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One Year After Lorino, Are We Seeing Unreasonable Contest Attorneys’ Fees Being Taken Seriously?

I recently lamented in these pages that punitive damages and other legal penalties far too often fail to deter the behavior they were intended to deter. I noted one reason for this is because fact finders rarely make use of the tools they have at their disposal to stop bad behavior and make an example out of defendants to send a message that courts will not stand for illegal tactics.

While defendants are still let off the hook by courts for dilatory—and worse—tactics far more often than they should be, two recent cases my firm was involved in suggest that some Pennsylvania Workers’ Compensation Judges (“WCJs”) are finally saying “enough is enough,” particularly with employers’ and insurers’ unreasonable contests of workers’ compensation claims.

Unreasonable contest attorneys’ fees awards have traditionally been few and far between

The Pennsylvania Workers’ Compensation Act (“the Act”), enacted in 1915, is a remedial statute intended by the Pennsylvania Legislature to benefit Pennsylvania’s workers. For that reason, state courts have liberally construed the statute to effectuate its humanitarian objectives.

One of the key provisions of the Act that deserves liberal construction is Section 440, which concerns unreasonable contests. Under Section 440, where an insurer or employer contests liability in connection with a worker’s claim for benefits (or their dependent’s claim), and the claimant prevails “in whole or in part,” the claimant “shall be” awarded their attorneys’ fees. However, a claimant’s attorneys’ fees “may be excluded” when the insurer or employer establishes a reasonable basis for the contest. The insurer or employer has the burden to prove the contest was reasonable.

Despite the clear language of the statute, WCJs rarely grant unreasonable contest attorneys’ fees. Obviously, there’s a great deal of discretion accorded WCJs when determining whether an insurer or employer established a “reasonable basis” for contesting a claim. As has been the case for decades, WCJs tend to only consider the most egregious examples of unreasonableness as justifying attorneys’ fees awards. Even then, those awards are often in nominal amounts that do little to deter similar unreasonableness in the future.

But in December 2021, the Pennsylvania Supreme Court sent shockwaves through the state’s workers’ compensation bar by changing the unreasonable contest attorneys’ fees paradigm with its monumental decision in Lorino v. WCAB (Commonwealth of Pennsylvania). Before Lorino, many workers’ compensation defense attorneys and WCJs read Section 440—despite its unambiguous language—to mean that when an insurer or employer established a reasonable basis for contesting a claim, there was no chance a claimant would be entitled to attorneys’ fees. The conventional wisdom—to which I and my fellow members of the claimants’ bar did not subscribe—was that once a claim contest was deemed by a WCJ to be reasonable, the chance of winning attorneys’ fees was eliminated even though Section 440 states that they “may be excluded” in such circumstances. The conventional wisdom implicitly amended the Act to say that attorneys’ fees shall be awarded unless an insurer or employer established a reasonable basis for its contest.

In Lorino, the Pennsylvania Supreme Court interpreted the clear and unambiguous language of the Act, holding that “shall” establishes a mandatory duty to do something, whereas “may” means an action is permissive. The Court explained that the Pennsylvania Legislature must have intended “shall” and “may” to mean different things since it used both words in the same section.

Therefore, the Court held that even where there was a reasonable contest, a WCJ has the discretion under Section 440 to grant attorneys’ fees. The Court noted that the conventional wisdom regarding Section 440 failed to recognize this discretion. Although the Court clarified WCJs need not always grant attorneys’ fees in reasonable contests, the signal was sent loud and clear. Anytime an insurer or employer contests a claim, regardless of their basis, attorneys’ fees could be on the table.

Two recent cases suggest some WCJs are taking unreasonable contest attorneys’ fees more seriously in a post-Lorino world

There is some nuance to the Lorino decision that I am glossing over, such as the fact that Mr. Lorino was not receiving wage loss benefits even though most workers’ compensation cases involve claims for wage loss benefit and medical treatment. But of relevance here, Lorino has unquestionably forced WCJs to take closer looks at the basis for insurers’ and employers’ contests, and their conduct during them, because attorneys’ fees can be at issue in any contested claim. Additionally, Lorino reminded WCJs that while they have discretion to determine whether a contest was unreasonable, they should follow the language of the Act by placing the burden on insurers and employers to show why a contest was reasonable and should award attorneys’ fees when they cannot do so.

Two recent decisions from WCJs in cases my firm was involved in show that some WCJs appear to be taking Lorino to heart and employing the deterrence effect Section 440 offers in the form of attorneys’ fees in contested cases.

The first decision concerned a Commonwealth liquor store clerk whose injury to one knee and severe pain in the other caused him to have to perform light duty work. Eventually, the Commonwealth eliminated his light duty position despite there being no evidence that his physician gave him permission to resume a full duty position. The Commonwealth did not offer the claimant another job, nor did it reinstate benefits for his total disability after it dismissed him. The Commonwealth also failed to pay his medical bills it was obligated to pay under the Act.

The claimant filed a petition to reinstate those benefits, which the Commonwealth contested.

In addition, the claimant filed penalty petitions alleging the Commonwealth refused to continue his modified duty position, failed to reinstate his benefits for wage loss, failed to pay for compensable medical treatment, and failed to pay certain benefits and attorneys’ fees in accordance with an earlier court order.

After finding the claimant should have received weekly benefits from August 2020 to the present and ordering the Commonwealth to do so, the WCJ held the Commonwealth’s contest was unreasonable because neither the Act nor case law supported the Commonwealth’s argument that it need not pay benefits while the claimant’s original workers’ compensation claim petition was on appeal, as was the case. The WCJ awarded attorneys’ fees to the claimant equal to 20% of the claimant’s amount of weekly benefits paid to him over almost two years. In addition, the WCJ assessed penalties for failing to pay wage loss benefits, medical treatment, and the benefits and attorneys’ fees the Commonwealth was ordered by the court to pay previously.

The second decision concerned an injured healthcare worker who filed a penalty petition against her employer alleging it failed to pay for medical treatment she incurred in connection with a work injury. The bills for the employee’s treatment had gone unpaid for over two and a half years. The WCJ found the employer’s failure to pay the bills was an “egregious” violation of the Act, noting that it was “especially troubling” that the penalty petition had been in litigation for almost 11 months and yet as of the final hearing the bills had not been paid. The WCJ assessed a sizable penalty against the employer, to be paid directly to the claimant.

But then the WCJ went one step further and assessed attorneys’ fees under Lorino. The case had been resolved by a Compromise & Release, but the employer failed to pay the claimant’s medical bills as promised in the agreement. Additionally, the WCJ noted claimant’s counsel took part in five hearings and assembled close to 400 pages to support her workers’ compensation petition. The WCJ stated that “failure to award fees in a case of this nature is a disincentive to the Claimant’s bar to pursue a legitimate and important interest of injured workers, ensuring that medical bills are paid following a settlement hearing.” The WCJ used his discretion to award attorneys’ fees where there was no finding that the employer’s contest was unreasonable, but where the employer’s conduct in the contest was obviously reprehensible.

Two steps in the right direction, but more are necessary

These two decisions are two steps in the right direction, but they are only two small steps.

We at Pond Lehocky Giordano still, today, see insurers and employers engage in deplorable conduct in contested workers’ compensation claims that prevents hard-working people from collecting workers’ compensation benefits they are entitled, which unnecessarily thrusts them into financial hardship and the associated problems that hardship can cause, such as mental health issues and marital problems.

Some WCJs, like the ones my colleagues were before in the two cases I discussed above, appear to be taking unreasonable contest attorneys’ fees seriously. They’re using them to hold insurers and employers accountable for their repugnant conduct, even when they had a reasonable basis for contesting a claim. But, given what our firm and other claimants’ firms see daily in their workers’ compensation cases, far too many WCJs still have not seen Lorino for what it is: a mandate from the Pennsylvania Supreme Court to levy attorneys’ fees when insurers or employers engage in conduct that runs afoul of the both the spirit and the letter of the Pennsylvania Workers’ Compensation Act.

Unfortunately, one year after Lorino, insurers and employers are still far too often getting off scot-free or with a slap on the wrist for unreasonably contesting a claim or behaving egregiously while contesting one. More WCJs need to call these litigants out and make examples of them to prevent other litigants from following their playbook.

When Lorino was first decided, there were howls from the workers’ compensation defense bar over the idea that their clients could be assessed attorneys’ fees even in reasonable contests. But many insurers and employers still approach the Act and compliance with their legal obligations under it as optional.

Only when WCJs regularly deploy the tools at their disposal courtesy of Section 440 to hold insurers and employers accountable for their litigation tactics, can the workers’ compensation bar be sure that injured workers are getting a fair day in court and that such behavior will be deterred.

​​Samuel H. Pond is the managing partner of Pond Lehocky Giordano LLP, the largest workers’ compensation and social security disability law firm in Pennsylvania. He can be reached at spond@pondlehocky.com.

Reprinted with permission from the November 29, 2022 edition of The Legal Intelligencer © 2022 ALM Media Properties, LLC. All rights reserved. Further duplication without permission is prohibited, contact 877-257-3382 or reprints@alm.com.

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