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Appellate Decisions - 2003

Bosco v. LIRC
2003 WI App 219, 267 Wis. 2d 293, 671 N.W.2d 331

Subject: Interpretation of § 102.23(5) (payment by employer/insurer while appeal is pending on liability dispute as between employer/insurer or insurers), and bad faith penalty.
Note: The supreme court affirmed the court of appeals decision in 2004 WI 77, 272 Wis. 2d 586, 681 N.W.2d 157.

The employee sought permanent total disability benefits for pulmonary problems claimed to be an occupational disease, on an injury date in 1996. At the hearing, the insurer, Shelby Insurance, tried to amend their Answer to deny the 1996 date of injury and to allege a 1993 date of injury. The ALJ denied the request to amend the Answer and awarded permanent total disability for the 1996 date of injury. Shelby Insurance appealed on the basis that the correct date of injury would be 1993, although it conceded permanent total disability from the occupational disease. No other insurer was named or joined on the alleged injury date in 1993.

Wis. Stat. § 102.23(5) provides that:

(5) The commencement of action for review shall not relieve the employer from paying compensation as directed, when such action involves only the question of liability as between the employer and one or more insurance companies or as between several insurance companies.

Shelby did not pay permanent total disability benefits to the employee while the appeal was pending. Shelby lost on appeal. The employee then pursued a bad faith claim against Shelby, because of its failure to pay worker’s compensation benefits while the appeal was pending. Shelby argued that § 102.23(5) did not apply, because there was no other insurance company involved in the contested proceeding. That is, Shelby defended the claim on the basis the correct date of injury for the occupational disease was in 1993 rather than 1996, but did not identify any other insurer that would be liable for the 1993 injury.

The ALJ threw out the bad faith claim on the basis that the statute could be subject to more than one interpretation, and LIRC affirmed the dismissal. The court of appeals reversed on the basis that the statute is clear so that Shelby’s proposed interpretation was unreasonable. The court of appeals also raised the issue as to whether the insured employer could also be liable for the bad faith penalty, since the statute expressly provides for payment by the employer when there is a liability dispute between the employer and an insurer or between several insurance companies.

The court of appeal remanded the case to LIRC for a determination of the bad faith penalty, including a determination whether the employer, the insurer, or both are liable for bad faith penalties under Wis. Stat. § 102.18(1)(bp).

The decision by the court of appeals was appealed and the supreme court accepted the case on appeal on 11/17/03.

You may download the court of appeals decision from the Web site of the Wisconsin Court System -
- as an HTML file: http://www.courts.state.wi.us/html/ca/03/03-0662.htm
- as a PDF file at: http://www.courts.state.wi.us/ca/opinions/03/pdf/03-0662.pdf


Brown v. LIRC
2003 WI 142, 671 N.W.2d 279

Subject: Bad faith penalty
Note: Reverses the court of appeals decision (2003 WI App 56)

Brown was injured while working as a butcher. He underwent surgery. While he was off from work receiving temporary total disability benefits, the insurer got a tip that Brown was working as an insurance agent. After some investigation, including some surveillance, the insurer cut off Brown’s TTD benefits. Brown claimed additional TTD benefits for the balance of his healing period. He litigated that claim and won.

Brown then claimed a bad faith penalty award against the insurer, for terminating his TTD benefits without having a valid basis to do so. In order to demonstrate a claim for bad faith, a claimant must show the absence of a reasonable basis for denying benefits, and the insurer’s knowledge or reckless disregard of the lack of a reasonable basis for denying the claim.

The bad faith claim was litigated and the ALJ found that the insurer did have a reasonable basis for terminating Brown’s TTD benefits, so no penalty was awarded. Upon appeal, LIRC affirmed the denial of the bad faith penalty. The circuit court then affirmed LIRC’s decision.

However, on the next level of appeal, the court of appeals reversed and remanded the claim. The court of appeals held that Brown established bad faith on the part of the insurer. The court of appeals remanded the case to LIRC for a determination as to the amount of the penalty to be awarded.

The court of appeals decision was appealed to the Wisconsin Supreme Court. The supreme court reversed the court of appeals and affirmed LIRC’s decision in denying an award for a bad faith penalty.

The supreme court reviewed the evidence as to the insurer’s basis for terminating the temporary total disability benefits:

34 The insurer’s first source of information was the state. The Wisconsin Worker’s Compensation Division received an anonymous tip on its fraud hotline that the employee was defrauding the insurer by failing to report external income. The insurer initiated an investigation to verify the veracity of the anonymous tip.

35. The insurer's second source of information was the employee's supervisor. The insurer communicated with the employee's supervisor, who reported that the employee was selling insurance and was not planning to return to his former occupation.

36 The third source of information was an investigation firm. The insurer hired the firm to watch the employee. The firm provided surveillance on the employee on four separate occasions. The surveillance showed the employee wearing a business suit while entering a building during working hours. The administrative law judge concluded that this information “could be interpreted as selling insurance.” The evidence disclosed that the employee had been licensed to sell insurance in Wisconsin since 1994. The evidence also disclosed that the employee did not have a business telephone number.

37 Apparently the administrative law judge allowed the insurer to infer that when someone was working he was probably earning money. The assumption that the employee was earning money was reinforced by the fact that the employee was in his third year of insurance sales.

38 The insurer waited until after it had acquired this information——three months after the initial contact with the fraud investigation unit——before suspending benefit payments. The insurer did not, however, seek wage or earnings information from the employee until after it suspended benefits. The court of appeals criticized the insurer and LIRC for this failure, remarking that an insurer cannot shoot first and ask questions later.

39 The administrative law judge noted that the legislature placed a fraud provision in the worker’s compensation act to prevent fraud on the system and stated that “if fraud is involved, and the temporary disability money is paid under mistake of fact, there is no way of getting it back from the person who committed the fraud.” Thus, reasoned the administrative law judge, employers, insurers, and LIRC have an important interest in suspending benefits before the costs of the fraud become too great. The administrative law judge thus considered the purposes of the law in reaching his decision. The employee contends that the administrative law judge did not adequately consider another purpose of the worker’s compensation law, namely to assure payments to an injured employee. Here the employee had no other source of income and suffered undue hardship to the point of foreclosure and bankruptcy.

40 From the totality of this information, the administrative law judge concluded that “although there may have been better ways to go about suspending benefits in January 1996,” the evidence was sufficient to conclude that the actions of the insurer did not constitute bad faith.

41 The employee objects to the validity of the individual pieces of pre-suspension evidence on the grounds that each is either weak, based on third-hand hearsay, or, in the case of his insurance license, a perfectly legitimate second job pursuant to Wis. Stat. § 102.43(c)(b).

42 The insurer cannot seriously debate the employee’s criticisms. The claims adjuster admitted at the hearing that there was not much in the video tape surveillance or in the surveillance report.

43 Weak evidence notwithstanding, both parties make strong arguments. The employee argues that the insurer did not exercise sufficient diligence in its investigation, while the insurer queries what more it could reasonably have done under the circumstances of this case. The insurer contends that the court of appeals unreasonably placed a requirement on the insurer to obtain actual evidence of business profits before suspending benefits in the face of evidence of income-producing work activity. According to the insurer, this requirement is particularly onerous because insurers do not have authority to require production of documents disclosing such information prior to an evidentiary hearing. The employee recognizes that an insurer does not have the right to compel production of documents before a hearing, but argues that an insurer does have the right (and obligation) to request information. Because an employee might not tell the truth does not, asserts the employee, excuse an insurer from asking for earnings information.

44 This case presented a close call for the administrative law judge and LIRC. Were this court reviewing the order of LIRC de novo, the result might very well be different.

The supreme court concluded that in reviewing LIRC’s decision in this case, the appropriate legal standard to be applied is that of “great weight deference.” On that basis the supreme court decided that LIRC’s conclusions are reasonable under the circumstances, so that LIRC’s decision must me affirmed in dismissing the bad faith penalty claim.

You may download the decision from the Web site of the Wisconsin Court System:
- as an HTML file: http://www.courts.state.wi.us/html/sc/02/02-1429.htm
- as a PDF file at: http://www.courts.state.wi.us/sc/opinions/02/pdf/02-1429.pdf


Beecher v. LIRC
2003 WI App 100

Subject: Odd-lot doctrine on claim for permanent total disability
Note: Appeal now pending before Wisconsin Supreme Court

In a 1977 decision the Wisconsin Supreme Court first adopted the odd-lot doctrine as a part of Wisconsin law. Balczewski v. DILHR, 76 Wis. 2d 487, 495–96, 251 N.W.2d 794 (1977). The odd-lot doctrine is a rule of evidence, and means that once an employee establishes a prima facie showing of 100% permanent total disability upon the basis of future unemployability, the burden is then upon the employer to rebut the prima facie showing and to demonstrate that some kind of suitable work is regularly and continuously available to the employee.

What does that mean? Assume that an employee sustains a non-scheduled injury with resulting permanent disability. The employee is then only able to perform a only small number of jobs and may not even be able to work on a full-time basis. Furthermore, the limited number of jobs that the employee could perform may not even be available such that the employee would be able to engage in regular, ongoing employment. If so, the employee is considered to be permanently total disabled, unless the employer can establish that there is some kind of suitable work is regularly and continuously available to the employee.

We now have a new precedent dealing the odd-lot doctrine. In Beecher v. LIRC, 2003 WI App 100, the court of appeals rejected a decision by LIRC that applied an expanded version of the odd-lot doctrine. LIRC took the position that, when the employee puts in a prima facie case for permanent total disability, but there is some legitimate question whether the employee is “obviously unemployable,” then the burden should be on the employee to prove that he or she has conducted a job search and has been unable to find a job with the physical limitations the doctor has ordered. LIRC argued that in the Balczewski case, the supreme court adopted the odd-lot doctrine from Professor Larson’s treatise, and Professor Larson also described a corollary to the general principle, for cases in which the employee is not obviously unemployable.

However, the court of appeals rejected that argument, on the basis that the supreme court’s decision in Balczewski never adopted Professor Larson’s corollary as an exception to the odd-lot doctrine. The court of appeals ruled that LIRC erred in finding the employee failed to show reasonable efforts to secure employment, such that he failed to make his prima facie case. The court of appeals held that the employee did meet his burden to establish a prima facie case for permanent total disability. On that basis it remanded the case to the Department, so that the employer could have a chance to rebut the employee’s evidence by showing that there is some kind of suitable work available to the employee.

The decision is available the Web site of the Wisconsin Court System:
- as an HTML file: http://www.wicourts.gov/html/ca/02/02-1582.htm
- as a PDF file: http://www.wicourts.gov/ca/opinions/02/pdf/02-1582.pdf

The decision by the court of appeals is presently on appeal to the supreme court. Oral arguments were presented on 1/15/04.


St. Paul Fire & Marine Ins. Co. v. Keltgen
2003 WI App 53

Subject: Third-party liability claim, prohibition on double recovery
Note: Affirmed by the supreme court, per curiam, in 2004 WI 37

The case involved a sexual assault against an employee of a sheltered workshop, with the assault by a co-employee. The employee did have a WC claim arising out of the assault, but the WC claim was resolved on a compromise settlement.

The employee sued the employer in circuit court for negligence and on various claims under the patient’s rights provisions of Wis. Stat. chapter 51. (Chapter 51 deals generally with people who have mental problems, including developmental disabilities.) The circuit court ended up throwing out the entire claim.

1) The court of appeals agreed that all but one of the claims under chapter 51 would have no application to a sheltered workshop.

2) The court of appeals rejected the employer’s defense that the suit was barred by the exclusive remedy provision of the WCA. The supreme court’s 1997 decision in Byers v. LIRC, held that a statutory claim is not barred by the exclusive remedy provision of the WCA, so on that basis the court of appeals refused to apply the exclusive remedy provision in this case.

3) The court of appeals agreed with the circuit court that any recovery for the employee’s remaining chapter 51 claim would duplicate the damages the employee already received on his worker’s compensation claim, such that he would have a double recovery. Thus, the court of appeals held that his claim was barred on that basis.

4) The employee argued that the “dual persona” doctrine would apply, in that the employer was also involved in the claim as a health care provider for the employee. The court of appeals rejected that argument.

The most interesting part of the decision would appear to be the ruling that the claim is barred because the employee already had a recovery on the worker’s compensation claim. Although the court of appeals held that the exclusive remedy provision of the WCA did not bar the claim, it was instead barred because any recovery on the lawsuit in circuit court would constitute a double recovery for the same damages. The court of appeals decision does not cite any law on that issue. The court just seems to assume that a double recovery is not permissible.

Thus, the part of the decision by the court of appeals, that a double recovery is not allowed, may be a useful precedent for employers on similar claims when the exclusive remedy provision of the WCA would not apply because of Byers v. LIRC. What about trying to apply such a precedent in other cases involving double recoveries?

For example, what about employees who are injured in motor vehicle accidents and an uninsured/underinsured motorist is at fault in the accident? If the employee was within the course of the employment, then the employee claims worker’s compensation benefits. The employee may then be able to claim benefits under the employer’s uninsured/underinsured motorist coverage. A recovery on a claim against the employer’s uninsured/underinsured motorist coverage is not subject to division under the formula of § 102.29, so the employee has a double recovery and gets to keep the whole thing. Could the precedent in the Keltgen case be used to argue against permitting such a double recovery on the employer’s uninsured/underinsured motorist coverage? I don’t see why not.

The decision is available the Web site of the Wisconsin Court System:
- as an HTML file: http://www.courts.state.wi.us/html/ca/02/02-1249.htm
- as a PDF file: http://www.courts.state.wi.us/ca/opinions/02/pdf/02-1249.pdf

The decision by the court of appeals was appealed to the supreme court. One of the justices did not participate in deciding the appeal, and the remaining six were evenly split between affirming and reversing, so the court of appeals decision was affirmed, per curiam, in 2004 WI 37.