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Co-Employee Named in Tort Action Can Exercise Employer’s Arbitration Rights

Ma Na Tam, worked for KMS Automotive Inc., dba Browning Mazda of Alhambra. Tam began working at the dealership in April 2017, after signing a number of employment-related documents and forms, including a form entitled “EMPLOYEE ACKNOWLEDGEMENT AND AGREEMENT – AGREEMENT TO ARBITRATE.”

In April 2020, approximately three years after commencing employment, Tam filed a first amended complaint against the dealership and Adrian Hernandez, a dealership employee and desk manager for sales or finance manager. The complaint allegations depicted the dealership as a racially and sexually charged environment in which Tam and other Asian employees and customers were subject to harassing, discriminatory, and retaliatory acts. Tam alleged Hernandez drugged and raped her on multiple occasions, and the dealership did not take appropriate action in response to her complaints.

Seven causes of action were asserted against the dealership alone, and five causes of action were alleged against both the dealership and Hernandez. There are no separate causes of action asserted solely against Hernandez.

In August 2020, the dealership filed a motion to compel arbitration. Hernandez filed a joinder to the dealership’s notice of motion and motion to compel arbitration and dismiss or stay action.

Tam opposed the motion, arguing the arbitration agreement was unconscionable and that there was no meeting of the minds, both because she was given very little time to sign a large volume of employment-related materials, and because she has a limited command of English. Tam also argued that her drugging and rape-related claims were outside the scope of the arbitration agreement.  Finally, Tam argued she should not be required to arbitrate her claims for violation of the Unfair Business Practices Act and for equitable relief, and that severing these and the drugging and rape-related claims would raise the possibility of conflicting determinations by the arbitrator and the court.

On January 19, 2021, the court denied the dealership’s motion to compel arbitration. The court’s minute order explained, Code of Civil Procedure section 1281.2(c) “gives courts discretion to deny a petition to compel arbitration when [a] party to the arbitration agreement is also a party to a pending court action . . . with a third party arising out of the same transaction or series of related transactions and there is a possibility of conflicting rulings on a common issue of law or fact.” Relying on Civil Code section 3513, which prohibits private parties from waiving the advantage of a law established for a public reason, the trial court found invalid the language in the arbitration agreement that would have otherwise prohibited the trial court from refusing to stay or deny arbitration under section 1281.2(c).

The Court of Appeal reversed the court’s denial of the motion to compel and direct the court to order the parties to arbitration in the unpublished case of Tam v. KMS Automotive – .B311407 (April 2023).

Whether as an agent or under the doctrine of equitable estoppel, the law permits Hernandez, a nonsignatory to the arbitration agreement, to compel Tam to arbitrate her claims against him. Because Hernandez can compel arbitration, he is not a third party within the meaning of section 1281.2(c). (Laswell v. AG Seal Beach, LLC (2010) 189 Cal.App.4th 1399 at pp. 1405-1406; Molecular Analytical Systems v. Ciphergen Biosystems, Inc. (2010) 186 Cal.App.4th 696 at p. 709.).

Tam’s claims against Hernandez for sexual assault, harassment, intentional infliction of emotional distress, and unfair business practices are intimately founded in and intertwined with the employment relationship she had with the dealership, so there is no question that they fall within the scope of the arbitration agreement.

The Court of Appeal was unpersuaded by Tam’s explanations about why Hernandez cannot enforce the arbitration agreement under an agency theory or the doctrine of equitable estoppel, and why those principles do not preclude application of section 1281.2(c). Tam’s arguments present a limited view of the applicable case law and ignore the broad wording of the arbitration agreement here.

In addition to the principal and agent relationship between the dealership and Hernandez, section 1281.2(c) is also not applicable here because the equitable estoppel doctrine prevents Tam from avoiding arbitration when her claims against Hernandez, even the tort claims, are inextricably intertwined with her claims against the dealership, all of which arise from and relate to the contractual employment relationship governed by the arbitration agreement. (See Molecular Analytical, supra, 186 Cal.App.4th at pp. 714-715 [courts review the nature of claims asserted against nonsignatory defendant and relationships of persons, wrongs, and issues when applying equitable estoppel] Rice v. Downs (2016) 248 Cal.App.4th 248 at p. 186 [broadly worded arbitration language may extend to tort claims arising from contractual relationship between parties].)

The arbitration agreement signed by Tam covered “any and all claims” between Tam and the dealership or its employees “arising from, related to, or having any relationship or connection whatsoever” with Tam’s employment by or with the dealership, “whether sounding in tort, contract, statute or equity, . . . . [including] without limitation, any claims of discrimination, harassment, or retaliation,” including claims under FEHA.

The Court also noted that a recent federal law entitled “Ending Forced Arbitration of Sexual Assault and Sexual Harassment Act of 2021amends the Federal Arbitration Act to prohibit employers from requiring employees to resolve sexual harassment and sexual assault claims through private arbitration unless the employee – after the claim arises – voluntarily elects to participate in arbitration. This law was not in effect when the trial court made its decision, or at the time of the alleged acts. No party argues that the law has retroactive effect.

However the dissenting opinion discusses this new legislation, and his views of the policies behind it, to fashion a new rule that would make all arbitration provisions purporting to cover claims based on sexual assault or sexual harassment per se unconscionable.

However the majority declined to adopt the position articulated in the dissent, which in effect attempts to impose the new legislation in this (and other similar) cases by judicial fiat, and contrary to the express terms of the legislation regarding the limits of its retroactive application.

Telehealth Utilization Increased Nationally in January 2023

National telehealth utilization increased 7.3 percent in January 2023, from 5.5 percent of medical claim lines in December 2022 to 5.9 percent in January, according to FAIR Health’s Monthly Telehealth Regional Tracker. It was the third straight month of growth in national telehealth utilization, a trend that began in November. In January, telehealth utilization also increased in all four US census regions – the Midwest (9.5 percent), the West (9.5 percent), the South (6.7 percent) and the Northeast (3.2 percent). The data represent the privately insured population, including Medicare Advantage and excluding Medicare Fee-for-Service and Medicaid.

With January 2023, FAIR Health’s Monthly Telehealth Regional Tracker enters its fourth year of reporting on the evolution of telehealth from month to month.

Audio-Only Telehealth Usage

From December 2022 to January 2023, audio-only telehealth utilization decreased nationally and in every region. The largest decrease occurred in the South, where audio-only telehealth utilization fell 16.6 percent in rural areas, from 7.2 percent of telehealth claim lines in December to 6.0 percent in January, while falling 12.8 percent in urban areas, from 12.2 percent of telehealth claim lines in December to 10.6 percent in January. Utilization of audio-only telehealth services was generally higher in rural than urban areas, except in the South, where it was higher in urban areas, and in January in the West, where rural and urban usage were approximately equal at 3.0 percent of telehealth claim lines.

Asynchronous Telehealth

In January 2023, the number one diagnosis made via asynchronous telehealth – telehealth in which data are stored and forwarded (e.g., blood pressure or other cardiac-related readings transmitted electronically; A1c levels transmitted) – varied across regions. Nationally and in the South, it was acute respiratory diseases and infections. In the Northeast and Midwest, it was mental health conditions. In the West, it was encounter for screening.

Hypertension ranked second among the top five diagnoses via asynchronous telehealth nationally and in all regions except the South, where it ranked fourth.

Diagnoses

From December 2022 to January 2023, among the top five telehealth diagnoses nationally, developmental disorders and joint/soft tissue diseases and issues switched positions, with the former rising from fifth to fourth place and the latter falling from fourth to fifth place.

In January, COVID-19, which had ranked third among the top five telehealth diagnoses nationally and in every region in December, fell out of the top five in the Midwest and the West and dropped to fourth place in the South. COVID-19 remained in third place nationally and in the Northeast.

Costs

For January 2023, the Telehealth Cost Corner spotlighted the cost of CPT®3 90834, 45-minute psychotherapy. Nationally, the median charge amount for this service when rendered via telehealth was $151.44, and the median allowed amount was $95.02.

For the Monthly Telehealth Regional Tracker, if available on the FairHealth website.

March 27, 2023 – News Podcast


Rene Thomas Folse, JD, Ph.D. is the host for this edition which reports on the following news stories: CMS Pursues Law Firm for Conditional Payment Reimbursement. 9th Circuit Revives Uber Constitutional Challenge to AB-5. National Firefighters Union Battles Cancer Causing Protective Gear. Executive/Owner of 100 Insurance Companies Faces $2B Fraud Indictment. Court Affirms $8.2M Restitution Calculation in Premium Fraud Case. O.C. Pharmacy Director Sentenced to 9½ Years for Kickback Scheme. WCAB Ends COVID Special Rules in New En Banc Decision. CWCI Study Shows Medical Treatment Patterns Have Stabilized. Bay Area CompScience Startup Inks Deal to Bind Insurance in 10 States.

Garden Grove Pharmacist Resolves Fraudulent Billing Claims for $4M

Gisele Thao Nguyen is a pharmacist who resides in Huntington Beach, California. Nguyen was the sole owner of Gisele Nguyen, Inc. d/b/a Natico Pharmacy, a community pharmacy that was operated at 10212 Westminster Av 109 Garden Grove, CA 92843.

Natico Pharmacy ceased operating in December 2018.

The United States alleged that, from at least Jan. 1, 2014, through Dec. 31, 2018, Nguyen fraudulently submitted claims to Part D of the Medicare Program for prescription medications that were never dispensed to beneficiaries.

According to the United States, inventory records showed that Natico Pharmacy did not purchase enough of these medications from wholesaler distributors to fill all of the prescriptions billed to Medicare.

Nguyen has agreed to pay $3,933,993 to resolve allegations that she fraudulently billed the Medicare Program for medications that were never dispensed.

Nguyen has reviewed her financial situation and warrants that she is solvent within the meaning of 11 U.S.C. §§ 547(b)(3) and 548(a)(l)(B)(ii)(I) and shall remain solvent following payment to the United States of the Settlement Amount.

According to the California Board of Pharmacy records, her license RPH 57192 status at this time is “clear.”

“Federal health care programs provide critical health care services to millions of Americans,” said Principal Deputy Assistant Attorney General Brian M. Boynton, head of the Justice Department’s Civil Division. “We will hold accountable those who seek to defraud these programs, including by billing for goods or services that they did not provide.”

The resolution obtained in this matter was handled by the Justice Department’s Civil Division, Commercial Litigation Branch, Fraud Section, with assistance from the U.S. Attorney’s Office for the Central District of California.

The investigation and resolution of this matter illustrates the government’s emphasis on combating health care fraud. Tips and complaints from all sources about potential fraud, waste, abuse, and mismanagement, can be reported to the Department of Health and Human Services at 800-HHS-TIPS (800-447-8477).

The matter was investigated by Senior Trial Counsel Jennifer Cihon, with assistance from Assistant U.S Attorney Zoran J. Segina for the Central District of California.

Labor Department Survey Shows Reduction in Telework

The U.S. Bureau of Labor Statistics reported that in August and September 2022, 27.5 percent of private-sector establishments (2.5 million) had employees teleworking some or all the time.

Industries with the highest percent of establishments employing teleworkers were information (67.4 percent), professional and business services (49.0 percent), educational services (46.0 percent), and wholesale trade (39.0 percent).

Data in this release are from the 2022 Business Response Survey (BRS). BRS data were collected from private-sector establishments from August 1, 2022, through September 30, 2022. The survey’s topics included telework at establishments both at the time of the survey and before the COVID-19 pandemic, hiring by establishments in July 2022, and job vacancies at establishments at the time of the survey. Detailed tables by industry, state, and establishment size are available at www.bls.gov/brs.

Telework at private-sector establishments

– – The percent of establishments with employees teleworking changed over the last year. In August-September 2022, 72.5 percent of establishments had little or no telework, compared to 60.1 percent in July-September 2021.
– – The percent of establishments with some (but not all) employees teleworking was 16.4 percent in 2022, compared to 29.8 percent in 2021.
– – The percent of establishments with all their employees teleworking all the time was about the same – 11.1 in August-September 2022, compared to 10.3 percent in July-September 2021.
– – In August-September 2022, 95.1 percent of establishments (including those that did and did not have telework) expected the amount of telework at their establishment to remain the same over the next 6 months.

Private-sector new hires in July 2022

– – Nationwide, 22.4 percent of establishments hired new employees in July 2022.
– – In July 2022, 7.3 percent of establishments increased starting pay, and 5.4 percent expanded advertising to attract more applicants to newly filled positions. Among the other methods used by establishments to attract more applicants were: starting to use recruiters/talent agencies (2.4 percent); offering hiring bonuses (1.9 percent); reducing the job’s qualifications, such as education or experience (1.3 percent); expanding benefits (1.2 percent); offering more hours (1.0 percent); and expanding telework or remote work (0.7 percent).
– – In July 2022, 2.4 percent of establishments hired at least one employee who will telework all the time.
– – Nationally, 7.0 percent of establishments took more than 30 days to fill at least one open position. The percentage of establishments with positions that took more than 30 days to fill varied by industry. The industries most likely to take more than 30 days to fill positions were accommodation and food services (14.9 percent), health care and social assistance (12.3 percent), and manufacturing (11.1 percent). The industries with the lowest percentage of positions that had been filled after having been open for more than 30 days were natural resources and mining (3.9 percent), information (4.1 percent), and financial activities (4.4 percent).

Private-sector job vacancies in August-September 2022

– – Nationwide, 20.9 percent of establishments had vacancies they were attempting to fill when they were surveyed in August-September 2022, and 40.5 percent had vacancies within the 12 months prior to the survey (August 2021-September 2022).
– – In August-September 2022, 3.1 percent of establishments had at least one vacancy eligible for telework all the time.
– – Nationwide, 12.3 percent of establishments had at least one vacancy open for more than 30 days.
– – The percentage of establishments that had a vacancy open for more than 30 days varied by industry, ranging from 6.9 percent in natural resources and mining to 20.2 percent in accommodation and food services.
– – How establishments advertised their vacancies varied by the educational requirements of the position. Nationwide, 13.4 percent of establishments used online job boards or hiring platforms to advertise positions requiring a bachelor’s degree or higher, while 24.1 percent did so for positions that did not require a bachelor’s degree or higher.

City of L.A. Retail Industry Fair Work Week Ordinance Starts April 1

The City of Los Angeles recently joined Berkeley, San Francisco and Emeryville, Calif.; New York City; Philadelphia; Chicago; Seattle; Euless, Texas; and Oregon as jurisdictions that have enacted fair workweek legislation.

Starting April 1, 2023, Los Angeles retail businesses with at least 300 employees will need to comply with a new Fair Work Week Ordinance (FWWO). The FWWO provides a 180-day implementation period, and the City will not impose penalties or fines on Employers for violations that occur before September 28, 2023. However, during the 180-day period, an Employee or the OWS may bring a potential violation to an Employer’s attention and the Employer will be required to correct any actual violations (including curing the failure to pay Predictability Pay).

However, the City cannot guarantee how a Court might adjudicate a private civil action during the first 180 days after the Ordinance becomes effective.

The City of Los Angeles Fair Work Week Ordinance Frequently Asked Questions (Updated as of 3/15/2023) provides some information about how this new Ordinance works.

A covered Employer must satisfy all of the following criteria: – Identifies as a retail business in the North American Industry Classification System (NAICS) under Retail Trade categories 44-45;  – Has at least 300 employees globally; and – Exercises control (directly or indirectly) over the wages, hours or working conditions of any Employee.

A retail business is any business whose principal North American Industry Classification Systems (NAICS) code is within the retail trade categories and subcategories 44 through 45. If the business has more than one unique line of business and identifies with more than one NAICS code, the OWS will consider the NAICS code that corresponds with the business’s principal business activity, which is the activity that the business derives the largest percentage of its total receipts.

Regardless of where an Employer is located, the FWWO applies to a covered retail Employee who performs at least two hours of work in a particular week within the City of Los Angeles.

To determine if a workplace or job site lies within the City limits, you may use Neighborhood Info (http://neighborhoodinfo.lacity.org/). Follow the exact instructions of this website. If an address is located within the boundaries of the City of Los Angeles and is correctly entered, then the search will locate the address on the map with detailed address information.

The FWWO may not apply to a retail employee who is traveling through the City with no employment related stops. Time spent in the geographic boundaries of the City solely for the purpose of traveling through Los Angeles (from a point of origin outside Los Angeles to a destination outside Los Angeles) with no employment- related or commercial stops in Los Angeles except for refueling or the Employee’s personal meals or errands is not covered by the FWWO.

Before hiring an Employee, an Employer shall provide each new Employee a written good faith estimate of the Employee’s Work Schedule. The good faith estimate shall notify a new Employee of their rights under this Ordinance. In the alternative, the Employer may provide the new Employee with a copy of the poster required by Section 185.11.

An Employer shall shall also provide a written good faith estimate of an Employee’s Work Schedule within ten days of an Employee’s request.

.A good faith Work Schedule estimate shall not constitute a binding, contractual offer. However, if an Employee’s actual work hours substantially deviate from the good faith estimate, an Employer must have a documented, legitimate business reason, unknown at the time the good faith Work Schedule estimate was provided to the Employee, to substantiate the deviation.

An Employer shall provide an Employee with written notice of the Employees’ Work Schedule at least 14 calendar days before the start of the work period by posting the Work Schedule in a conspicuous and accessible location where Employee notices are customarily posted and visible to all Employees; or transmit the Work Schedule by electronic means or another manner reasonably caleulated to provide actual notice to each Employee.

Employees are entitled to premium pay in the event there are changes to their schedule. And there is a list of exceptions that prevent the requirement for premium pay.

Before hiring a new Employee or using a contractor, temporary service or staffing agency to perform work, an Employer shall first offer the work to current Employees if one or more of the current Employees is qualified to do the work as reasonably determined by the Employer; and the additional work hours would not result in the payment of a premium rate under California Labor Code Section 510.

An Employee who believes a violation has occurred must inform the Employer in writing of the suspected violation, along with supporting documentation. Employers have 15 calendar days from the receipt of this notification to take action to cure any violations.

Employers should cure the alleged violations and provide applicable restitution to Employees or be able to demonstrate they are in the process of curing the alleged violations at the end of the cure period. An example would be a written commitment by the Employer to cure previously overlooked Predictability Pay in an Employee’s next paycheck, which may be issued outside the 15-day cure period.

This is just a brief summary of some of the essential provisions of the new FWWO. Thus retail employers who are subject to the new Ordinance should carefully read the full Ordinance, the accompanying FAQ, and other resources such as the Society for Human Resources Management (SHRM) or legal counsel.

San Diego Doctor Pleads Guilty to $2M Insurance Fraud

48 year old Dr. Michael Villarroel, a U.S. Navy doctor who lives in Coronado, pleaded guilty admitting that he and others conspired to defraud the Navy by faking or exaggerating injuries to obtain insurance payments intended to help service members recovering from traumatic injuries. Villarroel acknowledged he knew the claimed injuries were false or exaggerated but signed off on applications for a share of the insurance payments.

Participants in the scheme obtained about $2 million in payments from the Traumatic Servicemembers Groups Life Insurance (TSGLI) program which is funded by service members and the Navy. Villarroel personally obtained more than $180,000 in kickbacks.

Villarroel admitted that from 2012 to at least December 2015, he conspired to commit wire fraud with Christopher Toups, a chief petty officer construction mechanic in the Navy; Kelene Meyer, Toups’ spouse and a nurse; and others. Toups prodded other service members to submit claims, told them to provide medical records to Meyer, requested part of the insurance payment in return, and distributed shares to Meyer and Villarroel. Meyer used her medical background to falsify or doctor supporting records to reflect fake or exaggerated injuries.

Villarroel claimed to have reviewed medical records and verified disabilities consistent with the injuries as needed for claims to be processed and qualify. At times Villarroel supported his determination by falsely stating he interviewed the claimant. At other times Villarroel gave Meyer medical records belonging to others to use in fabricating claims. Toups paid Villarroel in cash and by cashier’s check and, at points, Villarroel conducted transactions in amounts under $10,000 to evade currency transaction reporting requirements.

Villarroel is the tenth defendant to plead guilty to crimes committed under the scheme. Several conspirators were members of Explosive Ordinance Disposal Expeditionary Support Unit One (“EOD ESU One”), based in Coronado, California.

“Dr. Villarroel defrauded the Navy and the U.S. taxpayer by participating in a reprehensible scheme to wrongly obtain more than $2 million that should have been directed to wounded service members,” said Acting Special Agent in Charge Michael D. Butler II of the NCIS Economic Crimes Field Office. “NCIS and our partners remain committed to investigating all allegations of fraud that harms Department of the Navy service members and their families.”

“Dr. Villarroel abused his position of trust to enrich himself and his co-conspirators,” said Special Agent in Charge Stacey Moy of the FBI’s San Diego Field Office. “As a medical doctor and Naval Commander, Dr. Villarroel is held to a higher standard which makes this scheme to defraud the Traumatic Service Members Group Life Insurance program even more egregious. The FBI would like to thank our partners at Veterans Affairs – Office of Inspector General and Naval Criminal Investigative Service for their tremendous partnership on this case.”

“Fraudulently filing claims for unearned TSGLI benefits diverts compensation from deserving service members who suffered serious and debilitating injuries while on active duty,” said Special Agent in Charge Rebeccalynn Staples of the Department of Veterans Affairs Office of Inspector General’s Western Field Office.  “The VA OIG thanks the United States Attorney’s Office and our law enforcement partners for their efforts in bringing this defendant to justice.”

Villarroel is scheduled to be sentenced on June 16 at 9 a.m. by U.S. District Judge Janis L. Sammartino.

WCIRB Study Shows Experience Rating Improves Workplace Safety

In the California workers’ compensation system, experience rating is a merit rating system with the primary statutory goal of providing a direct financial incentive for employers to promote a safe workplace.

An experience modification, also called an X-Mod, compares the claims history of one employer to the average expected of other employers of similar size in the same industry. All things equal, an X-Mod greater than 100 percent increases the cost of an employer’s workers’ compensation insurance, while an X-Mod less than 100 percent decreases an employer’s premiums.

The key assumption underlying experience rating is that some employers will respond to significant experience rating events. Specifically, becoming experience-rated or experiencing changes in X-Mods, especially increases that cross the 100 percent threshold, is assumed to incentivize employers to address emerging work-related hazards to lower premiums and promote a safer workplace.

However, there is limited research validating the efficacy of experience rating in promoting safety and reducing work-related injuries. Prior research tends to support the safety incentive of experience rating mostly based on aggregate injury data or using a proxy measure for the experience rating status of employers, but results were somewhat limited in scope and not always conclusive.

To further analyze the effectiveness of experience rating in reducing work-related injuries, the WCIRB conducted a study based on over a decade of employers’ loss and payroll experience and published X-Mods to evaluate the independent impacts of experience rating on work-related injuries. The study used regression modeling to better understand whether employers respond to significant experience rating events and take action to reduce work-related injuries.

Specifically, this study focused on two types of “shock” experience rating events that would potentially provide safety incentives to employers: an employer becoming initially qualified for experience rating and an increase in an employer’s X-Mod from below 100 percent to above 100 percent. This study also analyzed whether impacts of experience rating events vary by employer size and industry.

The key findings of the study include:

– – Qualification for experience rating led to a larger decline (-17%) in claim frequency for newly rated employers relative to non-rated employers of similar size and industry in the first year of experience rating. The impact on claim frequency persisted for the study period, three years after the first X-Mod was issued (Figure 4)
– – For experience-rated employers, an increase in X-Mods from credit (less than 100%) to debit (greater than 100%) is associated with a larger decline in the likelihood (-2%) of having any claims. The difference adjusts for employer size and industry sector and is statistically significant (Figure 5)
– – A credit-to-debit increase in X-Mods is also associated with larger declines in future claim frequency for experience-rated employers for three years after the X-Mod increase. The difference in claim frequency change is statistically significant and the difference grew to 8% by the third year after the X-Mod increase (Figure 6)
– – The construction, manufacturing and hospitality industries have a relatively high share of X-Mod eligible employers In these three industries, employers that had an increase in their X-Mods from credit to debit had a larger decrease in future claim frequency than other experience-rated employers whose X-Mods did not increase from credit to debit In particular, construction employers with an X-Mod increase had a larger decline (-15%) in claim frequency by the third year of the X-Mod change than other experience-rated construction employers of similar size (Figure 7)
– – The impact of a credit-to-debit X-Mod increase on future claim frequency varies by employer size While an X-Mod increase is associated with a larger decline in claim frequency for employers of all sizes, medium- sized employers1 appear to have the largest relative decline (-8%) in claim frequency (Figure 9)

The full report is available in the Research section of the WCIRB website.

P&C Insurers 2022 Underwriting Losses Soar and Net Income Shrinks

Key financial results for private U.S. property/casualty insurers significantly worsened in 2022 from a year earlier, according to preliminary results from Verisk, a global data analytics provider, and the American Property Casualty Insurance Association (APCIA).

The industry experienced a $26.9 billion net underwriting loss in 2022, more than six times the $3.8 billion underwriting loss in 2021. The underwriting loss was the largest the industry has seen since 2011.

Net income fell to $41.2 billion in 2022, compared to $62.1 billion a year earlier – a 33.6% decline.

In 2022, incurred losses and loss adjustment expenses grew 14.1% while earned premiums grew 8.3%. The combined ratio – a key measure of profitability for insurers – deteriorated as well, to 102.7% in 2022, from 99.6% in 2021.

Policyholders’ surplus recovered somewhat from Q3 2022’s $911.7 billion to $952.4 billion, but still remains below that of year-end 2021 driven primarily by the large amount of unrealized capital losses accrued during 2022. Insurers’ rate of return on average policyholders’ surplus, a measure of overall profitability, declined to 4.2% in 2022 from 6.4% in 2021.

Fourth Quarter Sees Continued Growth in Net Written Premiums

The industry’s net income fell to $10.3 billion in fourth-quarter 2022 from $19.8 billion in fourth-quarter 2021, and the annualized rate of return on average surplus fell to 4.4% from 7.9% a year prior.

Net written premiums rose $13.8 billion in fourth-quarter 2022, or 8.2%, compared to a year earlier. Net underwriting losses declined to $5.5 billion in fourth-quarter 2022 from $1.8 billion in gains a year earlier, and the combined ratio deteriorated to 104.0% from 100.0% a year prior.

The insurance industry is being hammered by increasing input costs, natural catastrophes, legal system abuse, and resistance in some states to adequate rates,” said Robert Gordon, senior vice president, policy, research & international for APCIA. “Insurers suffered a 14.1 percent increase in incurred losses and loss adjustment expenses (16.6 percent in Q4), contributing to a more than $76 billion contraction in insurers’ surplus at a time when loss exposures are rapidly growing. In 2023, insurers are faced with a significant challenge to close the rate gap in order to meet their growing cost of capital.”

“Hurricane Ian and the effects of inflation resulted in major losses for property insurers last year, while accident severity continued to plague personal and commercial auto lines,” said Neil Spector, president of underwriting solutions at Verisk. “To remain profitable in these challenging times, many insurers are looking for new ways to reduce expenses, increase efficiencies, and enhance the customer experience. And they’re finding help from an ecosystem of advanced technology and analytics that is growing every day.”

The results are based on annual statements filed with insurance regulators by private property/casualty insurers domiciled in the United States, including excess and surplus insurers and domestic insur­ers owned by foreign parents, and excluding state funds for workers’ compensation and other residual market insurers, the National Flood Insurance Program, foreign insurers, and reinsurers.

The figures are consolidated estimates based on reports accounting for about 94% of all business written by U.S. property/casualty insurers. All figures are net of reinsurance unless otherwise noted and occasionally may not balance due to rounding.

GPT-4 AI Technology Easily Passed the Multistate Bar Exam – What’s Next?

GPT stands for Generative Pre-trained Transformer (GPT), a type of language model that uses deep learning to generate human-like, conversational text. GPT-4 is the newest version of OpenAI’s language model systems. Its previous version, GPT 3.5, powered the company’s wildly popular ChatGPT chatbot when it launched in November of 2022.

GPT-4, the new multimodal deep learning model from OpenAI, has passed the Uniform Bar Exam, demonstrating an enormous leap for machine learning and proving that an artificial intelligence program can perform complex legal tasks on par with or better than humans, according to a new paper co-authored by Daniel Martin Katz, professor of law at Illinois Institute of Technology’s Chicago-Kent College of Law.

The Uniform Bar Examination (UBE) is coordinated by the National Conference of Bat Examiners, and is composed of the Multistate Essay Examination (MEE), two Multistate Performance Test (MPT) tasks, and the Multistate Bar Examination (MBE). It is uniformly administered, graded, and scored and results in a portable score that can be transferred to other UBE jurisdictions.

In a period of roughly four years, the leading large language model family (GPT) has progressed from zero percent on the Multistate Bar Exam for GPT-2 to nearly 76 percent on the Multistate Bar Exam in GPT-4. (The Multistate Bar Exam is the multiple-choice section of the Uniform Bar Exam.) Overall, the authors report a 297 Uniform Bar Exam score for GPT-4, which reflects passing the bar by a fairly comfortable margin. The highest threshold in the country is Arizona at 273 (Illinois is 266).

“GPT-4 represents a new frontier in AI’s role in the legal profession and society at large,” says Katz, who collaborated with the legal AI company Casetext and fellow researcher Michael Bommarito. “The bar exam is an interesting test for AI to pass because it highlights the prospect of such technology becoming a ‘force multiplier’ that expands access to legal services to all members of society, including those who couldn’t previously afford to hire a lawyer.”

Katz did predict that within a few years, perhaps even by the end of this year, large corporations like Microsoft and Google may start experimenting with offering AI legal services. Nothing that could replace an attorney in a courtroom – yet – but work that is typically performed by law researchers and paralegals, like compiling data or answering clients’ questions about the law.

GPT-4 scored a 75 percent on the bar exam, higher than the 68 percent average and good enough to place in the 90th percentile. In a previous paper that Katz co-wrote, GPT-3.5 scored a 50 percent and passed only two multiple choice portions of the bar exam, placing it in the 10th percentile.

In this test, GPT-4 not only took the multiple choice sections, but also the essays (worth 30 percent) and performance test (worth 20 percent). Although many have been skeptical about AI’s ability to pass sections that require generating language, GPT-4 did so by a significant margin, giving responses that were generally on par with the “representative good answers” provided by many state bars.

The latest GPT model also shows fewer “hallucinations,” in which an AI language model confidently asserts wrong answers that have no basis in reality.

Passing the bar exam requires the command of not just ordinary English, but of complex “legalese,” which is difficult even for humans. GPT’s rapid advancement in this field is sure to have wide implications for the legal profession.

Lawyers need to figure out how to really use these tools. And those that do, it’ll be a very positive thing for them. We’re sitting on the dawn of a major increase in potential capacity,” says Katz. “These are tools that allow you to more effectively do your work, so you need to learn how to use them to maximum efficacy.”

“I’m generally very optimistic about it,” said Matthew Shepard, a public defender and board member of the Chicago chapter of the National Lawyers Guild, which often provides pro bono counsel to arrestees and activists. “I think it will be helpful in assisting attorneys with filing motions and going through large quantities of discovery”

“Sounds like it could help out a lot of pro se litigants,” agreed Zane Thompson, a workers’ compensation attorney with the Chicago law firm Ganan & Shapiro.