Avoiding the Pitfalls of Penalties

Published on: 6/23/2006

After a case is heard and a final determination has been rendered or once an agreement to an Award of compensation is reached, including a settlement, there is one last hurdle to clear: the “Payment” of such Award or Settlement. As many of you are aware, 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. The statute reads:

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. No penalty shall be assessed against the Commonwealth when the Commonwealth has issued a regular payroll check to the employee in lieu of compensation covering the period of disability. §65.2-524 (emphasis added)

The Full Commission has previously 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 (February 11, 2002). These cases, however, have recently been overruled by the Court of Appeals of Virginia in Roman v. Ondeo Degremont, Inc., 47 Va.App. 773, 627 S.E.2d 539, Mar 28, 2006.

In Roman, the claimant had an occupational disease claim decided in a hearing and the deputy Commissioner awarded, in an opinion dated July 23, 2003, Temporary Total Disability [TTD] benefits of $645 per week beginning August 6, 2001, and continuing. 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 by opinion dated May 4, 2004. 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 TTD 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 concluding that §65.2-524 applied only to "actual disability benefits due a claimant." The deputy Commissioner concluded, therefore, that he had no authority to apply this penalty provisions to late payments of attorney's fees and/or interest.

Roman filed for review to 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 TTD compensation.

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 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.

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. While we expect the claimant’s bar will now be looking for ways to harvest additional funds for themselves and/or their clients following this opinion, the employer or carrier can protect themselves 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. Per the terms of the Act, you have 34 days from the date of the opinion or award order to issue a payment to the claimant and his/her attorney. This includes the 20-day period during which you can request review of the deputy Commissioner’s decision plus 14 days thereafter to issue payment and avoid a penalty. Following the issuance of a full Commission or Virginia Court of Appeals decision, you have 44 days to issue payment to the claimant and his/her attorney. This includes the 30 day period to file an appeal plus 14 days thereafter to issue payment and avoid a penalty under §65.2-524.

The attorneys with the Workers’ Compensation practice section of Sands, Anderson, Marks & Miller are always 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.




This was written by: