Neutral As of: June 25, 2018 6:13 PM Z
Morris v. Zurich Am. Ins. Co.
United States District Court for the Western District of Kentucky
June 15, 2018, Decided; June 15, 2018, Filed
CIVIL ACTION NO. 5:16-CV-129-TBR

Reporter
2018 U.S. Dist. LEXIS 100661 *; 2018 WL 3025528
MELISSA MORRIS, PLAINTIFF v. ZURICH AMERICAN INSURANCE CO., et al., DEFENDANTS
Prior History: Morris v. Zurich Am. Ins. Co., 2016 U.S. Dist. LEXIS 190859 (W.D. Ky., Oct. 13, 2016)

Memorandum Opinion and Order
This matter comes before the Court upon Motion by Defendants Zurich American Insurance Company1 and Zurich American Insurance Company of Illinois,2 (collectively, “Defendants”), for summary judgment against Plaintiff Melissa Morris, (“Morris”). [DN 23.] Morris has responded, [DN 41], and Defendants have replied. [DN 56]. This matter is ripe for adjudication and, for the reasons that follow, IT IS HEREBY ORDERED that Defendants’ Motion, [DN 23], is GRANTED in part and DENIED in part.

A. Background
“Morris was injured in an automobile accident on September 18, 2008. The person driving the [other] vehicle in the accident was Edgar Heinkel,” who “was an employee of SMCS Terminix at the time of the accident.” [DN 1-2, at 2.] Heinkel was driving his company truck when the accident occurred. [Id.] “As a result of [*2] Heinkel’s employment, he was insured under a commercial auto policy that [D]efendant Zurich American Insurance Company issued to” ServiceMaster, a company which oversees the operation of numerous brands, including Terminix. [DN 23-2, at 2.] That policy held the following policy number: BAP 2938657-03. [DN 1-2, at 2.] According to Defendants’ instant Motion, Zurich Illinois did not insure ServiceMaster or any of the companies under ServiceMaster’s corporate umbrella. [DN 23-2, at 3.]
As a result of the underlying accident, Morris claims that she suffered “a disk injury to her neck and lower back,” for which she received medical treatment. [DN 41-1, at 3.] Further, “[w]hile Ms. Morris continued to treat her injuries, her attorney [at that time], Kevin Monsour, sent a settlement demand to Zurich [American] on July 20, 2011 in the amount of $175,000. Although Zurich [American] confirmed receipt of the settlement demand on August 9, 2011, Zurich [American] did not settle, counter or attempt in any way to respond….” [Id.] As a result, Morris “filed suit in Jefferson County Circuit Court on September 19, 2011.” [Id.] According to Morris’s Amended Complaint, filed in state court before removal [*3] from Christian County Circuit Court, Zurich American “orally offered to settle [her] claim for $25,000 in 2015, which was later increased orally to $75,000, and then [Zurich American] later orally suggested they would be willing to go as high as six figures.” [DN 1-2, at 3.]
The underlying policy, BAP 2938657-03, “had a $5,000,000 liability limit and a $3,000,000 liability deductible.” [DN 23-2, at 2; DN 23-5, at 1.] After the underlying litigation commenced, in Morris’s responses to Defendants’ interrogatories, she indicated that her claim was worth $1,900,000. There is no evidence that she ever sought or contended she was entitled to more than that sum. In her state court Amended Complaint, Morris alleged that Defendants engaged in bad faith in the following ways: (1) “fail[ing] to acknowledge and act reasonably promptly upon communications with respect to a claim arising under the [relevant] insurance policies,” (2) “refus[ing] to pay claims without conducting a reasonable investigation based upon all available information,” (3) failing to “attempt in good-faith to effectuate prompt, fair, and equitable settlement of [her] claim in which liability had become reasonably clear and [*4] damages became reasonably certain,” (4) “fail[ing] to adopt and implement a reasonable standard for the prompt investigation of claims arising under” the relevant “insurance policies,” (5) “compel[ing] [Morris] to institute litigation to recover amounts due under the insurance policy by not offering any payment and then offering substantially less than the amount ultimately recovered by [Morris] in the underlying action,” (6) “attempt[ing] to settle [Morris’s] claims for less than the amount to which a reasonable person would have believed she was entitled by reference to written or printed advertising material disseminated by Zurich,” and (7) “fail[ing] to promptly provide a reasonable explanation of the basis in the insurance policy in relation to the facts and applicable law for denial of [Morris’s] claim or for the offer of a compromised settlement in her claim.” [DN 1-2, at 3-4.]

B. Legal Standard
Rule 56 of the Federal Rules of Civil Procedure instructs that “[t][he court shall grant summary judgment if the movant shows that there is no genuine dispute as to any material fact and the movant is entitled to judgment as a matter of law. The court should state on the record the reasons for granting or denying the motion.” Fed. R. Civ. P. 56(a). “In [*5] deciding a motion for summary judgment, the court must view the evidence and draw all reasonable inferences in favor of the nonmoving party.” Nat’l Satellite Sports, Inc. v. Eliadis, Inc., 253 F.3d 900, 907 (6th Cir. 2001) (citing Matsushita Elec. Indus. Co., Ltd. v. Zenith Radio Corp., 475 U.S. 574, 587, 106 S. Ct. 1348, 89 L. Ed. 2d 538 (1986)). Additionally, “[t]he judge is not to ‘weigh the evidence and determine the truth of the matter but to determine whether there is a genuine issue for trial.'” Id. (quoting Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 249, 106 S. Ct. 2505, 91 L. Ed. 2d 202 (1986)).
“The moving party bears the initial burden of demonstrating that no genuine issue of material fact exists.” Am. Guar. & Liab. Ins. Co. v. Norfolk S. Ry. Co., 278 F. Supp. 3d 1025, 1037 (E.D. Tenn. 2017) (citing Celotex Corp. v. Catrett, 477 U.S. 317, 323, 106 S. Ct. 2548, 91 L. Ed. 2d 265 (1986)). The movant “may discharge this burden either by producing evidence that demonstrates the absence of a genuine issue of material fact or simply ‘by showing—that is, pointing out to the district court—that there is an absence of evidence to support the nonmoving party’s case.'” Id. (quoting Celotex, 477 U.S. at 325). Should the movant carry his or her burden here, “[t]he nonmoving party…may not rest upon its mere allegations or denials of the adverse party’s pleadings, but rather must set forth specific facts showing that there is a genuine issue for trial.” Moldowan v. City of Warren, 578 F.3d 351, 374 (6th Cir. 2009) (citing Matsushita, 475 U.S. at 586). Finally, “[t]he mere existence of a scintilla of evidence in support of the non-moving party’s position will be insufficient to defeat a motion for summary judgment; there must be evidence on which the jury [*6] could reasonably find for the non-moving party.” Id. (internal citations and brackets omitted). This means that “[i]f the [non-moving] party fails to make a sufficient showing on an[y] essential element of its case with respect to which it has the burden of proof, the moving party is entitled to summary judgment.” Am. Guarantee and Liability Ins. Co., 278 F. Supp. 3d at 1037 (citing Celotex, 477 U.S. at 323).

C. Discussion

1. Background Law
“Kentucky law recognizes four categories of bad faith claims against insurance companies,” which are as follows:
(1) common law third-party bad faith, which may occur when a liability insurer fails to settle a tort claim against its insured; (2) common law first-party bad faith, which occurs when an insurer refuses to pay the claim of its own insured under a first-party policy provision; (3) first-party bad faith under the Kentucky Consumer Protection Act (‘KCPA’); and (4) first-party and third-party bad faith under the Kentucky Unfair Claims Settlement Practices Act (‘KUCSPA’), which imposes what is generally known as the duty of good faith and fair dealing owed by an insurer to an insured and sets forth a list of particular duties and practices which constitute unfair claims settlement.
Foster v. Am. Fire and Casualty Co., 219 F. Supp. 3d 590, 594 (E.D. Ky. 2016) (citing Knotts v. Zurich Ins. Co., 197 S.W.3d 512, 515 (Ky. 2006); Rawe v. Liberty Mutual Fire Ins. Co., 462 F.3d 521, 526-27 (6th Cir. 2006)).
Here, Morris has made claims for [*7] (1) common law third-party bad faith, and (2) third-party bad faith under the KUCSPA. [See generally DN 1-2.] In Davidson v. Am. Freightways, Inc., 25 S.W.3d 94, 100 (Ky. 2000), the Kentucky Supreme Court restated the rule first explained in Wittmer v. Jones, 864 S.W.2d 885 (Ky. 1993), namely, that irrespective of whether a bad faith claim is brought by a first-party claimant or a third-party claimant, or “whether premised upon common law theory or a statutory violation,” “all of the bad faith liability theories [have been gathered] under one roof” and there is one test applicable to all four above theories. That test is as follows:
(1) [t]he insurer must be obligated to pay the claim under the terms of the policy; (2) the insurer must lack a reasonable basis in law or fact for denying the claim; and (3) it must be shown that the insurer either knew there was no reasonable basis for denying the claim or acted with reckless disregard for whether such a basis existed.
Id. (quotation marks and citations omitted).

2. Admissibility of Laura Stengl’s Affidavit
Although Morris’s claims are for bad faith, the first issue the Court must decide is the admissibility of Laura Stengl’s affidavit, (the “Stengl Affidavit”), which was attached to the instant Motion. Stengl, a claims specialist with Zurich [*8] American, completed an affidavit in which, among other things, she avers that Morris’s settlement demands always fell under the $3,000,000 deductible, and that Morris’s underlying claims were “genuinely disputed throughout.” [DN 58.] Morris argues in her Response to the instant Motion that the Court should not consider the Stengl Affidavit in reaching its decision on whether to grant summary judgment in favor of Defendants for three broad reasons: first, Morris argues that the Stengl Affidavit does not comply with Federal Rule of Civil Procedure 56(c)(4) or Kentucky statutory requirements; second, Morris argues that Stengl is not competent to make averments concerning issues that transpired before her term of employment started with Zurich American; third, Morris argues that Stengl improperly and irrelevantly relies on litigation materials to reach a conclusion concerning the underlying settlement. [See DN 41-1, at 5-7.] Defendants do not mention Stengl or her affidavit in their Reply, nor do they respond to Morris’s arguments concerning the document. [See generally DN 56.]
With respect to her first argument, Morris claims that the Stengl Affidavit does not comport with Rule 56(c)(4) because it was “not made upon personal knowledge and [*9] makes statements that are not supported by the record. Nor does she cite to the record to support her statements.” [DN 41-1, at 5.] Of course, an affiant need not cite to the actual Record of a case in order for their averments to be legitimate, or for the Court to consider them in reaching a decision. Morris also contends that the Stengl Affidavit “does not comply with the Kentucky statutory requirements” because it “fails to certify [that Stengl] appeared before the notary personally and execute the instrument.” [Id.] However, the document provides the following signed declaration by Jacqueline Thomas, the notary public in question: “Subscribed and sworn to before me this 1st day of February, 2018 by Laura J. Stengl.” [DN 58 (emphasis added).] The Court finds that this standard declaration satisfies any concerns Morris may have concerning the document’s authenticity and compliance with relevant statutory authority.
Next, the Court finds Morris’s argument that Stengl lacks personal knowledge of the facts about which she makes averments, or that she is somehow incompetent to discuss these matters, to lack merit. Stengl is clear that she was not assigned as a claims representative on [*10] Morris’s underlying claim until April 2012. [Id.] And although Stengl makes averments about “pre-litigation” issues, the Court is satisfied that, as the claims representative assigned to Morris’s case, she would have been made aware of the case history as well as its pertinent facts. Moreover, even if the Court were to disregard the sections of the Stengl Affidavit which relate to incidents occurring before her term of employment with Zurich American commenced, the Court would still have that information through other sources. Specifically, Morris does not contend that she ever made settlement demands that equaled or exceeded the $3,000,000 deductible.
The final section of the Stengl Affidavit with which Morris takes issue is Stengl’s averment that her “tort case against Mr. Heinkel and his employer was genuinely disputed throughout.” [Id.] In support of this averment, Stengl states that, in her answers to Defendants’ interrogatories, “Morris claimed total damages of $1,900,000,” and that “Morris’s lawsuit against Mr. Heinkel and his employer was settled for less than 10% of the amount claimed by Ms. Morris in those interrogatory answers,” thereby demonstrating, in Stengl’s view, a [*11] genuine dispute. [Id.] Morris argues that Stengl’s averment that her claim was “genuinely disputed…is not true and not supported by admissible evidence….” [DN 41-1, at 5.] Additionally, Morris argues that this statement “is simply an unsupported self-serving conclusory statement. This statement is inconsistent with the other evidence produced by defendants. Ms. Stengl does not state any facts to support or provide a reasonable inference why the claims were genuinely disputed in good faith.” [Id. at 5-6.] Again, it is uncontested that Morris, at one time, claimed her case was worth $1,900,000, and that she ultimately settled for a much smaller figure, $116,432. And Morris may argue that this Court cannot consider her answers to interrogatories, but the case law in the Sixth Circuit bears out the rule that, “under Federal Rule of Civil Procedure 56(c), a district court may consider answers to interrogatories when reviewing a motion for summary judgment so long as the content of those interrogatories would be admissible at trial, and this includes a party’s own responses to interrogatories.” Bokhari v. Metro. Gov’t of Nashville and Davidson Cnty., No. 3:11-00088, 2012 U.S. Dist. LEXIS 171103, 2012 WL 6018710, at *6 n.3 (M.D. Tenn. Dec. 3, 2012) (internal quotation marks and citations omitted). In her response [*12] to an interrogatory, she set out $1,900,000 as the value of her claim. The Court finds that it may consider the Stengl Affidavit in deciding this Motion. However, the Court does make note of the core problem with which Morris takes issue, namely, Stengl’s statement that Morris’s case was “genuinely disputed throughout.” This statement, standing alone, though, is insufficient to find as a matter of law that there was, in fact, a genuine dispute regarding Morris’s underlying claim. In other words, this statement from Stengl, largely conclusory in nature, does not guide this Court’s decision.

3. Morris’s Collateral Estoppel Argument
The next issue for the Court’s review is Morris’s argument that Defendants are collaterally estopped from claiming that one or both of them possessed no contractual obligation to pay out Morris’s claim (the first element of a bad faith claim) when her claim has, in fact, already been paid by way of a settlement. [DN 41-1, at 11.] Specifically, Morris argues that Defendants paid for the property damage to the vehicles involved in the underlying incident, they paid for the bodily injury claims arising from the underlying incident, and by virtue of the fact that [*13] Defendants have “already paid damages claims on four vehicles and at least three different bodily injury claims, [Defendants are] estopped from now claiming there was no contractual duty to pay the claim. There is a presumption that [Defendants] cannot overcome.” [Id. 11-12.] In their Reply, Defendants argue that, because “Morris’s underlying tort claims were settled, not litigated to a final judgment,” this “defeats Morris’s issue-preclusion argument….” [DN 56, at 4-5.]
Issue preclusion, commonly referred to as collateral estoppel, “precludes issues of a prior adjudication from being re-litigated.” Revenue Cabinet, Commonwealth of Kentucky v. Samani, 757 S.W.2d 199, 201 (Ky. Ct. App. 1988). “The essential elements of collateral estoppel are: (1) identity of issues; (2) a final decision or judgment on the merits; (3) a necessary issue with the estopped party given a full and fair opportunity to litigate; and (4) a prior losing litigant.” Swinford Trucking Co., Inc. v. Paducah Bank & Trust Co., 314 S.W.3d 310, 311 (Ky. Ct. App. 2010) (citing Moore v. Commonwealth, Cabinet for Human Res., 954 S.W.2d 317, 319, 44 12 Ky. L. Summary 27 (Ky. 1997)). The purpose of such a rule is “to promote judicial economy and finality.” Id.
Importantly, the Supreme Court has made clear that “settlements ordinarily occasion no issue preclusion (sometimes called collateral estoppel), unless it is clear…that the parties intend their agreement to have such an effect.” Arizona v. California, 530 U.S. 392, 414, 120 S. Ct. 2304, 147 L. Ed. 2d 374 (2000). Morris makes no argument that [*14] the issue of one or both of Defendants’ contractual obligations to pay out her underlying claim was litigated to a final decision or judgment, and no evidence has been adduced which tends to show that the settlement entered into between Zurich American and Morris was intended to have a preclusive effect on the issue of Zurich American’s contractual obligation to pay out such claims. Accordingly, the Court finds that issue preclusion does not apply here.

4. Zurich Illinois’ Place in the Case
The next issue is the inclusion of Zurich Illinois in this case. Morris has sued both Zurich American and Zurich Illinois, but Defendants claim that the insurance policy at issue, BAP 2938657-03, “show[s] that Zurich American Insurance Company (not Zurich American Insurance Company of Illinois) issued” the policy. [DN 23-2, at 10.] Thus, Defendants argue, “Zurich American Insurance Company of Illinois was never obligated to pay Morris’s underlying tort claims and it is entitled to summary judgment….” [Id.]
In her Response, Morris argues that, “[o]n the ‘In Witness Clause’ page of the policy…it states ‘we agree with you to provide insurance as stated in this policy.’ The document is signed by Thomas A. Bradley, [*15] President Zurich North America. The list of company entities included under his signature includes Zurich American…and Zurich [Illinois].” [DN 41-1, at 10.] Apart from this, Morris argues that Zurich Illinois “is probably listed as a party guaranteeing payments of claims pursuant to the insurance policy,” but “[b]ecause defendants have not provided all effective contracts that govern this policy, plaintiff does not have the benefit of referring to the specific portions or pages.” [Id. at 10-11.]
The fact that the “In Witness Clause” that Bradley signed evidences his status as President of both Zurich American and Zurich Illinois cannot, in and of itself, preclude summary judgment where a claim of bad faith is involved. Bradley apparently also oversees American Guarantee and Liability Insurance Company and American Zurich Insurance Company, which have not been sued here. [See DN 41-4, at 2.] All Morris can offer with respect to Zurich Illinois is that it is “probably” listed as a guarantor concerning insurance payments. But allegations in a Response do not constitute evidence, and the Court finds that Morris has not produced a scintilla of evidence that Zurich Illinois is liable for bad faith, or was ever contractually [*16] obligated to pay out the underlying claim. Accordingly, the Court will dismiss Zurich Illinois from this action.

5. Contractual Obligation to Pay
Having dismissed Zurich Illinois from this case, the Court will now shift its focus to the arguments presented by Zurich American, the remaining Defendant, as to why, in its view, summary judgment is warranted in this case.3 Zurich American makes numerous arguments in support of its instant Motion, the first and most detailed of which relates to the question of whether Zurich American was ever obligated to pay Morris’s underlying tort claims against Heinkel and his employer, meaning that her bad faith claims would fail as a matter of law. [See DN 23-2, at 3.] Under Kentucky law, “[a]bsent a contractual obligation, there simply is no bad faith cause of action, either at common law or by statute.” Davidson v. Am. Freightways, Inc., 25 S.W.3d 94, 100 (Ky. 2000). Also, “both the statute and the common law tort apply only to persons or entities engaged in the business of insurance.” Id. at 95. “Kentucky case law clearly acknowledges that a contractual obligation must exist in order to find a party liable under the [KUCSPA] or the common law duty to act in good faith.” Daugherty v. Am. Express Co., No. 3:08-cv-00048, 2010 U.S. Dist. LEXIS 120367, 2010 WL 4683758, at *4 (W.D. Ky. Nov. 12, 2010). [*17]
Zurich American contends that this case bears a striking resemblance to the facts of Davidson. See 25 S.W.3d at 94. There, as here, the underlying incident was an auto accident, although in Davidson the wreck involved two tractor-trailer rigs; one was owned by Joseph Davidson and operated by Thomas Davidson, and the other was owned by American Freightways and operated by one of its employees. Id. at 95. American Freightways was insured by Protective Insurance Company, (“PIC”), and its policy contained a $250,000 deductible. Id. However, American Freightways and not PIC conducted the investigation of the underlying incident, it negotiated on its own behalf, litigated the issue and paid the underlying claims with its own money. Id. Afterwards, the Davidsons filed a bad faith case against the company. Id. In affirming the decisions of the Jefferson County Circuit Court and the Kentucky Court of Appeals, the Kentucky Supreme Court held that the Kentucky “legislature did not intend to subject self-insured or uninsured persons or entities to the technical requirements of the Kentucky Insurance Code and its attendant regulations,” and held “that the [KUCSPA] and the tort of ‘bad faith’ appl[ied] only to those persons [*18] or entities (and their agents) who are ‘engaged…in the business of entering into contracts of insurance.'” Id. at 102 (quoting KRS 304.1-040). Of course, as a trucking company, American Freightways was not in the business of insurance.
Likening Davidson to this case, Zurich American argues that it “is analogous to American Freightways’ insurer [PIC] and [ServiceMaster] is analogous to American Freightways.” [DN 23-2, at 4.] Zurich American argues that this is the case because it “was insulated from paying Melissa Morris’s tort claims by [ServiceMaster’s] $3,000,000 deductible,” and because ServiceMaster’s deductible “made it responsible for paying Melissa Morris’s tort claims with its own money.” [Id. at 4-5.] Of course, Zurich American does concede that the ultimate issue in Davidson was “whether the plaintiff could hold American Freightways (a non-insurer) liable for bad faith….” [Id. at 5.] Essentially, Zurich American is arguing that there was no obligation placed upon it to pay Morris’s underlying tort claims because her claims and/or demands never exceeded the $3,000,000 liability deductible, meaning, in Zurich American’s view, that ServiceMaster was “self-insured up to $3,000,000.” [Id. at 2.] It contends that this would [*19] have made it a “third-party claims handler for claims of $3,000,000 or less.” [Id.] Morris, of course, disputes ServiceMaster’s alleged status as “self-insured” and Zurich American’s alleged status as a “third-party claims handler.”
In order to answer the question of whether ServiceMaster could be considered “self-insured,” the Court looks first to Black’s Law Dictionary. This well-known and oft-cited source defines the term “self-insurance” as “[a] plan under which a business maintains its own special fund to cover any loss. Unlike other forms of insurance, there is no contract with an insurance company. Black’s Law Dictionary (10th ed. 2014) (emphasis added). Of course, in this case it is uncontested that ServiceMaster had a contract with Zurich American, which is an insurance company. There is also the issue that no evidence has been adduced, nor any arguments made, that ServiceMaster maintains some sort of special fund from which it extracts money to pay for claims such as Morris’s one, although Zurich American indicates several times that ServiceMaster was required to repay amounts expended by Zurich American which were under the deductible limit as part of a fronting agreement. [*20]
Looking back to Davidson for further guidance on the issue, the Kentucky Supreme Court there noted that companies must take certain steps in order to qualify as “self-insured” and found that American Freightways had not complied with the relevant statute, KRS 304.39-080(7), meaning that it “ha[d] not qualified as a ‘self-insured’ under Kentucky law.” Davidson, 25 S.W.3d at 95 (citing KRS 304.39-080(6)). That statute, KRS 304.39-080(7), lays out various steps an entity must take in order to qualify as self-insured in Kentucky, and also requires the entity to obtain the approval of the Commissioner of Insurance.4 In its instant Motion, Zurich American does not contend that ServiceMaster has complied (or has tried to comply) with this statutory provision, nor is the statutory provision even mentioned in its brief, and no exhibits attached thereto evidence such efforts. It is, therefore, uncontested that, at least statutorily speaking, ServiceMaster was not self-insured under Kentucky law. Nevertheless, Zurich American argues that the $3,000,000 deductible “effectively made [ServiceMaster] self-insured” up to that amount. [DN 23-2, at 2 (emphasis added).] To wit, Zurich American cites back to Davidson for the proposition that “the [court] held that an insured with [*21] [a] $250,000 deductible was effectively self-insured against a $71,000 claim.” [Id. at n.5.] However, the full quotation from the Kentucky Supreme Court on the issue is as follows: American Freightways “is an interstate motor carrier and had complied with the requirements of 49 U.S.C. § 31139(b) and (e), thus had qualified as a ‘self-insured’ under federal law to the extent of its $250,000.00 deductible. However, it had not complied with KRS 304.39-080(7), thus had not qualified as a ‘self-insured’ under Kentucky law.” Davidson, 25 S.W.3d at 95 (emphasis added). In Davidson, it was the plaintiffs-appellants who attempted to characterize American Freightways as self-insured, “presumably because KRS 304.12-220 specifically provides that the [KUCSPA] does not apply to ‘an insured.'” Id.
Here, the Court finds no allegations or evidence that ServiceMaster had somehow complied with a federal law-equivalent for qualification as a self-insurer, as American Freightways did in Davidson, and Zurich American does not contend that ServiceMaster took the necessary steps under Kentucky law to become self-insured either. Rather, Zurich American appears to seek a rule establishing a company’s qualification for self-insured status that circumvents the relevant statutory [*22] authority, i.e., that an entity can be de facto self-insured by virtue of the fact that the value or demands of a given claim fall below the uppermost threshold of that entity’s insurance liability deductible. However, even setting aside the requirement of compliance with the statute and approval by the Kentucky Commissioner of Insurance, Zurich American has not shown that ServiceMaster took any of the required steps outlined above: there is no evidence that ServiceMaster assumed “a continuing undertaking to pay tort liabilities or basic reparations benefits” other than amounts under the $3,000,000 deductible with Zurich American; there is no evidence that ServiceMaster maintains a department in which “prompt and efficient administration of all claims, benefits and obligations” are handled; and there is no evidence of “reliable financial arrangements [at ServiceMaster] substantially equivalent to an insurance policy.” See Davidson, 25 S.W.3d at 103 (Wintersheimer, J., dissenting).
In her Response, Morris argues that “[t]he analogies drawn by Defendants comparing [American Freightways] to ServiceMaster [are] completely misguided. ServiceMaster was contractually obligated to reimburse Zurich [American] up to the [*23] $3,000,000 deductible,” whereas the same cannot be said for American Freightways. [DN 41-1, at 16.] By way of Reply, Zurich American concedes that “American Freightways was not truly self-insured under Kentucky law,” but maintains its argument that the Kentucky Supreme Court treated the company as a self-insured entity without reference to that court’s above-quoted statement explicitly referencing American Freightways’ compliance with 49 U.S.C. § 31139(b) and (e) and its status as an interstate motor carrier. See Davidson, 25 S.W.3d at 95.
Justice Donald Wintersheimer noted the following in his dissent:
American Freightways has its own Property and Casualty Claims Department, with a director, adjusters and investigators. It conducts negotiations with claimants. Decisions on settlements are made within the department as long as the claims are within the deductible/self-retention sum of less than $250,000. The claims department took the position that American Freightways was not totally responsible for the accident but only 60 percent liable. It is obvious that these activities are those which an insurance company regularly performs.
Id. at 105 (Wintersheimer, J., dissenting). Nowhere in the parties’ briefs or attached exhibits is there any indication [*24] that ServiceMaster possesses any such department, retains employees in those positions, or engages in any of the actions in which American Freightways did when it acted like its own insurer. Indeed, Zurich American and not ServiceMaster was the payor of Morris’s underlying claim. Also of great importance, though, is the fact that Morris has not here sued ServiceMaster, as the Davidsons sued American Freightways, nor was ServiceMaster made a part of the lawsuit by Zurich American vis à vis third-party practice. Instead, Morris sued the insurance company who made a contract with ServiceMaster, the result of which was Zurich American deciding to settle a claim with Morris stemming from the underlying incident.
Notwithstanding this, Zurich American cites to numerous cases in support of its argument for ServiceMaster’s self-insured status, some of which merit discussion by the Court. The first is Delamar v. Mogan, 966 F. Supp. 2d 755 (W.D. Ky. 2013). There, the plaintiff, Andy Delamar, filed a claim with his insurance company, Global Indemnity Group, (“GIG”), after his restaurant burned down in Clay, Kentucky. Id. at 756. GIG, in turn, “hired an adjusting company, Cunningham Lindsey, to adjust [Delamar’s] claim related to the fire loss. Linda Mogan, [*25] an adjustor employed by Cunningham Lindsey, assisted in this effort.” Id. Eventually, Delamar filed a breach of contract and bad faith action against GIG, Cunningham Lindsey, and Mogan, which was removed to the Western District of Kentucky from Webster County Circuit Court. Id. The issue in Delamar, though, was whether Mogan, the individual adjuster, had been fraudulently joined by Delamar in order to defeat diversity jurisdiction (both Delamar and Mogan were Kentucky residents). Id. at 756-57. In dismissing Mogan from the action as fraudulently joined, the district court stated that, as an individual adjuster, “Mogan did not have a contractual obligation to pay the claim or any other contractual relationship with the Plaintiff, [and so] there is no ‘reasonable basis’ to suggest that Kentucky would hold Mogan individually liable for bad faith under either the common law or statutory scheme.” Id. at 759. However, as Morris correctly points out in her Response, “[t]he Delamar court did not analyze whether the adjuster, acting as the agent for the insurer, could trigger liability on behalf of the insurer.” [DN 41-1, at 17.] But more than that, the case currently before the Court does not involve an individual [*26] adjustor, the procedural posture is quite different and, apart from general statements of law with which this Court agrees, i.e., that the lack of a contractual relationship or obligation precludes liability for bad faith, Delamar, 966 F. Supp. 2d at 759, that case is quite different from this one.
The next case to which Zurich American cites is Prout v. PRG Real Estate Mgmt., Inc., 51 F. Supp. 3d 702 (E.D. Ky. 2014). There, the plaintiff, while residing at an apartment complex in Lexington, Kentucky, slipped and fell on a sidewalk located within the complex. Id. at 704. The plaintiff claimed that the sidewalk was unreasonably dangerous, and reported the incident to the complex’s owner, PRG. Id. Thereafter, PRG put the plaintiff in contact with ESIS, Inc., the third-party administrator for PRG’s self-insurance plan. Id. The plaintiff claimed that ESIS engaged in bad faith through its handling of her claim and sued. Id. Upon moving for summary judgment, ESIS and PRG, like Zurich American in this case, argued that the involved insurance company acted as a third-party administrator and that the company, PRG, (or here, ServiceMaster), was self-insured. Id. at 704-05. However, in Prout, the district court specifically referenced, and based its decision to grant ESIS’s motion on, a “risk management services agreement” [*27] entered into by ESIS and PRG. Id. “The document outline[d] the terms of Defendants’ agreement, making clear that claim payments were the obligation of PRG, not ESIS. Plaintiff…failed to dispute the authenticity of the contract or to identify any evidence indicating that ESIS was actually an insurer.” Id. at 705. The district court did not go into detail concerning the agreement between ESIS and PRG, but merely noted that the “agreement demonstrate[d] that ESIS, as PRG’s claims administrator, had no contractual obligation to make payment to Plaintiff.” Id.
There is no such certainty here, and Zurich American does not cite to any such language in its agreement with ServiceMaster which would lead this Court to conclude that Prout applied here. The agreement between Zurich American and ServiceMaster is attached to the instant Motion, though, and refers to ServiceMaster as the “insured” party and to Zurich American as the provider of that insurance. [DN 23-4, at 2, 5.] The decision in Prout will not cause this Court to change course on Defendants’ argument here.
Finally, Zurich American cites to Madison v. Nationwide Mut. Ins. Co., No. 1:11-cv-157, 2012 U.S. Dist. LEXIS 27906, 2012 WL 692598 (W.D. Ky. Mar. 2, 2012), a previous decision of this Court. However, Madison [*28] , like Delamar, outlined above, dealt with the fraudulent joinder of a claims adjustor to a case to defeat federal diversity jurisdiction. The issue here is not whether Morris may maintain a claim for bad faith against an individual claims adjustor employed by Zurich American or by ServiceMaster, and this Court stated in Madison that a complete reading of Davidson shows that “the [KUCSPA] was clearly intended to regulate the conduct of insurance companies,” and that the plaintiff “ignore[d] the Kentucky Supreme Court’s statement that there must be a contractual obligation.” 2012 U.S. Dist. LEXIS 27906, [WL] at *2 (internal quotation marks and citations omitted) (emphasis added). Zurich American is an insurance company, the type of entity the KUCSPA was designed to apply to, and Morris has sued no adjustors. Simply put, while Madison provides instruction on the question of individual claims adjustors, it does not provide any revelations with respect to the specific facts of this case.
Zurich American has not provided, by way of evidence, any indication that ServiceMaster complied or attempted to comply with the required steps to become self-insured under Kentucky law, or that ServiceMaster complied with some federal law-equivalent, [*29] or that ServiceMaster had or has specific personnel and policies in place to act as self-insured. The case law to which Zurich American cites does not provide this Court with cause to determine that ServiceMaster was self-insured, either. All of this leads the Court to conclude that Zurich American’s argument must fail on this front.

6. The Wittmer v. Jones Test
Even after having dispensed with Zurich American’s self-insurance argument, a genuine dispute of material fact still must be shown by Morris in order to preclude summary judgment. The Court will now turn its attention back to the Wittmer v. Jones three-part bad faith test. Zurich American next argues that, even assuming that it was obligated to pay Morris’s underlying tort claims, she still cannot meet that three-part test, outlined above. That test bears repeating here:
(1) The insurer must be obligated to pay the claim under the terms of the policy; (2) the insurer must lack a reasonable basis in law or fact for denying the claim; and (3) it must be shown that the insurer either knew there was no reasonable basis for denying the claim or acted with reckless disregard for whether such a basis existed.
Davidson, 25 S.W.3d at 100. With respect to element [*30] one, notwithstanding its previous argument that ServiceMaster was self-insured, Zurich American argues that “Morris’s [underlying] tort claims against Edgar Heinkel and his employer were always genuinely disputed.” [DN 23-2, at 12.] And “[b]ecause Kentucky insurers are only obligated to pay claims when liability is ‘beyond dispute,'” Morris’s claim must fail. [Id.] As Zurich American correctly points out, “the beyond-dispute rule gives Kentucky insurers the right to litigate claims that are genuinely disputed without making settlement offers.” [Id. (citing Philadelphia Indemnity Ins. Co. v. Youth Alive, Inc., 732 F.3d 645, 650 (6th Cir. 2013); Lee v. Med. Protective Co., 904 F. Supp. 2d 648, 656 (E.D. Ky. 2012)).] Notably though, the Sixth Circuit in Youth Alive also provided the caveat that “a disputed factual matter—such as a disagreement over the appropriate valuation of the loss—will not always preclude a bad-faith claim as a matter of law….” Youth Alive, 732 F.3d at 650.
Zurich American points out that “Morris filed interrogatory answers in March 2012 claiming $1,900,000 in damages. Morris ultimately accepted less than ten percent of that amount to settle her tort claims. By accepting approximately 90% less than what she once claimed in damages,” Zurich American argues that Morris herself has “proved that her tort claims were genuinely disputed….” [DN 23-2, [*31] at 13-14.] This disparity is evidenced by the Stengl Affidavit as well as Morris’s responses to Defendants’ interrogatories, wherein she stated that her claim was worth $1,900,000. In her Response, Morris does not contend that she ever made demands of $3,000,000 or more, nor does she deny that her interrogatory response indicated that she believed her claim to be worth $1,900,000. Instead, Morris argues forcefully that, despite Zurich American’s generalized contentions that the underlying claim was genuinely disputed, and Stengl’s accompanying affidavit indicating the same, liability was never actually at issue, and the correct figure for the Court’s examination is her initial, pre-litigation settlement offer of $175,000. Morris contends that “[i]t was clear from the day of the accident in 2008 Zurich’s insured, Mr. Edgar Heinkel was at fault. The claim was ‘beyond dispute’ and adverse to Zurich.” [DN 41-1, at 21.]
There are two key things at issue here with respect to the underlying incident: the first is that while Zurich American focuses exclusively on the disparity between the figure in Morris’s 2012 interrogatory response of $1,900,000 and the ultimate settlement figure of $116,432, [*32] the Court makes note of the fact that Morris’s initial settlement demand was for $175,000, and was made before the underlying litigation commenced. [See Morris Dep. 52:21-23.] Of course, that number later rose significantly in her interrogatory response, but her initial demand was close to the ultimate settlement figure, which is not unimportant.
The second, related issue, is the difference between genuine disputes concerning liability and “pertinent facts or law” and genuine disputes concerning “the appropriate valuation of the loss.” See Youth Alive, 732 F.3d at 650. The former constitutes “a reasonable and legitimate reason for an insurance company to litigate a claim,” while the latter will not necessarily foreclose a plaintiff’s ability to bring suit for bad faith. Id. Here, Zurich American offers little more than conclusory statements that Morris’s underlying claim was always genuinely disputed, relying almost exclusively on the disparity between the figure claimed in her interrogatory responses ($1,900,000), and the ultimate settlement figure ($116,432). [See DN 23-2, at 12-14.] And indeed, in its Reply, Zurich American actually concedes the following: “We agree that, after an initial investigation, fault [*33] regarding Morris’s accident was reasonably clear. But that left the value of her underlying claims to be determined.” [DN 56, at 7.]
Crucially though, Zurich American persists in its argument that valuation was hotly contested, largely because it focuses on the larger figure of $1,900,000. Zurich American contends that “Morris initially asserted that her underlying claims were worth $175,000. But then she changed the value to $1,900,000….The fact that she settled for less than $120,000 proves that Zurich American was never obligated to pay either amount.” [DN 56, at 7.] Zurich American’s argument here lacks merit; the mere fact that the ultimate figure decided upon in settlement did not match precisely Morris’s initial demand does not, and indeed should not, defeat her claim. The initial demand of $175,000 and the agreed-upon settlement figure of $116,432 are sufficiently close for the Court to decide, when coupled with Zurich American’s concession of Heinkel’s fault in the accident, that Morris has carried her burden on this element. While Morris later raised her estimated value of the claim to $1,900,000 in the 2012 interrogatory response, the Court focuses its attention on her [*34] initial, pre-litigation demand for purposes of this element.
The second element of a bad faith claim requires that “the insurer…lack a reasonable basis in law or fact for denying the claim….” Davidson, 25 S.W.3d at 100. The Court is satisfied that Morris has carried her burden here, as well. Zurich American has already conceded that, upon initial investigation, fault was clear. [DN 56, at 7.] And while Zurich American persists in its argument that the ultimate comparison the Court should make with respect to valuation should be between Morris’s $1,900,000 claim and the $116,432 settlement figure, the Court is not inclined to do so. This is because the $1,900,000 figure was provided by Morris in response to an interrogatory in March 2012, after litigation had commenced and Zurich American had ignored her initial settlement offer of $175,000, made before she filed the underlying lawsuit. [DN 41-1, at 3.] Zurich American proffers rhetorical questions such as “there was a fair debate regarding the value she was placing on the claims. Was she claiming $175,000 or $1,900,000? That in itself was fairly debatable.” [DN 56, at 12-13.] However, it remains uncontested that Morris’s initial settlement demand, made prior [*35] to filing suit, was for $175,000, and while her number increased significantly later, the Court is satisfied that it is this first number, and not the $1,900,000 figure, that should hold the Court’s attention. Indeed, in her state court Amended Complaint, it is the $175,000 upon which Morris bases her claim anyways. [DN 1-2, at 3-4.] This, coupled with the fact that Zurich American has admitted that liability was clear upon initial investigation, leads the Court to conclude that Morris has carried her burden on this element.
The final element of a bad faith claim requires that the plaintiff “show[] that the insurer either knew there was no reasonable basis for denying the claim or acted with reckless disregard for whether such a basis existed.” Davidson, 25 S.W.3d at 100. In the instant Motion, Zurich American’s argument spans only one paragraph, and ultimately restates its position as to element two. Specifically, Zurich American argues that the large disparity between Morris’s claim for $1,900,000 after litigation started and the ultimate settlement figure of $116,432 indicates that she cannot possibly show “that Zurich American acted intentionally or with reckless disregard of her rights in refusing to pay [*36] her tort claims before they were paid.” [DN 23-2, at 15.] In its Reply, Zurich American elaborates, correctly noting that, under Kentucky law, “there must be sufficient evidence of intentional misconduct or reckless disregard of the rights of an insured or a claimant to warrant submitting the right to award punitive damages to the jury.” Wittmer, 864 S.W.2d at 890.
Morris contends that “Zurich [American] was non-responsive or so [s]low in any response to settlement requests, none of the responses can be characterized as ‘in good faith.'” [DN 41-1, at 25.] However, Morris does not offer a great deal of actual evidence to support this contention. As Zurich American correctly points out, the plaintiff must provide “proof of bad faith sufficient for the jury to conclude that there was conduct that was outrageous,” and “that mere delay in payment does not amount to outrageous conduct absent some affirmative act of harassment or deception.” Motorists Mut. Ins. Co. v. Glass, 996 S.W.2d 437, 452, 44 12 Ky. L. Summary 28, 46 3 Ky. L. Summary 25 (Ky. 1997) (citing Zurich Ins. Co. v. Mitchell, 712 S.W.2d 340 (Ky. 1986)). Thus, the Court must look to the evidence presented by the parties to determine whether it reflects a mere delay, or whether there is evidence of some affirmative act on the part of Zurich American sufficient to present a jury question.
As noted above, the underlying [*37] accident occurred on September 18, 2008. [DN 1-2, at 2.] Morris’s initial settlement offer of $175,000 did not occur until July 20, 2011. [See DN 41-2, at 3 (Morris Affidavit); DN 41-14 (Demand Letter from Morris’s previous attorney, Kevin Monsour).] In her affidavit, Morris avers that “Zurich [American] never responded to the written demand.” [DN 41-2, at 3.] She goes on: “I filed suit…on September 19, 2011,” and did not submit an additional offer until “October 1, 2014 in the amount of $125,000.” [Id. See also DN 41-15, at 22 (Demand Letter from Morris’s previous attorney, Kenneth Haggard).] Zurich American does not appear to contest the fact that no response was provided to Morris with respect to her first settlement demand of $175,000, and presents no evidence that it did so. However, Zurich American does state the following: “Morris claimed that $25,000 of the demand was for medical expenses. She provided ER, chiropractic, and pain-management records, plus an unsupported contention that she would need $50,000 in future medical care.” [DN 56, at 13 (emphasis added).] These figures are reflected in Monsour’s Demand Letter to Zurich American on behalf of Morris. [See DN 41-14.] [*38] Of course, the implication of Morris showing that she made a settlement offer in July 2011, filed suit in September 2011, but then the next round of settlement talks consisted of Morris making a lower offer of $125,000 in October 2014, is that Zurich American never made a counteroffer during that time. Indeed, there is no indication in the Record that Zurich American did anything other than ignore Morris’s initial offer. The first evidence of Zurich American actively engaging in settlement talks comes from Morris’s affidavit, in which she avers that, at some point between her October 2014 offer of $125,000 and the ultimate settlement in July 2015, Zurich American made successive oral offers of $25,000, $75,000, and $100,000, all of which she rejected.5 [See DN 41-2, at 3.]
Here, the timeline becomes especially important because, at the time Zurich American offered Morris $25,000 to settle, her then-attorney, Charles Haggard, had sent two letters to Kaycee Hopwood of Zurich American. In those letters, he purportedly enclosed “a copy of all the bills pertaining to [Morris’s] treatment as a result of the September 18, 2008 accident.” [DN 41-15, at 23.] Contained in the same exhibit attached [*39] to Morris’s Response is a one-page document totaling her medical expenses; there are fourteen different items for a total of $44,181.72. [Id. at 24.] Haggard also notes, in the second letter, “[a]s you are aware, we have hard medical expenses in the amount of $43,459.272 [sic]….”6 [Id. at 22.] Although these two figures differ by around $700, they both exceed Zurich American’s subsequent oral offer of $25,000 by a great deal. In neither its instant Motion nor its Reply to Morris’s Response does Zurich American discuss the oral settlement offers of $25,000, $75,000, or $100,000, focusing instead on Morris’s offers of $175,000, $125,000 and her interrogatory response indicating that her case was worth $1,900,000.
However, Zurich American does provide that, after “Morris made a $175,000 pre-lawsuit demand in July 2011…[n]othing significant settlement-wise happened after that until Kenneth Haggard asserted a $125,000 demand for Morris in October 2014.” [DN 56, at 14.] In other words, Zurich American does not deny Morris’s averment that it simply failed to respond or otherwise counter her initial $175,000 settlement offer. Morris avers in her affidavit that “Zurich never responded to the written demand” [*40] for $175,000. [DN 41-2, at 3.] She further avers that “Zurich was non-responsive to the written offer to settle” for $125,000. [Id.] The Court holds that this presents a jury question concerning whether Zurich American’s delay or, stated differently, its nonresponsiveness, and/or its $25,000 settlement offer, made after documentation was provided which showed (or at least alleged) hard medical costs equal to or exceeding that amount, contravenes the KUCSPA’s requirement “that a good faith attempt be made to effectuate a prompt, fair and equitable settlement.” Glass, 996 S.W.2d at 454.
Zurich has presented evidence that Morris changed attorneys multiple times, and so some of the delays in the case were probably attributable to Morris.7 However, the KUCSPA is clear in its requirements that are placed upon insurance companies. Thus, while Morris may be partially responsible for some of the delays in the underlying case, this does not mean that Zurich American had a lesser duty of compliance; nor would any delays by Morris bear upon whether Zurich American was able or willing to respond promptly (or at all) to Morris’s initial settlement offer, especially when liability became clear after Zurich American’s “initial [*41] investigation.” [DN 56, at 7.] Zurich American made a series of low ball offers, most of which were less than the special damages Morris has incurred. Morris essentially held steady to her first two settlement demands of $175,000 and $125,000, finally settling for $116,432. At this time, the Court believes there is a jury issue as to whether Zurich American’s delay in settling with Morris after their talks commenced was outrageous conduct, or merely the normal give-and-take inherent in settlement discussions. Accordingly, The Court must deny Zurich American’s instant Motion.

D. Conclusion
For the reasons stated in this Memorandum Opinion, and the Court being otherwise sufficiently advised, IT IS HEREBY ORDERED as follows:
1. Defendants’ Motion, [DN 23], is GRANTED as to the dismissal of Zurich Illinois. The Clerk is directed to remove Zurich Illinois as a party to this action.
2. Defendants’ Motion, [DN 23], is DENIED as to Morris’s bad faith claims.
IT IS SO ORDERED.
/s/ Thomas B. Russell
Thomas B. Russell, Judge
United States District Court
June 15, 2018

2018 WL 1997103

NOTICE: THIS OPINION HAS NOT BEEN RELEASED FOR PUBLICATION IN THE PERMANENT LAW REPORTS. UNTIL RELEASED, IT IS SUBJECT TO REVISION OR WITHDRAWAL.
Commonwealth Court of Pennsylvania.
Jeffrey Baker, Petitioner
v.
Workers’ Compensation Appeal Board (Meiborg, Inc. and Gallagher Bassett Services, Inc.), Respondents
No. 1176 C.D. 2017
|
Submitted: January 5, 2018
|
FILED: April 30, 2018
BEFORE: HONORABLE RENÉE COHN JUBELIRER, Judge HONORABLE PATRICIA A. McCULLOUGH, Judge HONORABLE JAMES GARDNER COLINS, Senior Judge

OPINION NOT REPORTED
PATRICIA A. McCULLOUGH, Judge
*1 Jeffrey Baker (Claimant) petitions for review of the July 27, 2017 order of the Workers’ Compensation Appeal Board (Board), which affirmed the order of a Workers’ Compensation Judge (WCJ) denying Claimant’s claim petition and petition for penalties. We affirm.

Facts and Procedural History
Claimant began working for Meiborg, Inc. as a truck driver in February 2014. Claimant drove one of Employer’s tractor-trailers, making deliveries in New York, Pennsylvania, New Hampshire, Maine and Ohio. On April 30, 2014, Claimant took his truck home “because the fairing looked loose and he wanted to check on it.” (WCJ’s Finding of Fact (F.F.) No. 1(b).) Claimant injured his right arm and shoulder when he fell off of a ladder that he was standing on to look at the fairing. (WCJ’s F.F. Nos. 1(a)-(c); Board’s op. at 3.)

Following the injury, Claimant called Rob Lawrence, a dispatcher for Employer, to notify him of the injury but declined to go to the hospital, stating that, although his arm was sore and numb, he could drive. Employer’s corporate secretary, Zach Meiborg, subsequently called Claimant to check on him and ask whether he needed to go to the hospital. Claimant responded that he wanted to wait a couple of days to see how his shoulder “reacted.” (Board’s op. at 3.) Three days later, Claimant spoke with Mr. Meiborg again and stated that he wanted to seek medical help because his shoulder was not getting better. When Claimant related to Mr. Meiborg that he was going to the hospital, Mr. Meiborg told him to “just go in, and we’ll take care of it later.” (Id. at 4; WCJ’s F.F. Nos. 1(d), 1(f)-(g).)

The doctor who saw Claimant believed he had suffered a rotator cuff tear and gave him a prescription for an MRI. Claimant did not immediately have the MRI performed because he “wanted to hold off for a while.” (Board’s op. at 4.) Approximately two weeks later, the doctor’s office called Mr. Mieborg, who then communicated with Employer’s insurer, Gallagher Bassett, and Claimant had the MRI done. Gallagher Bassett paid Claimant’s initial medical expenses and Claimant was scheduled for surgery on July 24, 2014. (Id.; WCJ’s F.F. Nos. 1(h)-(k).)

On July 23, 2014, the day prior to his surgery, Claimant was involved in an argument with a customer and another employee and was terminated. Later that day, Gallagher Bassett informed Claimant that his claim was denied but stated that all of his medical expenses would be paid up to July 23, 2014. Claimant did not have the surgery done the following day.

In December 2014, Claimant filed a claim petition and a penalty petition,1 and the matter was submitted to a workers’ compensation judge (WCJ), who held multiple hearings.

With regard to the events of July 23, 2014, Claimant testified that he believed he was not scheduled to work that day,2 but Employer called him that morning requesting that he pick up a trailer, drop it off at its destination, and leave, since they “knew [Claimant] had appointments in the afternoon.” (Reproduced Record (R.R.) at 71a.) Claimant stated that he did so, but once he arrived at the destination, he was told that he would not be allowed to drop the trailer and that he had to stay. Claimant acknowledged getting into an argument with the dispatcher because he did not want to miss his appointment. He stated that Mr. Meiborg called him and informed him that he would be fired but needed to stay and wait for the tractor to be unloaded if he expected to be paid. Claimant did so, after which he was told to clean out his truck and return it. Claimant testified that, when Claimant returned home, Gallagher Bassett notified him that his claim would be denied but that it would pay for his medical bills up to July 23, 2014. Consequently, Claimant did not have the surgery. (WCJ’s F.F. Nos. 1(k)-(m); Board’s op. at 4-5.)

*2 On cross-examination, Claimant stated that he did not recall Employer ever informing him that he was forbidden from taking his truck home, nor did he recall whether he received Employer’s handbook after being hired. He testified that he took his truck home on multiple occasions and had sometimes washed and waxed it and that Mr. Meiborg and two others were aware that he had done so. Claimant also denied that Employer had previously given him approval on a one-time-only basis to take his truck home. (Board’s op. at 5.) Further, Claimant disagreed that Employer had a location where employees were to take the trucks for mechanical issues, and he denied ever having sustained a shoulder injury prior to the work incident in April. (Id.; WCJ’s F.F. Nos. 1(o)-(p).)

Claimant, however, did agree that he was terminated for his refusal to deliver the load and for being argumentative, that he had issues with discipline prior to July 23, 2014, and that he had had arguments with Mr. Meiborg “here or there.” (R.R. at 83a.) Claimant also acknowledged that no one witnessed the accident and that there was a place provided by Employer where the trucks were to be parked. Claimant stated that his shoulder continues to bother him and he is unable to lift more than five pounds above his head or do anything repetitive. Finally, Claimant stated that he began working for another employer in June or July, after which he started with his current employer in October 2014, where he earns more than he had with Employer. (WCJ’s F.F. Nos. 1(q)-(u); Board’s op. at 5; R.R. at 87a-88a.)

Claimant also presented the testimony of Jonathan Santos, who worked for Employer as a company employee and subsequently as an owner-operator for approximately two years. Mr. Santos testified that, while he was a company employee, he owned his vehicle and would take it home nearly every weekend. Mr. Santos stated that he told both Mr. Meiborg and another employee that he was doing so and that Employer did not object or reprimand him for it. Mr. Santos also stated that he recalled signing an employee handbook but did not know whether it stated that company trucks could not be taken home without permission. He testified that some of the other drivers also took their vehicles home, but acknowledged that he was not aware of whether they had specific permission to do so or whether employees had been fired because of it. Mr. Santos testified that he had washed his truck using a ladder but agreed that Employer had a specific company that it used to wash its trucks. (WCJ’s F.F. Nos. 2(a)-(i); Board’s op. at 5-6.)

Finally, Claimant produced medical evidence in the form of reports indicating he was injured on April 30, 2014, and suffered a right rotator cuff tear, more specifically defined as “full thickness supraspinatus and infraspinatus tears” for which surgery was recommended and planned. (WCJ’s F.F. No. 3.)

Employer submitted corrective action forms, demonstrating that Employer had a history of reprimanding and even terminating employees for taking trucks home without permission. Additionally, Employer presented the testimony of Mr. Meiborg, who handles the hiring, retention, and training of employees. Mr. Meiborg stated that Employer is an over-the-road trucking company that has its primary facility in Illinois, but serves customers in other states as well. Mr. Meiborg testified it is Employer’s policy that trucks are to be parked at authorized locations and that to do otherwise requires written approval. Mr. Meiborg stated that Employer does not give blanket permission for employees to take their trucks home. Mr. Meiborg noted that Claimant was given, and signed an acknowledgement that he had received, a copy of the employee handbook, which sets forth Employer’s policies, including its policy forbidding employees from taking vehicles home.3 (WCJ’s F.F. Nos. 5, 7(a)-(c); Board’s op. at 6; R.R. at 296a.)

*3 With regard to leave, Mr. Meiborg stated that Employer’s policy requires employees seeking time off to fill out an electronic, documented request on a formal sheet called a “time off request form,” which are approved by him or one other person. (Board’s op. at 6.) Mr. Meiborg indicated that Employer needs to know about requests for leave in advance for scheduling purposes. (Id.)

Mr. Meiborg further testified that Employer does not want its drivers to fix the trucks, as they are not qualified, and their doing so could result in liability for Employer. He stated that all maintenance issues are to be reported to the shop foreman, who finds a repairman in the area to fix the truck if there is an issue. Mr. Meiborg noted that the employee handbook covers the proper reporting of maintenance issues, and that Claimant was aware of the process. Additionally, Mr. Meiborg testified that Employer does not require or ask its drivers to wash the trucks as that is contracted through a third party, which all of its drivers use. (WCJ’s F.F. Nos. 7(i); Board’s op. at 6-7.)

With regard to Claimant’s injury, Mr. Meiborg stated that on May 1, 2014, he received an email notifying him that Claimant had sustained a minor injury when he fell off a ladder while washing his truck and was “okay to continue with his load.” (R.R. at 303a.) The following day, Mr. Meiborg stated that he personally spoke with Claimant, who stated that he was on a ladder cleaning his truck when he was injured. Mr. Meiborg acknowledged that he was aware that Claimant had testified otherwise. Specifically, he knew that Claimant testified that he was fixing the fairing when he was injured. Mr. Meiborg explained that he initially reported the incident to its workers’ compensation insurance carrier because Claimant implied that it was a workers’ compensation injury and he assumed that Claimant was on duty when it occurred. Later, Mr. Meiborg stated that he became aware that Claimant was off duty and at home while working on the truck, against company policy, when the injury occurred. Mr. Meiborg testified that he did not discipline Claimant and acknowledged this was probably an oversight; however, he stated that he spoke with Claimant and expressed his disappointment that Claimant had taken the truck home against company policy. (WCJ’s F.F. Nos. 7(f)-(h), (k); Board’s op. at 7.)

As to the events leading up to Claimant’s termination, Mr. Meiborg testified that Claimant advised that his surgery was scheduled for July 24 and requested that day off. However, Mr. Meiborg stated that Claimant did not request off on July 23 and was asked to deliver “a short load” to one of Employer’s customers. (Board’s op. at 7.) Mr. Meiborg stated that when Claimant arrived, the customer decided that “it was not going to be a drop and hook trailer, [and instead] wanted to live unload it.” (R.R. at 308a.) As a result, Mr. Meiborg stated that Claimant “became irate with the customer [and, w]hen we called him to try to calm him down, he became irate with dispatch.” (Id.) Mr. Meiborg indicated that this was at least the third incident of the kind in which Claimant had “agitated a customer, as well as the dispatchers.” (R.R. at 309a.) As a result, Mr. Meiborg terminated Claimant. (WCJ’s F.F. Nos. 7(l)-(m); Board’s op. at 7-8.)

Employer also presented the testimony of its driver manager, Sean Van Dusen, who had worked in trucking for nearly 20 years. Mr. Van Dusen testified that there is no need to use a ladder when inspecting or washing a truck and confirmed that Employer had a policy requiring both written and verbal permission to take a truck home. Additionally, he testified that Employer’s policy is to have the driver notify the shop if there are mechanical issues with the trucks, and noted that Employer’s handbook contained a phone number for maintenance, as well as an after-hours emergency number. Mr. Van Dusen stated that, within fifteen minutes of reporting a maintenance issue, the driver is contacted and told where the vehicle should be taken for repairs. Finally, Mr. Van Dusen stated that he would never do maintenance on his own truck, acknowledged he had taken his truck home on occasion with specific approval, and confirmed that Employer had a relationship with a company for truck washing. (WCJ’s F.F. Nos. 8(a)-(e); Board’s op. at 8.)

*4 Employer presented the testimony of Anthony Hilegass, who formerly worked for Employer as a driver for one year and seven months. Mr. Hilegass testified that when he was hired, he received an employee handbook, which set forth Employer’s policy that drivers could not take trucks home without permission. He stated that he had twice gotten permission to take his truck home by calling and asking. He also acknowledged that he had done so without permission and had been verbally reprimanded as a result. Mr. Hilegass testified that, during his 20-year career, he had washed trucks but stated he had never used a ladder to do so and had never used a ladder to climb onto a truck because “it’s just not safe.” (R.R. at 266a.) He likewise confirmed that he was aware that Employer had a contract with a company for washing its trucks. When asked about performing maintenance on his truck, Mr. Hilegass stated that he had installed a lightbulb, but had done so with permission and from a position standing on the ground. Additionally, he stated that it was Employer’s procedure for maintenance issues to have drivers call in to report them, at which point they would receive instructions. Finally, Mr. Hilegass stated that Employer’s policy with regard to leave required the employee to ask for and receive permission to take off ahead of time. (WCJ’s F.F. Nos. 9(a)-(f); Board’s op. at 8-9; R.R. at 269a.)

Employer also presented the testimony of Michael Hilgart, who has worked as a dispatcher for Employer for seven years. Mr. Hilgart testified that Employer has a policy that requires drivers to have written permission to take a truck home; however, he indicated that some drivers have blanket permission to do so because “they are in more of a supervisory role.” (Board’s op. at 9.) Mr. Hilgart also stated that drivers are permitted to take trucks home in cases of emergencies on Sunday nights so that there is not a service failure to customers on Monday mornings. With regard to Claimant, Mr. Hilgart stated that Claimant had requested specific permission to take his truck home, but did not have blanket permission to do so. (WCJ’s F.F. Nos. 10(a)-(b); Board’s op. at 9.)

Mr. Hilgart also testified that written permission is required for employees to take vacation and that, while Claimant had emailed to request leave in the past, Mr. Hilgart saw no record of Claimant having requested leave on the day before his surgery. As to the events on the day of Claimant’s termination, Mr. Hilgart testified that Claimant became “very angry” with the customer because the process was taking too long, at which point Mr. Hilgart handed the matter over to Mr. Meiborg. (R.R. at 257a.) Mr. Hilgart noted that Claimant had had other issues with customers where he had not acted professionally. Finally, as to Claimant’s injury, Mr. Hilgart testified that Claimant initially reported the injury to him, advising that it occurred while he was washing his truck. (WCJ’s F.F. Nos. 10(c)-(d); Board’s op. at 9.)

Finally, Employer presented the testimony of Thomas DiBenedetto, M.D., a board-certified orthopedic surgeon who examined Claimant in June 2015, and diagnosed him with a two tendon retractor rotator cuff tear. He noted that some of the findings could be degenerative conditions. Dr. DiBenedetto reviewed Claimant’s records, which indicated that Claimant had fallen from a ladder and injured his right shoulder but had not taken any time off of work. He noted that the medical records from his initial visits after the injury did not include any mention of a work injury and that surgery was scheduled but did not go forward. Dr. DiBenedetto also reviewed Claimant’s testimony and noted that, despite the condition of his shoulder, Claimant continued to work full duty. He explained that some people live with rotator cuff symptoms for years. Ultimately, Dr. DiBenedetto stated it was his belief that Claimant had not injured himself as a result of his work duties because the events he reported were inconsistent and vague and because he had continued driving without missing any work. Dr. DiBenedetto acknowledged that, at some point, Claimant should get his rotator cuff fixed, but opined that Claimant is capable of working full duty. (WCJ’s F.F. Nos. 4(a)-(h); Board’s op. at 9; R.R. at 392a, 436a.)

The WCJ found the testimony of Employer’s witnesses to be credible, noting that they were generally consistent and often supported by documentation. Conversely, the WCJ found that Claimant’s testimony was not entirely credible and rejected it to the extent that it contradicted the testimony of Employer’s witnesses. Further, the WCJ found that medical evidence demonstrated that Claimant incurred a right rotator cuff tear and that further treatment was necessary. However, the WCJ stated that, even if Claimant’s testimony were credible, his injury would not constitute a work injury because truck washing, truck maintenance, and taking the truck home were not within the scope of his employment. Thus, the WCJ denied the claim petition and penalty petition. (WCJ’s F.F. Nos. 11-15.)

*5 Claimant appealed to the Board, but the Board affirmed. Claimant now petitions for review with this Court.4

Discussion
In a workers’ compensation proceeding, the WCJ is the ultimate fact finder and is the sole authority for determining the weight and credibility of evidence. Lombardo v. Workers’ Compensation Appeal Board (Topps Company, Inc.), 698 A.2d 1378, 1381 (Pa. Cmwlth. 1997). “As such, the WCJ is free to accept or reject the testimony of any witness, including medical witnesses, in whole or in part.” Id. The WCJ’s findings will not be disturbed on appeal when they are supported by substantial, competent evidence. Greenwich Collieries v. Workmen’s Compensation Appeal Board (Buck), 664 A.2d 703, 706 (Pa. Cmwlth. 1995). “Substantial evidence is such relevant evidence which a reasonable mind might accept as adequate to support a finding.” Berardelli v. Workmen’s Compensation Appeal Board (Bureau of Personnel, State Workmen’s Insurance Fund), 578 A.2d 1016, 1018 (Pa. Cmwlth. 1990).

Moreover, where both parties present evidence, it is irrelevant that the record contains evidence which supports a finding contrary to that made by the WCJ; rather, the pertinent inquiry is whether evidence exists that supports the WCJ’s findings. Hoffmaster v. Workers’ Compensation Appeal Board (Senco Products, Inc.), 721 A.2d 1152, 1155 (Pa. Cmwlth. 1998).

Additionally, on appeal, all inferences drawn from the evidence shall be taken in favor of the party prevailing before the WCJ. Krumins Roofing & Siding v. Workmen’s Compensation Appeal Board (Libby), 575 A.2d 656, 659 (Pa. Cmwlth. 1990).

a. Prompt Determination and Equitable Estoppel
Before this Court, Claimant raises three issues. In his first and second related issues, he argues that the Board erred by failing to award Claimant benefits where Employer failed to comply with the prompt-determination requirements of 77 P.S § 717.15 and 34 Pa. Code § 121.13,6 after being notified that Claimant had sustained an alleged work-related injury. Claimant argues that Employer induced him into believing that his injury was going to be treated as a workers’ compensation injury for approximately three months by failing to timely deny his claim, “only then to abruptly fire him the day before that surgery, [and] direct[ ] that the surgery be cancelled.” (Claimant’s brief at 10.) Claimant cites to Mosgo v. Workmens’ Compensation Appeal Board (Tri-Area Beverage, Inc.), 480 A.2d 1285 (Pa. Cmwlth. 1984), and Kelly v. Workmen’s Compensation Appeal Board (DePalma Roofing), 669 A.2d 1023 (Pa. Cmwlth. 1995), arguing that Employer’s voluntary payment of Claimant’s medical bills up to the date of his termination makes its challenge to liability per se unreasonable because, if Employer had denied his claim sooner, he would have still been able to use his health insurance through Employer to pay for the surgery. Thus, Claimant asserts that Employer’s “inappropriate conduct” left him without workers’ compensation benefits as well as without health insurance (due to his termination) and thus without the ability to pay for the surgery. (Claimant’s brief at 10.) Claimant requests that this Court reverse the Board on the basis of equitable estoppel arising from Employer’s alleged misconduct and remand to the WCJ for calculation of appropriate counsel fees.

*6 In response, citing Bailey v. Workers’ Compensation Appeal Board (ABEX Corp.), 717 A.2d 17 (Pa. Cmwlth. 1998), Employer notes that an employer’s voluntary payment of an employee’s medical bills is not an admission of liability. Employer also distinguishes Mosgo and Kelly, stating that those cases stand for the proposition that employers who make voluntary payments to employees while reserving the right to deny a workers’ compensation claim in the future are estopped from denying the compensability of the claim since reservation of rights is null and void under the Act.

We agree. As in Bailey, here, Employer’s payment of Claimant’s medical expenses up to July 23, 2014, did not constitute an admission of liability for an unaccepted injury. 77 A.2d at 19 (“[W]hen an employer voluntarily pays a claimant’s medical bills, it should not be considered an ‘admission’ of liability on behalf of the employer.”). As such, Claimant’s argument that Employer is estopped from contesting the work-related injury fails.

Further, in Lemansky v. Workers’ Compensation Appeal Board (Hagan Ice Cream Company), 738 A.2d 498 (Pa. Cmwlth. 1999), this Court held that a claimant was entitled to attorney’s fees where there was no dispute as to the compensability of the work-related injury and the employer “attempted to evade entering into an agreement recognizing the injury as required by § 406.1 of the Act on the basis that the claimant did not suffer a loss of earnings. 77 P.S. § 717.1.” Id. at 503.

Conversely, here, we note that Mr. Meiborg testified it did not matter to him whether Claimant’s surgery was paid for through Employer’s health insurance or workers’ compensation insurance because Employer’s premiums would increase either way and “getting [his] employees healthy and getting the freight delivered” was his main concern. (R.R. at 314a.) He stated that he reported the injury to Gallagher Bassett and left it to the company’s adjustors to investigate and determine whether it was in fact a work-related injury. (R.R. at 329a.) Mr. Meiborg testified that he did not express an opinion as to whether he believed Claimant suffered a work-related injury because it would have been inappropriate for him to do so, as that decision was for the insurance company to decide after conducting an investigation. (R.R. at 328a-29a.) When asked about why there was a delay in the insurance company’s determination, Mr. Meiborg indicated that he did not know but believed that it had to do with turnover of employees at the insurance company. (R.R. at 329a.)

Here, Employer did not make voluntary payments to Claimant with the intent to compensate him in lieu of accepting his injury, nor did it purposefully evade entering into an agreement recognizing the injury as required under the Act, while acknowledging that there was a work-related injury. As such, the facts of this case are distinguishable from Mosgo, Kelly, and Lemansky, and Employer was not estopped from contesting Claimant’s claim. Further, Employer demonstrated that its contest was reasonable given that Claimant was in violation of at least two of Employer’s policies: (1) taking the vehicle home, and (2) washing or performing maintenance on the vehicle. Accordingly, Claimant is not entitled to attorney’s fees.7

b. Spoliation of Evidence
*7 In his final issue, Claimant argues that the Board erred in refusing to overturn the WCJ for disregarding the issue of Employer’s willful destruction of material evidence. Specifically, Claimant states that Employer was put on notice of Claimant’s intent to file a claim petition five days after his termination. Claimant asserts that, despite this knowledge, Employer destroyed driver log books of Claimant and others, which would have conclusively demonstrated the extent to which Claimant and other employees were routinely permitted to take vehicles home. Claimant contends that the driver logs were relevant since the WCJ denied the claim petition “on the theory that drivers were supposedly forbidden from—and never did, without being sanctioned—taking vehicles home.” (Claimant’s brief at 33.)

In response, Employer argues that the driver logs were not relevant, and even if they were, they were not destroyed by Employer in bad faith. Specifically, Employer states that the WCJ did not need to address the issue of the driver logs during the time that Claimant worked for Employer because WCJ did not require them in order to determine that taking the truck home when Claimant was neither a supervisor, nor the owner of the truck, was not within the scope of his employment.

Employer also argues that the log books were only reviewed to determine driver compliance with federal Department of Transportation records, and that Mr. Meiborg’s testimony demonstrated that it was Employer’s policy to only keep the records for six months, after which they were automatically destroyed. Thus, Employer asserts that if driver logs were missing at the time of litigation, it was solely because of Employer’s general policy of destroying them and not as a result of the bad faith of Employer.

When determining the proper penalty for the alteration or destruction of evidence, relevant factors for the court to consider include: “(1) the degree of fault of the party who altered or destroyed the evidence; (2) the degree of prejudice suffered by the opposing party, and (3) the availability of a lesser sanction that will protect the opposing party’s rights and deter future similar conduct.” Schroeder v. Department of Transportation, 710 A.2d 23, 27 (Pa. 1998).

In this case, it does not appear the destruction of the log books was done in bad faith. During his testimony, Mr. Meiborg emphasized that he was not experienced with the workers’ compensation matters, was “new to the PA trucking market, [ ] absolutely new to the work comp. market, and [was] just unaware of how things are done.” (R.R. 327a.) Additionally, as Employer notes, Mr. Meiborg stated that Employer had a policy for destruction of physical log books, which was followed with regard to the records here, where an employee in the log audit department would handle the weekly shredding and discarding the log books older than six months. (R.R. at 322a.) As to electronic log books, which Employer began using in some vehicles in 2014, Mr. Meiborg stated that they were “just automatically disposed of through our vendor.” (R.R. at 323a-24a.) Thus, Employer followed its usual policy regarding destruction of books here. Critically, Employer did not selectively destroy specific logs, nor did it destroy the books before the six month point. As such, we conclude that their destruction was done in accordance with a bona fide company policy and there is no evidence to suggest that Employer destroyed the records in bad faith or with the intent of discarding inculpatory evidence.

Additionally, we fail to see how Claimant was prejudiced, as Claimant was able to present other evidence in support of his argument that drivers who took their trucks home would have documented it in the log books, which Employer had the opportunity to review. Specifically, Claimant testified to his belief that he was able to take his truck home at will and that Employer was aware that he did so. (R.R. at 77a-79a.) Claimant also presented the testimony of Mr. Santos, who also testified that he frequently took his truck home and documented it in his log book. (R.R. at 273a-74a.) Further, two of Employer’s witnesses, Mr. Hilegass and Mr. Van Dusen, testified that, if and when they took their trucks home, they would indicate it in their log books, which were submitted to Employer for review. (R.R. at 268a, 287a-88a.) Thus, presentation of the log books would have been duplicative of the testimony of the numerous witnesses.

*8 Moreover, Mr. Meiborg, whose testimony the WCJ found to be credible, stated that in 2014, he had one employee, Mike Morris, who reviewed the drivers’ log books to ensure that the drivers were compliant with federal Department of Transportation regulations and to confirm that the tolls and fuel the drivers reported confirmed that the drivers “were where they said they were supposed to be at that time.” (R.R. at 324a.) Mr. Meiborg acknowledged that if a driver had taken a vehicle home and reported it on the log, it would have been noticeable to anyone looking at the log; however, he testified that Mr. Morris would not have been checking the log books to determine whether employees had taken their trucks home, as Mr. Morris was not privy to information regarding whether drivers were permitted to do so. (Id.)

Notwithstanding Mr. Meiborg’s acknowledgement that Employer had the opportunity to review the log books but did not direct the employee who did so to review whether drivers were abiding by its policies, the WCJ still found that Employer had a policy against drivers taking their vehicles home. As such, Claimant’s attempt to show that employees who took their trucks home, including those who did so frequently in violation of Employer’s policy, documented it in the log books that Employer had the ability to review, was not hindered by his inability to present the physical books.

Furthermore, even if Claimant had been able to use the log books to prove that Employer did not have, or did not enforce, a policy regarding taking vehicles home, Claimant’s argument nonetheless fails because that evidence would not have addressed or disputed the WCJ’s findings that Claimant was otherwise outside the scope of his employment when he was injured because he was violating one of Employer’s two other policies against allowing drivers to wash or perform maintenance on their trucks. As such, Claimant’s argument regarding the spoliation of evidence fails. See Nevin Trucking v. Workmen’s Compensation Appeal Board (Murdock), 667 A.2d 262, 268 (Pa. Cmwlth. 1995) (holding that a truck driver who was injured while changing a tire in direct violation of a positive order was not within the scope of his employment).

Conclusion
In conclusion, Claimant’s argument that Employer was estopped from contesting the claim petition fails because Employer’s payment of Claimant’s medical bills did not constitute an admission of liability for an unaccepted injury. Further, Claimant is not entitled to attorney’s fees since Employer’s contest was reasonable as Claimant was outside the scope of his employment when injured. Finally, we do not agree that Employer’s destruction of the log books was done in bad faith or that Claimant was prejudiced as a result.

Accordingly, we affirm the order of the Board.

ORDER
AND NOW, this 30th day of April, 2018, the July 27, 2017 order of the Board is hereby affirmed.

Senior Judge Colins dissents.
All Citations
Not Reported in A.3d, 2018 WL 1997103

Footnotes

1
Claimant submitted a petition seeking reinstatement of benefits as well as penalties; however, the WCJ clarified that Claimant was in fact seeking workers’ compensation benefits and therefore would treat his petition as a claim petition.

2
During his testimony, Claimant acknowledged that he did not fill out a written vacation request because he was not “taking a vacation day,” but was simply under the impression that he was not scheduled to deliver a load that day. (R.R. at 80a.)

3
Mr. Meiborg stated that the policy was different for owner/operators since they owned their trucks. (R.R. at 322a.)

4
Our scope of review is limited to determining whether findings of fact are supported by substantial evidence, whether an error of law has been committed, or whether constitutional rights have been violated. Section 704 of the Administrative Agency Law, 2 Pa.C.S. § 704; Meadow Lakes Apartments v. Workers’ Compensation Appeal Board (Spencer), 894 A.2d 214, 216 n.3 (Pa. Cmwlth. 2006).

5
Section 406.1 of the Workers’ Compensation Act (Act), added by the Act of February 8, 1972, P.L. 25, as amended, 77 P.S. § 717.1, requires prompt payment of compensation or further notice of the decision within 21 days after the employer becomes aware of the injury.

6
This regulation states:
If compensation is controverted, a Notice of Workers’ Compensation Denial, Form LIBC-496, shall be sent to the employee or dependent and filed with the Bureau, fully stating the grounds upon which the right to compensation is controverted, within 21 days after notice or knowledge to the employer of the employee’s disability or death.
34 Pa. Code § 121.13

7
Claimant is likewise not entitled to payment for Employer’s failure to issue a notice of denial within 21 days under section 406.1 of the Act. Section 406.1 states that the first installment of compensation is due no later than 21 days after the employer has notice or knowledge of the employee’s disability and provides for the accrual of 10% interest on “all due and unpaid compensation at the rate of [10%] per annum.” 77 P.S. § 717.1(a).
In this case, however, Claimant cannot receive interest on payments to which he is not entitled. As we noted in Brutico v. Workers’ Compensation Appeal Board (U.S. Airways, Inc.), 866 A.2d 1152 (Pa. Cmwlth. 2004), “Because there was a violation of the Act, penalties would have been awardable. However, the claim petition had to be granted as well as some ‘measure’ against which the WCJ could use to award penalties. Because Claimant’s petition was denied, no penalties [can] be awarded.” Id. at 1156 (internal citations omitted). See also Coyne v. Workers’ Compensation Appeal Board(Villanova University), 942 A.2d 939, 951 (Pa. Cmwlth. 2008) (“We are not aware of any authority permitting an award of benefits to a claimant who would not otherwise be entitled to them based upon an employer’s failure to comply with the Act.”); Palmer v. Workers’ Compensation Appeal Board (City of Philadelphia), 850 A.2d 72, 77 (Pa. Cmwlth. 2004) (“[W]e will not award penalties based upon unknown numbers ….”) (internal quotation marks omitted).