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Workers’ Compensation FLASHPOINTS March 2020

March 13, 2020Print This Post Print This Post

Joseph P. Basile | E-mail Joseph Basile

Two cases are summarized this month. Both concern statutory interpretation of provisions in the Workers’ Compensation Act, 820 ILCS 305/1, et seq. In the first case, the appellate court interpreted §§19(l) and 16, which concern awards for penalties and attorneys’ fees. In the second case, the Illinois Supreme Court interpreted §21 and certain amendments made to the Act in 2005 to answer a certified question requested by the Seventh Circuit Court of Appeals.

Commission Has No Statutory Authority To Award Penalties and Attorneys’ Fees Pursuant to §§19(l) and 16 Based on Respondent’s Refusal or Delay To Authorize Reasonable and Necessary Medical Services

A majority of the Workers’ Compensation Division of the Illinois Appellate Court agreed with the Commission, which vacated an arbitrator’s award of penalties and attorneys’ fees in O’Neil v. Illinois Workers’ Compensation Commission, 2020 IL App (2d) 190427WC. The claimant was a marine technician who injured his right knee on February 11, 2016. His medical treatment began at a Department of Veterans Affairs (VA) facility. The initial diagnosis was prepatellar bursitis. After months of symptoms and treatment, he came under the care of Dr. Chams, an orthopaedic surgeon. Dr. Chams’s treatment consisted of knee aspirations, injections, and MRIs. Dr. Chams ultimately recommended arthroscopic surgery and open removal of the prepatellar bursa. The respondent authorized the surgery on October 10, 2016, and it was scheduled for December 17, 2016. On December 8, 2016, the respondent notified Dr. Chams that authorization for the surgery was revoked because further investigation was required.

The claimant testified the authorization was withdrawn because of a note in the VA records, which referred to a prior procedure to his right knee in 2001. He testified that he did not have surgery to his right knee at any time before his work injury. He described having a surgery to the shin area of his right leg. The arbitrator observed a faint scar about three inches below the right knee. VA records reflected that in 2002 the claimant had two lipomas removed from the right lower leg that left a scar.

The arbitrator concluded the right knee condition was causally related to the work accident and ordered the respondent to authorize the surgery with Dr. Chams. The arbitrator found the respondent’s refusal to authorize the surgery was based on speculation and ambiguity and was unreasonable and vexatious. The arbitrator awarded additional compensation pursuant to §19(l) and attorneys’ fees pursuant to §16.

In a two-one decision, the Commission modified the decision by vacating the awards for penalties and attorneys’ fees. The Commission relied on the decision in Hollywood Casino-Aurora, Inc. v. Illinois Workers’ Compensation Commission, 2012 IL App (2d) 110426WC, 967 N.E.2d 848, 359 Ill.Dec. 818, in which the court held that §19(k) does not allow the Commission to award penalties for the failure to authorize medical treatment. The majority found the same holding applied to the assessment of penalties and attorneys’ fees pursuant to §§19(l) and 16.

The claimant appealed the circuit court judgment, arguing that the decision in Hollywood Casino dealt only with the imposition of penalties under §19(k) and that the decision does not apply to medical treatment prescribed on or after September 1, 2011, due to amendments to the Workers’ Compensation Act. In resolving the case, the court’s opinion discusses the holding in Hollywood Casino. While the text of §19(k) mentions “delay in payment” and “underpayment” of compensation, the plain language of the statute “says nothing about any award of additional compensation (penalties) for an employer’s delay in authorizing medical treatment, even assuming arguendo that an employer has an obligation to give authorization in advance of medical treatment for an injured employee.” 2020 IL App (2d) 190427WC at ¶21, quoting Hollywood Casino, supra, 2012 IL App (2d) 110426WC at ¶15. The decision pointed out that the term “payment” does not include the giving of authorization for a service. The decision went further, explaining that even if §8(a) is sufficiently broad so as to include a requirement that an employer authorize medical treatment, “the fact still remains that there is no provision in the Act authorizing the Commission to assess penalties against an employer that delays in giving authorization.” Id.

The court reviewed §19(l) observing that the language addresses a failure, neglect, refusal, or unreasonable delay in the payment of benefits. It does not contain language authorizing an arbitrator or the Commission to assess penalties for an employer’s failure, neglect, refusal, or unreasonable delay in authorizing medical treatment. The court held that nothing contained in §8(a), which requires that employers provide and pay for reasonable and necessary medical treatment, or any other section of the Act, allows the Commission to assess penalties against an employer for a failure or delay in authorizing medical treatment citing Hollywood Casino. The court disagreed with the employee’s argument that the language in §8.7(j) allowed for the assessment of penalties. The language in §8.7(j) concerns an employer’s denial or refusal to authorize payment, not medical treatment. Further, §8.7(j) applies only in assessing penalties under §19(k). In this case, the penalties were awarded under §19(l).

The court held the Commission did not err in vacating the award of penalties and attorneys’ fees and commented that it would be for the legislature to provide a penalty for an employer’s unreasonable failure or delay in authorizing reasonable and necessary medical services.

Justice Holdridge dissented based on his dissent in Hollywood Casino and stated he would find that §19(l) provides a penalty for an employer’s failure or unreasonable delay in authorizing necessary medical treatment.

Proceeds of Workers’ Compensation Settlement Are Exempt from Claims of Medical Care Providers Who Treated Illness or Injury Associated with That Settlement Pursuant to §21

The Illinois Supreme Court accepted the Seventh Circuit Court of Appeals’ certification for instruction in In re Hernandez, 2020 IL 124661. The question certified for instruction was: “After the 2005 amendments to section 8 of the Workers’ Compensation Act (Act) (820 ILCS 305/8 (West 2016)) and the enactment of section 8.2 of the Act (id. §8.2), does section 21 of the Act (id. §21) exempt the proceeds of a workers’ compensation settlement from the claims of medical-care providers who treated the illness or injury associated with that settlement?” 2020 IL 124661 at ¶1.

Elena Hernandez sustained work-related injuries between 2009 and 2011. She had medical treatment from Ambulatory Surgical Care Facility, Marque Medicos Fullerton LLC, and Medicos Pain and Surgical Specialists, S.C. She filed a Chapter 7 bankruptcy petition in December 2016 in which she reported unsecured claims held by the three providers. The total of the medical bills was $137,772.06. She listed minimal assets and her workers’ compensation claim, which was valued at $31,000. She settled the workers’ compensation claim for a lump sum of $30,566.33 two days after filing the bankruptcy petition. She did not consult the bankruptcy trustee about the settlement because she believed it was exempt under §21 of the Act.

The healthcare providers objected to the exemption, arguing that amendments to the Act in 2005 allowed them to reach the settlement. They also argued the settlement was the product of fraud. The bankruptcy court denied the exemption. The judge focused on process-based concerns regarding the settlement including her failure to notify interested parties or the trustee rather than the statutory arguments raised by the parties.

The district court affirmed. It held that under §21 workers’ compensation claims are exempt from a debtor’s bankruptcy estate against general creditors. It further held that the 2005 amendments significantly altered the Act as it pertains to healthcare providers, striking a balance by limiting what providers can charge while allowing them to resume collection efforts following a settlement. The district court found the amendments permit healthcare providers to collect payment for their services from an injured employee once the employee’s disputed claim has been resolved.

Before the Seventh Circuit, the parties agreed that, historically, §21 created an exemption for workers’ compensation claims and awards under Illinois law and that such claims and awards were beyond the reach of creditors in bankruptcy proceedings. The dispute remained as to whether the exemption remained in effect after the 2005 amendments with respect to collection efforts by a debtor’s healthcare providers. The Seventh Circuit noted that Illinois’ courts had not addressed this question and examined the language of the provisions. The court found there was support for both sides of the issue and could find no clear path forward. Therefore, because of the vital public concern, it asked the Illinois Supreme Court to answer the certified question.

In general, federal law has provisions specifying what property may be claimed as exempt in bankruptcy proceedings. Individual states may opt out of the federal exemption scheme and establish their own. Illinois opted out, and its residents are restricted to exemptions granted by Illinois law. Under Illinois law, exempt property is any property the legislature has identified and declared to be free from liability to processes such as seizure and sale, or attachment, to satisfy debts. To determine whether property is exempt, the critical inquiry is simply whether the provision unequivocally protects the identified property against all forms of collection.

The court determined that §21 of the Act meets that test. The court found no ambiguity in the terms of §21. Under its express terms, any payment, award, or decision under the Act is unequivocally free from liability to processes such as seizure and sale, or attachment to satisfy debts. Illinois residents are entitled to invoke it in federal bankruptcy proceedings.

The court then addressed whether the 2005 amendments altered the exemption with respect to debts owed to healthcare providers. As part of its interpretation of the statute, the court pointed out that the legislature included an exception in §21 itself. The “beneficiary or beneficiaries of a deceased employee who was a member or annuitant under Article 14 of the ‘Illinois Pension Code’ may assign any benefits payable under this Act to the State Employees’ Retirement System.” 2020 IL 124661 at ¶6, quoting 820 ILCS 305/21. The legislature also created an exception to §21’s exemption under §15(d) of the Income Withholding for Support Act, 750 ILCS 28/1, et seq. The provision pertains to child support and states in part that “ ‘[i]ncome’ means any form of periodic payment to an individual, regardless of source, including . . . workers’ compensation” and that “[a]ny other [s]tate or local laws which limit or exempt income or the amount or percent of income that can be withheld shall not apply.” 2020 IL 124661 at ¶19, quoting 750 ILCS 28/15(d).

These provisions demonstrate that when the legislature intended to create an exception to the exemption in §21, it knew how to express that intention in language so clear and explicit that it could not be misunderstood. No similarly explicit exception for claims by healthcare providers appears in the Workers’ Compensation Act or in any other Illinois statute. The absence of such language is strong evidence that the legislature did not intend to permit healthcare providers the exception to §21’s exemption claimed in this case.

The court further rejected the healthcare providers’ argument that an exception for their claims is implicit in the 2005 statutory changes by pointing out that the repeal or amendment of statutes by implication is not favored. If the legislature intended to alter the clear and unambiguous provisions of §21, conferring on healthcare providers an exception to the exemption, it would have had to indicate a clear intent to do so.

The court also addressed §8.2(e-20), which permits healthcare providers to seek payment directly from an injured employee for outstanding bills and interest after entry of a final award or judgment or after a settlement agreement is reached. Nothing in that section permits healthcare providers to look to the workers’ compensation award, judgment, or settlement itself as a source of payment. Pursuant to §21, those sources remain beyond the providers’ reach. The collection attempts must be directed on assets unrelated to the workers’ compensation claim.

In conclusion, the court stating that construing §21 according to its plain and unambiguous language may make it more difficult for medical providers’ to obtain full recovery for the amounts they are owed but the weighing of such considerations is the responsibility of the legislature, not the courts. The court also refused the healthcare providers request to find they have a private right of action to pursue claims for direct payment for their services if necessary from an employer’s workers’ compensation insurer and overrule various appellate court decisions to the contrary. The court stated that matter had no place in this proceeding. That question was irrelevant to the resolution of the bankruptcy proceeding and was not a topic the Seventh Circuit requested from the court.

For more information on workers’ compensation, see WORKERS’ COMPENSATION PRACTICE (ILLINOIS) — 2019 EDITION. Online Library subscribers can view it for free by clicking here. If you don’t currently subscribe to the Online Library, visit www.iicle.com/subscriptions.

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