WILLA R. PRATT,			)
				)
Employee,			)	DECISION AND ORDER
Applicant,			)	AWCB Case No. 8725410
v.				)	AWCB Decision No. 90-0072
				)
SHEEP CREEK LODGE,		)	Filed with AWCB Anchorage
				)	April 13, 1990
Employer,			)
				)
and				)
				)
PROVIDENCE WASHINGTON 		)
INSURANCE GROUP,		)
				)
Insurer,			)
Defendants.			)
				)

This claim was heard at Anchorage, Alaska, on March 22, 1990. Employee was present and represented by attorney Richard Harren. Defendants were represented by attorney Robert Griffin. Because the hearing was long and other cases were also scheduled for hearing later in the day, we continued the hearing so the parties could submit written closing arguments rather than take additional time for oral arguments. Closing arguments were received March 29, 1990, and the record closed. The claim was ready for decision on April 4, 1990, our first hearings scheduled after the briefs were received.

Should we set aside the agreed settlement approved July 25, 1989?

It is undisputed that Employee broke her right ankle in the course and scope of her employment on December 17, 1987. Defendants acknowledged the injury was compensable and paid Employee temporary total disability (TTD) benefits from the date of injury and continuing throughout the time the parties reached a settlement agreement in early 1989. On May 10, 1989, Defendants' attorney submitted a Compromise and Release (C&R) requesting Board approval under AS 23.30.012. By letter dated May 15, 1989, the Board notified the parties the C&R was not approved. On the second page of its letter, the Board stated in part:

The Board's two-page form letter then indicated that the Board would reconsider the request for approval on its own motion after the medical report was received.

On July 20, 1989, Defendants' attorney wrote the Board and submitted Dr. McEvoy's report. Defendants asked that the C&R be approved. A copy of this letter was sent to Employee. On July 25, 1989, the Board approved the C&R and notified the parties of the approval.

On December 20, 1989, Employee filed a request to set aside the C&R contending that it was resubmitted to the Board without her knowledge or consent, and that she had thought it would not be reconsidered until she had seen Edward Voke, M.D., for a second opinion.

Both Employee and the adjuster handling the claim, Pat Bailey, were deposed before the hearing and both of them testified at the hearing. in addition, Jill Friedman, the vocational rehabilitation provider assigned by Defendants, testified. The paralegal who had handled the submission of the C&R and the medical reports did not testify. Instead, she filed an affidavit stating she had never spoken to Employee.

Employee testified that she did not receive the second page of the Board's May 15, 1989, letter. She testified that she spoke with Pat Bailey after the C&R was not approved. She testified that she understood the C&R would not be resubmitted without her knowledge or approval.

Employee testified that after the injury and at the time she signed the C&R, she had not returned to weight bearing on her injured leg. She testified that she relied upon Dr. McEvoy's representation that she would improve with physical therapy. Based on his representations, she thought everything would be fine so she agreed to settle her claim.

Employee testified that after she started with physical therapy and did not get the results she expected, she called Bailey in early June and told her she did not want to settle her claim. Employee testified that she asked to see another doctor to get a second opinion. She said Bailey told her she would arrange for another doctor to see her, and what they did would depend upon the second doctor's opinion. Bailey had Friedman arrange an appointment with Edward Voke, M.D., but the examination did not occur until after the C&R was approved.

Employee testified that when she talked with Bailey about the second medical evaluation, Bailey told her that nothing would happen until after Voke's examination. She believed this meant she would be able to renegotiate the rehabilitation benefits, and the C&R was only a partial settlement.

Friedman testified that she talked with Employee on June 22, 1989, after she began physical therapy. Employee told her she was having trouble walking. Friedman and Employee talked again on June 22, 1989, when Friedman phoned Employee and told her that an appointment had been scheduled for her with Dr. Voke for August 5, 1989. Employee asked if she would continue to receive benefits, and Friedman told her to call Bailey.

Friedman testified that during the course of their relationship, Employee had questions about the settlement. Friedman told her that was not something she could help her with and suggested she talk to Bailey.

Friedman's notes indicate that on July 17, 1989 she had a phone conversation with Employee and Bailey. Employee was seeking an advance against the C&R money so she could buy a computer. Friedman noted that Bailey said she could not advance money without Board approval. Friedman's notes also indicate that Bailey said if Voke's opinion was different than McEvoy's, it would be her opinion to "go with Voke."

Friedman's notes indicated that Employee talked with her on July 24, 1989, and Employee said she wanted to write to the Board to express dissatisfaction with how things were going. Friedman told her to call and talk with someone on the Board's staff instead. The next day Employee did call, and was told the C&R had been approved that day.

Bailey testified that Employee's claim was one of the first she handled that involved time loss benefits. Before February 1989, Bailey had handled only medical claims. Because she was unfamiliar with handling time loss claims, she and her supervisor had jointly called Employee to discuss the settlement. Bailey testified that after the C&R was rejected, she told Employee that her medical records would be resubmitted after she finished physical therapy, and her C&R would be on hold until then.

Bailey testified that her notes do not reflect the June 22, 1989, discussion with Friedman. Bailey also testified that as of June 30, 1989, Employee still had not told her that she did not want to go through with the C&R. She testified she did not have any notes that she talked with Employee between June 30, 1989, and July 27, 1989, when she called Employee to tell her that C&R had been approved. It was then that Employee said she did not want the settlement.

Bailey did not record in her notes a discussion with Friedman and Employee on July 17, 1989, about the appointment with Dr. Voke. Bailey testified that she told her attorney's office about the examination with Dr. Voke at the time she sent over Dr. McEvoy’s final examination report, but she does not know why that information was not included in the letter that was written to the Board to ask for approval of the C&R.

Bailey testified that she stopped paying Employee TTD benefits on June 22, 1989, when she got Dr. McEvoy's final rating and his release for Employee to return to work as a Waitress. Bailey could not remember if Employee called her after her last visit to McEvoy. Bailey testified that she did not know that she could make an advance against permanent partial disability (PPD) benefits or against a C&R. Bailey did not pay any benefits between June 22, 1989, when she stopped paying TTD benefits and July 27, 1989, when she received notice that the C&R was approved.

Bailey testified she never told Employee about the provisions in the Act for an Employee's attorney's fees. She does not recall her supervisor doing so either. Bailey also testified that at the time Employee settled her case, she did not know that either party could ask for the C&R to be withdrawn after it had been submitted to the Board.

After learning the C&R was approved, Bailey phoned Employee on July 27, 1989. Bailey testified this was the first time Employee told her that she was not willing to release vocational rehabilitation benefits. Because Employee indicated she had reservations about the C&R, Bailey called her attorney's office. A paralegal drafted a letter which Bailey had Employee sign before she received her lump-sum payment due under the C&R. The letter states that "I have reread the C&R . . . and accept and agree to all terms therein." Both Bailey and Employee testified that Bailey did not have a copy of the C&R available for Employee to read, and Employee did not reread the C&R as the letter states.

Recently in Clark v. Municipality of Anchorage, 777 P.2d 1159, 1161 n.3 (Alaska 1989), the court suggested that the standards stated in Witt v. Watkins, 579 P.2d 1065, 1068 (Alaska 1978), for setting aside a release in a tort action might not apply to a release in a workers' compensation claim. The court cited two California cases. Employee argues Witt does not apply; even if it does apply, Employee contends she is entitled to relief under the Witt test. Employee argues that we should apply AS 23.30.130 to grant the relief sought. She also cites Johnson v. Workers' Compensation Appeals Board, 471 P.2d 1002, 1007 (California 1970), which was mentioned in Clark, that the safeguards in the Act "place a workmen's compensation release upon a higher plane than a private contractual release."

Defendants argue that if the Johnson standard was applied and the C&R is considered a judgment, then Employee's remedy would be under Alaska Rule of Civil Procedure 60(b). However, they argue that Employee has not produced evidence to support setting aside the C&R under ARCP 60(b).

Although it is not clear that Witt applies, it has been our practice to analyze these types of request under that legal framework. Because in Clark did not provide a different test, we will first apply the Witt analysis.

In Witt, the court was asked to set aside a release as unenforceable on the basis that it was the result of a mutual mistake as to the nature of the injuries. The court did not rely upon the mutual mistake concept. Instead in Witt the court adopted a two-pronged test. Under the first prong of that test, Defendants, who are seeking enforcement, must establish by a preponderance of the evidence that Employee understood the nature of the instrument at the time it was executed. Then Employee, who seeks relief from the agreement, must show by clear and convincing evidence that the C&R should be set aside. The court held in Witt that:

(Id. at 1069).

The court went on to state:

(Id. at 1069 - 70).

(Id. at 1069).

First, we consider whether Defendants proved that at the time she signed the C&R, Employee had an understanding of the nature of the instrument, intended to release the disability that was subsequently discovered, and whether a reasonable person would have such an intent.

Based on Employee's testimony, we find that at the time she signed the C&R she understood the nature of the instrument, and intended to discharge the disability that was subsequently discovered. The more troubling question is whether a reasonable person would have such an intent. We believe a "reasonable person" in a workers' compensation claim means a prudent person of average intelligence who is informed of the options and then decides to waive a option. We find that a reasonable person would not have such an intent in this case.

Employee had a scheduled injury. She was entitled to be paid PPD benefit every two weeks based upon her doctor's rating of her impairment. Providence Washington Ins. Co v. Grant, 693 P.2d 872 (Alaska 1985). This payment was not contingent upon her staying in the labor market, or pursuing vocational rehabilitation.

Considering Bailey's testimony, we find that Employee was not informed of this option. In fact, we find from Bailey's testimony and the manner in which this claim was handled, that Bailey did not understand that she was to begin paying Employee's PPD once her TTD benefits ceased. We find the C&R was presented as a "take it or leave it situation."¹

Because we find a reasonable person would not have intended to settle his or her claim in this manner if fully informed, we proceed to consider the factors useful in determining whether the release was properly obtained.

First we consider the manner in which the release was obtained. We find it was instigated by Defendants. we find they obtained it while Employee's condition was medically unstable, and she was still receiving medical treatment. We find the C&R was hastily secured because Defendants did not wait until Employee reached medical stability before trying to settle her claim.

We find Employee was not disadvantaged because of her injuries at the time she signed the release. She was not under the influence of medication that affected her ability to comprehend or reason.

We find Employee was not represented by counsel. The C&R says that Employee "has been made aware . . . how the payment of her counsel's fees would be covered under the . . . Act." We find Defendants did not explain to Employee the attorney's fee provision in the Act. Employee thought she was aware of how the payment of attorney's fees worked under the Act, but from her testimony it is clear that she was mistaken. Not only was Employee not represented by counsel, but her decision not to be represented may have resulted from Defendants, failure to inform her, while representing in the C&R that they had done so.

We find Employee relied upon the representations made by a physician of her choosing, not one chosen by Defendants. We find liability was disputed by Defendants. However, at least as far as the scheduled PPD benefits are concerned, it should not have been in dispute.

Both parties were at about the same level in terms of bargaining positions. Bailey was as inexperienced adjuster who did not have well developed bargaining skills. Of course, Employee was financially disadvantaged because she was told her temporary benefits would end soon, and it appears Defendants were unwilling to pay her PPD benefits unless she accepted the C&R.

The final factor to be considered under Witt is the amount to be paid. We find the settlement amount is only slightly more than the benefits to which Employee was entitled. Her scheduled PPD benefits equaled $5,456.00. She needed two more months of physical therapy at the time the agreement was negotiated. At $110 per week for TTD benefits, this equaled another $880.00. The sum clearly due was $6,336.00. In essence, she gave up her right to all benefits, except medical expenses, in return for a payment of $164.00. We find a reasonable person who knew and understood the available options would not settle for such a small amount.

Although some factors do not weigh in favor of setting aside. The C&R, after considering all the factors and the circumstances of this case we find clear and convincing evidence that the C&R should be set aside.

Even if under Witt Defendants had proven Employee understood the agreement, intended to settle her claim, and that a reasonable person would have that intent, or even if Employee had failed to prove by clear and convincing evidence that the C&R should be set aside, we would still reach the same conclusion.

In Johnson v. Workmen's Compensation Appeals Board, 471 P.2d 1002, 1007 (California 1970), the California Supreme Court stated:

Defendants argue that if the Johnson standards apply and the C&R is considered a judgment, then Employee's remedy would be under Alaska Rule of Civil Procedure 60(b). However, we find AS 23.30.012 would preclude the use of ARCP 60(b).

In his treatise on workers' compensation Professor Larson discusses setting aside agreed settlements. At 3 A. Larson, Workmen's Compensation Law Section 81.40, pp. 15-1104 to 1114 (1989), Professor Larson states:

Our Act appears to be one that does not allow reopening agreements on the same basis that awards are reopened. AS 23.30.012 provides in part:

However, Professor Larson goes on to state:

. . . .

(Id). at 81-51(b), pp. 15-1129 to 1134.

In this case, we find Employee's ignorance or misunderstanding was induced by Defendants. Defendants did not tell her that she was entitled to be paid TTD while she continued with physical therapy and scheduled PPD benefits every two weeks, and that she did not have to accept the C&R in order to get those beef its. Despite the assertions to the contrary in the C&R, the evidence presented at the hearing was that Defendants did not make Employee aware of the attorney's fee provision under the Act.

Although Bailey was quite candid with us, her memory of the events after the settlement was reached but before it was approved is vague. She often referred to her notes in an effort to remember what happened. However, she admitted her notes were not complete and did not reflect all of her discussions with Employee or Friedman. Bailey could not remember Employee asking about not proceeding with the C&R. However, we find from Friedman's testimony that Employee asked about her options and asked for an advance after the C&R was signed. Friedman testified she referred Employee to Bailey. Because Friedman’s testimony supports Employee's testimony that she talked to Bailey about what could be done about the C&R before it was approved, we conclude Employee discussed this with Bailey.

Bailey said she did not know she could "advance,, against a C&R. We find Bailey did not tell Employee that she was due the scheduled PPD benefits every two weeks when Employee asked for an advance. Bailey should have begun the PPD benefits as soon as the TTD benefits stopped. From Bailey's actions, Employee could assume that no further payments would be made unless the C&R was approved. Additionally, in view of Friedman's notes about Bailey's comment to "go with Voke," we find Bailey lead Employe to believe that she could obtain rehabilitation benefits or revise the C&R depending upon Voke's opinion.

Furthermore, Bailey admitted that she did not know at that time that a party could ask to have the C&R withdrawn and thought that once it was submitted, it had to proceed through the process.

Accordingly, we find that Defendants innocently induced Employee's misunderstanding. We conclude this justifies setting aside the C&R.

Finally, we find we are not without fault. Because we like to be prompt and efficient, we quickly acted on the C&R once the final medical report was received. We approved the C&R the day after the report was received. Of course, we had no knowledge of Employee's concerns about returning to work, or the examination that had been scheduled with Dr. Voke. Defendants had this information, but did not give us this information. We had notified the parties that we would reconsider the C&R on our own motion once the medical report we requested was received. However, even if we act on our own motion, we should have at least waited a reasonable period of time for Employee to receive and react to Dr. McEvoy's final report. we find our failure to give Employee an opportunity to act after she received the report also justifies setting aside the C&R because it is unconscionable to hold her to that agreement under the circumstances.

We conclude the C&R should be set aside. Having so concluded, the next question is to determine Employee's entitlement to further benefits, if any. The parties only presented the issue of whether the C&R should be set aside. Therefore, we encourage the parties to resolve the remaining issues. If they are unable to do so, we retain jurisdiction to determine Employee’s right, if any, to further benefits.

The Compromise and Release is set aside. We retain Jurisdiction to determine what additional benefits, if any, are due Employee.

DATED at Anchorage, Alaska this 13th day of April 1990.

ALASKA WORKERS' COMPENSATION BOARD

/s/ Rebecca Ostrom
Rebecca Ostrom, Designated Chairman

/s/ Mary A. Pierce
Mary A. Pierce, Member

/s/ D.F. Smith
Darrell F. Smith, Member

RJO:rjo

If compensation is payable under the terms of this decision, it is due on the date of issue and penalty of 20 percent will accrue if not paid within 14 days of the due date unless an interlocutory injunction staying payment is obtained in Superior Court.

APPEAL PROCEDURES

A compensation order may be appealed through proceedings in Superior Court brought by a part in interest against the Board and all other parties to the proceedings before the Board, as provided in the Rules of Appellate Procedure of the State of Alaska.

A compensation order becomes effective when filed in the office of the Board, and unless proceedings to appeal it are instituted, it becomes final on the 31st day after it is filed.

CERTIFICATION

I hereby certify that the foregoing is a full, true and correct copy of the Decision and Order in the matter of Willa R. Pratt, employee/applicant; v. Sheep Creek Lodge, employer; and Providence Washington Insurance Group, insurer/defendants; Case No. 8725410; dated and filed in the office of the Alaska Workers' Compensation Board in Anchorage, Alaska, this 13th day of April, 1990.

Clerk