Workers’ Compensation Act; Attorneys’ Fees under Section 440 absent Unreasonable Contest

Lorino v. Workers’ Comp. Appeal Bd., 2020 WL 4810717 (Pa. Cmwlth. 2020) (unreported), allocatur granted Feb. 21, 2021, appeal docket 8 EAP 2021

In this case, the Pennsylvania Supreme Court will consider whether an employer must engage in an unreasonable contest in order for a claimant to receive an award of attorneys’ fees pursuant to Section 440 of the Workers’ Compensation Act.

Following a workers’ compensation termination petition filed by his employer, Lorino sought attorneys’ fees pursuant to Section 440 of the Workers’ Compensation Act, which provides, in relevant part:

In any contested case where the insurer has contested liability in whole or in part, including contested cases involving petitions to terminate, reinstate, increase, reduce or otherwise modify compensation awards, agreements or other payment arrangements or to set aside final receipts, the employe or his dependent, as the case may be, in whose favor the matter at issue has been finally determined in whole or in part shall be awarded, in addition to the award for compensation, a reasonable sum for costs incurred for attorney[s’] fee[s], witnesses, necessary medical examination, and the value of unreimbursed lost time to attend the proceedings: Provided, That cost for attorney[s’] fees may be excluded when a reasonable basis for the contest has been established by the employer or the insurer.

The WCJ denied Lorino’s request for attorneys’ fees, reasoning that:

Pursuant to Section 440 of the [Act,] Claimant’s attorney[s’] fees shall be paid by Employer unless Employer establishes a reasonable basis for its contest. As Dr. Barr’s testimony provided an opinion of full recovery within a reasonable degree of medical certainty, Employer has established a reasonable contest on its Termination Petition. Although Claimant argues that Section 440 counsel fees may also be assessed against Employer in cases where a reasonable contest has been established, no case law has been cited in which such facts have occurred. Accordingly, Section 440 attorney[s’] fees shall not be assessed against Employer.

Slip op. at 6. Lorino appealed to the Board, which affirmed the WCJ. Lorino then appealed to Commonwealth Court. Commonwealth Court summarized the parties’ arguments as follows:

Claimant argues that the Board erred by misinterpreting Section 440 of the Act to always require that an employer engage in an unreasonable contest before attorneys’ fees may be awarded to a successful claimant. More specifically, Claimant contends that, if the General Assembly intended to require that attorneys’ fees be excluded under Section 440 in every case in which the employer presents a reasonable contest, the General Assembly would have used the word “shall” rather than the word “may.” Claimant contends further that the only way in which this Court can give effect to the General Assembly’s use of the word “may” is to acknowledge that there are situations, such as the one presented in this case—i.e., a claimant who is required to defend against a termination petition in a medical-only case when the claimant is unable to pay his attorney through a traditional contingent fee arrangement given that he is not collecting indemnity benefits—where attorneys’ fees must be awarded even when the employer presents a reasonable contest. While Claimant recognizes both that it “has become the norm to exclude [an] award of [attorneys’] fees in every case where the [employer] presents a reasonable contest” and that no court has previously considered this statutory construction argument, Claimant suggests that, in light of the Pennsylvania Supreme Court’s decision in Protz v. Workers’ Compensation Appeal Board (Derry Area School District), 161 A.3d 827 (Pa. 2017), this Court can now consider the argument and give the statutory language set forth in Section 440 its intended effect.

 In response, Employer argues that this Court has already considered the issue of whether attorneys’ fees should be automatically assessed against an employer under Section 440 of the Act even when the employer presents a reasonable contest in Mason v. Workmen’s Compensation Appeal Board (Wheeling-Pittsburgh Steel Corporation), 600 A.2d 241 (Pa. Cmwlth. 1991), appeal denied, 605 A.2d 335 (Pa. 1992), and concluded that the legislature intended for an exception to be created to exclude an award of attorneys’ fees whenever an employer establishes a reasonable basis for its contest. Employer further contends that, in making his statutory construction argument, Claimant ignores the fact that the Supreme Court already addressed the legislative intent of Section 440 in Weidner v. Workmen’s Compensation Appeal Board, 442 A.2d 242 (Pa. 1982) (Weidner II), and concluded that Section 440 demonstrates a legislative intent to protect claimants against unreasonable contests. Employer suggests that, based upon this precedent, “[i]t is clear that, once an employer establishes a reasonable contest, the intent to protect claimants from an unreasonable one is satisfied” and “the inquiry as to whether fees are payable by an employer” has ended. (Employer’s Br. at 23.) In sum, Employer contends that an employer’s “challenge to ongoing medical care, if undertaken with a reasonable basis to do so, must be allowed … without facing a proposition that such contest is ‘per se unreasonable’ solely because the claimant is not receiving indemnity benefits from which attorney[s’] fees can be deducted.” (Employer’s Br. at 26.)

In his reply brief, Claimant suggests that, contrary to Employer’s arguments, this case presents an issue of first impression because the “identical” argument presented in this case—i.e., involving a request for attorneys’ fees under Section 440 of the Act in a medical-only situation—has not been considered by this Court or any other Pennsylvania court. Claimant contends that this Court’s decision in Mason is readily distinguishable from the facts of this case because: (1) unlike in this case, the claimant in Mason was receiving indemnity benefits and was able to offer a prospective attorney a contingent fee arrangement; and (2) Section 440 of the Act has been amended since this Court’s decision in Mason. Claimant contends further that the proper interpretation of Section 440—which he suggests is to permit a successful medical-only claimant to recover attorneys’ fees from an employer even if the employer has presented a reasonable contest—would level the economic playing field between the employer and the claimant in medical-only cases by effectively resulting in a “contingent fee” to be paid by an employer upon a claimant’s success. Claimant argues that any other interpretation of Section 440 places a medical-only claimant in a situation where the claimant has to choose between representing himself and potentially losing his medical benefits or hiring an attorney at a substantial cost.

Slip op. at 7-10 (footnotes omitted).

Commonwealth Court rejected Lorino’s arguments, refusing to depart from “long-standing precedent and permit him and other similarly situated claimants—i.e., claimants who are forced to defend against a termination petition involving only medical benefits (no wage loss) and, therefore, are not able to compensate their attorneys under a traditional contingent fee arrangement—to recover attorneys’ fees under Section 440 of the Act even when the employer has presented a reasonable contest.” Slip op. at 13-14. In so holding, the court relied on Mason, in which Commonwealth Court “ultimately concluded that attorneys’ fees are not automatically awarded to a successful claimant under Section 440 when the employer has presented a reasonable contest.” Slip op. at 13. While the court acknowledged that Mason is factually distinguishable because the claimant in Mason was receiving indemnity benefits, it emphasized that “the factual circumstances of a particular claimant do not drive a court’s construction of a statute.” Slip op. at 14. Thus, the court concluded:

That Claimant has no wage loss and thus cannot compensate his counsel for this discrete matter through a contingent fee arrangement does not persuade us that our prior interpretation of Section 440 of the Act is incorrect. As a result, we cannot conclude that the Board erred by interpreting Section 440 of the Act to preclude an award of attorneys’ fees to a prevailing claimant where the employer establishes a reasonable basis for the contest.

Id.

The Pennsylvania Supreme Court granted allocatur as to the following issues:

Whether Commonwealth Court’s decision on this question of first impression should be reversed for violating the separation of powers doctrine, since it improperly exercised legislative power by replacing the word “may” with the word “shall” in Section 440 of the Workers’ Compensation Act; its [o]pinion even states, “. . . despite the General Assembly’s use of the word ‘may,’ this [c]ourt has always . . .” required an unreasonable contest before assessing attorney’s fees against an insurer?

For more information, contact Kevin McKeon or Dennis Whitaker.