CHESTER R. CRAIG, JR. v. HITACHI AUTOMOTIVE PRODUCTS USA, INC; JAMES L. KERR, ADMINISTRATIVE LAW JUDGE; AND THE WORKERS' COMPENSATION BOARD
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RENDERED: AUGUST 3, 2007; 2:00 P.M.
NOT TO BE PUBLISHED
Commonwealth of Kentucky
Court of Appeals
NO. 2007-CA-000139-WC
CHESTER R. CRAIG, JR.
v.
APPELLANT
PETITION FOR REVIEW OF A DECISION
OF THE WORKERS' COMPENSATION BOARD
ACTION NO. WC-03-86068
HITACHI AUTOMOTIVE PRODUCTS USA, INC;
JAMES L. KERR, ADMINISTRATIVE LAW JUDGE;
AND THE WORKERS' COMPENSATION BOARD
APPELLEES
OPINION
REVERSING AND REMANDING
** ** ** ** **
BEFORE: ABRAMSON, ACREE, AND WINE, JUDGES.
ABRAMSON, JUDGE: Under KRS 342.185 and KRS 342.270, if the parties cannot
agree regarding compensation, an injured worker who seeks workers' compensation
benefits must file a written application for resolution of his or her claim “within two (2)
years after the accident, or . . . within two (2) years after the cessation of voluntary
payments, if any have been made.” KRS 342.270(1). Chester Craig seeks compensation
benefits from his employer, Hitachi Automotive Products USA, Inc., of Harrodsburg.
Craig alleges that in the course of his employment on April 8, 2003, he injured his lower
back. He underwent back surgery in September 2003, and from then until his return to
work in January 2004 he received temporary total disability benefits (TTD) from
Hitachi’s workers' compensation insurer, Liberty Mutual. Liberty terminated Craig’s
TTD benefits as of January 12, 2004, and Craig acknowledges that soon thereafter he
received the statutorily-required notice from the Office of Workers' Claims informing
him that his TTD benefits had been terminated and advising him that if he wished to seek
additional benefits he had two years from the January 12 termination date to file a claim.
Two years later, in February 2006, Liberty’s adjuster wrote to Craig advising him that the
limitations period had expired and that Liberty was therefore terminating Craig’s benefits
and closing his claim. Craig thereupon hired counsel and filed his Form 101 seeking
adjustment of his disability claim. Hitachi then moved to have Craig’s claim dismissed
as untimely. By orders entered May 31, 2006 and December 22, 2006, respectively, the
Administrative Law Judge (ALJ) and the Workers' Compensation Board agreed with
Hitachi. They rejected Craig’s argument that Hitachi should be estopped from asserting a
limitations defense and dismissed his claim as outside the two-year limitations period.
Petitioning for review of the Board’s order, Craig contends that estoppel is appropriate
because Hitachi’s insurer, Liberty, violated regulations intended to promote the fair
settlement of workers' compensation claims and because the violations led him to believe
that his claim would be settled without litigation. Agreeing with Craig that Liberty
engaged in conduct proscribed as unfair claims settlement practices under Kentucky
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statutes and regulations, we reverse and remand so that Craig’s claim may proceed.
As Craig notes, KRS 342.267 incorporates within the Workers’
Compensation Act the provisions of KRS 304.12-230, which outlaws certain acts and
omissions by insurers or their adjusters as “unfair claims settlement practice[s],”
including the insurer’s “fail[ure] to affirm or deny coverage of claims within a reasonable
time.” KRS 304.12-230(5). Pursuant to those statutes and to KRS 342.260(1), the
Department of Workers’ Claims promulgated 803 KAR 25:240, which imposes duties on
workers’ compensation carriers with respect to the fair settlement of compensation
claims. Carriers are obliged to “diligently investigate a claim for facts warranting the
extension or denial of benefits.” Section 4. They must “attempt in good faith to
promptly pay a claim in which liability is clear.” Section 6. And, under Section 5 of 803
KAR 25:240:
(1) After receipt of notice of a work-related injury
necessitating medical care or causing lost work days, a carrier
shall as soon as practicable advise an injured employee of
acceptance or denial of the claim.
(2) A carrier shall provide to the employee in writing the
specific reasons for denial of a claim.
(3) A carrier shall inform an employee of additional
information needed for the claim to be accepted.
(4) A carrier shall meet the time constraints for accepting and
paying workers’ compensation claims established in KRS
Chapter 342 and applicable administrative regulations.
In this case, apparently, after Craig returned to work in January 2004 and
received notice that his TTD benefits had been terminated, he discussed permanent
disability benefits with Liberty’s adjuster. At the adjuster’s behest, Craig submitted to
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her his surgeon’s statement to the effect that Craig’s work-related injury and surgery had
left him with an impairment rating of 13%, none of which, according to the surgeon, was
attributable to prior injuries. Upon receipt of this statement, the Liberty adjuster
contacted Craig and indicated that she thought the 13% impairment rating excessive.
During the conversation, Craig confirmed that he had injured his back on two prior
occasions. He strained it once during his employment as a volunteer firefighter.
Although he filed a workers’ compensation claim over that injury, apparently the injury
resolved fairly quickly with minimal treatment. Not long thereafter, however, in early
2002, Craig reinjured his back, in a non-work-related setting. That injury required
surgery, which was performed in October 2002, about six months before the work-related
injury underlying Craig’s current claim.
In light of this history, the Liberty adjuster indicated to Craig her belief that
some of his disability should be attributed to the prior injuries and surgery. According to
Craig, however, he explained to her that after the first surgery the surgeon told him he
was “as good as new” and released him to return to work without restrictions. The
adjuster said, “Okay,” and their conversation ended. The adjuster did not inform Craig
that she needed additional information, nor did she thereafter provide him with written
notice specifying reasons for denying his claim.
The adjuster did, however, correspond again with Craig’s surgeon. In a
letter dated May 23, 2005, she explained her concerns regarding the prior surgery and
requested that the surgeon “specify what percentage of impairment Mr. Craig had
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sustained as a result of his first injury.” According to the adjuster, the surgeon did not
respond to this request. The matter then remained dormant until February 2006, when the
Liberty adjuster informed Craig that the limitations period had expired.
Clearly, the adjuster violated her statutory and regulatory duties (1) to
inform Craig that additional information was needed to process his claim; (2) to affirm or
deny his claim as soon as reasonably practicable; and (3) to provide written reasons for a
denial if that was Liberty's position. Arguably she also failed to investigate the claim
diligently, when she failed to follow-up her unanswered May 2005 letter to the surgeon,
and perhaps, as Craig insists, she improperly denied Craig’s entire claim where at least
some liability was reasonably clear. We need not determine these less certain breaches,
however, because the certain ones are enough to entitle Craig to relief.
As our Supreme Court has observed, estoppel is an equitable remedy often
invoked to prevent a party from benefiting from its own misconduct. Akers v. Pike
County Board of Education, 171 S.W.3d 740 (Ky. 2005). It is permitted
when the estopped party is aware of material facts that are
unknown to the other party and then engages in conduct, such
as acts, language, or silence, amounting to a
[mis]representation or concealment of the material facts. The
conduct is performed with the intention or expectation that
the other party will rely upon it, and the other party does so to
his detriment.
Id. at 743. Although these are the general elements, because estoppel is an equitable
remedy its propriety ultimately depends upon the totality of circumstances in the
particular case. Patrick v. Christopher East Health Care, 142 S.W.3d 149 (Ky. 2004);
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Miller v. Thacker, 481 S.W.2d 19 (Ky. 1972). In the workers' compensation context,
employers have been estopped from asserting a statute of limitations defense where their
failure to comply with KRS 342.040 has prevented notice to the employee of his right to
prosecute a claim and of the limitations period, H.E. Neumann Company v. Lee, 975
S.W.2d 917 (Ky. 1998), and where their insurers have made representations amounting to
a waiver of the limitations defense. Carroll County Memorial Hospital v. Yocum, 489
S.W.2d 246 (Ky. 1972). More generally, insurers (and their principals) have been
estopped from asserting the limitations defense where, by their actions or
communications, they have led the claimant to believe that a settlement would be reached
and thereby induced a late filing, or where they have intentionally prolonged settlement
negotiations and thereby caused the claimant to let the filing deadline pass. Robinson v.
Pan American World Airways, Inc., 650 F. Supp. 125 (S.D.N.Y. 1986); Cassidy v.
Luburich, 364 N.E.2d 315 (Ill.App. 1977). See McAdam v. Grzelczyk, 911 A.2d 255
(R.I. 2006) (discussing the general rule). And see Allan E. Korpela, “Settlement
Negotiations as Estopping Reliance on Statute of Limitations,” 39 ALR 3rd 127 (1971).
In this case, the insurer intentionally left negotiations unresolved for over
eight months without informing Craig either that his claim could not be further processed
or accepted until additional information was received from his surgeon, or that his claim
had been denied and the reasons for that denial. Because the fair claims settlement
statute, KRS 342.267, and the regulations promulgated pursuant to it, imposed a duty on
the insurer to advise Craig that additional information was needed or that his claim had
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been denied, its silence was wrongful. To permit Hitachi now to rely on a limitations
defense would thus permit it to benefit from its carrier's own proscribed practices at the
expense of an innocent injured worker, a result this Court has rightfully deemed
repugnant. City of Frankfort v. Rogers, 765 S.W.2d 579 (Ky. 1988). The Board and the
ALJ misconstrued controlling law by ruling otherwise, and so we must reverse the
Board’s order and remand for a full consideration of Craig’s claim. Western Baptist
Hospital v. Kelly, 827 S.W.2d 685 (Ky. 1992).
Seeking to avoid this result, Hitachi relies on several older cases which hold
that, absent a false promise to settle a claim or other misleading behavior, insurance
settlement negotiations do not, by themselves, toll the limitations period or estop the
insurer from asserting a limitations defense. Logan Manufacturing Company v. Bradley,
476 S.W.2d 819 (Ky. 1972); Cuppy v. General Accident Fire & Life Assurance
Corporation Ltd., 378 S.W.2d 629 (Ky. 1964); Pospisil v. Miller, 343 S.W.2d 392 (Ky.
1961). These cases, however, were decided before the enactment of KRS 342.267 and
803 KAR 25:240. The current statute and regulations were clearly intended to afford
injured workers, most of whom are not versed in the law or in the technicalities of
insurance, additional protection during the settlement process. The new rules require the
insurer to make timely disclosures to the employee regarding the status of that process,
disclosures that were not required under earlier law. These new disclosure requirements
provide new grounds for deeming an insurer’s silence “misleading,” and thus add to the
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circumstances in which estoppel may be appropriate. The cases upon which Hitachi
relies do not, therefore, require a different result.
Hitachi also argues that even if its insurer violated provisions of the fair
claims settlement regulations, estoppel is not an appropriate remedy because KRS
342.267 provides only that noncompliant insurers may be fined or, in extreme cases,
excluded from the market. In Patrick v. Christopher East Health Care, supra, however,
our Supreme Court noted that KRS 342.990 similarly provides for civil penalties for
violations of KRS 342.038 and KRS 342.040, statutes, as noted above, requiring that
employers give notice when they deny or terminate voluntary income benefits. There is
no statutory provision for an equitable remedy. Nevertheless, the Court acknowledged
cases applying estoppel to violations of those very statutes, recognizing that the equitable
remedy is sometimes necessary to prevent unfairness to the injured worker. Here, too,
we are not persuaded that the General Assembly meant to preclude an equitable remedy
against insurers and their principals who disregard the fair claims settlement laws. On
the contrary, those laws clearly reflect an intent to promote non-adversarial settlement of
disability claims without resort to litigation, and to protect injured workers against the
unintentional forfeiture of viable claims. That intent would be frustrated if an employer
could not be estopped from invoking a limitations defense where its insurer's conduct
violated the fair claims settlement laws regarding prompt and decisive handling of
claims.
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In sum, although Craig did not file his compensation claim until after the
two-year limitations period had expired, his delay was reasonably induced by Hitachi’s
insurer’s violations of KRS 342.267 and 803 KAR 25:240. Hitachi should therefore have
been estopped from raising a limitations defense. The Board erred by ruling otherwise.
Accordingly, we reverse the Board’s December 22, 2006 Order and remand so that
Craig’s claim may be reinstated.
ALL CONCUR.
BRIEF FOR APPELLANT:
BRIEF FOR APPELLEE:
Thomas G. Polites
Lexington, Kentucky
Timothy J. Walker
Lexington, Kentucky
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