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Underwater Const. Inc. et al v. Shirley (11/4/94), 884 P 2d 156
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Notice: This is subject to formal correction before
publication in the Pacific Reporter. Readers are
requested to bring errors to the attention of the Clerk
of the Appellate Courts, 303 K Street, Anchorage,
Alaska 99501.
THE SUPREME COURT OF THE STATE OF ALASKA
UNDERWATER CONSTRUCTION, INC., )
and INDUSTRIAL INDEMNITY )
COMPANY OF ALASKA, )
) Supreme Court File
Appellants/ ) Nos. S-5247/5248
Cross-Appellees, ) Superior Court File No.
) 3AN-91-03478 Civil
v. )
)
WILLIAM M. SHIRLEY, ) O P I N I O N
)
Appellee/ )
Cross-Appellant. ) [No. 4143 - November 4,
1994]
)
Appeal from the Superior Court of the
State of Alaska, Third Judicial District,
Anchorage,
Peter A. Michalski, Judge.
Appearances: Mark L. Figura, Rose &
Figura, Anchorage, for Appellants/Cross-
Appellees. Chancy Croft, Chancy Croft Law
Office, Anchorage, for Appellee/Cross-
Appellant.
Before: Moore, Chief Justice,
Rabinowitz, Matthews and Compton, Justices.
COMPTON, Justice.
RABINOWITZ, Justice, dissenting in part.
Underwater Construction, Inc. appeals an award of
attorney's fees pursuant to section 145(a) of the Alaska Workers'
Compensation Act (Act), AS 23.30.005-.270, claiming that the
award was improper since it never "controverted" payment of
compensation.
We affirm the award with slight modification.
William W. Shirley cross-appeals the denial of his
request for a determination that he is entitled to an order
awarding him permanent partial disability payments pursuant to
section 110(c) of the Act. We reverse the denial.
I. FACTUAL AND PROCEDURAL BACKGROUND
William W. Shirley was severely injured while working
for Underwater Construction, Inc. (Underwater Construction) on
August 4, 1989. On August 23, 1989, Underwater Construction's
insurance carrier, Industrial Indemnity Company of Alaska
(collectively, Industrial Indemnity), began paying Shirley
temporary total disability (TTD) payments of $449.37 per week.
Although Shirley received extensive medical treatment,
specialists concluded that he would not be competitively employed
then or in the future.
On August 21, 1990, Dr. Shawn Hadley, a rehabilitative
specialist, performed a permanent partial impairment (PPI) rating
and concluded that Shirley had an impairment rating of 54% of the
whole man. Industrial Indemnity indicated that the rating "may
be premature," and sought to clarify impairment status through
consultation with another head injury expert, Katherine Mateer,
Ph.D. Industrial Indemnity continued to pay Shirley $449.37 per
week in TTD benefits.
Shirley contacted an attorney and filed an application
for permanent total disability (PTD) benefits. Industrial
Indemnity filed an answer on a form provided by the Alaska
Workers' Compensation Board (Board) in which it disputed
Shirley's PTD claim: "Carrier is awaiting clarification from
record review to determine P & T status. Until such time TTD is
on-going." Industrial Indemnity also "reserve[d] the right to
raise further defenses after discovery." In response to
Shirley's claim for attorney's fees, Industrial Indemnity stated:
"No benefits have been controverted. All benefits due and owing
under the Alaska Workers' Compensation Act have been accepted and
paid." In support of this, Industrial Indemnity noted that since
the TTD and PTD rates are the same, its decision had no effect on
the amount of Shirley's compensation benefits.
In January 1991 Industrial Indemnity received a report
from Dr. Mateer which stated that "Mr. Shirley is permanently and
totally disabled as a result of the August 4, 1989 injury." On
this basis, Industrial Indemnity converted Shirley's status from
TTD to PTD, effective January 24, 1991.
In March 1991 the Board held a hearing on Shirley's
claim. The Board found that Shirley had been permanently totally
disabled after August 21, 1990. Based on this finding, the Board
held that Industrial Indemnity had "controverted in fact
Employee's entitlement to PTD benefits." Accordingly, the Board
required Industrial Indemnity to pay statutory minimum attorney's
fees on all disability payments made after August 21. The Board
also denied Shirley's request for "an award of PTD benefits until
further board order,"noting that Industrial Indemnity would be
warranted in changing Shirley's status if his condition were to
improve in the future.
Industrial Indemnity appealed the attorney's fee ruling
to the superior court, Alaska R. App. P. 601; AS 22.10.020,
arguing that it had not "controverted"the payment of disability
benefits. The superior court affirmed the Board's order.
Industrial Indemnity appeals that ruling. Shirley cross-appeals,
claiming that the Board erred in denying his claim "for an award
of permanent total disability benefits." Alaska R. App. P.
202(a); AS 22.05.010(c).
II. DISCUSSION
A. AWARD OF ATTORNEY'S FEES UNDER AS 23.30.145(a).
The central question before this court is whether the
Board had the authority under section 145(a) of the Act to award
statutory attorney's fees. Because this determination requires
statutory interpretation involving no administrative expertise,
the substitution-of-judgment standard is appropriate. Tesoro
Alaska Petroleum Co. v. Kenai Pipe Line Co., 746 P.2d 896, 903
(Alaska 1987). We give no deference to the intermediate
appellate decisions of the superior court. Id.
Alaska Statute 23.30.145(a) provides in part:
When the board advises that a claim has
been controverted, in whole or in part, the
board may direct that the fees for legal
services be paid by the employer or carrier
in addition to compensation awarded; the fees
may be allowed only on the amount of
compensation controverted and awarded. . . .
The parties dispute the effect of Industrial
Indemnity's delay in changing Shirley's status from TTD to PTD.
Industrial Indemnity argues that it never controverted any amount
of compensation owed to Shirley and therefore the Board did not
have authority to grant attorney's fees. It notes that it has
paid Shirley $449.37 in weekly TTD benefits since his injury --
the same amount for which he would be eligible if granted PTD
status.
Shirley responds that Industrial Indemnity controverted
his claim by "never unqualifiedly accept[ing] Shirley's claim for
permanent total disability compensation." Because Industrial
Indemnity satisfied the controversion requirement, the award of
attorney's fees was appropriate.
We agree. Shirley's physician, Dr. Hadley, indicated
in her July and August 1990 reports that Shirley was medically
stable and that he would not be able to pursue gainful
employment. Given these conclusions, Shirley was entitled to
have his status changed at that time from TTD to PTD.1
Accordingly, Industrial Indemnity's refusal to change Shirley's
status constituted a controversion of Shirley's claim "in whole
or in part"under AS 23.30.145(a).
Nonetheless, section 145(a) limits the Board's
authority to award attorney's fees to "the amount of compensation
controverted and awarded." AS 23.130.145(a); see Bignell v. Wise
Mechanical Contractors, 651 P.2d 1163, 1169 (Alaska 1982) ("The
statute unambiguously restricts the award of attorney's fees to
amounts which are controverted."); J.B. Warrack Co. v. Roan, 418
P.2d 986, 990 (Alaska 1966) (holding that where although carrier
did not controvert amount of employee's claim, no attorney's fees
could be awarded). Industrial Indemnity argues that because the
payment amount under TTD was exactly the same as it would have
been under PTD, no "amount of compensation"was controverted.
We disagree. Industrial Indemnity controverted the
permanent status of Shirley's disability, thus affecting the
total amount he could collect during his lifetime. As the
superior court noted, "[t]he distinction between TTD and PTD can
be very important to an employee since TTD payments end with
medical stability while PTD benefits do not." Shirley claimed
$449.37 per week PTD. Regardless of TTD benefits being paid,
Industrial Indemnity's action paid zero dollars PTD.
Furthermore, Industrial Indemnity's suggestion that a status
change would have no effect on the amount that Shirley receives
is somewhat disingenuous. If indeed there had been no "amount of
compensation"at stake, there would not have been any reason for
Industrial Indemnity to controvert Shirley's claim. By
controverting Shirley's entitlement to PTD benefits, Industrial
Indemnity retained the option to claim that its liability ended
as of the point at which Shirley achieved medical stability.
Amounts payable -- and not voluntarily paid -- after that point
were thus controverted.
The policies underlying the attorney's fees statute
further support our conclusion. Alaska Statute 23.130.145(a)
provides for attorney's fees in order to ensure that injured
workers are able to obtain effective representation. Wien Air
Alaska v. Arant, 592 P.2d 352, 365-66 (Alaska 1979), overruled on
other grounds, Fairbanks N. Star Sch. Dist. v. Crider, 736 P.2d
770 (Alaska 1989). Where an employer resists payment of
benefits, the injured worker must retain an attorney to protect
his interests. "The employer is required to pay the attorneys'
fees relating to the unsuccessfully controverted portion of the
claim because he created the employee's need for legal
assistance." Haile v. Pan American World Airways, Inc., 505 P.2d
838, 842 (Alaska 1973) (Rabinowitz, J., dissenting in part,
concurring in part). In this case, Industrial Indemnity's
dispute regarding the classification of Shirley's benefits
required him to obtain representation. As the Board noted,
Industrial Indemnity "should have changed [Shirley's] status to
PTD and then pursued medical confirmation of [Shirley's]
condition."
Based on the foregoing, we conclude that the Board was
correct in awarding attorney's fees to Shirley. However, we
disagree with the Board's specific formulation of the fee award.
The Board awarded "statutory minimum attorney's fees on all
compensation benefits paid after August 21, 1990, the date of Dr.
Hadley's final report." However, this award improperly includes
Industrial Indemnity's payments made prior to the Board's
decision. In Bignell, we affirmed the Board's decision that
attorney's fees could not attach to the employer's voluntary
payment of $6000, since that amount was not controverted. 651
P.2d at 1169. In this case, attorney's fees cannot attach to the
payments "tendered"by Industrial Indemnity until the Board's
award, since this amount was not controverted.2 Accordingly, we
modify the Board's award to apply to all compensation benefits
paid after the date of the Board award. If the fees awarded
under section 145(a) are disproportionately high, that fact
should be taken into account by the superior court. Wien Air
Alaska, 592 P.2d at 356.
B. DENIAL OF SHIRLEY'S REQUEST FOR AN AWARD OF
PTD BENEFITS UNTIL FURTHER BOARD NOTICE
Shirley argues on cross-appeal that the Board erred by
not explicitly granting him an award of PTD benefits. Shirley
apparently desires an order from the Board that Industrial
Indemnity must pay PTD benefits until further order of the Board.
Shirley claims that the issue was ripe for determination, and
AS 23.30.110(c) required the Board to make a determination and
award of PTD compensation.
In response, Industrial Indemnity argues that this
issue is moot because the Board expressly found that Shirley was
entitled to PTD benefits after August 21, 1991. In the
alternative, it argues that the statute does not require an
employer to obtain a Board order prior to termination of
disability benefits. It concludes that the Board properly denied
Shirley's request for an order directing payment of PTD benefits
until further Board order. We disagree with Industrial
Indemnity's argument that this issue is moot. The Board did not
take "the action requested by Mr. Shirley,"or expressly award
Shirley PTD benefits. At the very most, the Board concluded that
Shirley had been entitled to PTD benefits after August 21, 1990,
and that Industrial Indemnity's refusal to change Shirley's
status constituted a controversion. Nevertheless, this
conclusion was drawn in the context of the Board's decision
regarding attorney's fees. Regarding Shirley's request for an
award of PTD benefits until further Board order, the Board denied
and dismissed the request, stating that the "[e]mployee has not
pointed to any statute which would give us authority to make the
order he requests."
We therefore turn to the question of whether the Board
was correct in concluding that it did not have the authority to
grant Shirley's request. This is a question of law, requiring
statutory interpretation and involving no administrative
expertise. Accordingly, we review the decision under the
substitution-of-judgment standard. Tesoro, 746 P.2d at 903.
The Board clearly did not believe that an express award
of benefits would have made any difference to Shirley. The Board
stated:
We believe it is clear (and always has
been) that the employer and insurer have the
authority to change an injured worker's pay
status when the evidence in a given claim
warrants a change. . . . [T]here is nothing
in the [Act] to prevent or preclude [such a
change].
This statement is most likely based on AS 23.30.180, which
provides for compensation for permanent total disability "during
the continuance of the total disability." Because Shirley would
not be entitled to continuing payments if his condition were to
improve unexpectedly, the Board concluded that the employer or
insurer could unilaterally cease payments upon the improvement.
Our review of the statutory framework indicates that
this conclusion was incorrect. The Board erred in concluding
that an employer or insurer has the unilateral authority to
modify or terminate an employee's benefits, or to change an
injured worker's status. Further, the Board erred in refusing to
make an express award of PTD benefits to Shirley. Contrary to
the Board's view, such an award was important to Shirley because
it would have made it more difficult for Industrial Indemnity to
change his status at a later time.
Alaska Statutes 23.30.150-.170, entitled "Payment of
Compensation,"outline the manner by which compensation payments
are to be made. Compensation is payable "without an award,
except where liability to pay compensation is controverted by the
employer." AS 23.30.155(a). If payment of compensation is
controverted, the employee is entitled to a hearing3 and a
compensation order "rejecting the claim or making the award."4
AS 23.30.110(e). If an award is made, then compensation is
"payable under the terms of an award." AS 23.30.155(f).
If an employer wishes to modify or terminate payments,
it is required to "notify the Board and the employee of the
nature and substance"of the change within twenty-eight days.5 8
Alaska Administrative Code (AAC) 45.136 (1991). More
importantly, an employer seeking to modify or terminate payments
made under a Board order must first seek the approval of the
Board. The statute 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 under the procedure prescribed in respect of
claims in AS 23.30.110." AS 23.30.130(a). The applicable
regulation further clarifies the requirements which must be met
before an award can be modified on the basis of a change in
conditions: "A petition for a rehearing or modification based
upon change of conditions must set out specifically and in detail
the history of the claim from the date of the injury to the date
of filing of the petition and the nature of the change of
conditions." 8 AAC 45.150(c).
The above statutory and regulatory provisions indicate
that an employer or insurer does not "have the authority to
change an injured worker's pay status when the evidence in a
given claim warrants a change." If payments are being made
pursuant to a Board order, the employer or insurer must petition
the Board for rehearing or modification of its order on the basis
of "a change in conditions." AS 23.30.130(a). This conclusion
explains why Shirley requested an express award of PTD benefits,
and why Industrial Indemnity opposed such an award. Such an
award would make it more difficult for Industrial Indemnity to
modify or terminate the payment of benefits at a later date.
III. CONCLUSION
We AFFIRM the Board's conclusion that Industrial
Indemnity "controverted"Shirley's PTD claim for purposes of
AS 23.30.145(a), however, we MODIFY the Board's award of
attorney's fees. We REVERSE the Board's decision regarding
Shirley's entitlement to PTD benefits, and we REMAND with
directions to enter an order consistent with this opinion.
RABINOWITZ, Justice, dissenting in part.
I dissent from the court's holding that the Board, in
the factual context of this case, has authority under AS
23.30.145(a), to award attorney's fees to Shirley.
In my view Section 145(a) does not furnish authority
for the Board to award attorney's fees since Industrial Indemnity
did not controvert any amounts of compensation. Under Section
145(a) attorney's fees "may be allowed only on the amount of
compensation controverted." There is simply no record evidence
that Industrial Indemnity was not prepared to pay any lifetime
compensation benefits to which Shirley was entitled under the
Act. What took place here was a temporary disagreement
concerning the point at which the medical evidence justified
classifying Shirley's disability as permanent rather than
temporary.
Under the court's approach a difference over a few
months regarding a change in Shirley's status from TTD to PTD
translates into an award of attorney's fees based on a lifetime
of compensation payments. This strikes me as basically unfair.6
The court advances three grounds in support of its
holding that the Board can resort to Section 145(a) in awarding
attorney's fees to Shirley. First, the court observes that
Industrial Indemnity would not have bothered to controvert
Shirley's claim for PTD if there wasn't an "amount of
compensation" at stake. This rationale overlooks an employer's
interest in accurate information as well as the possibility of an
employer's reasonable belief in the claimant's recovery. Second,
the court notes that even if Industrial Indemnity did not dispute
the total amount it owed, it disputed the PTD amount it owed.
This reasoning impliedly overrules Bignell v. Wise Mechanical
Contractors, 651 P.2d 1163 (Alaska 1982). In Bignell, Wise
classified its compensation payments incorrectly, just as
Industrial Indemnity did in this case. Wise termed its payments
PPD, and we held that Wise should have continued to pay TTD.
Nonetheless, the $6,000 in mislabeled payments was subtracted
from the "amount controverted"figure. In my view, the Bignell
case and the instant case are indistinguishable. Lastly, the
court notes that the State's controversion meant a dispute over
"the total amount . . . [Shirley] could collect during his
lifetime." As noted above, in my view this is not an accurate
reading of the record.
Given the inapplicability of Section 145(a), I would
require the parties to file supplemental briefs as to whether
Section 145(b) authorizes the Board to award attorney's fees to
Shirley, or whether, due to the inapplicability of Sections
145(a) and (b),7 Section 145(c) authorizes this court to consider
uncompensated attorney's fees incurred before the Board, as well
as attorney's fees for proceedings before this court, in making
an award for attorney's fees.
_______________________________
1 Dr. Hadley did not conclude explicitly that Shirley was
entitled to PTD (permanent total disability) status. Following
the August 21, 1990 visit, Dr. Hadley gave Shirley a PPI
(permanent partial impairment) rating of 54% of the whole man.
Nevertheless, Dr. Hadley's conclusion that Shirley's condition
was stable, combined with her previous statements that Shirley
would never work again, support the Board's conclusion that
Shirley was entitled to PTD status as of August 21, 1990. AS
23.30.180; see J.B. Warrack Co. v. Roan, 418 P.2d 986, 987-88
(Alaska 1966) (For workers' compensation purposes total
disability means the inability "to perform services other than
those which are so limited in quality, dependability or quantity
that a reasonably stable market for them does not exit.").
2 This conclusion is also supported by our decision in
Alaska International Constructors v. Kinter, 755 P.2d 1103
(Alaska 1988). In Kinter, the insurance carrier also claimed
that no amount of compensation was controverted since it had paid
TTD benefits which were the same weekly amounts as the PTD
benefits to which Kinter was entitled. Id. at 1106. Despite
this payment, however, the carrier's answer to Kinter's claim for
PTD benefits indicated that it was denying all liability. Since
the carrier essentially had made the TTD payments "under
protest,"we concluded that it had controverted all amounts paid
after the answer was filed. Id. at 1106-07, 1107 n.11.
3 AS 23.30.100-.145, entitled "Compensation Proceedings,"
outline procedures to be followed when a dispute arises regarding
an injured worker's compensation. If a hearing is requested
pursuant to AS 23.30.110(c), the holding of a hearing is
mandatory, not discretionary. Summers v. Korobkin Constr., 814
P.2d 1369, 1371 (Alaska 1991).
4 The Board is required to "file its decision"within 30
days after the agency record closes. AS 23.30.110(c). The
decision is referred to in the statute as a "compensation order,"
reviewable in a judicial proceeding, AS 23.30.125, and modifiable
by the Board on its own initiative or the application of a party.
AS 23.30.130. If a claim is controverted in whole or in part,
the Board may allow attorney's fees "in addition to compensation
awarded,"but "only on the amount of compensation . . . awarded."
AS 23.30.145(a).
5 The statute also provides the Board with the authority
to intervene if an employer decides to modify or terminate
benefits:
The Board may upon its own initiative at
any time in a case in which payments are
being made with or without an award, where
right to compensation is controverted, or
where payments of compensation have been
[modified or terminated] . . . hold the
hearings, and take the further action which
it considers will properly protect the rights
of all parties.
AS 23.30.155(h).
6 The court observes that "[i]f the fees awarded under
Section 145(a) are disproportionately high, that fact should be
taken into account by the superior court." Assuming 145(a)
allows for deviation from its fee schedule the
"disproportionately high"standard strikes me as illusory.
7 Alaska Statute 23.30.145(b) provides:
If an employer fails to file timely
notice of controversy or fails to pay
compensation or medical and related benefits
within 15 days after it becomes due or
otherwise resists the payment of compensation
or medical and related benefits and if the
claimant has employed an attorney in the
successful prosecution of the claim, the
board shall make an award to reimburse the
claimant for the costs in the proceedings,
including a reasonable attorney fee. The
award is in addition to the compensation or
medical and related benefits ordered.
AS 23.30.145(c) provides:
If proceedings are had for review
of a compensation or medical and related
benefits order before a court, the court may
allow or increase an attorney's fees. The
fees are in addition to compensation or
medical and related benefits ordered and
shall be paid as the court may direct.
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