Duties To The Employer Under The Policy Clarified

A continuing line of case law is being developed relating to the carriers or third party administrators duties to the employer. These cases deal with when there may be a breach of contract.

This case revolved around whether an employer had to exhaust their administrative remedies and procedures prior to instituting a civil action. The court ruled there was no such administrative review necessary.  However, the Court did review previous cases about what is in the express and implied contract terms of a workers compensation policy. This court reiterated that the insurer’s alleged “pattern of failing to pay claims promptly, defend them diligently, or assign them reasonable reserves…” could amount to a breach of contract. They added that “allegations of undue delay in resolving claims may signify a violation of the ‘prompt payment obligation specified in the insurance contract.”

The court then went on to discuss the hiring of experts, specifically inadequate legal and medical advisors.  The court indicated that the hiring of inadequate and incompetent legal and medical counsel could be a breach of the implied covenant of good faith and fair dealing in all workers’ compensation policies. The court intimated that it will specifically look to see if this is being done by the insurer with the intent to charge higher premiums and deprive the insured of a dividend.

The court has yet to address the issue of what is the hiring of inadequate an incompetent legal and medical counsel. This will probably be determined in future cases. However, one should be cognizant if the issue before it becomes the subject of a lawsuit for the breach of the policy’s terms.

The court has implied in previous cases that the setting of reserves will be evaluated also in this regard. Thus, if the insurer is setting reserves and billing the employer for legal counsel in the policy at a given rate and then hiring hearing representatives at a significantly lower rate this may be a factor. The quality of the counsel may also be a factor. For example, the applicant may be represented by an attorney who is recognized as a specialist by the State Bar of California. The question then becomes what is adequate representation for the employer.  Surely, a workers’ compensation defense attorney who is also a specialist certified by the State Bar would be sufficient. Probably, all attorneys who regularly practice workers’ compensation defense would also be sufficient. The grey area may be when the insurer uses hearing representatives. This will ultimately be decided by appellate courts in a breach of good faith and fair dealing claim.

Case: Lance Camper V. Republic Indemnity

Harvey Brown
3501 Jamboree Rd. Suite 602
Newport Beach, CA 92660

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