2010-127. City of Kenai and Alaska Public Entity Insurance Appellants vs. Kathleen Watson beneficiary Chelaine Rust beneficiary Renetta Hensler minor beneficiary of John P. Watson deceased Appellees.

Case Date:January 25, 2010
Alaska Workers Compensation Decisions 2010. Workers' Compensation Appeals Commission 2010-127. City of Kenai and Alaska Public Entity Insurance Appellants vs. Kathleen Watson beneficiary Chelaine Rust beneficiary Renetta Hensler minor beneficiary of John P. Watson deceased Appellees Alaska Workers' Compensation Appeals CommissionCity of Kenai and Alaska Public Entity Insurance, Appellants, vs. Kathleen Watson, beneficiary, Chelaine Rust, beneficiary, Renetta Hensler, minor beneficiary, of John P. Watson, deceased, Appellees.Decision No. 127 January 25, 2010AWCAC Appeal No. 09-007 AWCB Decision No. 09-0013 AWCB Case No. 200323890Final Decision Appeal from Alaska Workers' Compensation Board Decision No. 09-0013 issued on January 21, 2009, at Anchorage by southcentral panel members William Soule, Chair, Don Gray, Member for Industry, and Tony Hansen, Member for Labor.(fn1) Appearances: Patricia Zobel, DeLisio, Moran, Geraghty and Zobel, for appellants City of Kenai and Alaska Public Entity Insurance. Kathleen Watson and Chelaine Rust, pro se appellees. Steven Constantino, for appellee Renetta Hensler. Commission proceedings: Appeal filed February 3, 2009. Appellee Renetta Hensler's motion to stay appeal and remand for further proceedings and motion to extend time to file brief filed May 13, 2009; oppositions filed May 20, 2009. Order on appellants' motion to supplement record issued June 2, 2009. Hearing on appellee's motions held June 10, 2009. Order denying motion to stay commission proceedings and scheduling briefing issued on June 26, 2009. Oral argument on appeal presented October 2, 2009. Filing of legislative history and supplemental briefing on legislative history complete October 27, 2009.Commissioners: Jim Robison, Stephen T. Hagedorn, Kristin Knudsen. By: Kristin Knudsen, Chair. John P. Watson was a police officer for the City of Kenai who was killed in the line of duty in 2003. He left a daughter of a former marriage, Renetta Hensler, a widow, Kathleen Watson, and a step-daughter, Chelaine Rust, his wife's daughter by a former marriage. The City of Kenai's insurer paid death benefits to Kathleen Watson, Rust, and Hensler pursuant to AS 23.30.215.(fn2) Hensler, John Watson's child of a former marriage who did not reside with Kathleen Watson, received $150 per week, the amount established by a Child Support Order prior to John Watson's death. Kathleen Watson, as John Watson's widow, received 30 percent of the maximum compensation rate of $814 per week, which was $244.20 per week. Rust, as a minor step-daughter of John Watson at his death,(fn3) received 35 percent of the maximum rate ($284.90) plus the difference between $150 and a 35 percent share, for a total of $419.80 per week.(fn4) Two years after Rust reached her majority, the City of Kenai and its insurer reached an agreement to settle its future liability to Kathleen Watson and Rust. The agreement provided for payment of a lump sum to Watson, purchase of an annuity for monthly payments to her, waiver of Rust's rights to future benefits if she were to attend college, trade school, or vocational school, and a full release of the City of Kenai's liability to Watson and Rust. Hensler, who is still in high school, was not a party to the settlement. The board denied approval of the settlement because (1) settlement agreements must be in the best interests of all beneficiaries, not just beneficiaries who are parties to the agreement; (2) as a beneficiary, Renetta Hensler was a necessary party to the settlement; and (3) as long as the City of Kenai retained the possibility of exerting a defense to a future claim by Renetta Hensler based on AS 23.30.155(j), the settlement was not in Hensler's interests.(fn5) The City of Kenai and its insurer now appeal the board's decision. The appellants argue first that the board erred by finding the agreement bound a non-signatory to its terms or affected the rights of a person not a party to the agreement. The appellants argue that the board violated the rights of the parties to negotiate a settlement by requiring that appellants waive future defenses to Hensler's possible assertion of rights and requiring the parties to negotiate with Hensler so that she is included in the agreement. The appellants argue that Hensler's death benefits terminate with expiration of the child support order under AS 23.30.215(h).(fn6) They contend that the legislative intent was to draw a line between children of a former marriage who lived outside the worker's household and the dependent children who were part of his household when he died. They argue the state did not violate Hensler's constitutional right to equal protection of the laws by doing so, because workers' compensation support is an economic, not a fundamental, right and the distinction drawn by the legislature bears a "fair and substantial relationship to the purposes of the [Alaska Workers' Compensation] Act."(fn7) Appellees Kathleen Watson and Rust did not oppose the appeal. Appellee Hensler argues that her status as a child of the deceased worker does not change because she is the subject of a child support order. The purposes of the death benefit statute are not served, she argues, by importing domestic relations concepts. She argues that AS 23.30.215(h) limits the amount of benefits to a valid child support order, but does not affect a person's status as a "child" under AS 23.30.395(8).(fn8) She contends that the interpretation urged by the appellants would deny her both equal protection of the law by foreclosing her fundamental right to post-secondary education and improperly distinguishing between her and the worker's other children because her parents were divorced. The parties' contentions require the commission to decide if a child of a deceased worker, who is the subject of a child support order and not living with a surviving widow or widower of the worker, is entitled to receive a percentage share of death benefits under AS 23.30.215(a)(2) after the expiration of the period of child support ordered by the court. The parties' contentions also require the commission to decide if the board misinterpreted the settlement terms and improperly denied the beneficiaries the right to enter into an agreement under AS 23.30.012. This appeal also raises issues of procedural error. The commission holds that AS 23.30.215(h) does not bar the child of a deceased worker from receiving a percentage share of death benefits under AS 23.30.215(a)(2) after expiration of the period of child support ordered by the court, provided that the child remains a "child" as defined by the Act. However, the commission concludes that the proposed settlement agreement did not affect the rights of the non-signatory beneficiary. The commission concludes that the board misinterpreted the Supreme Court's holding in Barrington v. Alaska Communications Systems Group, Inc.,(fn9) and therefore erred by burdening the exercise of one beneficiary's right to reach an agreement with the employer to settle her claim, effectively granting a non-signatory co-beneficiary a "veto" over the exercise of the rights of the signatory beneficiaries. The board failed to provide the parties a hearing notwithstanding the appellants' request for a hearing. The board, having failed to find that the agreement was not in the best interests of the signatory beneficiaries, abused its discretion in refusing approval of the agreement. The commission AFFIRMS in part, REVERSES in part, VACATES the board's order and REMANDS with instructions to hold a hearing and decide if the settlement agreement is in the best interests of Kathleen Watson and Chelaine Rust. 1. Factual background and proceedings before the board. The material facts are not disputed. John P. Watson was a police officer who was killed in the line of duty on December 25, 2003. When he died, he was married to Kathleen Watson, whose daughter by a prior marriage, Chelaine Rust, resided with John and Kathleen and to whom he stood in loco parentis. John Watson also had a child by a prior marriage, Renetta Hensler, for whom he paid child support pursuant to a Child Support Order entered under Civil Rule 90.3. The amount of the child support ordered was $650 per month, which is $150 per week on an annualized basis.(fn10) Kathleen Watson was born December 25, 1956; Chelaine Rust was born December 11, 1987; and Renetta Hensler was born March 24, 1993. Kathleen Watson was initially paid compensation of 30 percent of Watson's total compensation rate, the widow's portion if two or more children survive.(fn11) If Kathleen Watson, who was 47 years old when John Watson died, reached 52 years of age within 12 years of John Watson's death, her benefits would not cease so long as she remained unmarried.(fn12) If she remarried, no matter what her age, she would be paid two years of the benefit she was receiving at the time of her remarriage, and benefits would cease.(fn13) But, if she remained unmarried, as the children attained majority and ceased to be entitled to benefits, the children's shares would accrue to her. Renetta Hensler was paid compensation equal to her deceased father's child support obligation to her, $150 weekly, as required by AS 23.30.215(h). She is 16 years old, still in high school, and her mother asserts Hensler intends to attend college. Her child support order, entered under Civil Rule 90.3(f) on April 8, 1997, provides in pertinent part:
The obligor, father, shall pay child support as

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