2007-046. Northstar Earthmovers and American Interstate Insurance Appellants vs. Marty J. Sanders Anchorage Neurological Assoc. and John P. Shannon D.C. Appellees.

• Case Date: June 07, 2007
• Court: Alaska

Alaska Workers Compensation Decisions 2007. Workers' Compensation Appeals Commission 2007-046. Northstar Earthmovers and American Interstate Insurance Appellants vs. Marty J. Sanders Anchorage Neurological Assoc. and John P. Shannon D.C. Appellees Alaska Workers' Compensation Appeals CommissionNorthstar Earthmovers and American Interstate Insurance, Appellants, vs. Marty J. Sanders, Anchorage Neurological Assoc., and John P. Shannon, D.C., Appellees.Decision No. 046 June 7, 2007 AWCAC Appeal No. 06-024AWCB Decision No. 06-0206AWCB Case No. 200215665Final Decision Final Decision on appeal from Alaska Workers' Compensation Board Decision No. 060206 issued on July 26, 2006, by the southcentral panel at Anchorage, Rebecca Pauli, Designated Chair, Stephen T. Hagedorn, Member for Industry, and John Abshire, Member for Labor. Appearances: Robin Gabbert, Russell, Wagg, Gabbert and Budzinski, for appellants, Northstar Earthmovers and American Interstate Insurance. Marty J. Sanders, Anchorage Neurological Assoc. and John P. Shannon, D.C., appellees, did not participate in the appeal.(fn1)Commissioners: John Giuchici,Philip Ulmer,and Kristin Knudsen. This decision has been edited to conform to technical standards for publication. By: Kristin Knudsen, Chair. This is an appeal of a board order finding the employer's controversion of certain medical benefits after a compromise and release was executed to be in bad faith and invalid, directing the staff of the division to send a copy of the board's decision to the Division of Insurance for investigation of the appellant insurer, and assessing penalties for failing to issue a valid, timely controversion. The board's decision relied on application of equitable estoppel to bar the employer from exercising a legal right to controvert based on a medical report. We conclude the board's application of equitable estoppel was improper and was not supported by findings based on substantial evidence in light of the whole record. We therefore reverse the board's decision. In other respects, the board's decision is not challenged and we affirm. Factual background. Marty Sanders injured his lower back while working as a mechanic and welder for Northstar Earthmovers.(fn2) Northstar paid compensation and medical benefits to Sanders without an award.(fn3) Sanders's attending physician was a chiropractor, Dr. Larson, who treated his lower back injury through August 2005. Dr. Larson referred him to "Back in Action" for a physical capacities evaluation (PCE) in March 2003. Sanders, who had suffered a neck injury in 1994, later reported to Dr. Larson, that he had injured his neck doing a "pull down" during the PCE. He was diagnosed with degenerative abnormalities; degenerative disc protrusion, osteophytic formations, canal stenosis, and a significant posterior bone spur at the C4-5 vertebrae. After conservative care, Dr. Larson referred him to a neurosurgeon, Dr. Kralick, who fused Sanders's C5-6 and C6-7 vertebrae, inserted a bone graft, and fixed the fusion with plates and screws. Northstar requested an employer medical examination for the cervical condition in October 2004. The evaluation by Dr. Stanford resulted in a report that the cervical condition was not caused by the PCE or his low back treatment (physical therapy) and an addendum addressing imaging studies.(fn4) Based on these reports, on November 4, 2004, Northstar controverted payment of all benefits for the cervical spine condition.(fn5) Dr. Kralick's clinic, Anchorage Neurological Assoc., filed a claim for treatment costs related to the neck surgery.(fn6) Sanders filed a claim on November 29, 2004.(fn7) Northstar answered Sanders's claim and controverted it as well.(fn8) Northstar also controverted continuing chiropractic care as exceeding the frequency standards.(fn9) A second employer medical examination was performed in April 2005 by Dr. Reimer and Dr. Swanson to address Sanders's low back condition.(fn10) They reported Sanders was medically stable, required no further treatment, and incurred no permanent impairment due to a low back injury. They agreed a lumbar strain had been work-related, but that his multi-level pre-existing degeneration was pre-existing and chiropractic treatment had been excessive. They also reported that Sanders's multi-level cervical spondylosis, cervical condition before the injury in 2003, and subsequent 2004 surgery were not work-related. As a result of this report, Northstar issued a controversion on April 29, 2005, that denied, among other benefits, "chiropractic treatment after July 29, 2004."(fn11) Dr. Reimer also issued a second report after reviewing additional testimony and opined that Sanders's neck was not injured during treatment for his low back.(fn12) Northstar, Dr. Kralick, and Sanders had agreed to a second independent medical evaluation by a board-appointed examiner.(fn13) The appointed examiner, Dr. Greenwald, reported he examined Sanders on August 17, 2005.(fn14) The board characterized his report as "very thorough, accurate, complete, and consistent with the board record."(fn15) Before the report was distributed to the parties, the parties had negotiated a partial compromise and release agreement.(fn16) The agreement provided in part:

In order to resolve all past, present, or future disputes between the parties as to the work related incidents described herein, excluding past medical benefits related to the cervical spine and past and future medical benefits related to the lumbar spine, the employer and its carrier will pay the employee the sum of $30,000____

The parties agree that the employee's entitlement, if any, to future medical/transportation benefits related to the low back under the Alaska Workers' Compensation Act is not waived by the terms of this agreement, and that the right of the employer to contest liability for future medical benefits is also not waived by the terms of this agreement.

The parties agree that the employee's entitlement to future medical/transportation benefits related to his cervical condition under the Alaska Workers' Compensation Act is waived by the terms of this agreement. . . . Controversions properly filed and served and not otherwise withdrawn prior to Board approval of this Compromise and Release remain in effect and the provisions of AS 23.30.110(c) continue to apply thereto.(fn17)

Sanders signed the agreement on August 15, 2005. In an affidavit attached to the agreement, he stated:

To the best of my knowledge, the facts have been accurately stated in this Compromise and Release. No representations or promises have been made to me by the employer, carrier, or their agents in this matter which have not been set forth in this document, and I have not entered into this agreement through any coercion or duress created by the employer, carrier, or their agents.(fn18)

August 1, 2005, Dr. Larson wrote to Dr. Kralick for review of Sanders's low back condition at Sanders's request."(fn19) Dr. Kralick's office received the referral August 5, 2005, and a note indicates that an MRI would be required before an appointment.(fn20) Instead of following Dr. Kralick's directions, Sanders went to his family practitioner, Dr. Sloan, on October 21, 2005, telling her "previously he was offered injections for his back . . . wants to consider that option now."(fn21) Dr. Sloan ordered a new MRI and referred him to physical therapy.(fn22) Sanders did not attend the physical therapy. In November 2005, Dr. Kralick's office contacted Dr. Larson, and requested the MRI before seeing Sanders. Dr. Larson asked Sanders to send Dr. Kralick a copy of the 2005 MRI. On December 16, 2005, Northstar, responding to Dr. Sloan's bills, issued a controversion of further medical benefits for the lower back based on Dr. Reimer's and Dr. Swanson's April 25, 2005, report.(fn23) It is this controversion that is at the center of this appeal. Sanders immediately filed a claim for benefits, alleging that the controversion showed the settlement had been entered into in bad faith, thus implicitly arguing that the settlement should be set aside.(fn24) Notably, he did not check the box labeled "unfair or frivolous controvert (denial)."(fn25) A pre-hearing conference was held to identify the issues for hearing resulting in a list that included a defense that the controversion was not issued in bad faith because both parties retained their rights regarding medical benefits in the compromise and release.(fn26) A hearing was held on May 3, 2006, to decide the claims of Dr. Kralick, Dr. Larson, and Sanders. Sanders argued to the board that the settlement agreement itself was invalid as entered into in bad faith. Sanders's argument rests on the assumption that the settlement included an agreement to pay future medical benefits for treatment of the employee's lower back.(fn27) Although a medical opinion that the care was not covered was known to the parties, by entering into the agreement, Northstar impliedly disavowed the opinion. Thus, when it relied on that opinion to controvert benefits after the agreement was secured, Northstar demonstrated that it never intended to pay medical benefits for treatment as required by the agreement. Sanders did not challenge the grounds for the controversion - he challenged the validity of the settlement agreement itself. Northstar argued that the terms of the agreement clearly stated that the employer retained all rights to controvert future benefits and did not guarantee payment of...