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Court of Appeal, Third District, California.

SIERRA PACIFIC INDUSTRIES, Permissibly self-insured, Petitioner, v. WORKERS' COMPENSATION APPEALS BOARD of the State of California and Elvis Hulsey, Respondents.

Civ. 15698.

Decided: July 23, 1976

Huber, Goodwin, Murray, Cissna, Prior & Carson by Robert D. Prior, Eureka, for petitioner. Thomas McBirnie, Jr., Workers' compensation appeal board, San Francisco, for Workers' Compensation Appeals Bd., respondent. Eugene C. Treaster, Sacramento, for other respondent.

Petitioner Sierra Pacific Industries, permissibly self-insured, seeks annulment of an order of the Workers' Compensation Appeals Board assessing a 10 percent penalty under Labor Code section 5814 for unreasonably delaying payment of a $975 attorney fee out of an award of $9,765 in disability payments. Petitioner's contention is that the Board erred in assessing the 10 percent penalty against the entire award rather than against only the $975.

It is undisputed that all payments other than the attorney fee were timely made. In a letter to the Board, petitioner offered the following explanation for the delay: ‘Findings and award were filed and served by mail on April 1, 1975. Defendant's copy was received by defendant on April 3, 1975. On April 21, 1975 defendant computed the computation necessary to pay the attorneys' fee from the far end of the award and requested a check for attorneys' fees be issued on April 25, 1975. For some reason which defendant can not [sic] account for, the check was not typed until May 15, 1975. It was mailed May 16, 1975.’ Although petitioner argued before the Board that the delay was not unreasonable, it has not renewed that contention here.

Labor Code section 5814 provides in pertinent part: ‘When payment of compensation has been unreasonably delayed or refused, either prior to or subsequent to the issuance of an award, the full amount of the order, decision or award shall be increased by 10 percent.’

The only Supreme Court interpretation of section 5814 is in Garcia v. Workmen's Comp. Appeals Bd. (1972) 6 Cal.3d 687, 100 Cal.Rptr. 149, 493 P.2d 877, which did not directly involve the issue before us. There the employer unreasonably delayed payment of temporary disability benefits and was assessed a 120 percent penalty. Over a year later, he filed for and obtained a permanent disability award. He sought to have the 10 percent penalty applied to the permanent disability award as well.

In denying the claim, the Supreme Court quoted with approval the following language from Manning v. Workmen's Comp. App. Bd. (1970) 10 Cal.App.3d 655, 658–659, 89 Cal.Rptr. 76: “[W]e believe the words ‘order, decision or award,’ on the full amount of which the penalty must be applied, must be construed to mean the ‘order, decision or award’ with respect to which payment of compensation has been unreasonably delayed.” (6 Cal.3d at pp. 689–690, 100 Cal.Rptr. at p. 151, 493 P.2d at p. 879.) Quoting from Roche v. Navajo Freight Lines, Inc., 34 Cal.Comp.Cases 7, the Supreme Court added: “[W]e are persuaded that a delay penalty should apply to all compensation awarded in the decision assessing the penalty [citation], but should not apply with respect to a subsequent decision awarding a different species of compensation. Labor Code Section 5814 uses the terms ‘order, decision and award’ in the singular, and does not specifically refer to future ‘orders, decisions or awards.” (6 Cal.3d at p. 691, 100 Cal.Rptr. at p. 151, 493 P.2d at p. 879.) (Emphasis in original.)

Although emphasizing the word ‘subsequent’ in the above quotation, the Supreme Court later indicated (quoting from the same Workers' Compensation Appeals Board opinion) that temporal distinctions are not important; and that distinctions may be made on the basis of different ‘species of compensation.’ “We are aware of the decision in Fireman's Fund Ins. Co. v. WCAB (Elder), 32 [Cal.Comp.Cases] 227 (writ denied). That decision, however, upheld the assessment of a penalty, albeit in a supplemental award, but as against the same species of compensation, i. e., temporary disability, which had originally been unreasonably delayed. Here of course, we are dealing with permanent disability, which as compared to the originally unreasonably delayed temporary disability indemnity, is ‘new and further’ disability, and is thus the subject of a separate award.” (6 Cal.3d at p. 691, 100 Cal.Rptr. at p. 152, 493 P.2d at p. 880.) (Emphasis added.)

Petitioner relies upon State Comp. Ins. Fund v. Workmen's Comp. Appeals Bd. (Sturm) (1973) 35 Cal.App.3d 374, 110 Cal.Rptr. 757 and Daniels v. Workmen's Comp. Appeals Bd. (1972) 27 Cal.App.3d 504, 104 Cal.Rptr. 129, neither of which directly concerned attorneys' fees.

In Daniels, the employee was injured on June 15, 1970, but the employer unreasonably delayed making temporary disability payments until mid-August. On August 31, the employee was released as fit for work by the company doctor, and the employer therefore reasonably ceased the temporary disability payments. A final award was issued on July 16, 1971, granting additional temporary disability benefits after August 31, 1970, as well as permanent disability and other benefits. The Daniels court affirmed the Workers' Compensation Appeals Board 10 percent penalty on that portion of the temporary disability benefits that had been unreasonably delayed, and rejected the employee's contention that the penalty should have been assessed against the entire award of temporary disability benefits; the court relied upon the aforequoted language of Garcia: “[W]e believe the words ‘order, decision or award,’ on the full amount of which the penalty must be applied, must be construed to mean the ‘order, decision or award,’ with respect to which payment of compensation has been unreasonably delayed.” (Garcia v. Workmen's Comp. Appeals Bd., supra, 6 Cal.3d at pp. 689–690, 100 Cal.Rptr. at p. 151, 493 P.2d at p. 879.)

In Sturm, the carrier unreasonably delayed making temporary disability payments for the period from July 1 to September 14, 1972. The Workers' Compensation Appeals Board nevertheless imposed a 10 percent penalty upon the full amount of the final award, which included no additional temporary disability benefits, but only permanent disability and collateral benefits. Relying on Daniels and Garcia, the Court of Appeal reversed, holding that the 10 percent penalty should have been assessed only against those temporary disability benefits which were unreasonably delayed.

These authorities thus have in effect added an implied limitation to the literal language of section 5814; they have made the 10 percent penalty applicable to the funds actually unreasonably withheld and not to those paid on time. With such an interpretation we agree, for it rings of fairness and equity, and therefore suggests a legislative intent in accord therewith. (See Dempsey v. Market Street Ry. Co. (1943) 23 Cal.2d 110, 113, 142 P.2d 929; 45 Cal.Jur.2d, Statutes, § 116 at pp. 625–626.) On the facts of this case, for example, it is unreasonable to impose as penalty for a late payment of $975 in attorney fees an additional $975 (10 percent of the $9,765 in total disability payments awarded). Such an absurd result, although literally within the statute, should be avoided (Dempsey v. Market Street Ry. Co., supra), 10 percent of the $975 being a sufficiently harsh penalty to bring about the result intended by the Legislature, i. e., prompt payment of Workers' Compensation benefits. (Ramsey v. Workmen's Comp. App. Bd. (1969) 2 Cal.App.3d 693, 83 Cal.Rptr. 51.)

Vogh v. Workmen's Comp. App. Bd. (1968) 264 Cal.App.2d 724, 70 Cal.Rptr. 722, is not inconsistent with our holding.

Furthermore, since Garcia, ‘full amount’ is divisible into ‘species of compensation.’ Although attorney fees in this case are to be deducted from the compensation award, they are nevertheless payable in a different manner, at a different time, and to a different person than the rest of the compensation. Moreover, unlike payments to be made directly to the employee, a delay in paying the employee's attorney will not subject the employee to immediate financial hardship, which is the main thrust of the statute's objective. We conclude that the portion of the award to be paid as attorney fees is a different ‘species of compensation’ from the portion which is to be paid directly to the worker.

Accordingly, the proper penalty is $97.50, 10 percent of the attorney fee award. The decision of the appeals board is vacated with directions to so limit the penalty.

PARAS, Associate Justice.

PUGLIA, P. J., and EVANS, J., concur.

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