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PA Employers and Insurers to be Adversely Impacted by Section 440 Counsel Fees

Section 440(a) of the Pennsylvania Workers’ Compensation Act provides:

In any contested case where the insurer has contested liability in whole or in part, including contested cases involving petitions to terminate, reinstate, increase, reduce or otherwise modify compensation awards, agreements or other payment arrangements or to set aside final receipts, the employe or his dependent, as the case may be, in whose favor the matter at issue has been finally determined in whole or in part shall be awarded, in addition to the award for compensation, a reasonable sum for costs incurred for attorney’s fee, witnesses, necessary medical examination, and the value of unreimbursed lost time to attend the proceedings: Provided, That cost for attorney fees may be excluded when a reasonable basis for the contest has been established by the employer or the insurer. (Emphasis added.)

This section has long been interpreted to mean that the Workers’ Compensation Judges may award unreasonable contest counsel fees unless the employer or insurer has established a reasonable basis for contesting liability.

The Pennsylvania Supreme Court recently reviewed this section in the case of Lorino v. Workers’ Comp. Appeal Bd. (Commonwealth), 2021 Pa. LEXIS 4255 (December 22, 2021).  The Court held that the prior interpretation is incorrect.  The Act provides that attorneys fees shall be awarded in all cases in which a claimant prevails – even in cases in which the employer has maintained a reasonable contest.  Only in those cases in which a reasonable contest is established may the Judge exclude the imposition of counsel fees.  The Court stated:

Based on the established meaning of the terms “shall” and “may,” under Section 440, when a contested case is resolved in favor of an employee, a reasonable sum for attorney’s fees shall be awarded to the claimant. Such an award is mandatory. Where, however, the employer has established a reasonable basis for the contest, an award of attorney’s fees may be excluded. In other words, the WCJ is permitted, but not required, to exclude an award of attorney’s fees. The Commonwealth Court below, in “always interpret[ing] Section 440 to mean that ‘attorney[s’] fees shall be awarded unless a reasonable basis for the employer’s contest has been established,'” Lorino, 2020 Pa. Commw. Unpub. LEXIS 423, disregarded the distinction between the terms “shall” and “may,” and failed to recognize the discretion afforded to the workers’ compensation judges to award attorney’s fees even when they find a reasonable basis for an employer’s contest.

In other words, counsel fees will be automatically awarded to a successful claimant.  The Workers’ Compensation Judge may, but need not necessarily, exclude the payment of counsel fees if the employer and/or insurer has established a reasonable contest.

The Supreme Court’s decision is likely to have an adverse impact upon insurers and self-insured employers.  The imposition of counsel fees will increase the costs of workers’ compensation coverage in Pennsylvania.  The assessment of counsel fees, even when a contest is reasonable, was not previously considered when setting premiums.  Such fees will now need to be taken into consideration, thereby causing an increase in premiums.

Moreover, no standard has been established by the  Court for Judges to follow.  The determination as to whether or not counsel fees are to be awarded is solely within the Judge’s discretion, which is subject to abuse.  As such, appeals are apt to be filed when fees are awarded, thereby again increasing the costs of litigation and the costs of workers’ compensation coverage in Pennsylvania.

Under the circumstances, it is absolutely necessary to have the requisite evidence to support a termination, modification or suspension petition before the petition is filed.  Additionally, evidence of a valid defense to a claim is needed before an answer to the claim petition is filed.  Claims should not be denied in the hope that the claimant’s testimony will provide a defense to a claim.  Instead, a thorough investigation of the claim is required – ideally before litigation is initiated – so as to avoid the imposition of counsel fees.