STEVEN C NORTHCOTT, Applicant
GREDE FOUNDRIES INC, Employer
GREDE FOUNDRIES INC, Insurer
Respondent Grede Foundries, Inc. submitted a petition for commission review alleging error in the administrative law judge's Findings and Order issued in this matter on February 22, 2010. The applicant submitted an answer to the petition and briefs were submitted by the parties. At issue before the commission is the applicant's claim for bad faith, pursuant to Wis. Stat. § 102.18(1)(bp), relative to payment of a department order issued on June 17, 2009.
The commission has carefully reviewed the entire record in this matter, and hereby modifies and affirms the administrative law judge's Findings and Order. The commission makes the following:
On June 17, 2009, the department issued an order approving a $14,500 limited compromise payment from the self-insured employer, Grede Foundries, Inc., to the applicant. The limited compromise related to a work injury of March 6, 2001, and the department order provided for payment within 21 days, or by July 8, 2009. On June 30, 2009, Grede filed for Chapter 11 bankruptcy. On that same date, Grede moved the bankruptcy court for authorization to continue to pay its worker's compensation obligations, but to do so in its sole discretion. The bankruptcy court granted this motion in an order dated July 2, 2009. On September 18, 2009, 72 days after the department order, Grede drafted checks in the total amount of $14,500 and mailed them to the applicant and his attorney. The applicant filed for inexcusable delay (Wis. Stat. § 102.22(1)), or bad faith (Wis. Stat. § 102.18(1)(bp)). The revised bad faith statute does not allow for collecting for both penalties (2005 Wisconsin Act 172), and the only issue remaining before the commission is bad faith.
Grede's defense is that it did not have the cash to pay the compromised amount until business picked up for the bankrupt company in the September 2009 time frame. Grede's manager of administration, Margaret Gunderson, testified that she did not know who made the decision to pay the $14,500 on September 18, 2009. However, she indicated that it was paid in accordance with the discretionary authority granted by the bankruptcy court to pay worker's compensation obligations, and because Grede's business had picked up. A letter was submitted from the applicant by stipulation, in which he described the financial difficulties that he experienced due to the delayed payment.
Grede is a self-insured employer for purposes of worker's compensation, and pursuant to Wis. Stat. § 102.28(2)(b), it was required to hold a surety bond for payment of worker's compensation claims. Grede held such bond but never took any action to call upon the bondholder to pay the applicant's claim. Gunderson indicated at the hearing that she had no personal knowledge concerning the worker's compensation bond, or of how the bond was supposed to work. Accordingly, she could offer no explanation for Grede's failure to initiate proceedings to call upon that bond in July 2009, when Grede was faced with the department order that it had no funds to pay.
In its arguments to the commission, Grede similarly fails to address its failure to call upon the bond for payment, except to object to the hearsay nature of an internal department note admitted at the hearing as "W.C. Exhibit 101." This note appears to make reference to the fact that payment should be made using the bond.(1) The commission places no reliance upon this hearsay note. However, competent evidence of the existence of the worker's compensation surety bond was entered into the record by Grede with Respondent's Exhibit 1, which is a copy of Grede's Debtor's Motion to the bankruptcy court. Sections 11 through 13 of that Motion verify that Grede owned bonds to ensure payment of its worker's compensation obligations in each state in which its plants were located, including Wisconsin.
The legal standard for bad faith is clearly set forth in North American Mechanical v. LIRC, 157 Wis. 2d 801, 808, 460 N.W.2d 835 (Ct. App. 1990):
"We conclude...in order to show bad faith a claimant must make a showing that the employer acted with: (1) a lack of reasonable basis for the delay which occurred and (2) knowledge or a reckless disregard of the lack of a reasonable basis for the delay."
As long as Grede had no funds, it had a reasonable basis for not making its own payment to the applicant. However, after the department order had been issued and Grede realized that it had no funds to make payment, it knowingly lacked a reasonable basis for not immediately initiating proceedings to call upon the surety bondholder to make such payment. Grede ultimately did make payment out of its newly-obtained funds on September 18, 2009, and as noted by the administrative law judge, it is uncertain from the record how long it would have taken the bondholder to actually make payment once it had been contacted. This uncertainty, together with consideration of the length of the delay in payment, led the commission and the administrative law judge to infer that the bad faith penalty should be assessed at the rate of 25 percent rather than a higher percentage. It does not change the fact that in July 2009 and the relevant time period thereafter, Grede failed to take any reasonable action in connection with its surety to address payment of the applicant's time-sensitive worker's compensation award. Its deliberate failure to call upon the bond constituted an act without a reasonable basis, and it was fully aware of this lack of a reasonable basis.
Accordingly, the commission affirms the administrative law judge's ultimate finding of bad faith, pursuant to Wis. Stat. § 102.18(1)(bp), and also his assessment of a 25 percent penalty amounting to $3,625. Applicant's attorney is entitled to a 20 percent fee.
This decision is limited to the originally-claimed issues of bad faith/inexcusable delay, and is not intended to foreclose consideration of any additional issue(s) that may arise from the work injury of June 17, 2009.
NOW, THEREFORE, this
The Findings and Order of the administrative law judge are modified to conform with the foregoing, and as modified are affirmed. Within 30 days from this date, respondent Grede Foundries, Inc. shall pay to the applicant the sum of
Two thousand nine hundred dollars ($2,900.00); and to his attorney,
Ronald M. Fitzpatrick, fees in the amount of Seven hundred twenty-five dollars ($725.00).
Dated and mailed October 25, 2010
northst : 185 : 5 ND6 § 8.23
James T. Flynn, Chairperson
/s/ Robert Glaser, Commissioner
/s/ Ann L. Crump, Commissioner
Attorney Donald M. Fitzpatrick
Attorney Joseph Danas
Appealed to Circuit Court. Affirmed. Appealed to Court of Appeals. Reversed sub nom. Grede Foundries, et. al. v. LIRC & Steven Northcott, 2012 WI App 86, 343 Wis. 2d 517, 819 N.W.2d 850
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(1)( Back ) Also admitted into evidence at the hearing was a letter from Bureau of Legal Services Section Chief Janell Knutson to applicant's attorney dated August 26, 2009, requesting that attorney's input regarding whether or not the department should "...call in the bond so that payment would be made." (Applicant's Exhibit C).