to the employee as a consequence of the late filing. There was no showing that the insurer failed to act in a diligent manner and there was no bad faith on the part of the insurer. Under all of the circumstances of this case, the claim for penalties is not appropriate and must be set aside.

As we stated above, Minn. Stat. ' 176.238 requires continued payment of benefits through the filing date of the NOID in cases where the employee has not yet returned to work. Under Minn. Stat. 176.225, subd. 1, the commissioner had the authority to assess a penalty, payable to the employee, for violation of 176.238. See also Minn. R. 5220.2760, subp. 1. As it was improper for the employer and insurer to retroactively discontinue the employee=s temporary total disability benefits, we reverse the compensation judge=s decision on this issue and reinstate the penalty payable to the employee in the amount of $892.51.

The employee has made no claim for benefits after August 11, 2002, and we do not, by this decision, order payment of temporary total disability benefits. As the issue of the employee=s entitlement to payment of temporary total disability benefits after August 11, 2002, was not before the compensation judge, we vacate the judge=s findings that the employee was not entitled to temporary total disability benefits after August 11, 2002.

^[1] In fact, Minn. Stat. ' 176.238 requires continued payment of benefits through the date the NOID is received by DOLI, and not merely through the date the NOID was served on the employee.

^[2] The employer and insurer actually paid benefits through August 11, 2002.

^[3] Minn. R. 5220.2720, subp. 2.C., is one of the provisions in the rule entitled AImproper discontinuances; penalty.@