The employer and insurer appeal the compensation judge’s award of penalties.  We reverse.

On July 13, 1999, Edward P. Crowley, the employee, sustained an injury to his low back arising out of his employment with Plehal Blacktopping, Inc., the employer, then insured by State Fund Mutual Insurance Company.  The employer and insurer admitted liability for the employee’s personal injury.

In December 2003, the employee filed a claim petition seeking payment of medical expenses and a rehabilitation consultation.  At the hearing on January 6, 2005, the employee also sought approval for a two-level fusion surgery recommended by Dr. Salib.  The employer and insurer maintained the employee’s 1999 work injury was temporary in nature, denied the need for medical treatment was causally related to the work injury, and denied the proposed surgery was reasonable or necessary.  In a Findings and Order, served and filed February 8, 2005, the compensation judge found the employee’s July 13, 1999, work injury was permanent and was a substantial contributing cause of the employee’s need for medical care.  The judge further found the employee was entitled to a rehabilitation consultation and the surgery recommended by Dr. Salib was reasonable and necessary to cure or relieve the employee from the effects of the personal injury.  The judge ordered the employer and insurer to pay for the medical care and treatment provided to the employee, to reimburse an intervenor, Medica Health Plan/Ingenix, for the medical expenses it had paid, to pay for a rehabilitation consultation and to pay for the surgery recommended by Dr. Salib.  There was no appeal from this findings and order.

Following this decision, the employee’s attorneys filed a statement of attorney fees seeking $13,000 in Roraff-type fees.^[1]  The employer and insurer objected to the request.  While the attorney fees claim was pending, in April 2005, the employee was taken off work by his treating doctor.  The insurer commenced payment of temporary total disability benefits and paid the employee for a 10 percent whole body disability.  The insurer withheld attorney fees on these benefits.  By letter dated May 5, 2005, the employee’s attorney wrote to the insurer’s attorney requesting the insurer discontinue withholding attorney fees and pay the withheld fees to the employee.  The insurer’s counsel responded by letter dated May 9, 2005, stating, “State Fund Mutual will continue to withhold attorney’s fees from ongoing temporary total disability benefits until we are ordered not to do so by Judge Mesna.”  (Ee Ex. F.)

The attorney fees claim was heard by Judge Mesna, and in a Findings and Order served and filed May 13, 2005, the compensation judge found that since no contingent attorney fees were available, contingent fees were inadequate to reasonably compensate the attorneys for their work in the case.  The judge further found the employee’s attorneys had obtained a valuable benefit: approval for a future surgery.  Applying the Irwin factors, the judge found a reasonable fee for the legal services performed by the employee’s attorneys was $4,500.00.  The employer and insurer appealed.  Thereafter, by letter dated June 9, 2005, the employee’s attorney wrote to the insurer and, stating there was no genuine dispute regarding the indemnity benefits, again asked the insurer to release the withheld fees to the employee.  The insurer did not do so.

On appeal from the compensation judge’s May 2005 findings and order, the employer and insurer argued attorney fees were properly withheld from the temporary total and permanent partial disability benefits because the employee’s attorney was successful in establishing primary liability at the prior hearing.  Since the wage loss benefits were ongoing and attorney fees were being withheld, the appellants contended it was premature for the compensation judge to determine whether contingent fees on the wage loss benefits were inadequate to reasonably compensate counsel for representing the employee.  By decision dated October 13, 2005, the Workers’ Compensation Court of Appeals concluded that neither temporary total or permanency benefits were at issue in the hearing before Judge Mesna on January 6, 2005, nor was there any evidence that the insurer disputed the employee’s entitlement to those benefits subsequent to the hearing.  Since there was no dispute over the benefits, this court held no attorney fees were due on the temporary total and permanent partial disability benefits and ordered the withheld fees be released to the employee.  The insurer did so in October 2005.

The employee then filed a claim petition seeking penalties for wrongful withholding of attorney fees.  In a Findings and Order filed December 23, 2005, the compensation judge awarded the employee penalties under Minn. Stat. §§ 176.225, subd. 1, and 176.225, subd. 5.  The employer and insurer appeal.

Minn. Stat. § 176.225, subd. 1, provides,

The attorney fees in this case were withheld on permanent partial and temporary total disability benefits that were voluntarily paid by the insurer and neither the compensation judge nor this court ordered the benefits to be paid.  Accordingly, the appellants contend there was no “compensation award” so penalties cannot properly be awarded under the statute.

It is the intent of the legislature that the Workers’ Compensation Act be interpreted so as to assure the quick and efficient delivery of benefits to injured workers.  Minn. Stat. § 176.001.  The purpose of Minn. Stat. § 176.225, subd. 1, is to facilitate the prompt and expedient resolution of disputes and payment of claims.  Zweig v. Pope Douglas Solid Waste, 65 W.C.D. 553 (W.C.C.A. 2005).  To allow an employer or insurer to escape liability for a penalty for prohibited conduct by voluntarily paying the compensation due prior to an award negates the purpose and intent of the act.  We, therefore, decline to read the statute so narrowly.

The appellants next argue an award of penalties is inappropriate because they asserted a legitimate defense to the claim that attorney fees were improperly withheld.  The issue at the second hearing before Judge Mesna was whether the employee’s attorney was entitled to Roraff fees.  In determining whether Roraff fees are payable, any contingent fee for recovery of monetary benefits is presumed adequate.  Minn. Stat. § 176.081, subd. 1(a)(1).  At the first hearing on January 6, 2005, the employee successfully established primary liability which had been denied by the employer and insurer.  The appellants’ argued the benefits thereafter paid to the employee were, therefore, disputed and attorney fees were properly withheld.  Accordingly, the appellants asserted, there was a stream of benefits from which the employee’s attorney could be paid contingent fees and Roraff fees were not appropriate.  When this court held there was no legitimate dispute over the benefits paid, the insurer released the withheld fees.  Although the Workers’ Compensation Court of Appeals did not accept their defense, the appellants assert the defense was colorable and asserted in good faith.

A penalty under Minn. Stat. § 176.225, subd. 1, may be justified “not because the employer-insurer merely made a mistake, but because the reason for their neglect and refusal to pay compensation was patently ill-founded and unwarranted.”  Hines v. Kobiela, 308 Minn. 20, 241 N.W.2d 814, 28 W.C.D. 400 (1976).  An employer cannot be penalized for refusing to pay benefits which are the subject of a real controversy.  Grover v. City of St. Paul, 55 W.C.D. 397 (W.C.C.A. 1995).  An award of penalties is not appropriate where the employer and insurer interpose a good faith defense.  See Heise v. Honeywell, Inc., 48 W.C.D. 523 (W.C.C.A. 1993).  The fact that an employer and insurer do not ultimately prevail in their defense does not necessarily create a basis for the imposition of a penalty.  Greene v. Independent Sch. Dist. #202, 36 W.C.D. 601 (W.C.C.A. 1984).  There was a real controversy as to whether the employer and insurer could contend the benefits in question were genuinely disputed.  The employer and insurer interposed a good faith defense and accordingly, a penalty is not appropriate on this basis.

The compensation judge further found the employer and insurer’s failure to comply with the employee’s attorney’s request to release the withheld fees and to cease withholding was grounds for a penalty.  A retainer agreement under Minn. Stat. § 176.081 is a contract between the employee and his or her attorney.  An employer or insurer is not a party to or a beneficiary of that contract.  “If the employer or the insurer or the defendant is given written notice of claims for legal services or disbursements, the claim shall be a lien against the amount paid or payable as compensation.”  Minn. Stat. § 176.081, subd. 1(3)(c).  Where, as in this case, the employee’s attorney advises the employer and insurer, in writing, that no claim is being made for contingent attorney fees, no lien exists against the benefits paid or payable.  Thus, State Fund, upon receipt of the May 5, 2005 letter from the employee’s attorney, should have released the withheld attorney fees to the employee and discontinued withholding.  We hold an employer and insurer may not withhold attorney fees on compensation benefits when specifically instructed not to do so by the employee’s attorney.^[2]  This court has not previously addressed this question, however, thus there was a legitimate dispute regarding whether withholding was required or appropriate in these circumstances.  As previously discussed, a good faith defense is not a basis for a penalty.  The compensation judge’s award of a penalty to the employee is, accordingly, reversed.