WILLIAM MITCHELL COLLEGE OF LAW

WORKERS' COMPENSATION FINAL EXAMINATION

SPRING SEMESTER 1998

PROFESSORS

LARRY J. PETERSON

AND

T. MICHAEL KILBURY

BACKGROUND

"Fasty's Good Food" (FGF) has experienced an unexpected increase in workers' compensation claims. FGF is owned and operated by Fred Fasty. FGF is a full service restaurant serving "All American" food of high quality and enormous proportions. From an initial lunch counter location near the University, opened in 1989, Fasty's has expanded to eight full service restaurants in the Minneapolis/St. Paul area and eastern suburbs. FGF outlets are open from 6:30 a.m. to midnight daily.

Fred Fasty now wants to escalate his expansion. He has purchased restaurant sites in four western Wisconsin locations. He plans to open four additional stores prior to March 1999.

Fred needs significant loans for this expansion. His bank has reviewed FGF's complete operations. They have expressed concerns about a perceived dramatic recent increase in FGF's significant workers' compensation claims. They have requested and obtained FGF's complete insurance records from FGF's insurer, "Everyone Likes Us Insurance Company" (ELU). They have called upon you, a competent worker' compensation attorney, to review and evaluate the actual or potential claim exposure on four open FGF workers' compensation claims:

CLAIM 1

Dee Smith was hired as a lunch waitress at FGF - Maplewood on June 1, 1996. She was regularly scheduled from 10:00 a.m. to 2:00 p.m. Monday - Friday only. She was paid $5.50 per hour plus tips. On FGF's computerized budget analysis, Smith's position was recorded for accounting purposes as P.T. waitress - $110.00/wk.

On August 15, 1996, Ms. Smith slipped and fell on a wet kitchen floor during her lunch shift. She had worked in all ten weeks between her hiring and this date. She regularly requested and received "call in" or "fill in" shifts for other waitresses. Her earnings during the ten weeks are summarized below:

After the August 15 accident Smith's doctor diagnosed a "severely" sprained right ankle, placed Dee in a walking cast, and restricted her from all work for three weeks. After three weeks, the cast was removed. Ms. Smith remained totally restricted from all work for an additional two weeks. She was then released by her doctor to, "all regular lunch waitress duties - four hours per day without restrictions ..."

Ms. Smith returned to work at her regular lunch schedule and has lost no time since. However, she has asked that her name be removed from the "fill in/call in" list. She has worked no hours over and above here regular lunch schedule. She works 20 hours per week at $5.50 per hour and continues to report $100.00 per week in tips.

During the five weeks that Ms. Smith was off work FGF and ELU paid her temporary total disability benefits at $73.33 per week. No additional benefits were paid. FGF has now received a Claim Petition from Ms. Smith's workers' compensation attorney claiming:

1. An underpayment of temporary total disability benefits;

2. Temporary partial disability benefits from Ms. Smith's return to work date to the present;

3. Penalties for a "willful and vexatious underpayment of benefits based upon inappropriate average weekly wage calculations."

FGF and ELU have answered and denied this claim. Their defense is principally premised upon allegations that, "employee was hired for regular duties as a lunch waitress at $110.00 per week. Employee has been fully compensated for all benefits due based upon this average weekly wage." As an adviser to FGF and its bank, please discuss:

5 pts.

1. What was the average weekly wage earned by Ms. Smith at the time of her August 15, 1996, accident?

2½ pts.

2. Based upon your conclusions above, were the five weeks of temporary total disability benefits underpaid? Why?

5 pts.

3. Following the five week period of temporary total disability, does FGF/ELU face any additional wage loss liability? Please explain.

5 pts.

4. Evaluate the viability of, and defenses to, Ms. Smith's penalty claim based upon the facts above.

CLAIM 2

FGF recently contracted for complete repainting and wallpapering of five existing metro FGF stores. On December 15, 1997, FGF accepted a bid from Phil's Progressive Paints (PPP). The PPP bid specified certain terms and conditions:

1. A bid price of $50,000.00;

2. Specification of the ceilings, walls, and trim to be painted or papered in each of the five FGF locations;

3. That the contract price was exclusive of paint and wallpaper costs, these materials to be selected and paid for by FGF, but "purchased" under PPP's professional contractor discount number;

4. The specific days and hours during which PPP would have access to the five FGF outlets would be specified by FGF;

5. PPP would supply all ladders, scaffolding, application tools/materials, and adhesives, thinners, strippers, and other supplies for the project;

5. PPP would supply all workers' compensation and liability insurance for the contract work to be performed;

6. Project to be completed on or before March 15, 1998, with contract price payable upon completion.

Phil Brusher is the sole owner of PPP. He attempts to "hire" and use the same crew of five painters for each major project. After securing the FGF account Phil had each of his painters sign a work contract requiring that:

1. Between now and March 15, 1998, you will paint exclusively for PPP;

2. You will supply your own brushes, rollers, sprayers, and application tools; but,

3. PPP will supply all ladders, scaffolding, tarps, tape, and miscellaneous materials;

4. PPP will schedule your days and hours of work in consultation with the client, FGF;

5. You will maintain time records throughout the progress of this paint/wallpaper project;

6. However, you will be paid a lump sum for your work based upon timely completion of this project before March 15, 1998, at a rate which will not equal less than $10.00 per hour nor more than $13.50 per hour which will be determined at the conclusion of this project based upon the timeliness of completion and any bonuses.

7. You will provide your own workers' compensation insurance or will contract and pay PPP for coverage under our policy.

On January 4, 1998, Jones, a PPP painter, slipped and fell from a scaffold at FGF - Roseville. He suffered a severe forearm fracture (breaking and displacing both bones in his right forearm). He reported this injury to the FGF - Roseville manager. The manager did not complete a First Report of Injury. He called Phil, PPP's owner. He was instructed by Phil to call an ambulance and arrange necessary care, and identify PPP's workers' compensation insurer, Strict Construction Insurance (SCI) as the appropriate carrier. The manager followed these instructions. Phil later verified that as the owner/sole propriotor of PPP he purchased workers' compensation coverage with SCI. None of the five painters did.

Jones was transported by "Area-Wide Ambulance" to Area-Wide Hospital in St. Paul. He was admitted, underwent surgery to repair the fracture, and was hospitalized for three days. Records from both the ambulance service and the hospital identified the incident as a "work injury at FGF - Roseville while painting for Phil's Progressive Paints. Insurance was provided through SCI ..."

On January 5, 1998, PPP completed a First Report of Injury, identified SCI as the insurer, but denied liability. The report identified Jones as an "independent contractor." PPP's First Report denied Jones' employee status and coverage under its workers' compensation policy with SCI. As a result, Jones received no workers' compensation benefits. All medical bills remain unpaid.

On April 15, 1998, PPP, FGF, their respective insurers, and the Special Compensation Fund were named and served in a workers' compensation Claim Petition. To date, Jones has not returned to work.

Please advise FGF:

5 pts.

1. To what type(s) of workers' compensation benefits may Jones be entitled at this time?

15 pts.

2. From whom, if anyone, may Jones recover benefits? Why? Discuss FGF and PPP's defenses.

CLAIM 3

When Jones fell from the scaffold, his left forearm struck an FGF hostess, Ms. Kelly, across the face. Ms. Kelly continued to work without loss of time or wages. She has, however, complained of an ongoing stiff neck. She received seven treatments from her chiropractor between January 4 and February 28, 1998. The incident was witnessed by a FGF bus boy and an assistant cook. Both suggested that Ms. Kelly report her accident. She declined.

To date, Ms. Kelly has not reported this accident. Her husband's medical insurance, Medical Indemnity Company (MIC), paid $280.00, representing 80 percent of her chiropractic expenses. She paid $70.00 out of pocket, which represents the 20 percent co-payment.

Despite no time loss from work, Ms. Kelly's stiff neck has limited her physical activity. She cannot attend her regular twice per week aerobics class. She has difficulty performing her longstanding "needle point" hobby, and she is extremely uncomfortable driving for more than 30 minutes at a time. On April 15 she obtained a report from her chiropractor regarding the impact of her January 4, 1998, neck injury. The chiropractor identified that Kelly has:

1. A chronic cervical spine strain/sprain;

2. No persistent objective findings such as muscle tightness or loss of range of motion;

3. No positive radiological findings on x-ray, CT scan, or MRI;

4. But, since she had previously been pain free, her January 4 injury has diminished her overall life style quality, resulting in a physical disability from the January 4, 1998, accident totalling approximately 15 percent disability to her whole body.

Ms. Kelly has consulted an attorney not entirely familiar with workers' compensation practice and procedure. The attorney has filed a Claim Petition for 15 percent permanent partial disability benefits only. No other benefits or legal interests were addressed by Ms. Kelly's Claim Petition. The Claim Petition was FGF's first notification of this injury. FGF/ELU have not answered or responded to this claim.

Please address:

2½ pts.

1. If Ms. Kelly's 15% PPD claim is compensable, how much will she be awarded?

5 pts.

2. The viability of Ms. Kelly's claim - Is she likely to recover this rated amount? Why?

5 pts.

3. Are there any other persons or entities having potential claims or interests who are entitled to notification of Ms. Kelly's workers' compensation claim? Why?

10 pts.

4. Discuss whether Kelly has any additional workers' compensation claims not asserted on the Claim Petition, and any defenses available to FGF?

CLAIM 4

On April 1 FGF's planned, Hudson, Wisconsin, expansion broke ground. On that date Fred, acting as FGF's principal and owner, interviewed an old college classmate, Marsha Badger, for the position of FGF's Wisconsin Division - General Manager. Fred and Marsha had both graduated from the prestigious Hefty State Hotel and Hospitality Degree Program. They had maintained contact since their 1987 graduation. Both had been successful in the restaurant industry. Fred had previously attempted to recruit Marsha to his management team. She had refused, citing negative experience managing restaurants, "in Minnesota's business climate and under Minnesota's workers' compensation laws. Marsha had resided in the Hudson, Wisconsin, area since graduation. She was presently the Western Wisconsin regional manager, overseeing business operations of 23 "Archie Golden" stores, a drive-thru hamburger/malt chain. Her qualifications for FGF's Wisconsin division general manager were not at issue.

During the interview Fred advised Marsha that her Minnesota concerns would not be an issue. She could office from her home in Wisconsin. Her responsibilities would be limited to the Wisconsin stores only. FGF's insurer, ELU, had already written a Wisconsin workers' compensation endorsement to FGF's workers' compensation coverage. She would be paid an annual salary of $78,000.00, provided with a company car, and provided with full medical, disability, and life insurance coverage. After one year a salary plus bonus option would be discussed.

On April 4 Marsha called Fred from her Hudson, Wisconsin home. She indicated a "very strong interest" in the offer. She needed to discuss "notice and separation" issues with Archie Golden's. She inquired when she could meet with Fred to review, "her employment contract, and if acceptable sign it." Fred indicated he would prefer a start date as quickly as possible but not to worry about "the formalities." He then asked Marsha if she would like to meet with him and the builder to review the site plan and progress of the Hudson store at 3:00 p.m. that afternoon. Marsha indicated that she indeed would appreciate that opportunity. Fred then confirmed that Marsha continued to live within three blocks of the Wisconsin end of the Stillwater "lift bridge." She did. He then asked Marsha if she would mind "driving across the lift bridge to Stillwater to collect my blueprints and drawings from the interior decorator whose office is just off the lift bridge in Stillwater ..." Marsha agreed. She would travel to the decorator and bring the plans to the 3:00 p.m. meeting with Fred at the restaurant site near the I-94 frontage road in Hudson.

At approximately 1:30 p.m. Marsha remembered that she had personal errands and shopping to do before supper. She travelled to the mini-mall approximately three blocks from the FGF building site, but approximately four miles from the Stillwater lift bridge. She shopped, talked with friends, and had a cup of coffee. She forgot her agreement to retrieve the blueprints and plans from the Stillwater interior decorator.

At 2:30 p.m. she remembered this task. Rather than travel through Hudson to the lift bridge and across to Stillwater, Marsha took the freeway across the St. Croix River, intending to travel north to Stillwater on the Minnesota side.

At approximately the mid-point in the bridge a roofing trailer being pulled by "Ricks' Roofing, Woodbury, Minnesota" separated from the pick-up pulling it. It careened across the westbound I-94 lanes. At the bridge's mid-point, it struck Marsha's car. Hot rock, tar, and other roofing material broke Marsha's windshield, covering her face, neck, and upper torso with hot tar. This resulted in second and third degree burns. Marsha also suffered a neck injury.

She has been hospitalized since. Her medical bills exceed $90,000.00. Her burn specialist and consulting plastic surgeon have agreed that even with the best treatment presently available, "the patient's extensive burns will result in unavoidable facial scarring. Extensive skin grafting over the patient's face is probable. Significant permanent intolerance to extremes of heat or cold is virtually certain.

The accident was investigated by the State Patrols of Wisconsin and Minnesota. No definite conclusion could be reached regarding the exact site of the accident. Investigators agreed that the trailer separated from the pick-up on the Wisconsin side of the river. However, spilled tar, gravel, and accident debris obliterated much of the "impact location" evidence. Investigators could only agree that the impact was, "near the Wisconsin/Minnesota border."

Marsha has retained an attorney and commenced a civil tort lawsuit against Rick's Roofing in Washington County, Minnesota, District Court. Marsha's attorney also reported this accident to FGF's workers' compensation carrier, ELU. A First Report was prepared. FGF/ELU originally denied Marsha's status as an employee at the time of this injury. After additional investigation ELU has counseled FGF to, "acknowledge employment status and voluntarily commence Wisconsin workers' compensation benefits." FGF continues to oppose voluntary payment of any workers' compensation benefits. Marsha's attorney has demanded commencement of Minnesota workers' compensation benefits, but to date no Claim Petition has been filed.

Please address:

5 pts.

1. Was Marsha a FGF employee at the time of this accident? Please explain.

10 pts.

2. If Marsha is determined to have been a FGF employee at the time that the accident occurred, does FGF have any defenses to her claims?

10 pts.

3. Analyze the legal basis under which Marsha's attorney will argue that Minnesota, rather than Wisconsin's workers' compensation benefits are payable.

5 pts.

4. Given her ongoing treatment, the amount of any permanent partial disability due to Marsha cannot yet be determined. However, on the facts above, will Marsha qualify for any permanent partial disability, if her claim is compensable under Minnesota's Workers' Compensation Act? Please explain.

10 pts.

5. If Marsha's claims are compensable under the Minnesota Workers' Compensation Act, do FGF/ELU have any claims or recourse against any party(ies) arising from the facts or circumstances of this accident? Please explain.