CHRISTIAN v. WORKERS COMPENSATION APPEALS BOARD (1996)

Petitioner Kay Christian, an office manager for respondent Morris, Polich & Purdy (MPP), developed physical and psychological work related injuries.   Respondent State Compensation Insurance Fund (SCIF), MPP's workers' compensation insurer, began paying Christian temporary total disability (TTD) benefits based on available medical reports.   SCIF made the payments every two weeks.   The parties set a hearing before a workers' compensation judge (WCJ) to determine Christian's long term condition and benefits.   Before the hearing, SCIF, based on later medical reports, unilaterally refused to make 11 TTD payments.   Christian notified respondents after each refused payment that she would seek a penalty for each refused payment.

At the hearing, the WCJ found the later reports on which SCIF had based its termination decision inadmissible, and the termination unreasonable.   The WCJ found Christian temporarily totally disabled.   MPP and SCIF never challenged these findings.   In addition to ordering benefit payments resumed and repayment of the 11 withheld payments plus interest, the WCJ awarded a Labor Code section 5814 ¹ penalty for each withheld check.   These facts are undisputed.

Respondents sought review before the Workers' Compensation Appeals Board (Board) only of the multiple penalties, successfully arguing that only one penalty should be assessed.   Christian petitioned to restore the multiple penalties.   We agree with Christian that multiple penalties properly were awarded under section 5814.   We annul the Board's contrary ruling and reinstate the WCJ's original findings and award.

DISCUSSION

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 under Section 5803 to rescind, alter or amend the order, decision or award for the purpose of making the increase provided for herein.”   The Legislature has declared that the workers' compensation laws (§ 3200 et seq.) “shall be liberally construed by the courts with the purpose of extending their benefits for the protection of persons injured in the course of their employment.” (§ 3202.)

Davison v. Industrial Acc. Com. (1966) 241 Cal.App.2d 15, 50 Cal.Rptr. 76, held that a second penalty could be assessed against an insurer which later refused to make, or delayed in making, a payment after assessment of an initial penalty.   The court annulled the Board's decision to assess a single penalty for multiple refusals or delays in payment under section 5814.  “We think a rule of liberal construction is applicable to all aspects of workmen's compensation, including penalties.   On this basis, we conclude the commission erred in restricting its authority to a single penalty.  [¶]  The broad purpose of workmen's compensation is to secure an injured worker seasonable cure or relief from industrially caused injuries in order to return him to the work force at the earliest possible time․   The penalty for unreasonable delay in the payment of compensation is designed to help an employee obtain promptly the cure or relief he is entitled to under the law, and to compel his employer to provide this cure or relief in timely fashion.  [¶]  In our view section 5814 is both remedial and penal.   The remedial aspect is to encourage the return of injured workers to their employment as quickly as possible.   The penal aspect is to compel the employer to comply with the law fully and promptly․   We give the penalty section its intended deterrent effect and carry out the statute's basic policy of liberal construction by holding that successive delays in the payment of compensation may give rise to the imposition of successive penalties.”  (Davison v. Industrial Acc. Com., supra, 241 Cal.App.2d at p. 18, 50 Cal.Rptr. 76.)

Later, in annulling the Board's refusal to assess a section 5814 penalty despite the WCJ's assessment for unreasonably delaying an ordered payment, the Supreme Court approved Davison:  “The application of section 5814 has been the subject of a number of appellate decisions.   A review of those cases clearly reveals that, although denominated a ‘penalty,’ the section is to be interpreted liberally, in accordance with the general purpose of the workmen's compensation laws.  (E.g., [citation];  Davison v. Industrial Acc. Com.[, supra,] 241 Cal.App.2d 15, 50 Cal.Rptr. 76 ․;  [citation].)  In Davison, supra (p. 18), the court held that section 5814 authorized imposition of more than one penalty in cases of successive refusals to provide compensation, stating that, ‘We think a rule of liberal construction is applicable to all aspects of workmen's compensation, including penalties.’   We agree.”  (Kerley v. Workmen's Comp.App. Bd. (1971) 4 Cal.3d 223, 227, 93 Cal.Rptr. 192, 481 P.2d 200, fn. omitted.)

Later, in annulling the Board's affirmance of assessment of a single penalty for several delays and refusals of various payments, the Supreme Court held that “(1) both preaward and postaward delinquencies are equally subject to the 10 percent penalty, (2) the penalty is mandatory despite the arguably de minimus nature of the amounts involved, (3) multiple penalties must be assessed for successive delays so long as separate and distinct acts of misconduct are involved, and (4) the penalty is to be computed by assessing 10 percent of the entire amount ultimately awarded for the particular class of benefit which has been unreasonably delayed or withheld.”  (Gallamore v. Workers' Comp. Appeals Bd. (1979) 23 Cal.3d 815, 827, 153 Cal.Rptr. 590, 591 P.2d 1242, emphasis added.)   Regarding the multiple penalties issue, the court again approved Davison and stated, “we agree with the condition of Davison that the additional penalties must be preceded by the imposition of ‘a first penalty’ and follow a further unreasonable delay.   Such a limitation upon the assessment of multiple penalties is appropriate to assure that the employer or carrier is not doubly penalized for what may be essentially a single act of misconduct, and, further, to provide reasonable notice of the risk of imposition of multiple penalties.   Where, however, the circumstances disclose separate and distinct acts of delay or nonpayment, and prior notice was given of the applicant's intent to seek separate or additional penalties for such acts, then multiple penalties are appropriate in a single penalty proceeding.”  (Gallamore v. Workers' Comp. Appeals Bd., supra, 23 Cal.3d at pp. 823–824, 153 Cal.Rptr. 590, 591 P.2d 1242, emphasis added.)

Most recently, in holding that section 5814 penalties are calculated on the full amount of the award without setoffs for timely preaward payments, the Supreme Court reaffirmed that “successive delinquencies require the imposition of multiple penalties.  (Gallamore, supra, 23 Cal.3d at pp. 823–824, 153 Cal.Rptr. 590, 591 P.2d 1242.)”  (Rhiner v. Workers' Comp. Appeals Bd. (1993) 4 Cal.4th 1213, 1226, fn. 7, 18 Cal.Rptr.2d 129, 848 P.2d 244, emphasis added.)   Although in a different context, the Rhiner court explained its resolution of competing policy concerns likewise present in this case:  “It is true, as the employer argues, that under section 5814 the employer's unreasonable delay or refusal to pay a small amount of benefits to the injured employee may result in a large penalty.   It is also true, however, that an unreasonable delay or refusal in payment that is monetarily of little consequence to an employer or carrier may be disastrous to an injured worker struggling to obtain medical treatment and to pay basic household expenses.  [Citation.]   Thus, there are competing policy considerations.   When the Legislature enacted section 5814, it struck what it concluded to be the appropriate balance between the competing considerations.   Second-guessing that policy determination, which is what the employer would have us do, is not an appropriate task for this court.  [Citations.]”  (Id. at p. 1226, 18 Cal.Rptr.2d 129, 848 P.2d 244, fns. omitted.)   The court also noted that the 1989 amendment to section 4650, which required disability payments be made within 14 days and for an additional 10 percent penalty assessment on late payments, reinforced its conclusion.  (Id. at p. 1227, 18 Cal.Rptr.2d 129, 848 P.2d 244.)

In Viegas v. Workers' Comp. Appeals Bd. (1983) 148 Cal.App.3d 423, 427–428, 196 Cal.Rptr. 10, the WCJ awarded four penalties for two different categories of refused or delayed payments, with two separate delays in each category.   The Board reduced the penalties to one in each category.   We annulled the Board's order and held that four penalties were required under section 5814, Gallamore, and Davison.

In Jardine v. Workers' Comp. Appeals Bd. (1984) 163 Cal.App.3d 1, 209 Cal.Rptr. 139, the employer's insurer paid the injured employee TTD payments for over two years.   The insurer then unilaterally decided the employee was permanently partially disabled and reduced his payments.   The parties agreed to a series of additional medical exams, all of which confirmed the employee was permanently totally disabled.   Despite this information, the insurer continued to refuse to restore full payments.   The employee then sent a series of demands to the insurer for full payment.   The insurer ignored the demands until a hearing date was set, then restored full payments and began retroactive repayment of the withheld payments.   The WCJ found the insurer's conduct unreasonable and awarded the employee one section 5814 penalty.   The Board rejected the employee's request for multiple penalties and eliminated the awarded penalty, finding the delay reasonable.   The appellate court annulled the Board's order, found the insurer's delay unreasonable, and restored the original penalty.   However, the court rejected the employee's multiple penalties request, finding all the delays were based on the same unreasonable belief that the employee was not permanently totally disabled.   The court distinguished Viegas:  “In Viegas, the Court held that where an insurer unreasonably delays making disability payments both prior to and following its stipulated liability for said payment, this constitutes ‘separate and distinct acts of delay’ for purposes of imposing multiple [section] 5814 penalties.   In the instant case, there was no such stipulation or other legally significant event which served to separate [the insurer's] delinquency into independent and distinct acts.”  (Jardine v. Workers' Comp. Appeals Bd., supra, 163 Cal.App.3d at p. 10, fn. 4, 209 Cal.Rptr. 139.)

This evolving statutory and case history compels the conclusion that the Board erred in reducing the WCJ's award of eleven penalties to one.   The statutes and cases make clear that each refused or delayed payment requires imposition of a separate penalty.   We reject Jardine's conclusion that because each of many refused or delayed payments was based on the same reason, multiple, refused or delayed payments become one refused or delayed payment.   Here, after each refused payment, Christian notified respondents of her objection to the refusal and intent to seek a separate penalty for each refused payment.   Each of these notices brought the issue to respondents' attention, permitting them to reexamine their refusal.   Finally, Jardine preceded both the 1989 amendment to section 4650, and Rhiner.   These post-Jardine developments cast doubt on its continuing vitality.   Moreover, each notice forcefully communicated Christian's refusal to acquiesce to the refusal.

We agree with respondents that this conclusion may result in a windfall of increased benefits to Christian.²  Because such windfalls, multiplied over many cases, will greatly increase the cost of workers' compensation insurance, they are anathema to good public policy.   However, as stated by the Supreme Court in Rhiner, even short delays or small reductions in payments may have catastrophic consequences to an injured worker, likewise bad public policy.   Here, as in all cases in which section 5814 penalties are awarded, the insurer's conduct has been found unreasonable.   The law does not require insurers to pay unreasonable, fraudulent, or undocumented claims;  it penalizes them if they, without good reason, fail to pay claims.   Which it is their burden to show good reason.   The penalties exist to deter insurers from refusing or delaying benefits without good cause.   Here, the insurers did not even bother to produce any evidence at Christian's hearing, essentially conceding the unreasonableness of their conduct.   As noted in Rhiner, and expanded upon in Justice Arabian's concurring opinion, it seems clear that the Legislature to date has chosen to balance those harsh results in favor of injured workers.   Any change in that balance should be made by the Legislature.

DISPOSITION

We annul the Board's decision awarding only one penalty, and remand the matter to the Board with directions to reinstate the WCJ's original award of 11 penalties.   In all other respects we affirm the Board's finding.

FOOTNOTES

1.   All further statutory references are to the Labor Code.

2.   In their brief, amicus California Workers' Compensation Institute, a research arm of insurers, noted, without contradiction from Christian, that if a single 10 percent penalty is awarded, the penalty would be $3,057.60, and Christian's weekly benefit would increase from $336 to $369.60.   In contrast, if the WCJ's multiple penalties are allowed to stand, the penalty would be at least $33,633.60, and Christian's weekly benefit would increase from $336 to $2,260.43.   At oral argument, when asked if they disputed these figures, none of the parties did so.For the first time, in their rehearing petition, MPP and SCIF present a different set of figures, claiming the multiple penalties would increase Christian's weekly benefit to $958.64 and that we erred in noting amicus' figures.   Why respondent would belatedly try to understate Christian's benefit increase if multiple penalties are imposed escapes us.   We find submitting a new set of figures only in a rehearing petition after having failed to previously dispute the accuracy of amicus' figures at oral argument duplicitous.   In any event, as we noted, we need not decide the correct amount.   We footnote the figures merely to illustrate our awareness that whether a single or multiple penalties are imposed makes a big difference in the benefit amount and should be considered by the Legislature in deciding the policy issue discussed above.

ORTEGA, Acting Presiding Justice.

MIRIAM A. VOGEL and MASTERSON, JJ, concur.