Avoiding Penalties for Late Payments

Written by Nick Marrone, Esq.

Edited by Rachel Riordan, Esq.

As an adjuster working on Virginia worker’s compensation claims, you are likely aware of the penalties that can accrue on compensation that is not timely paid. Under § 65.2-524 of the Virginia Workers’ Compensation Act (“the Act”), “[i]f any payment is not paid within two weeks after it becomes due, there shall be added to such unpaid compensation an amount equal to 20% percent thereof…” What does this mean? It is pretty straightforward: If a claimant is under an award for compensation benefits and the Insurer fails to issue payment within two weeks of those benefits being due the claimant would be entitled to 20% of the total amount of compensation not issued within two weeks of being due.

However, the Insurer does have some defenses to a claim for penalties. Under that same section of the Act, the 20% penalty will not be due if “the Commission finds that any required payment has been made as promptly as practicable and… there is good cause outside the control of the employer for the delay…” What sort of situation would meet this exception? The Commission has held that compensation timely issued to the claimant’s attorney who failed to provide the payment to the claimant in a timely fashion met the exception. The Commission has also found that a payment issued to the claimant’s address of record which was never received and then promptly reissued once the Insurer had notice it was not delivered also met the exception despite the payment being reissued after the two week period.

Often when a claimant is awarded compensation benefits a portion of the amount awarded is to be paid to the claimant’s attorney for the fee. If the attorney fee is not issued within two weeks of being due the Insurer will be exposed to a 20% penalty on the portion due to Claimant’s counsel. However, the 20% penalty on that payment will not be due to Claimant’s counsel. The 20% penalty on the portion due to Claimant’s counsel is to be paid to the claimant, because the fee was paid from accrued compensation due to the claimant.

However, what happens if payment pursuant to a full and final settlement is not issued in a timely fashion? As you know, a full and final settlement extinguishes future entitlement to both compensation and medical benefits in exchange for a lump sum payment to the claimant from which a portion, typically 20%, is paid to claimant’s counsel for his or her fee. It is undisputed that if the portion of the settlement award due to the Claimant is not issued within two weeks of being due that portion will be subject to a 20% penalty. However, case law indicates that, unlike attorney’s fees awarded from accrued compensation discussed above, the penalty provision of the Act does not apply to attorney’s fees awarded from a full and final settlement.

In Roman v. Ondeo Degremont, Inc., 47 Va. App. 773 (2006), the Virginia Court of Appeals was tasked with determining “whether attorney’s fees ordered to be paid directly to counsel from accrued compensation are ‘payment[s]’ of ‘compensation’ within the meaning of Code § 65.2-524”. While the Court found that the penalty provision applied to attorney’s fees to be paid from accrued compensation, in a footnote the Court expressly stated that the “appeal did not require them to consider whether medical benefits… or attorney’s fees other than those ordered to be paid from accrued compensation are ‘payments’ of ‘compensation’ for the purposes of Code § 65.2-524’s penalty provisions” (emphasis added).

Based on the Roman case, I recommend that if you find yourself in a situation where claimant’s counsel is demanding you pay 20% of their fee from a settlement to the claimant due to it being issued more than two weeks after being due, you refuse to do so. Why? Because a payment made in furtherance of a settlement is not a payment of accrued compensation. It is a payment for future medical and compensation benefits, future exposure the parties have resolved via settlement.

Lastly, it should be noted that if the Insurer is found responsible for a 20% penalty on attorney’s fees that were not paid within two weeks of being due that penalty is never to be paid to claimant’s counsel. The penalty is always to be paid to the claimant. The attorney will only be due their original fee, and nothing more.



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