Arizona Court of Appeals Division Two holds that long-term disability benefits paid to a claimant by a nonparty did not impact the timeliness of temporary compensation benefits and that an award of interest on temporary compensation benefits that were not timely paid is not precluded where the claimant received an overpayment of long-term disability benefits.

Petitioner Ernie Luna Jr. suffered a compensable injury to his back in 1995.  His employer, Pima County, and its insurer Tristar Risk Management accepted Luna’s claim and paid benefits until the claim was closed in 1999.  The claim was later reopened in 2009.  Tristar closed Luna’s claim on March 31, 2011, following an independent medical examination which concluded that Luna had reached the medically stationary point of maximum medical improvement.  After a protest by Luna, an ALJ awarded Luna temporary disability compensation benefits from September 30, 2009, until his condition is determined to be medically stationary.  The ALJ’s decision was affirmed by the Industrial Commission and by the Court of Appeals in 2013. 

While Luna was contesting the closure of his claim, he was receiving long-term disability benefits through the Arizona State Retirement System, which had contracted with Sedgwick Claims Management Service, Inc. for administration of its long-term disability income plan.  Sedgwick paid Luna $29,680.93 in long-term disability benefits between March 31, 2011 and March 31, 2013.  After the Court of Appeals affirmed the ALJ’s award of benefits in 2013, Luna filed a request for a hearing pursuant to A.R.S. § 23-1061(J) seeking his unpaid benefits from Tristar.  In May 2013, Tristar determined the amount owed to Luna but withheld the majority of the funds to reimburse Sedgwick for the long-term disability benefits it had paid during the same period.  Luna disputed the withholding of the funds, arguing that it was his responsibility to reimburse Sedgwick.  Luna and Tristar eventually agreed that Tristar would pay Luna $19,786.43 and Luna would bear the responsibility of reimbursing Sedgwick for any overpayment. 

In September 2013, the ALJ approved the stipulation but denied Luna’s request for interest, reasoning that because Luna had received long-term disability benefits from Sedgwick between March 31, 2011, and March 31, 2013, his benefits were not delayed and Tristar, therefore, did not owe him interest.  The ALJ also concluded that Tristar appropriately withheld the funds and that it would not be required to pay interest on funds that were to be reimbursed to Sedgwick.  The ALJ’s decision was affirmed on review, prompting Luna to file a special action.

The Court of Appeals reached the opposite conclusion and set aside the ALJ’s award denying Luna relief.  The Court, citing DKI Corp./Sylvan Pools v. Industrial Commission, 173 Ariz. 535, 537, 845 P.2d 461, 463 (1993), noted that interest accrues when “(1) there is a legal indebtedness or other obligation to pay benefits and (2) there is notice of the obligation to pay,” and that a legal indebtedness or other obligation to pay benefits arises when a claim is “liquidated.”  Quoting DKI, the Court noted that a claim is liquidated when “the evidence furnishes data which, if believed, makes it possible to compute the amount with exactness, without reliance upon opinion or discretion.” 

The Court found that “[t]he amount of temporary compensation benefits owed is set by statute based on the claimant’s average monthly wage[.]”  See A.R.S. § 23-1045(A).  The Court drew an analogy to a case in which it concluded that death benefits owed pursuant to a statute were “‘susceptible to mathematical computation’ and subject to a ‘statutory payment schedule,’” see Stentz v. Industrial Commission, 236 Ariz. 104, 336 P.3d 737 (App. 2014), and concluded that the benefits owed here were susceptible to mathematical computation and subject to a statutory payment schedule.  Accordingly, the Court concluded that “the temporary benefits awarded to Luna were liquidated and constituted a legal indebtedness or other obligation to pay upon the ALJ’s award.” 

The Court next concluded that Tristar had notice of its obligation to pay when Luna filed a request for hearing in May 2011, following Tristar’s closure of the claim in April 2011.  The Court again drew an analogy to Stentz, where it concluded that “the carrier did not have to wait for a formal determination of the claim and could have begun payments when it issued its notice of claim status.”  The Court reasoned that Tristar could have continued paying benefits to Luna after receiving his hearing request and before the Industrial Commission decided the issue. 

Tristar argued that “interest is not payable on workers’ compensation benefits withheld, pursuant to A.R.S. § 23-1068(B)(2), in order to repay a long-term disability carrier for overpayment of benefits,” and relied on Washington Elementary School District v. Industrial Commission, 196 Ariz. 67, 993 P.2d 468 (App. 2000), and Moreno v. Industrial Commission, 164 Ariz. 374, 793 P.2d 131 (App. 1990) to support its argument.  The Court concluded that both cases were inapposite because “[b]oth involved an employer reimbursing itself for overpayment of disability benefits by taking a direct credit against retroactive workers’ compensation benefits.”  The Court rejected Tristar’s argument, concluding that Luna’s obligation to repay Sedgwick was “wholly independent of the relationship that Luna had with Tristar,” and that “[t]he fact that Luna received long-term disability benefits from a nonparty has no impact on our determination that the workers’ compensation benefits were not timely paid.” 

The Court reasoned that the purpose of the Workers’ Compensation Act is to avoid litigation and to “place upon the industry the burden of compensation for injuries caused by the employment.”  The Court further noted that awards of interest under § 44-1201 compensate the injured party, which has been deprived of the use of money not timely paid.  The Court, again citing Stentz, concluded that “a good faith dispute over liability does not prevent the award of interest on a liquidated claim,” and that “[t]o hold otherwise would incentivize withholding of payment of the workers’ compensation benefits, thereby depriving a claimant of the money’s use.”  Because “Tristar had the use of the money due Luna for his temporary total disability award, and Luna did not,” the Court concluded that Tristar was required to pay interest to Luna “from the date Tristar received notice of his intention to dispute the closure of his claim.”  The Court therefore set aside the ALJ’s award denying relief to Luna.

Presiding Judge Miller authored the opinion, which was joined by Chief Judge Eckerstrom and Judge Espinosa.