Penalty Petitions Attorneys Can File in a Workers’ Comp Case

• Jan 25, 2023
• Blog
• Michael Burgis & Associates, P.C

In this video, workers compensation attorney Michael Burgis discusses how attorneys can utilize penalties to help fight and get justice for your client. Because penalties are very important, for your client in the short term and for your practice in the long term.

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Transcript:

This video is really focusing on speaking to an attorney and really educating at an attorney level, really, how you can utilize penalties to help fight and get justice for your client.

Before I go into my secret sauce on how I do what I do to get results for my clients, let me just talk conceptually about penalties. Because penalties are very important for your practice; both for your client in the short term and for your practice in the long term.

Insurance companies keep stats on who goes to trial, they keep stats on who does penalty petition, and if you ultimately adjudicate and are awarded penalties, they have to code that payment as a penalty, and believe me, that gets some significant oversight.

In the short run, doing penalty petitions will help get you more for your client, and in the long run it’ll help get you more for all of your clients.

File a Penalty Petition

When you’re doing a penalty petition, first you have to do a petition. You cannot be awarded penalties without a penalty petition, signed with a verification, and that ultimately is to afford the defendant their due process. Again, raising penalties doesn’t matter. You have to file a penalty petition.

Another big red flag is that if you go to trial on the case in chief, or you go to trial in any issue, you must raise penalties and defer penalties, because if you don’t, there’s a labor code that says all penalties, if not raised and deferred, are eradicated.

So, very important, raise penalties, defer penalties at any trial setting, and file a penalty petition. Now, if you’re filing penalties, either the adjuster messed up or the defense attorney messed up. What’s going to happen is, if you want to get a very reasonable and adequate CNR and they’re not willing to do so, penalty petitions are how I get this done.

Quite frankly, there’s a case that I litigated for a decade, where I won 100% disability, went to trial multiple times on home care, even got a home care award. The defendant refused to buy this out and it took 10 years until I finally did a very monster penalty petition, and lo and behold, firm got subbed out, new firm came in and paid me additional $2 million just to buy out the home care and remaining exposure.

Penalty petitions are how you can get it done. Now, let’s get into the meat and potatoes here, and remember, I’m going to be going into a bit more detail because this video is mainly for an attorney, and I’m gonna literally explain how I do what I do, and my secrets. Because, at the end of the day, if it helps you get justice for your client, that’s good enough for me.

Overview of Labor Codes

First off, penalties. Labor code 4650(d), 5814, and 5813, that’s really your world.

A lot of attorneys will call me up and say, “Oh this insurance company is acting in bad faith, I want to sue them for bad faith.” An injured worker, the case that you’re probably representing here, does not have standing to sue the carrier for bad faith. You can’t get into civil. There was a case called Kurt King; that was the first case that discussed third-party beneficiary standing. That was overturned. So, ultimately, there’s only one person, at least how I see it, there’s only one person who has standing to sue that carrier for bad faith: the policy holder, their employer. But again, you can’t speak to them because they’re represented by counsel and very often they’re not going to care anyways. They just care about lowering their premiums.

So, your penalty world, unless you’re the policy holder, is 4650(d), labor code 5814, and labor code 5813. And specifically in labor code 5814, there’s labor code 5814.5, which I’ll get into, labor code 5814.6, and I’m going to get into the weeds right now and go over some of the case law.

Labor Code 5814(a): Penalties for Unreasonable Delay

First and foremost, labor code 5814. This is penalties for unreasonable delay. And it says you get a 25% penalty up to $10,000 max. If you look at this, this is kind of a slap on the wrist of the insurance carrier.

If they unreasonably delayed benefits, the maximum they’re gonna have to pay is $10,000. It is what it is, that’s the law, but I’m going to tell you how you can make this work in your favor.

Labor code 5814(a), when payment of compensation has been unreasonably delayed or refused, either prior to or subsequent to the issuance of an award, the amount of the payment unreasonably delayed or refused shall be increased up to 25%, or $10,000, whichever is less. First, the word “shall.” This means it’s mandatory, not discretionary.

Ultimately, the first case I cite when I’m citing labor code 5814 is a case called Kerley. Once the applicant has shown that there’s a delay, the Kerley case says the burden then shifts to the defendant to then show that that delay was “reasonable.” This is important. Always cite that case.

Make sure that the WCJ, who often may not know this, that that burden shifts to the defense to disprove. Big, big deal here.

Multiple Penalties for Separate and Distinct Acts of Delay

The next big tool here is under 5814. There is a plethora of case law talking about how when there are separate and distinct acts of delay, that you can get multiple $10,000 penalties. The trick that I use is, let’s say that they unreasonably [delayed] temporary disability [payment]. Excepted case, treating in the medical provider network, a doctor’s finding temporary disabled. No objection to that reporting and they’re just not paying it, right. So right off the bat, that’s a penalty situation.

But then I send them a letter, and I say, “Hey guys, penalties. What are you doing? You need to pay this temporary disability.” They ignore that. Then I send another letter, or I make a phone call. They ignore that. Then I file what’s called a ‘declaration of ready to proceed’ and I file for an expedited hearing.

So, there’s a pleading and a letter that goes out to them, that says, “Hey, they’re not paying temporary disability and I want court jurisdiction, Finally, I drag them all the way down there and we’re at trial and they say, “Okay, we’ll pick up and pay the Retro TD. Theoretically, there’s penalties here. And the defense will say, “Okay, I’m only liable to, you know, one penalty up to $10,000. No. The first time there was a medical report indicating, and you didn’t pay penalties. Then I sent you a letter. That’s a separate and distinct act, where I brought it to your attention. It’s a separate and distinct act of further delay. Then I sent another letter, or a phone call, or that declaration of ready to proceed. Those are all separate and distinct acts where I brought this to the attention of the carrier, and it was very clear that they needed to pay, and their failure to pay is a separate and distinct act.

In my opinion, a willful disregard for the statutory and legal obligations. That verbiage was used for a reason, which I’ll go into on 5813.

Break all that down: again, raise and defer penalties, and that is very very important to break into separate and distinct acts of further delay. That’s labor code 5814.

Labor Code 4600 and Rule and Reg. 10109

Before I get into some of the other provisions, let me say that a fundamental building block of my penalty petitions are labor code 4600, and ready for this, rule and reg. 10109. Rule and reg. 10109 is the biggest shield and sword I think that an applicant attorney has. But basically, what rule and reg. 10109 says is that the insurance company is legally obligated to make a good faith investigation. And they can’t limit their investigation or discovery to solely getting information to dispute liability.

When they’ve been put on notice that they should investigate to see if benefits are are due, and they fail to do this, or specifically exclude a good faith, and only get information to dispute liability—like go get surveillance of your client—that is a big piece of this puzzle.

Labor Code 5814.5: Attorney Fee Provision

In labor code 5814, there is labor code 5814.5, and that is where you can get an attorney fee provision. And let me be super blunt. These penalty petitions, the way you’re going to make real money—or the way that there’s going to be very significant costs to the defendant, if you want to think of it that way—the way you can really increase the value of this is through attorney fees. Because my usual customary billing rate is around $600 an hour. The WCAB is typically awarding me $500, or more than that, as a legal certified specialist.

But whatever your usual and customary rate is, take that hourly rate, times it by the amount of hours that you’ve had to litigate an issue—including sending correspondence, communicating, filing declaration of readiness to proceed, going to court, drafting a penalty petition—all of those attorney hours, you can potentially get paid for, and that is a huge, huge aspect of the overall exposure on the penalty petitions. That’s really where they can get stung, the insurance company can get really stung if they get hit with 40 hours at $500 dollars an hour.

And remember, at the end of the day, as an officer of the court, if you’re doing an affidavit and signing under the penalty of perjury that these are the amount of hours that you put in—unless you’re not credible, or having issues with the State Bar—the judge should award that because you’re an officer of the court.

Labor code 5814.5 is not discretionary, it’s mandatory. Again, the verbiage says, “shall.” If there’s an order or an award, and the defendant is not complying with the order or award, and you need to spend time to litigate to enforce the award, any attorney fees in furtherance of enforcing an order and award, you are entitled to attorney fees under 5814.5.

Classic example: you walk through a compromise and release, they don’t pay within 30 days, you have to make some phone calls, file a hearing, file a penalty petition… every minute of time you are working on that file, you are entitled to your attorney fees. And it would be foolish if you’re an attorney and you had an opportunity to get awarded penalties under 5814.5, because it’s mandatory, and you didn’t do it. That’s free money. You need to file that penalty petition and get those attorney fees and that will drive up the exposure to the insurance company

Labor Code 5814.6

There’s also something called 5814.6. I’m not going to go too much in-depth in that regard, but if you can show a systematic policy and practice of an insurance company failing to do the right thing, or doing the wrong thing, and you’ve already adjudicated and hit them with penalties before, and they’re still doing it… you potentially can do a petition under 5814.6 and I think it’s a $400,000 penalty.

Doesn’t go to you or your client, it goes to, basically, I think the state, but it also opens up audit penalties. And remember, anytime you’re doing penalties and you’re availing yourself of the court’s jurisdiction on penalties, both the court, and even ourselves, can alert the audit unit. And when you’re subjecting a carrier to being audited by the state, they could lose their right to practice insurance and lose their credentials.

It’s a very heavy sword to swing and usually what happens is when you’re swinging that sword, they’re gonna throw money at you to try to bury those penalties.

Labor Code 5813: Bad Faith

Before I get into some of the really good case law… 5813. This is penalties for “bad faith.” This is not mandatory, it’s discretionary.

The code says “may,” not “shall.” And it’s very difficult to get a court to award bad faith penalties. It’s just very difficult. It’s also sometimes not a good look, arguing for bad faith penalties and sanctions against somebody. And under 5813, the court can sanction the defense attorney and if they’re sanctioned more than a thousand dollars, they got to report that to the State Bar. So, it’s kind of a low blow when you’re coming for the jugular of opposing council at 5813. That being said, there’s a time and place to do it. And I will do it if it warrants it. And I suggest you do the same

The big crux here on 5813 is there’s a rule and reg. that most people don’t know about that I want to go over with you. And that is rule and reg. 10561, which literally says, “willful failure to comply with the statutory, regulatory obligation is bad faith.” So, again, my penalty petition, I always file IRAC: issue, rule, analysis, conclusion. So, in my bad faith, I will cite labor code 5813. I will then cite this reg., and then I will cite how what we did put them on notice, and under rule and reg 10109, or 4600, they were supposed to conduct a good faith investigation, provide benefits. It is without dispute that those benefits should have been provided and they failed to do it despite multiple letters, hearings. The more you can show requesting it and asking for it and it being ignored, that sounds like willful failure to comply with the statutory legal obligations to me. And that is really the basis of how I ask for additional attorney fees under 5813 when I don’t have an order or award to get it under 5814.5. But really guys, that’s the crux.

Labor Code 4650(d): Self-Imposed Penalty

There’s also labor code 4650(d), let me touch bases on that. That’s the 10% self-imposed penalty. I would say ignore that outright. If you are catching a penalty and bring it to the attention of the defense attorney, then they don’t issue a 4650(d) penalty of 10%.

The 4650(d) penalty at 10% is when it’s self-imposed. When they caught it before you did and they do a self-imposed penalty. If it is not a self-imposed penalty, meaning you’ve caught it and you’re arguing it. You should be getting penalties under 5814 or 5813.

Article 14, Section 4 of the California Constitution

Let’s go over some really good case law. One, article 14 section 4 of the AMA guides… or strike that, of the California constitution. This is the hierarchy of the number one piece of legislation we have and it says, “timely provisions of reasonable medical treatment is an essential element of workers compensation and the WCAB is mandated by the California constitution to enforce a complete system of workers compensation. That includes full provisions for such medical, surgical, hospital, and other remedial treatment as required to cure and leave the effects of the injury.” That is the California constitution, article 14 section 4.

That is the hierarchy. The most controlling statute we have. I always cite that. Next, we have the labor code. Next, we have rules and reg, and then case law.

Section 4600

Section 4600, “the duty imposed upon an employer who has notice of an injury to an employee is not the passive one of reimbursement, but the active one of offering aid in advance and making whatever investigation is necessary to determine the extent of the obligation and the needs of the employee.” That’s labor code 4600. Again, I’ve gone over rule and reg. 10109. I cite that.

Case Law

We have a very good case called Ramirez v WCAB. It’s a 1970 case. That’s a really good case that goes over penalties. But more recent case law, there’s a case called Albert Lobo that was dealing with home health care and I want to just quote one line from the Albert Lobo versus County of SanBernardino case.

And it says, “even though the issue of penalties and sanctions is not before us, we remind defendant of its obligation to provide the benefits.” They continue stating, “We admonish defendant that unreasonable delays and refusals to provide appropriate and reasonable necessary treatment may result in penalties.  We further admonish defendant that a bad faith or frivolous delay in providing medical treatment or failure to provide medical treatment may result in sanctions for each bad faith or frivolous act or failure to act.” This was the court saying, you can get multiple penalties here.

Then there’s another case called Margarito Gonzalez versus Consolidated Disposal Services that says, “unfortunately we are constrained by the limits of section 5814(a) and we find that defendant is liable for the maximum $10,000 penalty for unreasonable delays and refusal to provide appropriate and reasonable necessary medical treatment. We admonish defendant that a bad faith or frivolous delay in providing or failure to provide medical treatment may result in sanctions for each bad faith or frivolous act or failure to act.”

Again, the Lobo case and the Margarito Gonzalez case were dealing with cases where the defendant willfully failed to provide home care when it was pretty abundantly clear it was necessary. But both of these cases are the ones that are saying each and every act. This is separating the 5814 in multiple separate and distinct acts.

Again, the Kerley case is a case that you guys need to know.  That’s K-e-r-l-e-y for Cal. 3D233230 and it’s a S.C.I.F. versus WCAB, also citing to this, but this is the one that says as soon as you so a show a delay, then, this is from the case directly, “the only satisfactory excuse for delay in payments of disability benefits is genuine doubt from a medical or legal standpoint as to liability for the benefit.” So, basically, the Kerley case says you shift the burden to the defense and then the defendant has to show that they had a reasonable basis for that delay. That’s a great case. I cite that in almost every one of my penalty cases.

Rule and Reg. 10561: Penalties for Bad Faith

Let me go over rule and reg. 10561. Again, this is the citation, the rule that I use really to link bad faith. But I want to read it to you because it’s very hard to get a judge to award bad faith penalties. It absolutely is. But when you show that there’s a reg. and a law and you show that that fact fits that reg. and that law, then it’s like, ‘Judge, it is what it is. It’s the law, you have to award it’. And it makes it easy for the judge to award bad faith because it’s literally verbatim said in the law.

Rule and reg. 10561 says B5A, it’s talking about when there are basically bad faith penalties and it says, one, when something contains false or substantially false statements of fact.” So again, If defendant is doing a trial brief, or a response to a brief, or a petition, and they are stating false or substantially false statements, you got them for bad faith penalties here and you should get attorney fees

Two, contains statement of fact that are substantially misleading. Again, very similar to one. Three, contains substantially misrepresentations of fact. Very similar to one and two, slightly different. Four, contains statement of fact that are made without any reasonable basis or with reckless indifference as to their truth or falsity. Five, contains statement of fact that are literally true but are intentionally presented in a manner reasonably calculated to deceive. Six, if they conceal or substantially conceal material facts. B, bringing a claim, conducting a defense or asserting a position that is indisputably without merit or done solely or primarily for the purposes of harassing or maliciously injuring any person, or done solely or primarily for the purposes of causing unnecessary delay or needless increase in the cost of litigation 

That is rule and reg. 10561. This, if you can put the defendant’s conduct under this heading, you should get attorney fees under bad faith.

Go Through with Penalties

The last thing I will say is, from an attorney perspective, I can’t tell you how many times I’m down at court or I’m on a court call and I see attorneys, “I’m going to file penalties. I’m gonna do this, blah blah blah blah.” I hear it all the time, but it is rarely done. If you are ever going to tell a defense counsel you’re going to do something and you don’t do it, you are doing a disservice to your client and to your long-term success of your practice and firm.

If you say you’re going to do something, do it. And I don’t like to threaten it. I like to just do it. I’m not going to threaten to do it, I’m just going to do it. And anytime you sit you tell a defense attorney you’re going to do it, do it. File that penalty petition.

And most defense counsels, you can threaten all day, “I’m going to amend the claim. I’m going to get these consults. I’m gonna file this penalty petition.” They hear it every day and it is very often not done. So they don’t hold any merit or concern on it. So, don’t talk about it, be about it. File it, then talk about it. That’s my position.

I also kill everybody with kindness. I’m polite, I’m respectful. But when your client is being screwed by the insurance company, their adjuster, their defense attorney, these are tools that you need to use for your client. So I’ll still be civil and polite with opposing counsel. And inevitably you’re going to get a phone call saying, ‘I can’t believe you’re filing penalties against me’, and at the end of the day it’s like, ‘look, I’m sorry, I have a client to represent’.

And I think that everybody should take that path and I will tell you that 99% of the penalty petitions I file, they throw money at me, they bury it, and my client ends up with a big grin on their face, because sometimes they’ve even overpaid on that case to bury the penalty petition.

We’re Here to Help

I hope this video has been helpful. If you’re an attorney and you have additional questions, even if I’m not representing that client, I’m here to help. If you have any questions, we have the answers, and we’re here to help.