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Delay Of Benefits

California's workers' compensation
system is designed to provide the
injured expeditious payments

by GEOFFREY K. HANSEN

The California workers' compensation system was designed to provide those injured in the course of their employment with medical treatment and disability indemnity payments expeditiously and automatically. The administrators of the compensation act are directed by the California Constitution that the compensation system should "accomplish substantial justice in all cases expeditiously, inexpensively, and without incumbrance of any character . . ." (Cal.Const. art. XIV, §4). In other words, the broad purpose of the California workers' compensation system is "to secure an injured worker seasonable cure or relief from industrially caused injuries in order to return him or her to the work force at the earliest possible time . . ." (Davison v. Industrial Acc. Com. (1966) 241 Cal.App.2d 15 31 Cal. Comp. Cases 77.)

In the majority of industrial injury cases, the employer or carrier promptly recognizes its obligation and provides all appropriate benefits to the injured worker. The Labor Code, however, recognizing that there will be those cases where benefits may not be timely provided or may be denied altogether for inappropriate reasons, includes provisions for enhancing benefits where "payment of compensation has been unreasonably delayed or refused" (Lab. Code §5814). An additional provision, Lab. Code §4650 (enacted in 1989 and applicable only to injuries occurring on or after Jan. 1, 1990) specifies the timing of indemnity payments and imposes an automatic 10 percent increase of any indemnity payment "not made timely."

The Labor Code includes several "penalty" sections having to do with issues other than delayed benefits. These other sections will not be addressed in this article, but the practitioner would be wise to become familiar with them.

The statutes

Labor Code §5814, the primary "penalty" section, provides:

"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 therefore shall be determined by the appeals board in accordance with the facts. Such delay or refusal shall constitute good cause under §5803 to rescind, alter or amend the order, decision or award for the purpose of making the increase provided for herein."

Even though the word "penalty" does not appear in the statute, this section, the purpose of which is to encourage prompt payment of benefits, has frequently been described as a "penalty statute." In DuBois v. Workers' Comp. Appeals Bd. (1993) 5 Cal.4th 382, [58 Cal. Comp. Cases 286], the California Supreme Court explained, ". . . §5814 is designed to compel the employer . . . to make payments of compensation in a reasonable and timely fashion [citations] and effect the equally important purpose of the statutory scheme -- to encourage timely payments of compensation to injured working people to promptly ameliorate economic hardship [resulting from] the interruption of their employment and concomitant loss of income."

The court has also instructed that §5814 is to be interpreted liberally, in accordance with Lab. Code §3202 and consistent with the general purpose of the workers' compensation laws. (Kerley v. Workers' Compensation Appeals Board (1971) 4 Cal.3d 223 [36 Cal. Comp. Cases 152].)

Labor Code §4650, the so-called "automatic penalty statute," provides in relevant part:

"(d) If any indemnity payment is not made timely as required by this section, the amount of the late payment shall be increased 10 percent and shall be paid, without application, to the employee . . .''

This section applies only to injuries occurring on or after Jan. 1, 1990.

Section 4650 is a "self-executing, strict liability provision,'' and supplements rather than superseding, duplicating, or replacing the §5814 penalty. (Rhiner v. Workers' Comp. Appeals Board (1993) 4 Cal.4th 1213, [58 Cal. Comp. Cases 172].) This enhancement only applies to benefits actually delayed. A defendant's failure to pay the Lab. Code §4650 penalty can, however, result in the imposition of a Lab. Code §5814 penalty.

Penalty petition

Theoretically, a penalty petition should be considered any time there is a delay in provision of compensation. Not every delay is unreasonable.

Where an admitted injury causes admitted disability and need for medical treatment under the Workers' Compensation Act, an employer or carrier has an obligation immediately to provide benefits where there is no "genuine doubt from a medical or legal standpoint" as to such liability. (Gallamore v. Workers' Compensation Appeals Board (1979) 23 Cal.3d 815 [44 Cal. Comp. Cases 321]; Kerley v. Workers' Compensation Appeals Board (1971) 4 Cal.3d 223 [36 Cal. Comp. Cases 152].) The failure to do so is unreasonable.

Where medical treatment is unreasonably withheld, the board should award a 10 percent penalty on the entire medical treatment benefit. (See Ralph's Grocery Co. v. Workers' Compensation Appeals Board (1995) 38 Cal.App.4th 820 60 Cal. Comp. Cases 840.)

The applicant bears the initial burden of proof in establishing that a delay in payment of compensation has occurred. Once an actual delay has been shown, the burden shifts to the employer or carrier to prove that the delay was not unreasonable. (Kerley v. Workers' Compensation Appeals Board (1971) 4 Cal.3d 223 [36 Cal. Comp. Cases 152].)

Reasonable delay

When the existence of a delay has been established, the employer or carrier is required to present substantial evidence supporting a finding that the delay was reasonable. This is an affirmative defense and the only satisfactory excuse for a delay in payment of compensation, either before or after an award, is a "genuine doubt from a medical or legal standpoint as to liability for benefits." (Kerley v. Workers' Compensation Appeals Board, supra.) This having been said, it should be noted that courts have from time to time found ways to avoid imposing penalties as will be seen below.

An employer or carrier is justified in withholding benefits so long as there is a conflict in the medical evidence which, if resolved against the employee would result in there being no liability for benefits. Such reliance may not, however, be placed upon evidence which is stale or superseded by independent medical evaluations, (Jardine v. Workers' Compensation Appeals Board (1984) 163 Cal.App.3d 1, 49 Cal. Comp. Cases 787) or completely inconsistent with well-established law. (Johnson v. Workers' Compensation Appeals Board (1985) 163 Cal.App.3d 770, 50 Cal. Comp. Cases 71.) Such misplaced reliance will not constitute a "genuine doubt" regarding liability for compensation.

A reasonable interpretation of unsettled law is a valid excuse (See County of Los Angeles v. Workers' Compensation Appeals Board (1980) 104 Cal.App.3d 933, [45 Cal. Comp. Cases 248]), but a delay is not ordinarily excused by an employer's erroneous view of the law. (See Argonaut Ins. Co. v. Industrial Acc. Com. (1962) 210 Cal.App.2d 267, 27 Cal. Comp. Cases 275.)

What constitutes a "reasonable delay" is really a question of fact to be determined on a case-by-case basis; for instance, a short, non-excessive delay brought about by administrative processing, clerical inadvertence or other internal business problems may not be unreasonable. (Kampner v. Workers' Compensation Appeals Board (1968) 86 Cal.App.3d 376, 43 Cal. Comp. Cases 1198.) Discussing business-related delays, the Kampner court noted that delays of a few days are "inevitable," and stated, "We believe the term 'unreasonably' implies something more than a mere lack of a high degree of diligence. In fact it would appear to us to imply something less than ordinary diligence." A pattern of delay, or a standard practice of delaying payment excessively may give rise to a penalty. (Smith v. Workers' Compensation Appeals Board (1986) 186 Cal.App.3d 1451, 51 Cal. Comp. Cases 520.)

In some instances, good faith deliberation of whether or not to file review proceedings will justify the withholding of benefits during the 45-day period. (Mueller v. Workers' Compensation Appeals Board (1985) 50 Cal. Comp. Cases 595 (writ denied). But there is no "automatic grace period" for the time during which review proceedings could be instituted. (Jensen v. Workers' Compensation Appeals Board (1985) 170 Cal.App.3d 244, 50 Cal. Comp. Cases 369)

Unreasonable delay

Not unexpectedly, there have been numerous specific situations where a delay or failure to pay benefits has been found unreasonable. One such instance was a failure to investigate a report of injury, consistent with the affirmative duty to provide compensation, where such an investigation would demonstrate a clearly compensable injury. This failure was found to justify imposition of §5814 penalties in Beverly Manor Enterprises v. Workers' Compensation Appeals Board (Caballero) (1977) 42 Cal. Comp. Cases 711 (writ denied). Likewise, a failure to investigate the proper compensation rate and to pay at the correct, and higher, rate, which an investigation would have readily revealed, has also been held to be unreasonable. (Pascoe v. Workers' Compensation Appeals Board (1975) 46 Cal.App.3d 146, 40 Cal. Comp. Cases 191.)

A failure to properly adjust the temporary disability rate, after two years, pursuant to Labor Code §4661.5 has been held to be unreasonable. (Gould v. Workers' Compensation Appeals Board (Rosales) (1980) 45 Cal. Comp. Cases 1006 (writ denied). So has the failure to advance permanent disability, upon termination of the employee's temporary disability, at least to the extent supported by the employer's medical records. (See Berry v. Workers' Compensation Appeals Board (1969) 34 Cal. Comp. Cases 507 and Kerley, supra.) Similarly, a defendant's failure to advance permanent disability following back surgery justified imposition of a penalty where it was found that there was no genuine legal or medical doubt as to the existence of, and liability for, permanent disability indemnity. (Ayer v. Workers' Compensation Appeals Board, 21 CWCR 227.)

An unreasonable delay in furnishing medical treatment which is clearly and unequivocally prescribed by the treating physician will result in a penalty under §5814. (General Insurance Co. of America v. Workers' Compensation Appeals Board (Johnson) (1977) 42 Cal. Comp. Cases 178 (writ/hearing denied).) The penalty is payable to the applicant, not to the provider. (French Hospital Health Plan v. Workers' Compensation Appeals Board (Gras) (1986) 51 Cal. Comp. Cases 548 (writ denied).) But see Labor Code §4603.2(b) for injuries post-Jan. 1, 1991, which provides for a 10 percent penalty and interest at the same rate as judgments (10 percent), payable to medical providers where the employer does not pay properly documented billings or specifically object within 60 days. Failure to pay the §4603.2 penalties could result in the imposition of further penalty under §5814, likely payable to the applicant.

An unreasonable delay in paying, or the refusal to correctly compute and pay interest on an award, has also been held to support a penalty under §5814. (Laucirica v. Workers' Compensation Appeals Board (1971). 36 Cal. Comp. Cases 283; Tucker V. Workers' Compensation Appeals Board (1975).44 Cal.App.3d 330, 40 Cal. Comp. Cases 38.) The mere fact that the amount of the interest is de minimus does not excuse the delay if it is found unreasonable. Gallamore, supra.

The withholding of compensation based upon the employer's claim of third party credit against liability has been held to be unreasonable where the employer did not first seek board authorization for such credit. (Rohrback v. Workers' Compensation Appeals Board (1983) 144Cal.App.3d 896, 48 Cal. Comp. Cases 78.) A good faith belief of entitlement to credit will excuse a delay where the carrier puts the injured on notice of the credit claim and promptly seeks appeals board approval of same.

An employer who makes an admittedly late payment of compensation is not obliged to make payment of a self-imposed penalty under §5814. Compare this with post-Jan. 1, 1990, injuries where there is a self-i-posed penalty for a 14-day failure to pay compensation or comply with benefit rules under Labor Code §4650(d).

Where increased benefits have been ordered pursuant to Labor Code §5814, and the defendant fails to compute and pay the penalty, an additional award of penalty is appropriate. (Truesdale v. Oak Manor Conv. Hosp. (1977) 42 Cal. Comp. Cases 610.) The penalty lies against the entire specie of benefit delayed.

Labor Code §4651 requires that payment of compensation must be by a written instrument which is "immediately negotiable and payable in cash, on demand, without discount, at some established place of business in the state." It was unreasonable to pay with a "sight draft" which was not immediately payable but acceptable only for collection with a fee in Barney v. Esson's Snack Bar (Workers' Comp. Appeals Bd. en banc (1979) 44 Cal. Comp. Cases 142.)

These examples are not intended to be all-inclusive but are merely illustrative of situations where delays or refusals to provide benefits have been found to be unreasonable.

Calculating the penalty

In 1979, the California Supreme Court decided Gallamore v. Workers' Compensation Appeals Board, 23 Cal. 3d 815 [153 Cal. Rptr. 590 ,44 Cal. Comp. Cases 321]. This case held that where there has been an unreasonable delay or refusal to provide benefits, the §5814 penalty is to be assessed against the entire amount of compensation ultimately awarded for the particular class of benefit where the delay occurred, including undelayed benefits. It was further held that the penalty is mandatory, even if the amount delayed is arguably de minimus, and that where there are separate and distinct acts of misconduct, multiple penalties must be assessed.

The penalty question was revisited in 1993 in the case of Rhiner v. Workers' Compensation Appeals Board, 4 Cal.4th 1213, 58 Cal. Comp. Cases 172. In affirming Gallamore, the Rhiner court held that §5814 penalties must be calculated as a 10 percent increase of the entire amount ultimately awarded to the employee for the class of compensation in which benefits were unreasonably delayed or refused, without deductions or credits for timely payments. The court went on to say that §5814 does distinguish between benefits payable before and after the award, noting, "it is clear from the plain wording of the statute that the legislature intended the penalty to be applied against the total amount of the award, without a deduction or credit for the employer's timely pre-award payments."

Where an employer or carrier, on separate and distinct occasions, un-reasonably delays or refuses to provide compensation, the board must impose separate penalties for each separate delay; the applicant must, however, give notice of his or her intention to claim multiple penalties. (Gallamore, supra, 23 Cal. 3d 815.)

In certain situations, Labor Code §5814.5 provides for an award of "reasonable attorneys' fees" incurred in enforcing the payment of compensation awarded where the delaying defendant is a self-insured city, county, municipal corporation or political subdivision. These fees will be awarded on an hourly basis. (Hollinger v. Workers' Compensation Appeals Board (1989) 54 Cal. Comp. Cases 23.)

Applying the penalty

As noted earlier, the penalty is to be applied against the entire class of benefits in which the unreasonable delay or refusal occurred. The obvious and most frequently seen classifications are temporary and permanent disability indemnity and medical treatment. Other classes, or specie, of benefits have been identified and some examples of what the courts have held to be separate classes of benefits follow:

A life pension was found to be part of the underlying permanent disability in County of Los Angeles v. Workers' Compensation Appeals Board (Crowe),(1980) 45 Cal. Comp. Cases 375 (disapproved on other grounds).

In State Compensation Insurance Fund v. Workers' Compensation Appeals Board (LaFavor) (1981) 46 Cal. Comp. Cases 347, an attorney's fee allowed against permanent disability was held to be a separate class of benefits (applying to all past and future fees). Section 132(a) benefits are considered a separate species of benefit. (See Burton v. Workers' Compensation Appeals Board (1980) 45 Cal. Comp. Cases 1122.)

Vocational Rehabilitation Temporary Disability (Vocational Rehabilitation Maintenance Allowance) is also a separate species of benefits. (Gray v. Mission Insurance Co. 16 CWCR 139 (1987 BPD). Accord Robinson v. Workers' Compensation Appeals Board (1986) 51 Cal. Comp. Cases 558.)

The 10 percent penalty for unreasonable delay in the payment of interest was assessed against the underlying benefit to which the interest attached (rather than the interest alone) in Gellie v. Workers' Compensation Appeals Board (1985) 50 Cal. Comp. Cases 470.

Summary

Penalties continue to be a subject of frequent litigation. Currently, the case of Christian v. Workers' Compensation Appeals Board (W.C.A.B. No. MON 173071, ___ CWCR _____ is before the Supreme Court on the question of whether separate penalties should be imposed for each withheld check where the carrier, believing no benefits were owing, continually refused to pay temporary disability indemnity in the face of repeated demands for payment from the applicant. Eleven separate penalties against temporary disability were awarded by the workers' compensation judge. On reconsideration, the board reduced this to one penalty, reasoning that the refusal was one continuing act. The Court of Appeals, Second District, Division One, in a published opinion, ordered the board to reinstate the original award of 11 penalties, holding that each refused or delayed payment requires imposition of a separate penalty. Some view this result as the logical extension of Gallamore and Rhiner. Others obviously disagree. While the final answer is not yet clear, perhaps the best approach to determining penalty claims is found in the penultimate paragraph in Gallamore which states:

"In penalty cases, the board should proceed with a view toward achieving a fair balance between the right of the employee to prompt payment of compensation benefits and the avoidance of imposition upon the employer or carrier of harsh and unreasonable penalties."


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