No Presumption Earnings are Maximum Where Documentation Lacking

Thursday, April 28, 2011 | 0

By Richard M. "Jake" Jacobsmeyer
Shaw, Jacobsmeyer, Crain & Claffey

The California 1st District Court of Appeal has reversed a Workers' Compensation Appeals Board decision that really involves a technical issue for calculating and paying temporary total disability under under the guise of modifying a penalty award. In a published decision the Court has made a ruling on an issue involving $40 that potentially involved millions of dollars in TTD benefits system-wide. What appears to be a minor squabble over an almost imperceptible penalty amount is in reality as significant statement of the law on payment of TTD benefits. 

In Coca-Cola v.WCAB (Espinoza), the employer appealed a number of issues, all of which were effectively denied by the Court when it granted the Petition for Writ of Review on a single limited issue, calculation of penalty for underpayment of TTD. This issue, while technical, could potentially have resulted in a dramatic increase not only in penalties for underpayment of TTD and more importantly also TTD benefits.

The employee was injured in October 2004.  He was temporarily disabled for broken periods from Feb. 7, 2005 through Oct. 10, 2005; and from Oct. 9, 2006, through Feb. 15, 2007 (when TTD ended by operation of law under Labor Code § 4656).  During that time, TTD was paid by the claims administrator at $599.20 per week.  A wage statement was provided by the employer on Nov. 2, 2006 documenting earnings of $1195.92, two-thirds of which would be $797.32.  In March, 2007, after the final payment of TTD, a retroactive payment was made to bring the applicant up to the maximum rate in effect on the date of injury, i.e. $728.

At trial, it was agreed applicant’s earnings were as reflected in the wage statement.  The trial judge awarded a penalty based on defendant’s failure to properly adjust TTD after receipt of the wage statement but calculated the 25% penalty in a rather peculiar manner.  The judge ruled that since the employer did not provide a wage statement and there was insufficient information to calculate TTD, Administrative Rule 10101.1 required the claims administrator to pay benefits at maximum rates until a wage statement was actually produced.  Therefore according to the WCJ, for all payments prior to the two-year anniversary of the injury on Oct. 6, 2006, benefits should have been paid at the maximum rate in effect on the date of injury (i.e. $728 per week) and for periods after the two-year anniversary, when benefits were subject to an increase based on Labor Code § 4661.5, the benefits should have been paid at the new rate ($840 per week) until the wage statement was produced and thereafter based on the correct rate of $797.32.  The workers' compensation judge therefore awarded a 25% penalty on the difference between the rate paid, $599.20 and what should have been paid, $728, for all payments for the first year and for all payments made after the two-year anniversary, the penalty was calculated on the difference between $599.20 and $840 until the wage statement documented the $840 rate was incorrect and the benefits should have been paid at $797.32. The judge then imposed an additional 25% penalty on the difference between the adjustment rate of $728 and the correct rate of $7297.32, apparently ignoring that a penalty had already been awarded on the same underpayment already.

All of the calculations were based on the concept the claims administrator is obligated to pay benefits at maximum rates unless its file contains the necessary documentation as required in ADR 10101.1 to establish a lower rate of benefits.  Defendant appealed the award of penalty and other issues, all of which were denied by the WCAB

The Court of Appeal disagreed with the WCJ and WCAB’s analysis that ADR 10101.1 required payment of benefits at maximum levels absent documentation. The Court framed the issue as follows:

“In calculating the portion of the Section 5814 penalty attributable to the period from Oct. 9, 2006 until the provision of a wage statement, should the WCJ have based the penalty amount on (1) the difference between $840 per week (the maximum amount of temporary total disability payable when the payments were made, see §§ 4453, subd. (a)(10), 4661.5) and $599.20 per week (the amount paid), or (2) the difference between $797.32 per week (two-thirds of respondent Espinoza’s average weekly earnings, see § 4653) and $599.20 per week?”

The Court then proceeded to outline its response, ruling the second option of the two presented was the correct method for awarding penalty and, at least by inference, holding TTD is not required to be paid at maximum rates unless the claims administrator has evidence it its file of a different rate.  The Court noted :

“We disagree with the WCJ’s construction of regulation 10101.1(j).  The regulation does not state that a worker is entitled to receive, or that an employer is obligated to pay, TTD at a rate higher than two-thirds of the worker’s AWEs, the benefit level set by section 4653.  Instead, as discussed above, regulation 10101.1(j) imposes recordkeeping requirements on claims adjusters; it does not purport to address the benefit levels owed to workers.  The first sentence of regulation 10101.1(j) states a general requirement that a claim file contain documentation sufficient to determine the worker’s AWEs.  The subsequent portion of regulation 10101.1(j) states that, unless the claims adjuster accepts liability to pay the maximum TTD rate, the information in the file shall include specified categories of documents.  But this portion of the regulation, upon which the WCJ apparently relied, does not state that an adjuster whose claim file does not contain all of the required documentation must pay the injured worker the maximum statutory rate regardless of the worker’s actual earnings.  The WCJ did not cite, and Espinoza does not present, any authorities construing regulation 10101.1(j) as imposing such a requirement.”

The Court noted there was a complex system in place for assuring benefits were paid at proper rates including Labor Code § 4650 penalties, Labor Code § 5814 penalties and also Audit penalties for the claims administrator if the information required in ADR 10101.1 was not included in the file.

COMMENTS AND CONCLUSIONS:

 At first blush, it would appear this is one of those cases litigated based on principle because there certainly was not significant money involved in the decided issue.  The Court essentially reduced a penalty of 25% on the difference between $840 and $797.32 per week for a period from 10/9/06 to 11/2/06 - less than a month.  The total amount involved in the penalty was under $40.  (It should however be noted the defendant also appealed, unsuccessfully, other issues presumably involving more significant dollars.)

The claims industry is lucky the defendant did pursue this case and that the Court took the issue seriously.

On several occasions lately, I have seen arguments made by applicant attorneys a WCJ must award benefits at maximum rates unless defendant produces evidence of earnings supporting a lesser rate.  This argument is based on the regulation used by the WCJ in this case and would effectively provide a presumption of earnings at maximum unless defendant provided proof of a different level.  In every case I have been involved in, the WCJ has required actual evidence of earnings to make a decision and declined to rely on an Audit Regulation to calculate TTD rates.  This case is the first time I have seen a WCJ use that section to conclude benefits should have been paid at a rate higher than the evidence documented.  If the WCJ’s decision had stood up; I could envision a common practice of applicant attorneys filing for expedited hearings on TTD where benefits are paid at less than maximum and demanding the WCAB award benefits at maximum rates absent adequate documentation of actual earnings.  There is certainly no indication in the Labor Code that such a presumption should exist and the cited regulation is not one affecting payment of benefits but merely file documentation for a claims administrator, a fact the Court seemed understand well.

Over an issue worth less than $40, a potential savings of millions in excess TTD benefits has been saved and substantial litigation expenses averted.  Score one for a rational approach to claims administration!   

WorkCompCentral subscribers may download the 1st DCA's ruling here:
http://www.workcompcentral.com/pdf/2011/misc/espinoza042511.pdf

<i>Richard M. "Jake" Jacobsmeyer is a founding partner of the Shaw, Jacobsmeyer, Crain & Claffey defense law firm in Oakland.</i>