Ernie Luna Jr. v. Pima County and Tristar Risk Management

IN THE
ARIZONA COURT OF APPEALS
DIVISION TWO
ERNIE LUNA, JR.,
Petitioner Employee,
v.
THE INDUSTRIAL COMMISSION OF ARIZONA,
Respondent,
PIMA COUNTY,
Respondent Employer,
TRISTAR RISK MANAGEMENT,
Respondent Insurer.
No. 2 CA-IC 2013-0021
Filed December 22, 2014
SPECIAL ACTION – INDUSTRIAL COMMISSION
ICA Claim No. 95136728090
Insurer No. WCPWC95WW00410
LuAnn Haley, Administrative Law Judge
AWARD SET ASIDE
COUNSEL
Tretschok, McNamara & Miller, P.C., Tucson
By J. Patrick Butler
Counsel for Petitioner Employee
The Industrial Commission of Arizona, Phoenix
By Andrew F. Wade
Counsel for Respondent
LUNA v. INDUS. COMM’N OF ARIZ.
Opinion of the Court
M. Ted Moeller, Tucson
Counsel for Respondents Employer and Insurer
OPINION
Presiding Judge Miller authored the opinion of the Court, in which
Chief Judge Eckerstrom and Judge Espinosa concurred.
M I L L E R, Presiding Judge:
¶1 This statutory special action requires us to determine
whether petitioner employee, Ernie Luna, Jr., is entitled to interest
on temporary compensation benefits that were not timely paid to
him. We conclude that Arizona law requires payment of the interest
and therefore set aside the administrative law judge’s (ALJ) award.
Factual and Procedural Background
¶2 The following facts are undisputed. In May 1995, Luna
was employed by Pima County Wastewater Management and
suffered a compensable injury to his back. Respondents Pima
County and Tristar Risk Management (collectively “Tristar”)
accepted the claim and paid benefits to Luna. Luna’s claim was
subsequently closed in 1999 and reopened in 2009. On March 30,
2011, Luna underwent an independent medical examination and the
examining physicians opined, “the medically stationary point of
maximum medical improvement ha[d] been reached.”
¶3 In April 2011, Tristar issued a notice closing Luna’s
claim effective March 31, 2011, with a permanent disability. Luna
protested the closure of his claim and in March 2012, after hearings
on the matter, the administrative law judge (ALJ) issued a decision,
awarding Luna temporary disability compensation benefits “from
September 30, 2009 until such time as the condition is determined to
be medically stationary.” The Industrial Commission affirmed the
ALJ’s decision to keep the claim open, and this court affirmed the
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LUNA v. INDUS. COMM’N OF ARIZ.
Opinion of the Court
award on appeal. Pima County v. Indus. Comm’n, No. 2 CA-IC 2012-
0007, ¶ 1 (memorandum decision filed Jan. 28, 2013).
¶4 During the period that Luna was contesting Tristar’s
attempted closure of his claim, he had been receiving long-term
disability benefits through the Arizona State Retirement System
(ASRS). ASRS had contracted with Sedgwick Claims Management
Services, Inc. for administration of the long-term disability income
plan. Between March 31, 2011 and March 31, 2013, Sedgwick paid
Luna $29,680.93 in long-term disability benefits.
¶5 In April 2013, after this court affirmed the ALJ’s
decision to keep the claim open, Luna filed a request for hearing,
pursuant to A.R.S. § 23-1061(J), seeking his unpaid temporary
compensation benefits from Tristar. In May 2013, Tristar
determined the amount of temporary compensation benefits that it
had owed Luna from March 31, 2011 to March 31, 2013. But Tristar
withheld the majority of these funds to reimburse Sedgwick directly
for long-term disability benefits it had paid during the same two-
year period. Luna asserted that, pursuant to the long-term disability
policy, he was responsible for reimbursing Sedgwick for
overpayment, and he disputed Tristar’s withholding of funds.
¶6 The parties subsequently stipulated that Tristar would
pay Luna the amounts that were withheld for reimbursement to
Sedgwick, totaling $19,786.43. The parties also agreed that any and
all overpayments of long-term disability benefits were Luna’s
responsibility and that Luna would pay back all amounts owed to
Sedgwick due to overpayment.
¶7 In her September 2013 decision and award, the ALJ
approved the parties’ stipulation and denied Luna’s request for
interest from March 31, 2011, to March 31, 2013, on the $19,786.43
owed him. The ALJ determined that because Luna had received
long-term disability benefits from Sedgwick during the two-year
period in question, Luna’s monthly benefit payment was not
delayed and, therefore, Tristar did not owe him interest.
Furthermore, the ALJ “concluded that [Tristar] appropriately
withheld monies from [Luna’s] temporary compensation pursuant
to A.R.S. Section 23-1068(B)(2) and would not be required to pay
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LUNA v. INDUS. COMM’N OF ARIZ.
Opinion of the Court
[Luna] interest on those funds which are to be reimbursed to
Sedgwick.” Luna requested review and, in November 2013, the ALJ
affirmed the decision. Luna then filed this special action; we have
jurisdiction pursuant to A.R.S. § 12-120.21(A)(2).
Discussion
¶8 Luna argues the ALJ erred by determining he was not
entitled to interest on his temporary compensation benefits. Tristar
counters that the benefits were paid timely after the award granting
them was issued and therefore no interest was owed.
¶9 We generally defer to the ALJ’s factual findings, but
where, as is the case here, the ALJ did not conduct an evidentiary
hearing and the material facts are undisputed, the issue becomes a
question of law, which we review de novo. Finnegan v. Indus.
Comm’n, 157 Ariz. 108, 109, 755 P.2d 413, 414 (1988); Munoz v. Indus.
Comm’n, 234 Ariz. 145, ¶ 9, 318 P.3d 439, 442 (App. 2014). We also
review questions of statutory interpretation de novo. Hahn v. Indus.
Comm’n, 227 Ariz. 72, ¶ 5, 252 P.3d 1036, 1038 (App. 2011). “When
construing workers’ compensation statutes, we favor interpretations
that make the claimant whole.” Carbajal v. Indus. Comm’n, 223
Ariz. 1, ¶ 10, 219 P.3d 211, 213 (2009); see also Munoz, 234 Ariz. 145,
¶ 9, 318 P.3d at 442 (Workers’ Compensation Act liberally construed
to effectuate remedial purpose).
¶10 Our supreme court has held that a workers’
compensation claimant is entitled to interest under the general
interest statute, A.R.S. § 44-1201(A), on benefits not timely paid. See
DKI Corp./Sylvan Pools v. Indus. Comm’n, 173 Ariz. 535, 537, 845 P.2d
461, 463 (1993); Tisdel v. Indus. Comm’n, 156 Ariz. 211, 212-14, 751
P.2d 527, 528-30 (1988). In DKI, the court determined that interest
accrues when (1) there is a legal indebtedness or other obligation to
pay benefits and (2) there is notice of this obligation to pay. 173
Ariz. at 537, 845 P.2d at 463.
¶11 When examining whether there is a legal indebtedness
or other obligation to pay benefits, we apply the liquidated-
unliquidated test. Id. at 538, 845 P.2d at 464. “This test allows
interest on ‘liquidated’ claims but not on ‘unliquidated’ claims.” Id.,
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Opinion of the Court
quoting La Paz Cnty. v. Yuma Cnty., 153 Ariz. 162, 168, 735 P.2d 772,
778 (1987) (“A party’s entitlement in Arizona to prejudgment
interest depends on whether the amount awarded is liquidated or
unliquidated.”). A claim is liquidated when “‘the evidence
furnishes data which, if believed, makes it possible to compute the
amount with exactness, without reliance upon opinion or
discretion.’” Id., quoting La Paz Cnty., 153 Ariz. at 168, 735 P.2d at
778.
¶12 Our determination in this matter is also guided by this
court’s recent decision in Stenz v. Industrial Commission, 236 Ariz.
104, 336 P.3d 737 (App. 2014). In Stenz, the petitioner, a widow of
the petitioner employee, filed a claim seeking death benefits from
respondent insurer-carrier. See id. ¶ 2. The ALJ upheld the carrier’s
denial of her claim and this court reversed. Id. On remand, the
petitioner was awarded death benefits and the carrier paid her
claim, but did not pay any interest. Id. Petitioner requested a
hearing, asserting she was entitled to interest on the unpaid death
benefits for the four-year period between her husband’s death and
the carrier’s payment. Id. ¶ 3.
¶13 This court determined that although a claim for death
benefits “‘[did] not create an obligation to pay [death] benefits’”
because the petitioner had a burden to establish the carrier was
obligated to pay the requested benefits, the ALJ’s benefits award did
create an obligation. Id. ¶¶ 14-16, quoting DKI, 173 Ariz. at 537, 845
P.2d at 463. We also concluded that death benefits were liquidated
because they were “‘susceptible to mathematical computation’ and
subject to a ‘statutory payment schedule.’” Id. ¶ 15, quoting DKI, 173
Ariz. at 538, 845 P.2d at 464. We further held that the carrier had
notice of its obligation to pay when the claim for death benefits was
filed; therefore, interest on the death benefits began to accrue from
when the carrier received notice of the petitioner’s claim. Id. ¶ 18.
¶14 Applying the analytical framework outlined in DKI and
Stenz to the instant case, we begin by examining whether there is a
legal indebtedness or obligation to pay. Here, the ALJ determined
that Luna’s claim should remain open and that Luna was entitled to
temporary total disability benefits under A.R.S. § 23-1045(A), in the
amount of sixty-six and two-thirds percent of his already established
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Opinion of the Court
average monthly wage. The amount of temporary compensation
benefits owed is set by statute based on the claimant’s average
monthly wage, see § 23-1045(A), and in that way is similar to the
death benefits paid pursuant to A.R.S. § 23-1046(A)(2) in Stenz. 236
Ariz. 104, ¶ 18, 336 P.3d at 742. Accordingly, temporary benefits are
“‘susceptible to mathematical computation’ and subject to a
‘statutory payment schedule.’” Id. ¶ 15, quoting DKI, 173 Ariz. at
538, 845 P.2d at 464. Indeed, Tristar had been paying Luna
temporary benefits, from September 30, 2009, up until it attempted
to close his claim, effective March 31, 2011. Thus, the temporary
benefits awarded to Luna were liquidated and constituted a legal
indebtedness or other obligation to pay upon the ALJ’s award. See
id. ¶ 15.
¶15 We next examine “when [Tristar] had ‘notice of its
obligation to pay.’” Id. ¶ 17, quoting DKI, 173 Ariz. at 537, 845 P.2d at
463. On April 20, 2011, Tristar issued a notice of claim status closing
Luna’s claim effective March 31, 2011, with a determination of
permanent disability. Luna contested the closure and filed a request
for hearing on May 4, 2011. Thus, for purposes of the liquidated-
unliquidated test, Tristar had notice of its continuing obligation to
pay in May 2011. In Stenz, we noted that the carrier did not have to
wait for a formal determination of the claim and could have begun
payments when it issued its notice of claim status. Id. Similarly,
here, Tristar could have continued paying Luna temporary benefits
after receiving notice that Luna contested the closure of his claim
and before the Commission made its determination. See A.R.S.
§ 23-1061(G) (“insurance carrier or self-insuring employer shall
process and pay compensation and provide medical, surgical and
hospital benefits, without the necessity for the making of an award
or determination by the commission”); see also Keeton v. Indus.
Comm’n, 27 Ariz. App. 302, 305, 554 P.2d 898, 901 (1976)
(“[Section] 23-1061(G) vests carriers . . . with broad administrative
discretion in processing claims and paying compensation.”).
¶16 In sum, § 23-1045(A) provides that, after an industrial
injury causing temporary total disability, “[c]ompensation of sixty-
six and two-thirds per cent of the average monthly wage shall be
paid during the period of disability.” Tristar first accepted Luna’s
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LUNA v. INDUS. COMM’N OF ARIZ.
Opinion of the Court
claim before it was closed and then reopened in 2009. After Tristar
attempted to close the claim again in 2011, the ALJ determined that
Luna’s claim should remain open. Tristar received notice of its
continuing obligation under § 23-1045(A) in May 2011, the benefits
were for a liquidated sum, and Tristar did not pay the benefits to
Luna until September 2013. As such, the benefits were not timely
paid, and interest on those benefits began to accrue from the time
Tristar received notice that Luna contested the closure. Given the
time period involved in this appeal, Luna is entitled to interest on
the unpaid benefits from May 4, 2011 to March 31, 2013.
¶17 Tristar asserts that interest is not payable on workers’
compensation benefits withheld, pursuant to A.R.S. § 23-1068(B)(2),
in order to repay a long-term disability carrier for overpayment of
benefits. Section 23-1068(B)(2) states:
If . . . disability benefits are paid or
otherwise provided by an employer to . . .
an employee for an injury or illness for
which medical or compensation benefits
payable pursuant to this article have been
denied . . . and the injury or illness is
subsequently determined to be
compensable under this article, the
employer or the person authorized by the
employer to provide such benefits is
entitled to a direct payment out of, or a
direct credit against, the medical or
compensation benefits payable under this
article in the amount of the benefits
previously paid or provided.
Tristar relies on Washington Elementary School District v. Industrial
Commission, 196 Ariz. 67, 993 P.2d 468 (App. 2000), and Moreno v.
Industrial Commission, 164 Ariz. 374, 793 P.2d 131 (App. 1990), to
support its argument.
¶18 Washington and Moreno are inapposite. Both involved
an employer reimbursing itself for overpayment of disability
benefits by taking a direct credit against retroactive workers’
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Opinion of the Court
compensation benefits. Washington, 196 Ariz. 67, ¶ 4, 993 P.2d at
469-70 (employer took credit against workers’ compensation benefits
for overpayment of short-term disability benefits); Moreno, 164 Ariz.
at 374-75, 793 P.2d at 131-32 (self-insured employer paid carrier for
overpayment of long-term disability benefits; took credit against
workers’ compensation benefits).
¶19 Here, however, Tristar purported to withhold Luna’s
retroactive workers’ compensation benefits to reimburse Sedgwick
for overpayment of long-term disability benefits. We first note that
Sedgwick is not a party to this special action and the Commission
lacked personal jurisdiction over it. See Gibbons v. Indus. Comm’n,
197 Ariz. 108, ¶ 12, 3 P.3d 1028, 1032 (App. 1999) (“When a claimant
is paid retroactive and future workers’ compensation benefits, a
disability insurer’s claim for repayment is purely contractual and
outside the [Commission’s] exclusive jurisdiction to adjudicate
claims for workers’ compensation.”); A.R.S. § 23-901(10)
(“‘Interested party’ means the employer, the employee . . . the
commission, the insurance carrier or their representative.”). Second,
Sedgwick’s long-term disability policy, which is provided through
ASRS and not Luna’s employer, Pima County, requires that Luna
fully refund Sedgwick for the amount of overpayment due to
retroactive workers’ compensation benefits. Thus, notwithstanding
§ 23-1068(B)(2), any obligation Luna owed to Sedgwick for
overpayment of long-term disability benefits was wholly
independent of the relationship Luna had with Tristar. See Gibbons,
197 Ariz. 108, ¶ 12, 3 P.3d at 1032. The fact that Luna received long-
term disability benefits from a nonparty has no impact on our
determination that the workers’ compensation benefits were not
timely paid.
¶20 Public policy considerations underlying the Workers’
Compensation Act and the general interest statute support our
conclusion here. “The purpose of the Act is ‘to dispense, so far as
possible, with litigation between employer and employee and to
place upon industry the burden of compensation for injuries caused
by the employment.’” Stenz, 236 Ariz. 104, ¶ 20, 336 P.3d at 743,
quoting Pressley v. Indus. Comm’n, 73 Ariz. 22, 28, 236 P.2d 1011, 1015
(1951); see also Ariz. Const. art. XVIII, § 8. And an award of interest
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Opinion of the Court
under § 44-1201 acts to compensate the injured party, or in the
workers’ compensation context, the employee. See Stenz, 236 Ariz.
104, ¶ 20, 336 P.3d at 743; cf. Dawson v. Withycombe, 216 Ariz. 84, ¶
99, 163 P.3d 1034, 1063 (App. 2007) (“An award of prejudgment
interest serves the dual purpose of recompensing the victim and
deterring defendants from dilatory litigation tactics.”). Our supreme
court has explained:
Where money belonging to a party is not
timely paid, interest is generally awarded.
This is because the party entitled to use of
the money has been deprived of that use,
and the party retaining it has been unjustly
enriched.
La Paz Cnty., 153 Ariz. at 168, 735 P.2d at 778 (citations omitted).
Requiring a workers’ compensation carrier to pay interest on
benefits not timely paid is in accord with these policy concerns.1
Stenz, 236 Ariz. 104, ¶ 20, 336 P.3d at 743.
¶21 Moreover, as we explained in Stenz, “a good-faith
dispute over liability does not prevent the award of interest on a
liquidated claim.” Id. ¶ 21; see also Tisdel, 156 Ariz. at 214, 751 P.2d at
530 (“Interest is not based on diligence or lack of diligence. Interest
accrues and becomes payable when debt is due.”). This is no less
true where the carrier, in good faith, purports to withhold
retroactive workers’ compensation benefits in order to reimburse a
third-party long-term disability insurer. Thus, the fact that Tristar
1 We also reject Tristar’s argument that Luna necessarily
received a windfall should he be awarded interest. Luna’s long-
term disability policy may have been purchased by him, albeit
through a group policy offered in connection with his employment.
Tristar does not point to evidence that it or Pima County paid the
premiums. Additionally, the policy was a wholly independent
contractual relationship and has no impact on whether Luna is
entitled to interest on workers’ compensation benefits not timely
paid. To hold otherwise would grant Tristar a windfall as it had use
of the funds owed to Luna from March 2011 to March 2013.
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LUNA v. INDUS. COMM’N OF ARIZ.
Opinion of the Court
withheld funds to reimburse Sedgwick directly for overpayment of
long-term disability benefits does not affect our analysis.2 See Stenz,
236 Ariz. 104, ¶ 21, 336 P.3d at 743. To hold otherwise would
incentivize withholding of payment of workers’ compensation
benefits, thereby depriving a claimant of the money’s use. See id.; La
Paz Cnty., 153 Ariz. at 168, 735 P.2d at 778.
¶22 Tristar had the use of the money due Luna for his
temporary total disability award, and Luna did not. “‘We do not
feel it unjust to require the carrier to pay interest on [benefits] it
should have paid’” before the ALJ’s March 2012 award. Stenz, 236
Ariz. 104, ¶ 22, 336 P.3d at 743, quoting Tisdel, 156 Ariz. at 214, 751
P.2d at 530 (alteration in Stenz). Luna “‘not only lost the use of the
money when the carrier failed to pay the award, but also the “time-
value” of the money.’” Id., quoting Tisdel, 156 Ariz. at 214, 751 P.2d
at 530. Section 44-1201(A) provides Luna interest on his temporary
benefits award from the date Tristar received notice of his intention
to dispute the closure of his claim. See id.; see also DKI, 173 Ariz. at
539, 845 P.2d at 465; Tisdel, 156 Ariz. at 213, 751 P.2d at 529.
Disposition
¶23 For the foregoing reasons, the ALJ’s award denying
Luna relief is set aside.
2 Particularly,
when, as here, the funds were not actually
distributed to Sedgwick.
10