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Avoiding the Pitfalls of Penalties

After the Commission has heard a case and its award becomes final – or once an agreement to an Award of compensation is reached, including a settlement – one last hurdle remains: the “Payment” of such Award or Settlement.

As most of you know, the Virginia Workers’ Compensation Act contains a strong penalty provision which is designed to spur an employer or insurer to promptly pay any accrued benefits awarded to a claimant. Virginia Code § 65.2-524 reads, in pertinent part:

If any payment is not paid within two weeks after it becomes due, there shall be added to such unpaid compensation an amount equal to twenty percent (20%) thereof, unless the Commission finds that any required payment has been made as promptly as practicable and (i) there is good cause outside the control of the employer for the delay or (ii) in the case of a self-insured employer, the employer has issued the required payment to the employee as a part of the next regular payroll after the payment becomes due. No such penalty shall be added, however, to any payment made within two weeks after the expiration of (i) the period in which Commission review may be requested pursuant to § 65.2-705 or (ii) the period in which a notice of appeal may be filed pursuant to § 65.2-706.

The Full Commission had long held that attorney’s fees awarded in a hearing Opinion or agreed Award Order were not subject to this penalty provision. See Hudson v. Cox Transportation Services, Inc., VWC 206-57-02 (July 19, 2004) (attorney’s fees do not constitute “compensation” under §65.2-524) and Johnson v. Rapid Rack Industries, Inc., VWC 202-14-46 (Feb. 11, 2002). The Court of Appeals of Virginia, however, overruled these cases in Roman v. Ondeo Degremont, Inc., 47 Va. App. 773, 627 S.E.2d 539, (2006).

In Roman, the claimant had an occupational disease claim decided in a hearing and the deputy commissioner awarded weekly Temporary Total Disability benefits of $645 beginning August 6, 2001. Attorney’s fees of $12,000 were awarded to be paid to claimant’s counsel from the accrued compensation. The employer requested review of this decision to the full Commission which affirmed the Award. The employer then appealed the full Commission’s decision to the Court of Appeals. This court summarily affirmed the full Commission’s decision on October 26, 2004. The employer pursued no further appeal and timely mailed a check on November 10, 2004 to the claimant for the accrued compensation awarded, less the $12,000 attorney’s fee granted in the original opinion.

As of December 15, 2004, neither the attorney’s fees nor any interest on accrued compensation had been paid, so the claimant, by counsel, filed a new claim requesting a 20% penalty for late payment of these amounts. A deputy commissioner denied this request, relying on the above-cited full Commission decisions holding that § 65.2-524 applied only to “actual disability benefits due a claimant.” The deputy concluded, therefore, that he had no authority to apply this penalty provisions to late payments of attorney’s fees and/or interest.

Roman requested a review by the full Commission, which affirmed the deputy’s decision by a vote of two to one (Commissioner Diamond dissenting). The majority noted the legal doctrine which requires the narrow construction of any penalty provisions and relied on a prior decision in which it concluded an attorney’s fee does not constitute compensation under this provision of the statute. The claimant again noted his appeal to the Court of Appeals.

In its decision, the Roman court stated that the terms “payment” and “compensation” were synonymous. The Court held that those terms had no substantive distinction under § 65.2-524, concluding that, if any payment is not paid within two weeks after it becomes due, there shall be added to such unpaid compensation an amount equal to twenty percent thereof. The plain meaning of the terms “payment” and “compensation,” as used in penalty provision, included, the court said, at the very least, accrued wage loss benefits.

The Court found that such funds do not lose their character as “payments” of “compensation,” for purposes of penalty provision, simply because the Commission ordered that the employer pay a portion of those funds directly to claimant’s counsel as an attorney’s fee. These fees paid from accrued compensation retain their character as compensation and are subject to the penalty provisions of workers’ compensation law, the Court stated. Thus, if an attorney’s fee is to be paid out of the claimant’s accrued compensation, the fee remains compensation within the meaning of the penalty statute.

N.B. The Court expressly addressed only attorney’s fees awarded out of awarded compensation. This leaves open how the Commission would handle untimely payments of attorney’s fees assessed directly against carrier or employer.

The Court’s decision reinforces the importance of making prompt payments of awarded benefits, both to the claimant and claimant’s counsel. There is, however, language in § 65.2-524 which allows the employer/carrier to show reasonable justification for late payments and avoid the sting of this penalty provision. The employer or carrier can protect itself by documenting all of their efforts when they have difficulty obtaining sufficient information from claimant’s counsel in order to issue the attorney’s fee payments (such as obtaining the attorney’s Federal Tax ID.) Such documentation should assist in the defense of these type of penalty claims in the future.

The best practice is to diary the deadline for payment once you receive an Award Order, opinion or any other document from the Commission that imparts an obligation to issue payments. Under the terms of the Workers’ Compensation Act since July 1, 2010, you have 44 days from the date of the opinion or award order to issue a payment to the claimant and his/her attorney. This includes the 30-day period during which you can request review of the deputy commissioner’s decision (or note an appeal from Review Opinion) plus 14 days thereafter to issue payment and avoid a penalty. Following the issuance of Virginia Court of Appeals decision (or the issuance of the Supreme Court of Virginia’s decision should the appeal also go to that Court), you have 44 days – from the date the Workers’ Compensation Commission receives the Court of Appeals’ Mandate – to place checks in first class US Mail to the claimant at the address of record and to the claimant’s attorney at his business address. A carrier or employer remains free, of course, to make those payments earlier than the deadline.

The attorneys of Two Rivers Law Group remain eager to respond to your questions regarding the payment of compensation, fees or any other benefits required under the Virginia Workers’ Compensation Act. We are easily available by phone or e-mail and frequently make personal visits to our client’s offices to meet one-on-one with risk managers, insurance adjusters or supervisors in charge of administering workers’ compensation claims. We also regularly conduct in-house seminars at our client’s offices for training purposes.