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In re Compensation of Brooks

Court of Appeals of Oregon

October 30, 2019

In the Matter of the Compensation of Hobby L. Brooks, Claimant.
v.
TUBE SPECIALTIES - TSCO INTERNATIONAL and Travelers Insurance Company, Respondents. Hobby L. BROOKS, Petitioner,

          Argued and submitted December 12, 2017

          Workers' Compensation Board 1500886;

          Julene Quinn argued the cause and fled the briefs for petitioner.

          Benjamin C. Debney argued the cause and fled the brief for respondents.

          Before Aoyagi, Presiding Judge, and Egan, Chief Judge, and DeHoog, Judge. [*]

         [300 Or.App. 362] Case Summary: In this workers' compensation case, insurer initially denied claimant's claim for a right knee injury but, before hearing, rescinded the denial. The Workers' Compensation Board subsequently issued an order on penalties and attorney fees. The board denied claimant's request to impose a penalty against insurer under ORS 656.262(11), because it found that insurer had a legitimate doubt as to its liability when it denied the claim. The board also denied claimant's request for an attorney fee under ORS 656.386(1)(a), on the basis that claimant's attorney was not "instrumental" in obtaining rescission of the denial. On review, claimant challenges both aspects of the board's order. Held: The board erred in failing to address the reasonableness of insurer's pre-denial investigation, as relevant to whether insurer had a legitimate doubt as to its liability when it denied the claim, for purposes of deciding whether to impose a penalty under ORS 656.262(11). As for the attorney fee, upon consideration of the text, context, and legislative history of ORS 656.386(1)(a), the board did not err in denying a fee on this record. Accordingly, the court reversed and remanded on the penalty issue but not the attorney fee issue.

         [300 Or.App. 363] AOYAGI, P. J.

         In this workers' compensation case, insurer initially denied claimant's claim for a knee injury but, before hearing, rescinded the denial. The Workers' Compensation Board subsequently issued an order on penalties and attorney fees. The board denied claimant's request to impose a penalty against insurer under ORS 656.262(11). The board also determined that claimant's attorney was not "instrumental" in obtaining rescission of the denial and, on that basis, did not award an attorney fee under ORS 656.386 (1)(a). On review, claimant challenges both aspects of the board's order. We conclude that the board erred in failing to address the reasonableness of insurer's investigation as part of its penalty analysis, so we reverse and remand on that issue, but we conclude that the board did not err in its application of the attorney fee statute.

         FACTS

         We state the facts consistently with the board's unchallenged factual findings. SAIF v. Durant, 271 Or.App. 216, 218, 350 P.3d 489, rev den, 358 Or. 69 (2015).

         In December 2014, claimant hit his right foot against a table leg at work and twisted his right knee. He did not immediately report the incident to employer or seek medical treatment.

         In January 2015, about three weeks after the incident, claimant sought medical treatment. The doctor, Dales, diagnosed bilateral osteoarthritis. Dales recorded that claimant had a "several-week history of right knee pain, mostly at the medial aspect of the knee"; had "developed a clicking and pain to the medial aspect of the knee with bending or twisting of the knee"; was "starting to become limited with his activities of daily living"; and had had "no improvement with conservative treatment and time." Dales recorded nothing in his chart notes about the injury being work-related.

         Two weeks later, Dales saw claimant again. Based on MRI results, Dales diagnosed claimant with a right knee medial meniscal tear and recommended surgery. According [300 Or.App. 364] to the chart notes, the MRI "showed a large tear of the posterior horn of the medial meniscus" and also "some generalized degenerative changes about the knee." Again, Dales did not indicate in the chart whether the condition was work-related.

         In late January, about five weeks after the incident (and shortly after claimant saw Dales the second time), claimant and employer completed a Form 801, entitled "Report of Job Injury or Illness," in which claimant asserted a worker's compensation claim. On the form, claimant stated that the injury had occurred on December 23, 2014, at 1:00 p.m.; that he had worked from 8:00 a.m. to 2:30 p.m. that day; and that the affected body part was his right knee. In response to the question "What caused it? What were you doing?" claimant wrote, "Twisted knee by hitting inside of toe on table leg."

         Insurer denied the claim five days after receiving it, apparently based on the Form 801 and Dales's chart notes from claimant's two visits. As the reason for the denial, insurer stated, "There is insufficient evidence to establish that [claimant] sustained a compensable injury arising out of and in the course of employment."

         In mid-February, claimant requested a hearing to challenge the denial, and the hearing was set for May 18.

         In March, insurer scheduled an independent medical examination (IME) and requested "initial and ongoing" discovery from claimant.

         On April 2, claimant retained an attorney, who, on April 6, sent a letter to insurer, giving notice of his representation and requesting discovery.

         On April 10, the IME took place. After examining claimant, Dr. Fellar s opined that claimant had a work-related medial meniscus tear of the right knee, combined with preexisting osteoarthritis, and that claimant's work injury had ceased to be the major contributing cause of his ongoing disability or need for treatment. (That is, Fellars indicated that claimant's work injury had once been, but had ceased to be, the major contributing cause of his ongoing disability or need for treatment.) Insurer received Fellars's report on [300 Or.App. 365] April 14. A week later, on April 23, insurer rescinded its denial and accepted a "right knee complex tear of the posterior horn of the medial meniscus combined with preexisting non-compensable right knee osteoarthritis."

         On May 18, the parties appeared before an administrative law judge (ALJ) for the scheduled hearing. Because insurer had rescinded its denial, the only issues for the ALJ to decide were (1) whether to assess a penalty against insurer under ORS 656.262(11), and (2) whether to award an attorney fee to claimant's attorney under ORS 656.386 (1)(a). The ALJ found that insurer had a legitimate doubt as to its liability when it denied the claim and therefore was not subject to a penalty under ORS 656.262(11). As for the attorney fee, the ALJ awarded a fee to claimant's attorney in the amount of $3, 000, on the basis that "insurer's actions placed claimant's attorney in the position of having to prepare for hearing" and that the attorney therefore "was instrumental in obtaining the rescission of the denial" and was entitled to a fee under ORS 656.386(1)(a).

         Insurer appealed the attorney fee award to the board, and claimant cross-appealed on the penalty issue. Like the ALJ, the board found that insurer had had a legitimate doubt as to its liability on the claim and therefore did not order a penalty under ORS 656.262(11). The board differed from the ALJ on the fee issue, however, concluding that claimant's attorney had not been instrumental in achieving the rescission of the denial, as required to trigger a fee award under ORS 656.386(1)(a). In the board's view, the record was "devoid of any action taken by claimant's counsel that could have influenced the insurer, save the submission of a retainer agreement and notice of representation." While recognizing that "[s]uch limited action may be sufficient in some cases, depending on their specific facts," the board concluded that claimant's attorney was not entitled to a fee in this case, where insurer had ordered an IME before claimant retained an attorney, the IME "establish[ed] the compensability of the claim," and insurer's acceptance of the claim "coincided" with its receipt of the IME report.

         Claimant now seeks judicial review of the board's order.

         [300 Or.App. 366] PENALTY UNDER ORS 656.262(11)

         In his first assignment of error, claimant argues that the board erred in not assessing a penalty against insurer under ORS 656.262(11). Under ORS 656.262(11)(a), if an insurer "unreasonably delays or unreasonably refuses to pay compensation, attorney fees or costs, or unreasonably delays acceptance or denial of a claim," the insurer "shall be liable for an additional amount up to 25 percent of the amounts then due plus any attorney fees assessed under this section." Claimant argues that insurer did not reasonably investigate his claim before denying it and that, consequently, insurer's denial was unreasonable and the board should have imposed a penalty.

         "Whether a denial or delay is unreasonable involves both legal and factual questions." Brown v. Argonaut Insurance Company, 93 Or.App. 588, 591, 763 P.2d 408 (1988). Legally, the reasonableness of a denial turns on whether, when the insurer denied the claim, it "had a legitimate doubt as to its liability"-if so, the denial was reasonable, and, if not, it was unreasonable. Id. Underlying that legal question is a factual inquiry regarding the basis of the insurer's ostensible doubt, which requires the board to consider "all the evidence available to the insurer" at the time of the denial. Snyder v. SAIF, 287 Or.App. 361, 367, 402 P.3d 743 (2017) (citation omitted). Considering that evidence, the board applies the above legal standard to determine whether the insurer's denial of the claim was based on a "legitimate" doubt as to its liability and therefore reasonable. We review for errors of law whether the board applied the correct legal standard, and we review the board's factual findings for substantial evidence. Brown, 93 Or.App. at 591; ORS 183.482 (8)(a), (c).

         As a preliminary matter, we note that claimant's first assignment of error depends on a legal premise that the board itself articulated in its order and which insurer does not contest: that an insurer who fails to conduct a reasonable investigation of a claim cannot maintain a "legitimate" doubt as to its liability. In its order, the board included as part of its general statement of the applicable law that "[a] 'legitimate doubt' does not exist when the carrier denies a claim without [300 Or.App. 367] conducting a reasonable investigation." For that proposition, the board cited OAR 436-060-0140(1)[1] and two prior board decisions.[2] OAR 436-060-0140(1) provides, "The insurer is required to conduct a 'reasonable' investigation based on all available information in determining whether to deny a claim." 'A reasonable investigation is whatever steps a reasonably prudent person with knowledge of the legal standards for determining compensability would take in a good faith effort to ascertain the facts underlying a ...


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