Frivolous Penalty Petitions: A Sixty-Second Seminar in Workers’ Compensation Claims Handling

It is an alarming reality that penalty petitions now seem to arise from most disagreements between an adjuster and applicant attorney as to a claims issue, even when the adjuster’s position is supported by the facts and a good-faith interpretation of the law. In our experience it appears that the applicant’s bar has seized on the threat of a penalty petition as a go-to tactic to extract unwarranted monies from the employer and administrator upon settlement. Of course, some penalty requests are legitimate but that’s not what we are talking about in today’s article. Instead, we will focus on penalty petitions that should never have been filed in the first place.

About twenty years ago, the workers’ compensation defense community became exceptionally frustrated with the sheer number of last-minute penalty petitions being filed against employers for alleged claims-handling errors occurring years earlier. These petitions were viewed as a form of harassment aimed at beefing up a settlement at the last minute. For example, at an MSC an applicant attorney would file a penalty petition asserting that TD was supposedly issued one day late six years earlier. The staggering number of similar last-minute petitions reached a point where it became necessary for our legislature to enact a statute of limitations to put an end to that tactic. Effective June 1, 2004, the penalty provisions under LC § 5814 were totally rewritten to create a statute of limitations along with other prohibitions to maintain an element of control over frivolous filings; however, even though the penalty scheme was revised over 18 years ago, many attorneys and claims professionals continue to not utilize that defense! As such, Applicant attorneys continue to file late petitions seeking penalties while employers continue to pay good money to settle them. We implore our colleagues to make use of the legal tools that protect them!

First, LC § 5814(g) allows an applicant only two (2) years to file for a penalty. If for example, a TD payment was due on 1/25/22 but never issued, applicant has until 1/25/24 to seek a penalty or forever hold their peace. In addition to creating a two-year statute of limitations, our legislature enacted another law that allows an employer to throw an exceptionally strong counter punch to knock out potential penalties even before they are filed. LC § 5814(c) mandates that upon approval of a C&R, Findings and Award, or Stipulations and Orders by the Appeals Board, it shall be “conclusively presumed” that any accrued claims for penalty have been resolved, regardless of whether a petition for penalty has been filed, unless the claim for penalty is expressly excluded by the terms of the order or award. Again, all penalties, whether filed or not, for all species of benefits, are resolved by operation of law upon the issuance of any WCAB stipulation, order, or award, unless expressly reserved by the parties. We can’t help but ask, “Why don’t all employers avail themselves of this protection?”

In conclusion, many applicant attorneys today continue to waste everyone’s time, and drive the cost of litigation up, by filing late penalty petitions beyond the statute of limitation or involving matters conclusively presumed resolved by operation of law. It’s time to turn the tables and go after these attorneys by seeking sanctions for costs and fees in defense of these frivolous filings.