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Pennsylvania Courts Maintain Protections for Defendants in Fee Agreements

November 17, 2021

Despite a recent decision expanding the traditional notions of recoverable attorney’s fees in workers’ compensation cases, the court still maintains protections for defendants with respect to the assessment of attorney’s fees against them.

In a stunning decision on May 14, 2020, the Commonwealth Court ruled in  Neves v. WCAB (American Airlines), No. 1431 C.D. 2018 (May 14, 2020), that a contingent fee agreement between claimant and his counsel for 20% of “any benefits awarded,” included a fee based upon indemnity and medical benefits, and there was no discretion by the judge to reduce the fee based upon reasonableness, which has been traditionally defined by reviewing the amount of work required and the complexity of the legal issues. Instead, the court noted that a 20% fee in the context of Section 442, governing fee agreements between claimants and their lawyers, is per se reasonable, even if that leaves claimants vulnerable to substantial medical bills that would otherwise be paid by the workers’ compensation insurance carrier.

This holding came as quite a shock, considering the humanitarian and remedial nature of the Act, which is geared toward compensating claimants generously. By way of a quick example, if a claimant entered into one of these workers’ compensation fee arrangements for 20% of “all benefits awarded” after a bad car accident, requiring an emergency surgery and a week-long hospital stay, that could easily add up to a hefty $100,000.00 hospital bill. Under the fee arrangement, consistent with Neves, the carrier would pay only $80,000.00 to the hospital, and the other $20,000.00 would be payable to claimant’s counsel. That exposes claimant, a person now out of work recovering from extensive injury, to a hospital bill of $20,000.00.

As you can see, a disabling work injury requiring extensive medical treatment can quickly bankrupt already vulnerable claimants. A person making $15.00 per hour and working 40 hours a week is entitled to wage loss benefits at a yearly rate of just slightly over $28,000.00. In the example above, the outstanding claimant-portion of the hospital bill will wipe out almost all of a claimant’s wage loss benefits for the whole year. If you add even limited post-hospital treatment, such as pain medications and physical therapy, claimants will quickly be in the red in cases where they were successful in obtaining benefits under a Neves fee arrangement.

Fortunately for defendants, the court has declined to expose carriers and employers to such harsh treatment, as the payment of attorney’s fees by defendants is governed by a different section of the Act – Section 440. That Section states:

In any contested case where the insurer has contested liability . . . the employe[e] . . . in whose favor the matter at issue has been finally determined . . . shall be awarded, in addition to the award for compensation, a reasonable sum for costs incurred for attorney’s fee . . . 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.

77 P.S. §996.

Recently, on August 19, 2020, the claimant in Lorino v. WCAB (Commonwealth of Pennsylvania), No. 1217 C.D. 2019 (August 19, 2020) asked the court to expand defendant’s liability to pay for counsel fees.          

In Lorino, claimant suffered a medical-only low back sprain/tear and left hip sprain/tear when he slipped on a running board on his work truck. Fortunately, claimant did not miss any time from work because of his injury. Defendant had him examined and the defense doctor found him to be fully recovered. Defendant filed a Termination Petition.

Because claimant was not receiving wage loss benefits, he could not hire an attorney through a traditional contingent fee arrangement, and instead, contracted to pay his lawyer $400.00 an hour. The judge denied the termination petition, as well as the request for counsel fees payable by defendant under Section 440.

Claimant filed an appeal arguing that Section 440 does not always require that the defendant engage in an unreasonable contest before attorney’s fees are ordered, otherwise the General Assembly would have said “shall” instead of “may” in the sentence related to the same –  

“Provided That cost for attorney fees may be excluded when a reasonable basis for the contest has been established.” Claimant argued that without judicial discretion, the word “may” is not given effect. He argued that in some cases, like his own, where a traditional contingent fee cannot be established, it is fair and statutorily correct to allow the judge to award counsel fees even when defendant has a reasonable contest. Essentially, the claimant argued part policy (fairness) and part grammar (statutory construction).

Defendants argued that the legislative intent of Section 440 is to protect claimants from unreasonable contests and the wording of the same is meant to carve out an exception to the rule requiring payment, and defendants should be able to proceed with litigation without a per se finding of attorney’s fees just because a claimant is not receiving wage loss benefits.

The court noted that the longstanding historical application of Section 440 fees was only to award fees when an unreasonable contest occurs. The court stated that the specific factual circumstances of a claimant who is not receiving indemnity benefits cannot drive the court’s interpretation in another direction. So, claimant’s fairness and statutory construction arguments were both defeated. Defendants maintain the protection of proceeding with litigation as long as there is an objective, reasonable basis to do so, without the fear of attorney’s fees being assessed against it for matters outside its control.

The court further declined to find per se unreasonableness when a defendant loses in litigation. The court states that a reasonable contest should be objective, and one does not necessarily have to win to engage in a reasonable contest.

In summary, the court maintained all the protections that defendants have traditionally had when it comes to the award of counsel fees.

Lastly, this writer would note that the second paragraph of Section 440 indicates that if counsel fees are awarded, the judge must make a finding as to the reasonableness of the same based upon the amount of time spent on and legal complexity of the case. 77 P.S. §996(b). Unlike the holding in Neves, this finding must be made in every case where an award of counsel fees against defendant occurs. There is no per se reasonableness to submitted fees against defendants. Therefore, defendants further maintain protection against the submission of outrageous fees without the work performed to substantiate the same.

If you find yourself in a situation where claimant obtains counsel, you should refer the matter to defense counsel to review for fee-related issues. Undoubtedly, claimants, and more significantly, medical providers, will try to find ways to make up for the loss in income from defendants in cases where claimants cannot afford 20% of the total bill. You should seek advice about your rights and duties when it comes to the payment of workers’ compensation fee agreements involving medical benefits, as well as proceeding with litigation with a proper foundation to assess liability for unreasonable contest fees.