Opinion
No. 1705 C.D. 2012
03-04-2013
Anthony David Frank, Petitioner v. Workers' Compensation Appeal Board (Marathon Physical Therapy, Inc.), Respondent
BEFORE: HONORABLE RENÉE COHN JUBELIRER, Judge HONORABLE ROBERT SIMPSON, Judge HONORABLE ROCHELLE S. FRIEDMAN, Senior Judge
OPINION NOT REPORTED
MEMORANDUM OPINION BY JUDGE COHN JUBELIRER
Anthony David Frank (Claimant) simultaneously received workers' compensation (WC) disability payments under the Workers' Compensation Act (Act) and disability benefits from a private disability insurance policy purchased for him by his employer, Marathon Physical Therapy, Inc. (Employer). A Workers' Compensation Judge (WCJ) held, in relevant part, that Employer and its insurer, State Workers' Insurance Fund (SWIF), were entitled to recoup the WC disability benefits paid to Claimant from the disability payments Claimant received pursuant to the private disability insurance policy. The WCJ also granted SWIF's/Employer's Petition to Terminate Workers' Compensation Benefits (Termination Petition) based on Claimant's full recovery from his work-related injury. Therefore, because Claimant would receive no future disability payments, the WCJ directed Claimant to reimburse SWIF "for disability benefits paid during all periods while Claimant was entitled to receive benefits under the independent insurance policy provided by the Employer." (WCJ's Decision, Conclusions of Law (COL) ¶ 3.) The Board affirmed. On appeal, Claimant argues that the WCJ erred in: considering this matter as a request for credit by Employer and SWIF because Claimant did not receive any payments from Employer directly; awarding a credit to SWIF/Employer against Claimant's privately purchased disability insurance policy; raising the credit issue sua sponte; not specifying whom, SWIF or Employer, Claimant is to reimburse; and permitting SWIF to recover directly from Claimant, rather than the Supersedeas Fund. Because we conclude that there was no error in directing Claimant to reimburse SWIF where Employer paid for both the WC insurance and the private insurance, we affirm.
Act of June 2, 1915, P.L. 736, as amended, 77 P.S. §§ 1 - 1041.4, 2501-2708.
The WCJ also granted the SWIF/Employer Petition to Terminate Workers' Compensation Benefits and denied Claimant's Petition to Review Benefits, which sought to add Claimant's reconstructive left knee surgery to the sprain, strain, and contusion injury described on the Notice of Compensation Payable. The Board affirmed these determinations, and Claimant does not challenge them on appeal.
Claimant, a physical therapist, owned, was the principle and president of, and performed his professional services through Employer, a Subchapter S Corporation (S Corporation). On March 6, 2008, Claimant sustained a work-related injury in the nature of a sprain, strain, and contusion to his left knee, which Employer accepted pursuant to a Notice of Compensation Payable (NCP). Claimant, who had a total left knee replacement in 2004, sought treatment for that injury on March 23, 2008 with Robert Good, M.D., and, subsequently, a second opinion from Carl Deirmengian, M.D. In July 2008, Dr. Deirmengian performed a left knee revision surgery on Claimant due to a breakdown of the apparatus used in the 2004 knee replacement that resulted in a progressive deterioration of Claimant's left knee. Claimant attempted to return to work on September 6, 2008, and worked until November 20, 2008, but eventually stopped working because his knee, post-operation, was painful and lacked stability. Claimant was forced to close Employer. (WCJ Findings of Fact (FOF) ¶¶ 1, 3-5; Summary of the Evidence (SOE) ¶¶ 3, 6.)
In addition to receiving WC disability benefits from SWIF/Employer for the accepted work injury, Claimant received $7,050 per month from a disability insurance policy, for which Employer paid the premiums. Claimant will continue to receive $7,050 per month until he is 65 and, thereafter, will receive $2,000 per month until he is 70 pursuant to a second disability insurance policy Employer purchased on his behalf. SWIF was unaware of Claimant's receipt of the additional disability benefits until Claimant testified before the WCJ on July 17, 2009. At a subsequent hearing on January 20, 2010, the parties discussed SWIF/Employer potentially obtaining a credit due to Claimant's receipt of both WC benefits and the private disability benefits and having Employer's accountant (Accountant) testify regarding the funding of the private disability insurance. (Hr'g Tr. at 10-12, January 20, 2010, S.R.R. at 10b-12b.)
Accountant, a Certified Public Accountant, did testify, describing the characteristics of an S Corporation and the tax and liability benefits associated with engaging in business as such an entity. Accountant stated that Employer maintained a disability insurance policy on Claimant, paid the premiums for that policy, but was unaware of how many policies existed. He indicated that the premium on these disability insurance policies were non-deductible tax expenses for Employer and would, therefore, be added back into Employer's profits. Thus, according to Accountant, the shareholder of the S Corporation would pay taxes on the premiums paid in addition to taxes on any corporate profits. (FOF ¶ 6; SOE ¶ 4.)
Accountant explained that, for tax purposes, an S Corporation does not pay federal or state income taxes on its profits; rather, those profits (or losses) pass through to the shareholder(s), who then personally pay federal and state income taxes on the S Corporation's profits. (Factor's Dep. at 5-6, 10-11, 13, R.R. at 79a-80a, 84a-85a, 87a.)
For example, Accountant testified that if an S Corporation had $20,000 in profits and paid $5,000 in disability insurance premiums, the shareholder would pay taxes on $25,000 because the $5,000 is added back in as a non-deductible expense. (Factor's Dep. at 8-9, R.R. at 82a-83a.)
The WCJ found that SWIF/Employer was entitled to relief based on Claimant's ongoing receipt of the private disability insurance benefits because Employer paid for the private disability insurance policy, which was provided for Claimant's benefit alone. (FOF ¶ 6.) The WCJ concluded that SWIF/Employer was "entitled to recoupment for the disability payments made to . . . Claimant under the Act from the disability payments payable to . . . Claimant from the independent insurance policy provided by the Employer." (COL ¶ 3.) The WCJ held that ordering reimbursement to SWIF for WC disability benefits paid during the periods Claimant was entitled to receive the private disability benefits, rather than a credit against future WC benefits, was the appropriate remedy because, as a result of granting the Termination Petition, no future WC disability benefits would be paid to Claimant. (COL ¶ 3.) Claimant appealed to the Board, which affirmed.
The Board held, based on Marsh v. Workmen's Compensation Appeal Board (Prudential Insurance Co.), 673 A.2d 33 (Pa. Cmwlth. 1996), and School District of Philadelphia v. Workmen's Compensation Appeal Board (March), 531 A.2d 547 (Pa. Cmwlth. 1987), disapproved on other grounds by Hastings Industries v. Workmen's Compensation Appeal Board (Hyatt), 531 Pa. 186, 192-93, 611 A.2d 1187, 1190-91 (1992), that SWIF/Employer "is entitled to a credit for [WC] disability payments paid to Claimant, to the extent that the disability insurance premiums were paid for by [Employer]." (Board Op. at 8.) The Board noted that the WCJ had "wisely recognized the reality of this situation and granted the offset credit." (Board Op. at 9.) The Board rejected Claimant's argument regarding the failure of SWIF/Employer to file a LIBC-756 form requiring Claimant to report that he received disability payments other than WC disability benefits as being waived for failing to raise it before the WCJ. Claimant now petitions this Court for review.
"This Court's scope of review is limited to determining whether the necessary findings of fact are supported by substantial evidence, whether errors of law were made, or whether constitutional rights were violated." Peters Township School District v. Workers' Compensation Appeal Board (Anthony), 945 A.2d 805, 810 n.8 (Pa. Cmwlth. 2008).
Claimant first asserts that the WCJ and Board erred by considering this matter as a request for credit by Employer and SWIF because Claimant did not receive any WC disability benefits from Employer's general funds, but from the private insurance company. Claimant contends that the WCJ did not appreciate the difference between a credit and subrogation and that, pursuant to the second paragraph of Section 319 of the Act, 77 P.S. § 671, the private insurer is the only entity that would be entitled to relief in this matter because that is who made the benefit payments to Claimant. Moreover, Claimant asserts that the privately-purchased disability policy here is akin to a private automobile policy for which a claimant has paid the premium and which an employer is not entitled to subrogate for a work-related injury. Entertainment Partners v. Workers' Compensation Appeal Board (Caparelli), 749 A.2d 551 (Pa. Cmwlth. 2000); American Red Cross v. Workers' Compensation Appeal Board (Romano), 745 A.2d 78 (Pa. Cmwlth. 2000). According to Claimant, nothing in the Act provides that SWIF or Employer should receive a benefit from the foresight Claimant had in purchasing the private disability insurance policy.
"Although the concepts of subrogation and credit have many similarities, they are distinguishable because a credit does not have its genesis in a work[ers'] compensation setting in Section 319 of the Act." Humphrey v. Workmen's Compensation Appeal Board (Supermarket Service), 514 A.2d 246, 248 (Pa. Cmwlth. 1986). Subrogation is authorized in two different circumstances, as set forth in Section 319:
Where a compensable injury is caused in whole or in part by the act or omission of a third party, the employer shall be subrogated to the right of the employe, his personal representative, his estate or his dependents, against such third party to the extent of the compensation payable under this article by the employer . . . .
Where an employe has received payments for the disability or medical expense resulting from an injury in the course of his employment paid by the employer or an insurance company on the basis that the injury and disability were not compensable under this act in the event of an agreement or award for that injury[,] the employer or insurance company who made the payments shall be subrogated out of the agreement or award to the amount so paid, if the right to subrogation is agreed to by the parties or is established at the time of hearing before the [WCJ] or the [B]oard.77 P.S. § 671. In contrast, "[a] credit is allowed where the employer makes payments in lieu of compensation for an injury which is . . . determined to be compensable under the Act." Kuhn v. Workmen's Compensation Appeal Board (Leader Nursing Centers, Inc.), 514 A.2d 690, 692-93 (Pa. Cmwlth. 1986).
Section 319 of the Act is not applicable to this situation. Although the private insurer here could have sought to subrogate its payment of the private disability benefits for an injury compensable under the Act, there is nothing in the record indicating that it has done so, and this Court does not allow for the award of subrogation sua sponte under such facts. Id., 514 A.2d at 692. Additionally, subrogation under the second paragraph of Section 319 is available "if the right to subrogation is agreed to by the parties or is established at the time of [the] hearing before the [WCJ] or the [B]oard." 77 P.S. § 671. There is nothing in the record indicating any such agreement between the private insurer, Claimant, and Employer, and "[a]s the parties never agreed to subrogation, Section 319 is simply not applicable." Kuhn, 514 A.2d at 692.
There are circumstances where an employer "may be entitled to a credit for a variety of employer-funded benefit payments made to injured employees," such as where those payments were made "'in lieu of compensation.'" Dana Corporation v. Workers' Compensation Appeal Board (Beck), 782 A.2d 1111, 1114 (Pa. Cmwlth. 2001) (quoting Creighton v. Continental Roll & Steel Foundry, Co., 38 A.2d 337, 341 (Pa. Super. 1944)). Similarly, an employer may obtain a credit if "the employer has already paid the compensation that is due" in order to prevent a double recovery. Moore v. Workmen's Compensation Appeal Board (International Service System), 586 A.2d 1047, 1049 n.2 (Pa. Cmwlth. 1991). "[A] credit is available where payments are (1) made by an employer or its insurer, (2) for an injury and/or subsequent disability arising in the course of employment, where (3) the payments are not wages for employment." Humphrey, 514 A.2d at 249. However, a credit is not available "if the injured employee is required to deplete exhaustible benefits to which he would be entitled if he suffered from a non-compensable injury" or if the benefits were incidents of employment, such as sick leave payments. Marsh, 673 A.2d at 35.
We first must determine whether the payments were made by the employer or its insurer. Humphrey, 514 A.2d at 249. "In determining when it is possible for a claimant to collect a simultaneous recovery from the employer and an insurance company, this [C]ourt has determined that the crucial factor is the identity of the party who is paying for the insurance benefit." March, 531 A.2d at 551 (emphasis added). Thus, in March, we affirmed a Board order granting the employer, who paid 50 percent of the premium for sickness and accident benefits, a 50 percent credit towards the employer's WC obligation. Id. Conversely, in Humphrey, this Court held that the employer and its insurer were not entitled to any credit against its WC obligation for sickness and accident benefits the claimant received from an insurance policy provided by her husband's employer because "the sickness and accident policy . . . [was] in no way related to the employment relationship between the claimant and her employer." Humphrey, 514 A.2d at 250 (emphasis omitted).
Although Claimant maintains that he purchased the private disability insurance policy, the WCJ found, based on Accountant's testimony, that Employer paid the premiums for that policy. (FOF ¶ 6.) As SWIF points out, Claimant chose to form an S Corporation, to provide his professional services as an employee of that corporation, and to have that corporation purchase and pay the premiums on the private disability insurance for Claimant. For this reason, Claimant's reliance on Entertainment Partners, 749 A.2d at 552, and American Red Cross, 745 A.2d at 79, 81, in which the insurance premiums were paid exclusively by the claimants, is misplaced. Instead, the situation here is more analogous to that in March, and SWIF/Employer is entitled to a credit based on the private disability benefits paid to Claimant to the extent that Employer paid the premiums on that private policy. March, 531 A.2d at 551. Moreover, Claimant's assertion that, in order for SWIF/Employer to be eligible for a credit, the payments had to come from Employer's general funds is without merit. This Court has stated that "it matters not whether these payments come directly from the employer or from an insurance carrier from which the employer has purchased a policy to provide coverage for the employee benefits." Kuhn, 514 A.2d at 693 (emphasis added). Thus, the first prong of the credit test is satisfied.
We next consider the second prong, whether the payments were "for an injury and/or subsequent disability arising in the course of employment." Humphrey, 514 A.2d at 249. The payment of Claimant's private disability benefits, like the WC disability benefits, was based on Claimant's injury to his left knee and his inability to work as a physical therapist due to his work-related left knee sprain, strain and contusion. Although Claimant continues to receive the private disability benefits due to his non-work-related left knee revision surgery, this does not alter the fact that Claimant received two forms of disability benefits for the period of time in which his disability, i.e., loss of earnings, was work-related. Accordingly, we conclude that the second prong of the credit test is met.
The third and final prong provides that a credit for the private disability benefits is proper under the Act if "the payments are not wages for employment." Id. The private disability benefits Claimant received were not wages or benefits that he earned based on his prior work. Similarly, the private disability benefits were not an exhaustible benefit, such as sick leave payments, to "which he would be entitled if he suffered from a non-compensable injury." Marsh, 673 A.2d at 35. They were payments Claimant received because he could no longer perform his job as Employer's physical therapist. Therefore, the last prong of the credit test is also satisfied.
Having determined that the private disability benefits meet all the criteria for a credit set forth in Humphrey, we conclude that there was no error in finding that SWIF/Employer was entitled to a credit for the private disability benefits Claimant received at the same time that SWIF paid WC disability benefits to him.
Claimant next argues that it was erroneous for the WCJ, in the context of the Termination Petition, to sua sponte rule on the credit issue and order Claimant to reimburse SWIF/Employer for the disability benefits paid to Claimant, relief that was not requested. Claimant further argues that, because the WCJ sua sponte ruled on the credit issue, the Board erred in finding that Claimant had waived the argument regarding SWIF/Employer failing to provide the LIBC-756 form for Claimant to report his receipt of private disability benefits, which would preclude the credit pursuant to Maxim Crane Works v. Workers' Compensation Appeal Board (Solano), 931 A.2d 816, 819-20 (Pa. Cmwlth. 2007) (holding that an employer must provide the claimant with the LIBC-756 form to complete and is entitled to an offset only as of the date the claimant received the LIBC-756 form and not before).
A review of the record reveals that the WCJ did not rule on the credit issue sua sponte. Until Claimant testified on July 17, 2009, SWIF was unaware that, in addition to the WC disability benefits SWIF paid Claimant pursuant to the NCP, Claimant was receiving $7,050 per month in private disability benefits. Thereafter, at a January 20, 2010 hearing before the WCJ, the parties discussed SWIF/Employer potentially obtaining a credit due to Claimant's receipt of both WC disability benefits, the private disability benefits, and Accountant testifying regarding the funding of the private disability insurance to determine whether such a credit was proper. The parties proceeded to take the deposition of Accountant, who testified that Employer paid the premiums for the private disability insurance purchased on Claimant's behalf. Thus, the parties were aware before the WCJ's decision that there was an issue regarding the entitlement of SWIF/Employer to a credit based on the private disability benefits, and the WCJ did not sua sponte rule on the credit issue. Despite knowing that SWIF/Employer could be entitled to a credit, Claimant did not argue before the WCJ that SWIF/Employer failed to issue a LIBC-756 form notifying Claimant of their intent to seek a credit. Claimant, having failed to raise this issue before the WCJ, has waived the issue. Rox Coal Co. v. Workers' Compensation Appeal Board (Snizaski), 570 Pa. 60, 73, 807 A.2d 906, 914 (2002). Even had this issue not been waived, Claimant, as the president and sole proprietor of Employer, would have had to send the LIBC-756 form to himself, thereby endangering his continued receipt of WC benefits. Moreover, SWIF could not have sent Claimant the LIBC-756 form because it did not become aware of Claimant's receipt of the private disability benefits until Claimant testified on July 17, 2009. Thus, we agree with the Board that "[t]he WCJ wisely recognized the reality of this situation" when the WCJ allowed SWIF to seek a credit under these circumstances. (Board Op. at 9.)
Claimant also asserts that the WCJ's decision leaves him "in something of a quandary" as to whom he is to reimburse, SWIF or Employer. (Claimant's Br. at 17.) Claimant contends that reimbursing SWIF for the disability benefits paid results in SWIF obtaining "a windfall because [SWIF] never paid any private disability benefits . . . to the Claimant," and reimbursing Employer would simply mean that he is reimbursing himself. (Claimant's Br. at 17.)
Generally, as recognized by the WCJ in this case, (COL ¶ 3), a credit would be granted against future WC disability benefits that an employer, through its insurer, would pay a claimant. Here, however, because the WCJ terminated Claimant's WC benefits, there would be no future disability benefits against which Employer, through SWIF, could take a credit. The WCJ's Order provided that "Defendant/Employer is entitled to reimbursement from the Claimant as to disability compensation paid for all periods during which the Claimant received benefits pursuant to a policy of insurance paid for by the Employer." (WCJ Order (emphasis added).) SWIF is the entity that paid Claimant disability compensation during the term of Claimant's work-related disability and, as such, would be the entity that Claimant must reimburse pursuant to the WCJ's Order. Claimant is incorrect that SWIF would receive a windfall if Claimant reimbursed SWIF because SWIF was the entity that paid Claimant's WC disability benefits pursuant to Employer's WC insurance policy.
Finally, Claimant contends that permitting SWIF to recoup the WC disability benefits paid to Claimant directly from Claimant is inappropriate because Claimant was not unjustly enriched by receiving both WC disability benefits and the private disability benefits. Claimant asserts that, pursuant to Murphy v. Workmen's Compensation Appeal Board (Ames Department Store), 605 A.2d 1297 (Pa. Cmwlth. 1992), SWIF's remedy should be to seek reimbursement from the Supersedeas Fund, not from Claimant directly.
This Court did indicate in Murphy that employers who had overpaid benefits to claimants should seek relief from the Supersedeas Fund. Id., 605 A.2d at 1300. However, claimants do "not have the right to a double recovery." Workmen's Compensation Appeal Board v. Olivetti Corporation of America, 364 A.2d 735, 738 (Pa. Cmwlth. 1976). In Powell v. Workers' Compensation Appeal Board (Community Dialysis Center), 789 A.2d 866, 870 (Pa. Cmwlth. 2002) (emphasis omitted), this Court noted that the exclusivity of the relief indicated in Murphy, "has been called into question, as this Court [and our Supreme Court] ha[ve] held that in the alternative an employer may recover overpayments directly from the claimant in order to prevent unjust enrichment rather than seeking reimbursement from the Supersedeas Fund." See Lucey v. Workmen's Compensation Appeal Board (Vy-Cal Plastics PMA Group), 557 Pa. 272, 732 A.2d 1201 (1999); Burrell v. Workers' Compensation Appeal Board (Philadelphia Gas Works), 849 A.2d 1282, 1288 (Pa. Cmwlth. 2004); Kiebler v. Workers' Compensation Appeal Board (Specialty Tire of America), 738 A.2d 510 (Pa. Cmwlth. 1999). "[C]ourts have recognized the principle of unjust enrichment in [WC] law where a claimant has received money to which he was not entitled based upon the fact the Act does not authorize double recovery." Swartz v. Workmen's Compensation Appeal Board (Dutch Pantry Restaurant), 543 A.2d 201, 206 n.6 (Pa. Cmwlth. 1988). Therefore, in Fahringer, McCarty & Grey, Inc. v. Workmen's Compensation Appeal Board (Green), 529 A.2d 56, 58 (Pa. Cmwlth. 1987), we held that the employer could recoup from the claimant overpayments of more than $18,000 paid in error due to a miscalculation of the claimant's average weekly wage because "the simple fact is that claimant received more than $18,000 to which he was not entitled," which would have resulted in unjust enrichment. In contrast, in Burrell, we held that where the claimant did not receive any compensation for the work he performed at his mother's shoe shine stand, there was no unjust enrichment and the employer was not entitled to recoup anything from the claimant. Burrell, 849 A.2d at 1288.
There are some instances, which do not apply here, where double recovery does not violate the Act, such as where the employer does not pay for the second disability policy, the payments are not made in lieu of compensation, or the payments are not paid because of the work-related injury. See, e.g., Entertainment Partners, 749 A.2d at 552; American Red Cross, 745 A.2d at 79, 81; March, 531 A.2d at 551; Kuhn, 514 A.2d at 692-93; Humphrey, 514 A.2d at 250. --------
Here, Claimant collected disability payments for the same work-related injury from two disability insurance policies, both of which were paid for by Employer. Under these circumstances, Claimant was not entitled to collect both sets of disability payments for the same injury since both payments were in lieu of compensation. Marsh, 673 A.2d at 35; March, 531 A.2d at 551; Kuhn, 514 A.2d at 692-93; Humphrey, 514 A.2d at 249. To allow Claimant to retain both sets of disability payments constitutes an impermissible double recovery under the Act. Olivetti, 364 A.2d at 738. In other words, Claimant will be unjustly enriched if he is permitted to keep both the $7,050 per month he received from the private disability policy and the WC disability benefits he also received from SWIF. Therefore, we discern no error in permitting SWIF to recoup from Claimant the amount of WC disability benefits it paid Claimant while Claimant was also receiving disability benefits from the Employer-provided private disability policy.
Accordingly, we affirm the Board's Order.
/s/ _________
RENÉE COHN JUBELIRER, Judge ORDER
NOW, March 4, 2013, the Order of the Workers' Compensation Appeal Board in the above-captioned matter is hereby AFFIRMED.
/s/ _________
RENÉE COHN JUBELIRER, Judge