MARES v. WORKERS COMPENSATION APPEALS BD

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Court of Appeal, Third District, California.

Kimberlee MARES, Petitioner, v. WORKERS' COMPENSATION APPEALS BD. et al., Respondents.

No. C021306.

Decided: July 15, 1996

Petitioner (employee) seeks review of an order of respondent Workers' Compensation Appeals Board (Board) affirming the ruling of the Workers' Compensation Judge (WCJ) granting the employer's insurance carrier, State Compensation Insurance Fund (SCIF), credit for the net proceeds of the employee's third party settlement. We shall hold the Board's ruling was proper and dismiss the instant petition.

FACTUAL AND PROCEDURAL BACKGROUND

The employee suffered an injury in April 1990 when the elevator she was riding in suddenly dropped several floors. She did not file a workers' compensation claim until August 1991. The employee also filed an action for third party recovery and SCIF intervened in that action after the workers' compensation claim was filed.

Following a contested hearing on March 17, 1992, the WCJ found the employee's injuries arose from and occurred in the course of her employment. On August 6, 1992, the parties filed stipulations with request for award, agreeing that the employee's injuries caused periods of temporary disability and permanent disability of 63 percent for which indemnity was payable in the sum of $46,480; SCIF was to pay, adjust, or litigate all bills and liens, with Board jurisdiction reserved; reasonable attorney fees were $6,972; and the Employment Development Department (EDD) had a lien for sums paid during the employee's temporary disability. The award, issued August 12, 1992, pursuant to the stipulation, ordered SCIF to withhold $12,525 from the employee's award to reimburse EDD.

By October 1992, SCIF had not yet paid the sums awarded so the employee's counsel filed a declaration in support of an order of enforcement and for penalties, asserting that a claims examiner for SCIF told him the carrier intended to ignore the award, make no payments, await the outcome of employee's third party suit, and then assert a credit claim against the employee's recovery. On November 24, 1992, the WCJ ordered SCIF to make the stipulated payments and imposed a 10 percent penalty on the permanent disability award for failure to make timely payments.

SCIF filed a petition for reconsideration and for credit in the amount of a third party settlement which it believed the employee had procured. The employee vigorously opposed the petition for credit, contending SCIF's refusal to pay the stipulated award subverted the statutory scheme which required it to assert a lien in a third party case for amounts that became due during the litigation and then to claim credit only for future payments due after a settlement or judgment in the third party action. The employee asserted her settlement, with a net recovery of $230,249.38, in the third party case was not finalized until four days after SCIF had filed its claim for credit. She also argued that by January 7, 1993, SCIF settled its complaint in intervention in the third party case for $20,000, extinguishing all its claims against the third party.

The Board denied reconsideration and returned the matter to the WCJ for further proceedings on SCIF's entitlement to credit. After additional briefing, the WCJ granted SCIF credit “in the amount of applicant's net proceeds in the third party case ․ against all benefits due applicant.” (Italics in original.) The Board granted the employee's request for reconsideration of this order and on March 15, 1995, issued its decision affirming the order and returning the case to the WCJ to determine the amount of credit due SCIF. In its decision, the Board rejected the employee's contention that “credit” was limited to amounts which became due after the civil settlement occurred. The Board further found the 10 percent penalty assessed against SCIF was part of the employee's compensation against which credit was due and “under[stood] the order's reference to ‘all benefits' to mean all compensation, ․” (Original emphasis.)

We originally denied the employee's petition for review of the Board's decision; however, the Supreme Court granted applicant's petition for review and transferred the matter to this court with directions to issue a writ of review.

DISCUSSION

I

The employee argues the Board acted in excess of its jurisdiction by allowing SCIF to assert a credit against a nonexistent tort recovery and further that public policy does not permit the Board to do so.1

We perceive the employee's true claim in this petition for review is that the WCJ's order as affirmed by the Board grants SCIF too much credit. We disagree with this contention. The WCJ and the Board made the only order possible under the circumstances to prevent a double recovery by the employee.

The Workers' Compensation Act permits an employee who suffers a workplace injury to recover compensation benefits from the employer without regard to the negligence of either party. (Lab. Code, § 3600, further undesignated statutory references are to this code.) The act details an elaborate and complete scheme for adjudication of employee injury claims. Its purpose “is to provide a quick, simple and readily accessible method of claiming and receiving compensation.” (Santiago v. Employee Benefits Services (1985) 168 Cal.App.3d 898, 901, italics added.) To encourage prompt payment, the act allows the Board to impose a 10 percent penalty for unreasonable delay or refusal to pay an award. (§ 5814.)

Notwithstanding the workers' compensation system, when an employee's injury is due to third party negligence, the employee may also sue the third party for all damages resulting from the third party tort. (§ 3852; Abdala v. Aziz (1992) 3 Cal.App.4th 369, 374.) However, the act contains a comprehensive subrogation scheme to prevent double recovery which includes both credit and reimbursement provisions. (§§ 3850-3864; Graham v. Workers' Comp. Appeals Bd. (1989) 210 Cal.App.3d 499, 503.) An employer may seek reimbursement by suing the third party directly (§ 3852), by intervening or joining the employee's action against the third party (§ 3853), or by filing a lien against the employee's recovery in the third party suit (§ 3856). (O'Dell v. Freightliner Corp. (1992) 10 Cal.App.4th 645, 653.) Under the credit provision, an employer may discontinue compensation benefit payments to the extent that the employee's net third party recovery satisfies the employer's liability for such payments. (§§ 3858; 3861; Graham v. Workers' Comp. Appeals Bd., supra, 210 Cal.App.3d at pp. 503-504.)

SCIF is clearly entitled to credit for all permanent disability payments and any medical treatment costs which became due after the settlement occurred. The employee does not contend otherwise.

The employee's disagreement with the Board's order centers on the award of credit for the amounts owing under the award prior to the third party settlement, but which were not paid by the carrier. The employee asserts it is unfair to permit SCIF to credit this amount since doing so effectively rewards the carrier for unwarranted delay in payment. It is unclear whether the employee believes this amount should be denominated a lien and considered waived or whether it should be treated as an additional penalty. Neither treatment is appropriate.

The amount unpaid prior to settlement cannot be an additional penalty since the sole penalty for unwarranted delay in payment is the 10 percent penalty provided for in section 5814.2 (Santiago v. Employee Benefits Services, supra, 168 Cal.App.3d at p. 902.) Further, the unpaid amount cannot be considered a lien. As we have explained, a lien is simply one of the means by which an employee or carrier can assert a claim for reimbursement against a third party for sums paid to the employee. As nothing was paid, reimbursement strategies cannot apply.

The employee relies upon Herr v. Workers' Comp. Appeals Bd. (1979) 98 Cal.App.3d 321, for the proposition that credit can only apply to future sums. Herr is inapposite. The issue in Herr was whether the county had waived its right to assert credit against future sums in the amount of the employee's third party recovery when, during settlement of the third party suit, it waived a portion of its lien for benefits paid to the employee. Unlike this case, the county had not delayed or refused benefit payments and its lien represented all amounts due and paid prior to settlement. Thus, the court in Herr had no occasion to determine the issue before us. Its language, e.g., “credit may be applied against future workers' compensation benefits that County becomes obligated to pay Herr after the time of the civil action settlement” (id. at p. 329, original italics), merely reflects the factual setting of that case. Further, there is no evidence that by releasing the third party in its settlement, SCIF intended to waive any subrogation rights against the employee which would prevent double recovery. (Id. at p. 328; Hodge v. Workers' Comp. Appeals Bd. (1981) 123 Cal.App.3d 501, 510-511.)

Section 3861 states: “The appeals board is empowered to and shall allow, as a credit to the employer to be applied against his liability for compensation” the amount of the employee's net third party recovery for the injury. The statute, by its terms, does not expressly limit credit to amounts due after settlement. Since the purpose of the subrogation statutes is to prevent double recovery, the statutory language can only mean that the employer is entitled to credit for any unpaid compensation for which it is liable without regard to the time that the compensation became due.”

We recognize, as the employee asserts, that this result permits the carrier to delay payment in cases of third party liability until settlement or judgment, depriving the employee of prompt payment of benefits and frustrating the purpose of the Workers' Compensation Act. The provisions of the act which permit the employer to amend its lien to include amounts paid up to settlement or judgment (§ 3857) and impose a penalty for late payment (§ 5814) are calculated to prevent this evasion of the intent and purpose of the act.

Unfortunately, in cases like this, where the third party claim results in a substantial recovery, imposition of a penalty, or even of repeated penalties, has little coercive value. Such a penalty is viewed as additional compensation as defined by Labor Code Section 3207 and therefore the recalcitrant insurer or employer gets credit for the additional costs. (State Compensation Ins. Fund v. Workers' Comp. Appeals Bd. (1982) 130 Cal.App.3d 933, 940-941.) The fact that the penalty provision has no coercive impact in this situation is a serious deficiency in the statute. According to the California Constitution, article XIV, section 4, the Legislature is vested with plenary power to create a workers compensation system that, “shall accomplish substantial justice in all cases expeditiously, inexpensively, and without incumbrance of any character; ․” The SCIF's delaying tactics, while permissible under the law, violate the spirit and the purpose of the workers compensation system.

The Board properly concluded SCIF, despite its unwarranted refusal to pay benefits, was entitled to credit in the amount of the employee's net recovery in the third party case against all unpaid sums due the employee in order to prevent double recovery. The Board remanded the case for determination of the amounts in question. We presume that allocation of the $20,000 recovered by SCIF in the third party action will be a part of that determination so that neither SCIF nor the employee will benefit from a double recovery.

DISPOSITION

The petition is dismissed.

FOOTNOTES

1.  We recognize the petition was filed before the settlement was finalized. However, no action was taken on the petition until well after both parties had settled with the third party tortfeasor. Thus, the WCJ had jurisdiction to enter an order granting SCIF credit against the employee's settlement.

2.  Section 5814 states: “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 question of delay and the reasonableness of the cause therefor shall be determined by the appeals board in accordance with the facts. Such delay or refusal shall constitute good cause to rescind, alter or amend the order, decision or award for under Section 5803 the purpose of making the increase provided for herein.”

MORRISON, Associate Justice.

PUGLIA, P.J., and RAYE, J., concur.