Special Fund v. La Palma (6/21/2016)

July 18, 2016

Arizona Court of Appeals Division One holds that an employer is entitled to apportionment for an employee’s pre-existing mental health condition when the employee received outpatient mental health treatment.

Under Arizona’s apportionment statute, A.R.S. § 23-1065, an employer may seek apportionment from the Special Fund when an employee with a pre-existing medical condition is injured on the job and seeks workers’ compensation benefits.  Under the former workers’ compensation scheme, an employer had to fully compensate individuals with preexisting injuries who then suffered an on-the-job injury for both the preexisting injury and the permanent physical impairment.  The apportionment statute was intended to ameliorate the employer’s burden and remove the incentive against hiring employees with preexisting conditions.  If an employee is found to be covered by the apportionment statute, the Special Fund pays one-half the amount of an employee’s award for loss of earning capacity.

An employee was injured on the job and received an award of permanent disability benefits from the Industrial Commission.  Before being hired to work for the employer, the employee had received outpatient treatment for certain psychological disorders.  After granting the award, the Industrial Commission granted the employer’s request that the Special Fund pay apportionment in accordance with A.R.S. § 23-1065 because the employee suffered from a pre-existing condition.  The Special Fund contested the award of apportionment, and appealed the decision.

The Court of Appeals upheld the grant of apportionment.  A.R.S. § 23-1065(C)(3)(n) states that a claim is eligible for apportionment if an employee has a preexisting mental health condition “following treatment in a recognized medical or mental institution.”  The Court of Appeals rejected the Special Fund’s argument that a “mental institution” includes only inpatient facilities, and held that the clear meaning of the words “medical or mental institution” includes outpatient as well as inpatient services.  The statute could have been written to specifically include only inpatient facilities, and in fact some categories of eligibility specifically require that employee to have been treated at an inpatient facility.  Relying on the plain language of the statute, the Court of Appeals held that the employee’s outpatient mental health treatment qualified the employer for a grant of apportionment.

Judge Gemmill delivered the unanimous opinion, in which Judges Gould and Downie concurred.