11-003237 Department Of Financial Services, Division Of Workers&Apos; Compensation vs. National Union Fire Insurance Company Of Pittsburgh, Pa Status: Closed Recommended Order on Wednesday, February 8, 2012.

Summary: Department of Financial Services proved only that 25 payments of compensation were paid late during the audit period, and therefore no penalty should be assessed against Respondent.

STATE OF FLORIDA

DIVISION OF ADMINISTRATIVE HEARINGS

DEPARTMENT OF FINANCIAL )

SERVICES, DIVISION OF )

WORKERSÓ COMPENSATION , )

)

Petitioner, )

)

vs. ) Case No. 11 - 3237

)

NATIONAL UNION FIRE INSURANCE )

COMPANY OF PITTSBURG, PA, )

)

Respondent. )

)

R ECOMMENDED ORDER

On January 10, 201 2 , a duly - noticed hearing was held in

Tallahassee , Florida, b efore F. Scott Boyd, an Administrative

Law Judge assigned by the Division of Administrative Hearings.

APPEARANCES

For Petitioner: Mary E. Ingley, Esquire

Department of Financial Services

200 East Gaines Street

Tallahassee, Florida 32399 - 4229

For R espondent: Kimberly J. Fernandes, Esquire

Kelley, Kronenberg, Gilmartin, Fichtel,

Wander, Bamdas, Eskalyo and Dunbrack

8201 Peters Road, Suite 4000

Fort Lauderdale, Florida 33324

STATEMENT OF THE ISSUE

The issue is w hether Respondent failed to comply with

provisions of the WorkersÓ Compensation Law and implementing

rules, and if so, what is the appropriate penalty.

PRELIMINARY STATEMENT

On May 17 , 2011 , Petitioner served a Notice of Imposition

of Penalties and N otice of Rights on Respondent, alleging that

Respondent had violated various provisions of the WorkersÓ

Compensation Law , chapter 440, Florida Statutes (201 0 ) , 1/ and

implementing rules . The n otice incorporat ed the findings of

PetitionerÓs audit and assess ed a penalty. On June 24, 2011 ,

the matter was referred to the Division of Administrative

Hearings for assignment of an administrative law judge.

After continuance, t he case was noticed for final hearing

on January 10, 2012 , in Tallahassee , Florida . At hearing, a

m otion to amend the N otice of I mposition of P enalty was granted.

Joint exhibits J - 1 through J - 10 were admitted into evidence,

including stipulations and deposition testimony. Petitioner

presented the testimony of a WorkersÓ Compensation Speci alist ,

Ms. Sharna Amos . RespondentÓs Exhibits R - 1 and R - 2 were

admitted. Petitioner objected to the admission of Exhibit R - 3,

a deposition, on the grounds that much of the testimony

consisted of legal conclusions and that it went beyond the scope

of Resp ondentÓs responses to discovery. Exhibit R - 3 was

admitted, with the caveat that testimony as to ultimate facts

would be accepted, but not testimony as to pure questions of

law. Two worksheets offered as exhibits to the deposition were

not admitted .

Th e one - volume T ranscript of the proceedings was filed with

the Division on January 23, 20 12 . Petitioner and Respondent

submitted Proposed Recommended O rder s , which w ere considered .

FINDINGS OF FACT

1. Petitioner is responsible for administering the

Worker sÓ Compensation Law in a manner which facilitates the

self Î execution of the system and the process of ensuring a

prompt and cost - effective delivery of payments.

2 . Respondent National Union Fire Insurance Company of

Pittsburgh, Pennsylvania, is a worker sÓ compensation insurance

carrier authorized to insure under the WorkersÓ Compensation

law. Chartis is a third - party administrator or servicing agent

for Respondent.

3 . Respondent is substantially affected by PetitionerÓs

amended Notice of Imposition of Penalties.

4 . Under the authority of section 440.525, Petitioner

reviewed RespondentÓs workersÓ compensation benefit disbursement

and claims handling practices in an audit performed March 14,

2011 , through March 18, 2011. The audit addressed the

tim e liness and accuracy of workersÓ compensation payments , as

well as other claims handling practices concerning certain

claims files , for a five - year audit period from March 18, 2006 ,

through March 18, 2011.

5 . Respondent paid $5 , 000.00 in penalties that we re

assessed for improper case management techniques in PetitionerÓs

original N otice of I mposition of P enalties . The parties had no

disagreement as to this portion of the fine assessed.

6 . A t issue is the remain in g fine amount of $9,200.00

assessed for improper benefit disbursement practices , as set

forth in the PetitionerÓs A mended N otice of I mposition of

P enalties, dated September 20, 2011, which incorporates the

amended final audit report . This penalty reflected PetitionerÓs

determination that there were 152 late payments out of a total

of 807 indemnity payments due to injured workers. The

Respondent agreed that the number of indemnity payments reviewed

during the audit totaled 807, but disputed the number of late

indemnity payments.

7 . Respondent agreed that 25 payments related to workersÓ

compensation claims files other than the file of R . D . were

correctly identified as late by Petitioner . Respondent disputed

the number of late payments made to R.D .

8 . There was testimony that R espondent had notification of

R.D. Ós permanent total disability on February 22, 1989. Othe r

testimony stated that R.D. was accepted as permanently and

totally disabled as of February 23, 1989. Any discrepancy

between these dates was not at issue in the DepartmentÓs

c alculation of the biweekly payment schedule, as discussed

below. R.D. is entitled to biweekly indemnity payments for

permanent total disability, as well as supplemental permanent

total benefits.

9. No evidence was prese nted at hearing as to whether

R . D . Ós disability was immediate and continuous for eight

calendar days or more after his injury , or in the alternative,

if R.D. Ós first 7 days of disability after his injury were

nonconsecutive or delayed .

10 . Joint Exhibit J - 6 , the indemnity pay out ledg er,

provided information from RespondentÓs records regarding

payments made to R. D. It shows the amount of payment and ÐTrans

DateÑ or transaction date for each payment. As a customary

business practice, checks were mailed out one day after the

transactio n date, so the actual date of each payment is one day

after the ÐTrans DateÑ shown. In addition, the records contain

a column entitled ÐService Date From - ToÑ which associates a

specific compensation period with the payment in that row. The

ÐService Date From - ToÑ column is blank for all of the payments

to R.D. beginning in 1988 until September of 1998. This column

contains dates that Respondent considered to be the compensation

period applicable to each payment from September of 1998 through

the audit per iod.

11 . The indemnity pay out ledger also indicates that after

Respondent was notified of R.D. Ós permanent total disability in

1989 , over 25 0 payments were made to R.D. until September of

1998 . On average, this was about 28 payments per year or

slight ly more often than biweekly . Counsel for Petitioner

elicited deposition testimony from Ms. Margorit Constantine,

Complex Claim Director for Chartis, that RespondentÓs records

indicated that the initial permanent total disability payment

covered 2 - 22 - 1989 through 3 - 7 - 1989, but this information was

evidently not relied upon by Petitioner.

12 . Ms. Sharna Amos, WorkersÓ Compensation Specialist at

the Division , testified that the Division determines the

specific biweekly time period applicable to a perman ent total

claim based upon the date the first payment went to the injured

worker, even if this first payment is a retroactive payment

covering an earlier time period.

13 . However, Petitioner presented no evidence that the

biweekly payment schedule est ablished by Ms. Amos for purposes

of the audit of R.D. Ós file coincided in any way with a biweekly

schedule based upon the date the first installment of

compensation for total disability was paid to him . In fact, as

Ms. Amos testified, the biweekly paymen t schedule created for

the audit was based upon dates being used by the Respondent for

biweekly payments during the fall of 1998 , the first payments

for which the Respondent identified service dates .

14 . Ms. Amos testified at hearing that she establishe d the

biweekly payment schedule for the audit of R.D.'s file as

follows:

Um, based on the information that was

provided to me, um, the pay history that was

given to me, um, the first one with the, um,

service dates of 9/2 to 9/15, August, all of

the other payments were lump sum because

they had gotten a new computer or something.

Uh, so I s t arted from that time period and

ran the bi - Î oh, sorry, on the right - Î on

this left side, I ran the biweekly periods

from 9/2/1998 until - Î I ran them all the

way thr ough, um, 7/9/2011.

15 . It was not made clear at hearing why Petitioner

considered over 250 nearly biweekly payment s that had been paid

to R.D. for over nine years prior to September 1998 to be Ðlump

sumÑ simply because the Respondent was unable to pro vide the

service dates it associated with them. Petitioner has no rules

defining Ðlump sumÑ in this context , and it is not clear what

significance such a determination would have in the calculation

of a payment schedule . Ms. Amos did testif y that typical ly with

permanent total disability claims the employee is Ðaccepted

permanent totalÑ retroactively back to a given date and the

biweekly payments are established after a lump sum payment

covering the intervening period is made. However, n o ev idence

was pr esented that R.D. was retroactively accepted as

permanently totally disabled in 1998 and the first installment

was made to him at that time as a lump sum payment ; to the

contrary, the evidence indicate d he was accepted as permanently

totally disabled in 19 89.

16 . It appears rather that Ms. Amos established the

biweekly period for purposes of the audit based on the service

dates being used by Respondent in September of 19 98 simply

because these were the first Ð service dates Ñ available.

However, t here was no evidence to show that the service dates

being used by Respondent in September of 1998 bore any

relationship to the first installment of compensation for total

disability paid to R.D. In fact, the evidence would suggest no

such connection. The payment s made to R .D . prior to September

were generally biweekly , but somewhat irregular. The payments

made after September of 1998 were generally biweekly , but

somewhat irregular . Consistent with RespondentÓs interpretation

of the statute, Respondent presented deposition testimony that

while they generally tried to make biweekly payments, they made

no attempt to strictly make the payments on the anniversary of

the first installment , but would occasionally start new biweekly

periods for various reasons. I t is i ronic that after basing the

audit payment schedule on RespondentÓs service dates in

September of 1998 rather than on the date of the first

installment as required by the statute , that Petitioner went on

to categorically reject all of RespondentÓs subsequen t service

dates as inconsistent with statutory requirements.

17 . I t was similarly un clear as to why Petitioner

concluded that RespondentÓs acquisition of a new computer would

have any e ffect on the determination of the applicable biweekly

payment schedul e , because payment data from before that time was

available . As Ms. Constantine testified, some data on the

indemnity pay out ledger was information entered earlier from

check copies and Ð green cards Ñ that were manual records.

18 . The Division used the biweekly payment schedule

established by Ms. Amos to determine which payments were late.

Had the Division begun its biweekly payment schedule on another

date, it would have created a different schedule of due dates,

and would then have determined that a n entirely different number

of payments to R.D. were late.

1 9. As noted, Respondent paid its biweekly payments in a

different manner. N o evidence was presented that RespondentÓs

occasionally - adjusted biweekly periods for total disability

payments were con sistent with the date that the first

installment of compensation had been paid to R.D., or what that

date was. Re s pondent did not adhere to a fixed biweekly

schedule, but did generally adhere to biweekly payments.

Adjustments in payment due dates were ma de from time to time.

For example, evidence indicated that adjustments were made at

the beginning of a new calendar year or when errors were

discovered, in which case a new biweekly pattern of payments

would begin after the adjustment , without regard to th e dates of

any previous biweekly payments. This method, while not

intrinsically unreasonable, is not consistent with the statute.

20 . It is reasonable that missing data, calendar changes,

advance payments, or other irregularities in the payment of

indemn ity might create confusion in the construction of the

proper payment schedule, or in the reconstruction of the proper

payment schedule for purposes of an audit . T he correct and

consistent way to deal with such factors is not always addressed

by statute . The Department has adopted no administrative rule s

on this subject.

21 . The statuteÓs requirement of a fixed biweekly schedule

that cannot thereafter be changed is not followed by many who

regularly administer these payments. Ms. Amos testified in

depo sition that many of her audits involve carriers who are

making biweekly payments covering time periods that are

misaligned with the proper schedule as determined by the

Department, and that she is freq uently asked to go back in time

to identify for the car rier the date when the problem started.

At another point, Ms. Amos noted that in dealing with payments

at the end of a calendar year, Ða lot of adjusters in the

industry . . . would pay the injured workers 12/22/2006 to

12/31/2006 and then restart the cl ock, just pay those few days

and then restart the clock in January, starting their next

payment at January 1.Ñ Mr. Bottjer, holder of workersÓ

compensation and all lines adjusting licenses, and Compliance

Reviewer for Chartis, testified in deposition that prior to the

audit he was unaware that it was the DepartmentÓs position that

a biweekly period could not be adjusted after a carrier ÐgoofedÑ

and had caught the injured worker up (and stated that he still

does not agree that this is required by the statut e ) .

Ms. Constantine testified in deposition that she had never seen

a bulletin, gone to a conference, or had any information

indicating to her that biweekly payments could n ot be altered.

2 2 . R .D . was consistently overpaid in his permanent total

disabil ity and supplemental benefits , based upon errors

unrelated to the issue in this hearing . Additionally, various

adjus tment payments were made to R.D. from time to time which

included penalties and interest. R .D . has received all of the

indemnity payments to which he was entitled during the period of

the audit and has not been harmed by any late payments at issue

here .

23 . Petitioner proved by clear and convincing evidence

that 25 payments related to workersÓ compensation claims files

other than the file o f R.D. were paid late, as stipulated. This

constitutes about 3.1 per cent of the 807 indemnity payments

that were the subject of the audit.

24 . Petitioner proved by clear and convincing evid ence the

dates on which R.D. was paid his biweekly total disabi lity

payments during the audit period .

2 5 . Petitioner failed to prove by clear and convincing

evidence the date that the first installment of compensation for

total disability was paid to R. D . or the date s by which R.D. Ós

biweekly total disability payme nts needed to be paid to him .

26 . Petitioner failed to prove by clear and convincing

evidence that Respondent was late in paying R.D . his total

disability payments .

27 . Mr. Bottjer, RespondentÓs witness, testified that he

believed that Ðas many as 14 Ñ payments to R.D. might have been

late. Mr. Bottjer based this conclusion on due dates that

appear to bear no relation to the date of payment of the first

installment of payments for total disability . Even if 14

additional late payments were added to th e 25 late payments that

were stipulated, the total number of late payments would be 39,

or about 4.8 per cent of the 807 indemnity payments that were

audited.

28 . Based upon the number of late payments proved by clear

and convincing evidence , the t imely payment performance standard

during the period of the audit was in excess of 95 percent.

C ONCLUSIONS OF LAW

29 . The Division of Administrative Hearings has

jurisdiction over the subject matter and the parties in this

case under sections 120.569 a nd 120.57(1), Florida Statutes

(2011) .

30 . Under section 440. 525 , Petitioner has the

responsibility to examine and investigate the performance of

Respondent as to its obligations under the WorkersÓ Compensation

Law, and may impose penalties to ensure comp liance .

31 . Respondent demonstrated standing and entitlement to

hearing on the Notice of Imposition of Penalties.

3 2 . Under section 440.220(8)(b), the payment practices of

Chartis are deemed to be the payment practices of Respondent for

the purposes o f assessing penalties against Respondent.

33 . Petitioner has the burden to prove the disputed late

payments and penalty by clear and convincing evidence. DepÓt of

Banking and Fin. v . Osborne Stern and Co. , 670 So. 2d 932 (Fla.

1996). The case of In re Davey , 645 So. 2d 398, 404 (Fla.

1994), described clear and convincing evidence by stat ing ,

Ð[t] his intermediate level of proof entails both a qualitative

and quantitative standard. The evidence must be credible; the

memories of the witnesses must be cle ar and without confusion ;

and the sum total of the evidence must be of sufficient weight

to convince the trier of fact without hesitancy.Ñ

34 . Section 440.20(2)(a) provides:

The carrier must pay the first installment

of compensation for total disabili ty or

death benefits or deny compensability no

later than the 14th calendar day after the

employer receives notification of the injury

or death, when disability is immediate and

continuous for 8 calendar days or more after

the injury. If the first 7 days after

disability are nonconsecutive or delayed,

the first installment of compensation is due

on the 6th day after the first 8 calendar

days of disability. The carrier shall

thereafter pay compensation in biweekly

installments or as otherwise provided in s .

440.15 , unless the judge of compensation

claims determines or the parties agree that

an alternate installment s chedule is in the

best interests of the employee.

35 . Biweekly payments of permanent total disability are

mandated by s ection 440.20(2)(a). There is no evidence in this

case that a judge of compensation claims deter mined otherwise or

that R.D. and the other parties agreed that an alternative

installment schedule was in his best interest.

3 6 . The statute pre scribes two possible dates by which the

Ðfirst installment of compensationÑ for total disability must be

paid . When the disability i s immediate an d continuous for eight

calendar days after the injury, the first installment is due no

later than the 14 th calendar day after the employer received

notification of the injury or death . In this circumstance , the

first installment of compensation is not due on the date of

injury, not on the date the employer received notification, but

on a date not later than 14 days after the employerÓs

notification. The first installment could therefore timely be

paid six days after notification, ten days after, or any nu mber

of days after, up to 14 days. In the alternative, i f the

disability is not continuous for the first 7 days, then the

statute provides that the first installment is due on the 6 th

day after the first eight days of disability. This second

circumstance does not re quire reliance upon the date of

notification of the employer at all, but computes the due date

for the first installment from the eighth day of total

disability.

37 . The word ÐthereafterÑ in the final sentence of section

440.20(2)(a) refers t o the date the first installment of

compensation is timely paid, or if not timely paid, when due.

The statute requires total disability payments to be made

pursuant to a fixed installment schedule, with biweekly payments

due every two weeks from the date of the first installment, in a

schedule that never changes. This statutory requirement is

simple, and leads to consistent and predictable time periods.

Once the date of the first installment of compensation for total

disability is known, no further infor mation is needed, a

mechanical calculation can determine all future due dates. The

reference in the final sentence of section 440.20(2)(a) to

Ðalternate installment scheduleÑ makes clear that the direction

of the statute to pay benefits biweekly after the first payment

of compensation constitute s an installment Ðschedule.Ñ

38 . Once the biweekly payment schedule is established, t he

due date for any given biweekly period is the final day , that is

the 14 th day , of that period, though it may be paid earlier .

Any payment for a biweekly period that is paid after the final

day of that period is late. Citrus Co. Sch. Bd. v. DepÓt of

Fin. Servs. , 67 So. 3d 1127, 1129 (Fla. 1 st DCA 2011).

39. The statuteÓs strict requirements can be violated for

a great many co nsecutive weeks if a new biweekly payment period

is established after an error is made, even though the payment

to the injured worker is Ðmade upÑ with penalties and interest,

because every payment made after the error may still be late

under the original schedule. A carrier acting in good faith

could unwittingly make hundreds of late payments based upon a

single mistake, even though the injured worker is not harmed.

While the need for consistent record - keeping is clear, this is a

high penalty.

40. Assum ing Petitioner possesses the requisite statutory

authority, rules might clarify the statuteÓs requirements,

provide clearer standards for compliance when irregularities

occur, and aid auditors and enforcement efforts. As Judge Smith

noted, ÐFlorida's APA has the purpose, uniformly endorsed by

students of the modern administrative process, of encouraging

agencies by rulemaking Òto close the gap between what the agency

and its staff know about the agency's law and policy and what an

outsider can know.ÓÑ McD onald v. Dep Ót of Banking & Fin . , 346

So. 2d 569, 580 (Fla. 1st D CA 1977) ( citing K. Davis,

Discretionary Justice 102 (1969) ) .

4 1 . Respondent failed to meet its burden of proof with

respect to the alleged late payments to R.D . While the dates

that payment s were actually made to R.D. during the audit period

were clearly established, the evidence presented as to the dates

the payments were due was unclear. Without proving the due

date, it is impossible to prove that a payment is late.

4 2 . Petitioner did no t prove by clear and convincing

evidence that any payments of compensation for t otal disability

made to R.D. were late.

4 3 . PetitionerÓs selection of a biweekly period on which

to establish the due date for purposes of the audit was

arbitrary. Petitioner established the due date based upon

RespondentÓs Ð service dates , Ñ not the date of the first

installment of compensation.

44 . Imposition of a penalty under th e statute requires

proof, by clear and convincing evidence, of the date of the

first installmen t of compensation for disability. T he many

payments that were made to R.D. prior to September of 1998 were

biweekly installments made just as consistent ly as th e payments

made by Respondent after 1998 . PetitionerÓs dismissal of all

these earlier payments as Ðlump - sum , Ñ and the conclusion that a

payment made in 1998 therefore constituted the first

installment, was not convincing.

45 . Petitioner proved by clear and convincing evidence

that 25 payments related to workersÓ compensation claims files

other th an the file of R . D . were paid late, in violation of the

WorkersÓ Compensation Law.

46 . Section 440.20(8)(b) provides in relevant part:

The office shall impose penalties for late

payments of compensation that are below a

minimum 95 percent timely payme nt

performance standard. The carrier shall pay

to the WorkersÓ Compensation Administration

Trust Fund a penalty of:

1. Fifty dollars per number of installments

of compensation below the 95 percent timely

payment performance standard and equal to or

gre ater than a 90 percent timely payment

performance standard.

2. One hundred dollars per number of

installments of compensation below a 90

percent timely payment performance standard.

47 . Th e 25 late payments constitute about 3.1 per cent of

the 807 indem nity payments that were the subject of the audit.

This means that the Department failed to prove that the 95

percent timely payment performance standard was not met, and no

penalties for improper benefit disbursement practices should be

assessed under the statute.

RECOMMENDATION

Upon consideration of the above findings of fact and

conclusions of law, it is

RECOMMENDED:

That the Department of Financial Services, Division of

WorkersÓ Compensation enter a final order finding that

Respondent paid 25 payments late during the audit period and

imposing no fines for improper benefit disbursement practices.

DONE AND ENTERED this 8 th day of February , 2012 , in

Tallahassee, Leon County, Florida.

S

F. SCOTT BOYD

Administrative Law J udge

Division of Administrative Hearings

The DeSoto Building

1230 Apalachee Parkway

Tallahassee, Florida 32399 - 3060

(850) 488 - 9675

Fax Filing (850) 921 - 6847

www.doah.state.fl.us

Filed with the Clerk of the

Division of Administrative Hearings

this 8 th day of February, 2012.

ENDNOTE

1/ Except as otherwise indicated, a ll references to statutes and

rules are to versions in effect in 201 0 , which contain the text

applicable throughout the audit period relevant to this hearing.

COPIES FURNISHED:

Mary E. Ingley, Esquire

Department of Financial Services

Division of Legal Services

200 East Gaines Street

Tallahassee, Florida 32399 - 4229

Kimberly J. Fernandes, Esquire

Kelley, Kronenberg, Gilmartin, Fichtel,

Wander, Bamdas, Eskalyo and Dunbrack, P. A.

113 South Monroe Street

Tallahassee, Florida 32301

Julie Jones, Agency Clerk

Department of Financial Services

Division of Legal Services

200 East Gaines Street

Tallahassee, Florida 32399 - 4229

NOTICE OF RIGHT TO SUBMIT EXCEPTIONS

All partie s have the right to submit written exceptions within

15 days from the date of this recommended order. Any exceptions to

this recommended order should be filed with the agency that will

issue the final order in this case.