Self-Imposed Penalties (SIP): A Sixty-Second Seminar in Workers’ Compensation Claims Handling

Today’s blog discusses an error occurring with frequent regularity regarding administration of self-imposed penalties (SIP). Let’s begin by reviewing the SIP statute. Subsections (c) and (d) of LC §4650 state as follows:

(c): “Payment of temporary or permanent disability indemnity subsequent to the first payment shall be made as due every two weeks on the day designated with the first payment.”

(d): “If any indemnity payment is not made timely as required by this section … the amount of the late payment shall be increased 10 percent and shall be paid, without application, to the employee…”

When reading these two subsections together the law requires that 10% be automatically added to the amount of compensation delayed. We believe most claims administrators understand this concept. With that said, allow us to ask a simple question that often stymies claims professionals. We ask, “What is the SIP for a late payment of a lump sum C&R?” Is it:

1. 10% of the gross settlement,
2. 10% of the applicant’s net settlement, after subtraction of AA fees,
3. 10% of only the amount delayed, including AA fees,
4. None of the above.

It’s surprising how often this question is answered incorrectly. Various claims offices interpret the law differently and without uniformity. Options (a), (b) and (c) are all currently being used by different administrators when calculating the SIP penalty. So which answer is correct? Believe it or not, the correct answer is, “d. None of the above.”

SIP laws were enacted to provide an incentive for claims administrators to issue timely “periodic” indemnity payments, which are defined as temporary or permanent disability payments issued every two weeks. The law, therefore, does not apply to lump sum awards because a lump sum is not a periodic payment, but instead, is a one-time event. When a C&R is paid late the applicant’s remedy is limited to filing a LC §5814 petition, seeking a penalty up to 25% of the amount delayed. Should a claims administrator mistakenly issue a 10% SIP payment on a C&R, the payment will not act as a safe haven against a subsequent penalty. The applicant is allowed to seek the remaining 15% balance by filing a §5814 petition. However, should the injured worker fail to file such a petition, then the administrator’s 10% SIP payment was issued for no good reason! Again, self-imposed penalties do not apply to lump sum C&R’s. Issuing such payment is nothing more than just throwing money away.