The Uninsured Employer's Fund v. Gregory Peters

COURT OF APPEALS OF VIRGINIA
Present: 	Chief Judge Fitzpatrick, Judge Benton and Senior Judge Coleman
Argued by teleconference
THE UNINSURED EMPLOYER’S FUND
OPINION BY
v. 	Record No. 2782-03-4 	JUDGE JAMES W. BENTON, JR.
SEPTEMBER 7, 2004
GREGORY PETERS
FROM THE VIRGINIA WORKERS’ COMPENSATION COMMISSION
John J. Beall, Jr., Senior Assistant Attorney General (Jerry W.
Kilgore, Attorney General; Richard L. Walton, Jr., Senior Assistant
Attorney General, on briefs), for appellant.
Lawrence J. Pascal (Ashcraft & Gerel, on brief), for appellee.
The Workers’ Compensation Commission suspended Gregory Peters’s award of
temporary partial disability benefits effective December 27, 2001 due to his incarceration. See
Code § 65.2-510.1. The Uninsured Employer’s Fund contends the commission erred in finding
that the Fund’s unilateral suspension of Peters’s benefits on September 27, 2001 was arbitrary
and erred in levying a penalty of three months of benefits against the Fund. By cross-appeal,
Peters contends the commission incorrectly suspended his benefits after finding that the Fund
failed to comply with Code § 65.2-510.1 and it improperly and prematurely terminated his
benefits in violation of Rule 1.4(C). We hold that the commission erred in terminating Peters’s
benefits as of December 27, 2001.
I.
The essential facts are undisputed. Peters suffered a compensable injury December 21,
1993, which resulted in several awards of benefits. On September 12, 2001, the commission
entered an award in favor of Peters that required the Fund to pay temporary partial disability

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benefits at the weekly rate of $226.27, beginning February 27, 2001 and continuing. By letter
dated September 28, 2001, Peters’s attorney notified the Fund that he had recently learned Peters
was incarcerated and that he had “no other details at this time.” Without seeking an order from
the commission, the Fund ceased paying Peters his benefits. A later letter from Peters’s
attorney’s office on October 12, 2001 notified the Fund that “Peters advised . . . he was
incarcerated on September 27, 2001,” that they “anticipate[d] . . . he will be released shortly,”
and that they will “keep [the Fund] posted.”
A senior claims examiner at the commission notified the Fund on June 20, 2002 that the
commission’s records indicated an award was outstanding and that the commission assumes
payments are continuing. The letter also advised that if “payments have ceased, an executed
Termination of Wage Loss Award or an Employer’s Application for Hearing must be filed to end
the award.” The record does not reveal any response from the Fund to this letter; however, in
October 2002, the Fund and Peters’s attorney exchanged correspondence regarding Peters. The
Fund sent to Peters’s attorney a proposed stipulation to terminate the award, which was not
returned by Peters or his attorney. On February 28, 2003, the Fund filed an application for
hearing to suspend Peters’s benefits, noting that it had paid compensation through September 27,
2001.
The deputy commissioner found that the Fund delayed filing an application for hearing
based upon the representation that Peters would be soon released from incarceration and that
Peters waited a year and a half before complaining about the suspension of benefits. Based
primarily on these factors, the deputy commissioner ruled that “[a] manifest injustice would
result . . . [if Peters was] unjustly enriched by the payment of an additional eighteen months of
compensation benefits.”

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The deputy commissioner also found that the Fund “violated the body and spirit of the
act” by arbitrarily suspending Peters’s benefits without filing an application. Finding that “the
policy of Rule 1.4 is overridden by the windfall that will result from its strict application,” the
deputy commissioner ruled as follows:
We will order the [Fund] to pay an additional three months of
compensation benefits, and suspend the outstanding award as of
December 27, 2001. In this manner, we limit the claimant’s
windfall to three months of benefits. We also punish the [Fund]
for its negligence in failing to file a timely application and for its
unilateral and arbitrary suspension of benefits by, in effect,
imposing a penalty of three months of benefits.
On review, the commission noted that Code § 65.2-510.1 did not give the Fund “the
unilateral right to cease paying compensation benefits [due] to a disabled employee under an
outstanding award” and also noted that “Rule 1.4(C) operates as a method of policing the
‘tendency of employers and insurers to terminate first and litigate later.’” The commission
found, however, that Peters would be unjustly enriched by strictly enforcing Rule 1.4(C) and
“that the parties reasonably expected [Peters’s] award to be suspended due to his incarceration.”
The commission then ruled as follows:
[W]e previously recognized that there may . . . be [a] case where it
would be appropriate, when applying the equitable concept of
imposition, to penalize an employer/carrier for the unilateral action
of terminating compensation by requiring the employer/carrier to
pay compensation beyond the date that compensation could have
been properly terminated if the employer/carrier had filed a timely
application. See Merino v. Dittmar Company/Tyson Westpark
Hotel, VWC File No. 143-57-63 (1995). We find this to be such a
case.
Here, the Fund stopped paying benefits to the claimant
immediately after being advised of the claimant’s incarceration and
before it received more information regarding the nature and
duration of the claimant’s imprisonment. In its position statement
filed for consideration of the Deputy Commissioner, the Fund
asserted that it had been “lulled by a suggested early release, and
then it was forgotten” -- implying that it intended to wait until
receiving more information regarding the claimant’s information

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before submitting the appropriate documentation to the
Commission. However, the Fund had no right to stop paying the
claimant compensation until after it had already filed its
application, and we agree with the Deputy Commissioner’s
conclusion that the Fund’s decision to immediately terminate
benefits was “arbitrary” -- particularly when, as here, counsel for
the claimant initially advised the Fund that he did not believe the
claimant would be imprisoned for a substantial length of time.
Therefore, we conclude that the Deputy Commissioner did not
err by requiring the employer to pay temporary partial disability
compensation to the claimant through to December 27, 2001, such
benefits to be paid by the Fund with the right to indemnification
from the uninsured employer.
Both the Fund and Peters appealed from these rulings.
II.
In pertinent part, Code § 65.2-510.1 provides as follows:
A. Whenever an employee is imprisoned in a jail, state
correctional facility, or any other place of incarceration and (i) the
imprisonment resulted from the employee’s conviction of a
criminal offense and followed his sentencing therefor by a court of
competent jurisdiction, (ii) the employee is receiving compensation
for temporary total incapacity pursuant to § 65.2-500 or temporary
partial incapacity under § 65.2-502, and (iii) the employee is
medically released to perform selective employment,
compensation benefits for wage loss shall be suspended under
§ 65.2-708 upon filing of a proper application to the Commission.
B. If benefits are suspended for incarceration pursuant to this
section and the employee’s conviction is subsequently reversed on
appeal and no further appeals or prosecutions concerning such
prior conviction are had, the employee’s benefits shall be restored
under § 65.2-708 upon filing of a proper application to the
Commission.
Commission Rule 1.4 governs the filing of applications for hearing. It requires, absent
certain exceptions not applicable here, that an employer filing an application for a hearing based
on a change in condition must pay “[c]ompensation . . . through the date the application was
filed.” Rule 1.4(C). On numerous occasions, we have noted that the commission enacted Rule
1.4(C) to control the tendency of some employers and insurers to unilaterally terminate awards

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and litigate later. See Odin, Inc. v. Price, 23 Va. App. 66, 72, 474 S.E.2d 162, 164 (1996);
Specialty Auto Body v. Cook, 14 Va. App. 327, 330, 416 S.E.2d 233, 235 (1992). The object of
this salutary rule is to limit that tendency, but the rule also has the secondary effect of protecting
the sanctity of the commission’s awards.
The general principle is well established that an employee becomes vested with the right
to receive workers’ compensation benefits under an award in his favor so long as the award
remains outstanding. Sargent Electric Company v. Woodall, 228 Va. 419, 425, 323 S.E.2d 102,
105 (1984). Equally well established is the principle that the commission’s rules are “binding in
law upon the parties and the Commission as well.” Id. at 424, 323 S.E.2d at 105. These
principles are of long standing and are designed to eliminate unilateral failures to comply with
awards.
The employer and the insurance carrier were charged with
knowledge of the rule, and the harsh result here complained of is
of their own making. It is brought about by their failure or refusal
to make application for a hearing . . . [when] claimant resumed
work. . . . Instead of filing for a hearing on the ground of a change
of condition they took the matter into their own hands and
terminated the compensation payments in the face of the
pre-existing award. The rule was adopted to require prompt
payment of compensation to all claimants entitled thereto. One of
its purposes was to eliminate the result which took place in this
case, that is, the arbitrary discontinuance of compensation by the
employer and the insurance carrier without legal sanction.
Manchester Bd. & Paper Co. v. Parker, 201 Va. 328, 331-32, 111 S.E.2d 453, 456 (1959).
An example of the application of these principles is found in Woodall, where an
employee returned to work for his pre-injury employer at an average weekly wage higher than
his pre-injury wage. 228 Va. at 422, 323 S.E.2d at 104. The deputy commissioner ruled that the
employer unilaterally terminated the award and, therefore, assessed a penalty against the
employer and benefits. Id. at 423, 323 S.E.2d at 104. The employer appealed, “requesting that
the award be modified by deleting benefits and penalties for those weeks in which Woodall

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earned in excess of his pre-injury average weekly wage.” Id. The commission upheld the award
“on the ground that the carrier’s failure to comply with Rule 13 [the predecessor to Rule 1.4] was
the reason the award remained outstanding.” Id. at 423, 323 S.E.2d at 104. Affirming the
commission’s award, the Supreme Court held in Woodall that an employer cannot complain
about the harshness of the result of the commission’s rules if the employer’s failure to follow the
rules leads to that result. Id. at 425-26, 323 S.E.2d at 106.
Without reference to these principles, the commission in this case “applied the equitable
doctrine of imposition when concluding that [Peters] was not entitled to temporary partial
compensation through February 28, 2003 -- the date that the Fund filed its application to suspend
[Peters’s] outstanding temporary partial award.” See Harris v. Diamond Constr. Co., 184 Va.
711, 720, 36 S.E.2d 573, 577 (1946) (holding that the commission has “jurisdiction to do full and
complete justice in each case,” and, thus, recognizing that “the commission [has] the power and
authority not only to make and enforce its awards, but to protect itself and its awards from fraud,
imposition and mistake”). The record is undisputed, however, that the Fund unilaterally ceased
paying Peters temporary partial disability benefits in contravention of Rule 1.4(C). The
commission found that the Fund did so on September 28, 2001 after receiving a letter from
Peters’s attorney informing it that Peters was incarcerated. Nevertheless, citing several of this
Court’s opinions, including Washington v. United Parcel Serv. of Am., 39 Va. App. 772, 576
S.E.2d 791 (2003), and Lam v. Kawneer Co., Inc., 38 Va. App. 515, 566 S.E.2d 874 (2002), the
commission ruled that Peters would be unjustly enriched because “he no longer suffered a wage
loss related to his compensable injury” and that the Fund’s failure to comply with the Rule could
be excused because “the parties reasonably expected the . . . award to be suspended due to
[Peters’s] incarceration.” We hold that this reasoning and the facts of this case do not support
the use of the doctrine of imposition.

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The Supreme Court recently reversed our decision in Washington and discussed again the
issue of an employer unilaterally terminating benefits. See Washington v. United Parcel Serv. of
Am., 267 Va. 539, 593 S.E.2d 229 (2004). In that case, the employee had filed a “request to
assess a 20% penalty against the employer’s insurance carrier for its failure to pay the . . .
benefits as provided in an open award.” Id. at 541, 593 S.E.2d at 230. Addressing the penalty
issue, the Court held as follows:
Code § 65.2-524, dealing with payment of workers’ compensation,
provides, as pertinent, that “[i]f any payment is not paid within two
weeks after it becomes due, there shall be added to such unpaid
compensation an amount equal to twenty percent thereof . . . .”
Commission Rule 1.4(C)(1) requires compensation to be paid
through the date an employer’s application for a hearing is filed
unless “[t]he application alleges the employee returned to work, in
which case payment shall be made to the date of the return.”
. . . [T]he carrier failed to file a change in condition application
with the Commission alleging the claimant had returned to work
and requesting termination of the . . . open award. Rather, the
carrier unilaterally terminated payment of benefits after it learned
that the claimant had returned to work without restrictions.
. . . [T]he relevant statutes do not give an employer or carrier
the unilateral right to cease paying compensation benefits to a
disabled employee under an outstanding award, when that
employee returns to work and the employer or carrier does not file
an application or agreed statement of facts along with a
supplemental memorandum of agreement. . . . [T]he “laudable
purpose” of the foregoing Commission rule . . . [is] a method of
policing the tendency of employers and carriers to terminate first
and litigate later.
Id. at 545, 593 S.E.2d at 232 (citations omitted). Holding that the doctrine of imposition was
improperly applied, the Court reversed the commission’s refusal to assess a 20% penalty and
ruled that the award of benefits remained valid. Id. at 546-47, 593 S.E.2d at 233.
Although the commission correctly noted our observation in Lam that “[i]t is ‘neither
logical, reasonable, nor within the spirit of the Act’ to award benefits when a worker is not
entitled to them,” 38 Va. App. at 518, 566 S.E.2d at 875-76 (citation omitted), we made that

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observation in the context of a record which proved the worker “neglected to comply with [a]
notice requirement” of the Act and the employer had not “flaunted the Commission’s
requirements” as prescribed by the rules. Id. at 519, 566 S.E.2d at 876. Recently, in Genesis
Health Ventures, Inc. v. Pugh, 42 Va. App. 297, 591 S.E.2d 706 (2004), we explained the
rationale for our decision in Lam. In the following passage, we quote extensively from Pugh to
reiterate that rationale:
Notwithstanding its clear violation of the commission’s rule, [the
employer] contends that our Lam decision required the
commission to disregard [the employer’s] failure to comply with
the rules. We disagree with [the employer’s] reading of Lam.
Unlike Pugh, who returned to work for . . . her pre-injury
employer, Lam did not return to work for his pre-injury employer.
Highlighting the circumstance of Lam’s return to work for another
employer, we noted that when “the insurer requested [Lam] to
provide the name of his current employer, the date he started
working, and copies of his pay stubs . . . [, Lam] did not respond.”
38 Va. App. at 517, 566 S.E.2d at 875. Lam’s failure to respond to
the request was a significant factor in the commission’s decision
for three reasons. First, the employer’s “application for [a hearing
to] terminat[e] . . . benefits must be based on documentation
‘sufficient to support a finding of probable cause to believe [the]
. . . grounds for relief are meritorious.’” Id. at 519 n.3, 566 S.E.2d
at 876 n.3. Because Lam’s employer lacked specific information
about where he was employed and his rate of pay, the employer
had insufficient documentation to support its application. Second,
Lam “did not dispute that he neglected to comply with the notice
requirements of § 65.2-712.” Lam, 38 Va. App. at 519, 566 S.E.2d
at 876. In pertinent part, this statute imposes upon an employee “a
duty immediately to disclose to the employer . . . [the employee’s]
return to work” and authorizes the commission to remedy a breach
of that duty. Code § 65.2-712. Third, in Lam the employer sought
information from Lam that would have permitted it, had Lam
cooperated, to timely file an agreement to terminate the award.
Thus, the commission found no evidence to suggest the employer
had “flaunted” the rules by its delay. 38 Va. App. at 519, 566
S.E.2d at 876.
Id. at 300, 591 S.E.2d at 707.

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As in Pugh, the Fund had sufficient information to support an application for hearing in
this case but, instead, unilaterally terminated compensation benefits it was required to pay under
an outstanding award contrary to the commission’s rules. Similar to the circumstances in Pugh,
the Fund also later failed to file an application for hearing after receiving notice from the
commission inquiring about the outstanding award. On the other hand, the record contained no
evidence that Peters violated any duty required of him by the commission’s rules or the Act.
It is true that, if the Fund had complied with the commission’s rules after the Fund
learned of Peters’s incarceration, the compensation payments to Peters could have been properly
terminated pursuant to Code § 65.2-510.1. It does not follow from this proposition that the
commission could invoke the doctrine of imposition, reasoning “that the parties reasonably
expected the . . . award to be suspended due to his incarceration” and that Peters “did not deny
that his award was subject to suspension due to his incarceration.” Imposition cannot be invoked
to reward a party who blatantly contravenes the Act’s requirements on the rationale that the
outcome would have been the same if the Act’s requirements had been followed. The
commission’s “adoption of . . . rules [for carrying out the provisions of the Act] is a legislative
act, and the enactment is binding in law upon the parties and the Commission as well.” Woodall,
228 Va. at 424, 323 S.E.2d at 105. Thus, the commission’s authority to do full and complete
justice must be exercised “[w]ithin the principles established by statutes and rules construing
them.” Avon Products, Inc. v. Ross, 14 Va. App. 1, 7, 415 S.E.2d 225, 228 (1992). One of the
purposes of Rule 1.4 was to eliminate the result which took place in this case, the pattern of
terminating benefits and litigating later. See Washington, 267 Va. at 545, 593 S.E.2d at 232;
Woodall, 228 Va. at 424, 323 S.E.2d at 104; Manchester Bd. & Paper Co., 201 Va. at 331-32,
111 S.E.2d at 456.

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Upon entry of the temporary partial disability award, Peters “became vested with the
right to receive compensation benefits so long as the award remained outstanding” and he
violated no duty imposed by the commission’s rules and the Act. Woodall, 228 Va. at 425, 323
S.E.2d at 105. For these reasons, we hold that the commission improperly invoked the doctrine
of imposition to uphold the Fund’s unilateral suspension of benefits in violation of Rule 1.4(C).
Accordingly, we reverse the commission’s ruling that the Fund was only required “to pay
temporary partial disability compensation to [Peters] through December 27, 2001,” and we
remand to the commission for further proceedings.
Reversed and remanded.