HITACHI AUTOMOTIVE PRODUCTS USA, INC. V. CHESTER R. CRAIG, JR., ET AL.
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2007-SC-000631-WC
HITACHI AUTOMOTIVE PRODUCTS USA, INC .
APPELLANT
ON APPEAL FROM COURT OF APPEALS
2007-CA-000139-W C
WORKERS' COMPENSATION BOARD NO. 03-86068
CHESTER R. CRAIG, JR. ;
HONORABLE JAMES L. KERR,
ADMINISTRATIVE LAW JUDGE; AND
WORKERS' COMPENSATION BOARD
APPELLEES
OPINION OF THE COURT
AFFIRMING
An Administrative Law Judge (ALJ) dismissed the claimant's application for
benefits having found that he received the letter required by KRS 342 .040(1) but failed
to file an application for benefits within two years after the employer terminated
voluntary income benefits . The decision implicitly rejected the claimant's arguments
that conduct by the employer's insurance carrier violated KRS 342.267 and 803 KAR
25:240, that the violations reasonably induced a tardy filing, and that they estopped the
employer from asserting a limitations defense. Although the Workers' Compensation
Board affirmed, the Court of Appeals reversed . Appealing, the employer asserts that
estoppel is an inappropriate remedy for unfair claims settlement practices, that the facts
do not warrant an estoppel, and that the Court of Appeals misinterpreted 803 KAR
25:240 and engaged in impermissible fact-finding .
We affirm. KRS 342.267 penalizes an employer who commits unfair claims
settlement practices but offers no remedy to the affected worker. The evidence before
the AU compelled findings that the carrier violated KRS 342 .267 and 803 KAR 26:240
and that the violations reasonably induced a tardy filing. Equity required an estoppel .
The claimant has an eighth-grade education and a GED. He began working for
the defendant-employer in 1994. He strained his back while working as a fireman in
May or June 2002 and filed a claim, but the injury resolved with minimal treatment . He
then sustained a non-work-related back injury for which he underwent surgery in 2002
and missed four weeks' work.
The, work-related back injury that is the subject of this appeal occurred on April 8,
2003, while the claimant helped to lift a heavy pallet. He continued to work until
September 2003, when he underwent surgery to the same area of his back as in 2002.
His employer paid temporary total disability (TTD) and medical benefits voluntarily but
terminated TTD when he returned to work on January 12, 2004, and notified the Office
of Workers' Claims. The employer terminated medical benefits two years later on
January 12, 2006, after which the insurance adjuster informed the claimant that the
statute of limitations had expired . Although the claimant obtained counsel and filed an
application for benefits in February 2006, the employer asserted that the statute of
limitations barred the claim because more than two years had passed since it
terminated TTD. As a consequence, the AU ordered the claimant to show cause why
the claim should not be dismissed .
The claimant admitted that he received a letter from the Office of Workers'
Claims, which informed him that he had two years from January 12, 2004, to file a
claim. He testified that he "got a ton of paperwork right after my surgery . . . . So I read
it, but really didn't understand it. Everything that I was getting was either from Liberty
Mutual or a doctor, so that came out of the blue." He stated that nothing occurred in
the matter until his surgeon, Dr. Wheeler, received a November 16, 2004, letter from
the insurance adjuster, requesting answers to various questions regarding the injury.
After examining him on January 21, 2005, Dr. Wheeler completed the questionnaire
and listed the claimant's current diagnoses as being status post herniated disc lumbar
region (x2), stenosis, sciatica, and post laminectomy syndrome. He assigned a 13%
permanent impairment rating, stating that no portion of the rating was due to a preexisting dormant or unrelated injury or condition .
The claimant testified that he delivered the completed questionnaire to the plant
nurse, Rhonda Burkhead, on or about January 22, 2005, and asked about its
significance . She advised him that the questionnaire's purpose "was so Anita Ashley
a
could come up with a settlement price and a range ." He testified that Ms. Ashley "sent
me a letter, I believe, saying that she wanted to know exactly what the percentage was
before, compared to the 13 percent now, and [that] she thought the 13% was a little
high ." When they spoke later, she indicated that some of the impairment should be
attributed to the 2002 injuries and surgery. After he explained that Dr. Wheeler told him
that he was "a hundred percent" after the surgery, she said, "Okay," and the
conversation ended. He acknowledged that she did not make an offer to settle the
claim but stated that he thought she would do so because she did not inform him that
she needed additional information from Dr. Wheeler or tell him that the claim was
denied . On February 7, 2006, she informed him by letter that the limitations period had
expired and that the employer would no longer pay benefits . After speaking with her,
he located the letter from the Office of Workers' Claims among his papers, obtained
counsel, and filed a claim on February 28, 2006.
An affidavit from Ms. Anita Ashley, the insurance adjuster, indicated that she
received the questionnaire that Dr. Wheeler completed in January 2005. It also
indicated that she explained her concerns regarding pre-existing impairment to Dr.
Wheeler in a letter dated May 23, 2005, and asked him to specify the permanent
impairment rating that existed after the initial surgery. According to Ms. Ashley, he
failed to respond .
The claimant argued that the employer should be estopped from raising a
limitations defense such as occurred in City of Frankfort v. Rogers, 765 S.W .2d 579
(Ky . App. 1988), because its insurance carrier failed to comply with KRS 342.267 and
803 KAR 25 :240. He asserted specifically that the carrier's adjuster obtained a
permanent impairment rating from Dr. Wheeler more than a year before the limitations
period expired and violated 803 KAR 25:240, §§ 4 and 6 by failing to propose a
,
reasonable settlement within the limitations period . He also asserted that conduct by
the plant nurse and the adjuster lulled him into thinking that the carrier would offer a
settlement and that he would not need to file a claim. He argued that the carrier's
misconduct warranted an equitable remedy.
The employer maintained that its carrier did not commit an unfair claims
settlement practice and had no obligation to make a settlement offer because liability
and the extent and duration of disability were uncertain . The employer also argued that
no statute tolls the limitations period based on an unfair claims settlement practice. It
emphasized that the claimant received the required letter informing him of the
applicable limitations period .
KRS 342.270(1) provides that an injured worker who cannot agree with the
employer regarding compensation must file an application for resolution of the claim
"within two (2) years after the accident, or . . . within two (2) years after the cessation of
voluntary payments, if any have been made ." More specifically, KRS 342 .185(1) tolls
the period of limitations for so long as an employer pays "income benefits ." To assure
that an injured worker receives notice of the applicable limitations period, KRS
342 .040(1) requires an employer who terminates or fails to pay income benefits when
due to notify the Department (formerly Office) of Workers' Claims and requires the
Department to notify the worker of the right to prosecute a claim. The Department does
so with what it terms a "WC-3 letter."' Although KRS 342.990 provides civil and
criminal penalties for an employer's failure to comply strictly with KRS 342 .040(1),
Chapter 342 provides no remedy for a worker who, unaware of the applicable
limitations period, fails to file a timely claim. Thus, the courts have turned to equitable
principles when the circumstances warranted and estopped employers who failed to
comply strictly with KRS 342 .040(1) from asserting a limitations defense, even in the
absence of bad faith or misconduct.2
The court explained in Akers v. Pike Count Board of Education, 171 S.W .3d
740, 743 (Ky. 2005), that estoppel is an equitable remedy that courts often invoke to
See Bill Baker Painting v. Barry, 179 S.W.3d 860 (Ky. 2005).
2
Id .
prevent a party from benefiting from its misconduct. A party may be estopped to plead
a limitations defense if the party's false representation or fraudulent concealment
reasonably induces inaction on the part of the plaintiff . Nothing requires estoppel to be
based on a statutory violation by the estopped party. The elements of estoppel include :
1 .) acts, language, or silence amounting to a representation or concealment of material
facts ; 2.) the facts are known to the estopped party but unknown to the other party; 3.)
the estopped party acts with the intention or expectation that the other party will rely on
its conduct ; and 4.) the other party does so to its detriment . Patrick v. Christopher East
Health Care, 142 S .W .3d 149 (Ky. 2004), explains that the facts and circumstances of
each case determine the propriety of resorting to an equitable remedy.
A strong public policy encourages parties to settle workers' compensation claims
in order to resolve them promptly, with minimal litigation expenses.4 Older Kentucky
cases hold that insurance settlement negotiations do not toll the limitations period or
estop a carrier from asserting a limitations defense unless the carrier makes a false
promise to settle the claim or engages in other misleading behavior that reasonably
induces a tardy filing- 5 They also hold that voluntary medical payments do not toll the
3 Gray v. Jackson Purchase Production Credit Association , 691 S.W.2d 904 (Ky. App.
1985).
4 Whittaker v. Pollard , 25 S.W.3d 466 (Ky. 2000); Golden Oak Mining Co ., L.P. v.
Kentucky Coal Workers' Pneumoconiosis Fund, 19 S.W.3d 99 (Ky. 2000); Newberg v.
Weaver, 866 S.W.2d 435 (Ky. 1993).
5 Carroll County Memorial Hospital v. Yocum, 489 S.W.2d 246 (Ky. 1972) (estoppel
appropriate where claimant's attorney relied on representation that carrier would waive
limitations period for a reasonable time to conclude settlement negotiations) ; Miller v.
Thacker , 481 S .W.2d 19 (Ky. 1972) (estoppel appropriate where plaintiffs parents
relied reasonably on carrier's misinformation concerning limitations period) ; Cuppy v.
General Accident Fire & Life Assurance Corporation, Ltd. , 378 S.W.2d 629 (Ky. 1964)
(statements that adjuster wanted plaintiff to get well and that carrier would take care of
everything did not toll KRS 413.140's limitations period where more than a year
elapsed between the statements and the filing) ; Pospisil v. Miller, 343 S.W .2d 392,
6
limitations period . Courts in other jurisdictions have estopped carriers and their
principals from asserting a limitations defense when they induced a late filing by actions
or communications that led a worker to believe that a settlement would be reached or
by intentionally prolonging settlement negotiations .'
In 1996 the legislature enacted KRS 342 .267 to protect injured workers, most of
whom lack knowledge of the law and insurance technicalities. KRS 342.267 prohibits
insurance carriers, self-insurance groups, and self-insured employers from engaging in
unfair claims settlement practices in violation of Chapter 342 or KRS 304 .12-230, which
prohibits certain acts and omissions by insurance carriers. KRS 304.12-230(5)
specifies that an insurer's "fail[ure] to affirm or deny coverage of claims within a
reasonable time" is such a practice . KRS 342.267 permits a $1,000 to $5,000 fine to
be imposed for each violation and permits the Department's executive director to
revoke a carrier's certificate of authority to sell insurance in Kentucky for a pattern of
394 (Ky. 1961) (plaintiff presumed to know KRS 413 .140's limitations period and had
no right to rely on representations by her adversary, the defendant's adjuster); Pies
Chevrolet Company v. Bryan, 274 S.W.2d 663 (Ky. 1955) (adjuster's discussion of
approximate entitlement to compensation and payment of medical bills was in nature
of settlement negotiation and did not warrant estoppel) ; Island Creek Coal Company v.
Lewis, 474 S .W .2d 361 (Ky. 1971) (adjuster's refusal to settle before he knew if the
"Osborne law" would change insufficient to warrant estoppel) .
6
7
Parrish v. Briel Industries, Inc., 445 S.W .2d 119 (Ky. 1969) (reimbursement of medical
expenses does not toll the statute of limitations); Kentucky West Virginia Gas Co . v.
Spurlock , 415 S.W.2d 849 (Ky. 1967) (payments of medical bills are not "voluntary
payments' within the meaning of KRS 342 .270(1)) ; Miles v. General Electric Co., 280
S.W .2d 529 (Ky. 1955) ("payments" means payments of compensation, not medical
bills). Compare Purdy v. Palmore , 789 S.W .2d 12 (Ky. 1990) (voluntary medical
payments toll limitations period for claims controlled by 1972 Act); Hetteberg v. City of
Newport, 616 S .W .2d 35 (Ky. 1981) (voluntary medical payments toll limitations
period).
Robinson v. Pan American World Airways, Inc. , 650 F.Supp. 125 (S .D.N.Y. 1986);
Cassidy v. Luburich , 364 N.E.2d 315 (III. App. 1977) . See McAdam v. Grzelczyk , 911
A.2d 255 (R. l . 2006), and Allan E. Korpela, "Settlement Negotiations as Estopping
Reliance on Statute of Limitations," 39 ALR 3rd 127 (1971).
7
violations . Proceedings under KRS 342 .267 are separate from the affected worker's
claim because the real party in interest under the statute is the Commonwealth .
803 KAR 25:240 imposes various duties on workers' compensation insurance
carriers and, their agents. Section 4 of the regulation requires carriers to "diligently
investigate a claim for facts warranting the extension or denial of benefits ." Section 6
requires carriers to "attempt in good faith to promptly pay a claim in which liability is
clear ." It also prohibits them from compelling a worker to institute formal proceedings to
recover benefits in such a claim, from requiring a worker to obtain information that is
accessible to the carrier, from offering a settlement for substantially less than the
reasonable value of a claim, or from threatening to appeal in order to compel such a
settlement. Section 5, entitled "Standards for Prompt and Timely Actions," provides as
follows:
(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 .
KRS 342 .267 and 803 KAR 25:240 evince a clear legislative intent to promote
the fair and equitable settlement of workers' compensation claims without resort to
litigation .$ They assure that a worker will receive prompt and decisive information
8 See 803 KAR 25:240, § 6 .
regarding the status of a claim from the time that the employer receives notice until the
claim is finally resolved . The regulation protects injured workers from forfeiting viable
claims by helping to prevent carriers from engaging in conduct that "runs out the clock."
It clearly acknowledges that settlements may occur at any time until a claim is finally
resolved and does not limit itself to the carrier's initial acceptance or denial.9 In other
words, it uses the term "claim" as a collective noun that applies to the claims for
permanent income and medical benefits as well as to the claims for TTD and medical
treatment at the time of injury.
Chapter 342 provides no remedy to a worker who receives the WC-3 letter but
fails to file a timely application for permanent income and medical benefits due to a
carrier's subsequent misconduct .'° KRS 342.267 and 803 KAR 25 :240 broaden the
circumstances that warrant an estoppel by providing new grounds for deeming a
carrier's silence to be misleading .
The claimant had the burden to prove his assertion that the adjuster violated
KRS 342.267 or 803 KAR 25 :240 and that the misconduct reasonably induced the tardy
filing. The AU failed to address the arguments, and nothing indicates that the
executive director was asked to investigate . As a consequence, the record contains no
pertinent findings of fact. - Although KRS 342.285 designates the AU as the finder of
fact in workers' compensation proceedings, the circumstances do not require a remand
for consideration under 803 KAR 25:240 because overwhelming evidence compelled
_Id .
to Traveler's Indemnity Company v. Reker, 100 S.W.3d 756 (Ky. 2003) (KRS 342.267
does not authorize a civil action for damages for a carrier's alleged bad faith in
refusing to pay benefits and, therefore, limits a worker to the exclusive remedy
provided in Chapter 342).
9
findings that the carrier violated the regulation and that the conduct reasonably induced
the tardy filing .'
After notifying the Office of Workers' Claims that TTD benefits were terminated,
which prompted the WC-3 letter, the adjuster obtained a permanent impairment rating
from Dr. Wheeler and informed the claimant in a letter that she thought the rating was
too high. He received the letter, after which the parties discussed various issues
relating to permanent disability benefits . The adjuster failed to advise him after the
conversation whether she would accept or deny his claim for permanent income and
medical benefits ; failed to inform him that she needed additional information in order to
decide whether to accept the claim; and failed to provide specific reasons in writing for
denying permanent income and medical benefits if that was her position, all of which
violated 803 KAR 25:240, § 5. 12 Although she did not make a settlement offer, the
discussion led the claimant to think reasonably that she required no further information,
that she would make a settlement offer, and that he would not need to file a claim.
Thus, he took no action until she informed him that the limitations period had expired .
At that point, he promptly obtained counsel and filed a claim.
Equity will not permit a carrier or its principal to blatantly disregard the obligations
created by 803 KAR 25 :240 and benefit from the misconduct. 13 The employer's carrier
failed to comply with 803 KAR 25 :240. Thus, equity required the employer to be
estopped from asserting a limitations defense .
11 Special Fund v. Francis , 708 S.W .2d 641, 643 (Ky. 1986).
12 One could find reasonably that she also violated the regulation by failing to
investigate the claim diligently and follow up on the unanswered May 2005 letter to
Dr. Wheeler.
13 See Citv of Frankfort v. Rogers, supra .
10
The decision of the Court of Appeals is affirmed and the claim is remanded for
the ALJ to consider the merits .
Minton, C.J. ; Cunningham, Noble, Schroder, Scott and Venters, JJ ., concur .
Abramson, J., not sitting .
COUNSEL FOR APPELLANT,
HITACHI AUTOMOTIVE PRODUCTS USA, INC.:
TIMOTHY J . WALKER
FERRERI & FOGLE
300 EAST MAIN STREET
SUITE 400
LEXINGTON, KY 40507
COUNSEL FOR APPELLEE,
CHESTER R. CRAIG, JR.:
THOMAS G . POLITES
WILSON, POLITES & MCQUEEN
444 EAST MAIN STREET
SUITE 201
LEXINGTON, KY 40507
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