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Dep't of Labor and Industry v. Workers' Compensation Appeal Board

January 11, 2010


The opinion of the court was delivered by: Judge Cohn Jubelirer

Submitted: September 16, 2009



The Department of Labor and Industry, Bureau of Workers' Compensation (Bureau) petitions for review of the order of the Workers' Compensation Appeal Board (Board), which modified and affirmed Workers' Compensation Judge James Deeley's (WCJ Deeley) decision and order granting Excelsior Insurance (Insurer) reimbursement from the Supersedeas Fund for certain payments that it made to Mark Oestereich (Claimant). The Bureau argues that Insurer is not entitled to Supersedeas Fund reimbursement, pursuant to Section 443(a) of the Workers' Compensation Act (Act), Act of June 2, 1915, P.L. 736, as amended, 77 P.S. § 999(a),*fn1 for the payments that it made to Claimant because those payments were for the recovery costs associated with obtaining a third party-settlement, and were not payments of "compensation." Resolution of this matter requires this Court to consider the interplay between Section 443(a) of the Act, dealing with reimbursement from the Supersedeas Fund, and Section 319 of the Act, 77 P.S. § 671,*fn2 dealing with subrogation. For the reasons that follow, we affirm.

On November 5, 2003, Claimant sustained a work-related injury while working for Filter Tech, Inc. (Employer). Insurer, acting on Employer's behalf, began paying Claimant wage loss benefits at the rate of $410.00 per week, as well as medical benefits, for his work-related injury.

On November 22, 2005, Insurer filed a Petition for Modification of Compensation Benefits (Modification Petition), alleging that work was available within Claimant's medical restrictions and seeking to reduce Claimant's wage loss benefits to $51.10 per week as of August 12, 2005. Upon filing its Modification Petition, Insurer also requested supersedeas, which was denied by WCJ Brian Eader (WCJ Eader) in an order dated January 17, 2006. Insurer later orally amended its Modification Petition to request a suspension of benefits as of August 12, 2005.

While Insurer's Modification Petition was pending before WCJ Eader, Claimant entered into a settlement with the third-party tortfeasor responsible for causing his work-related injury (Third-Party Settlement) through which Claimant received $310,000.00. On February 28, 2006, Claimant and Insurer entered into a Third-Party Settlement Agreement (Third-Party Agreement) to resolve the distribution of the proceeds of the Third-Party Settlement. At the time of the Third-Party Settlement, Insurer had paid Claimant benefits through February 15, 2006, and Insurer had an accrued workers' compensation lien of $120,698.48 (which represented all benefits Insurer paid to Claimant between November 5, 2003 and February 15, 2006). Pursuant to the terms of the Third-Party Agreement and Section 319 of the Act,*fn3 Insurer received payment of its accrued lien, minus its share of the costs of recovering the lien, from the proceeds of the Third-Party Settlement. Insurer's accrued lien amounted to approximately 39% of the total proceeds from the Third-Party Settlement, and the total expenses involved in obtaining the proceeds of the Third-Party Settlement were $124,314.23. Multiplying this amount by 39% resulted in an amount of $48,401.73, which represented the amount of the expenses attributable to the recovery of Insurer's accrued workers' compensation lien. Subtracting this amount from $120,698.48 resulted in a net workers' compensation lien recovery of $72,296.75 for Insurer.*fn4 Also, subtracting $120,698.48 from $310,000.00 resulted in a balance of recovery of $189,301.52 for Claimant. Because the third-party recovery exceeded the amount of Insurer's accrued workers' compensation lien and the cost of recovering that lien, Insurer was entitled to a grace period of 461.7 weeks pursuant to Section 319.*fn5 During this grace period, Insurer was not required to pay Claimant his full compensation rate of $410.00 per week, but was, instead, only required to pay Claimant $164.42 per week.*fn6 Insurer began paying Claimant $164.42 per week beginning on February 16, 2006.

On October 4, 2006, Insurer and Claimant entered into a Compromise and Release Agreement (C&R Agreement). Pursuant to the C&R Agreement, Claimant agreed to waive any entitlement to wage loss benefits or medical benefits with regard to his work injury on or after October 4, 2006 in exchange for $40,000.00. However, Insurer and Claimant agreed that the C&R Agreement did not resolve the Modification Petition pending before WCJ Eader or the issue of whether Claimant was entitled to continue receiving any workers' compensation benefits after August 12, 2005. Insurer paid Claimant through October 11, 2006. WCJ Eader approved the C&R Agreement by decision and order dated November 2, 2006.

On November 14, 2006, WCJ Eader issued a decision and order granting Employer's Modification Petition and suspending Claimant's benefits as of August 12, 2005. Insurer subsequently filed an Application for Supersedeas Fund Reimbursement (Application). Insurer sought to recover a total of $7,606.36*fn7 from the Supersedeas Fund. Specifically, Insurer requested $2,016.08, which represents the unreimbursed balance of benefits paid to Claimant for the period between November 22, 2005, the date that Insurer requested supersedeas, and February 15, 2006, the last date for which Insurer had paid Claimant prior to the Third-Party Settlement. Insurer also sought $5,590.28, which represents the total of the $164.42 per week payments Insurer made to Claimant during the grace period from February 16, 2006 through October 11, 2006. The Bureau, acting as conservator of the Supersedeas Fund, contested Insurer's right to reimbursement from the Fund, and the Application was assigned to WCJ Deeley for disposition.

By decision and order dated October 31, 2007, WCJ Deeley granted Insurer's Application and awarded the full amount of the reimbursement sought. WCJ Deeley explained that Insurer's:

lien was incurred as a result of the award of benefits... and procedural and proportionate costs in obtaining reimbursement of the lien occurred directly as a result of the award.... They are not an unrelated cost but are directly due because of the denial of supersedeas and are[,] therefore, compensable.

(WCJ Decision at 2, October 31, 2007.) In addition, WCJ Deeley noted that while Insurer benefited from the Third-Party Settlement, the Supersedeas Fund also benefited because, without the Third-Party Settlement, Insurer would have continued paying full wage loss benefits to Claimant for the period preceding the execution of the C&R Agreement, and the Fund would have had to reimburse Insurer for a greater sum of money. The Bureau appealed WCJ Deeley's decision and order to the Board.

On September 22, 2008, the Board issued an opinion and order modifying and affirming WCJ Deeley's grant of Insurer's Application.*fn8 The Board concluded that the payments for which Insurer sought reimbursement were payments of "compensation" under Section 443(a) of the Act that were continued because of the denial of Insurer's request for supersedeas, but which were ultimately determined to not, in fact, be payable. The Board, therefore, further concluded that Insurer is entitled to reimbursement for those payments from the Supersedeas Fund. The Bureau now petitions this Court for review of the Board's order.*fn9

Before this Court, the Bureau argues that the Board erred in affirming WCJ Deeley's grant of Insurer's Application because Insurer is not entitled to Supersedeas Fund reimbursement under Section 443(a) of the Act. Under Section 443(a), in order for an insurer to obtain ...

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