Penalty Against An Insolvent Carrier

Generally this newsletter deals with eases that have been decided by the Court of Appeals.  However, this edition deals with a Writ denied case. Lately, it seems as if there are multiple carriers going into or on the verge of liquidation.  Therefore, this case is important if you are a codefendant on a cumulative trauma case with a carrier that is border line insolvent.

The applicant alleged a cumulative trauma against his employer. The case went to hearing and the Workers’ Compensation Judge (WCJ) issued a Findings and Award and Opinion on Decision. The WCJ found the applicant 100% disabled.  During the period of the cumulative trauma the employer was insured by two insurance carriers.

The WCJ did not issue a joint and several award, but apportioned between the carriers. The WCJ apportioned 75% of the liability to California Compensation and 25 % of the liability to Golden Eagle.  California Compensation was ordered to pay and administer the award and seek contribution from Golden Eagle.

California Compensation failed to pay portions of the award. Applicant then sought multiple penalties for California Compensations failure to pay. California Compensation then became insolvent. It was placed in liquidation. The California Insurance Guarantee Association (CIGA) assumed control of the cases being administered by California Compensation.

The insurer who is primarily responsible for payment of an award is solely responsible for penalties that result from nonpayment of the award.  They are not entitled to contribution from the codefendant who was not ordered to pay.

In Carter v, WCAB (1990) 217 Cal.App.  3d 1359, it was decided that CIGA was liable for penalties for acts that occurred before the carrier became insolvent This case apparently involved a specific injury.

This case involves a cumulative trauma. Therefore, Insurance Code Section 1063.1 ©(9) comes into play.  Since there is more than one carrier Golden Eagle now has to pay the underlying benefits. CIGA would be dismissed pursuant to Insurance Code section 1063.1 ©(9). Therefore, it would appear Golden Eagle is left holding the bag. Golden Eagle will then be responsible for paying the penalty that California Compensation created by not paying timely. It would appear there is no way to alleviate this problem except assuming liability and administering an award in every situation when a carrier feels the other carrier may be on the verge of insolvency.


Rico Allegations Allowed Against Carrier

This is a different type of case than is normally reported in this newsletter. Generally the newsletter deals with cases that originate before the Workers’ Compensation Appeals Board(WC AB). In general the WorkersCompensation Act’s (ACT) exclusive remedy provisions will not allow certain actions that can be presented before the WCAB.

This case involved licensed medical groups that provide medical-legal services and medical management companies under license to the medical groups. The defendants were 28 insurance carriers. “At a meeting in 1991, defendants decided to put plaintiffs out of business by delaying payment or refusing to pay for services rendered by plaintiffs to injured workers.” They agreed to keep the meeting secret.

Later they made up “hit-lists”. The appeals court in this case analogized this to the carrier in the John Grisham novel “The Rainmaker”, Great Benefit Insurance Company. The defendants accused plaintiffs publicly of being “fraud mills” and advised other insurance companies not to pay the ‘ plaintiff’s lien claims. The tactics proved quite effective.

Plaintiff’s filed suit alleging a number of actions including fraud and RTCO.  The Defendants tried to have the case thrown out alleging the exclusive remedy provisions of the ACT. A judge eventually agreed and that is how this case came up on appeal.

The appeals court looked at each allegation. The court determined mat the abuse of process and fraud claims are within the jurisdiction of the WCAB. However, these may constitute crimes under Insurance Code sections 1871 and 1871.4.

The Cartwright Act “makes unlawful any trust”: “Because a Cartwright Act claim requires a motive mat violates a fundamental public policy rooted in a statutory provision, it is not encompassed within the compensation bargain. Therefore, the exclusive remedy does not apply.

The court next determined that the pattern of racketeering that is needed to establish a RICO allegation also falls outside the compensation bargain and the exclusive remedy does not apply. The court indicated RICO claims are never subject to the exclusive remedy provisions.

The court then looked at plaintiffs claims of tortious interference with business relations and unfair competition law. The court determined this allegations were barred by the exclusive remedy where they were individual acts of ah individual insurance carrier. However, acts where more man one defendant conspire are not covered by the exclusive remedy provisions. The viability of these claims was not determined Just their right to proceed.


Penalty For Not Advancing P.D. With V.R.M.A Payments

This appellate court case deals with a penalty for not advancing permanent disability (PDA) while vocational rehabilitation maintenance allowance (VRMA) was being paid by the employer.

The facts of the case are convoluted.  For the purpose of this newsletter the pertinent facts are that the employer never paid the applicant PDA’s and VRMA at the same time.  The applicant claimed that a PDA supplement should have been paid while VRMA was being paid. The applicant claims that by not paying the PDA supplement the employer is subject to a 10% penalty pursuant to labor code section 5814.

The case went to trial and apparently this issue was not part of the trial. The Judge ruled that PDA’s were not raised at the trial. Petitions for reconsideration were filed. The Judge recommended denial of the petition and the Workers’ Compensation Appeals Board (WCAB) denied the petition.

The appellate court indicated that this was a due process issue. The reasoning was not that the Judge needed to develop the record, but rather needed to read the record.

The defendant in this case relied on the case of Tangye v. Henry Beck & Co. (1978) 43 CCC 3, for the proposition that defendant does not have to pay PDA’s and VRMA at the same time. The defendant argued that even if that argument was not accurate they should not be liable for a penalty under labor code section 5814 for having relied on Tangye.

The court refers to the specific language in Tangye. Tangye indicates that temporary disability and permanent disability cannot be paid at the same time. The Rucker case is differentiated by the appellate court. In Rucker the court is not talking about temporary disability but rather a vocational rehabilitation maintenance allowance which is different.

Labor Code section 139.5, subdivision (d) was amended in 1989. This had the effect of abrogating Tangye in cases where PDA’s had been requested. (Where the applicant makes no request for PDA supplements was not decided here.) The defendant offered no evidence at the trial to justify it’s reliance on Tangye.

The court of appeal indicated that for a defendant to make a determination as to a reasonable delay defense for Labor Code section 5814 the defendant must rely on facts. The court indicated that defendant’s mere reliance on Tangye, was not evidence of facts. Therefore, a penalty was appropriate for the nonpayment of PDA’s with VRMA when it had been requested by the applicant.


Consultative Rating Relied On Over Summary Rating

An appeals court has explained the difference between the various alternative forms of rating. The court indicated that formal ratings will take precedence over earlier ratings.

The applicant had two specific injuries and one cumulative trauma that were all admitted injuries by the carrier. These injuries occurred in 1991 and involved the upper extremities and the right leg. The applicant acted in pro.per. A three-panel qualified medical examiner (QME) report was obtained in 1994. The applicant became represented and asked for a summary rating on the QME report. The summary rating was for 45.5 per cent. Neither party objected to this rating determination. The case was not settled on this rating and subsequently went to trial. The judge obtained a new rating. The rating based upon the judge’s instructions to the rater was 30.5 per cent. The applicant appealed.

The court of appeal indicated that prior to April 25, 1991 section 9738 allowed for the following types of ratings: (1) formal ratings; (2) pretrial evaluations; (3) informal ratings; (4) consultative evaluations: and (5) compromise and release evaluations. After April 25,1991 the law provides for (a) formal rating determinations, (b) summary rating determinations, © consultative rating determinations, and (d) informal rating determinations (section 10154).  The applicant wanted the higher rating of 45.5 percent which the court stated would have been a consultative rating because it was requested prior to the filing of a “Declaration of Readiness” to proceed. The court indicated that under former section 9758 this rating is not admissible. Consultative or summary ratings are not admissible in judicial proceedings.

Currently, except for “formal ratings” under section 10154, all other ratings are essentially informal and not admissible in judicial proceedings.  Instead, these informal ratings are for assistance in reaching or reviewing settlement agreements, not for resolving disputes or issues… in a trial.

The court indicated that summary, consultative, and informal ratings are to help the parties try and settle the matter. Only formal ratings are deemed to “constitute evidence” of the percentage of permanent disability (See section 10158). Once the matter goes to a contested trial all the prior ratings will become irrelevant and not be admissible or used as evidence in the proceedings.

The applicant further objected to the rating on the basis that the judge did not instruct the rater to use the work preclusions in the QME report, but to rate on the objective and subjective ratings of disability. The court found the rater performed his duty correctly and followed the judge’s instructions.


Current Penalty May Be Assessed For Prior Acts

This newsletter has devoted many issues to the issue of penalties. The appellate courts keep addressing this issue with regularity. This most recent case also deals with a Compromise and Release (C&R) and a penalty, which is this newsletter has discussed in a previous issue.

The applicant stipulated to a 31-1/2 per cent permanent disability with need for further medical treatment for a cumulative trauma. The employer agreed to adjust reasonable treatment liens and pay $1088 in full and final settlement of all penalties incurred to date pursuant to section 5814. The applicant required and incurred further medical care after the stipulation was approved.

The applicant later entered into a C&R for $25,000. The C& R contained the normal language that disputes of unpaid costs of self-procured medical treatment, medication costs or claims of penalty and interest were resolved.  However, the employer did agree to adjust certain outstanding medical bills.

Eleven months later the applicant requested the employer to immediately pay an unpaid pharmacy bill. When the employer did not pay the bill the applicant filed for a penalty. The employer indicated mat they paid the pharmacy $341.23 and considered the remaining balance of $78.39 an appropriate official medical fee schedule reduction for which they were not liable.

The workers’ compensation judge found the employer liable for a penalty against all medical treatment subsequent to the C&R. The judge found it unreasonable that the employer had waited eleven months to pay the pharmacy. The applicant petitioned for reconsideration contending that the penalty should attach to all medical benefits paid voluntarily without delay or prior to a C&R The Appeals Board ruled in favor of the employer stating that the C&R settled all prior claims and the parties now had to operate with a “clean slate”.

The appellate court disagreed. The appellate court stated that “once the C&R was approved by the WCJ, it resulted in an award. Included in the award were other medical treatment costs, some of which had been paid and some of which had not. Delay in paying even a de minimus amount is subject to a 5814 penalty. The section 5814 penalty should have been assessed against the entire amount ultimately awarded for the class of compensation in which the payment was delayed-medical treatment costs-including those benefits paid prior to and in anticipation of an award.”

So the penalty applies to the medical costs prior to the C&R (including the medical benefits on which a prior penalty was paid settling that penalty issue). This decision requires the employer or carrier to expeditiously negotiate liens prior to or immediately after a settlement.


Court Reaffirms When VRTD Commences

An appellate court has revisited what has previously been ruled on.  The question of when vocational rehabilitation benefits begins has been the subject of many court rulings. It is somewhat surprising that the issue keeps presenting itself.  Obviously, some individuals or entities wish to continue to test this opinion.

The facts in this opinion do not seem to be explained by the dates given in the opinion adequately. Many appellate opinions only give brief summaries of the facts and it is assumed that this opinion did not give all the factual background of this case. This injury was a 1989 injury. Therefore, the law was interpreted for the pre-reform legislation. The applicant entered into a stipulation to 46 ¼ percent permanent disability.

Thereafter, the applicant apparently filed a timely petition to reopen. There was a new finding of 66 percent permanent disability. The opinion does not inform us if this was a finding by the worker’s compensation judge or a stipulation between the parties. We are informed mat the Petition to Reopen was a valid request for vocational rehabilitation temporary disability (VRTD) benefits. However, we are not informed whether the petition to reopen specifically requested vocational rehabilitation. It would seem this would be an important fact to know. The opinion does not inform us if the petition has to specifically request rehabilitation.

The opinion then revisited old cases. In the original application of adjudication of claim the applicant checked off the box requesting vocational rehabilitation. The Board and the appellate court determined this constituted a timely request for vocational rehabilitation. The issue then became when VRTD was to commence and this is what was litigated. The defendant argued that there was no prima facie evidence of the applicant’s entitlement to VRTD benefits. Although the opinion is convoluted as to the facts it would appear many of the doctors did not even comment on the applicant’s qualified injured worker (QIW) status.  The defendant also argued that because of the extent of the applicant’s disability there was a question as to the applicant’s feasibility to participate in rehabilitation. They appear to be arguing that because the applicant is not feasible VRTD benefits are not owed during this determination period.

The appellate court found against the defendant and again reiterated that VRTD is to be paid during the determination period.


There Is A Duty To Investigate And Defend Claims With Good Faith

This newsletter has discussed cases on prior occasions that refer to an employer’s or carrier’s duty to investigate. An appeals court has commented again on this area.

State Compensation Insurance Fund (SCIF) appealed a judgement against it by an employer for $300,000.00 for breaching the implied covenant of good faith and fair dealing by refusing to permit the insured access to claims files, etc. They lost at the appellate level and the court discussed several causes of action that may be maintained against carriers.

SCIF contended that they could not be liable for breach of an express contract.

When an insured takes out a policy of worker’s compensation with an insurance company this is an express contract. This court found that where SCIF did not follow up on claims or failed to deny claims timely this was a breach of the express provisions of the contract.

The court then discussed the implied covenant of good faith and fair dealing. There were different allegations as to SCIF breaching this covenant. One of the allegations was that SCIF was over reserving. SCIF was reserving to the “maximum probable potential”. The court found this policy gave no consideration to the interests of the insured. The Insurance Code section 923.5 discusses reserves. The court indicated that SCIF’s policy meant the adjuster would reserve the case at the absolute most SCIF would have to pay. The court indicated this is not in the best interest of the insured. SCIF was attempting to get guaranteed profits through a no risk business enterprise without disclosing the change in their reserve policy to the insured.

The court found this was a breach of the implied covenant of good faith and fair dealing. SCIF also attempted to argue that they did not improperly handle claims. The appellate court would not listen to this argument because it would be a reweighing of the evidence. Appellate courts will not reweigh the evidence.  The court would not listen to SCIF’s argument as to damages and found that damages in this instance are proper. SCIF also appealed as to the trial courts finding on denial of the insured to inspect their claim files.  The appellate court agreed with the trial court that as a matter of law despite any privacy interests the indiscriminate refusal to deny access was a breach of the implied covenant of good faith and fair dealing. The court then addressed the issue of damages awarded by the trial court and found the damages were not excessive.


The Statute Of Limitations May Be A Viable Defense

The statute of limitations (sol) in workers’ compensation proceedings has traditionally been a non issue. A recent opinion of the court of appeal may be of some help even though the opinion is not published in the official reports.

The applicant filed applications for adjudication of claim on two specific injuries on or about April 23,1991.

The first injury occurred on April 30, 1987. The first injury came more than one year after the injury but within the five year period of Labor Code section 5410. The second injury occurred in 1988 and there was a different insurance carrier for the same employer. The applicant also filed a cumulative trauma ending 1988 against the same employer. The insurance carrier was the same for the 1988 specific as well as the cumulative trauma. The day after the April 1987 injury, the applicant obtained medical treatment and a medical report. It is unclear which carrier paid these bills.

The medical evidence indicated that the first injury was partially responsible for the applicant’s condition. The workers’ compensation judge found the claim was barred by the one-year statute of limitations.

The appellate court indicated that the employer failed to inform the applicant of his workers’ compensation rights or deny the claim. The Workers’ Compensation Appeals Board had initially determined that the one-year statute was tolled by the Reynolds case.  However, the Appeals Board determined that the cumulative trauma was filed two years before the specific and since the applicant was represented by counsel this would start the running of the statute under the Kaiser Foundation cases.

The court indicated that the employer was required to give notice of denial of the claim. ‘This particular notice was required to end tolling of the statute of limitations because it appears that the employer voluntarily furnished all medical benefits… (A)lthough retention of counsel has been held to provide notice of workers’ compensation rights in general, no actual knowledge of the need to file can be assumed where, within 5 years of the date of injury, benefits continued to be paid, coverage is reasonably inferred, and no notice to the contrary is given.”

However, the court did quote the McDaniel case for the proposition “that once voluntary benefits are provided, the one-year statute of limitations is tolled and the employee has five years to file his claim under Labor Code section 5410. In addition, the court held that once the employee receives a denial notice from the employer the five-year statute of limitations ceases and the one-year statute of limitations within which to begin to commence proceedings begins.”


Failure To Divulge History Will Not Defeat A Claim

In a very surprising unpublished opinion a court of appeals has ruled that an applicant does not have to divulge her full medical history to the defense evaluating doctor.

The applicant filed a psychiatric stress claim against her employer. The employer first referred her to a doctor who indicated she had prior family problems and troubles with her ex-husband and concluded the claim was nonindustrial.  She was also sent to a doctor by the compensation earner. This doctor noted a history of prior depression. This doctor found the claim noncompensable as a good faith personnel action under Labor Code section 3208.3.

The applicant was then evaluated by her own psychiatrist who reviewed records from Kaiser noting she had treatment with Prozac for family problems.  Her own doctor put in his report “I am concerned the patient failed to disclose…” to the defense doctor her prior treatment.  Her doctor still found the psychiatric injury compensable.

The referee at trial denied her claim, even though he found her credible, for her nondisclosure to defense doctors. The referee indicated that the higher threshold of 3208.3 required the applicant to reveal all relevant and substantial history. The referee conceded this was a nonculpable omission on the applicant’s part.

Amazingly, the appeals court stated “Contrary to the belief of the Board’s referee, there is nothing in section 3208.3 which requires a claimant to disclose her medical history to an evaluator, let alone a defense evaluator, as a prerequisite to consideration of her evidence of injury.” …  “The Board’s own regulation governing the contents of physicians’ reports, which require the inclusion of a patient’s medical history, states a failure to comply “will not make the report inadmissible but will be considered in weighing such evidence.”

The court indicated that any shortcomings in the defense report were the fault of the defendant for failing to secure the Kaiser records and prepare a proper defense. The court indicated in its opinion that the referee used mere conjecture in his opinion that the claimant never reiterated her medical history to the defense evaluator.  The court indicated the report did indicate that the defense doctor did ask her about prior treatment. The court opined that just because the defense doctor did not comment on that treatment could be easily attributed to a belief on the doctor’s part that it was not material.

The lesson to be learned is that defending a claim requires all prior records should be obtained and sent to the evaluating physician. If applicant’s physician is commenting upon records you do not have, you should obtain them. All records and a deposition, if appropriate, should be sent to your doctor.


Multiple Penalties May Result From Non Payment

One of the most significant cases of the year has been decided by an Appellate Court. This decision will definitely affect the way you administer your file. The case may also force you to rethink your position every two weeks in regards to denials The carrier in this case made TTD payments every two weeks based on available medical reports. The carrier. later refused to make 11 payments of TTD, based on later medical reports. The applicant notified the carrier after each refused payment that she would seek a separate penalty for each separate refusal. (This is. important because you will find applicants will now request a penalty after each missed payment on many of your cases.)

The case went to a hearing and the carrier based its denial of payment on the later reports. These reports were found inadmissible. The carrier never challenged the inadmissibility. The WCJ awarded 11 separate penalties, instead of one.

The Court analyzed Section 5814 and the existing case law regarding penalties. The Court indicated that a penalty is both remedial and penal. It was further indicated that the rule of liberal construction mandated successive delays in payment to result in successive penalties. “Multiple penalties must be assessed for successive delays so long as separate and distinct acts of misconduct are involved. Where the circumstances disclose separate and distinct acts of delay or nonpayment, and prior notice was given of the applicant’s intent to seek separate or additional penalties for such acts, then multiple penalties are appropriate in a single penalty proceeding.”

The rationale was that the resulting delay is of little consequence to the carrier, but may be disastrous to the applicant. The applicant may not be able to get medical treatment elsewhere, or be able to afford the basic necessities of life. The Court indicated that each time the carrier denied payment the applicant had notified the carrier qf her objection to the refusal and her intent to seek a separate penalty for each refused payment. The Court stated that this allowed the carrier to reexamine their refusal to pay. Every time the applicant gave notice of her objection this communicated her refusal to acquiesce to the carrier’s refusal to pay.

The Court was aware this decision will greatly increase the cost of workers’ compensation. The rationale is that “short delays or small reductions in payments may have catastrophic consequences to an injured worker.” In this case one penalty would have resulted in a payment of $3,057.60. Eleven penalties resulted in at least $33,633.60.

Please also note another recent penalty case indicated that a penalty on interest that was incorrectly paid would result in a 10 % penalty on the entire class of benefits for which the interest was due.


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