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Ruling Allows Homeowners to Avoid Illegally Uninsured Comp Problems

The Labor Code provides in essence that persons employed by the owner or occupant of a residential dwelling are generally not considered employees for purposes of workers’ compensation and therefore not entitled to benefits if they work less than 52 hours, or who earned less than $100 in wages for an employer, during the period of 90-calendar days prior to the date of the alleged injury.

Those who exceed those limits are employees of the owner or occupant, and a number of cases in the worker’s compensation literature illustrate examples, such as in Fichera and Allstate Ins. Co. v. W.C.A.B. (May) (1981) 46 Cal.Comp.Cases 26 (Writ Denied), the Board held that an injured house and animal sitter was included within the definition of an employee even though she had only worked 38 hours before sustaining an injury where the Board found that the contract of employment provided for more than 52 hours of work per week.

To assist homeowners in securing coverage for workers’ compensation liability, the legislature passed Insurance Code section 11590 in 1977 which provided that no policy providing comprehensive personal liability insurance may be issued or renewed in this state on or after January 1, 1977, unless it contains a provision for coverage against liability for the payment of workers compensation, as defined in Section 3207 of the Labor Code, to any person defined as an employee by subdivision (d) of Section 3351 of the Labor Code.

Any such policy in effect on or after January 1, 1977, whether or not actually containing such provisions, shall be construed as if such provisions were embodied therein. However, such coverage shall not apply if any other existing, valid and collectible, workers’ compensation insurance for such liability is applicable to the injury or death of such employee.

Homeowners’ insurance policies in California are the method by which owners and occupants of residential properties secure coverage for industrial injuries. But not all homeowners are able to purchase homeowner policies if they live in areas where they are near the risk of forest fires or other catastrophes such as flooding. In response to insurers’ reluctance to write basic property insurance for homeowners who live in high risk or otherwise uninsurable areas, in 1968, the California Legislature enacted the “Basic Property Insurance Inspection and Placement Plan.”

The 1968 law provides for the ‘the equitable distribution among admitted insurers of the responsibility for insuring qualified property for which basic property insurance cannot be obtained through the normal insurance market by the establishment of a FAIR Plan, an industry placement facility and a joint reinsurance association.The FAIR plan provided for coverage of the property only, and did not provide for general liability or workers compensation coverage for the homeowner.

Since 1968 the difficulty for homeowners in California to obtain homeowner insurance has substantially increased. Allstate, Farmers, and USAA, have either completely stopped writing new policies or significantly limited their activity in California. Additionally, four smaller insurers: Merastar, Unitrin Auto and Home, and Unitrin Direct Property and Casualty, have announced they will not renew existing policies in California starting in 2024.

On November 14, 2019, the Insurance Commissioner issued Order No. 2019-2, which required the FAIR Plan to submit a new revised plan of operation to effectuate various business operational changes to the FAIR Plan, including requiring the FAIR Plan to sell HO-3 policies in California. An HO-3 policy is a homeowner’s insurance policy and refers to the name of the standardized insurance form issued by the Insurance Services Office, Inc.

On December 13, 2019, FAIR Plan filed a petition for writ of mandate in California Fair Plan Association v. Lara, case number 19STCP05434, challenging Order No. 2019-2. On December 19, 2019, the Commissioner issued Order No. 2019-3, in which the Commissioner promulgated his own revised plan of operation to be followed by FAIR Plan to effectuate the aforementioned business operational changes.On August 19, 2021, the Court entered its judgment granting in part and denying in part the writ petition, directing the Commissioner to set aside those parts of Order Nos. 2019-2 and 2019-3 that require the FAIR Plan to offer a comprehensive HO-3 Policy.

In response, on September 17, 2021, the Commissioner issued Order No. 2021-2, which requires FAIR Plan to offer a “Homeowners’ Policy” that “insures against, at a minimum, the following perils to the insured property not currently covered under the FAIR Plan’s dwelling fire policy: accidental discharge or overflow of water or steam; premises liability; incidental workers’ compensation; theft; falling objects; weight of ice, snow, or sleet; freezing; and loss of use, including coverage for additional living expenses and fair rental value.”

On October 14, 2021, the Fair Plan Association filed another petition seeking to nullify Order No. 2021-2. On November 27, 2023 the Superior Court of the County of Los Angeles denied the Petition for Writ of Mandate in case 21STCV38060. Thus, currently Order No. 2021-2 (as amended) remains in effect. Homeowners who are unable to obtain homeowners insurance will at least be offered a policy with workers compensation and general liability insurance under the FAIR plan, although the coverage is not the equivalent of an HO-3 policy.

Farmers Senior VP of Claims Awarded $24M for Employer Retaliation

Farmers hired Andrew Rudnicki in 1979. He worked his way up as a trial lawyer to supervising attorney, co-managing the Los Angeles office, and divisional supervisor. In 2013, he was promoted to senior vice president of claims litigation and led Farmers’s branch legal offices. The branch legal offices provide legal representation to Farmers’s insureds. In this role, Rudnicki was responsible for outside counsel that represented Farmers’s insureds, legal bill review, and legal vendors.

In 2013, Lisa Sepe-Wiesenfeld reported to Rudnicki, who tasked her with participating on a conference call with multiple attorneys to address some of their gender-based concerns regarding women in leadership/promotions. Participants included Catherine Meta Pugh, who worked in human resources, and attorneys Christine Campbell, Karen Wasson, and Bethany Soule. Rudnicki then had multiple phone conversations with these three attorneys regarding gender issues.

On April 29, 2015, Lynne Coates filed a class action lawsuit against Farmers, alleging that “Farmers systematically pays female attorneys less than similarly-situated male attorneys. Not only are male attorneys paid more, they are routinely given higher profile work assignments; are given raises and promotions more frequently; and are recognized for their accomplishments while female attorneys are not. In general, Farmers advances the careers of its male attorneys more quickly while treating its female attorneys more like support staff.” In October or November of that year, Wasson became the lead plaintiff in Coates. Farmers retained Paul Hastings, LLP to represent it in the Coates action.

In late 2015, Rudnicki went to Farmers chief claims officer, Keith Daly’s office to explain that he had been prepared by Paul Hastings and expected to give a deposition in Coates; he stated that he would be testifying about what he believed were some HR failures, specifically, the fact that the gender disparity issue had been raised and that HR denied his requests for gender demographics and pay disparity documents in 2013. Daly became red-faced and agitated. Daly unhappily said something like “I don’t see that you need to testify about that.” Rudnicki replied that he did not get to dictate which questions were asked of him.

Thereafter, Daly treated Rudnicki with an icy chill. For example, in February and March 2016, Daly did not ask Rudnicki to speak at Farmers’s big conference, even though he had spoken there every year for the preceding 10 years. At another event, when every other department head was asked to speak, Rudnicki was excluded.

The Coates litigation settled in principle on April 13, 2016, before Rudnicki was ever deposed. One month later, on May 13, 2016, Farmers terminated Rudnicki’s employment. When asked for a reason, Daly and Elliott told Rudnicki that there were “HR issues” and that he was responsible for the Coates settlement. Elliott told Rudnicki that his “behavior ha[d] become a risk to the organization.” But, Daly did not review Rudnicki’s personnel file before terminating his employment; he was only familiar with his own reviews of Rudnicki. Elliott also did not review Rudnicki’s personnel file before Rudnicki’s employment was terminated.

On August 10, 2016, Rudnicki filed a lawsuit, alleging nine causes of action against Farmers. Only five claims survived Farmers’s motion for summary judgment/adjudication: (1) age discrimination, (2) gender discrimination, (3) disability discrimination, (4) retaliatory termination, and (5) a derivative claim for wrongful termination.

Following a 24-day trial, the jury found in favor of Rudnicki on his claim for retaliation, awarding him $5.4 million in compensatory damages and $150 million in punitive damages. The trial court reduced the punitive damage award to $18.9 million, but left the rest of the verdict standing. The Court of Appeal affirmed in the unpublished case of Rudnicki v Farmers Insurance Exchange -B321691 (January 2024).

Farmers argued that the Court of Appeal should reverse the judgment on liability because (1) Rudnicki could not prevail on a claim for retaliation; and (2) the trial court issued certain erroneous evidentiary rulings. Alternatively, if it does not reverse on liability, Farmers asks it to eliminate or substantially reduce the damage award.

The Court of Appeal was not persuaded by these arguments. It found “Farmers engaged in misconduct that can be characterized as moderately reprehensible. It caused physical harm in a foreseeable manner.”

Understanding “Kinesiophobia” is Valuable Tool for Claims

In his latest newsletter, Bill Zachary reported on “Kinesiophobia” and how well it explained some of the barriers that injured workers face during their journey to recovery from work-related injuries. The path to recovery and return to work for injured workers is fraught with challenges, and one significant obstacle is kinesiophobia – the fear of movement and physical activity due to the anticipation of pain and, particularly, the fear of reinjury.

Kinesiophobia is not only a significant barrier to optimum recovery, but it’s also one of the major obstacles preventing injured workers from returning to their jobs. It is crucial to identify when Kinesiophobia is impacting recovery and return to work and to take the necessary steps to overcome these barriers. Here are some important facts about kinesiophobia:

Discomfort (also known as pain) plays a crucial role in learning and recovery. For instance, sticking one’s finger in a pot of scalding hot oil quickly teaches the importance of avoiding such actions. However, in the context of physical therapy and rehabilitation, a certain degree of discomfort may be necessary to stretch and strengthen tissue and regain an optimum range of motion. Acknowledging the distinction between harmful pain and therapeutic discomfort is vital in addressing kinesiophobia and achieving successful recovery and return to work.

Pain is a subjective experience. What one individual perceives as excruciating and unmanageable, another may consider uncomfortable but manageable. After an intense workout in the gym, some may find muscle discomfort to be a positive experience (proof of exercising) rather than a negative one. Personal perception of pain can significantly impact treatment and recovery. Recognizing that pain tolerance varies among individuals, it’s essential to tailor rehabilitation approaches to consider each worker’s pain threshold when developing treatment programs. Physicians and therapists who are not aware of these issues may find that surgery, other treatments, and physical therapy fail when not acknowledging and understanding issues like Kinesiophobia.

Sometimes, the anticipation of pain can be more daunting for injured workers than the actual pain they will experience. Each of us brings our unique life experiences and beliefs to the experience of pain.  Part of a Physical Therapist’s job is to manage the anticipatory fears of patients and have them perform required movements at a controlled intensity.  Once the patient experiences this minor pain, the fear diminishes.

Human memory has a fascinating way of moderating our perception of pain. I have little accurate memory of how severe the pain was after my shoulder surgery. I remember that I was “uncomfortable” but do not really remember the severity of the pain in the immediate days following the surgery. You may also reflect on not remembering the severity of the pain after a broken bone or even a stubbed toe. The phrase “Time heals all wounds” can be applied to most people who have had severe pain. Their perception of the pain severity fades over time.  Repeated instances of minor pain during home exercises will aid the change in perception from daunting pain to mere discomfort.  Digital health, such as Plethy’s Recupe app, are excellent at encouraging exercise adherence, thus creating these memories of minor discomfort.

Kinesiophobia is best treated by first recognizing its existence. One of the most common tools for diagnosing and evaluating the level of kinesiophobia is the Tampa Scale of Kinesiophobia (TSK), consisting of 17 self-reporting questions that assess levels of fear, pain catastrophizing, and disability.

It is important to note that despite the fear of physical activity, physical activity can also be a form of treatment (and often is the best treatment that will facilitate full recovery). There are specific strategies or techniques to help individuals manage the anticipation of pain effectively.

Kinesiophobia can be treated through a multidisciplinary approach, involving a rehabilitation physician, a psychologist, and a physical therapist.

The focus of most treatment includes counseling, reassurance, education, relaxation training, mirror therapy, and small incremental steps in treatment.  Proven treatment includes mindfulness exercises, cognitive-behavioral techniques, medication for anxiety and limited low-dose analgesics.  Active care activities, such as exercises in the home and clinic, are also key to reducing this fear through exposure.  Here, adherence is key, especially with home exercises as the patient will spend far more time at home than in the clinic.  Thus, Recupe and other digital health show great promise towards the treatment of kinesiophobia.

In concluding his article Mr. Zachary said “It is essential for claims professionals to engage in identifying potential cases and intervene to overcome the barriers.  If an injured worker refuses to return to light or modified duties, determining the underlying reasons, such as the fear of reinjury, is crucial. Providing this information to the doctor and supporting the appropriate clinic and home treatment can facilitate a more comprehensive approach to rehabilitation and recovery.”

Prices Set to Increase This Year on Over 500 Prescription Drugs

A storm is brewing in the world of medicine, with drugmakers poised to unleash a price hike on over 500 drugs this January. According to the report in Reuters, tt’s a decision that’s sending ripples through the entire system, leaving patients, governments, and even the drug companies themselves caught in the tide.

Pfizer, Sanofi, and Takeda plan to increase prices on over 500 unique drugs in early January. This includes more than 140 distinct brands of drugs across various doses and formulations. While overall price increases have slightly decreased compared to previous years, newly launched drugs continue to see significant price hikes, reaching record levels.

This decision comes despite the Biden administration’s efforts to control drug pricing through measures like the Inflation Reduction Act (IRA), which allows Medicare to negotiate prices for some drugs starting in 2026.

On the surface, it’s a classic case of supply and demand. Drugmakers point to rising costs, from inflation to research and development, as the reason for cranking up the price tags. They argue it’s the only way to keep the wheels of innovation turning and new life-saving drugs rolling out of their labs.

But not everyone is buying it. Critics see a system rigged against affordability, where transparency is as scarce as a magic cure. They worry about patients caught in the crossfire, forced to choose between their health and their wallets. The burden, they argue, falls heaviest on those already struggling to stay afloat, with potentially life-saving medications becoming another luxury they can’t afford.

This isn’t just a domestic squabble, it’s a global game of chess. Governments, tired of footing the ever-growing healthcare bill, are flexing their muscles. The US, for example, recently passed the Inflation Reduction Act, a game-changer that gives Medicare the power to negotiate prices for some drugs. It’s a tiny pebble in the pond for now, but its ripples could create waves across the industry.

For patients, the future is as murky as a medicine bottle label. Will they have to ration their pills, switch to cheaper (but potentially less effective) alternatives, or simply forgo treatment altogether? It’s a chilling proposition, leaving many scrambling for solutions – solutions that, like the perfect pill, remain elusive.

So, where does this story go? Will the drugmakers hold firm, clinging to their pricing power? Will governments find the right formula to tame the price monster? How much of this will be reflected in the cost of administrating workers’ compensation claims? Only time will tell, but one thing’s for sure – this is a story with no happy ending in sight, at least not yet.

L.C. 139.32 (b) Held Unconstitutional in Applicants Attorney Prosecution

Moses Luna has been practicing workers’ compensation law in California for roughly half a century. On May 12, 2021, the district attorney charged him in an amended complaint with 22 counts of felony insurance fraud pursuant to Penal Code section 550, subdivision (b)(3) (Penal Code section 550(b)(3)).

At the preliminary hearing, the district attorney presented evidence Luna opened a side business called Adelante Interpreters in 2011. Although Luna controlled and ran the business, he did not mention that on the incorporation papers. Instead, he listed his daughters as its acting officers. When Luna’s legal clients needed interpreter services in connection with their workers’ compensation claims, he invariably enlisted Adelante for those services. Adelante then made insurance claims for the cost of those services. All told, it received payments totaling over $100,000 from 22 different insurance carriers between 2016 and 2020. The parties stipulated those benefits would not have been paid had the carriers known of Luna’s interest in Adelante. He was bound over for trial at the conclusion of the preliminary hearing.

Luna filed a Penal Code section 995 motion to dismiss the information. Luna argued the Williamson rule barred his felony prosecution under Penal Code section 550(b)(3) because his alleged misconduct is specifically addressed in Labor Code section 139.32, which, inter alia, makes it a misdemeanor for workers’ compensation attorneys to refer clients to a business in which they have a financial interest. Luna also argued dismissal was warranted because section 139.32 is unconstitutionally vague, and his conduct falls within the safe harbor provisions of the statute.

The trial court concluded the Williamson rule precluded Luna’s felony prosecution under Penal Code section 550(b)(3). Although Luna prevailed on that issue, the trial court rejected his vagueness argument, and it found his safe harbor argument premature because it presented factual issues that needed to be fleshed out at trial. The court then amended the information by interlineation to change all 22 of the felony charges to misdemeanors under section 139.32. However, upon reconsideration, and at the parties’ request, the court vacated its amendments and dismissed the information altogether.

The Court of Appeal affirmed the trial court dismissal in the unpublished case of People v Luna -G062297 (December 2023).

This appeal turns on the applicability of the Williamson rule, which precludes criminal prosecution under a general statute if there is a more specific statute that applies to the defendant’s conduct. (In re Williamson (1954) 43 Cal.2d 651 (Williamson).)

Generally, when the defendant’s conduct violates more than one statute, prosecutors have the discretion to decide which statute to charge under. However, that discretion is not unlimited. Under the Williamson rule, if a general statute includes the same conduct as a special statute, the court infers that the Legislature intended that conduct to be prosecuted exclusively under the special statute. In effect, the special statute is interpreted as creating an exception to the general statute for conduct that otherwise could be prosecuted under either statute.

The general statute at issue here is Penal Code section 550(b)(3), which makes it unlawful for any person to “[c]onceal, or knowingly fail to disclose the occurrence of, an event that affects any person’s initial or continued right or entitlement to any insurance benefit or payment, or the amount of any benefit or payment to which the person is entitled.”

The special statute at issue is Labor Code section 139.32. Under subdivision (b) of the statute, all interested parties in the workers’ compensation system, including attorneys representing injured employees, are required to disclose any financial interest they have in an entity that provides services to an employee.

Thus “the rule precludes the prosecution from charging Luna pursuant to Penal Code section 550(b)(3) because his culpability under that general statute hinges on whether he violated section 139.32, a special statute which fits Luna’s alleged misconduct to a tee.

Since it was expected the prosecution will charge Luna with violating section 139.32 the Court of Appeal addressed his arguments respecting that prospect. To satisfy due process, a statute must give fair notice of the conduct proscribed and be sufficiently definite to prevent arbitrary and discriminatory enforcement. On the core vagueness question, it agreed with Luna that subdivision (b) of section 139.32 is unconstitutional.

The “statute does not provide any guidance as to whom disclosure must be made. Nor does it shed any light on when or how the requisite disclosure must be proffered. These shortcomings make the disclosure requirement both difficult to obey from a defense perspective, and difficult to enforce from a prosecutorial perspective. Since the requirement is susceptible of multiple interpretations and fails to provide reasonable notice of what it entails, we conclude it is too vague to enforce against Luna in this case.”

While “we strike down subdivision (b) of section 139.32 on vagueness grounds, we see no reason to invalidate the remaining portions of the statute.” “The trial court’s order dismissing the felony charges against Luna is affirmed. If the district attorney files misdemeanor charges against Luna under section 139.32, he cannot rely on subdivision (b) of the statute, which is void for vagueness.”

Public Self-Insured Claim Volume, Total Paid and Incurred Losses Decline

The CWCI reports that initial data on fiscal year (FY) 2022/23 public self-insured claims experience in the California workers’ compensation system show that public self-insured’s total claim volume, spurred by a sharp drop in indemnity claims, fell 16.8% in the 12 months ending June 30 of this year, which helped drive down public self-insured total incurred losses for the second time since the pandemic hit, while public self-insured total paid losses fell for the first time since the 2012 workers’ comp reforms were implemented a decade ago.

The annual summary of public self-insured data issued on December 5 by the Office of Self-Insurance Plans (OSIP) offers the first look at the workers’ comp experience of cities, counties, and other public self-insured entities for the 12 months ending June 30 of this year. The summary notes the number of medical-only and indemnity claims filed and the total paid and incurred losses on those claims. Compared to the initial summary from FY 2021/22, the new report shows California’s public self-insured work force increased by 3.4 percent to nearly 2.09 million workers last year, with wages and salaries for those workers totaling just under $162 billion. The public self-insured employers reported 120,328 claims last year, 24,348 fewer than the record 144,676 claims in the FY 2021/22 initial report, prompted in part by the influx of COVID-19 claims among public sector employees.

The distribution of the $510.3 million in total payments on the FY 2022/23 public self-insured claims at first report shows indemnity payments accounted for $317.1 million, $67.0 million (17.4%) less than in the prior year, while medical payments accounted for $193.2 million, $7.7 million (3.8%) less than in FY 2021/22.

However, with far fewer claims last year, that works out to an average benefit payment of $4,241 for the FY 2022/23 claims, 4.9% more than the comparable figure from FY 2021/22. The breakdown of the average payment shows public self-insureds averaged $2,636 in indemnity payments on FY 2022/23 claims, nearly matching the record $2,654 from the prior year’s first report, but average paid medical climbed to $1,605, up 15.6% from FY 2021/22.

The first report data on incurred losses (paid amounts plus reserves for future payments) show a slightly different pattern for public self-insured claim costs. Aggregate incurred losses on the FY 2022/23 claims totaled just under $1.54 billion, 8.3% less than the first report total from the prior year. In this case, the one-year decline in total incurred can be completely attributed to the decline in public self-insured claim volume, as unlike the average paid data, where the average indemnity payments were flat, the incurred results showed sharp increases in both the average incurred indemnity (+7.7%) and the average incurred medical (+12.5%), but the combined impact of those increases was not enough to offset the 16.8% reduction in claim volume, which drove the average incurred loss per claim up from $11,608 in FY 2021/22 to $12,309 in FY 2022/23 (+10.0%).

OSIP also compiles private self-insured claims data, which is reported on a calendar year basis rather than on a fiscal year basis, so the private self-insured data, which was posted in June, now lags the public self-insured data by 6 months. The next report on private self-insured experience should be released next summer. In the meantime, CWCI has issued a Bulletin that includes exhibits and additional details on the most recent public self-insurer paid and incurred losses, including comparative results from the past decade. Institute members and subscribers may access the bulletin by logging in at www.cwci.org. OSIP’s annual summaries for private and public self-insured employers from the past dozen years are posted online.

This is a correction to the WorkCompAcademy story published on December 18 which had incorrect data and conclusions. May we thank Bob Young at the CWCI for pointing out our mistake. Our apologies to our readers and the CWCI for our incorrect post.

December 18, 2023 – News Podcast


Rene Thomas Folse, JD, Ph.D. is the host for this edition which reports on the following news stories: Exclusive Remedy Applies to City, and Related Political Entities. Google to Pay Workers $27M – the Largest PAGA-Only Settlement to Date. Jury Awards Ex-Kaiser Nurse $41.49 Million in Retaliation Suit. Police Officer Fired for Cause Found Ineligible for Disability Retirement. LA-area Poultry Plants to Pay $3.8M for Child Labor Law Violations. $1.1M in Wages Recovered for Workers on a Public Works Project. QME With 3,005 WCAB Liens worth $29.4 M Faces 40 Fraud Charges. New Emergency Temporary Standard to Protect Workers from Silicosis. Hospitals Failing to Comply with Price Transparency Law. Trusted Medical Records Exchange Framework (TEFCA) is Now Operational.

Employer Excess Insurance Policies May Cover Whistleblower Litigation

On March 3, 2015, six officers in the Whittier Police Department, including Joseph Rivera filed a complaint against the City of Whittier in the Los Angeles County Superior Court. The complaint alleged the police department instituted ‘an unlawful citation and arrest quota in violation of California Vehicle Code sections 41600 et seq. on its officers, and illegally compared officers using shift averaging as a means of determining a benchmark for performance.” The complaint further alleged the police department “retaliated against those [who] refused to participate in and/or reported the unlawful citation and arrest quota,” including, inter alia, “negative language and/or documentation being placed in [plaintiffs’] personnel packages about their refusal to comply with the unlawful quota, unwarranted counseling sessions, unwarranted increased scrutiny, unwarranted transfers, [and] disparaging comments made about them.”

The City notified Everest National Insurance Company and Starr Indemnity and Liability Company about the Rivera action, advising that the plaintiffs sought damages exceeding $1 million and there was a potential for coverage under the insurers’ policies. Everest issued four public entity excess liability insurance policies to the California Insurance Pool Authority (CIPA), and included the City of Whittier as a named insured and member agency. The policies provided coverage for employment practice liability of $10 million per “wrongful act” in excess of a retained limit of $1 million. The Starr policies provided coverage for employment practice liability of $10 million per “wrongful act” in excess of a retained limit of $1 million.

Prior to trial, the City’s counsel notified the insurers of an upcoming mediation session and demanded that they attend. Everest’s and Starr’s coverage counsel attended the mediation, at which the City negotiated a settlement with the Rivera plaintiffs and agreed to pay $3 million to resolve the action. Neither Everest nor Starr consented to the settlement.

The City paid the $3 million, and the Rivera action never went to trial or resulted in a judgment. On December 24, 2019, counsel for CIPA and the City tendered the Rivera settlement to Everest and Starr for indemnity under their respective policies. The insurers denied the request for indemnity. The City filed a civil action against Everest and Starr, asserting causes of action for declaratory relief, breach of contract, and bad faith.

The insurers each moved for summary judgment, and the City moved for summary adjudication. The insurers contended retaliation claims under Labor Code section 1102.5 can be established only through proof of an employer’s willful acts, and Insurance Code section 533 therefore barred indemnity. Starr argued in the alternative that its policy required indemnification only of “damages” which did not include amounts paid in prejudgment settlement. In its motion, the City contended section 533 did not bar indemnity and therefore the insurers were in breach of the insurance contracts.

The trial court agreed with the insurers, after an agreed upon referee found no triable issue existed as to whether the insurers owed the City indemnification of the Rivera settlement. The referee reasoned that section 533 prohibits coverage for loss caused by an insured’s willful act, and whistleblower retaliation under Labor Code section 1102.5 an only be established by evidence of an employer’s motive and intent to violate or frustrate’ California’s Whistleblower laws. The referee granted the insurers’ motions for summary disposition and denied the City’s motion. The trial court adopted the referee’s statement of decision as its own.

The Court of Appeal reversed as to Everest in the partially published case of City of Whittier v. Everest Nat. Ins. Co. -B321450M (December 2023). In the unpublished portion of this opinion, the Court of Appeal agreed with Starr’s alternative argument that its specific policy language does not obligate it to indemnify the City for the settlement, and affirmed the judgment as to Starr under Starr’s alternative argument.

This appeal presents a question of first impression: whether Insurance Code section 533 under which “[a]n insurer is not liable for a loss caused by the wilful act of the insured,” bars indemnification for claims under Labor Code section 1102.5. Labor Code section 1102.5 prohibits, inter alia, retaliation against employees for reporting activity they have reasonable cause to believe is unlawful, or for refusing to participate in activity that actually is unlawful. Section 533 reflects a fundamental public policy of denying coverage for willful wrongs and discouraging willful torts.

However the Court of Appeal “found no case in California or elsewhere addressing whether section 533 bars coverage of claims under Labor Code section 1102.5. The trial court and the insurers analogize to B & E Convalescent Center v. State Compensation Ins. Fund (1992) 8 Cal.App.4th 78 and federal district court cases applying it, all of which address retaliation claims in contexts other than Labor Code section 1102.5.”

Here, the parties rely on jurisprudence, first developed in underlying sexual molestation and assault cases, that equates “willful” with inherently harmful or intentional. The Court of Appeal concluded that not all Labor Code section 1102.5 claims involve necessarily willful conduct, but rather some involve conduct more akin to negligence, the trial court erred when it found to the contrary in granting summary judgment in favor of Everest and Starr.

The Court noted “This is an important question whose answer will influence enforcement of our employment laws. How so? Retaliation claims are the most common employment claims in California. For fiscal years 2016 through 2022, retaliation claims of all types were the majority of charges filed in California with the United States Equal Employment Opportunity Commission. (See EEOC, FY 2009-2022 EEOC Charge Receipts for CA.) In 2019, retaliation was the most common basis for right-to-sue requests filed with the California Department of Fair Employment and Housing. (DFEH, 2019 Annual Report, at p. 9.)”

And after reading state federal case authorities it went on to say “Given the significant number of retaliation cases in our courts and importance of insurance in resolving those cases and securing compensation for injured employees, we tread carefully in applying the above jurisprudence to a new category of claims.”  

“The employer’s conduct in our scenario is not comparable to that in B & E Convalescent Center, where the employer retaliated against the employee for refusing to engage in activity that was illegal under clearly established law. Although whistleblower protections themselves are clearly established, the illegality of the underlying conduct the whistleblower is resisting may not be.”

“Doctrinally, the employer’s conduct in our scenario is closer to negligence than intentional misconduct.  The employer intends the act – the adverse employment action – but not the consequence – a violation of the employee’s rights under Labor Code section 1102.5, rights that do not become clear until a court has decided the legality of the conduct in which the employee refused to participate.”

Phillips Respironics Pays $2.4 Million for Giving Kickbacks to Sleep Labs

The U.S. Attorneys Office for the Southern District of California announced that Phillips Respironics, a manufacturer of durable medical equipment based in Pennsylvania, has paid $2,471,359.25 to resolve allegations that it violated the False Claims Act by giving kickbacks to sleep laboratories.

The Anti-Kickback Statute prohibits paying money or giving goods to induce referrals for medical services or items covered by a federal health care program, such as Medicare, Medicaid or TRICARE. Claims submitted to these programs in violation of the Anti-Kickback Statute give rise to liability under the False Claims Act.

The settlement resolves allegations that from 2016 through 2021, Philips RS North America LLC f/k/a Philips Respironics, Inc. provided sleep labs with free masks used to treat and diagnose sleep-related respiratory disorders to induce the labs’ physicians to write referrals or prescriptions for Respironics-brand masks that suppliers would fill and bill to federal health care programs.

“Respironics’ improper inducements corrupted the integrity of federal healthcare programs, including the Department of Defense’s (DoD) TRICARE program,” said Bryan D. Denny, Spec ial Agent-in-Charge of the DoD Office of Inspector General, Defense Criminal Investigative Service (DCIS), Western Field Office. “DCIS will continue to pursue those who defraud or attempt to defraud TRICARE, because those deceptive actions ultimately harm those defending our country and their families.”

This settlement was the result of a coordinated effort by the U.S. Attorney’s Office for the Southern District of California; the Defense Criminal Investigative Service; the Department of Health and Human Services, Office of Inspector General and Office of Counsel to the Inspector General; the Defense Health Agency Office of General Counsel; the Civil Division of the United States Department of Justice; and the National Association of Medicaid Fraud Control Units.

This case was prosecuted by Assistant U.S. Attorney Dylan M. Aste. The claims resolved by the settlement are allegations only, and there has been no determination of liability.

The kickback allegations are separate from the ongoing issues surrounding the recall of millions of Philips CPAP machines initiated in June 2021, due to concerns about a toxic sound abatement foam. Approximately 5.5 million CPAP, BiPAP, and mechanical ventilator devices are affected globally, due to concerns about potential health risks associated with the sound abatement foam used in these machines. The specific models and serial numbers involved can be found on the FDA website.

The degraded foam can potentially release particles, chemicals, and volatile organic compounds (VOCs) that users can inhale or swallow. These exposures may lead to irritation, inflammation, headaches, chest discomfort, and other respiratory problems. In some cases, more serious risks like lung cancer and other long-term health effects are also a concern.

Multiple lawsuits have been filed against Philips in the US and other countries, alleging negligence and harm caused by the defective devices.

In September 2023, Philips agreed to a partial $479 million settlement to compensate US patients for financial damages related to the recall.

Bellwether trials, intended to set precedents for future lawsuits, are now expected to begin in 2025.

9th Circuit Vacates it’s Decision on AB5 and Grants En Banc Rehearing

In the case of Olson v. California, 62 F. 4th 1206, decided in March 2023 by the Ninth Circuit Court of Appeals, a California-based Uber driver, Nicole Olson, challenged the constitutionality of Assembly Bill 5 (A.B. 5), the California law that redefined many app-based workers as employees instead of independent contractors. WorkCompAcademy reported on this case soon after it was published.

A.B. 5, as amended, codified the “ABC test” adopted by the Supreme Court of California in Dynamex Operations West, Inc. v. Superior Court of Los Angeles, 4 Cal. 5th 903 (2018), to categorize workers as employees or independent contractors for the purposes of California Labor and Unemployment Code provisions..However, A.B. 5 exempted a broad swath of workers from the Dynamex presumption.

Within a year of its enactment, A.B. 5 was amended by A.B. 170 and A.B. 2257. Both bills exempted even more workers from the Dynamex presumption.

Lydia Olson, Miguel Perez, Uber, Inc. and Postmates, Inc. filed a law suit in federal court to enjoin the State of California and the Attorney General of California , from enforcing California Assembly Bill 5 against them. The trial court denied a preliminary injunction, and the plaintiffs appealed. The 9th Circuit Court of Appeals heard argument in that case on November 18, 2020. However, on November 3, 2020, shortly before argument, Proposition 22 was adopted through California’s ballot initiative process.

Olson argued that A.B. 5 violated the Equal Protection Clause of the Fourteenth Amendment by creating an exemption for certain app-based businesses, like errand-running and dog-walking, while not exempting ride-sharing and delivery drivers like herself. This, she claimed, constituted unfair discrimination against a specific class of workers. The trial court ruled against her, and she appealed.

The 9th Circuit panel held that, even under the fairly forgiving rational basis review, Plaintiffs plausibly alleged that A.B. 5, as amended, violated the Equal Protection Clause for those engaged in app-based ride-hailing and delivery services. Thus, Plaintiffs plausibly alleged that the primary impetus for the enactment of A.B. 5 was the disfavor with which the architect of the legislation – Assemblywoman Lorena Gonzalez – viewed Uber, Postmates, and similar gig-based business models.
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Additionally, it ruled that Plaintiffs plausibly alleged that their exclusion from the wide-ranging exemptions, including for comparable app-based gig companies, could be attributed to animus rather than reason. The district court therefore erred by dismissing Plaintiffs’ equal protection claim.

The 9th Circuit panel therefore remanded the case for the district court to reconsider Plaintiffs’ motion for a preliminary injunction, considering the new allegations contained in the Second Amended Complaint.

This case was decided and published on March 17, 2023. Subsequently the Attorney General of California filed a Petition for Rehearing on April 28, 2023.

The Attorney General argued in it’s 62 page Petition that the decision was “a highly unusual departure from this Court’s consistent practice of affording States “wide latitude … in managing their economies.” And went on to provide examples such as “The equal-protection analysis in the panel opinion conflicts with the Court’s recent decision in American Society of Journalists (Am. Soc’y of Journalists & Authors Inc. v. Bonta 15 F.4th 954 (9th Cir. 2021)) – and many other decisions of this Court and the Supreme Court treating rational-basis review as “a paradigm of judicial restraint.”

Court Docket entries show a flurry of Amicus briefs were then filed by various interest groups arguing positions supporting the Petition for Rehearing including the states of Arizona, Washington, Connecticut, District of Columbia, Hawaii, Illinois, Maine, Maryland, Commonwealth of Massachusetts, Michigan, Minnesota, New Jersey, New York, Nevada, Commonwealth of the Northern Mariana Islands, Oregon and Vermont.

On December 18, 2023 The Court of Appeals for the 9th Circuit granted the Petition for Rehearing. The order said “Upon the vote of a majority of nonrecused active judges, it is ordered that this case be reheard en banc pursuant to Federal Rule of Appellate Procedure 35(a) and Circuit Rule 35-3. The three-judge panel opinion is vacated.

En banc oral argument will take place during the week of March 18, 2024, in San Francisco, California. The date and time will be determined by separate order.