Opinion ID: 2567570
Heading Depth: 3
Heading Rank: 4

Heading: The Board Used an Incorrect Legal Standard in Evaluating Seybert's Misrepresentation Claim.

Text: The central issue in Seybert's appeal is his assertion that the board erred in evaluating his claim that the C & R should be set aside because of fraud, misrepresentation, or duress. Seybert outlines the legal standards from our cases about contract formation to argue that the board erred in determining that there was no evidence of fraud or misrepresentation. He asserts that even if some of Rudolph's statements were non-fraudulent misrepresentations, her statements were nonetheless material misrepresentations, that he justifiably relied on them, and that as a result, the C & R should be set aside. Alaska National contends that the legal standard for fraud that the board used is virtually identical to the elements set out in Industrial Commercial Electric, Inc. v. McLees for voiding a contract for fraud. [41] The board applied the following standard in evaluating Seybert's assertion that Alaska National had committed fraud in negotiating the contract: We have determined `fraud' in the context of a C & R to be intentional misrepresentation, which induces the employee to sign the C & R in reliance on that misrepresentation. It found no credible, specific evidence of misrepresentation or fraud or duress by the employer to coerce [Seybert] to sign the C & R. The board made no other specific findings related to Seybert's fraud claim and did not articulate or apply a separate standard for misrepresentation. Because the board looked at whether there was an intentional misrepresentation in its definition of fraud, we assume that the board analyzed any claim of misrepresentation as part of Seybert's fraud claim. We have previously determined that a workers' compensation C & R is a contract and is subject to interpretation as any other contract. [42] Standards of contract formation from our common law therefore apply to formation and rescission of workers' compensation settlement contracts to the extent these standards are not overridden by statute. [43] Thus, even though a personal injury settlement agreement may be set aside for mistake, [44] we have held that the workers' compensation act does not permit avoidance of a settlement contract based on mistakes of fact. [45] We have also held, however, that the board can set aside a settlement agreement based on fraud, [46] and the board has interpreted the Alaska Workers' Compensation Act as giving it the authority to set aside a settlement agreement on other bases as well. [47] Alaska National does not challenge the board's authority to set aside a C & R because of constructive fraud, duress, or misrepresentation; it argues only that the board correctly found that there was no evidence of any wrongful behavior by Alaska National. In order to sue in tort for damages related to misrepresentation, an injured party must establish the elements of fraudulent misrepresentation. [48] For purposes of avoiding or reforming a contract, however, a misrepresentation need not be fraudulent; it need only be material. [49] As we said in McLees, Restatement (Second) of Contracts § 164 (1981) states that a contract is voidable `[i]f a party's manifestation of assent is induced by either a fraudulent or a material misrepresentation by the other party upon which the recipient is justified in relying.' [50] The standard the board used to evaluate Seybert's claim of misrepresentation therefore differed in one significant way from that discussed in McLees: the board only looked to see if there was an intentional misrepresentation, not a material misrepresentation. [51] In order to avoid a contract based on a misrepresentation, the party seeking to avoid the contract must show (1) a misrepresentation; (2) which was fraudulent or material; (3) which induced the party to enter the contract; (4) upon which the party was justified in relying. [52] Although we agree that substantial evidence supports the board's finding that there was no intentional misrepresentation, it was error to consider only whether there was a fraudulent misrepresentation, and we cannot say that the error was harmless. There are at least two ways in which Rudolph's December 2, 1994 letter could have been materially misleading. First, Rudolph stated, At this point in your claim, there are three remaining benefits available. She then identified three areas of benefits: reemployment benefits, permanent partial impairment benefits, and medical benefits. From this statement Seybert could infer that he was potentially eligible for only these three benefits and no others, i.e., that no others were remaining. [53] Rudolph did not tell Seybert that the disability benefits available to him, and which he would be waiving, could include PTD benefits, even though she knew as of September 26, 1994, that Seybert had been found eligible for SSDI benefits. [54] Counsel for Alaska National conceded at oral argument before us that Seybert's receipt of SSDI benefits could support the notion that Seybert might have been eligible for PTD benefits. Seybert argues that Rudolph's failure to mention subsection .041(k) benefits as part of the available reemployment benefits was also a material misrepresentation. The settlement waived entitlement to subsection .041(k) benefits; those benefits were not discussed with Seybert before settlement. Rudolph had calculated six weeks before she wrote Seybert that those benefits were worth approximately $25,000 for one year. [55] The board could therefore reasonably find that Rudolph's statement about the benefits remaining in Seybert's claim was not in accord with the facts she knew of his case. [56] Second, Rudolph's statement in the letter concerning Seybert's right to change physicians is potentially materially misleading. Her December 2, 1994 letter acknowledged that Seybert was entitled to further medical care as the result of [his] injury. It then stated, Because of your recent move to Oregon, and as a term of our settlement proposal, we will agree to allow you to select a new physician in your local area and we will then be responsible for further medical care in accordance with the Alaska Workers' Compensation statutes. But this letter is unclear as to whether Alaska National acknowledged that Seybert had a right to a new physician because of his move to Oregon or Dr. Fleming's refusal to treat him, both of which events were independent of the settlement agreement. [57] And the December 27 letter implied that Alaska National's willingness to allow him to see a new physician depended on whether he settled his claims. Seybert's arguments concerning the change of physicians focus on his contention that his treatment by Dr. Fleming was a referral within the meaning of AS 23.30.095(a). [58] The board did not discuss in detail Seybert's contention that the change in physicians from Dr. Rich to Dr. Fleming was a referral permitted by AS 23.30.095(a); it simply stated in its summary of the case that Dr. Rich referred Seybert to Dr. Fleming for a second opinion. The board may also consider on remand whether Seybert came under Dr. Fleming's care because of a referral. Depending on whether there was a referral, Rudolph's statements that Seybert had used his statutorily permitted change in physicians could have been materially misleading. In addition, the board should consider whether Seybert had a right, not subject to Alaska National's permission, to change physicians when the C & R was negotiated by virtue of either his move to Oregon or Dr. Fleming's refusal to treat him further. [59] Because the question whether a misrepresentation is material is a mixed question of law and fact, [60] we must remand so the board can determine whether any of Rudolph's or Alaska National's statements were material misrepresentations. We also remand for consideration of the other elements of misrepresentation. [61] On remand, the board must consider whether any misrepresentation was an inducing cause  whether Seybert manifested his assent to the contract in reliance on them [62]  and whether Seybert was justified in relying on any misrepresentation. As to this latter issue, the board may need to consider whether the representations were statements of opinion and, if they were, whether Seybert reasonably believed that Rudolph had special skill or judgment with respect to the subject matter. [63] Underlying the evaluation of Seybert's misrepresentation and fraud claims is the issue of what duty a workers' compensation insurance adjuster owes to an unrepresented claimant. Although we decide here that there is no fiduciary duty, the board may consider on remand what duty the adjuster does owe. Under certain circumstances non-disclosure of a fact can be equivalent to an assertion, and according to the Restatement (Second) of Contracts § 161(b), failure to act in good faith and in accordance with reasonable standards of fair dealing can be relevant in determining when non-disclosure of a fact is equivalent to an assertion. [64] Counsel for Alaska National stated at oral argument on appeal that an insurance adjuster has the duty to be honest with an unrepresented workers' compensation claimant, but insisted that Rudolph did not need to put all [her] cards on the table as a negotiating strategy. In workers' compensation, where there are complex rules that can carry significant consequences, it is hard to ignore the disparity in information and knowledge that an experienced insurance adjuster may possess compared with an unrepresented claimant. Because knowledge of the business practices of workers' compensation insurers is an area within the board's special expertise, the board should consider this question on remand. The issue of what the insurer's duties are to an unrepresented claimant may also be relevant in assessing whether Seybert was justified in relying on any misrepresentations Rudolph made. [65] Seybert also argues that the board applied an incorrect legal standard to his claim of duress. Alaska National counters that the standard the board used is consistent with Alaska case law on duress. The standard the board applied in Seybert's case was hardship intentionally created by overreaching or improper interference by the employer to coerce the employee to sign. We have held that a party alleging duress must show that (1) he involuntarily accepted the terms of another; (2) the circumstances permitted no alternative; and (3) such circumstances were the result of the coercive acts of the other party. [66] There appear to be some differences in the elements that must be shown under the two standards: the board's standard does not require a showing that the circumstances permitted no alternative, and it appears to require tortious conduct by the employer. [67] In contrast, we have held that the wrongful acts need only be wrongful in the moral sense. [68] Seybert argues that he presented evidence that satisfied the duress elements set out in Totem Marine Tug & Barge, Inc. v. Alyeska Pipeline Service Co., [69] but he does not show how differences between the board and court standards are material to his case. Absent a more detailed argument about how the standards differ and how the differences are important to his facts, and absent a meaningful discussion about why, in the context of workers' compensation claims, it was legal error for the board to use a standard that differs from the one we have discussed, we will not consider whether the board used an incorrect legal standard in evaluating Seybert's claim of duress. Seybert's argument that the C & R should fail for lack of consideration has no merit. Even if the dispute about the change in physicians was not a bona fide dispute, Seybert received consideration, $30,000, for the release of his claims. Failure of part of the consideration Seybert received does not void the entire contract for lack of consideration. [70] We are also unpersuaded by Seybert's argument that the use of the term primary physician in the settlement agreement was ambiguous and misleading. In the settlement agreement Alaska National stated that Dr. Williamson-Kirkland was the primary physician in connection with Mr. Seybert's pain clinic. This is an accurate statement. The agreement also said, [T]he employer contends that the employee has had one (1) change of primary physician thus far in this claim. . . . [T]he employee will be allowed to make one (1) additional change of treating physician. Although the use of the terms primary and treating is inconsistent, it was not materially misleading. [71]