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Green v. Kake Tribal Corp, AK Timber Insurance Exchange, & AK Workers' Compensation Board (8/30/91), 816 P 2d 1363
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NOTICE: This opinion is subject to formal correction
before publication in the Pacific Reporter. Readers are
requested to bring typographical or other formal errors to
the attention of the Clerk of the Appellate Courts, 303 K
Street, Anchorage, Alaska 99501, in order that corrections
may be made prior to permanent publication.
THE SUPREME COURT OF THE STATE OF ALASKA
MORRIS GREEN, )
)
)
Appellant/ ) File Nos. S-3829/3870
Cross-Appellee, )
)
v. ) 1JU 88 999 CI and
) 1JU 89 131 CI
)
KAKE TRIBAL CORP. and ALASKA ) O P I N I O N
TIMBER INSURANCE EXCHANGE, )
)
Appellees/ ) [No. 3748 - August 30, 1991]
Cross-Appellants,)
)
and )
)
ALASKA WORKERS' COMPENSATION )
BOARD, )
)
Appellee. )
________________________________)
Appeal from the Superior Court of the State
of Alaska, First Judicial District, Juneau,
Duane Craske, Judge.
Appearances: Terry J. Barnett, Seattle, for
Morris Green. Paul M. Hoffman, Robertson,
Monagle & Eastaugh, P.C., Juneau, for Kake
Tribal Corp. and Alaska Timber Insurance
Exchange. No appearance for Workers' Compensa
tion Board.
Before: Rabinowitz, Chief Justice, Burke,
Matthews, Compton and Moore, Justices.
BURKE, Justice.
This case involves an appeal by a worker from a
decision of the Alaska Workers' Compensation Board, and a cross-
appeal by his employer and its insurance company. We affirm.
I
Morris Green was severely injured on June 21, 1983, in
an accident related to his employment by Kake Tribal Corporation.
The parties stipulated on November 30, 1987, that Green was
entitled to permanent total disability compensation. This
dispute arises because of a disharmony between the state workers'
compensation scheme and the federal Social Security scheme, which
resulted in a shell game of entitlements, offsets, and actual
payments.
By both federal1 and state statute,2 Green's disability
entitlements from all sources cannot exceed 80 percent of his
preinjury earnings. His preinjury average weekly wage (AWW) for
the purpose of workers' compensation was determined to be
$416.36, 80 percent of which is $333.09. If his combined work
ers' compensation and social security entitlements exceed this
maximum entitlement, the workers' compensation insurer can seek
an offset in the amount of the difference between the total
entitlement and the maximum entitlement. Until the insurer seeks
the offset, however, the Social Security Administration (SSA)
takes its own offset. The result is that the injured employee
does not get more than the limit, one way or another.
As a result of the injury, Kake's insurer, Alaska
Timber Insurance Exchange (ATIE), began paying Green $277.59 per
week. As of December 1, 1983, he was entitled to a total of
$219.12 per week in Social Security benefits.3 Thus, his total
entitlement as of December 1 was $496.71 per week, which exceeded
his maximum allowable entitlement by $163.62. The SSA was aware
of this fact and consequently only paid Green $55.38 per week--
that is, they automatically took an offset so that Green would
not be overpaid.4 Thus, Green was receiving exactly that to
which he was entitled. As between ATIE and SSA, ATIE was paying
more than it had to, while SSA was paying less.
In February 1987 ATIE petitioned the Alaska Workers'
Compensation Board for an offset of $163.62 per week, retroactive
to December 1, 1983. Although Green did not deny that ATIE was
entitled to some offset, he vigorously contested the inclusion of
his daughter's social security entitlement in calculating the
amount of the offset. Green apparently feared that, even if ATIE
received an offset credit based on the daughter's entitlement, he
would not be reimbursed by SSA.5 He also argued that if SSA did
refund the withholdings, the refund would belong exclusively to
his daughter.
The Board rejected these arguments and allowed the
requested offset in a Decision and Order issued June 10, 1988.
The effect of this decision was to create an offset credit from
past payments of over $40,000. The Board directed that ATIE
could recoup the credit by withholding 20 percent of each future
payment until the total credit was recovered, which would take
over thirty-three years. The Board denied ATIE's request for
statutory interest of 10.5 percent on the outstanding balance.
Finally, the Board ordered Green to inform ATIE if he received a
lump sum adjustment from SSA for the offset it had already taken.
Green did in fact receive a lump sum payment of
$36,561.6 ATIE subsequently petitioned the Board to modify its
order and allow ATIE to recoup its offset by withholding 100
percent of its payments until it had recovered the entire amount,
a process that would last approximately six and a half years.
Green argued that the law creates a presumption that withholdings
to recover overpayments will be limited to 20 percent of future
payments. The Board found "no legislative history or other
authority" to support that position, insofar as the plain
language of the statute authorizes the Board to allow higher
withholding rates.7
In a Decision and Order dated January 10, 1989, the
Board granted the modification. Its reasoning centered on the
fact that Green was now in possession of a substantial
overpayment--the SSA lump sum--which could be used to pay off
ATIE immediately if Green desired to "reinstate"his compensation
benefits. The Board rejected Green's assertion that ATIE's
neglect caused the delay in obtaining the offset, finding instead
that Green was primarily responsible.8
Green appealed the modification to the superior court;
ATIE had already appealed from the Board's earlier denial of
statutory interest on the offset. The appeals were consolidated,
and the superior court denied both in a Memorandum Decision and
Order, dated February 9, 1990. The two parties have pursued
their respective appeals to this court.
II
At this point there is no dispute as to whether ATIE is
entitled to an offset credit, nor is there a dispute as to the
amount of the offset credit. The question involved in Green's
appeal is whether ATIE should recoup its overpayment in about six
years or in about thirty-three years. The question in ATIE's
cross-appeal is whether ATIE should be entitled to interest on
the amount of the SSA lump sum received by Green.
A
The essence of Green's appeal is that the Board erred
in authorizing ATIE to withhold 100 percent of Green's weekly
workers' compensation payments until such time as ATIE's entire
overpayment has been recovered, which will be over six years. A
brief consideration of the economic reality of the situation
demonstrates why this argument is meritless.
As noted above, before the offset ordered in the
Board's June 10 Decision, Green received exactly what he was
entitled to receive. ATIE, however, paid more than required, SSA
paid less. Although the most sensible solution would have been
for SSA to reimburse ATIE directly, the law does not provide for
such a straightforward remedy. The Board initially authorized
ATIE to recover its overpayments over the next thirty-three years
from Green. SSA then refunded its underpayments in a lump sum to
Green. Green is thus the middleman in what essentially is a
settling of accounts between SSA and ATIE.
Treating Green's receipt of the lump sum payment as a
change in conditions,9 the Board modified its previous order,
increasing ATIE's withholding rate to 100 percent. This modifi
cation would allow ATIE to recover its overpayments over the next
six years; the Board felt it had no legal means of allowing a
quicker recovery.10 Green is still in an enviable position: he
gets money from SSA today, but only need dole it out to ATIE over
the next six years. Or put another way, Green effectively has a
six-year, interest-free loan of over $36,000.11
The complaint that Green will receive "zero compensa
tion," or "reduced compensation,"over the next six years is
without economic foundation: he has already received his compen
sation for the next six years. Yet, this complaint underpins his
entire appeal. For example, in arguing that the Board's January
10 order violates public policy, he asserts that "the order
defeated the purpose of the Act by suspending compensation to an
admittedly disabled worker, to benefit parties the Act provides
should be obligated, not benefitted." Appellant's Brief at 38.
This argument would be persuasive if the underlying premise--that
Green's compensation was suspended rather than advanced--were
true. Because that premise is not true, the argument is
irrelevant.
Similarly, in arguing that the Workers' Compensation
Act presumptively restricts the rate of recovery of overpayments
to 20 percent withholdings, Green asserts that "securing compen
sation comes before limiting it." Appellant's Brief at 32
(emphasis in original). On its face, this argument certainly has
merit, but no relevance to this case. Green has already secured
the equivalent of his compensation for the next six years; the
only thing being limited is how much of a time value bonus he
gets in addition to this compensation.
Green argued before the Board that no overpayment was
made, but the Board summarily rejected that position. He now
implicitly accepts that an overpayment was made, as he merely
asks this court to reinstate the original recoupment schedule,
which would allow ATIE to recover its money over the next thirty-
three years. Green does, however, subtly attempt to reintroduce
the concept that the lump sum payment is not an "overpayment":
Regarding the Board's second
finding, the lump sums were not "the funds
which we have ordered [Kake/ATIE] to recoup."
Kake/ATIE's legal right was to withhold, from
their own funds, part of the money they would
owe Mr. Green in the future. The SSD lump
sums were federal money, owed to Mr. Green
and his daughter under federal law.
Kake/ATIE had no legal right [to] "recoup"
from money they had not paid. Nor could they
recoup from someone --the daughter--they had
not paid.
Appellant's Brief at 18 (emphasis in original). The conclusion
which Green would have this court draw is that the lump sum was
no more than that to which he was entitled under federal law, and
that ATIE's withholdings are from payments to which he will be
entitled under state law. This line of reasoning suggests that
the Board is indeed burdening Green's entitlements, a suggestion
that is in fact an illusion in light of the economic reality of
the situation. The fallacy giving rise to this illusion, of
course, is to consider the lump sum an entitlement without simul
taneously recognizing prior ATIE payments as overpayments.
Green also argues that considering the portion of the
lump sum earmarked for the daughter's entitlements was error on
the Board's part. He maintains that federal law prohibits him
from paying over her entitlement to ATIE, or from doing anything
with it other than paying for the daughter's food, shelter, and
personal comfort. This argument is inconsistent with his
acceptance of the total offset due to ATIE, which took into
account Social Security entitlements earmarked for the daughter.
Although Green initially argued before the Board that the
daughter's entitlements should not be taken into account, the
Board held otherwise. Green did not appeal that holding to the
superior court, and he may not revive his original argument now.
We are especially willing to recognize Green's waiver
of an argument in regard to his daughter's entitlement in light
of the fact that the SSA originally withheld the entitlement on
the presumption that it was subject to the statutory maximum, and
apparently only refunded it because it was part of the offset
awarded to ATIE. Green's seizing upon the SSA's distinction
between his and his daughter's entitlements is another way of
slipping in the notion that there has been no overpayment. The
fact is that Green already received all the funds the laws allow
him, from which he was obligated to maintain his daughter (and
himself). The lump sum, whether designated as part of his
entitlement or part of hers, is over and above that which he and
she should have in their collective pocket at the end of the day.
Section 155(j) of the Workers' Compensation Act clearly
envisions that the Board may under some circumstances approve the
withholding of more than 20 percent of unpaid installments in
order for an employer to recoup an overpayment. At some point we
may need to involve ourselves in the definition of those circum
stances. But where, as here, the worker stands to come out ahead
even with 100 percent withholding, there is no reason to question
the Board's judgment.
B
ATIE originally asked the Board to allow it interest of
10.5 percent on the entire amount of its offset credit. The
Board refused. Before this court, ATIE merely asks for interest
on so much of its credit as was ultimately refunded to Green by
SSA (although it has not abjured its right to recover the entire
amount of the credit). Both parties agree that the question is
one of law. See Guin v. Ha, 591 P.2d 1281, 1284 n.6 (Alaska
1979) (court will adopt "rule of law that is most persuasive in
light of precedent, reason, and policy").
ATIE argues that this court's holding in Land & Marine
Rental Co. v. Rawls, 686 P.2d 1187 (Alaska 1984), which awarded
interest on overdue compensation payments to workers, should be
extended to cases where the worker owes money to the insurer. In
support of this argument, ATIE identifies three rationales under
lying the Rawls decision: (a) the time value of money; (b) the
creation of an incentive for timely payments; and (c) the preva
lence of such a practice in other jurisdictions. Although ATIE
admits that no other state allows interest on employers' overpay
ment credits, it asserts that the other two Rawls reasons apply
as strongly to this case as to a situation where the
employer/insurer owes the employee.
ATIE notes that simple statutory interest of 10.5
percent on Green's lump sum payment would be $129,371.27 over
thirty-three years and $25,720.70 over six years. ATIE argues
that the time value rationale of Rawls applies as much to
employers as to employees. ATIE also argues that the creation of
a recoupment mechanism "indicates that one of the purposes of the
Act was to make sure that employees did not receive more in
benefits than the amount to which they were entitled." Cross-
Appellant's Brief at 14. Allowing Green the time value of his
lump sum payment, ATIE suggests, would "thwart"this purpose of
the Act. ATIE further asserts that the intent of the twin offset
provisions in federal and state law is to prevent double recovery
by the employee and to give the benefit of the offset to the
employer. If ATIE is not allowed interest on the lump sum, Green
will end up with a "partial `double recovery,'"and ATIE will not
enjoy the full benefit of the offset.12
ATIE's argument ignores a crucial aspect of our deci
sion in Rawls--the right to interest only attaches once a payment
is late:
We hold that a workers'
compensation award, or any part thereof,
shall accrue lawful interest, as allowed
under AS 45.45.010, which provides a rate of
interest of 10.5 percent a year and no more
on money after it is due, from the date it
should have been paid.
Id. at 1192 (emphasis added). Without getting into a metaphysi
cal argument as to whether the lump sum money is ATIE's money,
the statutory mechanism for ATIE's recovery of its credit is
withholding. See AS 23.30.155(j). Thus, the money is not due to
ATIE until such time as each installment is payable, just as a
worker is not entitled to his compensation payments until such
time as they are due.
In this case the worker does receive a time value bonus
by getting the lump sum today instead of compensation payments
spread out over a number of years.13 If ATIE's position were
adopted, however, the worker would not only lose the time value
bonus, he would also lose some of his basic entitlement. Faced
with an award of 10.5 percent interest on the lump sum amount,
the easiest thing for the employee to do--and the result that
ATIE forthrightly seeks--is to hand over the lump sum to the
insurer. Were Green to do that in this case, ATIE would still
have the right to recoup over $3,000 from future payments, which
represents the gap between SSA's method of calculation and
Alaska's. The result would be that Green receives less than his
entitlement of 80 percent of his average weekly wage. In fact,
if ATIE continued to recoup that difference through 100 percent
withholding, Green would receive no workers' compensation
payments for about six months, even though he would no longer be
in possession of any overpayment whatsoever.
In this context, Green's arguments about basic fairness
and public policy would carry tremendous weight, weight they do
not carry so long as he enjoys a lump sum while ATIE waits for
recoupment. He, rather than the insurer, would be bearing the
burden for the imperfect fit between the federal and state
schemes. Such a shifting of burden from insurer to worker goes
against the grain of the beneficent purposes of the workers'
compensation scheme as well as this court's extensive workers'
compensation jurisprudence. See, e.g., Hood v. State, 574 P.2d
811, 813 & n.6 (Alaska 1978).
Nothing in the statute or case law suggests to us that
the worker should suffer because of these systemic imperfections.
The bonus Green receives inheres in the system as currently
structured by the legislature and is not clearly counter to the
general purpose of the Workers' Compensation Act. Whether the
bonus overcompensates disabled workers and, if so, what to do
about it, are questions firmly within the province of the legis
lature.
AFFIRMED.
_______________________________
1. 42 U.S.C. 424a(a) (1988).
2. AS 23.30.225(b).
3. The entitlement was actually calculated as $633
per month for Green and $316.50 per month for his dependent
daughter. We have converted the monthly figure to a weekly
figure to make it more readily comparable with the workers'
compensation payments.
4. The payments were a portion of his entitlement.
The Social Security Administration made no payments at all on his
daughter's entitlement.
5. This fear in fact proved unfounded, as SSA
refunded all of its withholdings.
6. Of this amount, $19,150 was considered
reimbursement for sums withheld from his payments, and $17,411
for sums withheld from his daughter's payments. The Social
Security lump sum is less than the total recoupment of $40,063.99
awarded to ATIE, apparently because the "average current
earnings" figure used by SSA to calculate entitlements is
slightly different than the "average weekly wage" used under
Alaska law. See Appellee's Brief at 13 n.5.
7. AS 23.30.155(j) provides:
If any employer has made advance
payments or overpayments of compensation, the
employer is entitled to be reimbursed by with
holding up to 20 percent out of each unpaid
installment or installments of compensation
due. More than 20 percent of unpaid
installments of compensation due may be
withheld from an employee only on approval of
the board.
8. Both parties devote some energy before this court
in debating about who should bear the blame for the delay. As is
clear from the discussion below, we do not find the issue particu
larly relevant to deciding this case.
The superior court concluded as a matter of law that an
employer could receive interest on an overpayment when there is
substantial evidence that the worker misused the system. The
court then concluded as a matter of fact that Green's conduct in
this case was negligent rather than willful. As ATIE has not
pursued this theory on its cross-appeal, we offer no view on
either the legal or factual holding.
9. AS 23.30.130(a) provides:
Upon its own initiative, or upon the
application of any party in interest on the
ground of a change in conditions, . . . the
board may . . . review a compensation case .
. . [and] issue a new compensation order
which terminates, continues, reinstates, in
creases, or decreases the compensation, or
award compensation.
10. See supra note 7 (quoting AS 23.30.155(j)). No
provision is made for recovery other than through withholding all
or part of future payments.
11. The bonus he receives is substantial. The present
value of the stream of payments he is forgoing is around $28,000,
assuming for argument's sake an annual discount rate of 10.5
percent. Thus, he clears about $8,000 from the disharmony
between state and federal law.
12. ATIE also briefly argues that the equities favor
an award of interest. By its own terms, this argument turns on a
breach of duty by Green, which ATIE does not even allege, much
less attempt to prove. ATIE largely disavows this argument in
its reply brief.
13. The figure, however, is nowhere near the amount of
$25,720.70 calculated by ATIE. That figure--simple interest on
$36,561 for 6.7 years--does not take into account the fact that
Green will have to expend the principal to replace his forgone
compensation payments from ATIE. Probably the most sensible
comparison is of the present value of the forgone payments with
the present value of the lump sum. As noted above, assuming an
annual discount rate of 10.5 percent, Green's bonus is about
$8,000.
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