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Court Elaborates Rules for Insurer Bad Faith in $26M Judgment

Maryam Hedayati suffered catastrophic injuries when Auto Club’s insured, Maurice Vanwyk, ran a red light and struck her in a pedestrian crosswalk. The accident severed one of Hedayati’s legs at the scene, shattered the other, and left her in a coma with broken bones throughout her body. Forty-three years old and a recent medical school graduate at the time, Hedayati was struck while walking as she took a break from studying for her medical board examinations.

The insured driver immediately notified Auto Club of the accident and authorized the Club to disclose his policy limits ($25,000); he also informed Auto Club he had no other insurance or assets. Auto Club’s policy with its insured required him to relinquish to the Club his right to negotiate settlement of potential tort claims falling within the policy. When he inquired about a release, Auto Club inaccurately told its insured driver Hedayati was not willing to sign one.

Despite repeated requests during settlement negotiations from Hedayati’s attorney, Auto Club initially declined to disclose the insured’s policy limits; eventually it relented, but even then Auto Club declined to provide written proof of those limits, which the Club knew was common practice to facilitate a settlement. Auto Club then withheld from Hedayati’s counsel the insured’s written declaration which indicated he had no other insurance, which the Club had confirmed, and the insured’s statements that he had no assets.

Auto Club also, despite multiple requests from Hedayati’s lawyer, failed to provide a copy of its insured’s policy which Hedayati’s lawyer needed to verify its terms.

Auto Club ultimately failed to settle the matter within its $25,000 policy limits. Hedayati subsequently obtained a $26 million judgment against the insured driver, along with assignment of the insured’s claim against the Club for breach of the covenant of good faith and fair dealing implicit in its policy with him.

In following litigation filed by Hedayati for bad faith against Auto Club, Auto Club moved for summary judgment, which was granted by the trial court. The Court of Appeal reversed in the published case of Hedayati v Auto Club.

The trial court explained it “must be guided by how case law defines bad faith” and agreed with “the definition [of bad faith] as an unreasonable refusal to accept a settlement offer within policy limits.” The court, however, reiterated its conclusion that Auto Club “never refused any of plaintiff’s policy limits settlement demands.” According to the court, “All plaintiff has shown is that defendant failed to respond by plaintiff’s self-imposed, arbitrary deadline to a demand defendant received the day before Thanksgiving for not just $25,000, but also for a signed declaration from the insured attesting to certain facts.”

The Court of Appeal carefully reviewed the law of insurance bad faith, and pointed out several errors in the ruling by the trial court. Good faith and fair dealing requirements obligate insurers to make reasonable efforts to settle claims against their insureds. An insurer that unreasonably fails to accept a settlement demand that falls within the policy limits of its insured acts in bad faith. An insurer may also be liable if it breaches other duties owed to the insured, such as the duty to investigate or the duty to communicate, and that breach prevented the insurer from settling the claim within policy limits. A liability insurer has a duty to communicate to its insured any settlement offer that could affect the insured’s interests, particularly where action is required by the insured to secure the settlement.

There was therefore a triable issue of bad faith, and summary judgment was not justified.

California Orders Teachers to be Vaccinated or Tested

The California Department of Public Health (CDPH) issued a new public health order on August 11, requiring all school staff to either show proof of full vaccination or be tested at least once per week.

The new policy for school staff will take effect August 12, 2021, and schools must be in full compliance by October 15, 2021. Robust and free testing resources are available to K-12 schools through the CA K-12 schools testing program.

In recent weeks, California claims it has led the nation in implementing measures to slow the spread of COVID-19, including:

– – Vaccine verification for state workers. Requires all state workers to either show proof of full vaccination or be tested at least once per week, and encourages local governments and other employers to adopt a similar protocol. Following California’s announcement, some of the largest California businesses and local governments followed suit, as did the federal government.
– – Vaccinations for health care workers. Requires workers in health care settings to be fully vaccinated or receive their second dose by September 30, 2021.
– – Universal masking in K-12 settings. Aligned with guidance from the CDC and American Academy of Pediatrics, California was the first state to implement universal masking in school settings to keep students and staff safe while optimizing fully in-person instruction.
– – Medi-Cal vaccination incentives. $350 million in incentive payments to help close the vaccination gap between Medi-Cal beneficiaries and Californians as a whole, significantly stepping up outreach in underserved communities.
– – Statewide mask recommendation. In response to the spike in COVID-19 hospitalizations and new CDC guidance calling for masking, the state recommended mask use for indoor public settings regardless of vaccination status.

​CDPH said that the COVID-19 pandemic remains a significant challenge in California. COVID-19 vaccines are effective in reducing infection, serious disease, hospitalization, and death. At present, 63% of Californians 12 years of age and older are fully vaccinated with an additional 10% partially vaccinated. Children under the age of 12 are not currently eligible for any authorized vaccines.

And the CDPH added that California is currently experiencing the fastest increase in COVID-19 cases during the entire pandemic with 22.7 new cases per 100,000 people per day, with case rates increasing tenfold since early June. The Delta variant, which is two times more contagious than the original virus, is currently the most common variant causing new infections in California.

WC Air Ambulance Fee Schedule Preempted by Federal Law

According to the Association of Air Medical Services, more than a half a million individuals are transported via air ambulance services each year. The majority of these transports are via helicopter in emergency situations; the remainder are fixed-wing transports for longer distances. Air ambulance companies successfully claimed that they were exempt from state fee schedules in litigation for more than a decade.

At one time, California Administrative Director Rule 9789.70(a) regulated ambulance services fees. The ambulance fee schedule as applied to air ambulance services was challenged by those providers in California.

Ultimately, the WCAB issued an en banc decision in 2013 ( Luis Enriquez (deceased) v Couto Dairy and Zenith Insurance Company ) conceding the preemption of federal law over Official Medial Fee Schedule limits if the air ambulance provider could establish that they were an “air carrier” that provides air transportation within the meaning of the Airline Deregulation Act, and that this Act would then preempt any California law.

This more or less ended the controversy in California workers’ compensation. And decisions in other jurisdictions had a similar result until a recent Texas Supreme Court Decision.

Excessive helicopter transport bills were the crux of the lawsuit in PHI Air Medical, LLC v. Texas Mutual Insurance Company, et al. A trial court rendered judgment in favor of eight plaintiff insurers, which included Texas Mutual Insurance Company and Hartford Underwriters Insurance Company, who disagreed with PHI’s per-trip charge for medically transporting injured workers.

In Split June 26, 2020 Opinion, the Supreme Court of Texas Rejected the Preemption Argument in Worker’s Compensation Disputes in the case of Tex. Mut. Ins. Co. v. PHI Air Med., LLC, 610 S.W.3d 839 (Tex. 2020), cert. denied, _ S. Ct. _, 2021 WL 1602647 (Apr. 26, 2021).

However, a similar case made its way into the Federal court system in Texas, on the same issue. Air Evac EMS, Inc., is an air ambulance provider that offers medical transport services to a wide variety of patients. That includes patients who are injured at their workplace. The price that Air Evac may charge for such transportation is accordingly subject to conflicting regulatory regimes.

Two of the Fifth Circuit sister circuits have unanimously held that the ADA preempts price controls on air ambulance services set by state workers’ compensation regulations. See Air Evac EMS, Inc. v. Cheatham, 910 F.3d 751 (4th Cir. 2018); EagleMed LLC v. Cox, 868 F.3d 893 (10th Cir. 2017).

Now the Fifth Circuit Court of Appeal agreed, and reversed the Texas Supreme Court position. In Air Evac EMS, Incorporated v Texas Commissioner of Insurance (2021).

“In doing so, we agree with our sister courts of appeals, which have unanimously held that the ADA preempts state price caps on air ambulance reimbursements, and that those state price caps are not saved by the McCarran- Ferguson Act. And we disagree with the Texas Supreme Court, which has reached contrary conclusions by a divided vote.”

Court Rules Against Amazon in COVID Safety Case

Courthouse News reports that a federal judge on Tuesday dismissed Amazon’s lawsuit seeking to block New York Attorney General Letitia James’s investigation into its worker safety protocols during the early days of the Covid-19 pandemic.

According to James, Amazon failed to institute reasonable safety measures at two facilities – a Staten Island fulfillment center called JFK8 and a Queens distribution center called DBK1 – that have a combined workforce of 5,000 employees.

In addition to ignoring its duty to follow cleaning and disinfecting requirements, according to the complaint, Amazon would fail to identify or notify employees potentially exposed to the virus through their contact with co-workers in the same facilities who wound up positive for the virus that causes Covid-19.

After workers complained and protested the pandemic conditions one was fired and another was issued a final written warning. James calls that action retaliatory, while Amazon argues the disciplinary measures were the result of the in-person protests thwarting social distancing rules.

The state matter took a trip to federal court but landed back in New York County in April and remains pending.

Separate from the ongoing state matter was the now-dismissed complaint in the Eastern District of New York, which Amazon – aware of James’ investigation – filed less than a week before James did.

The company had argued that the state was preempted by federal worker safety laws under the Occupational Safety and Health Administration.

U.S. District Judge Brian M. Cogan, a George W. Bush appointee, disagreed.  “Here, the Attorney General’s state action seeks to enforce state labor laws and health and safety regulations, and to sanction an employer for allegedly illegal conduct that occurred within the state,” he wrote in the 11-page order.

“In other words, the general nature of the Attorney General’s state case is the enforcement of the state’s laws, particularly those aimed at protecting the health and safety of its citizens. Such an action goes to a fundamental interest of the state as a sovereign,” he added.

State court is an adequate forum to review Amazon’s federal claims, Cogan ruled, noting that Amazon has already asserted the same preemption arguments in a pending motion to dismiss the state proceeding.

The company failed to explain why it can’t seek the injunctive relief in wants through a counterclaim in the existing state court proceeding, the judge wrote.

Plaintiffs’ Prevail in $87M Roundup Cancer Case Appeal

A string of victories by plaintiffs in the several Monsanto Roundup cancer cases may be paving the way for workers’ compensation subrogation, should those cases be filed by California farm workers as industrial injuries. A new published opinion in California continues to be favoring plaintiffs.

Alberta Pilliod and her husband, Alva Pilliod, each developed non-Hodgkin’s lymphoma after years of spraying Roundup herbicide on their property.

The Pilliods sued Monsanto Company, the manufacturer of Roundup, for damages based on claims of design defect and failure to warn. After a six-week trial, the jury found for the Pilliods, awarded Alberta over $37 million in compensatory damages, awarded Alva over $18 million in compensatory damages, and awarded each of them $1 billion in punitive damages.

The trial court conditionally denied Monsanto’s motion for new trial, contingent on the Pilliods’ acceptance of substantially reduced compensatory and punitive damages, resulting in a total award to Alberta of about $56 million (including about $45 million in punitive damages) and a total award to Alva of about $31 million (including about $25 million in punitive damages). The Pilliods accepted the reductions.

On appeal, Monsanto argues that the Pilliods’ claims are preempted by federal law, the jury’s liability findings are not supported by substantial evidence, the jury was improperly instructed as to the Pilliods’ design defect claim, the jury’s causation findings are legally and factually flawed, the trial court abused its discretion by admitting certain evidence, and the verdict is the product of attorney misconduct.

Monsanto also argues that the punitive damages awards should be stricken or further reduced because they are unsupported by evidence and constitutionally excessive.

In their cross- appeal, the Pilliods argue that the trial court erred in reducing the jury’s awards for compensatory and punitive damages.

The trial court was affirmed in the published option of Pilliod v Monsanto.

The 84 page decision carefully reviewed the scientific evidence, and the history of the plaintiffs’ use of the evidence, and found that it supported the final result.

Monsanto argued that the Pilliods’ claims, which are brought under California common law, are preempted by the Federal Insecticide, Fungicide, and Rodenticide Act (FIFRA, 7 U.S.C. § 136 et seq.), which governs the use, sale, and labeling of pesticides, including herbicides. On that basis, Monsanto contends that the Court of Appeal should reverse the judgment and direct the trial court to enter judgment for Monsanto.

The Court was not persuaded by their argument. The supremacy clause of the United States Constitution “makes federal law paramount, and vests Congress with the power to preempt state law.” However, California common law does not impose any requirements that are different from or in addition to the requirements of FIFRA.

San Mateo County Medical Center Resolves Fraud Claim for $11.4M

San Mateo County Medical Center and San Mateo County (collectively SMMC), located in California, have agreed to pay approximately $11.4 million to resolve alleged violations of the False Claims Act for submitting or causing the submission of claims to Medicare for non-covered inpatient admissions.

Medicare reimburses only services that are reasonable and necessary for the diagnosis or treatment of illness or injury.

The United States alleged that, from Jan. 1, 2013, through Feb. 28, 2017, SMMC admitted certain patients for whom inpatient care was not medically reasonable or necessary, including patients who were admitted for reasons other than medical status, including social reasons and lack of available alternative placements.

SMMC billed Medicare for such patients despite SMMC’s knowledge that the costs for admitting them were not reimbursable by Medicare.

In connection with the settlement, SMMC entered into a five-year Corporate Integrity Agreement (CIA) with the U.S. Department of Health and Human Services Office of Inspector General. The CIA requires SMMC to engage an independent review organization that will perform annual reviews of inpatient admissions that SMMC bills to federal health care programs.

The civil settlement includes the resolution of claims brought under the qui tam or whistleblower provisions of the False Claims Act by Felix Levy, a former employee of San Mateo County Medical Center.

Under those provisions, a private party can file an action on behalf of the United States and receive a portion of any recovery. The qui tam case is captioned United States ex rel. Levy v. San Mateo County and the San Mateo County Medical Center, C.A. No. 16-CV-5881 (N.D. Cal.).

The resolution obtained in this matter was the result of a coordinated effort between the Civil Division’s Commercial Litigation Branch, Fraud Section; the U.S. Attorney’s Office for the Northern District of California; and the Department of Health and Human Services Office of Inspector General.

The matter was handled by Trial Attorneys Danielle Sgro and Diana Cieslak and Assistant U.S. Attorneys Michael Pyle, Sharanya Sai Mohan and Jonathan Lee, with assistance from Jonathan Birch and Garland He.

The claims resolved by the settlement are allegations only, and there has been no determination of liability.

Employer Mandated Vaccinations Face Union Headwinds

The San Francisco Sheriff’s Association, the union representing officers in the San Francisco Sheriff’s Department, said that many sheriff’s deputies would resign if the department sought to enforce a new coronavirus vaccine mandate.

In a Facebook post on Friday, the union wrote that the city’s mandate, which threatens termination for noncompliance, was out of step with Gov. Gavin Newsom’s own mandate, which at least offered regular testing as an alternative:

– – The SFDSA has always promoted Covid-19 Safety and has given out masks as well as face shields to first responders and the public during the peak of the pandemic. We believe the data and science speaks for itself and that masking works.
– – The problem we are faced with now is the strict San Francisco Mandate which is vaccinate or be terminated. If deputy sheriffs are forced to vaccinate a percentage of them will retire early or seek employment elsewhere.
– – The majority of Deputy Sheriffs are vaccinated. Approximately 160 out 700 Deputy Sheriffs are not vaccinated prefer to mask and test weekly instead of being vaccinated due to religious and other beliefs. Currently, the staffing at the SFSO is at the lowest it has ever been due to the past 9-month applicant testing restriction placed on the Sheriff’s Office by the Mayor.
– – San Francisco cannot afford to lose any more deputy sheriffs or any first responders. If they retire early or quit this will affect public safety even more. We would like San Francisco to be in alignment with the state guidelines which are require vaccination or test weekly.

San Francisco already faces a crisis in law enforcement, with petty crime soaring and Mayor London Breed proposing to redistribute $120 million from law enforcement to social programs (the final budget increased police funding, using the city’s general fund to provide the money for alternatives to policing, rather than cutting police funding directly)

And other California employers are facing similar headwinds. Disney revealed its new policy last week requiring employees to be vaccinated. That, however, only applied to salaried, and non-union cast members and not the 38,000 union members who make the bulk of the workforce.

The president of Local 362, which represents many cast members, including those in attractions and custodial, says the six unions making up the Service Trades Council have been negotiating with Disney all week and plan to continue doing so.

And union opposition appears in other states as well. The New York State United Teachers union voiced opposition after Gov. Andrew Cuomo encouraged schools to adopt such requirements.

Telehealth Services Added to OMFS and CMS Fee Schedules

The Division of Workers’ Compensation (DWC) has posted an order adjusting the Physician and Non-Physician Practitioner Services section of the Official Medical Fee Schedule (OMFS) to conform to relevant 2021 changes in the Medicare payment system as required by Labor Code section 5307.1.

The Administrative Director update order adopts the Center for Medicare and Medicaid Services’ revised Medicare Telehealth List posted to the Centers for Medicare and Medicaid website July 19, 2021.

The revised list is adopted for services rendered on or after August 1, 2021. The Order can be found at the DWC OMFS physician fee schedule webpage.

On July 23, 2021, the Centers for Medicare & Medicaid Services (CMS) published its annual proposed changes to the Medicare Physician Fee Schedule (MPFS), which include several key telehealth and other virtual care-related proposals.

The proposals address long-standing restrictions that have historically limited the use of telehealth and virtual care, including geographic and originating site restrictions, and limitations on audio-only care, as well as coverage extensions for some services added during the COVID-19 public health emergency.

These proposals include: – – The implementation of the Consolidated Appropriations Act, 2021 (CAA) in-person visit requirement for mental health services that either do not meet Medicare’s typical geographic restrictions or occur when the originating site is the patient’s home, regardless of geography
– – The ability for certain mental health services to be delivered via audio-only communications when patients are located in their homes (however, in these cases, the provider would also be required to comply with the in-person visit requirement described above)
– – The extension of coverage of the services was temporarily added to the Medicare telehealth services list (Category 3 services) through the end of CY 2023 to allow more time for evaluation, and the rejection of proposed new, permanent Medicare telehealth services
– – The permanent adoption of HCPCS Code G2252 for extended virtual check-ins, which was established on an interim basis in the CY 2021 MPFS.

Survey Shows 61% Physician Pandemic Related Burnout

The Physicians Foundation released the 2021 Survey of America’s Physicians, COVID-19 Impact Edition: A Year Later, that examines how COVID-19 has affected the nation’s physicians more than a year since the start of the pandemic, from increased burnout rates to the continued epidemic of physician suicide.

Over the past year, COVID-19 has greatly impacted physician wellbeing and mental health, with over 6 in 10 physicians (61%) reporting they experienced feelings of burnout.

This is a significant increase from the 40% of reported physicians in 2018. Yet only 14% of physicians reported they sought medical attention for their mental health symptoms.

Additionally, 8% of physicians indicated they have increased their use of medications, alcohol or illicit drugs weekly as a result of COVID-19’s effects on their practice or employment situation.

A total of 46% of physicians said they have isolated or withdrawn from other people in the last year, more than one in three said they felt hopeless or without a purpose, and 57% reported experiencing “inappropriate episodes of anger, tearfulness, or anxiety.”

The report stated that “difficult working conditions such as a lack of personal protective equipment (PPE) and caring for patients who may be seriously ill for weeks — along with burdensome administrative tasks, long hours, and grief over losing patients — have become the norm, but little has been done to alleviate the heavy mental health toll on physicians.”

Additional findings from the 2021 Survey include:

– – A significantly larger proportion of younger (64%) and female (69%) physicians reported frequently feeling burnout as compared to older (59%) and male (57%) physicians.
– – Physicians who were employed by hospitals or health systems experienced more frequent feelings of burnout (64%) as compared to independent physicians (56%).
– – Nearly 8 in 10 physicians indicated they experienced changes to their practice or employment as a result of COVID-19.
– – Almost half of physicians (49%) reported a reduction in income while 32% reported a reduction in staff as a result of the pandemic.
– – Nearly 70% of physicians indicated they anticipate continuing the use of telehealth in their ongoing practice.
– – Despite the high rates of burnout, nearly half (46%) of physicians said they would still recommend medicine as a career option to young people.

A total of 23% of physicians, across a range of demographics, said they want to retire in the next year, a drop from the 38% who reported wanting to retire in 2020.

Bay Area Startup Raised $85M to Combat EDD Fraud

At least $63 billion in improper payments, much of it fraud, have been distributed by the Federal government since the pandemic struck in March 2020. In California alone, state officials admitted that as much as 27% of unemployment benefits payments may have been fraudulent.

“Unemployment insurance fraud is probably the biggest fraud issue hitting banks today,” says Naftali Harris, co-founder and CEO at San Francisco’s SentiLink, which just closed a $70 million round of venture capital to expand its business of helping financial institutions detect fake and stolen identities for new account applications.

According to the report in Forbes, Craft Ventures, a San Francisco-based venture firm, led the Series B round which brings SentiLink’s total capital raised to date to $85 million. Felicis, Andreessen Horowitz and NYCA also joined SentiLink’s latest capital infusion.

SentiLink plans to use the capital raised to continue to help institutions with this recent increase in fraud instances spurred by the CARES Act. They also plan to expand their fraud toolkit to prevent other types of scams, such as “J1 fraud” and “same name” fraud, and investigate new ones.

Harris’ team has seen a huge uptick in fraud rates affecting their clients, as high as 90% among new applications, associated with the CARES Act COVID relief. Fraudsters have been using the same name, social security number or date of birth in several applications, filing in high volumes in several states.

According to Harris, his team is currently verifying around a million account openings per day, and is working with more than 100 financial institutions – due to a non-disclosure agreement Harris could not comment on which financial institutions his company serves.

The company says that beyond simply using artificial intelligence to detect fraud, they have a risk operations team that catches in real time cases of synthetic fraud – a form of identity theft in which the defrauder combines a stolen Social Security Number (SSN) and fake information to create a false identity – that would normally go unnoticed by their clients.

Harris discovered this type of fraud when he was working as a data scientist at Affirm in 2017. At the time, synthetic fraud was relatively unknown, so when he saw that crooks were creating brand new identities instead of stealing existing ones to apply for credit, he founded SentiLink to focus on tackling this new scam. “We realized this was a really big issue and that nobody in the financial services industry was talking about it,” says Harris.

Now, criminals are creating new identities or stealing existing ones to tap into unemployment benefits. Harris says the problem is not only them stealing from the government, but uncovering the tactics they use to deposit the stolen funds.

“What a lot of people don’t realize is that as a fraudster you have to be able to use the money stolen, and put it into the financial system,” Harris says.