Opinion ID: 2570497
Heading Depth: 1
Heading Rank: 2

Heading: The Statutory Fraud Claims

Text: We now turn to a discussion of Excel's statutory fraud claims. A brief review of legislative history is appropriate. In 1993, the insurance industry and the Kansas Insurance Commissioner's Workers Compensation Task Force set out to reform the Act. See Shultz & Shultz, For Workers Compensation A Civil Remedy: Fraud and Abuse, 19 J.K.T.L.A. 32 (July 1996). The result was the enactment of the K.S.A. 44-5,120 et seq. fraud and abuse provisions. These provisions were designed to afford a remedy to those who are damaged by fraudulent acts or practices in a workers compensation proceeding. Elliott v. Dillon Companies, 21 Kan. App.2d 908, 911-12, 908 P.2d 1345, affd 260 Kan. 411, 918 P.2d 1305 (1996). The only substantial changes were in 1997 (L. 1997, ch. 125, § 20) and 1998 (L. 1998, ch. 114, § 7 and 8). In 1997, the legislature added an exhaustion of administrative remedies requirement and in 1998, it strengthened the criminal penalties for committing fraudulent or abusive acts. Elliott is the only case discussing the statutory fraud and abuse provisions. Elliott, a workers compensation claimant, sued her employer, its insurer, and defendants' attorney. The defendants maintained K.S.A. 44-5,121 did not authorize a suit by a workers compensation claimant. In rejecting the defendants' contentions, the Court of Appeals held that the statute authorizes any person, including a claimant, who has suffered economic loss by a fraudulent or abusive act or practice to bring a cause of action under K.S.A. 44-5,121. 21 Kan. App.2d at 912. Elliott also observed K.S.A. 44-5,125(b) requires any person who received any payment or otherwise benefitted monetarily as a result of such criminal conduct to repay the amount with interest. 21 Kan. App.2d at 912. Elliott did not say who is included in the definition of any person, which is at issue here. Elliott answered only the question of who may sue under the fraud and abuse provisions. We must now answer the question of who may be sued under K.S.A. 44-5,120 et seq. A search of legislative history is unproductive. We have de novo review of cases decided on stipulated facts. Lightner v. Centennial Life Ins. Co., 242 Kan. 29, Syl. ¶ 1, 744 P.2d 840 (1987). The parties agree the interpretation of a statute is a question of law over which we exercise unlimited review. Hamilton v. State Farm Fire & Cas. Co., 263 Kan. 875, 879, 953 P.2d 1027 (1998). Goertz' primary argument is that no one may be held liable under either K.S.A. 44-5,121 or 44-5,125 unless his or her conduct is knowing, willful, or intentional. K.S.A. 44-5,120(d) defines fraudulent or abusive acts or practices in a nonexclusive list: (d) Fraudulent or abusive acts or practices for purposes of the workers compensation act include, but are not limited to, willfully or intentionally: [Twenty separate fraudulent or abusive acts are listed.] Claims to recover losses due to fraudulent or abusive acts are set out in both K.S.A. 44-5,121(a) and 44-5,125(c). Excel brought its claim under K.S.A. 44-5,121, but the district court found Goertz liable under K.S.A. 44-5,125. The legislature's intent, according to Excel, was to provide a basis for recovery of economic losses due to fraudulent or abusive practices in workers compensation cases. Excel asserts the statute carefully elects not to tie the ability to recover under such a cause of action in every situation to participation in the fraudulent or abusive act. We disagree. We hold that liability rests only with persons who act willfully or intentionally. (K.S.A. 1999 Supp. 44-5,120[d] now includes the word knowingly as well.) K.S.A. 44-5,120(d) creates two classes: (1) those who will have a claim (plaintiffs), and (2) those who have committed fraudulent or abusive acts or practices (defendants). Only those who have actually committed a fraudulent or abusive act may be liable. K.S.A. 44-5,121(a) says: Any person who has suffered economic loss by a fraudulent or abusive act or practice shall have a cause of action against any other person to recover such loss which was paid as benefits or other amounts of money which were paid under the workers compensation act and to seek relief for other monetary damages from such other person based on a fraudulent or abusive act or practice.... (Emphasis added.) K.S.A. 44-5,125 states in part: (b) Any person who has received any amount of money as a benefit or other payment under the workers compensation act as a result of a violation of subsection (a) and any person who has otherwise benefited monetarily as a result of a violation of subsection (a) shall be liable to repay an amount equal to the amount so received by such person or the amount by which such person has benefited monetarily, with interest thereon.... (c) Any person aggrieved by a violation of subsection (a) shall have a cause of action against any other person to recover any amounts of money erroneously paid as benefits or any other amounts of money paid under the workers compensation act, and to seek relief for other monetary damages.... (Emphasis added.) We read K.S.A. 44-5,121(a) to mean any person (entity) who has suffered economic loss by a fraudulent or abusive act or practice (here Excel) has a cause of action against any other person (Jimenez) to recover the loss which was paid as benefits under the Act. The recovery must be based on a fraudulent or abusive act or practice by the person against whom recovery is sought. Here, Jimenez has admitted that her conduct was willful and intentional; thus, there is no doubt that a fraudulent act was committed. Excel is an entity that has suffered economic loss due to Jimenez' fraudulent act. Goertz is a person who received a portion of the fraudulently paid benefits. However, his act was neither willful nor intentional. He committed no fraudulent or abusive act or practice. The class of potential defendants in 44-5,121(a) and 44-5,125(c) appears to be identical, as the same two categories are delineated in each statute as those receiving: (1) benefits or (2) other amounts of money which were paid under the workers compensation act. But, 44-5,125 has the added language italicized below: (c) Any person aggrieved by a violation of subsection (a) shall have a cause of action against any other person to recover any amounts of money erroneously paid as benefits or any other amounts of money paid under the workers compensation act, and to seek relief for other monetary damages for which liability has accrued under this section against such other person. (Emphasis added.) The K.S.A. 44-5,125(c) language tells us that the cause of action in 44-5,125(c) is limited to those for whom liability has accrued under 44-5,125. Subsection (b) of 44-5,125 sets out who is liable: (b) Any person who has received any amount of money as a benefit or other payment under the workers compensation act as a result of a violation of subsection (a) and any person who has otherwise benefited monetarily as a result of a violation of subsection (a) shall be liable to repay an amount equal to the amount so received by such person or the amount by which such person has benefited monetarily, with interest thereon. Subsection (a) of K.S.A. 44-5,125 sets out the elements of criminal liability. The version applicable here listed specific knowing and intentional acts that would constitute a violation and lead to criminal liability. (The criminal liability sections have been expanded since enactment.) (See K.S.A. 1999 Supp. 44-5,125[a], [b], [c] and [d].) We acknowledge that the language of K.S.A. 44-5,125(b) is less than clear. The statute would appear to make anyone who ever received money from a fraudulent award liable. However, as a matter of policy and statutory construction, this cannot be the case. Doctors and hospitals could be sued to repay insurance carriers for medical services offered to the injured worker. Under similar circumstances, court reporters, vocational experts, copy services, nurse case managers, and insurance adjusters could be made to repay earned fees even if they did not intentionally perpetrate a fraud or abuse the system. We do not believe the legislature intended this result. Not only is such an interpretation of 44-5,125(b) against public policy, it is contrary to a fundamental rule of statutory construction. A construction that makes part of a legislative act surplusage should be avoided if reasonably possible. State ex rel. Stephan v. Kansas Racing Comm'n, 246 Kan. 708, 719, 792 P.2d 971 (1990). The district court held Excel had a cause of action under either 44-5,121 or 44-5,125. The two statutes proscribe similar conduct, but there are notable differences. K.S.A. 44-5,125(a) sets out the criminal penalties for specific fraudulent or abuse acts. Damages under 44-5,121 include monetary damages but not nonpecuniary loss. K.S.A. 44-5,125 permits recovery of monetary damages and prejudgment interest and has no exclusion of nonpecuniary loss. These differences in available damages lead us to question whether, as Excel urges, 44-5,121 and 44-5,125 are identical causes of action. Under Excel's interpretation, 44,5-121 is surplusage. We conclude that K.S.A. 44-5,121(a) and 44-5,125(c) are different causes of action based on the culpability of the wrongdoer. K.S.A. 44-5,121(a) is applicable where one is able to simply prove a knowing or willful act was committed. However, 44-5,125 is a more specific statute. K.S.A. 44-5,125 addresses specific knowing and willful acts. The three acts specifically outlined in subsection (a)(1) are: (A) making a false or misleading statement, (B) misrepresenting or concealing a material fact, or (C) fabricating, altering, concealing or destroying a document. (The current version lists additional specific acts constituting crimes. See K.S.A. 1998 Supp. 44-5,125[a][1][D] and [E], [b], and [c].) Those found guilty of committing the knowing and willful acts specified in 44-5,125(a) may be convicted of a misdemeanor or felony (depending on how much money was received). Those who suffered a loss as a result of the acts specified in 44-5,125(a) may collect damages not available under 44-5,121(a). Thus, the difference in damages one may collect is commensurate with the level of culpability one must show. We construe 44-5,125(b) as applicable only to those who have violated subsection 44-5,125(a). Such an interpretation carries out the legislature's intention and gives effect to 44-5,121(a), instead of rendering it surplusage. See State v. ex rel. Stephan, 246 Kan. at 719. We note that, contrary to Goertz' argument, a conviction is not a prerequisite to liability under K.S.A. 44-5,125. A violation is required, but a conviction is not. Goertz could not be found liable under 44-5,125(b) because he committed no act enumerated in 44-5,125(a). The provisions of K.S.A. 44-5,120 et seq. seek to punish only those who commit fraudulent or abusive acts; consequently, we need not reach Goertz' final contention that focuses on the reimbursement provisions of K.S.A. 44-534a(b).