Author: WorkCompAcademy

The California Insurance Commissioner announced a major legal action against Mercury Insurance for violating consumer protection laws, including by selling Mercury’s highest-priced policy to “good drivers” instead of the lowest-priced policy for which good drivers qualify. This legal enforcement action comes after a Department investigation found numerous areas where Mercury’s business practices harmed policyholders across its private passenger auto, homeowners, commercial auto, and commercial multi-policy lines of insurance.

This action comes after Mercury previously paid a $27.6 million fine in August 2019 that was levied by the Department of Insurance, the largest fine against a property and casualty insurer in Department history. The California Supreme Court upheld the Department’s action finding Mercury charged consumers unapproved and unfairly discriminatory rates.

Like that case, the Department’s latest legal action against Mercury also alleges numerous violations of Proposition 103, passed by the voters in 1988 to allow the Insurance Commissioner to protect consumers from excessive and unfairly discriminatory rates.

By passing Proposition 103 in 1988, California voters mandated a 20 percent “good driver discount” for consumers who maintain a safe driving record. The Department’s investigation found that Mercury attempted to evade the requirements of Proposition 103 by steering good drivers into a higher-priced plan.

Mercury maintains two insurance companies in California: Mercury Insurance Company (MIC), which is exclusively for “good drivers” and charges lower rates, and California Automobile Insurance Company (CAIC), which charges higher rates for nearly identical coverage and insures all drivers. The Department’s investigation found a number of ways that Mercury illegally sold and steered drivers to its company with the higher-priced plan, including:

– – Directing its agents to provide quotes in its higher-priced plan using artificially low mileage, giving the appearance of lower rates in order to entice consumers.
– – Directing its agents to refuse to sell a lower-priced policy if a good driver had been canceled for non-payment of premium or had an accident for which the driver was not at fault, neither of which is allowed under law.
– – Only offering a monthly payment option in the higher-priced plan.
– – Dissuading good drivers from switching to the lower-priced plan with misleading language for the nearly identical plans, including using language such as “an [MIC] policy may be offered for a lower premium, but also provides somewhat less coverage and more restrictive payment options than the [CAIC] policy you currently have.”
– – Falsely representing that both plans charge policy fees, when in fact only the higher priced plan charged policy fees.
– – Subjecting good drivers without prior coverage to different terms and conditions than other drivers.

The Department alleges that Mercury also overcharged businesses and homeowners in other lines of insurance through a variety of illegal practices that resulted in unfairly discriminatory rates. For instance, Mercury increased premiums for commercial drivers who had been in an accident where they were not at fault and charged a higher premium for commercial drivers who had previously held a Mercury policy but failed to satisfy a requirement that they be listed as the named policyholder with another company for the previous two years, treating them as if they were new drivers.

The allegations – 34 in all – are detailed in the Department’s Notice of Non-Compliance.

The New York Attorney General filed an antitrust lawsuit in a state court in Manhattan last Thursday against CVS Health Corp., saying it forced hospitals that serve the state’s low-income patients to pay millions of dollars for exclusive access to discounted prescription drugs.

The Attorney General claims that CVS did not allow New York safety net hospitals and clinics to use the company of their choice to obtain subsidies on prescriptions filled at CVS pharmacies through the 340B federal program. This program allows safety net hospitals and clinics to purchase certain drugs at a discount from pharmaceutical companies and use the savings for patient care. Safety net health care providers in New York obtain substantial savings from the 340B program, which are critical to their viability and to the health of the surrounding community. To realize the benefits of the 340B program, safety net hospitals and clinics must contract with the pharmacies that are used by their patients. Under the CVS scheme, thousands of safety net health care providers across the state were only allowed to use Wellpartner to process claims filled at CVS retail and specialty pharmacies, forcing them to incur millions of dollars in additional costs to hire and train staff and change their data systems to align with Wellpartner’s system.

The lawsuit alleges that New York patients were the ultimate victims of CVS’s unfair practice, which siphoned off critical federal funding from safety net health care providers that could have used the funds to improve access to health care for the neediest New Yorkers – including New Yorkers without health insurance or an ability to pay for health care.

As of 2021, there were more than 4,440 safety net health care providers enrolled in the 340B program across New York, which include Federally Qualified Health Centers (FQHCs), critical access hospitals, Ryan White HIV/AIDS Program grantees, rural referral centers, sole community hospitals, black lung clinics, community health centers, family planning clinics, and tuberculosis clinics. These facilities primarily treat low-income patients and rely on 340B savings to fund patient care services to underserved and vulnerable populations.

Safety net health care providers bear full legal responsibility for keeping records and may only collect 340B revenues on certain prescriptions, including patient prescriptions for medications used to treat HIV/AIDS and hepatitis C. Most safety net providers contract with a third-party administrator, or TPA, to administer their 340B programs. The TPAs confirm eligibility for each transaction and keep detailed records, as required by the federal 340B program rules.

In 2017, CVS acquired a TPA, Wellpartner, and began requiring New York hospitals to use Wellpartner rather than another TPA. The Office of the Attorney General’s (OAG) investigation found CVS pharmacies did not contract with hospitals that do not use Wellpartner as their TPA, a violation of New York’s antitrust laws. Since there was no contract, the hospitals and clinics were unable to collect 340B funds that were rightfully theirs. Hospitals and clinics had little choice – they either had to go along with CVS’s self-serving scheme, or simply forgo the benefits to which they were otherwise entitled under the 340B program.

The OAG found that CVS’s plan was to leverage the strength of its retail pharmacy network in New York to force hospitals to use Wellpartner, rather than any other TPA. Many hospitals objected because they were already using other TPAs.

The lawsuit alleges that CVS’s actions undermined the goal of the 340B program and hurt the financial condition of safety net health care providers. CVS required health care providers to transition at a significant cost to Wellpartner if the hospitals wanted to obtain 340B revenues from prescriptions filled at CVS pharmacies. Many hospitals switched to Wellpartner for all their 340B needs because it was not practical or economical to pay for two TPAs. In addition, CVS knew that the 340B program rules do not allow hospitals to steer patients away from certain pharmacies, so health care providers had no choice in practice — if they didn’t go along with CVS’s tying scheme, they simply couldn’t collect 340B savings for patients who choose to go to CVS pharmacies.

Through her lawsuit, the Attorney General is seeking injunctive relief, equitable monetary relief for the lost revenue and additional costs safety net health care providers were forced to incur, and civil penalties for CVS’s unfair and illegal business practices. In addition, the Attorney General seeks to require CVS to inform all safety net health care providers that they are not required to exclusively use Wellpartner.

“These allegations are without merit and we will defend ourselves vigorously,” CVS said in a statement.

Teva, an Israel-based drug manufacturer, makes Actiq and Fentora, which are branded fentanyl products for cancer pain, and a number of generic opioids including oxycodone. Teva has reached an agreement in principle with the working group of States’ Attorneys General, counsel for Native American Tribes, and plaintiffs’ lawyers representing the States and subdivisions, on the primary financial terms of a nationwide opioids settlement.

The California Attorney General also said that an agreement in principle on key financial terms with opioid manufacturer Teva. The agreement would provide up to $4.25 billion to participating states and local governments to address the opioid crisis. While critical details of the settlement remain the subject of ongoing negotiations, Teva disclosed the agreement Tuesday ahead of its earnings announcement Wednesday.

States alleged that Teva:

– – Promoted potent, rapid-onset fentanyl products for use by non-cancer patients;
– – Deceptively marketed opioids by downplaying the risk of addiction and overstating their benefits, including encouraging the myth that signs of addiction are actually “pseudoaddiction” treated by prescribing more opioids; and
– – Failed to comply with suspicious order monitoring requirements along with its distributor, Anda.

The parties have agreed on the following financial terms:

– – Teva will pay a maximum of $4.25 billion in monetary payments over 13 years. This figure includes amounts Teva has already agreed to pay under settlements with individual states, funds for participating states and local governments, and the $240 million of monetary payments in lieu of product described below.
– – As part of the financial term, Teva will provide up to $1.2 billion in generic naloxone (valued at Wholesale Acquisition Cost or WAC) over a 10-year period or $240 million of cash in lieu of product, at each state’s election. Naloxone is used to counteract overdoses.
– – The settlement will build on the existing framework that states and subdivisions have created through other recent opioid settlements.

States, localities and tribes must ratify the proposed settlement, and a final settlement remains contingent on agreement on critical business practice changes and transparency requirements. The agreement is also contingent upon final documentation among the working group and Teva, and reaching the thresholds for participation that will be set forth in the final agreement.

The agreement is also contingent upon Teva reaching an agreement with Allergan with respect to any indemnification obligations, and Allergan reaching a nationwide opioids settlement.

There are no remaining trials currently scheduled against Teva in 2022, with the possible exception of the relief phase of the trial in the New York opioids litigation; additionally, Teva, New York State, and its subdivisions are engaged in ongoing settlement negotiations.

The negotiations are being led by the following states: California, Illinois, Iowa, Massachusetts, New York, North Carolina, Pennsylvania, Tennessee, Texas, Vermont, Virginia, and Wisconsin. While New York is among the 12 states that negotiated this proposed settlement framework, Teva and New York are still engaged in further negotiations.

The Workers’ Compensation Insurance Rating Bureau of California has released its Quarterly Experience Report. This report is an update on California statewide insurer experience valued as of March 31, 2022.

Written premium for 2021 was 1.4% below that for 2020 and is the lowest since 2012. Premium declined sharply beginning in the second quarter of 2020 due to the economic downturn resulting from the pandemic. The modest decrease in written premium for 2021 was driven by continued insurer rate decreases offsetting growth in employer payroll.

However written premium for the first quarter of 2022 is 22% above that for the first quarter of 2021 and 5% above that for the first quarter of 2020 (which was pre-pandemic).

The average charged rate for the first quarter of 2022 is 3% below that of 2021 and is the lowest in decades. In the September 1, 2022 filing, the WCIRB proposed an average 7.6% increase in advisory pure premium rates. Nonetheless, in the Decision on the Filing, the Insurance Commissioner did not approve any change in the average advisory pure premium rate.

The projected loss ratio for 2021, including COVID-19 claims, is 5 points above that for 2020 and 11 points above that for 2019. Projected loss ratios have been growing steadily since 2016.

The projected combined ratio for 2021, including COVID-19 claims, is 7 points higher than in 2020 and 33 points higher than the low point in 2016. Excluding COVID-19 claims, the projected combined ratio for 2021 is 110% and the projected ratio for 2020 is 99%, which are still higher than recent prior years.

Combined ratios have been growing in California due to insurer rate decreases and modest growth in average claim severities.

Indemnity claims had been settling quicker through the first quarter of 2020, primarily driven by the reforms of SB 863 and SB 1160. Average claim closing rates have plateaued in 2021 and 2022 but remain lower than the immediate pre-pandemic period.

Cumulative trauma (CT) claim rates increased through 2016 to be 80% above the 2005 level. CT claim rates were relatively consistent from 2016 through 2019. Preliminary data shows a sharp increase in CT claim rates in 2020, likely driven by shifts in claim patterns during the pandemic period. In particular, the 2020 increase in CT claim rates is largest in industry sectors that had the largest job losses in 2020.

Projected total claim severity for 2021, excluding COVID-19 claims, is 1% below 2020 but 12% above 2017. Following several years of flat indemnity severities, the projected indemnity severity for 2021 is 2% higher than 2020 and 19% higher than 2017. Recent growth in indemnity claim severities has been in part driven by higher-than-typical average wage inflation over the last two years.

The full WCIRB Quarterly Experience Report – As of March 31, 2022 is in the Research section of the WCIRB website.

In 2015, Wood Ranch USA, Inc. hired Sunny Gallo to work as a server for its chain of restaurants.

As a condition of her employment with Wood Ranch, she was required to sign an arbitration agreement and to agree to the terms of the employee handbook. The employee handbook reinforces the parties’ agreement that they will look to the California Arbitration Act, including its “procedural provisions,” ‘to conduct the arbitration and any pre-arbitration activities.”

Her employment was terminated in March 2018. In January 2020, she sued Wood Ranch for compensatory and punitive damages on nine different causes of action based upon alleged discrimination and harassment on the basis of gender and religion.

Wood Ranch moved to compel arbitration. The trial court in July 2020 granted the motion and stayed the pending court proceedings. The agreed upon arbitrator was affiliated with the American Arbitration Association (AAA). Both parties were asked to pay necessary fees which Gallo paid, but the November 4 due date came and went without any payment from Wood Ranch.

AAA extended the payment time to December 4, 2020 warning that the arbitration would be closed if not paid on time. On December 10, 2020 Wood Ranch paid the $1,900 fee which was two days late.

On December 16, 2020, plaintiff filed a motion to vacate the trial court’s prior order compelling arbitration, which was granted. The court ruled that Code of Civil Procedure sections 1281.97 and 1281.99 were not preempted by the Federal Arbitration Act.

Wood Ranch appealed. The Court of Appeal affirmed the trial court in the published case of Gallo v Wood Ranch USA Inc., B311067 (July 2022).

In 1961, the California Legislature enacted the California Arbitration Act (CAA) (§ 1280 et seq.) as a way to protect the right of private parties to resolve their disputes through the “efficient, streamlined procedures” of arbitration.

Perceiving that employees and consumers were being placed in a “procedural limbo” when they were forced to sign arbitration agreements by entities who subsequently refused to pay the necessary fees to allow the arbitrations to move forward, in 2019 the California Legislature enacted Code of Civil Procedure sections 1281.97, 1281.98 and 1281.99.

These provisions obligate a company or business who drafts an arbitration agreement to pay its share of arbitration fees by no later than 30 days after the date they are due, and specify that the failure to do so constitutes a “material breach of the arbitration agreement” that gives the employee or consumer, in addition to a mandatory award of attorney fees and costs related to the breach as well as other discretionary sanctions, the options of either (1) continuing in arbitration with the company or business paying attorney fees and costs related to the arbitration as a whole or (2) withdrawing from arbitration and resuming the litigation in a judicial forum.

This appeal presented a question of first impression: Are these provisions preempted by the Federal Arbitration Act (FAA) (9 U.S.C. § 1 et seq.)?

The court of appeal held that they are not because the procedures they prescribe further – rather than frustrate – the objectives of the FAA to honor the parties’ intent to arbitrate and to preserve arbitration as a speedy and effective alternative forum for resolving disputes.