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NO. 1-01-0955WC

IN THE APPELLATE COURT OF ILLINOIS

FIRST DISTRICT

Industrial Commission Division

JUSTICE RARICK delivered the opinion of the court:

Claimant, Robert Zitzka, sought benefits pursuant to the Workers'Compensation Act (Act) (820 ILCS 305/1 et seq. (West 1994)) for injuries sustained whilein the employ of Reflector Hardware Corporation (Reflector). On August 14, 1994, Zitzka,a forklift operator, was injured when a forklift went out of control and pinned him againsta rock. On August 21, 1996, the arbitrator issued a decision awarding Zitzka 73 3/7 weeksof temporary total disability (TTD) benefits, medical benefits, and found Zitzka permanentlypartially disabled to the extent of 45% of the person as a whole.

On September 30, 1996, Reflector appealed to the Industrial Commission(94WC51030). In its petition for review, it listed as issues TTD, medical expenses, causalconnection and nature and extent of the injury. In its Statement of Exceptions and Brief, however, Reflector stated that the only issue was the amount of medical benefits awarded. Zitzka did not file a petition for review, but did request an increase in permanency in hisbrief. Oral argument was held before the Commission on July 23, 1997. Reflector againlimited its argument to the amount of medical expenses. Reflector disputed only the issueof whether the medical services provided to Zitzka after May 10, 1996, were causally relatedto his work accident and whether such services were reasonable and necessary to relieveZitzka from the effects of the accident.

On July 31, 1997, Zitzka filed a petition seeking additional compensationpursuant to section 19(k), penalties pursuant to section 19(l), and attorney fees pursuant tosection 16 of the Act. Zitzka contended that he had not received payment for any portionof the arbitrator's award, and that such nonpayment was unreasonable, vexatious and merelyfor the purposes of delay.

On August 20, 1997, the Commission issued its decision in 94WC51030. TheCommission found that the only issue being disputed by Reflector was whether medicalservices provided after May 10, 1996, were causally related to the work accident, and thatReflector had waived all other issues. The Commission reduced the amount of medicalexpenses to $15,319.32, and remanded the cause to the arbitrator for the purpose of takingtestimony regarding the post-May 10, 1996, medical bills so that a determination could bemade as to whether they were causally related to the accident.

On September 7, 1997, counsel for Zitzka received a check dated August 8,1997, in payment of the arbitrator's award of PPD, TTD, and interest.

A hearing on Zitzka's petition for penalties and fees was held beforeCommissioner Ketter on September 18, 1997. Commissioner Ketter granted the parties'request to submit briefs and scheduled the case for oral arguments. On March 11, 1998, oralarguments were held before the Commission. Reflector acknowledged that at oralarguments on its appeal of the arbitrators decision it raised only the issue of medicalexpenses. Reflector argued that issues could be preserved for appeal to the Commission byraising them in either the petition for review or the statement of exceptions and supportingbrief. The Commission rejected this argument, finding that pursuant to section 7040.70(d)of the Rules Governing the Practice Before the Commission, an issue had to be raised inboth the petition for review and the statement of exceptions in order to be properly preservedfor review. The Commission concluded that the only issue before it was the medicalexpense issue. Relying on Mid-American Lines v. Industrial Comm'n, 82 Ill. 2d 47, 411N.E.2d 254 (1980), however Reflector argued that an employer was not required to pay anypart of an award where there is a legitimate dispute over some portion thereof, in order toavoid "piecemeal" payment of awards. The Commission rejected Reflector's interpretationof Mid-American Lines, noting that Reflector's September 4, 1997, payment of a portion ofthe uncontested award belied its argument against payment of an award in a piecemealfashion. The Commission concluded that Reflector raised no good faith issues with respectto the issues of TTD and PPD, and that its delay in paying the uncontested portion of thearbitrator's award was unreasonable and vexatious. The Commission awarded $32,791 inpenalties pursuant to section 19(k) and $6,558.29 in attorney fees pursuant to section 16.

Reflector sought judicial review of this decision in the circuit court of CookCounty. The circuit court reversed the Commission's decision, finding that the delay wasnot deliberate or the result of bad faith or an improper purpose, the standard for imposingpenalties pursuant to section 19(k) and awarding attorney fees pursuant to section 16. Thecourt noted that Reflector paid the TTD and PPD awards shortly after being requested to doso, and that its failure to pay sooner was based upon its belief that Mid-American Lines didnot require any payment of an award where a portion thereof was on review. Although thecourt characterized Reflector's interpretation of Mid-American Lines as being a "closequestion," it found Reflector's reliance thereon to have been in good faith. Noting that thestandard for imposing penalties pursuant to section 19(l) was lower than that required forsection 19(k), the court remanded the cause to the Commission for a determination ofwhether section 19(l) penalties should be awarded. Upon remand, the Commission awarded$2,500 in penalties pursuant to section 19(l). The circuit court confirmed the decision of theCommission.

Zitzka now appeals both the circuit court's original order remanding the causeto the Commission and its decision confirming the Commission's decision on remand.

On appeal, Zitzka argues first that the Commission's decision to awardadditional compensation pursuant to section 19(k) and attorney fees pursuant to section 16was not against the manifest weight of the evidence, and that the circuit court erred in sofinding.

Section 19(k) provides that:

(k) In case [sic] where there has been any unreasonable orvexatious delay of payment or intentional underpayment ofcompensation, or proceedings have been instituted or carried onby the one liable to pay the compensation which do not presenta real controversy, but are merely frivolous or for delay, thenthe Commission may award compensation additional to thatotherwise payable under this Act equal to 50% of the amountpayable at the time of such award. Failure to pay compensationin accordance with the provisions of Section 8, paragraph (b) ofthis Act, shall be considered unreasonable delay. 820 ILCS305/19(k) (West 1994).

Section 16 provides in pertinent part:

Whenever the Commission shall find that the employer,his or her agent, service company or insurance carrier has beingguilty of delay or unfairness towards an employee in theadjustment, settlement or payment of benefits due suchemployee within the purview of the provisions of paragraph (c)of Section 4 of this Act; or has been guilty of unreasonable orvexatious delay, intentional under-payment of compensationbenefits, or has engaged in frivolous defenses which do notpresent a real controversy, within the purview of the provisionsof paragraph (k) of Section 19 of this Act, the Commission mayassess all or any part of the attorney's fees and costs againstsuch employer and his or her insurance carrier. 820 ILCS305/16 (West 1994).

Where there has been a delay in paying compensation, the employer bears theburden of justifying the delay. Modern Drop Forge Corporation v. Industrial Comm'n, 284Ill. App. 3d 259, 671 N.E.2d 753 (1996). Whether the delay was unreasonable or vexatiousand whether the imposition of penalties is warranted are questions of fact for theCommission and its decisions thereon will not be disturbed on review unless they arecontrary to the manifest weight of the evidence. Roodhouse Electric Company v. IndustrialComm'n, 276 Ill. App. 3d 576, 658 N.E.2d 838 (1995). In the present case, the circuit courtfound that in imposing penalties pursuant to section 19(k) and attorney's fees pursuant tosection 16, the Commission employed the wrong standard, and that the evidence did notshow that Reflector's conduct was egregious enough to warrant an award of section 19(k)penalties and attorney's fees.

In McMahan v. Industrial Comm'n, 183 Ill. 2d 499, 702 N.E.2d 545 (1998),our supreme court commented on the standard for awarding penalties pursuant to section19(k) and attorney's fees pursuant to section 16:

Viewing the statute as a whole, we believe that section19(k) and section 19(l) were actually intended to addressdifferent situations. The additional compensation authorized bysection 19(l) is in the nature of a late fee. The statute applieswhenever the employer or its carrier simply fails, neglects, orrefuses to make payment or unreasonably delays payment'without good and just cause.' If the payment is late, forwhatever reason, and the employer or its carrier cannot show anadequate justification for the delay, an award of the statutorilyspecified additional compensation is mandatory.

In contrast to section 19(l), section 19(k) provides forsubstantial penalties, imposition of which are discretionaryrather than mandatory. [Citation.] The statute is intended toaddress situations where there is not only a delay, but the delayis deliberate or the result of bad faith or improper purpose. Thisis apparent in the statute's use of the terms 'vexations,''intentional' and 'merely frivolous.' Section 16, which usesidentical language, was intended to apply in the samecircumstances. McMahan, 183 Ill. 2d at 515, 702 N.E.2d at552-53.

In the present case, Reflector maintains that it did not pay the uncontestedportions of the award on the belief that it was not required to pay an award until all issuesare resolved, and that its position was based upon its interpretation of Mid-American Lines. Thus, Reflector maintains, its conduct was not so egregious as to warrant the imposition ofsection 19(k) penalties. Reviewing the Commission's decision, it is unclear whether theCommission employed the wrong standard, as the circuit court found, or whether theCommission determined as a matter of fact that Reflector's reliance on Mid-American Lineswas so misplaced as to constitute bad faith. If the former, the circuit court was correct inreversing the Commission because the Commission employed the wrong legal standard. Ifthe latter, the question is whether the Commission's conclusion was contrary to the manifestweight of the evidence. Resolution of this question turns on whether Reflector'sinterpretation of and reliance on Mid-American Lines was objectively reasonable.

In Mid-American Lines, Dorothy Johnson sought benefits pursuant to the Actfor the fatal injuries of her husband, Walter. The parties stipulated that Walter Johnson'sdeath was compensable, but could not agree that he had dependents entitled to an award oron the amount of medical expense award. The Commission determined that the decedentwas survived by his widow, Dorothy, and a minor child, Dorothy Victoria Gilmore, thewidow's granddaughter, to whom defendant stood in loco parentis. The Commissionordered that the death benefits were to be paid to the widow, for her benefit and use, and forthe care, education and maintenance of Gilmore. The circuit court remanded the cause tothe Commission for further evidence on the relationship between Gilmore and the decedent,but confirmed the Commission's decision in all other aspects.

Prior to rehearing, the widow filed a petition seeking penalties and fees. TheCommission consolidated the hearing on the loco parentis issue with the hearing on thewidow's petition. The employer conceded that the decedent stood in loco parentis toGilmore and ordered that 50 percent of the award be used solely for her care, education andmaintenance. The Commission also awarded penalties and fees. The circuit court set asidethe assessment of penalties and fees, but otherwise confirmed the Commission's decision.

On appeal, the widow argued, inter alia, that the Commission's award ofpenalties and fees was proper. The court in Mid-American Lines disagreed, finding thatpayment was tendered before the award became final. The court held that "the dispute overthe form of payments in the instant case was legitimate. Although it involved only a portionof the award, the respondent was entitled to withhold payments under these facts until thisissue was resolved." Mid-American Lines, 82 Ill. 2d at ____, 411 N.E.2d at ___.

Mid-American Lines cannot reasonably be read to support Reflector's position. The only type of award made in Mid-American was a death benefit award. It appears thatthe employer in Mid-American withheld payment of the award because there was a disputeas to how a portion of it was to be paid. In the present case, the workers' compensationaward included TTD, PPD and medical expense awards. While Reflector disputed themedical expense award, it did not dispute the TTD or PPD awards. Reflector had nolegitimate reason to withhold payment of the undisputed awards and nothing in Mid-American Lines supports the proposition that the undisputed portions of a workers'compensation award can be withheld. The Commission's award of section 19(k) penaltiesand section 16 attorney fees was proper, and the circuit court erred in finding to the contrary.

Zitzka also argues that we should affirm the award of penalties pursuant tosection 19(l). Reflector has not cross-appealed, nor does it argue in its reply brief that thisaward was improper. Thus, this issue is not properly before us.

Reflector argues in its reply brief that the Commission erroneously awardedsection 19(k) penalties in the amount of 50% of the entire PPD award, rather than thatportion that was due and owing as of September 4, 1997. Specifically, Reflector contendsthat Zitzka was temporarily totally disabled through January 11, 1996, that the penalty awardwas to be paid in weekly installments of $271.04 for 225 weeks. The entire penalty awardwas paid in lump sum, however, on September 4, 1997. Thus, Reflector contends, section19(k) penalties could only be assessed for the TTD benefits and the PPD benefits thataccrued between January 12, 1996, and September 4, 1997, a period of 85 weeks. Becausethe attorney's fee award was based upon the amount of section 19(k) penalties awarded,Reflector argues, it too was incorrect.

Section 19(k) provides for additional compensation "equal to 50% of theamount payable at the time of such award." 820 ILCS 305/19(k) (West 1994). In Moorev. Industrial Comm'n, 188 Ill. App. 3d 31, 543 N.E.2d 1062 (1989), the court considered themeaning of the phrase "amount payable at the time of such award." In its appeal to theCommission, the employer had attempted to claim a credit in the amount of $4,811.82 fora prior payment. The Commission ruled that because the employer failed to request a creditfor this payment at the time of arbitration, it could not now have a credit for that payment. Nevertheless, when the employer paid the award to the claimant, it withheld this amount. Claimant filed a petition for section 19(k) penalties and attorney's fees. The Commissionawarded 19(k) penalties in the amount of 50% of the entire original award. The circuit courtreduced the penalty to 50% of $4,811.82, the amount of the award which remained unpaidby the employer. On appeal to this court, the issue was whether the phrase "amount payableat the time of such award" referred to the amount of the award which remained unpaid at thetime the penalty is awarded, or the entire amount of the original compensation award. Afterconsidering the language of the statute, the remedial purposes of the Act, Larson's treatiseon Workers' Compensation, and our supreme court's holding in Robertson v. TravelersInsurance Company, 95 Ill2d 441, 448 N.E.2d 866 (1983), this court concluded that"amount payable" referred to the entire amount of the type of benefit originally awarded.

In Little Company of Mary Hospital v. Industrial Comm'n, 256 Ill. App. 3d1036, 628 N.E.2d 537 (1993), the employer agreed to advance six months' TTD benefits asan advance against any permanency or TTD award and payment of outstanding medicalexpenses. After six months, the advance had not been made, and the claimant soughtpenalties and attorney fees. The arbitrator found the employer's delay to be intentional andfrivolous, and awarded section 19(k) penalties in the amount of 50% of the TTD award. Prior to review by the Commission, the employer paid the advance. The Commissionaffirmed the decision of the arbitrator, and the circuit court confirmed the decision of theCommission. The employer appealed the imposition of section 19(k) penalties, arguing thatthe imposition of penalties on the entire TTD award was excessive. The employer attemptedto distinguish Moore by arguing that liability for payment of TTD arose as a matter ofcontract rather than as a result of an award by the Commission. Rejecting the employer'sargument, we held that "the rule set forth in Moore (to apply section 19(k) penalties to theentire amount of compensation due at the time of the penalty hearing) applied whether theliability to pay resulted from a settlement contract or an award." (emphasis added) LittleCompany of Mary Hospital, 256 Ill. App. 3d at___, 628 N.E.2d at 540.

In Lester v. Industrial Comm'n, 256 Ill. App. 3d 520, 628 N.E.2d 191 (1993),the claimant sustained an injury to his hand which resulted in the amputation of threefingers. In addition to TTD and PPD awards, the arbitrator awarded claimant section 19(k)penalties and attorney's fees based upon the employer's 14-month delay in paying the 80weeks of compensation claimant was automatically entitled to pursuant to section 8(e). Theamount of the penalty award was based upon the entire 80 weeks. The Commission reducedthe penalty and fee award, finding that 66 1/7 weeks had passed when the employer tenderedpayment, and that the penalty and fee award should be based upon the amount ofcompensation that had accrued at the time of payment. On appeal, the claimant argued that the amount of penalties and fees were to be calculated on the entire amount of the type ofaward in question rather than just the portion that had accrued prior to payment. This courtheld that penalties and fees were to be based upon the amount that had accrued at the timepayment was tendered and that penalties should not be based upon benefits which have yetto accrue. Lester, 256 Ill. App. 3d at ___, 628 N.E.2d at ____.

The present case is more analogous to Lester than to Moore or Little Companyof Mary Hospital. In those cases, the entire amount of the award had accrued and the issuewas whether penalties should be computed based upon the entire award or simply thatportion which had accrued but had not yet been paid. In the present case, as in Lester, theissue is whether penalties and fees should be calculated based upon the entire award, or onlythat amount that has accrued at the time of the penalty hearing. We hold that penalties andattorney fee awards should be calculated on the amount of the award that has accrued at thetime of the penalty hearing. Amounts that have not yet accrued should not be included inthe calculation. To the extent Moore can be read to hold otherwise, we decline to follow it.

For the foregoing reasons, the judgment of the circuit court of Cook Countyconfirming the Commission's award of section 19(l) penalties is affirmed. That part of thecircuit court's judgment confirming the Commission's denial of section 19(k) penalties andsection 16 attorney fees is reversed, and the cause remanded to the Commission for adetermination thereof.

Circuit court affirmed in part, and reversed and remanded in part.

McCULLOUGH, P.J., and HOFFMAN, O'MALLEY, and HOLDRIDGE, JJ.,concur.