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They Filed a Petition for Penalties and Attorney’s Fees – So What?

By John F. Kamin

Often petitioner’s counsel will threaten employers and insurers with penalties and attorney’s fees for non-payment of benefits. Penalties and fees can be substantial, but they are typically not at issue. Below we address what may be claimed as a penalty, as well as discuss several recent Appellate Court decisions involving penalties and attorney’s fees.

Penalties are governed by Section 19(k) and 19(l). Section 19(k) provides for a penalty of 50% of the amount payable at the time of any award and requires that there has been an unreasonable or vexatious delay in payment or intentional underpayment of compensation which present no real controversy but are merely frivolous or for delay. Originally, 19(k) penalties were only allowed on TTD, but now 19(k) penalties may also be awarded on medical bills. Further, 19(k) penalties may be awarded on prospective medical. Section 19(l) penalties are for unreasonable delay in payment of the benefit but that is not characterized as either vexatious or intentional. Section 19(l) provides that an employer has 14 days after receipt of the demand for payment of TTD in order to set forth a reason in writing for delay in payment. With regard to medical bills, the employer has 60 days within which to respond to such a demand. If the employer or its insurance carrier, without good or just cause, fails, neglects, refuses or unreasonably delays payment of the benefits then the petitioner may claim a penalty of $30 per day for each day that benefits have been so withheld or refused but not to exceed $10,000. The delay in payment beyond the specified days creates a rebuttal presumption of a reasonable delay.

Request of Section 4(c) relief is another action threatened by injured workers. This provision provides that if it is found that an insurer or employer or any corporation engages in a policy of delay or unfairness towards employees in the adjustment, settlement or payment of benefits, the Commission, after reasonable notice and hearing, may order that the insurer discontinue writing workman’s compensation insurance in the state. Such an order may also be issued to discontinue the authority of a service or adjustment company who administers claims as well. This is a drastic and rare remedy which provides no direct compensation to the workers.

Section 16 of the Act addresses attorney’s fees. In the event an employee is awarded penalties under Section 19(k) or the Commission finds pattern or practice under Section 4(c), the petitioner may be awarded 20% attorney’s fees on the disputed benefits.

Recently, several cases decided by the Illinois Appellate Court addressed penalties claims. In Reynolds v. Otto Baum Co., the Appellate Court reversed an Industrial Commission award of penalties finding that the Commission abused its discretion in awarding penalties and attorney’s fees. In that case, both the Arbitrator and Commission had awarded penalties for both delay and refusal of payment of TTD. However, three doctors opined that the petitioner was capable of returning to work. The court concluded that the employer was well within its rights to rely upon the doctors’ opinions regarding work capacity, and due to conflicting medical evidence with regard to same, the employer could not have been found vexatious and unreasonable.

In Burzic v. Dedicated Transport, Inc., the Appellate Court addressed the petitioner’s application that a carrier be denied its right to insure workman’s compensation. The insurance company at issue had been found to have delayed vocational rehabilitation for the claimant who then filed a Rule to Show Cause why this should not be considered an unfair practice pursuant to Section 4(c). The Court concluded that Section 4(c) requires misconduct as part of the course of action furthering an unfair adopted policy and concluded a one time isolated event of misconduct would not rise to that level.

Finally, in Green Welding & Hardware v. IWCC, the Court affirmed an award of penalties and attorney’s fees. The employee lost two fingers in a work accident. He was released to return to work but no TTD or PPD benefits were paid until the petitioner hired an attorney. The Court affirmed an award of penalties and attorney’s fees due to the undue delay in payment of both temporary compensation and a statutory loss of use of the fingers. The Court noted that the payment for a statutory loss must be made as soon as the employer becomes aware of the loss.

Many employers have paid PPD benefits for a statutory amputation only after the Petitioner’s condition stabilized and TTD was terminated. However, recent Commission decisions have found that payment for amputations must be made as soon as the employer is aware that such a benefit is due. In effect, the petitioner will receive payment of a double weekly benefit, temporary compensation while recovering from the injury and his permanent disability for the amputation from the date of injury until all benefits due have been paid on a weekly basis.

Obviously, this reduces an employee’s incentive to return to work as he receives both benefits tax free, and while recovering from the amputation. Of course, if light duty work is offered and refused, the employer may still deny temporary compensation but must continue to pay the statutory amputation benefit on a weekly basis until exhausted. The employer is well served by an attempt to negotiate a lump sum settlement by commuting the remaining weekly statutory benefit due and possibly adding a modest lump sum of additional compensation to close future medical exposure.

Needless to say, liability for penalties can nearly double the claims dollar exposure. In analyzing a claim for penalties, an employer should ensure that there is a reasonable basis to deny the benefits relying on either the opinion of a physician which supports refusal of other evidence which would be a basis to deny temporary compensation for medical treatment. Occasionally, an employer is presented with rumors or innuendo from co-workers or other individuals suggesting that an injured worker is taking advantage of the system, but the employer/carrier should consult with counsel to ensure that there is admissible evidence to support the denial before relying on same to deny a claim.


Originally published in the Spring 2010 edition of Quinn Quarterly.

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