Opinion
W.C. No. 4-613-287.
April 21, 2011.
FINAL ORDER
The respondents seek review of an order of Administrative Law Judge Felter (ALJ) dated October 4, 2010, that ordered them to pay statutory penalties. We affirm.
A. hearing was held on the issues whether the respondents should be required pursuant to a settlement agreement to submit, a medical set aside analysis to the federal Center for Medicare Services (CMS), whether the respondents were liable for medical benefits, and whether the respondents should be penalized for their alleged violation of the settlement agreement. Following the hearing the ALJ entered findings of fact that for purposes of this order may be summarized as follows. On March 22, 2004 the claimant suffered a compensable brain injury when a door fell from the wall and struck her. In a final admission of liability dated November l, 2006 the respondents admitted for benefits based on whole person impairment of 35 percent. The claimant objected to the final admission and asserted that she was permanently and totally disabled.
The ALJ further found that the parties entered into a settlement agreement that was approved by the Director and became an order on February 4, 2009. The settlement agreement contained a provision stating that the respondents had prepared a "Medicare Set-Aside" (referred to as the "MSA") and that a proposal would be submitted to CMS. The agreement further provided that the respondents would fund the MSA upon CMS approval. The provision stated that the MSA was "contingent upon CMS approval and respondents shall retain a reversionary interest in the funds allocated for the WCMSA." It provided that the respondents would pay for medical care until the MSA was approved or "the reversionary interest is enacted." The settlement agreement also provided in a different paragraph that [r]easonable and necessary care related to the injury will be covered by Respondents until the approval by CMS of the WCMSA and Respondents will retain the reversionary interest." The ALJ found that the terms of the agreement were unambiguous and contemplated that the respondents would continue to pay the claimant's medical benefits (under Grover v. Industrial Commission, 759 P. 2d 705 (Colo. 1988), providing for maintenance medical benefits after an injured worker has reached maximum medical improvement.) Although the agreement provided that the respondents' liability for medical benefits would end on approval of the MSA, the ALJ found that if that did not occur then the respondents would continue to be liable for those benefits. The respondents prepared a document they titled "Medicare Set Aside Analysis and Allocation" proposing to set aside $25,520 for future medical costs. The ALJ noted that the respondents asserted a "reversionary interest" in the amount because the claimant delayed in applying for social security disability benefits (SSDI). The respondents asserted that because of the claimant's delay, submission of the proposal to CMS would be "futile." The ALJ found that the respondents were attempting to extinguish their liability for medical benefits based upon the claimant's failure to apply for SSDI. However, the ALJ also found that nothing in the agreement required the claimant to apply for SSDI within any particular period and that the claimant had made no representations that she had already applied.
The ALJ found that on November 20, 2009 the claimant applied for SSDI and was awarded those benefits on July 2, 2010, retroactive to the date of her application. The respondents refused to submit the proposed MSA or to fund a "self-administered" MSA, and they have further refused to pay any of the claimant's medical benefits. The ALJ also determined that the claimant had not waived her right to medical benefits. The ALJ found that the respondents' failure to submit the proposed MSA after the claimant was awarded SSDI violated the settlement agreement and, by implication, the Director's order approving it. The ALJ also found that the respondents' refusal to pay for the claimant's medical benefits pending approval of an MSA by CMS was a violation of the agreement. The ALJ found that the respondents had no objectiveiy, reasonable argument to support their position in this matter or to support their action in refusing to submit the proposal for an MSA or to pay the claimant's medical benefits.
The ALJ also entered extensive and thorough factual findings concerning the circumstances under which CMS required that an MSA be submitted in order to protect the interests of CMS when a workers' compensation claim was settled. The ALJ found that CMS only reviews an MSA where the claimant is a current medicare recipient and the total settlement amount is greater than $25,000 or where the claimant has a reasonable expectation of medicare entitlement within 30 months of the settlement date and the total amount of the settlement is expected to be greater than $250,000. However, the ALJ declined to construe the settlement agreement as permitting the respondents to refuse to fund the MSA and to discontinue the claimant's Grover medical benefits merely because it appeared to the respondents at some point that they were mistaken that an MSA was required or appropriate. Rather, the ALJ found that the respondents had no objectively reasonable explanation for their conduct.
Based on his factual findings, the ALJ concluded that statutory penalties pursuant to § 8-43-304, C.R.S. were warranted. The ALJ evaluated the evidence and the factors applicable to the imposition of penalties and imposed them in the amount of $300 per day from November 23, 2009 through the date of the hearing, which was July 29, 2010. The ALJ also ordered the respondents to file the MSA. with CMS, and the ALJ ordered the respondents to pay for the claimant's medical treatment until the MSA is approved or until "alternate arrangements" are made.
The respondents appealed the ALJ's order and argue that the settlement agreement was ambiguous regarding their obligations to submit the MSA to CMS and that, because it was ambiguous, their actions were objectively reasonable. The respondents also argue that in any event the ALJ abused his discretion in imposing a penalty grossly disproportionate to any harm suffered by the claimant. We have reviewed the record and considered the respondents' arguments and we are unpersuaded that the ALJ erred or abused his discretion.
I.
Prior to resolving the respondents' substantive arguments on appeal, we address a procedural issue that has arisen regarding the record on review. In a Procedural Order dated February 23, 2011, we remanded this matter to the ALJ for resolution of the respondents' motion to include a transcript of the hearing in the record on appeal. We noted that the record transmitted to us by the Office of Administrative Courts (OAC) contained a "Submission of Transcript Complete the Record" filed by the respondents on January 4, 2011. The "submission" recited that the respondents designated the hearing transcript in their petition to review the order. However, as we read the petition to review it stated that "[n]o transcript is requested." We viewed the respondents' "Submission of Transcript to Complete the Record" as a motion that should have been resolved by the ALJ. In this regard, we could not ascertain why the transcript should have been included in the record. However, because we have no fact-finding authority, we remanded the matter to the ALJ to resolve the respondents' motion to include the transcript.
On February 23, 2011, the ALJ entered an "Order on Remand, Re: Transcript," in which he found that no transcript had been designated by the respondents in their petition to review. He also found that, although the respondents' petition to review designated "transcripts previously prepared," that the transcript of the hearing had not been in the OAC file prior to the date of the respondents' petition to review. Accordingly, the ALJ determined that the record on appeal should not contain the transcript of the hearing.
The respondents filed a petition to review the ALJ's order on remand, arguing that they were deprived of due process by not being permitted to present evidence regarding the factual issues resolved by the ALJ. The respondents also argue that the transcript was "previously prepared" and should therefore have been included in the record pursuant to their designation of such transcripts. Finally, they argue that the "audio recording" of the hearing is part of the OAC file and therefore was properly designated as part of the record on appeal. In this regard, they assert "that we are compelled to listen to the recording and consider the contents, of it, and that their submission of the transcript of that recording merely makes it easier for us to do so.
We perceive no error in the ALJ's order denying the respondents' motion to complete the record. Our record on appeal is limited to the record before the ALJ. There are specific procedures set forth in the statute for designation of transcripts of hearings held, and here the respondents specifically stated that "[n]o transcript is requested." Whether or not the respondents had arranged for preparation of the transcript prior to the filing of the petition to review, in our view it is not properly included in the record on appeal unless it had been submitted to the ALJ for some purpose and was included in those materials that he reviewed. Although it is true that the ALJ presided over the hearing; the procedures applicable to the designation of a transcript were not followed and we perceive no error in the ALJ's denial of the respondents' motion to include the transcript in the record on review.
II.
The respondents first argue that the settlement agreement is ambiguous and that penalties may not therefore be imposed for its "violation" by the respondents. The respondents make several arguments regarding the ambiguity of the settlement agreement and argue either that provisions relating to the MSA were void or that they could not be penalized for their conduct in light of the agreement's ambiguity. However, we are not persuaded by these arguments.
Specifically, the respondents argue that the agreement was ambiguous because the parties were mutually mistaken that an MSA was required to be submitted to CMS. The respondents note that the ALJ found that an MSA was not required by the settlement agreement or by the applicable law. Therefore, they argue that the language in the settlement agreement was evidence of the mutual mistake regarding the need to submit an MSA. They reason that the provision requiring respondents to submit the MSA is therefore void. The respondents also argue that the settlement agreement is ambiguous because the requirement that the respondents submit the MSA to CMS was an "illusory promise" that is void. Finally, the respondents argue that the settlement agreement is ambiguous because it is silent on several issues, including the status of the claimant's application for social security disability benefits and the parties' duties and rights in the event the MSA was not approved by CMS. However, even assuming that the agreement was ambiguous in these ways, in our view, none of these alleged ambiguities provided an objectively reasonable basis for the respondents' conduct in this case.
We agree with the ALJ that the contract was not ambiguous in any way that justified the respondents' unilateral termination of the claimant's medical benefits. Settlement agreements are contractual in nature and therefore subject to the rules of construction and interpretation that are applicable to contracts. Cory v. Chevron, U.S.A., 867 P.2d 117 (Colo. App. 1993); Resolution Trust Corp. v Avon Center Holdings, 832 P.2d 1073 (Colo. App. 1992). A contract is ambiguous when it is reasonably susceptible to more than one meaning. Public Service v. Meadow Island Ditch Co. No. 2, 132 P.3d 333 (Colo. 2006). In determining whether there is an ambiguity in a writing, the reviewing body should evaluate it as a whole a construe the language in harmony with the plain-meaning of the words employed. Canal Insurance Co. v. Nix, 7 P.3d 1038 (Colo. App. 1999). However, the mere potential for-more than one interpretation does not in itself create ambiguity. Rocky Mountain Health Maintenance Organization, Inc. v. Colo. Department of Health Care Policy and Financing, 54 P. 3d 913 (Colo. App. 2001); Antelope Co. v. Mobil Rocky Mountain, Inc., 51 P.3d 995 (Colo. App. 2001) (same). Nor does the mere fact that the parties have different opinions concerning the interpretation of the contract create an ambiguity. Ad Two Inc. v. C C of Denver; 9 P.3d 373 (Colo. 2000). The contract's silence on a particular issue, by itself, does create ambiguity, but it may when it involves a matter naturally within the scope of the contract: Cheyenne Mountain School District v. Thompson, 861 P.2 711 (Colo. 1993). The question of ambiguity in a settlement agreement is one of law that we review de novo. Bledsoe v. Hill, 747 P.2d 10(Colo. App. 1987).
Here the settlement agreement provided in paragraph 6(a) that:"
The parties have investigated the interests of Medicare, and a Medicare-Set-Aside, (WCMSA), has been prepared by Farmers Insurance Exchange. The WCMSA proposal shall be submitted to Centers For Medicare Services (CMS). Upon CMS approval, Respondents shall fully fund the MSA in a lump sum. The WCMSA is contingent upon CMS approval and respondent's [sic] shall retain a reversionary interests [sic] in the funds allocated for the WCMSA. Respondents agree to pay all reasonable and necessary medical care until the WCMSA is approved, or the reversionary interest is enacted.
Exhibit Nat 3.
The settlement agreement also provided in paragraph 7 that the claimant waived the right to claim any further benefits under certain circumstances. The agreement states that the claimant waived the following:
Medical, surgical, hospital, and all other health care benefits, including chiropractic care and mileage reimbursement after the date this agreement is approved by the Director and thereafter. These benefits will be waived per the provisions in 6a regarding the WCMSA. Reasonable and necessary care related to the injury will be covered by Respondents until the approval by CMS of the MCMSA and Respondents will retain the reversionary interest.
Exhibit N at 3.
Here, we do not view this language as ambiguous in any respect relevant to the ALJ's imposition of penalties. As we understand the ALJ's order, the penalties were imposed because of the respondents' decision to unilaterally terminate the claimant's Grover medical benefits. The language of the settlement agreement provides, however, that those benefits will continue "until the approval by CMS of this WCMSA. . . ." It is true that the sentence containing that language goes on to state "and Respondents will retain the reversionary interest." However, that language merely restates, that the respondents retain a future interest in the funds set aside for the MSA. The observation that the respondents retain an interest in those funds does not address the question under what circumstances medical benefits can be discontinued. That issue is squarely addressed by the previous portion of the sentence that states that those benefits will continue "until the approval by CMS of the WCMSA. . . ."
Nor do we interpret paragraph 6(a) of the settlement agreement, which also addresses this issue, as creating any ambiguity regarding the circumstances under which medical benefits may be terminated. That language differs slightly from the provision addressed above. It also states that the respondents agree to pay medical benefits "until the WCMSA is approved" but it adds the language "or the reversionary interest is enacted" as another condition under which those benefits may be discontinued. However, we do not interpret that language as creating any right on the part of the respondents to terminate medical benefits or even to "enact" their reversionary interest at their discretion. Indeed, we agree with the ALJ that so long as the respondents retained possession of the fund set aside for the MSA and it had not been transferred either to the claimant or in trust, there was no "reversionary interest" in the funds. The future interest they retained in the funds, referred to in the settlement agreement as the "reversionary interest" would only be relevant once the MSA was created as a trust to protect the interests of CMS. Until that time, however, the contractual language reserving the "reversionary interest" did not create a right on the part of the respondents to unilaterally discontinue the claimant's medical benefits. Rather, the obligation to continue to pay those was unambiguously in effect "until the WCMSA is approved."
Under these circumstances, we do not view any ambiguity regarding the submission of the MSA to CMS as creating a right in the respondents to discontinue medical benefits. It may be that either party or both of them misunderstood the nature or function of an MSA or the circumstances under which one needed to be submitted to CMS. It also may be that the settlement agreement failed to address various contingent circumstances, such as CMS's refusal to approve or even review the MSA. However, the dispositive question here was whether those misunderstandings or the deficiencies in the agreement permitted the inference that the respondents could discontinue medical benefits and declare the agreement "closed on a full and final basis." We agree with the ALJ's construction of the settlement agreement that it was unambiguous in all respects relevant to the respondents' obligation to pay medical benefits.
III.
The respondents also argue that the amount of the penalties imposed was grossly disproportionate to any harm suffered by the claimant and that, therefore, the matter should be remanded for a redetermination of the amount of the penalties. We are unpersuaded by this argument.
The claim for penalties was brought pursuant to § 8-43-304, C.R.S. which provides for a monetary penalty of up to $500 per day if any person "violates any provision of articles 40 to 47 of [title 8] or does any act prohibited thereby, or fails or refuses to perform any duty lawfully enjoined within the time prescribed by the director or panel, for which no penalty has been specifically provided, or fails, neglects, or refuses to obey any lawful order made by the director or panel. . . ." (The statute was amended to provide for penalties up to $-1000 per day for conduct occurring after August 11, 2010.) Generally, the imposition of penalties under § 8-43-304(1) requires a two-step analysis. First, it must be determined whether a party has violated the Act in some manner, or failed to carry out a lawfully enjoined action, or violated an order. If a violation is found, it must be determined whether the violator acted reasonably. See Bettinger v. The Great Indoors, W.C. No. 4-513-392 (May 11, 2009). The reasonableness of the person's actions depends on whether the actions were predicated on a rational argument based on law or fact. Diversified Veterans Corporate Center v. Hewuse, 942 P.2d 1312 (Colo. App. 1997). We are mindful that different divisions of the Colorado Court of Appeals have reached different conclusions regarding the measure of "objectively reasonable" conduct. Some divisions have concluded that the relevant inquiry is whether the conduct was based upon a rational argument in law or fact, while others have concluded that the question is merely whether the conduct was unreasonable. See Pioneers Hospital v. Industrial Claim Appeals Office, 114 P.3d 97, 100 (Colo. App. 2005) (discussing the two lines of cases). Here, however, the ALJ appears to have applied both standards and concluded that penalties were warranted under either. In that regard, he observed that the respondents had argued that the agreement provided that if an MSA proved unnecessary or would not be reviewed by CMS then their liability for future medical benefits would terminate. The ALJ concluded that this argument was both "not reasonably debatable by any objective standard" and also that it was unsupported "by any rational argument based on the law." Full Findings of Fact, Conclusion of Law and Order at 9, ¶ 24. In any event, we do not understand the respondents to be arguing that an incorrect legal standard was applied and we therefore perceive no error in this respect.
We also consider it necessary to address a procedural question regarding whether the Director's order approved the provisions of the settlement agreement relevant to the MSA. The basis for the ALJ's imposition of penalties was the respondents' violation of the Director's order approving the settlement agreement. We note that in this regard, the settlement agreement was executed by the claimant, by her attorney and by the respondents' attorney on January 30, 2009. The agreement was approved by the Director on February 4, 2009. Between the date the agreement was executed and the date the Director approved it, an amended version of Workers' Compensation Rule of Procedure 7-2 became effective, which occurred on February 1, 2009. The amended version of the rule provided that "[w]hen the parties enter into a full and final settlement of a claim, they shall use the appropriate form settlement agreement prescribed by the Division of Workers' Compensation. The parties shall not alter the prescribed form, except as set out in subparagraphs (1) and (2) below." The amended version of Rule 7-2(A)(1) provides as follows:
When the claimant is represented by counsel the parties shall use the "Workers Compensation Claim(s) Settlement Agreement: Represented Claimant." The parties may include terms in Paragraph, 9(A) that are both specific to that agreement and involve an issue or matter that falls within the Workers" Compensation Act. The parties may attach other written agreements to the prescribed form and may refer to these agreements in Paragraph 9(b) of the settlement agreement. These other written agreements may include a Workers" Compensation Medicare Set-Aside Arrangement (WCMSA), an agreement involving employment, or a waiver of bad faith. These other written agreements attached to a settlement agreement shall not be reviewed and approval of the settlement agreement does not constitute approval of any written agreement attached to the settlement agreement.
Here, the parties did not use the Division's mandatory form for settlement agreements, presumably because it was prepared and executed before the amended rule went into effect, nor does the record before us suggest that any collateral agreements regarding the MSA were attached to the agreement. Although arguably, had the new rule applied, the Director's order might not have "approved" the provisions relating to the MSA and submission of it to CMS, we conclude that the Director's order did approve those provisions. Therefore, we perceive no legal impediment to the ALJ's imposition of penalties for a violation of the .Director's order. In any event, we note that the respondents did not argue to the ALJ that the amended version of Rule 7-2 precluded penalties. Further, as we have previously noted, the penalties were for the respondents' unilateral termination of medical benefits, which was a matter squarely encompassed by the settlement agreement. Therefore, we conclude that the ALJ properly imposed penalties for the respondents' violation of the Director's order, despite the amendments to Rule 7-2.
We also reject the respondents' argument that the amount of the penalty was grossly disproportionate to the harm "suffered by the claimant. Because the ALJ's authority is discretionary, we may not disturb the ALJ's determination of the amount of the penalty to be imposed in the absence of fraud or an abuse' of discretion. See Associated Business Products v. Industrial Claim Appeals Office, 126 P.3d 323 (Colo. App. 2005); Hall v. Home Furniture Co., 724 P.2d 94 (Colo. App 1986) Brunetti v. Industrial Commission, 670 P.2d 1246 (Colo. App. 1983). There is no assertion of fraud in this case. The legal standard for review of an alleged abuse of discretion is whether, under the totality of the factual circumstances at the time of the ALJ's determination, the ALJ's order "exceeds the bounds of reason." Rosenberg v. Board of Education of School District #1, 710 P.2d 1095 (Colo. 1985). The ALJ's factual findings underlying his imposition of penalties is reviewed under the substantial evidence standard. Under this standard, we are bounded by those findings supported by substantial evidence. Section 8-43-301(8), C.R.S.; Coates, Reid Waldron v. Vigil, 856 P.2d 850 (Colo. 1993).
In Associated Business Products the court reviewed a penalty for constitutional excessiveness, to determine whether its amount violated the due process protections of the federal and state constitutions and' the, excessive fines clause of the Eighth Amendment. The court set forth three factors to be used to determine whether those constitutional limits had been exceeded by the amount of the penalty. Specifically, the court considered (1) the reprehensibility of the conduct, (2) the disparity between the harm caused by the violation and the penalty, and (3) the difference between the penalty and civil damages that could be imposed in comparable cases. As we read Associated Business Products the court held that these factors are appropriate in reviewing whether a penalty is unconstitutionally excessive, or "grossly disproportionate." Associated Business Products, 126 P.3d at 326; See also Pueblo School District No. 70 v. Toth, 924 P.2d 1094, 1100 (Colo. App. 1996). However, subject to constitutional limitations, the ALJ's decision regarding the amount of the penalty remains highly discretionary, which implies that the ALJ may consider a wide variety of factors. The burden is on the party who is penalized to show mitigation tending to reduce the amount of the penalty.
Here, the ALJ found that the respondents' conduct caused the claimant "great harm and potential harm." Order at 11, ¶ 30. In this regard, the ALJ also found that the "significant deterioration" of the claimant's condition was caused by the respondents' abrupt and unilateral termination of her medical benefits. The ALJ concluded that the respondents conduct was highly reprehensible and warranted a penalty of $300 per day. The ALJ correctly considered the appropriate factors and, we do not view his determination as an abuse of discretion.
IT IS THEREFORE ORDERED that the ALJ's order issued October 4, 2010, is affirmed.
INDUSTRIAL CLAIM APPEALS PANEL
_____________________________ John D. Baird
_____________________________ Curt Kriksciun
BETH ROBINSON, 3200 EAST EUCLID AVENUE, BOULDER, CO, (Claimant).
GOODBYE BLUE MONDAY, Attn: BOB HANEY, 2865 WILDERNESS PLACE, BOULDER, CO, (Employer).
TRUCK INSURANCE EXCHANGE, Attn: TAMMY DEWALT, P O BOX 108843, OKLAHOMA CITY, OK, (Insurer).
LAW OFFICES OF MICHAEL P. DOMINICK, Attn: MICHAEL P. DOMINICK, ESQ., 250 ARAPAHOE AVENUE SUITE 301, BOULDER, CO, (For Claimant).
THOMAS, POLLART MILLER, LLC, Attn: DOUGLAS A. THOMAS, ESQ., 5600 SOUTH QUEBEC STREET, SUITE 220A, GREENWOOD VILLAGE, CO, (For Respondents).
JOEL N. VARNELL ASSOCIATES, Attn: JOE M. ESPONOSA, ESQ., 1801 BROADWAY, SUITE 1500, DENVER, CO, (Other Party).