Safeway Stores, Inc. v. Industrial Com'n of Arizona

• Decision Date: 12 December 1986
• Docket Number: No. CV,CV
• Citation: 152 Ariz. 42,730 P.2d 219
• Parties: SAFEWAY STORES, INC., Petitioner Employer, Safeway Stores, Inc., c/o Home Insurance Company, Petitioner Carrier, v. The INDUSTRIAL COMMISSION OF ARIZONA, Respondent, Racheal Gabaldon, Respondent Employee. 86 0091-PR.
• Court: Arizona Supreme Court

Page 219

730 P.2d 219

152 Ariz. 42

SAFEWAY STORES, INC., Petitioner Employer, Safeway Stores, Inc., c/o Home Insurance Company, Petitioner Carrier, v. The INDUSTRIAL COMMISSION OF ARIZONA, Respondent,

Racheal Gabaldon, Respondent Employee.

No. CV 86 0091-PR.

Supreme Court of Arizona, In Banc.

Dec. 12, 1986.

O'Connor, Cavanagh, Anderson, Westover, Killingsworth & Beshears by J. Victor Stoffa, Phoenix, for petitioner employer and petitioner carrier.

Dennis P. Kavanaugh, Chief Counsel, Industrial Com'n of Ariz., Phoenix, for respondent.

Ronald M. Meitz, Phoenix, for respondent employee.

FELDMAN, Justice.

The issue in this case is whether workers' compensation claims may be settled after compensability has been established but before lost earning capacity has been determined. The court of appeals held that because A.R.S. § 23-1025 ¹ prohibits settlement once compensability has been established, the Industrial Commission (Commission) lacks jurisdiction to accept or review post-compensability settlements. Safeway Stores, Inc. v. Industrial Commission, 152 Ariz. 37, 730 P.2d 214 (Ct.App.1985). We accepted review to clarify A.R.S. § 23-1025 and its effect on the Commission's jurisdiction over post-compensability settlements. Rule 23(c)(4), Ariz.R.Civ.App.P., 17A A.R.S. (Supp.1986). We have jurisdiction pursuant to Ariz. Const. art. 6, § 5(3) and A.R.S. § 12-120.24.

FACTS

Racheal Gabaldon (Gabaldon) injured her back while working for Safeway Stores, Inc. (Safeway) in 1978. The full story of her interaction with Arizona's workers' compensation system is recorded in the court of appeals' opinion. At 37 - 40, 730 P.2d at 214-17. The facts relevant to our decision begin with a Decision Upon Hearing dated August 14, 1981. In addition to establishing that Gabaldon's claim was compensable, the August 14 decision found that Gabaldon had sustained a fifteen percent general physical impairment, that her condition was stationary, and that she had not sustained permanent urological or psychiatric impairment. No determination of the extent of permanent partial disability, lost earning capacity, or the amount of compensation, if any, was made; determination of these matters was left for future administrative action in accordance with A.R.S. § 23-1044.

Both Gabaldon and Safeway ² requested administrative review of the August 14 decision. After the decision was affirmed on administrative review, Gabaldon sought appellate review by special action in the court of appeals. ³ On January 19, 1982, a Notice of Claim Status was issued denying Gabaldon medical treatment for urological problems. Gabaldon also requested a hearing regarding that notice.

In March 1982, Gabaldon proposed a settlement with Safeway. In exchange for approximately $19,500, less credit for benefits previously paid, Gabaldon agreed to In December 1982 Safeway's counsel sent a copy of the stipulation regarding lost earning capacity to the Commission, inadvertently enclosing a copy of the side agreement. The Commission's chief counsel subsequently notified Gabaldon and Safeway that the Commission was not bound by and would not enter an award based on the parties' settlement agreement. The Commission then entered its Award, finding that Gabaldon had sustained a 26.97 percent loss in earning capacity entitling her to $110.02 per month. Both parties requested administrative review of the Award.

[152 Ariz. 44] dismiss the special action, to withdraw her request for hearing, and to stipulate to no lost earning capacity. Safeway accepted the proposed settlement. By December 1982, the parties had drafted and signed two settlement documents: a stipulation that the Commission could enter an award finding no lost earning capacity and a "side agreement" setting forth Safeway's credit rights if Gabaldon later moved to reopen the award. After the settlement agreements were signed, Safeway paid the agreed sum.

Before beginning administrative review, the presiding administrative law judge (ALJ) informed both parties that their stipulation would not be accepted. The judge explained that although the Commission sometimes accepted a no-loss-of-earning-capacity stipulation supported by evidence in the record, the parties' stipulation was based on an invalid agreement that purported to settle a controverted issue. Rejecting Safeway's arguments, the ALJ held that the parties' agreement was invalid because it was made after Gabaldon's claim had been accepted as compensable.

The ALJ conducted hearings on lost earning capacity from August to November 1983. The ALJ found that Gabaldon had sustained "no reduction in earning capacity," but refused to give Safeway credit for money paid to Gabaldon under the settlement agreement. Safeway subsequently filed a special action petition with the court of appeals.

On appellate review, Gabaldon and Safeway both urged the court to allow settlement of post-compensability issues. Nevertheless, the court of appeals held the parties' settlement agreement void, reasoning that it was "tantamount to an attempted usurpation of the exclusive statutory power and duty of the Commission...." At 42, 730 P.2d at 219 (relying on A.R.S. § 23-1025). The court further held that because the settlement agreement was void, any dispute regarding disbursement of money under the agreement "cannot be litigated before the Commission." Id. at 42, 730 P.2d at 219. Basing its decision on Travelers Insurance Co. v. Industrial Commission, 21 Ariz.App. 298, 518 P.2d 1015 (App.1974), ⁴ the court of appeals held that settlements are permissible, subject to Commission approval, only before a claim is accepted as compensable. The court held that once compensability has been established, the parties have no authority to settle issues such as lost earning capacity and the amount of compensation benefits.

DISCUSSION

The issue before us--whether workers' compensation claims may be settled after compensability has been established--turns on the proper interpretation of A.R.S. § 23-1025:

An agreement by an employee to waive his rights to compensation, except as provided in this chapter, or an agreement by an employee to pay any portion of the premium paid by his employer shall be void....

(Emphasis added). Professor Larson has noted that statutes such as A.R.S. § 23-1025

could be quite justifiably construed to mean either (1) that no employee shall be 3 A. LARSON, THE LAW OF WORKMEN'S COMPENSATION § 82.32, at 15-562 (1983). Professor Larson notes further that with or without such statutes, the majority rule "appears to be that a claimant cannot validly agree to take less compensation than that specified by the statute. The minority position is that a claim for compensation rights may be compromised like any other claim." Id. § 82.31, at 15-559 to -560, § 82.32, at 15-562 to -563. As Professor Larson recognizes, Arizona has already espoused at least part of the minority position by allowing settlement before compensability is established. Id. § 82.31, at 15-560 to -561 n. 40 (citing Employers Mutual Liability Insurance Co. v. Industrial Commission, 121 Ariz. 558, 592 P.2d 392 (App.1979)).

[152 Ariz. 45] allowed to contract away his compensation rights generally, i.e., before any claim has arisen, or (2) that, in addition to this general inability to waive his rights, he cannot, after a claim has arisen, compromise his rights to the full benefits specified in the act.

Safeway and Gabaldon argue that a settlement is not a waiver and that the statute only applies to actual waiver of compensation rights before injury occurs. Thus, they contend, once an injury has occurred and either compensability or the amount of compensation is disputed, parties are free to settle their claims, subject to the Commission's approval. In contrast, the Commission argues that once compensability has been established, A.R.S. § 23-1025 precludes settlement agreements, leaving the Commission without authority to review or approve such settlements. In the Commission's view, settlements are permissible, subject to Commission approval, only before compensability is established.

A. Prior Case Law

1. Travelers Insurance Co. v. Industrial Commission

The Commission's reading of A.R.S. § 23-1025 is supported by the court of appeals' decision in Travelers, 21 Ariz.App. 298, 518 P.2d 1015. In that case, the insurance carrier entered into a settlement agreement with the employee-claimant after compensability had been determined but before the amount of lost earning capacity had been decided. The carrier paid the employee $25,000 and told him not to inform the Commission of the settlement. The employee, however, later went before the Commission alleging that he had accepted the settlement under duress. After a formal hearing, the Commission entered an award for unscheduled permanent partial disability. The Commission refused to consider the prior settlement or to offset the future monthly payments by the amount of the settlement.

The court of appeals upheld the Commission's decision, characterizing the settlement of post-compensability claims as "challeng[ing] the basic concept that the Industrial Commission shall control the proceedings under the Arizona Workmen's Compensation Act." 21 Ariz.App. at 299, 518 P.2d at 1016. The court, relying on A.R.S. § 23-1025, thought it "well established that once a compensation claim has been accepted as compensable the Commission is without authority or jurisdiction to compromise or approve a compromise settlement...." Id.; accord Goodrich v. Industrial Commission, 13 Ariz.App. 402, 404, 477 P.2d 276, 278 (App.1970). Review by this court was not sought in Travelers.

Standing alone, Travelers supports the court of appeals' opinion in this case. Since Travelers was decided, however, its reasoning has been undermined by two cases, Gray v. Industrial Commission, 24 Ariz.App. 499, 539 P.2d 973 (App.1975), approved per curiam, 113 Ariz. 296, 552 P.2d 766 (1976) and Jones v....