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Hammer v. City of Fairbanks (2/6/98), 953 P 2d 500

     Notice:  This opinion is subject to formal correction before
publication in the Pacific Reporter.  Readers are requested to bring errors to the
attention of the Clerk of the Appellate Courts, 303 K Street, Anchorage, Alaska
99501, phone (907) 264-0608, fax (907) 264-0878.


WORKERS' COMPENSATION BOARD,  )    Supreme Court No. S-7880
               Appellants,    )    Superior Court No.
                              )    4FA-96-49 CI   
          v.                  )    
CITY OF FAIRBANKS,            )    O P I N I O N
               Appellee.      )    [No. 4942 - February 6, 1998]

          Appeal from the Superior Court of the State of
Alaska, Fourth Judicial District, Fairbanks,
                    Ralph R. Beistline, Judge.

          Appearances: Lawrence C. Kenworthy, Law Office
of Lawrence C. Kenworthy, Fairbanks, for Appellant Gary C. Hammer. 
Zane D. Wilson, Cook Schuhmann & Groseclose, Inc., Fairbanks, for

          Before: Matthews, Chief Justice, Compton,
Eastaugh, Fabe, and Bryner, Justices.

          COMPTON, Justice.

          Gary Hammer sought a statutory penalty against the City
of Fairbanks, claiming that it had failed to timely pay him
permanent partial impairment (PPI) benefits to which he was
entitled under the Alaska Workers' Compensation Act (Act).  The
Alaska Workers' Compensation Board (Board) entered a Decision and
Order awarding Hammer the penalty.  On appeal, the superior court
reversed the Board.  Hammer appeals.  We reverse the judgment of
the superior court, and direct reinstatement of the award.  
          In April 1993 Gary Hammer injured his knee while working
for the City.  He received intermittent temporary total disability
(TTD) payments "during the course of the next year,"the last of
which was paid in late April 1994.  Following a move to Oklahoma in
June 1994 for another job, Hammer consulted Dr. Michael Tanner, an
orthopaedic surgeon in Tulsa, regarding the permanency and extent
of his disability.  On October 6 Dr. Tanner concluded that Hammer
had a thirteen percent permanent partial impairment of the whole
person.  That day, Dr. Tanner sent a letter to the City reporting
his conclusion.  He stated that it was based on the revised 3rd
Edition of the American Medical Association Guides to the
Evaluation of Permanent Injury (Guidelines), published in 1990. 
The City received this letter on October 19.  On October 26 the
City prepared a check for Hammer, based on Dr. Tanner's conclusion,
as well as a check to the Second Injury Fund.  The City did not
send either check, but instead sent a letter to Dr. Tanner asking
him to review the impairment rating based on the unrevised 3rd
Edition of the Guidelines, published in 1988, the edition
specifically recognized by 8 Alaska Administrative Code (AAC)
45.122. [Fn. 1]
          Dr. Tanner, using the 1988 Guidelines, restated his
findings and conclusions in a letter to the City dated December 6.
His opinion was unchanged.  The City received this letter on
December 20.  On December 29 the City mailed to Hammer the check
that had been previously prepared.
          The City mailed the check to Hammer via certified,
second-day air.  The City knew of Hammer's Oklahoma address at the
time the check was mailed, because it had previously sent copies of
its correspondence with Dr. Tanner to him there.  However, the
City's computer database had not been updated to reflect Hammer's
Oklahoma address, so the check was sent to his previous address in
Fairbanks.  The check was forwarded by the U.S. Postal Service to
Oklahoma, via regular mail.  Hammer received the check on
January 10, 1995, twenty-one days after the City received the
second letter from Dr. Tanner, and eighty-three days after the City
received the first letter. 
          Hammer wrote to the Department of Labor, Division of
Workers' Compensation (Division), asking that the City be ordered
to pay a penalty.  The Division informed the City of Hammer's
request, noting that 
          AS 23.30.190 requires a lump sum payment
unless the employee is in the reemployment process.  Mr. Hammer was
not in the reemployment process and there is no indication the PPI
rating was controverted, therefore the PPI should have been paid in
a lump sum.  Since it was not, a 25% penalty is due on the entire
PPI payment.

It directed the City to pay the penalty.  The City requested that
the Division reconsider the matter.  In a later letter to the City,
the Division noted that
          in order to avoid a late payment penalty, the
insurer must either controvert timely or show that the conditions
were beyond their control to make a timely payment.  Since a
controvert was not filed the question is whether the conditions
were beyond your control. 

It observed that

          [a]bsent controverting when it became apparent
you were not going to receive a timely response from Dr. Tanner to
your October 27, 1994 letter, there were other options available to
make a payment and avoid a penalty.  Dr. Tanner's October 6, 1994
letter contained sufficient information to apply his measurements
to the unrevised 3rd edition of the AMA Guides, which presumably
you have in your office, to determine a rating.  Or, bi-weekly
payments could have begun with a letter of explanation to Mr.
Hammer that you were attempting to obtain a rating under the proper
edition of the guides.  Or, rather [than] write Dr. Tanner, you
could have telephoned his office, or faxed your October 27, 1994
letter, explained that time was of the essence and requested a
timely response.

The Division explained that "[w]hat is of concern is how long you
would have waited for a response from Dr. Tanner before a payment
would have been made.  As it is, over an entire month went by
before the payment was finally issued."  It informed the City that
should it refuse to pay, the Division would advise Hammer to file
with the Board an application for adjustment of claim.  The City
refused.  Hammer filed an application for adjustment.  
          The Board found that compensation was due when the City
received Dr. Tanner's first PPI rating, and that the City had
offered no reason for delaying payment of Hammer's PPI payment
other than the need to clarify the rating.  Because the City did
not "controvert the delay,"the twenty-five percent penalty
applied.  The Board noted that a comparison of the tables in the
two versions of the Guidelines indicated the rating would remain
the same. [Fn. 2]  The City appealed to the superior court under
Appellate Rule 601(b).  The superior court concluded that the
Board's holding "was arbitrary and lacked a reasonable basis."  It
reversed the decision of the Board.  Hammer appeals.
          This court has been asked to determine which standard of
review to apply in reviewing the Board's decision, an issue
previously left open in Sumner v. Eagle Nest Hotel, 894 P.2d 628,
630 (Alaska 1995).
     A.   Should the Board's Determination Be Reviewed under the
Rational Basis Standard or under the Substitution of Judgment

          Hammer argues that the issue before the court is one
which required the agency to apply its expertise.  Thus, he argues
that the correct standard of review is the rational basis standard.
Hammer defines the issue as what knowledge the employer must have
to trigger the pay-or-controvert provision in AS 23.30.155(e).  The
City argues that review should be based on the substitution of
judgment standard, because this is a review of the statutory
interpretation of the phrase "becomes due"in AS 23.30.155(e). [Fn.
          The rational basis standard of review "is used where the
questions at issue implicate special agency expertise or the
determination of fundamental policies within the scope of the
agency's statutory function."  Tesoro Alaska Petroleum Co. v. Kenai
Pipe Line Co., 746 P.2d 896, 903 (Alaska 1987).  "The rational
basis approach merely determines whether the agency's determination
is supported by the facts and is reasonably based in law."  Sumner,
894 P.2d at 630 n.5 (quoting Tesoro, 746 P.2d at 903).
          "The substitution of judgment standard is applied when
the question of law does not involve agency expertise or where the
expertise is not particularly probative."  Id.  "Application of
this standard permits a reviewing court to substitute its own
judgment for that of the agency even if the agency's decision had
a reasonable basis in law."  Id. (quoting Tesoro, 746 P.2d at 903).
          In Sumner, the question whether a PPI payment was timely
made was also at issue.  However, the court determined that "[t]he
issue of the appropriate standard of review need not be addressed,
as the agency's action satisfies either."  Id. at 630.  Just as in
Sumner, we would reach the same conclusion in this case regardless
of which standard of review we apply; we thus choose to again defer
resolution of the issue. 
     B.   Did the Board Err in Determining that the City's
Obligation under AS 23.30.155 To Pay Hammer's Lump Sum PPI Benefits
Was Triggered by the First Letter from Dr. Tanner?
          1.   Statutory interpretation of AS 23.30.155

          Alaska Statute 23.30.155 provides:
               (a) Compensation under this chapter shall
be paid periodically, promptly, and directly to the person entitled
to it, without an award, except where liability to pay compensation
is controverted by the employer.  To controvert a claim the
employer must file a notice, on a form prescribed by the board,

               (1)  that the right of the employee to
compensation is controverted; 
               (2)  the name of the employee;
               (3)  the name of the employer;
               (4)  the date of the alleged injury or
death; and
               (5)  the type of compensation and all
grounds upon which the right to compensation is controverted.

               (b)  The first installment of
compensation becomes due on the 14th day after the employer has
knowledge of the injury or death.  On this date all compensation
then due shall be paid.  Subsequent compensation shall be paid in
installments, every 14 days, except where the board determines that
payment in installments should be made monthly or at some other

               . . . .

               (d)  If the employer controverts the
right to compensation the employer shall file with the board and
send to the employee a notice of controversion on or before the
21st day after the employer has knowledge of the alleged injury or
death.  If the employer controverts the right to compensation after
payments have begun, the employer shall file with the board and
send to the employee a notice of controversion within seven days
after an installment of compensation payable without an award is
due. . . . 

               (e)  If any installment of compensation
payable without an award is not paid within seven days after it
becomes due, as provided in (b) of this section, there shall be
added to the unpaid installment an amount equal to 25 percent of
it.  This additional amount shall be paid at the same time as, and
in addition to, the installment, unless notice is filed under (d)
of this section or unless the nonpayment is excused by the board
after a showing by the employer that owing to conditions over which
the employer had no control the installment could not be paid
within the period prescribed for the payment.

          Alaska Statute 23.30.155(b) states that "compensation
becomes due on the 14th day after the employer has knowledge of the
injury or death."  Before we can decide when the City's obligation
to pay under AS 23.30.155(b) is triggered, we must first determine
what is intended by the terms "compensation,""becomes due,"and
"knowledge of the injury or death."  The definitions section of the
Act provides us with little guidance.  While AS 23.30.395 does not
define "become due"or "knowledge,"AS 23.30.395(8) defines
"compensation"as "the money allowance payable to an employee or
the dependents of the employee as provided for in this
chapter. . . ."  "[T]his chapter"provides that PPI is a
"disability"for which the employee receives "compensation." 
AS 23.30.190(a).  Generally it is payable "in a single lump sum."
[Fn. 4]  Id.
          "Knowledge"does not appear to be a term of art.  In
context, it means no more than awareness, information, or notice
[Fn. 5] of the injury.  An employer has notice of an employee's
actual injury when the employee files his original claim pursuant
to AS 23.30.100.  Within the context of AS 23.30.155(b), however,
the employer's notice of the employee's "injury"means notice of
the employee's permanent disability as determined by a doctor. 
Thus an employer has knowledge of the injury resulting in the PPI
not later than receipt of the PPI rating.  The PPI rating, such as
that in Dr. Tanner's letter which stated that Hammer had a thirteen
percent permanent impairment of the whole person, represents the
residual injury [Fn. 6] to the employee.  Unless the employer is
unsatisfied with the rating or is suspicious of the injury and
chooses to controvert the rating, the payment "becomes due"within
fourteen days after the submission of the rating.  Thus, construing
AS 23.30.155(b) and (e) together, unless the employer files a
controversion, the employer has twenty-one days after receiving the
PPI rating to pay or be subject to the statutory penalty.  See 
Sumner, 894 P.2d at 631 (holding that AS 23.30.155 applies the
twenty-one day period for payment to PPI payments).  
          2.   The Board's application of AS 23.30.155 to the
facts of this case       

          Dr. Tanner sent a letter to the City reporting that he
concluded Hammer had a thirteen percent permanent impairment of the
whole person.  The City received the letter on October 19.  The
City did not file a controversion of the rating.  Rather, on
October 26 the City prepared a check for Hammer.  The City failed
to make the payment to Hammer because Dr. Tanner's rating was based
on the revised 3rd Edition of the Guidelines, not the unrevised 3rd
Edition.  The City's request that Dr. Tanner review his conclusion
based on the unrevised 3rd Edition Guidelines did not relieve the
City from the requirement that it compensate Hammer within the
fourteen-day period mandated by AS 23.30.155(b).  That period began
to run when the City received the letter from Dr. Tanner on October
19.  To conclude otherwise would permit an employer to conduct an
investigation of the PPI rating without controverting, thus
thwarting the policy of the Act -- to promote prompt payment by the
employer to the injured employee. 
          The superior court concluded that the Board's holding,
based on the City's ability to compare the tables in the two
editions of the AMA Guidelines, was arbitrary and lacked a
reasonable basis.  According to the superior court, requiring an
employer to understand the medical diagnosis and whether a
significant difference exists between the two editions was
unreasonable. [Fn. 7] 
          The superior court misinterpreted the Board's reasoning. 
The Board did not explicitly state the City should have compared
the tables or understood the medical diagnosis.  Rather, the Board
observed that "[u]pon comparing the relevant tables of the AMA
Guides third edition and revised third edition . . . one observes
the rating in this case remains the same."  The Board determined
that the City's only reason for delaying payment was the need to
clarify the PPI rating.  The Board relied on Clifton v. Western
Geophysical, AWCB No. 90-0078 (Apr. 24, 1990).  In Clifton, the
doctor had not clearly indicated whether the PPI rating was for the
injured leg, or for the whole person.  Clifton at 8 n.1.  The Board
determined that the employer should have paid the amount of PPI
benefits clearly due, and controverted the remainder while it
sought clarification.  Id.
          In this case, like Clifton, the City knew Hammer was
entitled to benefits.  It presumed that the thirteen percent PPI
rating was correct, and cut the check, but then withheld payment
while it sought clarification of whether the rating would remain
the same under the 1988 version of the Guidelines.  Under these
facts, the Board did not err in determining that the City should
have controverted the PPI lump sum payment while it sought
     C.   Did the Board Violate Its Own Regulation by Determining
that Dr. Tanner's First Letter Triggered Payment of PPI Benefits?
          The superior court also concluded that the Board's
violation of its own regulation supports the determination that the
Board's decision lacked a reasonable basis.  Alaska Statute
23.30.190(b) requires all PPI determinations to be based on the
American Medical Association Guides to the Evaluation of Permanent
Impairment.   The statute does not state which version of the
Guidelines to use.  The Alaska Administrative Code, promulgated by
the Board, states that PPI ratings "must"be based on the 1988
edition of the Guidelines.  8 AAC 45.122(a).
          The City argues that AS 23.30.190(b) and 8 AAC 45.122,
taken together, require that a facially valid PPI rating based on
the 1988 Guidelines is necessary before its obligation to pay PPI
benefits is triggered.  Hammer argues that the first letter,
although based on the wrong edition of the guidelines, provided
specific information of Hammer's injury.  The letter stated Hammer
had "3 [centimeters] of right thigh atrophy,""active range of
motion of the knee at 16-90,""crepitus and apprehension with
stress testing,"and an MRI "which demonstrates the peripatellar
adhesions, [and] the chondromalacia of the patellofemoral
articulation."  The letter also indicated the injury was permanent. 
The City did not dispute that Hammer was entitled to benefits.  It
had the undisputed, detailed medical diagnosis of Hammer's injury
from Dr. Tanner.  It needed only to clarify that the rating would
be identical under either version of the Guidelines.
          The statute and regulation provide specificity regarding
how a permanent partial impairment is to be determined, not when
payment for a permanent partial impairment is due.  Since we
concluded that payment becomes due upon receipt of a PPI rating,
and the statutory time period having elapsed without controversion,
the fact that reference to another edition of the Guidelines might
yield a somewhat different monetary calculation is not relevant to
the issue of triggering payment.  Therefore, Dr. Tanner's first
letter was sufficient to trigger the obligation of the City to pay
or controvert Hammer's claim.  
     D.   Was the City's Letter to Dr. Tanner Requesting
Clarification of the October Rating a Controversion Notice within
the Meaning of AS 23.30.155? 
          The superior court held that the City's letter to Dr.
Tanner requesting clarification was a good faith controversion of
the claim.  Hammer argues that it was not a controversion under
AS 23.30.155(d). [Fn. 8]  
          The City does not argue on appeal that its letter was a
controversion.  We agree that it was not.  The City's letter did
not comply with the statutory requirements for a controversion. 
AS 23.30.155(a).  If the City had knowledge of Hammer's injury and
was aware of the obligations imposed on it by AS 23.30.155(b) and
(e) when it received Dr. Tanner's first letter, and the City's
letter seeking clarification was not a controversion, then it
follows that Hammer received his check eighty-three days after the
City's obligation to pay was triggered.  The Board's award of the
penalty to Hammer was authorized by AS 23.30.155(e).
          The judgment of the superior court, which reversed the
Decision and Order of the Alaska Workers' Compensation Board, is
REVERSED.  We REMAND with directions to reinstate the Decision and
Order of the Board.


Footnote 1:

     8 AAC 45.122(a) was amended in July 1997 to read that "each
year . . . the board will issue a bulletin for the 'Workers
Compensation Manual,' published by the department, stating the
edition of the American Medical Association Guides to the
Evaluation Permanent Impairment to be used . . . ."  However, the
former version of 8 AAC 45.122(a) was in effect at the time of the
Council hearing.  It stated that "[p]ermanent impairment ratings
must be based upon the American Medical Association Guides to the
Evaluation of Permanent Impairment, third edition (1988)."

Footnote 2:

     The City's Safety, Claims and Benefits Coordinator and the
City's attorney had satisfied themselves that there would be little
or no difference in the rating, regardless of whether the 1988 or
1990 edition was used.  This information apparently was the basis
for the following comment in a letter from the City to the

          Anticipating that there may be no monetary
change to the revised permanent impairment rating [following Dr.
Tanner's re-computation, using the 1990 guidelines] check #11318
was held pending receipt of the appropriate rating.

Footnote 3:

     "Under either standard, no deference is given to the decision
of the superior court."  Sumner v. Eagle Nest Hotel, 894 P.2d 628,
630 (Alaska 1995). 

Footnote 4:

     These sections, read together, declare that "the money
allowance payable to an employee for PPI, generally payable in a
lump sum, becomes due on the 14th day after the employer has
knowledge of the injury."  

Footnote 5:

     See Webster's II New Riverside University Dictionary 669

Footnote 6:

     "Injury"is defined as an "accidental injury or death arising
out of and in the course of employment and an occupational disease
or infection which arises naturally out of the employment or which
naturally or unavoidably results from an accidental injury . . . ." 
AS 23.30.395(17).

Footnote 7:

     See supra note 2.

Footnote 8:

     AS 23.30.155(d) provides:
          If the employer controverts the right to
compensation the employer shall file with the board and send to the
employee a notice of controversion on or before the 21st day after
the employer has knowledge of the alleged injury or death. . . .