DONALD A. MEYERS, Employee, v. K BYTE-HIBBING MFG. and TIG INS. CO., Employer-Insurer/Appellants.

 

WORKERS= COMPENSATION COURT OF APPEALS

DECEMBER 22, 2005

 

No. WC05-196

 

HEADNOTES

 

PENALTIES; STATUTES CONSTRUED - MINN. STAT. ' 176.225, SUBD. 1.  While the employer and insurer failed to comply with Minn. R. 5220.2540, subp. 2, requiring payment of compensation Adirectly to the employee . . . at the home address,@ such failure does not mandate a penalty under Minn. Stat. ' 176.225, subd. 1, for an unreasonable delay in payment where the insurer timely mailed a check to the employee=s attorney and the check was mailed  to the employee by his attorney on the fourteenth day.

 

PENALTIES; STATUTES CONSTRUED - MINN. STAT. ' 176.225, SUBD. 5.  The compensation judge erred in awarding a mandatory penalty of 25 percent under Minn. Stat. ' 176.225, subd. 5, where  the insurer failed to pay costs and attorney fees within 14 days of the award based on its internal policies requiring a signed W-9 form before issuing payment.  The insurer had a colorable excuse and its delay in this case does not rise to the level of an Ainexcusable@ delay.  The insurer failed, however, to prove its policy was necessitated by any legal requirement and failed to meet the 14-day statutory payment deadline resulting in an unreasonable delay in payment of attorney fees ordered paid under an award on stipulation.  The compensation judge=s order is, accordingly, modified and a penalty of five percent awarded.

 

Reversed in part and modified in part.

 

Determined by: Johnson, C.J., Pederson, J., and Stofferahn, J. (dissenting)

Compensation Judge: Jerome G. Arnold

 

Attorneys: Thomas R. Longfellow, Longfellow Law Office, St. Paul, MN, for the Respondent. Thomas L. Cummings, Jardine, Logan & O=Brien, Lake Elmo, MN, for the Appellants.

 

 

MAJORITY OPINION

 

THOMAS L. JOHNSON, Judge

 

The employer and insurer appeal from the compensation judge=s award of penalties for unreasonable delay in the payment of compensation to the employee and inexcusable delay in the payment of attorney fees and costs.  We reverse in part and modify in part.

 

BACKGROUND

 

The facts in this case were submitted to the compensation judge in a joint stipulation of facts and are not in dispute.  The employee, Donald A. Meyers, sustained a work injury to his back on April 27, 2000.  The employee subsequently claimed to have become permanently totally disabled and to have sustained a ten percent permanent partial disability as a result of the injury.  The employer and insurer denied the employee was permanently totally disabled or that his permanent partial disability exceeded seven percent.

 

In January 2004, the parties entered into a stipulation for settlement.  The employee agreed to a full, final and complete close out of any claims arising out of the April 27, 2000, work injury except limited future medical treatment and future attorney fees associated with claims for those benefits.  In return, the employer and insurer agreed to pay a lump sum of $135,000.00, of which $122,000.00 was to be paid to the employee and $13,287.74 was to be paid directly to the employee=s attorney as attorney fees and costs.  The stipulation was submitted to a compensation judge and an Award on Stipulation was served and filed on February 6, 2004.  The stipulation set forth the employee=s address in Hibbing.

 

On February 12, 2004, an employee of the insurer called the employee=s attorney, Thomas R. Longfellow, and informed him the insurer=s policy required a signed W-9 federal tax form be on file in its office prior to issuing any payments to Avendors.@  Mr. Longfellow orally gave the insurer his tax number and took the position the insurer did not need to have a signed W-9 form in advance of issuing payment of his attorney fees under the Award on Stipulation.  He subsequently sent the insurer a signed W-9 form.  The insurer received the W-9 form and issued a check for attorney fees which was mailed in an envelope postmarked February 23, 2004. The check for attorney fees did not arrive at Mr. Longfellow=s office until February 26, 2004.

 

The lump sum payment check to the employee was dated February 13, 2004, and mailed to Mr. Longfellow in St. Paul, rather than to the employee=s address in Hibbing.  Mr. Longfellow received the check on February 20, 2004, and he mailed it to the employee that same day.

 

The employee filed a claim for penalties for unreasonable delay in the payment of compensation.  The compensation judge awarded a $2,000.00 penalty for unreasonable delay of payment to the employee under Minn. Stat. ' 176.225, subd.1, and a further penalty of $3,321.94 under Minn. Stat. ' 176.225, subd. 5, for inexcusable delay in payment of the attorney fees and costs due under the Award on Stipulation.  The employer and insurer appeal.

 

DECISION

 

Minn. Stat. ' 176.225, subd. 1, requires a compensation judge to make an additional award of up to 30 percent of the total compensation due where the employer and insurer have Aunreasonably or vexatiously delayed payment.@  The compensation judge found the insurer=s act of sending the employee=s check to the wrong address resulted in an unreasonable delay in the payment of compensation due to the employee.  Accordingly, the compensation judge awarded an additional payment to the employee of $2,000 or 1.6 percent of the compensation due for unreasonable delay in the payment of the settlement proceeds to the employee.

 

The employer and insurer argue on appeal that the compensation judge erred as a matter of law in his decision.  They point to Minn. Stat. ' 176.221, subd. 8, which requires payment of settlement proceeds within 14 days of the filing of an award on stipulation. The employer and insurer contend that since the employee=s attorney mailed the employee=s settlement check to the employee on the fourteenth day, payment was made to the employee on a timely basis. The employer and insurer cite to this court=s decision in Thronson v. Premier Aggregates, slip op. (W.C.C.A. September 15, 2000) as authority for their position. They argue that since the payment was mailed to the employee by his attorney within 14 days, the compensation judge erred in applying Minn. Stat. ' 176.225, subd. 1.  We agree.

 

In Thronson this court stated, for purposes of determining whether the 14 day period in Minn. Stat. ' 176.221, subd. 8, has been met Apayment should normally be deemed to have been made when the payment process is initiated by the mailing of a properly addressed compensation check.@ Minn. R. 5220.2540, subp. 2, requires payment of compensation Amust be made directly to the employee or dependent at the home address.@ While the employer and insurer did fail to comply with this rule, such failure does not mandate a penalty.  Minn. Stat. ' 176.225, subd. 1, provides a penalty for an unreasonably delayed payment, not for violation of a rule.  The employee=s check was mailed to him within 14 days of the award.  That it was mailed to the employee by his attorney rather then the insurer does not matter so long as the check was mailed within 14 days.  The payment was not delayed so no penalty is awardable.

 

Minn. Stat.  ' 176.225, subd. 5, provides where Athe employer is guilty of inexcusable delay in making payments, the payments which are found to be delayed shall be increased by 25 percent.@  The compensation judge determined there was an inexcusable delay in the payment of attorney fees and costs and ordered a penalty of 25 percent or $3,321.94 to be paid to the employee.  The employer and insurer contend their failure to make timely payment to Mr. Longfellow was not inexcusable.  They argue the delay was the result of their need to obtain a signed verification of the attorney=s taxpayer identification number (by receipt of a W-9 tax form) prior to issuing the check.  Accordingly, the appellants contend a penalty award under subdivision 5 was improper.  We agree.

 

There is no dispute the insurer did not make the payment of costs and attorney fees within 14 days of the date of the award.  It contends, however, its failure was not inexcusable.  The employer and insurer offered in evidence an affidavit from Sue Woods, the corporate claims manager for TIG Insurance Company.  Ms. Woods stated, AIn an effort to ensure compliance with state and federal laws it is TIG=s policy to obtain a completed W-9 form before issuing payment to all vendors.@  (Joint Ex. F., Affidavit of Sue Woods at & 9.)

 

By e-mail dated March 31, 2004, Ms. Woods wrote:

 

TIG implemented new workflow procedures in Sept. >03 whereby all vendors must submit a W-9 prior to issuance of a claim check.  Our workflow procedures require the field offices to submit a >Vendor Request Form= for all provider payments whereby the provider does not have a W-9 on file with our company.  A provider submits a W-9 only once (unless the TAXID # changes and/or the address changes).  Once the Vendor has been established in our Vendor System, payments can be issued by any field office personnel with payment authority.

 

From reading Anita=s^[1] emails, she was following company procedures (as you were in sending us the Vendor Request Form) however, the provider refused to comply.  Anita sent you an email on 2/12/04 advising you of this situation.  Follow up phone calls to Longfellow finally resulted in him submitting a W-9 on 2/20/04.  We updated the Vendor System with his TAX information on 2/20/04 and you were notified on the same day.  A check was issued to Longfellow on 2/20/04 (see attached screen print).

 

A penalty under subdivision 5 of Minn. Stat. ' 176.225 requires the employer be guilty of an inexcusable delay.  The insurer in this case had a colorable excuse.  We conclude the delay does not rise to the level of an Ainexcusable@ delay and reverse the award of penalties under subdivision 5.  See e.g., Nguyen v. Seagate Technologies, 57 W.C.D. 95 (W.C.C.A. 1997).

 

The employer and insurer, however, failed to prove its policy requiring a signed W-9 form from Mr. Longfellow in advance of a payment was necessitated by any legal requirement.  The only evidence offered on this point was the W-9 form and its instructions.  The instructions do not state anywhere that a signed form verifying the payee=s taxpayer identification number (ATIN@) be on file before an insurer issues a check for a portion of workers= compensation benefits ordered to be paid to the employee=s attorney as a contingency fee.^[2]  The employee=s attorney gave his TIN to the insurer by telephone on February 12, 2004, at which point the insurer had eight days to place the check in the mail and meet the 14-day statutory payment requirement.  This was not done.  Accordingly, the payment to Mr. Longfellow was unreasonably delayed by three days.  Under these facts, we conclude a penalty of five percent under Minn. Stat. ' 176.225, subd. 1, is appropriate, and modify the Findings and Order to so order.

 

 

DISSENTING OPINION

 

DAVID A. STOFFERAHN, Judge

 

I dissent.  I would affirm the compensation judge's decision to award penalties in this case.  This court's review of an award or denial of penalties by a compensation judge has traditionally been limited to considering whether the compensation judge abused his or her discretion.^[3]  Under the facts of this case, I do not believe that the compensation judge abused his discretion.

 

The compensation judge awarded penalties for two untimely payments made by the employer and insurer.  First, the employer and insurer failed to send a $122,000.00 compensation payment to the employee within 14 days of the award on stipulation, as mandated by Minn. Stat. ' 176.221, subd. 8, mailing it instead to the employee's attorney.  Minn. R. 5220.2540, subp. 2, requires that compensation payments Amust be made directly to the employee or dependent at the home address.@  In Thronson v. Premier Aggregates, slip op. (W.C.C.A. September 15, 2000), we similarly noted that compliance with the statute normally requires A. . . mailing of a properly addressed compensation check.@  (Emphasis added).  Despite having quoted with approval this very language from Thronson,  the majority holds that the employer and insurer cannot, as a matter of law, be penalized for failing to timely mail the settlement check directly to the employee because the insurer's conduct merely violated a rule promulgated by the Department of Labor and Industry to clarify and implement the timely payment requirements of the workers' compensation act, rather than express language found in the statute itself.

 

I do not agree that the availability of a penalty is so limited.  The act gives the commissioner of labor and industry broad general authority to adopt rules implementing its provisions.  Minn. Stat. ' 176.83.  In addition, Minn. Stat. ' 176.251 specifically mandates to the commissioner the duty to supervise all provisions of the act relating to the payment of compensation, so as to require prompt and full compliance.  Minn. Stat. ' 176.83, subd. 7, specifically authorizes the commissioner to promulgate such rules as may be deemed necessary for administering this statutory duty to supervise the payment of compensation.  If such rules carry no sanctions, they are of no force and effect.  Where, as here, the commissioner has properly promulgated such a rule implementing the requirements of the statute, I would conclude that a party's failure to comply with the rule may be deemed failure to comply with the statute for the purpose of considering whether a penalty is appropriate.

 

The majority further concludes that the compensation judge had no authority to impose a penalty where no delay in the payment actually resulted.  I cannot agree with the majority's implicit adoption of a Ano harm, no foul@ exception to the question of whether penalties may be imposed under Minn. Stat. ' 176.225.  As this court has previously noted, A. . . it is well established that the purpose of the [penalty] statute is punitive, rather than compensatory, being intended to deter employers and insurers from pursuing dilatory tactics.@  Aune v. Conagra, Inc., slip op. (W.C.C.A November 19, 1999) (citations omitted).  In my view, a compensation judge is entitled to focus on the conduct and its potential harm, as much as on the actual damage caused, in determining whether to assess a penalty and in what amount.  Here, the employee's attorney happened to be in his office when the mail arrived and immediately signed the check over to the employee and mailed it on to him.  Under the majority's reasoning, had the attorney been out of the office that day, a penalty on the employer and insurer would then have been appropriate.  In my view, the compensation judge appropriately placed the focus on the insurer's conduct, rather than the diligence or lack of diligence of third parties in forwarding misaddressed mail.

 

The insurer here had the employee's correct address and, by doing business in the State of Minnesota, was constructively on notice of the requirements of the Minnesota workers' compensation statutes and rules.  Despite a rule requiring that compensation be mailed to the employee's known address, the insurer chose to send the employee's check to the offices of his attorney, where it was even there received only on the last day of the statutory period set forth for payment.  I cannot hold that the compensation judge erred as a matter of law in finding this conduct Aunreasonable.@  Thus I do not conclude that the compensation judge, who awarded a penalty of less than two percent of the amount involved, clearly abused his discretion.

 

The second penalty assessed was for late payment of the attorney fees and costs.  As the majority acknowledges, there is no dispute that the insurer failed to pay this portion of the award within the 14-day period set forth by statute.  The only explanation offered for the delay was that the insurer had an internal business policy requiring its Avendors@ to maintain a signed W-9 form on file with at the insurer's office prior to receiving payment.  The insurer offered no evidence that this policy was in fact necessitated by any genuine legal requirement in federal tax law.  The only documentary evidence offered by the insurer on this point, the instructions on the W-9 form itself, appear instead to indicate that a signed form was not required, only that the insurer have knowledge of the attorney's tax number.  That number was provided by telephone no later than February 12, 2004.  As of that date, the employer and insurer still had more than a week left to comply with the 14-day statute, but failed to do so.  Indeed, there was also a factual dispute, which the compensation judge may have resolved in the employee's favor, over whether the employee's attorney had also faxed the signed W-9 form to the insurer on that date.

 

The compensation judge deemed the delay in payment inexcusable under the circumstances and assessed a penalty pursuant to Minn. Stat. ' 176.225, subd. 5, which provides for a mandatory 25 percent penalty where there is an Ainexcusable delay in payment.@  The majority holds that, as a matter of law, the insurer's explanation for the failure to make timely payment should have been found a Acolorable excuse@ for the delay in payment, rendering assessment of a penalty under Minn. Stat. ' 176.225, subd. 5, an error of law.  I disagree.  That there is an explanation, or the proffer of an excuse, does not necessarily render conduct Aexcusable.@

 

Here, there was ample support for a finding that the insurer simply insisted on following its own business policies over compliance with the statute.  Under such circumstances, I do not think the compensation judge was legally barred from finding that the delay in payment was inexcusable.  This court has previously noted that "[w]hether a penalty is appropriate under Minn. Stat. ' 176.225 is typically a question of fact for the compensation judge.@  Maxfield v. Stremel Mfg.  Co., slip op. (W.C.C.A. January 6, 1999).  The compensation judge, who generally has more extensive familiarity with the parties and attorneys and their conduct during a case, is in a far better position than this court to evaluate whether dilatory conduct by the employer or insurer should be deemed excusable.  I would not substitute this court's judgment on that factual issue for that of the compensation judge.

 

While reasonable minds may disagree over the extent of the penalty awards most appropriate to this case, I do not believe that penalties were improper as a matter of law or that the compensation judge clearly abused his discretion.  For this reason, I would affirm the penalty awards.