Overpaid PD and Liability for Attorney Fees

Saturday, November 8, 2003 | 0

What is the liability of the carrier where there is an award for attorney fees but permanent disability has been overpaid?

A user in the workcompcentral.com Professional Forum, Legal topics, presented the following question:

"Does anyone know of any case law regarding payment of Applicant Attorney fees when PD has already been overpaid?:

The facts as presented by the author of the question were:

The injured worker was P & S by her PTP. PTP's report rated at 31%, therefore, she was advanced money based on a 31% PD rating. The applicant's attorney objected to the PTP's report and we agreed on an AME. The AME report only came back at 12%. Now there is an issue with regards to the applicant attorney fees. We do not believe applicant attorney is owed any fee's as there is no money to pay them and the injured worker has already been overpaid PD.

What is the answer? There are two ways of analyzing this situation according to the responses in the Forum thread:

One professional, James Stewart, author of the Work Comp Index, 5th ed., responded, referencing Labor Code section 4650(d):

"Appearance of an attorney means a lien attaches against any compensation later payable and defendant should have withheld sufficient amount for a reasonable fee, Sierra Pacific (Lewis) 44 CCC 573 (Writ Denied).

"As I have said before, it doesn't seem fair, but a defendant is required to 'guess right' and if they don't, they have to pay."

However, as the author of the original question stated, PD was being advanced in good faith on the rating of the PTP's report, on which applicant's attorney objected - why, asks the author, should the carrier be penalized when the shortage of PD from which to pay the attorney was the product of the attorney's own legal maneuvering?

In response, another professional proffered that the answer may be found in Price vs. WCAB 10 Cal.App.4th 959 (1992).

The Price case is binding authority (as opposed to the writ denied Sierra Pacific summary), and has an excellent discussion on when a carrier will be liable for attorney fees if there isn't any PD left, and more importantly, when a carrier is NOT liable (e.g. when advances are made in good faith in reliance on reasonable evidence).

In Price, Attorneys Stephen M. Price and Arthur Kay petitioned for a writ of review regarding a decision by the Board denying them attorney fees for their representation of Enrique Cadena. The parties had filed stipulations with a request for an award. In their stipulations, the parties agreed that (1) Mr. Cadena was entitled to permanent disability indemnity; (2) Mr. Cadena's attorneys requested specified attorney fees; and (3) the fees would be payable from the 'far end of [the] award.' Before the workers' compensation judge (WCJ) issued an award pursuant to the stipulations, Mr. Cadena died. A different WCJ subsequently concluded no attorney fee was payable because there were no benefits payable to Mr. Cadena when he died.

The Court in Price found in favor of defendant carrier:

"The employer and insurer should not be penalized for the $1,620 overpayment by being required to pay $6,405 in attorney fees despite the lack of any further liability for disability indemnity in the present matter."

The Price court, in addition to noting the Lewis holding, noted other cases that were distinguished from the Price fact pattern, and in particular SCIF vs WCAB (Chester) (36 CCC 678, Writ Denied) where too much PD was advanced and only $40 remained for attorney's fees. The Chester case was distinguished by the Price Court in language that indicated that the reasoning in Chester was based on punishment of the defendant carrier due to failure to set aside money it knew would have to be paid (a lien for attorney fees that accrues automatically).

In the present facts, the motivation to punish the defendant carrier would seem to be missing in that the carrier advanced in good faith based on the present law and available evidence. It was only applicant's objection to the medical evidence that resulted in a lower award and thus an overpayment of PD such that insufficient amounts were available to compensate the attorney. Under the present facts, equitable considerations based on the Price reasoning may support the carrier's position, and prevent applicant's attorney from collecting a fee on the case.

Stewart, however, was not convinced that the defendant carrier would get off so easy:

"I still think the defendant will end up owing the attorney's fee here and have a 'credit' against any later new and further PD."

Certainly, without regulatory or statutory pronouncement of what to do in similar situations, failure to withhold sufficient funds to compensate the injured worker's attorney will continue to be a litigable issue.