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Workers’ Compensation Daily News for October 22nd, 2019

  • CDI Rejects Berkshire Sale of Applied Underwriters.
    on October 21, 2019 at 1:35 PM

    California regulators are objecting to Berkshire Hathaway's sale of one of its smaller insurance companies, but they may not have much of an argument.

    The California Department of Insurance said Thursday that it was "disturbed to learn that the parties to this transaction purportedly acquired California Insurance Company without obtaining the statutorily-required approval of the California Department," the statement reads. "In light of this development, we are currently exploring all available options."

    Berkshire and Applied Underwriters said last week that the $920 million sale to company founder Steve Menzies was completed earlier this month after Texas regulators approved it.

    The California Department of Insurance denied an application for approval of the sale of California Insurance Co., a subsidiary of Applied Underwriters that was sold in a massive deal that has been under scrutiny over ties to campaign contributions executives reportedly made to the state’s insurance commissioner. The CDI sent out a denial letter to CIC executives and then made their denial public on Monday morning.

    The California Department of Insurance says it must sign off on the deal because one of Applied’s subsidiaries, California Insurance Co., is domiciled in the state.

    However, The Associated Press reported that Applied Underwriters said that the California Insurance Co. is now domiciled in New Mexico, which did sign off on the deal.

    The CDI is seeking to block the move based on a section of California Insurance Code. "Pursuant to CIC 709.5(b), any attempt to transfer the domicile of a California domestic insurer to another state in which it is admitted may only be effected upon the prior approval of the California Insurance Commissioner," the Oct. 18 letter, addressed to Jeffrey A. Silver, an executive at Applied and CIC, states. "An insurer seeking to transfer its domicile is required to provide the California Commissioner with information and documentation reasonably necessary to determine whether the proposed transfer of domicile is in the best interest of the policyholders of this state."

    Applied is a national provider of workers’ compensation insurance, other commercial insurance, and risk transfer and financing plans. The company is headquartered in Omaha, Neb. Applied’s subsidiaries include California Insurance Co., Continental Indemnity Co., Pennsylvania Insurance Co., Illinois insurance Co. and Texas Insurance Co. that are collectively known as North American Casualty Co.

  • Owner of Roofing Company Faces Fraud Charges
    on October 21, 2019 at 1:34 PM

    Herbert Allen Kelly III, 65, of Rancho Murieta, owner of Kelly Roofing Company, was arrested Friday on six felony counts of workers’ compensation fraud after allegedly underreporting his business’ payroll and number of employees resulting in a loss to his insurer of $50,000.

    On January 12, 2015, while employed with Kelly Roofing Company, a worker slipped and fell from a roof at a jobsite, falling approximately 25 feet. As a result of the employee’s injuries, a workers’ compensation claim was opened with Kelly’s insurer, State Compensation Insurance Fund (SCIF), and to date SCIF has paid approximately $730,175 in medical and disability payments. Following the incident, Cal/OSHA conducted an inspection of the jobsite with Kelly who advised he had three employees.

    SCIF conducted audits of Kelly Roofing Company on a yearly basis to verify premium and payroll. Kelly reported approximately $31,685 in payroll for the December 2012 to December 2013 policy period, yet reported $0 in payroll and no employees for the remainder of the policy period, 2014 through 2018.

    During the SCIF audit for policy period 2015, when the accident occurred, Kelly reported he had no employees. However, SCIF noted Kelly Roofing Company had a workers’ compensation claim in January 2015. Kelly alleged he only paid the injured worker $500 for a single day of work and did not have any payroll records for him.

    Department of Insurance detectives served search warrants on both Kelly and Kelly Roofing Company’s bank accounts and conducted an audit of bank records. Detectives discovered approximately $89,781 in total audited payroll with up to 15 possible employees. The department confirmed Kelly Roofing Company had employees during the period when Kelly claimed he had no employees and no payroll. The audited payroll was ultimately forwarded to SCIF who determined Kelly Roofing Company owed approximately $50,000 in unpaid past premiums.

    This case is being prosecuted by the Sacramento County District Attorney’s Office.

  • Orthopedist, Timothy Hunt M.D. Sentenced to Two Years
    on October 17, 2019 at 8:02 AM

    In June 2018, federal officials charged 601 people in the largest bust of health care fraud in U.S. history. The national takedown was across 58 federal districts.

    Southern California criminal cases named a total of 33 defendants. Nine new defendants being charged as part of Operation "Spinal Cap." The scheme that was spearheaded by Michael Drobot, the former owner of Pacific Hospital in Long Beach.

    One of the high profile defendants in that Operation, Daniel Capen, of Manhattan Beach, an orthopedic surgeon, has agreed to plead guilty to conspiracy and illegal kickback charges. Capen accounted for approximately $142 million of Pacific Hospital’s claims to insurers, on which the hospital was paid approximately $56 million.

    Another was Timothy J. Hunt, of Palos Verdes Estates, also an orthopedic surgeon, who referred spinal surgery patients to Capen and other doctors. He has agreed to plead guilty to a conspiracy charge involving his receipt of illegal kickbacks stemming from various financial relationships with Pacific Hospital and related entities.

    In a sentencing memo filed by his attorneys this September, Hunt in his letter to the Court, said he was persuaded to accept what appeared to be an option contract to buy his practice at a time when he had no other option to hold onto his medical practice due to financial extortion by his late father’s 4th wife.

    He claims "he was induced to participate in this arrangement by sophisticated parties, Tino Bernadett and Michael Drobot, the owners of Pacific Hospital, and their counsel, who assured Dr. Hunt that the arrangement was legal."

    "Bernadett and Drobot even gave Dr. Hunt a legal contract memorializing the option agreement that he took to his lawyer, who approved it (although the lawyer was not privy to all the details of the actual arrangement.)"

    His attorneys conclude by saying that because "of these facts and circumstances, it is understandable - though not excusable - that Dr. Hunt got involved in something he should have realized was clearly illegal and deliberately turned a blind eye to the obvious problems with Bernadett’s and Drobot’s proposal."

    Subsequently, the court entered the following order: "it is the judgment of the Court that the defendant, Timothy James Hunt, is hereby committed on Count 1 of the 16-Count Indictment to the custody of the Bureau of Prisons for a term of twenty four (24) months." Upon release he is to have supervised release for the term of three years. He is to report to the designated institution by November 12, 2019.

    A deferred restitution hearing is set for December 20, 2019 at 11:30 a.m.

  • California Outlaws Mandatory Employment Arbitration Agreements
    on October 17, 2019 at 8:02 AM

    As employers with operations in California had feared, Governor Gavin Newsom has signed AB 51, which effectively outlaws mandatory arbitration agreements with employees - a new version of a bill that prior Governor Jerry Brown had vetoed repeatedly while he was in office.

    The bill not only prohibits mandatory arbitration agreements, but it also outlaws arbitration agreements in which employees must take an affirmative action to escape arbitration, such as opting out.

    And as the statute is written in broad terms that extend to waivers of statutory "procedures," it appears to extend not just to arbitration of an employee’s claims, but also to waivers of jury trials and of class actions.

    In short, effective January 1, 2020, an employer may only enter into an arbitration agreement with an employee in California (or a jury trial or class action waiver) if that employee voluntarily and affirmatively chooses to enter into such an agreement. And the employer may not retaliate against an employee who chooses not to enter into such an agreement.

    The analysis of the Senate Rules Committee demonstrates that the legislature was well aware that a bill prohibiting arbitration agreements could be challenged as being preempted by the Federal Arbitration Act ("FAA").

    As the bill’s author stated, "The Supreme Court has never ruled that the FAA applies in the absence of a valid agreement. AB 51 regulates employer behavior prior to an agreement being reached. Further, understanding the Courts’ hostile precedence toward policies that outright ban or invalidate arbitration agreements, AB 51 does neither. Both pre-dispute and post dispute agreements remain allowable and the bill takes no steps to invalidate any arbitration agreement that would otherwise be enforceable under the FAA. The steps help ensure this bill falls outside the purview of the FAA."

    Despite the attempt to draft a statute that avoids FAA preemption, only time will tell if such a preemption challenge is made and if it is successful.

    If it is not enjoined, in whole or in part, the new legislation could have a great impact upon employers with operations in California, and upon pending and threatened litigation.

  • Researchers Discover Disc Damage Blocking
    on October 16, 2019 at 6:28 AM

    Researchers may have found a way to press pause on spinal disc injuries, giving doctors more time to treat them before worse issues develop.

    The Penn Medicine-led team discovered that cells in the outer region of spinal discs become stressed and kick off a subpar healing process after injuries, which researchers then found can temporarily be blocked with drugs that calm the cells down. This study, conducted using specially engineered biomaterials and small animal models, was published in Nature Biomedical Engineering.

    "This work sheds light on some of the challenges we are going to face in slowing disc degeneration and preventing back pain," said Edward Bonnevie, PhD, a post-doctoral fellow in Penn Medicine's McKay Orthopaedic Research Laboratory. "Most spine research focuses on the inner part of the disc, but our work highlights the fact that we need to treat the whole disc, and we believe doing so may lead to the identification of new targets for therapy."

    Discs in the spine are pressurized and structured similarly to water balloons, with water-attracting proteins in the inner portion restrained by an outer layer of fibrous tissue containing cells that are under a constant stretch. The discs are designed to cushion the vertebrae from directly and painfully contacting each other. Bonnevie, senior author Robert L. Mauck, PhD, a professor of Orthopaedic Surgery and director of the McKay Lab, and their fellow researchers decided to focus their research on the often overlooked outer region of the discs.

    "We know that cells in the inner region undergo changes as a result of disc injury and degeneration, and researchers have tried to restore function to those cells," Bonnevie said. "But you can think of that like trying to fill up a water balloon that already has holes -- it isn't a viable treatment option by itself."

    In biomaterials the researchers created to mimic tissue of the outer region of discs, they saw that when an injury like a slipped disc occurs and pressure is lost, the suddenly released tissue becomes disorganized. When this happens, they found in small animal models that it results in the generation of repair tissue that did not resemble the normal tissue, but instead had characteristics of scar tissue.

    Additionally, they found that programmed cell death -- known as apoptosis -- occurs quickly, within 24 hours of the injury. This poses a challenge because, unlike other areas in the body, cells in the discs lack a blood supply and cannot easily repopulate with the new cells needed for regeneration.

    With the discoveries of why disc cells respond the way they do upon pressure loss, the team found that using a biological inhibitor of cell contraction, such as fasudil, could effectively "relax" the cells from the shock of suddenly losing their typical stretched state. Once relaxed, the cells would delay their default healing response, which has the potential to buy doctors what is called a "therapeutic window" to intervene.

    "These data show us that treating disc injuries very soon after injury is essential, before this transition in phenotype occurs and the scar tissue forms. This could be done using inhibitors like fasudil applied systemically, or potentially in combination with surgical implantation of biomaterials that are designed to restore the native tissue structure and function," Mauck explained.

  • $18B Offer on Table Before Landmark October 21 Opioid Trial
    on October 16, 2019 at 6:28 AM

    Three drug distributors are in talks with state and local governments to settle opioid litigation for $18 billion, the Wall Street Journal reported on Tuesday, citing people familiar with the discussions.

    McKesson Corp, AmerisourceBergen Corp and Cardinal Health would collectively pay the amount over 18 years under the deal currently on the table, according to the Journal.

    Around 2,600 lawsuits by state and local governments are pending nationally, accusing drug manufacturers of deceptively marketing opioids in ways that downplayed their risks, and drug distributors of failing to detect and halt suspicious orders.

    The three companies, which together control about 85% of the U.S. prescription drug market, are among the six that are slated to be defendants in a landmark trial set to begin in federal court in Cleveland, Ohio, on Oct. 21, presided over by a federal judge who has long pushed for a global settlement in the litigation.

    Johnson & Johnson is also involved in the discussions to contribute additional money, the WSJ reported. (

    Opioid addiction claimed roughly 400,000 lives in the United States from 1999 to 2017, according to the U.S. Centers for Disease Control and Prevention.

    Shares of Cardinal Health jumped 7.2% in extended trading, while those of McKesson rose about 6%. AmerisourceBergen shares were up marginally.

    A spokeswoman for Cardinal Health declined to comment while the other companies did not immediately respond to Reuters’ requests for comment.

  • Newsom Vetos 4850 Time for School Police
    on October 15, 2019 at 9:16 AM

    Existing law provides that certain peace officers, firefighters, and other specified state and local public employees are entitled to a leave of absence without loss of salary while disabled by injury or illness arising out of and in the course of employment.

    The leave of absence, or "4850 time" is in lieu of temporary disability payments or maintenance allowance payments otherwise payable under the workers’ compensation system.

    Assembly bill AB-346 would have added police officers employed by a school district, county office of education, or community college district to the list of public employees entitled to a leave of absence without loss of salary, in lieu of temporary disability payments, while disabled by injury or illness arising out of and in the course of employment.

    Without passage of AB 346, if a local public agency wants to grant employees certain benefits of employment, it is able to accomplish that goal without need for a statutory change. In fact, the City of Los Angeles has provided "4850-like" benefits to a range of employees without need of a statute mandating the benefit for those employees. Thus some argued that the collective bargaining process, and not legislation, may be the better approach to enhancing the benefits of this class of employee.

    According to the author, school peace officers face the same inherent dangers as other safety officers, and should receive the same benefits. In particular, the author notes that school district police officers employed by the Los Angeles Unified School District already receive this benefit. The author notes that in 2014, there were an estimated 700 peace officers employed by school districts and community college districts, and that 410 of these worked for Los Angeles Unified.

    Thus, approximately 60% of school police officers already have this benefit.

    The proposed law was widely supported by at least 13 organizations or pubic employee unions, and there was no organized opposition to the law.

    The California Legislature sent Newsom 1,042 bills this year, with more than 70% of them landing on his desk in the state Capitol around the time that lawmakers adjourned last month.

    When the dust settled on Sunday, the legal deadline to act, Newsom’s veto rate was looking as if it would be quite low until he rejected 68 of the 80 bills left to consider in the final hours this Sunday, including AB 346. Newsom said most of the bills he vetoed on Sunday were because of money concerns.

  • Another LAPD Officer Charged with Comp Fraud
    on October 15, 2019 at 9:16 AM

    A stunning investigative report published in July 2018 by the Los Angeles Times provided several examples of Los Angeles police officers and fire fighters filing and recovering what it claims are exaggerated or outright fake "skin and contents" workers compensation claims costing taxpayers billions of dollars.

    And now, more than a year later, reports of alleged fraudulent workers' compensation claims by LAPD officers continue to make the news.

    A former Los Angeles Police Department officer has been charged with illegally collecting workers’ compensation insurance benefits before resigning in 2016, Michael Simon (dob 12/6/79) is charged in case BA481662 with two felony counts of workers’ compensation insurance fraud and one felony count of grand theft of more than $950.

    Arraignment has not yet been scheduled. The prosecutor is requesting that bail be set at $40,000.

    In 2015, Simon is accused of engaging in activities inconsistent with his claimed injuries while he was off work on disability.

    In 2016, he allegedly falsely represented the nature of his injuries to his employer in order to collect additional financial assistance to which he was not entitled, according to Deputy District Attorney Arunas Sodonis of the Healthcare Fraud Division.

    The case was filed for warrant on Oct. 8 and the defendant was just arrested.

    Simon faces a possible maximum sentence of six years and eight months in state prison to be served in county jail if convicted as charged.

    The case remains under investigation by the LAPD’s Workers’ Compensation Fraud Unit.

  • Acupuncturist Pleads Guilty to $3.8M Fraud
    on October 14, 2019 at 8:14 AM

    A licensed acupuncturist pleaded guilty to federal criminal charges and admitted fraudulently billing Amtrak’s health care plan for millions of dollars’ worth of acupuncture, massages and facials that either were medically unnecessary or were never provided.

    Guiqiong Xiao Gudmundsen, 52, a.k.a. "Kimi" Gudmundsen, of Anaheim Hills, pleaded guilty to one count of health care fraud and one count of money laundering.

    Gudmundsen owned Healthy Life Acupuncture Center, which operated in Riverside and in Los Angeles. From January 2008 until December 2015, Gudmundsen recruited Amtrak employees to visit Healthy Life and then, among other things, billed the Amtrak health care plan for acupuncture, which she knew wasn’t being provided, according to her plea agreement.

    Gudmundsen also admitted to billing the health plan for medically unnecessary services such as massages and facials, as well as for work-related injuries she knew the Amtrak plan did not cover. She also provided medical services to non-Amtrak health care plan participants and then billed the plan for it under the name of an actual Amtrak plan participant, the plea agreement states. Gudmundsen admitted that she regularly waived co-payments, co-insurance, and deductibles for Amtrak health care plan participants, something the plan did not permit.

    Gudmundsen also knowingly and routinely funneled her ill-gotten gains through bank accounts opened in the names of a shell company and her relatives, according to the plea agreement.

    The government estimates the total loss to the Amtrak health plan to be at least $3.8 million.

    United States District Judge Dolly M. Gee has scheduled a January 22 sentencing hearing, at which time Gudmundsen will face a statutory maximum sentence of 30 years in federal prison.

    This matter was investigated by Amtrak Office of Inspector General, IRS Criminal Investigation, and the U.S. Department of Labor, Employee Benefits Security Administration. This case is being prosecuted by Assistant United States Attorneys Scott D. Dubois and Jenna Williams of the General Crimes Section.

  • Purdue Obtains Brief Litigation Stay to Pursue Opioid Settlement
    on October 14, 2019 at 8:14 AM

    OxyContin maker Purdue Pharma LP won a court order on Friday briefly pausing the sprawling opioid litigation against the company so it can try to make headway on its proposed legal settlement that it says is worth $10 billion.

    Privately-held Purdue filed for bankruptcy last month to help it implement the proposed deal, which will transfer Purdue’s ownership to a public trust owned by the plaintiffs. In addition, the family has also pledged to contribute at least $3 billion to the settlement.

    The plaintiffs in the bulk of those cases support the proposed settlement, but at least 24 states oppose it.  U.S. Bankruptcy Judge Robert Drain on Friday approved a stay of all litigation until Nov. 6.

    The company hopes over the coming weeks it can to convince the hold-out states to agree to extend the stay on litigation to six months, as the governments backing the settlement have agreed to.

    Drain also hoped the brief stay would give the parties time to hammer out a protocol for sharing documents and financial information about Purdue and the Sackler family in a way that would win the trust of the hold-out states.

    Just prior to Friday’s six-hour hearing, Purdue attorney Marshall Huebner said the company, the official committee of unsecured creditors and the Sacklers worked out an information sharing agreement.

    The agreement would allow the committee to assess the settlement, and the Sacklers also agreed to provide information about their wealth and would agree to refrain from taking any material action with their property.

    Drain said the public deserves an accounting of the company’s role in the crisis, which has led to some 400,000 deaths from 1999 to 2017, according to U.S. statistics. However, he said he feared a “trial becomes an autopsy” that destroys the value of Purdue, adding that most trials leave many unresolved questions.

    "There are trials where people stand up and say ‘I did it.’ But that mostly happens on Perry Mason," he said, referring to the popular TV show from the 1950s and ‘60s featuring a lawyer who won virtually every case. Drain also urged the parties to determine the best way to divvy up the settlement proceeds, echoing comments he had made on Thursday.

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