Opinion
W.C. No. 3-966-344
September 15, 1995
ORDER OF REMAND
The claimant seeks review of a final order of the Director of the Division of Workers' Compensation (Director) denying her claim for penalties based on the Wausau Insurance Company's (insurer) failure timely to pay a medical bill. We set the order aside and remand for entry of a new order.
This case has a lengthy factual history, and an understanding of this history is necessary to resolution of the issues involved. The recitation of the facts is based upon the Director's findings in her "Order Denying Penalty" and her "Show Cause Order."
On February 27, 1994, the claimant underwent an MRI. On March 29, 1994 claimant's counsel sent a bill for the MRI to the insurer. The bill was received on April 12, 1994. On April 22, 1994, the insurer's adjuster telephoned the claimant's attorney and the health care provider and advised them that the insurer would not pay for the MRI without an "itemized billing." On April 26, 1994, an itemized bill was received by the insurer.
Nothing further transpired until May 23, 1994, when counsel for the claimant again sent a letter to the adjuster requesting payment of the MRI bill. However, the insurer did not make payment at this time. Instead, on May 26, 1994, the insurer's "Field Claims Supervisor" wrote a letter to the claimant's treating physician inquiring whether the MRI was necessitated by the claimant's 1989 industrial injury. On June 23, 1994, the claimant's physician wrote a letter to the Field Claims Supervisor explaining the relationship between the MRI and the injury. This letter was received by the insurer on June 28, 1994. However, the insurer did not make payment for the MRI on June 28. Instead, the insurer wrote to the hospital requesting the "medical records for MRI."
On August 8, 1994, the insurer received a copy of the MRI report. Nevertheless, payment for the MRI was not made until September 27, 1994. Meanwhile, on August 30, 1994, counsel for the claimant made a third written request for payment of the bill. In the response to the Director's Order to Show Cause the insurer explained that the payment delay was caused by the fact that the adjuster was on vacation until September 12, 1994.
In her order dated April 10, 1995, the Director denied the request for imposition of penalties based on the insurer's failure timely to pay the MRI bill. The Director stated that former Rule of Procedure XIV(E)(1), 7 Code Colo. Reg. 1101-3 at 60 [currently codified with changes at Rule of Procedure XVI(K), 7 Code Colo. Reg. 1101-3 at 80 (1995)], required that medical bills be paid within thirty days after receipt by the insurer, or alternatively, required the insurer to notify the claimant and the provider, in writing, of the basis for denial of payment within thirty days of receipt of the bill. The Director found, in effect, that the insurer violated Rule XIV(E) by failing to notify the "parties in writing as to whether payment was denied within thirty [30] days of receipt." However, the Director stated that the insurer "did contact the parties by telephone and continued to keep the claimant and provider apprised of what information was necessary to complete the review for payment." Consequently, the Director denied the claim for penalties.
On review, the claimant contends that the Director applied an incorrect legal standard in assessing the claim for penalties. Specifically, the claimant argues that the respondents failed to assert any rational argument, based in law or evidence, justifying their failure to comply with Rule XIV(E). In particular, the claimant cites the delay between the April 12 receipt of the request for payment, and the May 26 letter to the treating physician. We agree with the claimant's argument.
Initially, we note that the law applicable to this claim is found in former § 8-53-116, C.R.S. (1986 Repl. Vol. 3B), and § 8-53-118(2), C.R.S. (1986 Repl. Vol. 3B). See Colorado Compensation Insurance Authority v. Industrial Claim Appeals Office, 907 P.2d 676 (Colo.App. 1995) (the law governing the imposition of penalty is the law in effect on the date of the injury). Consequently, the respondents' argument that the claimant is not an "aggrieved party," within the meaning of § 8-43-304(1), C.R.S. (1995 Cum. Supp.), is immaterial. The "aggrieved party" language does not appear in § 8-53-116. Further, we have held that, under § 8-53-116, claimants have standing to raise penalty issues even though the penalties are paid to the Subsequent Injury Fund. See Sallee v. El Paso County, W.C. No. 3-966-142, June 13, 1994 (the underlying administrative decision in Colorado Compensation Insurance Authority v. Industrial Claim Appeals Office, supra).
Moreover, we reject the respondents' assertion that imposition of a penalty for violation of a rule is purely "discretionary" with the Director. Section 8-53-116 states that failure or refusal to perform a duty lawfully enjoined by the Director "shall be punished by a fine of not more than one hundred dollars for each such offense." Colorado courts have held that use of the word "shall" demonstrates a mandatory requirement. See Burns v. Robinson Dairy, 911 P.2d 661 (Colo.App. 1995); Hillebrand Construction Co. v. Worf, 780 P.2d 24 (Colo.App. 1989). Thus, if the Director finds a violation of the Rules of Procedure she is obliged to impose a penalty between one cent and one hundred dollars per day for each day the violation occurs. See Gregory v. Ball Aerospace, W.C. No. 4-176-123, August 31, 1995. The precise amount of the penalty is, of course, discretionary with the Director.
In this case, the claimant predicates her claim for penalties on former Rule of Procedure XIV(E). Subsection (1) of the rule requires insurers to pay medical bills "within 30 days after receipt of the bill." Subsection (2) of the rule states that if the carrier "denies liability for the medical bill" it is required to send "to the provider and the employee within 30 days after receipt of the bill" the following information, the: "(a) name of the claimant, (b) workers' compensation number and carrier's claim number, (c) date of service, and (d) reason payment denied."
Initially, the Director has found that the respondents committed a violation of Rule XIV(E) by failing to notify the claimant and provider, in writing, of the reasons for denial within thirty days of first receiving the MRI bill. This conduct, in and of itself, mandates imposition of a penalty under former § 8-53-116. Gregory v. Ball Aerospace, supra. On remand, the Director shall impose a penalty between one cent and one hundred dollars per day for each day the insurer failed to comply with one or the other of the alternative requirements of Rule XIV(E).
Moreover, we agree with the claimant that the Director failed to consider other grounds for imposition of penalties under Rule XIV(E). Consideration of these grounds is necessary because they may be relevant to the amount of penalties to be imposed.
We have held that failure to obey a Rule of Procedure is grounds for imposition of a penalty under § 8-53-116 unless the action is "reasonable." We have defined reasonableness by an objective standard, meaning that an insurer's failure to obey a rule must be predicated on a "rational argument based on law or evidence." Eg. O'Grady v. Denver Public School District, W.C. No. 4-151-533, November 18, 1994; cf. Colorado Compensation Insurance Authority v. Industrial Claim Appeals Office, supra.
Here, the insurer first "denied liability" for the medical benefits on April 22, 1994, when the adjuster called the claimant's attorney and the provider and indicated payment would not be forthcoming without an "itemized bill." The record does not reflect, and the Director did not find, that the insurer's April 22 refusal to pay was predicated on lack of evidence substantiating a causal connection between the injury and the MRI, or on the lack of specific medical records.
Nevertheless, the Director found that, on May 26, 1994, a month after the initial denial and receipt of the itemized bill, the adjuster first wrote to the treating physician requesting an explanation of the causal relationship between the injury and the MRI. Moreover, the insurer waited until June 28, 1994, before requesting a copy of the MRI report.
Arguably, this conduct by the insurer violates Rule XIV(E)(2)(d) because the insurer repeatedly failed to state the "reason payment [was] denied" within thirty days of receiving the initial bill. However, the Director made no findings of fact concerning this possible violation of the rule, nor did she indicate any reason why the insurer's failure to obey the rule could be considered "reasonable" as measured by the objective standard. Moreover, we are unable to locate the evidentiary basis for the Director's finding that the claimant and her attorney were kept apprised of the reasons for the multiple delays after April 22.
On remand, the Director shall make explicit findings of fact concerning these issues. In addition, the Director may consider the new findings in determining the amount of any penalty to be imposed.
IT IS THEREFORE ORDERED that the Director's order, dated April 10, 1995, is set aside, and the matter is remanded for entry of a new order consistent with the views expressed herein.
INDUSTRIAL CLAIM APPEALS PANEL
___________________________________ David Cain
___________________________________ Kathy E. Dean
Copies of this decision were mailed September 15, 1995 to the following parties:
Patricia Marple, 2100 W. 100th Ave., #410, Denver, CO 80221
Saint Joseph Hospital, % James L. Carpenter, Esq., 679 Grant St., Denver, CO 80203
Wausau Ins. Co., Attn: George Fairbanks, 9110 E. Nichols Ave., #100A, Englewood, CO 80111
Shelley P. Dodge, Esq., 1763 Franklin St., Denver, CO 80218 (For the Claimant)
James L. Carpenter, Esq., 679 Grant St., Denver, CO 80203 (For the Respondents)
By: ___________________________