Bohn v. INDUSTRIAL COM'N OF ARIZONA

• Decision Date: 19 January 1999
• Docket Number: No. 1CA-IC 97-0078.,1CA-IC 97-0078.
• Citation: 984 P.2d 565,194 Ariz. 479
• Parties: Eric A. BOHN, Petitioner, v. The INDUSTRIAL COMMISSION OF ARIZONA, Respondent, Donald Daye & Zonya Daye, husband and wife, dba Turquoise Construction, Respondent Employers, Special Fund Division/No Insurance Section, Respondent Party in Interest.
• Court: Arizona Court of Appeals

984 P.2d 565

194 Ariz. 479

Eric A. BOHN, Petitioner, v. The INDUSTRIAL COMMISSION OF ARIZONA, Respondent, Donald Daye & Zonya Daye, husband and wife, dba Turquoise Construction, Respondent Employers,

Special Fund Division/No Insurance Section, Respondent Party in Interest.

No. 1CA-IC 97-0078.

Court of Appeals of Arizona, Division 1.

January 19, 1999.

Review Granted September 21, 1999.

Bill Stephens, P.C. by Bill Stephens, Phoenix, Attorneys for Petitioner.

Anita R. Valainis, Chief Counsel, The Industrial Commission of Arizona, Phoenix, Attorney for Respondent.

The Industrial Commission of Arizona, Special Fund Division, No Insurance Section by Paula R. Eaton, Phoenix, Attorneys for Respondent Employers and Respondent Party in Interest.

OPINION

LANKFORD, Judge.

¶ 1 Petitioner ("Bohn") brought this special action petition seeking review of an Arizona Industrial Commission ("Commission") award and decision upon review. The Commission decided that by settling a third-party claim without written approval from the Special Fund, Bohn had forfeited workers' compensation. Relying on Macaluso v. Industrial Comm'n, 181 Ariz. 447, 891 P.2d 914 (App. 1994), review vacated as improvidently granted, 185 Ariz. 5, 912 P.2d 9 (1996), we affirm the award and decision upon review. ¶ 2 This matter began when Bohn timely filed a workers' compensation claim for an August 1992 accident. Respondent Employers (the "Dayes"), an uninsured marital community, denied that they employed Bohn. The No Insurance Section of the Special Fund Division of the Commission ("Special Fund") denied the claim. See generally Ariz. Rev.Stat. Ann. ("A.R.S.") § 23-907(B) (Supp. 1997).

¶ 3 At the hearings which followed, an Administrative Law Judge ("ALJ") denied the claim. She found that although the Dayes had employed Bohn when he was injured, Bohn was intoxicated to such a degree that he had abandoned his employment. Bohn requested special action appellate review of this award.

¶ 4 While his special action was pending, Bohn settled a civil claim for $16,500. This third-party claim against the owners of the home at which he was working when injured sought damages for the same injuries as those for which he claimed workers' compensation.

¶ 5 This Court then issued a memorandum decision setting aside the ALJ's denial of compensability. After remand to the Commission, the Dayes were no longer represented and apparently had left Arizona. The Special Fund and Bohn agreed that the only issue to be adjudicated was "compensability" and that a hearing de novo would be unnecessary. Another ALJ issued an award for a compensable claim.

¶ 6 The Special Fund issued notices determining Bohn's average monthly wage and terminating temporary disability status effective March 1, 1993, without permanent disability. Bohn protested both determinations. At the hearing, the Special Fund asserted for the first time that Bohn had forfeited compensation by settling the third-party complaint without proper approval. See generally A.R.S. § 23-1023(A) (1995). The ALJ ruled that the Special Fund had not properly raised noncompliance with the statute.

¶ 7 In support of its assertion that Bohn settled his third-party claim without approval, the Special Fund filed Bohn's counsel's letter of March 1, 1996. In that letter, Bohn's counsel informed the Commission that Bohn had resolved his claim against the homeowners in March 1994. In a post-hearing memorandum, Bohn represented that the Dayes' counsel had approved the third-party settlement on or about March 14, 1994. Bohn's counsel provided no additional documentation concerning the third-party settlement.

¶ 8 The Special Fund issued a notice of forfeiture of workers' compensation benefits "due to an unauthorized third-party settlement." Bohn requested a hearing. After an unrecorded pre-hearing conference, the parties submitted memoranda in lieu of a hearing. The only document that Bohn submitted concerning the third-party settlement was the letter of March 1, 1996.

¶ 9 The ALJ then issued an award finding a forfeiture. She determined that the value of Bohn's workers' compensation claim was at least $24,618.45. She also found that (1) the parties had stipulated that the Dayes had approved the third-party settlement; (2) the Special Fund had not stipulated that this approval was in writing; and (3) Bohn had not submitted any evidence of written approval. The ALJ concluded that A.R.S. section 23-1023(C) required written approval by the Special Fund. By settling without the Special Fund's written approval, Bohn had forfeited his workers' compensation benefits.

¶ 10 On administrative review, the ALJ corrected technical errors but otherwise affirmed her award. Bohn then brought this special action.¹ We have jurisdiction pursuant to A.R.S. sections 12-120.21(A)(2) (1992) and 23-951(A) (1995). ¶ 11 When reviewing a compensation award, we must affirm if the evidence supports it by any reasonable theory. Carousel Snack Bar v. Industrial Comm'n, 156 Ariz. 43, 46, 749 P.2d 1364, 1367 (1988). We view the evidence in the light most favorable to sustaining the Commission's award. Perry v. Industrial Comm'n, 112 Ariz. 397, 398, 542 P.2d 1096, 1097 (1975).

¶ 12 On review, Bohn contends that the Special Fund failed to properly raise noncompliance with A.R.S. section 23-1023(C). He also contends that he complied with the statutory requirement. For the reasons that follow, we affirm the award.

¶ 13 We begin with some general principles of workers' compensation claims. An employee of an uninsured employer may elect to pursue a civil action against the employer or to file a workers' compensation claim. See A.R.S. §§ 23-907(A),(B). If an employee files a compensation claim, it is processed like any other such claim. See A.R.S. § 23-907(B). When an award becomes final, the Commission must pay the employee from the Special Fund. See id. The uninsured employer is liable to the Special Fund for the compensation payments and a statutory penalty upon receiving notice of the amount. See A.R.S. § 23-907(C). The payments from the Special Fund "act as a judgment against" the uninsured employer.² Id.

¶ 14 An employee entitled to workers' compensation may pursue a civil action against certain third parties who tortiously injured the employee. See A.R.S. § 23-1023(A). If an employee pursues a civil action, the employee still is entitled to workers' compensation, but the "insurance carrier or other person liable to pay the [workers' compensation] claim" has a lien on the employee's entire net recovery from the third-party to the extent of the workers' compensation paid. See A.R.S. § 23-1023(C); Liberty Mutual Ins. Co. v. Western Casualty & Surety Ins. Co., 111 Ariz. 259, 262-63, 527 P.2d 1091, 1094-95 (1974).

¶ 15 An employee cannot settle a third-party claim for less than the compensation and medical benefits provided without written approval from either the compensation fund or the person liable to pay the claim. See A.R.S. § 23-1023(C). Settling without this statutory approval results in a forfeiture of workers' compensation benefits. See Hornback v. Industrial Comm'n, 106 Ariz. 216, 219-20, 474 P.2d 807, 810-11 (1970)

(interpreting predecessor statute); see also Grinnell v. Industrial Comm'n, 139 Ariz. 124, 128, 677 P.2d 287, 291 (App.1983) (concluding that Hornback continued to apply after the 1968 amendment to A.R.S. section 23-1023); 6 Arthur Larson & Lex K. Larson, Larson's Workers' Compensation Law § 74.17(a), at 14-428 (1998) (describing the "familiar rule" that settlement without the required consent results in forfeiture of future compensation).³

¶ 16 This Court recently addressed the applicability of A.R.S. section 23-1023(C) to a claim involving both an uninsured employer and a settlement that occurred while the claimant was protesting the Special Fund's denial of compensability. See Macaluso, 181 Ariz. at 448-49,

891 P.2d at 915-16. In Macaluso, while awaiting a hearing on compensability, the claimant settled a third-party claim without the Special Fund's approval. Id. After an award for a compensable claim, the claimant was not paid benefits and requested a hearing. The ALJ determined that the claimant had forfeited benefits. Id. We affirmed this determination, concluding that compliance with A.R.S. section 23-1023(C) required written approval by the Special Fund. Id.

¶ 17 We now apply these general principles and Macaluso to Bohn's appeal. Notwithstanding A.R.S. section 23-1023(C), Bohn contends that Special Fund approval was unnecessary. When Bohn settled the third-party claim in March 1994, the Special Fund had denied compensability, an ALJ had affirmed an award denying compensability, and only the Dayes were actively participating in the appellate review of this denial. Accordingly, Bohn contends, the Special Fund lacked "standing or interest" in the third-party claim and its approval was not required.

¶ 18 We hold that approval was necessary. Bohn's case closely resembles Macaluso. In both cases, the claimants filed workers' compensation claims and were protesting denials of compensability when they settled third-party claims. Although the claimant in Macaluso prevailed on compensability sooner than did Bohn, the operative facts are identical: "[O]nce Macaluso filed a claim for workers' compensation benefits, that claim came under the jurisdiction of the Industrial Commission and he was bound by the provisions of the Workers' Compensation Act...." Macaluso, 181 Ariz. at 449, 891 P.2d at 916. Bohn's compliance with the written approval requirement of A.R.S. section 23-1023(C) was required.

¶ 19 Bohn also argues that the Special Fund's approval was unnecessary because the Special Fund failed to prove that the third-party settlement was "less than the compensation and medical, surgical and hospital benefits provided for...." A.R.S. § 23-1023(C). To the contrary, the ALJ found that the value of Bohn's workers' compensation claim...