Pearson Food Company owns and operates a large food and sundries distribution warehouse in Los Angeles County, employing between 35-40 employees. It was insured by the State Compensation Insurance Fund between 2003 and 2005. At the end of the policy period for 2004 – 2005 an audit of Pearson’s financial records by SCIF revealed that Pearson had under reported its payroll and therefore owed additional insurance premiums to SCIF in the amount of $8,341.61. SC IF ultimately assigned the collection of the unpaid premiums to a third party, Allied Interstate Incorporated. Allied subsequently brought a collection action in the superior court against Pearson on the claim.

Pearson filed the cross-complaint against SCIF. Pearson’s causes of action centered around three workers’ compensations claims that Pearson alleged SCIF failed to fully investigate, had mishandled, over-valued and negligently adjusted in various ways resulting in overpayment and setting improper reserves on those claims. Pearson also claimed that as a result of SCIF’s conduct Pearson was charged higher insurance premiums and was unable to secure less expensive insurance from another insurance company. Pearson’s second amended complaint alleged that SCIF breached the insurance contract, and engaged in bad faith in various ways.

The trial court ordered the matter to reference under Code of Civil Procedure section 639, subdivisions (a)(1)-(3). During the trial before the appointed Referee Pearson presented the testimony of William Wilson, the CEO of Pearson, and Adam Wilson, the Vice President of Pearson. Pearson presented expert testimony of Sam Smith, a claims handling expert, Susan Silberman, an attorney and expert on claims handling and legal support, and Duncan Prince. SCIF’s claim adjuster/employees George Ashkharian, Rosa Rodriguez-Cubero, and Christopher Punzalan also testified. The SCIF employees testified about handling of the claims as to the three claimants, setting medical evaluations, and obtaining medical reports, and the process of determining benefit payments and setting reserves. SCIF presented expert witness William Spiegel, who testified about the proper methods of claims handling for workers compensation claims.

After reviewing the evidence, including the expert testimony presented by both parties, the Referee found that Pearson failed to prove its claims. The Referee found that although certain claims may have warranted additional investigation, that Pearson’s complaints were trivial, and did not result in significant damage or demonstrate a pattern of negligence or bad faith. The statement of decision indicated that: Pearson failed to produced evidence that the employee Herzog was not injured” or that setting a lifetime reserve in that case affected Pearson’s “ex-mod” or future premiums. As to the alleged fabricated claim by employee Aguilar, the Referee concluded that although Pearson suspected fraud, it was never reported to SCIF and the evidence indicated that employee Quinones’s injury occurred and the applicant was telling the truth. The Referee rejected the testimony of Pearson’s experts on the handling of Herzog’s, Aguilar’s and Quinones’s claims. The Referee found Susan Silberman unqualified to give medical testimony and found Mr. Smith’s testimony on reserve amounts lacked foundation and was unpersuasive. The Referee further found Pearson failed to demonstrate SCIF’s conduct damaged Pearson as alleged.

Pearson appealed the decision. The Court of Appeal affirmed in the unpublished case of Pearson Food Co. v. State Compensation Ins. Fund

Pearson claimed on appeal that the judgment must be reversed because: (1) the statement of decision upon which the judgment is based did not resolve its causes of action for breach of contract and quantum meruit; (2) the Referee’s findings did not support a ruling in favor of SCIF on the other causes of action, the Referee applied the improper standard of care in assessing the case and incorrectly shifted the burden of proof onto Pearson; and (3) the trial court erred in denying Pearson a new trial. The Court of Appeal found no merit to any of these arguments.

The statement of decision summarized the evidence presented during the trial with respect to the three cases. Thereafter in the decision, the Referee assessed Pearson’s factual and legal contentions in light of the evidence presented about each case. With respect to the Herzog claim the Referee found that “no evidence was produced that Herzog was not injured” or that “he was playing golf during the time of his treatment.” The Referee further found that SCIF’s adjuster’s setting of reverses was not unjustified or excessive in light of the evidence presented at trial. The Referee also noted that the impact of the reserves on Pearson’s “ex-mod, if calculable was not identified” even though the claim remained “open.” The Referee concluded that “[a]t the end of the day, I am persuaded that Pearson’s dispute on this issue is a quibble that does not support significant damages.”