SETTLEMENTS - SCOPE. A workers’ compensation settlement agreement making a third-party annuity payor the sole responsible party for paying benefits does not preclude imposition of penalties on the employer and insurer for nonpayment of benefits where the terms of the agreement do not meet the requirements of Minn. Stat. § 176.171.
JURISDICTION - SUBJECT MATTER. Worker’s compensation courts have jurisdiction to consider a claim of penalties for nonpayment of workers’ compensation benefits regardless of the existence of a cause of action outside of the Workers’ Compensation Act.
Compensation Judge: Veronica Walther
Attorneys: Karl F. von Reuter, Minneapolis, Minnesota, for the Appellant. Jason L. Schmickle, Aafedt, Forde, Gray, Monson & Hager, P.A., Minneapolis, Minnesota, for the Respondents.
Vacated in part, affirmed in part, and remanded.
PATRICIA J. MILUN, Chief Judge
The employee appeals the compensation judge’s decision to deny and dismiss his claim seeking penalties and interest under Minn. Stat. §§ 176.225 and 176.221 against the employer and insurer for failure by an assignee of the annuity contract to make two periodic payments to the employee in 2018 and 2023 pursuant to the parties’ stipulation for settlement. We affirm the findings of the compensation judge with the exception of Findings 16 and 17 and Orders 1 and 2 which we vacate. We remand the case to the compensation judge for determination of penalties under Minn. Stat. § 176.225 and interest under Minn. Stat. § 176.221.
The employee, Robert Mike, Jr., settled his workers’ compensation claim against the employer, CBI Services, through a full, final, and complete settlement agreement executed in 2005. The settlement agreement provided the employee a lump sum payment of $55,000, less attorney fees and periodic payments from an annuity. The annuity agreement guaranteed five payments:
$2,500 on or about December 26, 2008,
$5,000 on or about December 26, 2011,
$7,500 on or about December 26, 2013,
$10,000 on or about December 26, 2018, and
$17,940.05 on or about December 26, 2023.
The settlement agreement also incorporated by reference a compromise and release agreement that included the following language regarding responsibility for the annuity payments to the employee:
A. Assignment of Obligation. The Parties understand and agree that the Employer and Insurer may assign their duties and obligations to make such future Periodic Payments to Liberty Assignment Corporation (“Assignee”) pursuant to a “Qualified Assignment and Release,” within the meaning of Section 130(c) of the Internal Revenue Code of 1986, as amended, attached as Exhibit A. When the Periodic Payment obligation is assigned to Liberty Assignment Corporation, Liberty Life Assurance Company of Boston has represented that it will provide a written guarantee of such obligation. Such assignment is accepted by the Claimant without right of rejection and in full discharge and release of the duties and obligations of the Employer and Insurer and all Parties released by this Agreement with respect to such Periodic Payments. Upon such assignment, it is understood and agreed by and between the Parties that the Assignee shall make said Periodic Payments directly to the respective Payee and/or Beneficiary designated in Paragraph 2.(2.) and that the Payee shall submit any request to change the Beneficiary directly to the Assignee.
(Ex. B.)
The incorporated compromise and release agreement set out the effect of the funding of the annuity on the obligations of the employer and its insurer as follows:
The Parties expressly understand and agree that, with the Employer’s and Insurer’s assignment of the duties and obligations to make such Periodic Payments to Liberty Assignment Corporation pursuant to this Agreement, all of the duties and responsibilities otherwise imposed upon the Employer and Insurer by this Agreement with respect to such Periodic Payments shall cease, and instead such obligation shall be binding solely upon Liberty Assignment Corporation. The Parties further understand and agree that when the assignment is made, the Employer and Insurer shall be released from all obligations to make such Periodic Payments and Liberty Assignment Corporation shall at all times be directly and solely responsible for, and shall receive credit for, the Periodic Payments, and that when the assignment is made, Liberty Assignment Corporation assumes the duties and responsibilities of the Employer and Insurer with respect to such Periodic Payments.
(Ex. B.)
The settlement agreement was approved by a compensation judge in an Award on Stipulation served and filed on October 11, 2005.
On December 8, 2005, the insurer filed a Notice of Benefit Payment (NOBP) with the Department of Labor and Industry. The NOBP indicated that a lump sum payment, minus attorney fees, had been made.
On July 25, 2023, the employee served a claim petition notifying the employer and insurer that the employee did not receive the annuity payment due on December 26, 2018. Between the date of the claim petition and the date of hearing, the final annuity payment came due on December 26, 2023. As of the date of the hearing, the last two annuity payments remained unpaid.
The matter came on for hearing before the compensation judge on April 23, 2024. The employee presented three issues for determination. First, whether the employee received the annuity payments due in December 2018 and in December 2023. Second, whether the employer and insurer had an obligation under the stipulation for settlement to issue the annuity payments due in December 2018 and in December 2023. Third, whether the employee was entitled to a 30 percent penalty and interest on the past due payments from the employer and insurer.
The compensation judge found that the employee had not received the final two annuity payments guaranteed in the settlement agreement. The judge also found the obligation to make the annuity payments was assumed by the Assignee, Liberty Assignment Corporation, and was not the obligation of the employer and insurer.
The judge concluded that because the assignment language in the compromise and release agreement of the annuity released the employer and insurer’s obligation to make payments guaranteed in the settlement agreement, the employer and insurer had no legal responsibility to make those annuity payments and, by extension, had no liability for penalties and interest on late payments. To that end, the compensation judge concluded that the employee was not entitled to penalties from the employer and insurer for the payments due in December 2018 and in December 2023. The employee appeals.
On appeal, the Workers’ Compensation Court of Appeals must determine whether “the findings of fact and order [are] clearly erroneous and unsupported by substantial evidence in view of the entire record as submitted.” Minn. Stat. § 176.421, subd. 1(3). Substantial evidence supports the findings if, in the context of the entire record, “they are supported by evidence that a reasonable mind might accept as adequate.” Hengemuhle v. Long Prairie Jaycees, 358 N.W.2d 54, 59, 37 W.C.D. 235, 239 (Minn. 1984). Where evidence conflicts or more than one inference may reasonably be drawn from the evidence, the findings are to be affirmed. Id. at 60, 37 W.C.D. at 240. Similarly, findings of fact should not be disturbed, even though the reviewing court might disagree with them, “unless they are clearly erroneous in the sense that they are manifestly contrary to the weight of evidence or not reasonably supported by the evidence as a whole.” Northern States Power Co. v. Lyon Food Prods., Inc., 304 Minn. 196, 201, 229 N.W.2d 521, 524 (1975).
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).
The effect of a settlement through which an injured employee and the employer and insurer contracted the employer’s responsibility for benefits under the Minnesota Workers’ Compensation Act (WCA) to a third party is a question of law. As such, it is considered by this court de novo.
Minn. Stat. § 176.021, subd. 1, obligates an employer to pay workers’ compensation benefits to an employee for a work injury.[1] The timely payment of compensation and the penalties for late or nonpayment are required by Minn. Stat. § 176.221. The employer and insurer contend that a settlement agreement that assigns their responsibility for payment to a nonparty annuity payor releases them from liability created by statute. They also argue that the compensation judge correctly determined that they were not obligated to issue the past due annuity payments and therefore did “not fail to issue these payments to the employee.” (Finding 16.) Lastly, the employer and insurer argue that this finding correctly determines that the employee was not entitled to penalties and interest on late payments against them. We disagree.
Nowhere in the WCA or in case law is there any suggestion that the assignment language in an annuity abrogates an employer and insurer’s liability under the statute. To the contrary, parties may not waive mandatory provisions of the WCA through contract.[2]
The only provision of the WCA which allows for the employer and by extension, the insurer, to have no further responsibility for paying benefits to the employee is Minn. Stat. § 176.171, which states:
At any time after the amount of any award or commutation is finally determined, a sum equal to the present value of all future installments of the compensation, calculated on a five percent basis, where death or the nature of the injury renders the amount of future payments certain, may be paid by the employer to any bank, mutual savings bank, savings association, or trust company in this state approved and designated by the commissioner of the Department of Labor and Industry, compensation judge, or Workers' Compensation Court of Appeals in cases upon appeal. Such sum, together with all interest thereon, shall be held in trust for the employee or for the dependents of the employee, who shall have no further recourse against the employer. The employer's payment of this sum evidenced by a receipt of the trustee filed with the commissioner of the Department of Labor and Industry, operates as a satisfaction of the compensation liability as to the employer. The trustee shall make payments from the fund in the same amounts and at the same time as are required of the employer until the fund and interest is exhausted, except when otherwise ordered by the commissioner of the Department of Labor and Industry. In the appointment of trustee the preference shall be given to the choice of the injured employee or the choice of the dependents of the deceased employee.
The language of this statutory provision is clear. To obtain the release of the employer from the obligation to pay benefits, the third-party payor of benefits must file with the commissioner specific information that identifies who is paying the employee’s benefits. This process avoids the situation where the third-party payor cannot be located, which in the case before us, the parties have clearly identified as a problem.[3] No such filing occurred in this case.
As stated above, we conclude that the agreed-to language in the settlement agreement regarding responsibility for the annuity payments is not an alternative to the employer and insurer’s liability under the WCA. The assignee’s promise to make payments and the employee’s acceptance of a waiver of the employer and insurer’s responsibility under a contract does not abrogate the employer and insurer’s statutory liability nor preclude an employee’s claim for penalties and interest on late payments against the employer and insurer.[4] The same applies to the fact that the employer and insurer funded the annuity. The mere funding of the annuity does not satisfy the statutory obligation the employer and insurer have to the employee, that he be paid the agreed-upon sums as set out in the compensation judge-approved stipulation for settlement. Accordingly, we must conclude that the employer and insurer here, as the parties primarily responsible for the employee’s benefit payments, remain liable for interest and penalties in the event of non-payment of benefits owed, even when the non-payment was due to the failure of a third party.[5]
The employer and insurer also argue that the employee has a separate cause of action against the assignee in district court and that the compensation judge accordingly had no jurisdiction over the employee’s claim for interest and penalties. A claim for penalties and interest under Minn. Stat. §§ 176.225 and 176.221 is clearly within the jurisdiction of a workers’ compensation judge. A potential separate cause of action against an assignee outside the WCA does not shield the employer and insurer from a claim for penalties and interest under Minn. Stat. §§ 176.225 and 176.221.
For the foregoing reasons, the purchase of an annuity does not abrogate the employer’s responsibility to pay compensation under the WCA. As there has been no payment through the date of hearing of benefits that are past due, penalties and interest appear appropriate. The portions of the compensation judge’s findings and order denying penalties and interest is hereby vacated. The matter is remanded to the compensation judge for determination of any penalties and interest that may be appropriate.
[1] As the Minnesota Supreme Court stated in Johnson v. Darchuks Fabrication, Inc., 926 N.W.2d 414, 420, 79 W.C.D. 291, 300 (Minn. 2019):
The [WCA] makes every employer “liable to pay compensation in every case of personal injury or death of an employee arising out of and in the course of employment.” Minn. Stat. § 176.021, subd. 1. Section 176.021 uses the term “liability” synonymously with the word “obligation.” See Liability, Black’s Law Dictionary (10th ed. 2014). The obligation that the [WCA] imposes on employers is to pay the compensation set forth in the statute when an employee suffers an injury that is covered under the [WCA].
[2] Swenson v. Nickaboine, 793 N.W.2d 738, 743, 71 W.C.D. 69, 74 (Minn. 2011) (“any agreement to contract out of the [WCA] where it otherwise applies is, by statute, void”); O’Mara v. State of Minn., Univ. of Minn., 501 N.W.2d 603, 48 W.C.D. 483 (Minn. 1993) (agreement in settlement to accept lower economic benefit than statutorily required is void); see also Sweep v. Hanson Silo Co., 391 N.W.2d 817, 822, 39 W.C.D. 51, 57 (Minn. 1986) (“settlement is broader than is permissible under the [WCA] and therefore does not conform to it”) clarified by Ryan v. Potlatch Corp., 882 N.W.2d 220, 76 W.C.D. 491 (Minn. 2016).
[3] In their briefs and at oral argument, the parties described the difficulties in locating the entity responsible for paying the remaining annuity payments. As these statements are not supported by affidavits or testimony, they are not considered part of the record upon which the compensation judge made her decision.
[4] See Minn. Stat. § 176.021; see also Minn. Stat. § 176.001 and 13 Arthur Larson & Lex K. Larson, Larson’s Workers' Compensation Law § 143.07D(1) (2024).
[5] The issue of whether the employer and insurer are also responsible for the actual lump sum payments pursuant to the annuity contract was not before the compensation judge and therefore is not before this court.