Filed 5/27/20
                           CERTIFIED FOR PUBLICATION

                IN THE COURT OF APPEAL OF THE STATE OF CALIFORNIA

                             SIXTH APPELLATE DISTRICT


COUNTY OF SANTA CLARA,                             H046562
                                                  (W.C.A.B. No. ADJ9339549)
        Petitioner,

        v.

WORKERS’ COMPENSATION
APPEALS BOARD and BARBARA
JUSTICE,

        Respondents.



        Petitioner County of Santa Clara petitioned this court for review of the decision of
respondent Workers’ Compensation Appeals Board (WCAB or the Board) affirming an
unapportioned permanent disability award in favor of respondent Barbara Justice.
Petitioner contends that the Board erred in determining no apportionment was warranted
as a matter of law.
        We issued a writ of review and now conclude that the permanent disability in this
case should have been apportioned between industrial and nonindustrial causes. We
therefore annul the Board’s decision to the contrary and remand for further proceedings.


                          I. Facts and Procedural Background
        Barbara Justice was employed as a workers’ compensation claims adjuster
for petitioner from November 1991 until she retired in December 2016. On
November 22, 2011, Justice fell at work and suffered an injury to her left knee. After
Justice injured her left knee, she developed pain and problems in her right knee, which
was found to be a compensable consequence of the injury to her left knee. In June 2012,
Justice had total knee replacement surgery on the right knee. In September 2013, she had
total knee replacement surgery on her left knee.
         The parties arranged for Justice to be examined by Dr. Mark Anderson, an
orthopedic surgeon, who served as an agreed medical examiner. Dr. Anderson prepared
his initial report in March 2016. He prepared five supplemental reports and was deposed
twice.
         Dr. Anderson testified that an X-ray of Justice’s knees, taken on
November 28, 2011, showed “marked osteoarthritis” of the knees. An MRI conducted on
January 18, 2012, showed that Justice had suffered a medial and lateral meniscal tear as a
result of the fall at work. The MRI also revealed significant preexisting degeneration, all
of which predated the fall at work: an “old” tear of the anterior cruciate ligament,
“marked loss of articular cartilage in the medial compartment,” “moderate loss of
articular cartilage in the lateral compartment,” and “moderate loss in the patellofemoral
joint.” There was also scar tissue on both knees indicating that Justice had undergone a
“significant open procedure” at some point in the past.
         Based on Justice’s medical history, Dr. Anderson testified that there was
significant preinjury degeneration in both knees. In response to questions on what
precipitated the need for total knee replacement surgery, Dr. Anderson agreed that
“[t]otal knee replacement [was] not required because of the meniscus tear . . . but rather
as a result of the underlying arthritis,” because “[a] meniscal tear does not require a knee
replacement.” Rather, Dr. Anderson determined that the fall at work “hasten[ed]” the
need for total knee replacement surgery by “lighting up the underlying pathology.”
Dr. Anderson opined that “[a]bsent the underlying pre-existing arthritis, is it medically
probable that [Justice] would not have had total knee replacement as she did when she




                                              2
did . . . .” As a result, Dr. Anderson apportioned 50 percent of the bilateral knee
disability to the nonindustrial, preexisting degeneration in the knees.
       The workers’ compensation judge determined that Justice had sustained
permanent partial disability of 48 percent, which was worth $59,110.00. In pertinent
part, the workers’ compensation judge found that Justice “suffered from knee trouble due
to degenerative arthritis for many years prior to her [2011] industrial injury. The
available medical evidence makes plain that this condition played a large role in making
the effects of the industrial injury significantly worse than they would . . . otherwise have
been, both in the need for treatment . . . and in the ultimate [permanent disability] . . . .
The injury precipitated the need for bilateral knee replacement surgery. These surgeries
had been in contemplation at varying levels of urgency for some years prior to the injury,
but as a result of the injury became practically mandatory. There is no doubt on this
evidence that the need for these surgeries was at least partially non-industrial. There also
seems to be little doubt that had the injuries and attendant surgeries never occurred,
[Justice] would still now suffer from a non-trivial level of impairment from her arthritic
knees.”
       The workers’ compensation judge further found that “[t]he available medical
evidence also indicates that, in terms of function, the surgeries were quite successful.
While by no means curative, the surgeries appear to have significantly increased
[Justice’s] ability to walk and engage in weight-bearing activities. Under the pre-2005
[Permanent Disability Rating Schedule (PDRS)] one suspects that the surgeries would
have significantly decreased [her] work limitations and increased her ability to engage in
gainful activity, resulting in a lower [permanent disability] rating. Since the current
PDRS is based not upon functional capacity but upon diagnosis, the surgery has resulted
in an impairment rating substantially higher than it was pre-surgery. The only real cause
of this change in impairment rating was the surgery, in turn brought about by a


                                               3
combination of industrial and non-industrial factors. The [agreed medical examiner] . . . ,
thought the [permanent disability] should be apportioned 50/50. I believe his basis for
that conclusion was sound and in accordance” with the law.
       The workers’ compensation judge then stated that prior to the decision in Hikida v.
Workers’ Comp. Appeals Bd. (2017) 12 Cal.App.5th 1249 (Hikida), he would “have
issued a decision awarding [permanent disability] with 50% apportionment based upon
Dr. Anderson’s opinion.” However, the workers’ compensation judge understood Hikida
to preclude apportionment in this case: “Hikida holds that where medical treatment
(here, the bilateral knee replacement surgery) results in an increase in [permanent
disability], [permanent disability] should be awarded without apportionment.” The
workers’ compensation judge emphasized that he was bound by the Hikida decision:
“While the reasons why the Hikida court made a significant change in the law are
obscure to me, they are as beyond the scope of a trial judge as is the argument that the
case was wrongfully decided. While I cannot tell why the Court concluded as it did, what
they did is readily apparent, and I have no option but to follow this binding precedent.”
Accordingly, the workers’ compensation judge awarded permanent disability with no
apportionment.
       Petitioner sought reconsideration with the Board, arguing that the workers’
compensation judge erroneously applied Hikida to the facts of this case. The workers’
compensation judge issued a report and recommendation on the petition for
reconsideration, recommending that the Board deny reconsideration. The workers’
compensation judge reiterated that “but for the rule first announced in Hikida,” “the
parties agree that . . . Dr. Anderson’s apportionment would have been sufficient” to
sustain a finding of 50 percent apportionment of Justice’s permanent disability. The
workers’ compensation judge determined, however, that “Hikida is not distinguishable
from this case,” and stated that “it is far beyond the scope of a WCAB trial judge to


                                             4
decide whether a published Court of Appeal decision was based upon sound policy or
otherwise.” The Board ultimately granted reconsideration, but only to amend the award
to correct a clerical error. The Board rejected the merits of the petition for
reconsideration on the apportionment issue for the reasons stated in the workers’
compensation judge’s report, which it adopted and incorporated as its decision.


                                       II. Discussion
                                  A. Standard of Review
       “ ‘We review the Board’s factual findings for substantial evidence, but we review
its legal decisions de novo.’ [Citation.] If ‘ “a workers’ compensation decision rests on
the Board’s erroneous interpretation of the law, the reviewing court will annul the
decision.” ’ [Citation.]” (City of Petaluma v. Workers’ Comp. Appeals Bd. (2018) 29
Cal.App.5th 1175, 1181-1182 (Petaluma).)


                      B. Apportionment of Permanent Disability
       In 2004, the Legislature enacted Senate Bill No. 899 (2003-2004 Reg. Sess.)
(Senate Bill No. 899), which made substantial changes to workers’ compensation law,
including the law of apportionment of permanent disability. Senate Bill No. 899 was an
“urgency measure designed to alleviate a perceived crisis in skyrocketing workers’
compensation costs.” (Brodie v. Workers’ Comp. Appeals Bd. (2007) 40 Cal.4th 1313,
1329 (Brodie).) Before the 2004 amendments, apportionment “based on causation was
prohibited.” (Id. at p. 1326.) This meant that in some cases “to the extent that a
subsequent industrial injury exacerbated, accelerated, aggravated, or ‘lit up’ an
applicant’s preexisting condition, the employer was liable for the resulting disability,
without apportionment.” (Escobedo v. Marshalls (2005) 70 Cal.Comp.Cases 604, 617,
fn. 9 (Escobedo); Marsh v. Workers’ Comp. Appeals Bd. (2005) 130 Cal.App.4th 906,


                                              5
912.) Thus, before Senate Bill No. 899, apportionment based on causation was “limited
to circumstances where the apportioned disability was the result of the natural
progression of a preexisting, nonindustrial condition and such nonindustrial disability
would have occurred in the absence of the industrial injury.” (E.L. Yeager Construction
v. Workers’ Comp. Appeals Bd. (2006) 145 Cal.App.4th 922, 926.)
       With Senate Bill No. 899, the Legislature “overhauled the statutes governing
apportionment.” (Brodie, supra, 40 Cal.4th at p. 1323.) Labor Code section 4663 now
provides that “[a]pportionment of permanent disability shall be based on causation.”1
Section 4664, subdivision (a), in turn, provides that “[t]he employer shall only be liable
for the percentage of permanent disability directly caused by the” industrial injury.
“[T]he new approach to apportionment is to look at the current disability and parcel out
its causative sources—nonindustrial, prior industrial, current industrial—and decide the
amount directly caused by the current industrial source.” (Brodie, supra, 40 Cal.4th at
p. 1328.) “The issue of the causation of permanent disability, for purposes of
apportionment, is distinct from the issue of the causation of an injury. [Citation.] Thus,
the percentage to which an applicant’s injury is causally related to his or her employment
is not necessarily the same as the percentage to which an applicant’s permanent disability
is causally related to his or her injury.” (Escobedo, supra, 70 Cal.Comp.Cases at p. 611.)
       Section 4663, subdivision (b) requires that “[a] physician who prepares a report
addressing the issue of permanent disability due to a claimed industrial injury shall
address in that report the issue of causation of the permanent disability.” “In order for a
physician’s report to be considered complete on the issue of permanent disability, the
report must include an apportionment determination. A physician shall make an
apportionment determination by finding what approximate percentage of the permanent
disability was caused by the direct result of injury arising out of and occurring in the

1      Subsequent statutory references are to the Labor Code.

                                              6
course of employment and what approximate percentage of the permanent disability was
caused by other factors both before and subsequent to the industrial injury, including
prior industrial injuries.” (§ 4663, subd. (c).) These “ ‘ “other factors” now may include
pathology, asymptomatic prior conditions, and retroactive prophylactic work preclusions,
provided there is substantial medical evidence establishing that these other factors have
caused permanent disability.’ ” (Petaluma, supra, 29 Cal.App.5th at p. 1184.)


                                 C. The Hikida Decision
       In Hikida, the injured worker was diagnosed with carpal tunnel syndrome.
(Hikida, supra, 12 Cal.App.5th at p. 1252.) She underwent carpal tunnel surgery to treat
the condition. (Id. at pp. 1252-1253.) “Following the surgery, [the injured worker]
developed chronic regional pain syndrome (CRPS), a condition that caused her
debilitating pain in her upper extremities and severely impaired her ability to function.”
(Id. at p. 1253.) The agreed medical examiner found the injured worker to be
“permanently and totally disabled from the labor market.” (Ibid.) He further found “her
permanent total disability was due entirely to the effects of the CRPS that she developed
as a result of the failed carpal tunnel surgery. He further concluded that [her] carpal
tunnel condition itself was 90 percent due to industrial factors and 10 percent to
nonindustrial factors.” (Ibid.) The workers’ compensation judge “found that [the injured
worker’s] permanent total disability was 90 percent due to industrial factors, ‘after
adjustment for apportionment.’ ” The injured worker sought reconsideration, “contending
her disability was 100 percent industrial because it derived from medical treatment,
entitling her to an unapportioned award.” (Ibid.) The Board affirmed the workers’
compensation judge’s apportionment finding, noting that “ ‘there is a basis for
apportionment of that permanent disability to nonindustrial causative sources . . . because




                                             7
the CRPS was caused by the surgery to treat [the injured worker’s] carpal tunnel
condition.’ ” (Ibid.)
       The Second District Court of Appeal issued a writ of review and annulled the
Board’s decision, concluding that the injured worker was entitled to a permanent
disability award without apportionment. (Hikida, supra, 12 Cal.App.5th at p. 1252.) The
court first discussed the longstanding rule that medical treatment for an industrial injury
is “ ‘not apportionable’ ” and that an employer is required to pay for “all medical treatment
‘[o]nce it has been established that an industrial injury contributed to an employee’s need
for [it] . . . .’ ” (Id. at p. 1261.) It then explained that that “[i]t also has long been the rule
that ‘the aggravation of an industrial injury or the infliction of a new injury resulting from
its treatment or examination are compensable” under the workers’ compensation system.
(Ibid.) From these two principles, the court concluded: “[T]here is no dispute that the
disabling carpal tunnel syndrome from which [the] petitioner suffered was largely the
result of her many years of clerical work with Costco. It followed that Costco was
required to provide medical treatment to resolve the problem, without apportionment.
The surgery went badly, leaving [the] petitioner with a far more disabling condition—
CRPS—that will never be alleviated. California workers’ compensation law relieves
Costco of liability for any negligence in the provision of the medical treatment that led to
[the] petitioner’s CRPS. It does not relieve Costco of the obligation to compensate [the]
petitioner for this disability without apportionment.” (Id. at p. 1262.)
       In addressing the Legislature’s 2004 overhaul of the apportionment of permanent
disability, the Second District stated that based on its “review of the authorities,” it was
clear that “the Legislature did not intend to transform the law requiring employers to pay
for all medical treatment caused by an industrial injury, including the foreseeable
consequences of such medical treatment.” (Hikida, supra, 12 Cal.App.5th at p. 1262.)
The court reasoned that while the apportionment rule was based on statute, “[t]he long-


                                                 8
standing rule that employers are responsible for all medical treatment necessitated in any
part by an industrial injury, including new injuries resulting from that medical treatment,
derived not from those statutes” but from these two principles: (1) medical care for
industrial injuries must be provided without apportionment, and (2) the consequences of
that medical care are covered by the workers’ compensation system. (Id. at pp. 1262-
1263.) Thus, the court determined that “the [workers’ compensation judge] erred in
relying on the 2004 amendment to support apportioning petitioner’s award, and the Board
erred in upholding his decision.” (Id. at p. 1263.)


                                        D. Analysis
       Petitioner contends that the workers’ compensation judge and the Board erred in
determining that Justice’s permanent disability should not be apportioned.
       We agree with petitioner that apportionment of Justice’s permanent disability was
required. Petaluma is instructive. In that case, police officer Aaron Lindh was engaged
in a canine training exercise at work when he “took three to six blows to the left side of
his head . . . .” (Petaluma, supra, 29 Cal.App.5th at p. 1179.) He first suffered severe
headaches, and weeks later “suddenly lost most of the vision in his left eye.” (Ibid.) The
qualified medical examiner2 found that Lindh had a congenital abnormality that caused
poor blood circulation in his left eye. (Id. at pp. 1179-1180.) The examiner opined that
without the injury, Lindh “ ‘most likely would have retained a lot of his vision in that
eye,’ although he could not ‘guess’ how much.” (Id. at p. 1180.) He emphasized that it
was “ ‘unlikely’ Lindh would have suffered a vision loss if he had not had the ‘underlying
condition’ ” in his left eye. (Ibid.) Thus, the examiner apportioned 85 percent of the
permanent disability to the preexisting condition, and 15 percent to the industrial injury.


2      A party may designate a physician as a qualified medical examiner. When the
parties agree on the same examiner, that examiner is an agreed medical examiner.

                                              9
(Id. at pp. 1180-1181.) However, the workers’ compensation judge found that no
apportionment was warranted, and the Board affirmed that finding, stating that the
underlying condition was merely a “ ‘risk factor[] that predisposed [Lindh] to having a
left eye injury, but the actual injury and its resultant disability (i.e., the left eye blindness)
were entirely caused by industrial factors.’ ” (Id. at p. 1181.)
       On review, the First District Court of Appeal annulled the Board’s decision,
concluding that apportionment was appropriate because there was substantial medical
evidence that the asymptomatic condition or pathology was a contributing cause of the
disability. (Petaluma, supra, 29 Cal.App.5th at p. 1193.) The court explained that the
2004 amendments concerning apportionment had been designed to expand apportionment
to include nonindustrial factors, “making clear that pathology and preexisting,
asymptomatic conditions are among such factors.” (Id. at p. 1183.) According to the
court, after the 2004 amendments, “the salient question is whether the disability resulted
from both nonindustrial and industrial causes, and if so, apportionment is required.” (Id.
at p. 1193.) In that respect, the court found that the medical evidence was clear that
“Lindh had an underlying condition . . . that was, along with the workplace injury, a
cause of his impaired vision.” (Id. at p. 1192.) The court concluded that substantial
medical evidence supported the qualified medical examiner’s apportionment finding that
Lindh’s permanent disability was caused 85 percent by his preexisting condition and 15
percent by his industrial injury. (Id. at pp. 1192-1193, 1195.)
       As in Petaluma, the injured worker in the instant case had an extensive preexisting
pathology that when combined with an industrial injury, led to permanent disability. The
preexisting pathology was well documented. Dr. Anderson opined that “[a]bsent the
underlying pre-existing arthritis, [it was] medically probable that [Justice] would not have
had total knee replacement” when she did. While the fall at work “hasten[ed] . . . the
need for the replacement,” the unrebutted medical evidence established that the


                                               10
underlying pathology was a substantial causal factor in the permanent disability. Where
there is unrebutted substantial medical evidence that nonindustrial factors played a causal
role in producing the permanent disability, the Labor Code demands that the permanent
disability “shall” be apportioned. (§ 4663, subd. (a), italics added; Petaluma, supra, 29
Cal.App.5th at p. 1184; see also Acme Steel v. Workers’ Comp. Appeals Bd. (2013) 218
Cal.App.4th 1137, 1143 [“Faced with this unrebutted substantial medical evidence . . .
the [Board] should have parceled out the ‘causative sources . . . and decide[d] the amount
directly caused by the current industrial source.’ ”].) Here, the agreed medical examiner’s
initial report, five supplemental reports, and two depositions were unrebutted and
constituted substantial medical evidence that Justice’s preexisting knee pathology was a
significant causal factor in producing her permanent disability following total knee
replacement surgery.
       The workers’ compensation judge and the Board believed that Hikida dictated a
different result. Not so. The injured worker in Hikida suffered from carpal tunnel
syndrome and underwent industrial medical treatment as a result. (Hikida, supra, 12
Cal.App.5th at p. 1253.) As a consequence of the medical treatment, the injured worker
sustained a new “more disabling condition” of CRPS. (Id. at p. 1262.) The Hikida court
reasoned that the employer was responsible for this new consequential injury based on
longstanding case law requiring employers to pay for all industrial medical treatment
without apportionment. (Hikida, at p. 1262; see Boehm & Associates v. Workers’ Comp.
Appeals Bd. (2003) 108 Cal.App.4th 137, 142 [“Once employment and industrial
causation are determined, the employer is responsible for all medical expenses
incurred.”].) The court also determined, again based on longstanding case law, that the
consequences of such medical treatment were also within the ambit of the workers’
compensation system. (Hikida, at pp. 1262-1263; see Fitzpatrick v. Fidelity & Casualty
Co. (1936) 7 Cal.2d 230, 233 [“[A]n employee is entitled to compensation for a new or


                                            11
aggravated injury which results from the medical or surgical treatment of an industrial
injury.”].)
       Both of these principles are correct statements of the law. However, it does not
follow that an employer is responsible for the consequences of medical treatment without
apportionment, when that consequence is permanent disability. Sections 4663 and 4664
make clear that permanent disability “shall” be apportioned and that an employer “shall”
be liable only for the percentage of the permanent disability “directly caused” by
industrial injury. There is no case or statute that stands for the principle that permanent
disability that follows medical treatment is not subject to the requirement of determining
causation and thus apportionment, and in fact such a principle is flatly contradicted by
sections 4663 and 4664.
       Understood in context, the Hikida court’s conclusion that there should be no
apportionment makes sense only because the medical treatment in Hikida resulted in a
new compensable consequential injury, namely CRPS, which was entirely the result of
the industrial medical treatment. It was this new compensable consequential injury that,
in turn, led entirely to the injured worker’s permanent disability. The agreed medical
examiner’s findings underlined this point, as he determined that the injured worker’s
“permanent total disability was due entirely to the effects of the CRPS that she developed
as a result of the failed carpal tunnel surgery.” (Hikida, supra, 12 Cal.App.5th at p. 1253,
italics added.) Although parts of the Hikida opinion can be read to announce a broader
rule that there should be no apportionment when medical treatment increases or precedes
permanent disability, it is clear that the rule is actually much narrower. Put differently,
Hikida precludes apportionment only where the industrial medical treatment is the sole
cause of the permanent disability.
       In contrast to Hikida, the permanent disability in this case was not caused entirely
by the industrial medical treatment. The medical treatment did not result in a new,


                                             12
unexpected compensable consequential injury. Rather, the surgery was “quite
successful,” and it “significantly increase[d]” Justice’s “ability to walk and engage in
weight-bearing activities.” Based on a careful review of Justice’s medical history,
Dr. Anderson found that the permanent disability was caused 50 percent by industrial
factors and 50 percent by nonindustrial factors. Sections 4663 and 4664 plainly require
that the permanent disability be apportioned among industrial and nonindustrial factors if
unrebutted substantial medical evidence supports an apportionment finding. Here,
Dr. Anderson’s findings constitute unrebutted substantial medical evidence. It was error
for the workers’ compensation judge and the Board to ignore unrebutted substantial
medical evidence that nonindustrial factors, in part, caused Justice’s permanent disability.
       Respondent Justice argues that notwithstanding Hikida, the award with no
apportionment was correct under the law.3 She contends that she had worked for 20
years without any discussion of a need for total knee replacement, that the fall at work
was the “precipitating event” leading to the need for total knee replacement surgery, and
that therefore the total knee replacement was “directly caused by the work injury.”
Because the total knee replacement provided the sole basis for the disability rating,
Justice contends that it was appropriate to conclude that there should be no
apportionment. According to her, “neither knee surgeries [sic] would have occurred if
[she] had not fallen” at work.
       Justice’s arguments are misplaced. “Whether or not an asymptomatic preexisting
condition that contributed to the disability would, alone, have inevitably become manifest
and resulted in disability, is immaterial.” (Petaluma, supra, 29 Cal.App.5th at p. 1193.)
Although she is correct that an employer is responsible for the portion of the permanent
disability “directly caused” by industrial factors, implicit in this inquiry is a

3      Only Justice has filed an answer and response in this court. Respondent WCAB
declined to file an answer to the petition for writ of review, and declined to file a
response to this court’s order to granting the petition for writ of review.

                                              13
determination of whether other nonindustrial factors also indirectly caused the permanent
disability. In this case, Dr. Anderson concluded that Justice had significant nonindustrial
preexisting knee degeneration, which caused 50 percent of the postsurgical permanent
disability. Whether or not the workplace injury “directly caused” the need for surgery,
the apportionment statutes nevertheless demand that the disability be sorted among direct
and indirect causal factors. In this case, there was unrebutted substantial medical
evidence that Justice’s permanent disability was caused, in part, by an extensive
preexisting knee pathology. Apportionment was therefore required.


                                      III. Disposition
          The Workers’ Compensation Appeals Board’s decision is annulled, and the matter
is remanded to the Board with directions to make an award apportioning Justice’s
permanent disability 50 percent to nonindustrial factors and 50 percent to her industrial
injury.




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                                      _______________________________
                                      Mihara, J.



WE CONCUR:




_____________________________
Premo, Acting P. J.




_____________________________
Elia, J.




County of Santa Clara v. Workers’ Comp. Appeals Bd.
H046562


                                        15
Trial Court:                       Workers’ Compensation Appeals Board

Attorney for Petitioner:           Mark A. Cartier
                                   Thomas, Lyding, Artier, Arnone, & Daily, LLP

Attorneys for Respondents:         Allison Jane Fairchild
                                   Workers’ Compensation Appeals Board

                                   Todd A. Johnson
                                   Butts & Johnson

Attorney for Amicus Curiae
California Workers’ Compensation
Institute and California Chamber
of Commerce :                      Ellen Sims Langille
                                   California Workers’ Compensation Institute

Attorneys for Amicus Curiae
California Applicant’s Attorneys
Association:                       Justin Carl Sonnicksen
                                   Gearheart & Sonnicksen

                                   William Herreras
