Title: Kelly Brown v. Labor and Industry Review Commission

State: wisconsin

Issuer: Wisconsin Supreme Court

Document:

2003 WI 142 
 
 
 
SUPREME COURT OF WISCONSIN 
 
 
 
 
 
CASE NO.: 
02-1429 
 
 
COMPLETE TITLE: 
 
 
Kelly Brown,  
          Plaintiff-Appellant, 
     v. 
Labor and Industry Review Commission,  
          Defendant-Respondent, 
Schultz Sav-o-Racine and Reliance  
Insurance Company,  
          Defendants-Respondents- 
          Petitioners. 
 
 
 
 
REVIEW OF A DECISION OF THE COURT OF APPEALS 
2003 WI App 56 
Reported at: 260 Wis. 2d 788, 659 N.W.2d 918 
(Ct. App. 2003-Published) 
 
 
OPINION FILED: 
November 18, 2003   
SUBMITTED ON BRIEFS: 
        
ORAL ARGUMENT: 
October 7, 2003   
 
 
SOURCE OF APPEAL: 
 
 
COURT: 
Circuit   
 
COUNTY: 
Racine   
 
JUDGE: 
Emmanuel Vuvunas   
 
 
 
JUSTICES: 
 
 
CONCURRED: 
        
 
DISSENTED: 
        
 
NOT PARTICIPATING:         
 
 
 
ATTORNEYS: 
 
For 
the 
defendants-respondents-petitioners 
there 
were 
briefs by Michael C. Frohman and Kasdorf, Lewis & Swietlik, 
S.C., Milwaukee, and oral argument by Michael C. Frohman. 
 
For the plaintiff-appellant there was a brief by John A. 
Becker and Becker, French & DeMatthew, Racine, and oral argument 
by John A. Becker. 
 
For the defendant-respondent there was a brief (in the 
court of appeals) by Lowell E. Nass, assistant attorney general, 
and James E. Doyle, attorney general. 
 
2003 WI 142 
NOTICE 
This opinion is subject to further 
editing and modification.  The final 
version will appear in the bound 
volume of the official reports.   
No.  02-1429  
(L.C. No. 
01 CV 1550) 
STATE OF WISCONSIN  
 
 
   : 
IN SUPREME COURT 
 
 
Kelly Brown,  
 
          Plaintiff-Appellant, 
 
     v. 
 
Labor and Industry Review Commission,  
 
          Defendant-Respondent, 
 
Schultz Sav-o-Racine and Reliance  
Insurance Company,  
 
          Defendants-Respondents- 
          Petitioners. 
 
FILED 
 
NOV 18, 2003 
 
Cornelia G. Clark 
Clerk of Supreme Court 
 
 
 
 
 
REVIEW of a decision of the Court of Appeals.  Reversed.   
 
¶1 
SHIRLEY S. ABRAHAMSON, C.J.   This is a review of a 
published decision of the court of appeals.1  The circuit court 
affirmed the order of the Labor and Industry Review Commission 
(LIRC), which held that Reliance Insurance Company, the insurer, 
did not act in bad faith when it suspended temporary total 
                                                 
1 Brown v. LIRC, 2003 WI App 56, 260 Wis. 2d 788, 659 N.W.2d 
918. 
No. 
02-1429   
 
2 
 
disability benefit payments to Kelly Brown, the employee, prior 
to the termination of his healing period.  See Wis. Stat. § 
102.18(1)(bp) (2001-2002)2 (establishing penalty in an award for 
bad faith); Wis. Admin. Code § DWD 80.70(2) (Nov. 2002) 
(defining bad faith).   
¶2 
The court of appeals reversed the order of the circuit 
court, concluding that LIRC misapplied the law of bad faith to 
the facts of the case.  The court of appeals concluded that the 
insurer failed to properly investigate and develop the facts 
necessary to evaluate the employee's claim and, as a result, the 
insurer acted in bad faith when it terminated the employee's 
benefits.3  The court of appeals remanded the cause to the 
circuit court for remand to LIRC for a determination of the 
amount of the penalty award.  
¶3 
The issue before us is whether LIRC's conclusions of  
law——that the employee's claim for benefits was fairly debatable 
and that the insurer's suspension of benefits did not constitute 
bad faith under Wis. Stat. § 102.18(1)(bp) and Wis. Admin. Code 
§ DWD 80.70(2)——should be affirmed. 
¶4 
We conclude that this court must give great weight 
deference 
to 
LIRC's 
conclusions 
of 
law 
and 
that 
LIRC's 
conclusions of law are reasonable.  Accordingly, we affirm 
                                                 
2 All references to the Wisconsin statutes are to the 2001-
02 version unless otherwise indicated. 
3 Brown, 260 Wis. 2d 788, ¶1. 
No. 
02-1429   
 
3 
 
LIRC's order dismissing the employee's application for bad faith 
and reverse the decision of the court of appeals. 
I 
¶5 
For the purposes of this review, we provide an 
abbreviated version of the undisputed facts that are relevant to 
deciding the issues presented.  Additional facts appear later in 
the opinion relating specifically to the issue of bad faith. 
¶6 
The employee worked as a meat cutter at a grocery 
store and suffered a compensable back injury in March 1993.  The 
employee re-injured his back in April 1995.  After the second 
injury, the employee could not return to work.  The insurer 
initially paid the employee temporary total disability from 
April 6, 1995 through January 26, 1996, but it suspended payment 
after investigating allegations that the employee was working 
and not reporting offset income earned from an external source. 
¶7 
The 
employee 
challenged 
the 
termination 
of 
his 
benefits and requested a worker's compensation hearing on the 
issue.  In November 1996, a hearing was held before an 
administrative law judge and benefits were reinstated for the 
remainder of the employee's healing period because the insurer 
failed to prove that the employee received any income that would 
have offset disability payments received during the stipulated 
disability period.  Thus the employee won his case for 
continuation of benefits, and the insurer lost.  The issue of 
whether the employee should receive benefits is not before us.  
The issue before us is whether the employee is entitled to 
No. 
02-1429   
 
4 
 
additional penalty payments on the ground that the insurer acted 
in bad faith. 
¶8 
After winning his claim for continuation of benefits, 
the employee filed a claim for a penalty award pursuant to 
Wis. Stat. § 102.18(1)(bp), alleging that the insurer acted in 
bad faith when it terminated his temporary total disability 
benefits.  After a hearing in March 2001, the administrative law 
judge concluded that although there may have been better ways to 
go about suspending the employee's benefits in January 1996, the 
insurer's actions did not constitute bad faith.  The employee 
appealed the administrative law judge's findings and order to 
LIRC.  LIRC affirmed and adopted as its own, with one 
modification, the findings and order of the administrative law 
judge. 
¶9 
The employee then appealed to the circuit court.  The 
circuit court concluded that the insurer had a reasonable basis 
to suspend the employee's benefits because the merits of the 
suspension were debatable. 
II 
¶10 Our analysis in this case centers around the standard 
of review.  The court of appeals correctly explained that a 
determination of bad faith under Wis. Stat. § 102.18(1)(bp) and 
Wis. Admin. Code § DWD 80.70(2) presents a mixed question of 
fact and law.4  The parties' conduct presents a question of 
                                                 
4 Nottelson v. DILHR, 94 Wis. 2d 106, 115, 287 N.W.2d 763 
(1980). 
No. 
02-1429   
 
5 
 
fact.5  Courts will sustain LIRC's factual determinations so 
long as they are supported by credible and substantial 
evidence.6 
                                                 
5 Nottelson, 94 Wis. 2d at 114-15; Applied Plastics, Inc. v. 
LIRC, 121 Wis. 2d 271, 276, 359 N.W.2d 168 (Ct. App. 1984). 
6 Wisconsin Stat. § 102.23(6) provides as follows: 
If the commission's order or award depends on any fact 
found 
by 
the 
commission, 
the 
court 
shall 
not 
substitute its judgment for that of the commission as 
to the weight or credibility of the evidence on any 
finding of fact.  The court may, however, set aside 
the commission's order or award and remand the case to 
the commission if the commission's order or award 
depends on any material and controverted finding of 
fact that is not supported by credible and substantial 
evidence. 
This court set forth the standard of review for LIRC's 
orders as follows: 
Factual findings of LIRC are conclusive as long as 
they 
are 
supported 
by 
credible 
and 
substantial 
evidence and LIRC did not act fraudulently or in a 
manner which exceeds its powers.  A court may overturn 
a decision made by LIRC if it was fraudulently 
obtained or made while LIRC was acting outside the 
scope of its powers.  A LIRC order or award may also 
be set aside if it is unsupported by LIRC's findings 
of 
fact, 
or 
depends 
upon 
"any 
material 
and 
controverted finding of fact that is not supported by 
credible and substantial evidence."  However, "the 
court shall not substitute its  judgment for that of 
the commission as to the weight or credibility of the 
evidence on any finding of fact." 
 
Wis. Elec. Power Co. v. LIRC, 226 Wis. 2d 778, 786, 595 
N.W.2d 23 (1999) (citations omitted). 
No. 
02-1429   
 
6 
 
¶11 The interpretation of a statute presents a question of 
law.7  The application of a statutory standard to a fact 
situation is ordinarily a question of law for the courts.8  The 
conclusion that an insurer's conduct constitutes bad faith is 
drawn from the underlying findings of fact, and we label it a 
legal conclusion.9 
¶12 Nevertheless, labeling an issue as a question of law 
does 
not 
mean 
that 
a 
court 
may 
disregard 
an 
agency's 
determination.  As the court of appeals correctly stated, an 
important 
principle 
of 
administrative 
law 
is 
that, 
in 
recognition of the expertise and experience of an agency, a 
court will in certain circumstances defer to the agency's 
interpretation and application of a statute.  Whether a court 
independently interprets a statute or independently applies the 
law to the facts or defers in some way to an agency's 
conclusions of law depends on the particular agency action being 
reviewed.  
¶13 Over time, we have developed a three-level approach to 
an agency's conclusions of law: a court gives an agency's 
conclusion of law no deference (the court makes a de novo 
determination of the question of law); a court gives an agency's 
conclusion of law due weight deference; or a court gives an 
                                                 
7 Nottelson, 94 Wis. 2d at 114-15; Applied Plastics, 121 
Wis. 2d at 276. 
8 Nottelson, 94 Wis. 2d at 115; Applied Plastics, 121 
Wis. 2d at 276. 
9 Nottelson, 94 Wis. 2d at 114-15. 
No. 
02-1429   
 
7 
 
agency's conclusion of law great weight deference.10  The 
appropriate level of scrutiny a court should use in reviewing an 
agency's decision on questions of law depends on the comparative 
institutional capabilities and qualifications of the court and 
the agency to make a legal determination on a particular issue.11 
¶14 No deference is due an agency's conclusion of law when 
an issue before the agency is one of first impression or when an 
agency's position on an issue provides no real guidance.12  When 
no deference is given to an administrative agency, a court 
engages in its own independent determination of the questions of 
law presented, benefiting from the analyses of the agency and 
the courts that have reviewed the agency action. 
¶15 Due weight deference is appropriate when an agency has 
some experience in the area but has not developed the expertise 
that necessarily places it in a better position than a court to 
interpret and apply a statute.13  Under the due weight deference 
standard "a court need not defer to an agency's interpretation 
                                                 
10 UFE Inc. v. LIRC, 201 Wis. 2d 274, 284, 548 N.W.2d 57 
(1996); see also Jicha v. DILHR, 169 Wis. 2d 284, 290, 485 
N.W.2d 256 (1992). 
11   State ex rel. Parker v. Sullivan, 184 Wis. 2d 668, 699, 
517 N.W.2d 449 (1994) (quoted with approval in UFE Inc., 201 
Wis. 2d at 284). 
12 UFE Inc., 201 Wis. 2d at 285. 
13 Id. at 286. 
No. 
02-1429   
 
8 
 
which, while reasonable, is not the interpretation which the 
court considers best and most reasonable."14 
¶16 Great weight deference is appropriate when: (1) an 
agency is charged with administration of the particular statute 
at issue; (2) its interpretation is one of long standing; (3) it 
employed its expertise or specialized knowledge in arriving at 
its interpretation; and (4) its interpretation will provide 
uniformity and consistency in the application of the statute.15  
In other words, when a legal question calls for value and policy 
judgments that require the expertise and experience of an 
agency, the agency's decision, although not controlling, is 
given great weight deference.16  
¶17 We agree with the court of appeals that LIRC's 
conclusions 
of 
law 
in 
the 
present 
case, 
although 
not 
controlling, are entitled to great weight deference.  The 
legislature delegated the responsibility to administer the 
Wisconsin's Worker's Compensation Act to the Department of 
                                                 
14 Harnischfeger Corp. v. LIRC, 196 Wis. 2d 650, 660 n.4, 
539 N.W.2d 98 (1995). 
15 Id. at 660; Lisney v. LIRC, 171 Wis. 2d 499, 505, 493 
N.W.2d 14 (1992). 
16 Harnischfeger Corp., 196 Wis. 2d at 659; Nottelson, 94 
Wis. 2d at 117; Kimberly-Clark Corp. v. LIRC, 138 Wis. 2d 58, 
64, 405 N.W.2d 684 (Ct. App. 1987). 
No. 
02-1429   
 
9 
 
Workforce Development (DWD) and to LIRC.17  The legislature's 
rationale was that LIRC would develop the specialized knowledge, 
expertise, and experience to make consistent policy judgments 
about bad faith claims when it heard disability compensation 
claims. 
¶18 LIRC has developed extensive experience interpreting 
penalty provisions contained in the Worker's Compensation Act.18  
The legislature enacted Wis. Stat. § 102.18(1)(bp) in 1981 and 
authorized LIRC to adopt a rule governing bad faith.  LIRC 
adopted such a rule through the rulemaking process.  Moreover, 
LIRC has many years of experience applying the law of bad faith 
                                                 
17 See Wis. Stat. §§ 102.14(1) (delegating enforcement of 
Chapter 102 to the DWD), 102.18(3) (providing that a party in 
interest may petition LIRC to review the decision of an 
examiner).  See also Hagen v. LIRC, 210 Wis. 2d 12, 19, 563 
N.W.2d 454 (1997) ("[T]he Department of Workforce Development 
(DWD) is charged under Wis. Stat. § 102.14(1) with administering 
Chapter 102, and both the DWD and LIRC are charged with 
interpreting the statute and making factual findings when 
determining a claimant's entitlement to worker's compensation 
benefits.").  Courts have frequently held that LIRC's decisions 
about chapter 102 are entitled to great deference.  See, e.g., 
Hagen, 
210 
Wis. 2d at 
24-25 
(LIRC's 
interpretation 
of 
§ 102.52(1) is entitled to great weight deference); United Wis. 
Ins. Co. v. LIRC, 229 Wis. 2d 416, 600 N.W.2d 186 (Ct. App. 
1999) (the court will defer to LIRC's interpretation if it is 
intertwined with value and policy determinations inherent in the 
agency's decision-making function); Doering v. LIRC, 187 Wis. 2d 
472, 523 N.W.2d 142 (Ct. App. 1994) (the court gives great 
deference to LIRC's application and interpretation of a labor 
statute). 
18  Beverly Enters., Inc. v. LIRC, 2002 WI App 23, ¶20, 250 
Wis. 2d 246, 640 N.W.2d 518 (LIRC's determination of bad faith 
is entitled to great 
weight deference; LIRC 
has 
had a 
substantial number of cases to develop considerable experience). 
No. 
02-1429   
 
10 
 
and determining appropriate penalties for bad faith consistent 
with the statutes, administrative code, and case law.19  In sum, 
through its rulemaking process and through its cases, LIRC has 
developed 
specialized 
experience, 
expertise, 
and 
knowledge 
concerning bad faith and employed its expertise in the present 
case, and deferring to LIRC's interpretation and application of 
the statute provides uniformity and consistency.  We therefore 
conclude, as did the court of appeals, that LIRC applied that 
experience, expertise, and knowledge in the present case, and 
                                                 
19 The court of appeals in Kimberly Clark, 138 Wis. 2d at 
64, concluded that LIRC did not have the expertise or body of 
precedent necessary to address the interplay of Wis. Stat. 
§ 102.18(1)(bp) and Wis. Admin. Code § DWD 80.70(2) at the time 
that case was decided.  See also N. Am. Mech. v. LIRC, 157 
Wis. 2d 801, 806, 460 N.W.2d 835 (Ct. App. 1990). 
Nevertheless, we conclude, as did the court of appeals in 
the present case, that since these cases, LIRC has had ample 
time to develop the requisite expertise and precedent necessary 
to address this question.  See, e.g., Greenwood v. Woodbridge 
Corp., No. 1999046119 (September 10, 2002) (available at 
http://www.dwd.state.wi.us/lirc/wcdecsns/686.htm) 
(finding 
no 
bad faith on part of insurer suspending benefits); Baysinger v. 
Ludwig Siding, No. 1996031413 (June 30, 1998) (available at 
http://www.dwd.state.wi.us/lirc/wcdecsns/231.htm) 
(finding 
bad 
faith on part of insurer suspending benefits); Smith v. Longview 
Fibre Co., No. 1990024253 (October 29, 1998) (available at 
http://www.dwd.state.wi.us/lirc/wcdecsns/259.htm) (same); Starkl 
v. JC Penney Milwaukee Catalog, No. 90065879 (June 13, 1996) 
(same) 
(available 
at 
http://www.dwd.state.wi.us/lirc/wcdecsns/7%2D20%5Fsta.htm); 
Meyer v. Milliken Millwork Inc., No. 93023332 (February 27, 
1998) 
(available 
at 
http://www.dwd.state.wi.us/lirc/wcdecsns/195.htm) (same).  See 
also LIRC cases cited in Beverly Enters., 250 Wis. 2d 246, ¶20 
n.9.  A search on LIRC's Web page for worker's compensation 
decisions indicates that there are a total of 43 catalogued 
decisions by the LIRC interpreting the phrase "bad faith." 
No. 
02-1429   
 
11 
 
that LIRC's legal conclusions are entitled to great weight 
deference.20 
¶19 When an agency's conclusions of law are entitled to 
great weight deference, a court will refrain from substituting 
its view of the law for that of an agency charged with 
administration of the law and will sustain the agency's 
conclusions of law if they are reasonable.21  Thus a court should 
sustain an agency's conclusion of law even if an alternative 
view of the law is just as reasonable or even more reasonable.22  
An agency's conclusion of law is unreasonable and may be 
reversed by a reviewing court if it directly contravenes the 
words of the statute or the federal or state constitution, if it 
is clearly contrary to the legislative intent, history, or 
purpose of the statute, or if it is without rational basis.23 
 
¶20 We turn now to examining LIRC's interpretation of the 
bad faith statute and its application of bad faith law to the 
facts of the present case. 
III 
                                                 
20 West Bend Educ. Ass'n v. WERC, 121 Wis. 2d 1, 13-14, 357 
N.W.2d 534 (1984). 
21 Harnischfeger Corp., 196 Wis. 2d at 661; Lisney, 171 
Wis. 2d at 506; see also Honthaners Rests., Inc. v. LIRC, 2000 
WI App 271, ¶13, 240 Wis. 2d 234, 621 N.W.2d 660; Eaton Corp. v. 
LIRC, 122 Wis. 2d 704, 708, 364 N.W.2d 172, 174 (Ct. App. 1985). 
22 UFE Inc., 201 Wis. 2d at 287; Harnischfeger Corp., 196 
Wis. 2d at 660. 
23 Harnischfeger Corp., 196 Wis. 2d at 662; Barron Elec. 
Coop. v. Pub. Serv. Comm'n, 212 Wis. 2d 752, 766, 569 N.W.2d 726 
(Ct. App. 1997). 
No. 
02-1429   
 
12 
 
¶21 Wisconsin Stat. § 102.18(1)(bp) provides, in relevant 
part, that the Department of Workforce Development (DWD) may 
include a penalty in an award to an employee if the department 
determines that an employer's or insurance carrier's suspension 
or termination of payments resulted from bad faith.  The statute 
authorizes the department to award an amount that it considers 
just, not to exceed the lesser of 200% of the total compensation 
due or $15,000.  The statute further authorizes the DWD to 
define, by rule, actions which demonstrate bad faith.24  
¶22 The DWD adopted such a rule.  Wisconsin Admin. Code 
§ DWD 80.70(2) defines actions constituting bad faith. An 
insurance company that, after having commenced payments under 
§ DWD 80.70(2), unreasonably suspends or terminates the payments 
without credible evidence demonstrating that the claim for the 
                                                 
24 Wisconsin Stat. §  102.18(1)(bp) provides as follows: 
FINDINGS, ORDERS AND AWARDS.  The department may 
include a penalty in an award to an employee if it 
determines that the employer's or insurance carrier's 
suspension of, termination of or failure to make 
payments or failure to report injury resulted from 
malice or bad faith.  This penalty is the exclusive 
remedy against an employer or insurance carrier for 
malice or bad faith.  The department may award an 
amount which it considers just, not to exceed the 
lesser of 200% of total compensation due or $15,000.  
The department may assess the penalty against the 
employer, the insurance carrier or both.  Neither the 
employer nor the insurance carrier is liable to 
reimburse the other for the penalty amount.  The 
department 
may, 
by 
rule, 
define 
actions 
which 
demonstrate malice or bad faith. 
 
No. 
02-1429   
 
13 
 
payments is fairly debatable shall be deemed to have acted in 
bad faith.25 
¶23 The court of appeals concluded in Kimberly-Clark26 that 
Anderson v. Continental Insurance Co., 85 Wis. 2d 675, 271 
N.W.2d 368 (1978), recognizing the tort of bad faith, applies to 
bad faith claims under Wis. Stat. § 102.18(1)(bp) and the 
accompanying administrative code provision, Wis. Admin. Code 
§ DWD 80.70(2).27  The Anderson case adopted a two-part test for 
bad faith.  To demonstrate bad faith, a claimant must show that 
the insurer had no reasonable basis for denying benefits and 
knew or recklessly disregarded that there was no reasonable 
basis for denying benefits.  
                                                 
25 Wisconsin Admin. Code § DWD 80.70(2) provides as follows: 
MALICE OR BAD FAITH: An insurance company or self-
insured employer who, without credible evidence which 
demonstrates that the claim for the payments is fairly 
debatable, unreasonably fails to make payment of 
compensation 
or 
reasonable 
and 
necessary 
medical 
expenses, or after having commenced those payments, 
unreasonably suspends or terminates them, shall be 
deemed to have acted with malice or in bad faith. 
This chapter of the administrative code was renumbered from 
§ IND to § DWD 80 as of July 1996. 
26 Kimberly-Clark, 138 Wis. 2d at 65. 
27 Coleman 
v. 
American 
Universal 
Insurance 
Co., 
86 
Wis. 2d 615, 273 N.W.2d 220 (1979), held that the exclusive 
remedy provision within the worker's compensation law does not 
bar a tort action for bad faith claims.  The legislature enacted 
Wis. Stat. § 102.18(1)(bp) in response to Coleman.  See § 14, 
ch. 92, Laws of 1981;  Kimberly-Clark, 138 Wis. 2d at 62-63. 
No. 
02-1429   
 
14 
 
¶24 The claimant, here the employee, must first show that 
the insurance company did not have a reasonable basis to suspend 
payment on the claim.  In other words, the insurer did not 
possess information that would lead a reasonable insurer to 
conclude that an employee's claim is fairly debatable and that 
therefore payment need not be made on the claim.28  The "fairly 
debatable" test is an objective test.  It asks whether a 
reasonable 
insurer 
under 
similar 
circumstances 
would 
have 
denied, suspended, or delayed payment on the claim.29  
¶25 The test for determining that an insurer has a 
reasonable basis to suspend payment on the claim is whether the 
insurer properly investigated the claim and whether the results 
of the investigation were subject to a reasonable evaluation and 
review.30  The reasonable or unreasonable character of the 
insurer's conduct is gauged by examining the circumstances 
existing when the insurer made its decision to deny benefits.31  
¶26 The 
second 
element 
the 
claimant 
must 
show 
to 
demonstrate bad faith is that the insurer knew or recklessly 
disregarded that there was no reasonable basis for denying 
                                                 
28 Anderson v. Cont'l Ins. Co., 85 Wis. 2d 675, 692, 271 
N.W.2d 368 (1978); Kimberly-Clark, 138 Wis. 2d at 64.  See also 
Trinity Evangelical Lutheran Church v. Tower Ins. Co., 2003 WI 
46, ¶33, 261 Wis. 2d 333, 661 N.W.2d 789.   
29 Anderson, 
85 
Wis. 2d at 
692; 
Kimberly-Clark, 
138 
Wis. 2d at 65. 
30 Kimberly-Clark, 138 Wis. 2d at 65.  See also Trinity, 261 
Wis. 2d 333, ¶33. 
31 Kimberly-Clark, 138 Wis. 2d at 65-66. 
No. 
02-1429   
 
15 
 
benefits.  The Anderson court explained that the nature of the 
tort of bad faith is intentional and that implicit in the two-
part test is "our conclusion that the knowledge of the lack of a 
reasonable basis may be inferred and imputed to an insurance 
company where there is a reckless disregard of a lack of a 
reasonable basis for denial or a reckless indifference to facts 
or to proofs, submitted by the insured."32  The focus for 
determining whether an insurer is liable for bad faith is the 
sufficiency or strength of its reasoning. 
¶27 The state of mind required for a bad faith penalty may 
be better understood upon examination of Wis. Stat. § 102.22(1), 
which imposes a penalty for inexcusable neglect.  As the court 
of appeals explained in North American Mechanical v. LIRC, 157 
Wis. 2d 801, 808-809, 460 N.W.2d 835 (Ct. App. 1990), chapter 
102 contemplates three types of conduct resulting in a delay in 
payments: (1) excusable neglect; (2) inexcusable neglect; and 
(3) bad faith delay.  The legislature apparently contemplated 
that some delay could be excusable.  When the delay is 
inexcusable, the delayed payments shall be increased by 10% 
under § 102.22(1).   
¶28 The 
potential 
200% 
penalty 
provided 
in 
Wis. Stat. § 102.18(1)(bp) is reserved for cases of bad faith.  
Not all inexcusable delays rise to the level of bad faith.  "[A] 
finding of the 'knowledge' element of the Anderson test is a 
                                                 
32 Anderson, 85 Wis. 2d at 693.  See also Trinity, 261 
Wis. 2d 333, ¶38. 
No. 
02-1429   
 
16 
 
prerequisite to imposition of 'bad faith' penalties under sec. 
102.18(1)(bp), Stats."33   
¶29 If an insurance company exercises ordinary care in 
investigating the facts and law and reasonably concludes that 
the claim is fairly debatable, the company's actions will not 
constitute bad faith.34 
¶30 We now turn to whether LIRC's conclusions of law that 
the employee's claim for benefits was fairly debatable and that 
the insurer's suspension of benefits did not constitute bad 
faith within Wis. Stat. § 102.18(1)(bp) and Wis. Admin. Code 
§ DWD 80.70(2) were reasonable and should be affirmed. 
IV 
¶31 The 
sole 
question 
before 
us 
is 
whether 
LIRC's 
conclusion of law that the insurer did not act in bad faith is a 
reasonable 
interpretation 
and 
application 
of 
Wis. Stat. § 102.18(1)(bp), the administrative code, and the 
case law.  We reiterate that the issue we address is not whether 
the 
employee 
was 
entitled 
to 
temporary 
total 
disability 
benefits.  That issue has already been decided in the employee's 
favor; the employee's benefits were reinstated. 
                                                 
33 N. Am. Mech., 157 Wis. 2d at 808-09. 
34 Anderson, 85 Wis. 2d  at 693.  See John W. Thornton & 
Milton S. Blaut, Bad Faith and Insurers: Compensatory and 
Punitive Damages, 12 Forum 699, 719 (1977) ("An insurer should 
have the right to litigate a claim when it feels there is a 
question of law or fact which needs to be decided before it in 
good faith is required to pay the claimant."). 
No. 
02-1429   
 
17 
 
¶32 LIRC 
reviewed 
the 
evidence 
submitted 
to 
the 
administrative law judge and adopted the findings of fact (with 
one exception),35 the conclusions of law, and the order of the 
administrative law judge as its own.  LIRC concluded that the 
employer had a reasonable basis for believing the employee was 
engaged in wage-earning services.  
¶33 The administrative law judge addressed the various 
pieces of information received at the hearing and concluded that 
the employer had not suspended benefits in bad faith.  The 
administrative law judge considered important the fact that the 
insurer received information from three independent sources 
indicating that the employee was working in insurance sales.   
¶34 The insurer's first source of information was the 
state.  The Wisconsin Worker's Compensation Division received an 
anonymous tip on its fraud hotline that the employee was 
defrauding the insurer by failing to report external income.  
The insurer initiated an investigation to verify the veracity of 
the anonymous tip.   
¶35 The insurer's second source of information was the 
employee's supervisor.  The insurer communicated with the 
                                                 
35  LIRC removed an incorrect finding of fact of the 
administrative law judge.  The administrative law judge found 
that "[t]hey determined the applicant had a business phone 
number and appeared to be selling insurance while he was 
supposed to be temporarily totally disabled."  LIRC replaced 
this finding with the following: "The report noted that the 
applicant had been an independent insurance agent since October 
1994 selling products for a number of companies.  The applicant 
had an agent license number with the state." 
No. 
02-1429   
 
18 
 
employee's supervisor, who reported that the employee was 
selling insurance and was not planning to return to his former 
occupation. 
¶36 The third source of information was an investigation 
firm.  The insurer hired the firm to watch the employee.  The 
firm provided surveillance on the employee on four separate 
occasions.  The surveillance showed the employee wearing a 
business suit while entering a building during working hours. 
The administrative law judge concluded that this information 
"could be interpreted as selling insurance."  The evidence 
disclosed that the employee had been licensed to sell insurance 
in Wisconsin since 1994.  The evidence also disclosed that the 
employee did not have a business telephone number.   
¶37 Apparently the administrative law judge allowed the 
insurer to infer that when someone was working he was probably 
earning money.  The assumption that the employee was earning 
money was reinforced by the fact that the employee was in his 
third year of insurance sales. 
¶38 The insurer waited until after it had acquired this 
information——three months after the initial contact with the 
fraud investigation unit——before suspending benefit payments. 
The insurer did not, however, seek wage or earnings information 
from the employee until after it suspended benefits.  The court 
of appeals criticized the insurer and LIRC for this failure, 
remarking that an insurer cannot shoot first and ask questions 
later. 
No. 
02-1429   
 
19 
 
¶39 The 
administrative 
law 
judge 
noted 
that 
the 
legislature 
placed 
a 
fraud 
provision 
in 
the 
worker's 
compensation act to prevent fraud on the system and stated that 
"if fraud is involved, and the temporary disability money is 
paid under mistake of fact, there is no way of getting it back 
from the person who committed the fraud."  Thus, reasoned the 
administrative law judge, employers, insurers, and LIRC have an 
important interest in suspending benefits before the costs of 
the fraud become too great.  The administrative law judge thus 
considered the purposes of the law in reaching his decision.  
The employee contends that the administrative law judge did not 
adequately consider another purpose of the worker's compensation 
law, namely to assure payments to an injured employee.  Here the 
employee had no other source of income and suffered undue 
hardship to the point of foreclosure and bankruptcy. 
¶40 From 
the 
totality 
of 
this 
information, 
the 
administrative law judge concluded that "although there may have 
been better ways to go about suspending benefits in January 
1996," the evidence was sufficient to conclude that the actions 
of the insurer did not constitute bad faith.  
¶41 The employee objects to the validity of the individual 
pieces of pre-suspension evidence on the grounds that each is 
either weak, based on third-hand hearsay, or, in the case of his 
insurance license, a perfectly legitimate second job pursuant to 
Wis. Stat. § 102.43(c)(b).   
¶42 The insurer cannot seriously debate the employee's 
criticisms.  The claims adjuster admitted at the hearing that 
No. 
02-1429   
 
20 
 
there was not much in the video tape surveillance or in the 
surveillance report.   
¶43 Weak 
evidence 
notwithstanding, 
both 
parties 
make 
strong arguments.  The employee argues that the insurer did not 
exercise sufficient diligence in its investigation, while the 
insurer queries what more it could reasonably have done under 
the circumstances of this case.  The insurer contends that the 
court of appeals unreasonably placed a requirement on the 
insurer to obtain actual evidence of business profits before 
suspending benefits in the face of evidence of income-producing 
work activity.  According to the insurer, this requirement is 
particularly onerous because insurers do not have authority to 
require production of documents disclosing such information 
prior to an evidentiary hearing.  The employee recognizes that 
an insurer does not have the right to compel production of 
documents before a hearing, but argues that an insurer does have 
the right (and obligation) to request information.  Because an 
employee might not tell the truth does not, asserts the 
employee, 
excuse 
an 
insurer 
from 
asking 
for 
earnings 
information. 
¶44 This 
case 
presented 
a 
close 
call 
for 
the 
administrative law judge and LIRC.  Were this court reviewing 
the order of LIRC de novo, the result might very well be 
different.   
¶45 But we are not reviewing the order of LIRC de novo.  
Ultimately, we must reverse the decision of the court of appeals 
because, after enunciating the great weight deference standard 
No. 
02-1429   
 
21 
 
as the appropriate standard of review applicable in this case, 
the court of appeals failed, we conclude, to pay credence to it.   
¶46 The court of appeals concluded that the insurer's 
limited investigation did not provide it with any information 
that could have possibly led it to conclude that it need not 
make payment on the employee's claim.36  The court of appeals' 
decision can be read to create a new requirement of insurers 
that does not exist in the statute or administrative code, 
namely that an insurer must either communicate with an employee 
directly to obtain wage and earnings information or must obtain 
such information elsewhere before it can suspend benefits.  
¶47 LIRC has not adopted, as far as we can discover, the 
court of appeals' criterion for gauging whether an investigation 
or development of the facts is reasonable.  In the present case 
LIRC explicitly concluded that the insurer "does not have to 
have exact income information in order to make an exact offset 
before 
it 
can 
withhold 
payment 
of 
TTD 
[temporary 
total 
disability].  The question is whether the [insurer] had a 
reasonable basis for believing the [employee] was engaged in 
wage earnings services.  The commission finds after reviewing 
the record that the [insurer] did have a reasonable basis for 
such a belief."  LIRC apparently interprets the statute and 
administrative code on a case-by-case basis in order to 
determine whether a claim is fairly debatable under the statute, 
administrative code, and case law. 
                                                 
36 Brown v. LIRC, 260 Wis. 2d 788, ¶17.  
No. 
02-1429   
 
22 
 
¶48 The court of appeals acknowledges in its decision that 
an agency's interpretation and application of a statute and 
administrative code are reasonable if they accord with the 
language of the statute, the legislative intent, the legislative 
history, the federal or state constitution, and the purpose of 
the statute, and "are consistent with the judicial analysis of 
the statute."37  The court of appeals did not assert that LIRC's 
case-by-case interpretation and application of the statute and 
administrative code, or its order in the present case, violated 
the language of the statute, the legislative intent, the 
legislative history, or the federal or state constitution.  
¶49 The 
court 
of 
appeals 
concluded 
that 
LIRC's 
interpretation and application of the statute and administrative 
code "are inconsistent with [the court of appeals'] own 
interpretation and application of the term 'fairly debatable' as 
set forth in Kimberly-Clark and directly contravene the basic 
purpose behind the Worker's Compensation Act [which is to give 
prompt relief to injured employees entitled to compensation]."38    
¶50 We disagree with the court of appeals.  LIRC did apply 
the term "fairly debatable" as set forth in Kimberly-Clark and 
                                                 
37 Id., ¶19. 
38 Id., ¶¶18-19. 
The court of appeals also held that the insurer knew it had 
no information upon which to suspend payment of benefits, the 
second prong of the bad faith test laid out in Anderson, 85 
Wis. 2d at 691.  See Brown, 260 Wis. 2d 788, ¶17.   
 
No. 
02-1429   
 
23 
 
Anderson and did consider the purposes behind the Worker's 
Compensation Act.  The court of appeals and LIRC just disagree 
about the weight to be given to the evidence presented and to 
the purposes of the Act.     
¶51 We cannot say that, had we been in its position, we 
would have reached the same conclusions as LIRC.  We can say, 
however, 
that 
LIRC's conclusions 
are 
reasonable, although 
different conclusions might be more reasonable.  We acknowledge 
that the investigation came up with some——but not a great deal 
of——evidence, and it is arguable that the insurer may have been 
premature in suspending benefits when it did.  Inherent in the 
great weight deference standard is the concept that LIRC is well 
positioned to make judgments about bad faith so it may develop 
and apply consistent policies and standards.  Courts are bound 
to give LIRC flexibility to do so.  We therefore conclude that 
LIRC's conclusions of law and order were reasonable and that the 
court of appeals did not show proper deference to LIRC. 
¶52 That said, insurers, employers, and LIRC should not 
infer from this opinion that suspending an employee's benefits 
after a brief, inconclusive investigation is an acceptable means 
of avoiding a bad faith penalty.  The court recognizes that 
employees 
are 
often 
financially 
dependent 
upon 
worker's 
compensation benefits and a reasonable investigation under the 
circumstances is needed before suspension of benefits occurs.  
The insurer's actions in the present case may have been 
reasonable in LIRC's opinion, but the insurer's actions press 
No. 
02-1429   
 
24 
 
very near the limit of what the great weight deference level of 
review will bear.  
¶53 For the reasons set forth, we reverse the decision of 
the court of appeals. 
By the Court.—The decision of the court of appeals is 
reversed. 
 
 
 
No. 
02-1429   
 
 
 
1