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Lee v. Industrial Comm’n - 3/12/2009

Arizona Court of Appeals Division One Holds That Self-Insured Employer Does Not Have To Pay the Attorney’s Fees of a Claimant Who Successfully Litigates a Workers’ Compensation Claim That Results Only In Reimburseent to the Employer’s Short Term Disability Fund.


Banner Health self-insures its workers’ compensation claims and its short-term disability benefits.  Claimant, an employee of Banner, injured her knee while at work in 1998.  She received some workers’ compensation benefits and returned to work.  In 2005, she stopped work because of her knee and underwent surgery.  Claimant petitioned to have her 1998 industrial injury claim reopened, and at the same time she applied for short-term disability benefits.  After Banner denied her petition to reopen, Claimant requested a hearing before the Industrial Commission of Arizona and retained an attorney to assist her on a contingent fee basis.  While the workers’ compensation claim was pending, Banner paid her short-term disability benefits.  Eventually, an administrative law judge (“ALJ”) granted her petition to reopen the 1998 claim and awarded her workers’ compensation benefits.  In accordance with a waiver Claimant signed when she applied for short-term disability benefits, the award was used to reimburse Banner for the amounts it paid for Claimant’s short-term disability benefits.  Claimant subsequently asked the ALJ to award her payment for attorney’s fees.  The ALJ denied the request and affirmed it on administrative review.  This special action followed.

Judge Irvine, writing for a 2-1 majority, held that, at least for self-insurers like Banner, the denial of attorneys’ fees was appropriate.  Banner argued that only the claimant had an obligation to pay any contingent fee.  Claimant argued that Banner, as the disability benefits provider, should help pay because it benefited from her litigation of the workers’ compensation claim.  Specifically, Claimant argued that the “common fund doctrine” should apply.  Under that equitable rule, when someone hires an attorney in an effort to preserve a common fund, “that person may be entitled to have their attorney’s fees paid out of that fund.”  Hobson v. Mid-Century Ins. Co., 199 Ariz. 525, 531, 19 P.3d 1241, 1247 (App. 2001).  The majority rejected the Claimant’s argument, reasoning that the Claimant had been fully compensated already.  In addition, as a self-insurer, Banner did not stand to gain from the Claimant’s successful litigation because Banner simply transferred funds from its workers’ compensation division to its short-term disability benefits division.

Judge Orozco writing in dissent would have held that any time a worker successfully litigates a workers’ compensation claim, and the resulting award reimburses a short-term disability benefits carrier, attorneys’ fees should be deducted from the reimbursement.  The dissent reasoned that the majority’s refusal to apply the common fund doctrine will discourage attorneys from taking workers’ compensation cases on a contingency basis, and will discourage workers from pursuing workers’ compensation claims if they receive short-term disability benefits.  In addition, the dissent thought A.R.S. § 23-1069, which authorizes the ICA to grant reasonable attorneys’ fees in workers’ compensation cases, indicated that the legislature intended attorneys’ fees to be paid out of workers’ compensation awards.

Judge Irvine authored the opinion; Judge Hall concurred.  Judge Orozco authored the dissent.

Posted On: 3/26/2009