Rene Thomas Folse, JD, Ph.D. is the host for this edition which reports on the following news stories: Court Has Difficulty Applying Workplace Violence Law to Work-at-Home. Employer’s Evaluating Doctors Are Also “Employers” in FEHA Class Action. ERISA Allows Class Action Challenge to Health Plan Treatment Guidelines. Last Two of Seven Generic Drug Giants Resolve Criminal Price-fixing Charges. LA/OC Physician to Serve 5 Years for $20M Pharmaceutical Scam. State Auditor Moves EDD to “High Risk” List for Inadequate Fraud Prevention. CMS Updates Section 111 Reporting User Guide to Version 7.3. Business Group Publishes 2024 Large Employers’ Health Care Survey. Liberty Mutual Publishes the 2023 Workplace Safety Index. Startups and Technology Drive Explosive Growth in TPA Market.
When the Covid pandemic struck, the California State University (CSU) directed that instruction be provided remotely. Patrick Krug did so but was denied access to his workplace office to retrieve his CSU-provided computer and printer.To provide such instruction, Krug, a biology professor at CSU-Los Angeles, incurred expenses which CSU refused to reimburse for a computer and other equipment.
CSU took the position that Labor Code section 2802, subdivision (a), which obligates an employer to “indemnify [an] employee for all necessary expenditures . . . incurred . . . in direct consequence of the discharge of his or her duties,” did not apply to the school because such application would infringe on its sovereign powers as a department of the state.
Krug asked the Department of Industrial Relations (DLSE) whether the school’s non-reimbursement policy was lawful. The DLSE responded that it disagreed with CSU’s interpretation of section 2802.
Krug filed this class action complaint, alleging a single claim for reimbursement of home-office expenses for himself and other CSU faculty employees under section 2802. He later amended to add a claim under the Private Attorneys General Act (PAGA) stemming from the same reimbursement violation. He alleged he incurred necessary business expenses for electricity, postage, internet service charges, use of personal phones for work-related purposes, office supplies, chairs, computers, printers, ink and toner, and computer monitors required to perform his work.
CSU demurred, arguing that as a department of the state it enjoys broad exemption from Labor Code provisions that infringe on its sovereign powers. Krug appeals from a judgment of dismissal entered after the trial court sustained CSU’s demurrer without leave to amend.
The Court of Appeal affirmed the trial court in the Published case of Krug v. Board of Trustees of the Cal. State Univ – B320588 (August 2023).
On appeal, Krug contends that section 2802 applies to CSU.
“A traditional rule of statutory construction is that, absent express words to the contrary, governmental agencies are not included within the general words of a statute.” (Wells v. One2One Learning Foundation (2006) 39 Cal.4th 1164, 1192.
Thus, the Labor Code applies only to private sector employees unless a Labor Code provision is “specifically made applicable to public employees.” (Campbell v. Regents of Univ. of California (2005) 35 Cal.4th 311, 330; California Correctional Peace Officers’ Association v. State of California (2010) 188 Cal.App.4th 646, 652-653; Nutter v. City of Santa Monica (1946) 74 Cal.App.2d 292, 301.)
Specifically in the context of reimbursement for work expenses (uniform costs), section 2802 does not apply to counties, cities, or the state. (In re Work Uniform Cases (2005) 133 Cal.App.4th 328, 332, 339, 345.)
But this maxim of construction excludes governmental agencies from the operation of general statutory provisions only if their inclusion would result in an infringement upon sovereign governmental powers. “Where . . . no impairment of sovereign powers would result, the reason underlying this rule of construction ceases to exist and the Legislature may properly be held to have intended that the statute apply to governmental bodies even though it used general statutory language only.” (Regents of University of Cal. v. Superior Court of Alameda County (1976) 17 Cal.3d 533, 536 (Regents).
Although the “sovereign powers” principle can help resolve an unclear legislative intent, it cannot override positive indicia of a contrary legislative intent. (Wells, supra, 39 Cal.4th at p. 1193.)
The Court of Appeal applied a three-part test. First, look for “express words” referring to governmental agencies. If there are none,look for “positive indicia” of a legislative intent to exempt such agencies from the statute. If no such indicia appear, ask whether applying the statute would result in an infringement upon sovereign governmental powers.
Here Education Code section 89036 authorizes CSU to enter agreements and prescribe policies and procedures for acquiring supplies and equipment. Education Code section 89500 authorizes CSU to address matters of employee allowances and expense reimbursement. “[T]here can be no doubt that public education is among the state’s most basic sovereign powers.” (Wells, supra, 39 Cal.4th at p. 1195.)
Thus, the Court of Appeal concluded that the “expenses Krug alleges – for computers, monitors, chairs, printers, electricity, internet, and other alleged business expenses – fall directly within CSU’s authority to set rules for employee equipment allowances and the purchase of materials, supplies, and equipment.”
Lompoc Valley Medical Center (LVMC), a California Health Care District that operates multiple health care providers, including a hospital and several clinics, has agreed to pay $5 million to resolve allegations that it violated the federal False Claims Act and the California False Claims Act by causing the submission of false claims to Medi-Cal related to Medicaid Adult Expansion under the Patient Protection and Affordable Care Act (ACA).
With this and several prior settlements, the United States now has recovered $95.5 million in connection with this investigation of entities in Santa Barbara and San Luis Obispo counties. CenCal, Cottage Health System, Sansum Clinic, and Community Health Centers of the Central Coast previously paid $68 million, and Dignity Health and Twin Cities Community Hospital and Sierra Vista Regional Medical Center, two subsidiaries of Tenet Healthcare Corporation previously paid $22.5 million, to settle similar False Claims Act allegations.
Pursuant to the ACA, beginning in January 2014, Medi-Cal was expanded to cover the previously uninsured “Adult Expansion” population – adults between the ages of 19 and 64 without dependent children with annual incomes up to 133% of the federal poverty level. The federal government fully funded the expansion coverage for the first three years of the program.
Under contracts with California’s Department of Health Care Services (DHCS), Santa Barbara San Luis Obispo Regional Health Authority, doing business as CenCal Health (CenCal), arranged for the provision of health care services as a county organized health system under California’s Medicaid program (Medi-Cal) in Santa Barbara and San Luis Obispo counties by contracting with providers such as LVMC to provide health care services to Medi-Cal patients. Under its contractual arrangement with DHCS, CenCal received funding to serve the Adult Expansion population. If CenCal did not spend at least 85% of the funds it received for the Adult Expansion population on “allowed medical expenses,” CenCal was required to pay back to the state the difference between 85% and what it actually spent. California, in turn, was required to return that amount to the federal government.
The settlement resolves allegations that LVMC knowingly caused the submission of false claims to Medi-Cal pursuant to agreements executed by LVMC with CenCal for “Enhanced Services” that LVMC purportedly provided to Adult Expansion Medi-Cal members between January 1, 2014 and June 30, 2016. The United States and California alleged that LVMC claimed and received payments pursuant to those agreements that were not for “allowed medical expenses” permissible under the contract between DHCS and CenCal, were pre-determined amounts that did not reflect the fair market value of any Enhanced Services provided by LVMC, and/or the Enhanced Services were duplicative of services already required to be rendered by LVMC. The United States and California further alleged that the payments were unlawful gifts of public funds in violation of the California Constitution.
The civil settlement includes the resolution of claims brought under the qui tam, or “whistleblower,” provisions of the False Claims Act by Julio Bordas, CenCal’s former medical director. Under the act, 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 and State of California ex rel. Bordas v. Lompoc Valley Medical Center, et al., (15-cv-09834, C.D. Cal.). Dr. Bordas will receive approximately $950,000 as his share of the federal recovery from the LVMC settlement.
The resolution obtained in this matter was the result of a coordinated effort between the United States Attorney’s Office for the Central District of California; the Justice Department’s Civil Division, Commercial Litigation Branch, Fraud Section; and the California Department of Justice. HHS-OIG and DHCS provided substantial assistance.
Grace Nunes sustained two admitted industrial injuries while employed by the State of California, Department of Motor Vehicles. In Case No. ADJ8210063, she sustained injury to her neck, upper extremities, and left shoulder, on September 13, 2011. In Case No. ADJ8621818, she sustained injury to her bilateral upper extremities from September 13, 2010 to September 13, 2011.
After being evaluated by various physicians some of whom apportioned permanent disability,her vocational expert addressed apportionment by claiming that “from a vocational standpoint, Ms. Nunes’ preexisting/non-industrial degenerative condition had zero impact to her earning capacitygiven applicant’s work history.”
Her vocational expert went on to say that “Ms. Nunes’ functional limitations and chronic pain clearly render her 100 percent permanently and totally disabled.Without question, vocational apportionment in Ms. Nunes’ case is 100 percent industrial and attributable to the specific injury of September 13, 2011.”
The WCJ found that applicant is entitled to an unapportioned award of 100 percent industrial disability based on the analysis that “applicant has rebutted the AMA Guides. She’s found to be 100% disabled as there is no evidence of previous loss of earnings capacity.”
On June 22, 2023 the Appeals Board in the en banc decision of Grace Nunes I v State of California, Department of Motor Vehicles rescinded the F&A issued by the WCJ.
It ruled that (1) Labor Code1 section 4663 requires a reporting physician to make an apportionment determination and prescribes the standard for apportionment, and that the Labor Code makes no statutory provision for “vocational apportionment;” (2) that vocational evidence may be used to address issues relevant to the determination of permanent disability; and (3) that vocational evidence must address apportionment, and may not substitute impermissible “vocational apportionment” in place of otherwise valid medical apportionment.
As an aggrieved party for the first time, Nunes subsequently filed her Petitioned for Reconsideration of the En Banc Opinion and Decision After Reconsideration which was denied on August 29, 2023 in the second En Banc decision of Grace Nunes II v State of California, Department of Motor Vehicles -ADJ8210063 -ADJ8621818 (August 2023).
Applicant contends in her Petition for Reconsideration that the apportionment analysis described by the QME is speculative and not substantial, and that applicant is entitled to an unapportioned award. Applicant further contends that vocational evidence may be used to characterize and quantify permanent disability, and that the vocational opinions expressed by vocational experts may differ from the medical evidence.
Applicant also asserts that the prohibition against using vocational apportionment in place of otherwise valid medical apportionment will result in “pass-through” apportionment that is not substantial evidence; that defendant failed to meet its burden of proof under section 4664; and that our June 22, 2023 Opinion may result in protracted discovery and litigation.
In response the Board concluded that “applicant has not established that our decision to return the matter to the trial level for development of the record and to comply with section 5313 was made in error, which, standing alone, may constitute grounds for denial of the Petition.”
Additionally the Board said “we wish to address the rhetoric used by applicant in the Petition. Applicant contends that the consequences of our decision proscribing “vocational apportionment” will be “disastrous” and will lead to an “implosion of the [workers’ compensation] system. Applicant characterizes our decision as ‘directionless’ and potentially requiring the application of ‘invalid’ medical apportionment, the result of which would be “devastating to the worker’s [sic] compensation environment. Applicant further contends that ‘lawyers’ on both sides may use this case as a sword to distract, delay and obfuscate “
“We find these arguments to be unpersuasive and inflammatory. …. Our Opinion does not require the application of invalid apportionment by the parties or by the WCJ, and in those instances where there is a significant question as to the validity of a physician’s medical apportionment opinion, the vocational expert is free to offer their analysis in the alternative.”
“In summary, reconsideration is inapposite because applicant’s petition offers no challenge to our determination that the current record does not comply with section 5313. We reject applicant’s contention that a vocational expert may substitute a competing theory of apportionment in place of otherwise valid legal apportionment, as inconsistent with statutory and case law authority. We further reject applicant’s contention that evaluating physicians are unwilling or unqualified to evaluate vocational evidence.”
The Labor Commissioner’s Office has cited farm labor contractor M.G. Luna, Inc. of Parlier and growers Madera Persimmon Growers Inc. of Madera and Willems Farms, Inc. of Kingsburg $1,926,531, for wage theft affecting 356 workers who harvested persimmons and blueberries.
The Fresno County-based farm labor contractor registered to Maria Guadalupe Luna collected wages from the growers but failed to pay the workers. The farm labor contractor also hired workers to harvest blueberries on Luna’s own farm and failed to pay them.
“The agricultural industry has up-the-chain liability laws holding client companies responsible for unpaid wages when their contractor fails to pay their workers. In this case, the growers who contracted with M.G. Luna will pay the owed wages to workers,” said Labor Commissioner Lilia García-Brower.
The Labor Commissioner’s Office opened its investigation into M.G. Luna Inc. and growers Madera Persimmon Growers Inc., and Willems Farms, Inc. in September 2019 after receiving a referral from California Rural Legal Assistance, Inc. The investigation focused on dozens of wage claims workers filed against the farm labor contractor and the growers for nonpayment of wages or for receiving checks with insufficient funds.
The citations and penalties issued total $1,926,531. Maria Guadalupe Luna, an individual, and Madera Persimmon Inc., a corporation, were cited $75,120 for waiting time penalties, $6,273 for minimum wage violations, and $2,230 in interest involving 25 workers. Maria Guadalupe Luna, an individual, was also cited $1,140,720 for waiting time penalties, $191,943 for minimum wage violations, and $71,325 in interest affecting 223 workers.
Maria Guadalupe Luna, an individual, and Willems Farms, Inc., a corporation, and Gayle A. Willems and Paul E. Willems, both trustees of the Willems Family Trust, were cited $334,080 for waiting time penalties, $76,272 for minimum wage violations, and $28,568 in interest involving 108 workers.
Under a California labor law enacted in 2014 to protect workers whose labor has been outsourced to a labor provider, the outsourcing entity, known as a “client employer,” is liable for the laborers’ wages if the laborers’ work is within the outsourcers’ “usual course of business.”
The California Legislature enacted Cal. Labor Code § 2810.3 to establish a new form of liability for employers, termed “client employers,” who obtain workers from third-party contractors. The legislative history of the statute indicates that client employer liability was created to address the growing business model where a business uses a contractor to supply workers who are supervised and paid by the contractor, but appear to be employees of the business. Under the statute, Cal. Labor Code § 2810.3(a)(1)-(3), (6), the outsourcing entity, known as a “client employer,” is liable for the laborers’ wages if the laborers’ work is within the outsourcers’ “usual course of business.”
The Labor Commissioner’s License and Registration search page allows growers to ensure the labor contractor they are hiring is properly licensed and registered with the Labor Commissioner’s Office as required by law.
Growers in California can find out if wage claims have been filed against a farm labor contractor by searching on the Labor Commissioner’s Wage Claim Search tool webpage. Growers should also check the search tool after work is completed, as wage claims are not always filed immediately after nonpayment of wages.
The Justice Department announced the results of a coordinated, nationwide enforcement action to combat COVID-19 fraud, which included 718 enforcement actions – including federal criminal charges against 371 defendants – for offenses related to over $836 million in alleged COVID-19 fraud.
Deputy Attorney General Monaco also announced the launch of two additional COVID-19 Fraud Enforcement Strike Forces: one at the U.S. Attorney’s Office for the District of Colorado, and one at the U.S. Attorney’s Office for the District of New Jersey. These two strike forces add to the three strike forces launched in September 2022 in the Eastern and Central Districts of California, the Southern District of Florida, and the District of Maryland.
Michael C. Galdo, Acting Director of COVID-19 Fraud Enforcement, detailed the results of the three-month coordinated law enforcement action that took place from May through July 2023, which included criminal, civil, and forfeiture actions. More than 50 U.S. Attorneys’ Offices, including the COVID-19 Fraud Enforcement Strike Forces, the Justice Department’s Criminal and Civil Divisions, and more than a dozen law enforcement and OIG partners worked together to conduct the sweep.
Galdo also said that 63 of the defendants had alleged connections to violent crime, including violent gang members also accused of using pandemic funds to pay for a murder for hire. Twenty-five defendants have alleged connections to transnational crime networks.
718 law enforcement actions occurred, including criminal charges, civil charges, forfeitures, guilty pleas, and sentencings, with a combined total actual loss of more than $836 million. Criminal charges were filed against 371 defendants, and 119 defendants pleaded guilty or were convicted at trial during the sweep. Over $57 million in court-ordered restitution was imposed. 117 civil matters occurred during the sweep, with over $10.4 million in judgments. Prosecutors worked with law enforcement to secure forfeiture of over $231.4 million.
Many of the cases in the enforcement action involve charges related to pandemic unemployment insurance benefit fraud and fraud against the two largest pandemic Small Business Administration programs: the Paycheck Protection Program and Economic Injury Disaster Loans. Additional matters involved pandemic healthcare billing fraud, fraud against the Emergency Rental Assistance program, and fraud committed against the IRS Employee Retention Credit program (ERC), a refundable tax credit for businesses and tax-exempt organizations that had employees and were affected during the COVID-19 pandemic. IRS Criminal Investigations (IRS-CI) worked with the California Strike Force and the U.S. Attorney’s Office for the District of New Jersey to bring multimillion dollar ERC fraud cases during the enforcement action.
In May 2021, the Attorney General established the COVID-19 Fraud Enforcement Task Force (CFETF) to marshal the resources of the Department of Justice in partnership with agencies across government to enhance efforts to combat and prevent pandemic-related fraud. The task force bolsters efforts to investigate and prosecute the most culpable domestic and international criminal actors and assists agencies tasked with administering relief programs to prevent fraud by, among other methods, augmenting and incorporating existing coordination mechanisms, identifying resources and techniques to uncover fraudulent actors and their schemes, and sharing and harnessing information and insights gained from prior enforcement efforts.
The cases were investigated by the following agencies: FBI; U.S. Secret Service; IRS-CI; Defense Criminal Investigative Service; Homeland Security Investigations; U.S. Postal Inspection Service; Army Criminal Investigations Division; Food and Drug Administration’s Office of Criminal Investigations; the Diplomatic Security Service; and the Offices of Inspectors General from the Small Business Administration, Department of Labor, Department of Homeland Security, Federal Deposit Insurance Corporation, Department of Health and Human Services, Department of Veterans Affairs, Federal Housing Finance Agency, Federal Reserve Board, Social Security Administration, the Special Inspector General for Pandemic Relief, Treasury, and the Treasury Inspector General for Tax Administration.
OCDETF Fusion Center and OCDETF’s International Organized Crime Intelligence and Operations Center, the Pandemic Response Accountability Committee, the Financial Crimes Enforcement Network, and the National Unemployment Insurance Fraud Task Force provided key support.
Tien Tan Vo, a doctor practicing in Imperial Valley, has pleaded guilty to crimes related to his years-long use of foreign unapproved and misbranded cosmetic drugs.
Vo pleaded guilty to misdemeanor counts of receipt of misbranded drugs in interstate commerce and being an accessory after the fact to an accomplice, who smuggled the unapproved drugs into the United States from Mexico.
In his plea agreement, Vo admitted that none of the injectable botulinum toxin or lip fillers used by his clinics between November 2016 and October 2020 was approved for use in the United States. This specifically included a botulinum toxin product called “Xeomeen” and an injectable lip filler called Probcel – both products that have not been approved by the U.S. Food and Drug Administration.
Vo acknowledged that he received $100,767 in gross receipts for almost four years of cosmetic services performed with unapproved drugs and devices. As part of his plea agreement, he has agreed to forfeit that amount, and to pay a fine of $201,534. Vo also agreed to pay restitution to victims of his offense.
In his plea agreement, Vo admitted purchasing most of his unapproved drugs and devices from the operator of a “med spa” in Mexicali, Mexico, who smuggled them into the United States without declaring them.
According to the Associated Press, at one time Vo was a “rock star” doctor who tested tens of thousands of people for COVID-19 in the pandemic’s early months in his badly-stricken California desert community.
“All members of our community should be able to trust that their doctor is acting in their best interest,” said Acting U.S. Attorney Andrew Haden. “Through this prosecution, we are protecting patients from unapproved and potentially unsafe drugs and will always seek to thwart those who would exploit patients for financial gain.”
“Injecting unapproved medicines poses a significant threat to public health and can have serious consequences for individuals,” said Chad Plantz, Special Agent in Charge for HSI San Diego. “Together, with our partnered agencies, we need to educate people of the dangers caused by using unauthorized botulinum toxin (the active ingredient in Botox®, Xeomin®, and similar products) and thwart those who smuggle and illegally use it for cosmetic procedures.”
“The FDA’s requirements help ensure that patients receive safe and effective medical treatments. Evading the FDA process and distributing unapproved drugs to U.S. consumers will not be tolerated,” said Special Agent in Charge Robert M. Iwanicki, FDA Office of Criminal Investigations, Los Angeles Field Office. ““We will continue to investigate and hold accountable those who traffic in unapproved drugs.”
Sentencing is set for November 16, 2023, at 9:30 a.m. before U.S. Magistrate Judge Allison H. Goddard.
Potential victims related to this case may provide or request information by emailing USACAS.Cosmetic.Case@usdoj.gov.
From March 2020 through February 2023, California was in a State of Emergency due to COVID-19. Midway through this period, on August 11, 2021, the State Public Health Officer issued an order requiring K-12 schools to verify the COVID 19 vaccination status of all school workers (State Dept. of Public Health, State Public Health Officer Order of Aug. 11, 2021.)
When the Public Health Order went into effect, Gloria Elizabeth Rossi was working at the School, as she had for decades, providing in-person classroom assistance for children with special needs and children whose primary language is Spanish.
Rossi was placed on unpaid administrative leave and then terminated from her employment with defendant Sequoia Union Elementary School District after refusing to either provide verification of her COVID-19 vaccination status or undergo weekly testing as required by a then-operative order of the State Public Health Officer.
Rossi brought suit under the Confidentiality of Medical Information Act (CMIA) (Civ. Code, § 56 et seq.) against defendants the School District; Sequoia Union Elementary School, the School where she worked, and Ken Horn, the School principal and superintendent.
Her complaint asserted two causes of action under the CMIA, alleging (1) discrimination due to her refusal to authorize release of her medical information and (2) unauthorized use of her medical information.
The trial court sustained defendants’ demurrer without leave to amend, finding each claim failed as a matter of law due to certain statutory exceptions.
This appeal is related to two other contemporaneous appeals (Dennis v. Tulare City School District (Aug. 25, 2023, F085428) [nonpub. opn.]; Moran v. Tulare County Office of Education (Aug. 25, 2023, F085385) [nonpub. opn.]) from nearly identical orders by judges of the Tulare County Superior Court dismissing identical CMIA causes of action by similarly situated school-worker plaintiffs.
The plaintiff-appellants in all three cases were represented by the same counsel; the cases were argued on the same day before the same panel of this Court. In this case the Court of Appeal affirmed the trial court’s orders in the published case of Rossi v. Sequoia Union Elementary School District F085416 (August 2023) on substantially identical grounds in all three cases.
Plaintiff’s principal contention on appeal is that the Public Health Order did not specify “what to do with individual employees not complying” and did not mandate their termination; she argues defendants’ disciplinary actions were therefore undertaken at their discretion, not necessitated by the Order.
The Court of Appeal noted that “The Public Health Order required “full compliance” by facilities and mandated that all K-12 schools “must verify vaccine status of all workers” and that those schools with workers who must test (i.e., with workers not reporting complete vaccination) “must report results to local public health departments.”
Notably, “the School could not fulfill either of these requirements without the cooperation of plaintiff (and all School workers).” And the “administration could not verify her vaccination status on its own, and it could not transmit test results it did not have. Although the Order did not literally state that unvaccinated and non-testing workers could not be present on school campuses, the Order’s prefatory text makes clear that its goal was to “minimize the risk that [workers] will transmit [COVID-19] while on K-12 school campuses,”
Plaintiff argues a fact finder might reasonably conclude that other reasonable accommodations could have been reached besides putting her on unpaid leave and ultimately firing her – positing “plexiglass [or] physical distancing” as other possible solutions.
“However, we do not see how other potential arrangements like these would allow defendants to bring the School into ‘full compliance’ with the Public Health Order. Even if defendants allowed plaintiff to return to work in the classroom from behind a plexiglass shield, that would not allow them to either verify her vaccination status or report all unvaccinated-worker test results to local health departments. There is no room for factual debate about how else defendants could have complied with the Order’s requirements without directing plaintiff to stay home until she provided test results – and terminating her when it was clear she was never going to test.”
The Court of Appeal likewise concluded that the demurrer was properly sustained for the second cause of action, under Civ. Code § 56.20(c) (Unauthorized Use Claim), but not for the reasons stated by the trial court.
The complaint pleads a section 56.20(c) cause of action arising purely from defendants’ unauthorized use of plaintiff’s purported medical information (that is, her presumed unvaccinated status) to terminate her employment. Section 56.20(c)(1)’s exception states: “The information may be disclosed if the disclosure is compelled by judicial or administrative process or by any other specific provision of law.”
There is no allegation that defendants disclosed her vaccination status to any third party.
Katherine Rosenberg-Wohl had a homeowners insurance policy with defendant Respondent State Farm Fire and Casualty Company, providing coverage on her home in San Francisco.
The policy contains a provision entitled “Suit Against Us” that states: “No action shall be brought unless there has been compliance with the policy provisions. The action must be started within one year after the date of loss or damage.”
In late 2018 or early 2019, Katherine Rosenberg-Wohl noticed that on two occasions an elderly neighbor stumbled and fell as she descended her outside staircase, and learned that the pitch of the stairs had changed and that to make the stairs safe the staircase needed to be replaced.
In late April 2019, she authorized the work and contacted State Farm, and on August 9, she submitted a claim for the money she had spent. On August 26, State Farm denied the claim. Among other things Lee said that it if the claimed loss were “to be covered,” something “sudden” had to have happened. And what plaintiff claimed coverage for, Lee said, was just “preventative.”
Sometime later, her husband, attorney David Rosenberg-Wohl, reached out to State Farm “to see if anything could be done,” and in August 2020 a State Farm adjuster, Rita Lee,said it had reopened the claim. And a few days later denied it.
In October 2020, represented by her husband, plaintiff filed two lawsuits against State Farm in San Francisco Superior Court., some 18 months after she had replaced the staircase, 14 months after State Farm had denied her claim the first time, and nearly six months after the one-year limitation period of the policy had expired.
One alleged two causes of action, for breach of the policy and for bad faith. That lawsuit was removed to federal court, and was resolved against plaintiff on a motion to dismiss based on the one-year limitation provision. It is currently on appeal in the Ninth Circuit.
The other action, the one now before the California Court of Appeal, purports to allege a claim for violation of California’s unfair competition law and was designated as a “class action.” This case was also resolved against plaintiff, also based on the limitation provision. When the trial court sustained a demurrer to the second amended complaint without leave to amend. Plaintiff appealed, asserting two arguments: (1) the one-year limitation provision does not apply to her unfair competition claim, and (2) even if it does, State Farm waived the limitation provision
The California Court of Appeal affirmed the trial court in the published case of Rosenberg-Wohl v. State Farm Fire and Casualty Co., -A163848.PDF (July, 2023).
The one-year limitation provision in the State Farm policy is there because ” insurance policies providing fire insurance on California property must include the standard form provisions contained in Insurance Code section 2071 or provisions that are at least their substantial equivalent.”
Insurance Code 2071 specifically states that “2071. (a) “The following is adopted as the standard form of fire insurance policy for this state:” …. “No suit or action on this policy for the recovery of any claim shall be sustainable in any court of law or equity unless all the requirements of this policy shall have been complied with, and unless commenced within 12 months next after inception of the loss. If the loss is related to a state of emergency, as defined in subdivision (b) of Section 8558 of the Government Code, the time limit to bring suit is extended to 24 months after inception of the loss.”
State Farm asserts “the Legislature has expressly endorsed” the provision under Insurance Code section 2071, and argues that because the allegations here all concern how it handled plaintiff’s claim, the suit is subject to the policy limitation period under applicable law.
In her brief plaintiff conceded that “there is . . . no doubt that an insured cannot plead around the one-year limitations provision by labeling her cause of action something different than breach of contract,” But then went on to argue “where damages are not sought but rather the relief sought is change of an unfair policy that affects not just the insured but the public at large, the insurer’s policy promise to the insured is not at issue,”
Plaintiff’s brief makes another concession, that “Simply alleging a claim under the UCL, of course, is no different from one alleging breach of the covenant of good faith and fair dealing or any other claim in which the point is to recover money for breach of contract. [Citations.]”
And plaintiff’s argument concludes with this: “here the UCL claim about practice and procedure is not a contract claim – the conduct is unfair even though it is not required under the policy, and it is unfair regardless of whether it leads to payment under the policy or no. And plaintiff asserts, she seeks “only injunctive relief . . . and that is why the four-year UCL statutory period applies,” going on to cite five cases in claimed support.
The Court of Appeal then discussed at length numerous cases, including many of those cited by the parties here, after all of which it made its analysis and conclusion.
In rejecting plaintiff’s effort to circumvent the one year statute of limitations the Court of Appeals concluded that “In sum, the crux of plaintiff’s claim (Jang, supra, 80 Cal.App.4th at p. 1303) is ‘grounded upon a failure to pay policy benefits.’ (Sullivan, supra, 964 F.Supp. at p. 1414.) That claim necessarily arises ‘out of the contractual relationship.’ (Lawrence, supra, 204 Cal.App.3d at p. 575.)”
The California State Auditor is required by Government Code section 8546.5, to report to the California Governor and State Legislature about statewide issues and state agencies that represent a high risk to the State or its residents. It’s latest report published on August 24, 2023 concludes that the Employment Development Department meets the criteria to me moved to the High Risk list, and two other agencies, the California Department of Technology, and the Department of Health Care Services, should remain on the High Risk list.
In the Auditor’s prior January 2021 Report it explained that EDD’s fraud prevention approach during the pandemic was marked by significant missteps and inaction that led to billions of dollars in unemployment benefit payments that EDD later determined may have been fraudulent.
The new 2023 Auditor’s assessment said that “EDD is a high-risk agency because of its mismanagement of the UI program. Specifically, EDD is unable to reliably estimate improper payments under the UI program, thus adversly affecting the State’s financial statements as well as impairing efforts to independently evaluate the efficacy of EDD’s own fraud prevention activities.”
“Despite the program’s critical importance, EDD’s management of the UI program has been characterized by significant internal control weaknesses. For example, the program did not block addresses used to file unusually high numbers of claims, and it removed a safeguard preventing payment to individuals who had unconfirmed identities. These inadequate internal controls did not prevent potential fraud during fiscal years 2019-20 and 2020-21 and allowed the payments of potentially fraudulent claims, estimated at tens of billions of dollars, most of which have yet to be recovered.”
“Contributing to this serious detriment, EDD’s inadequate identification of potentially fraudulent UI benefit payments was also a significant factor leading to modified audit opinions and the delayed publication of California’s Annual Comprehensive Financial Report (ACFR) for fiscal years 2019-20 and 2020-21, which the State Controller published in February 2022 and March 2023, respectively.”
“EDD has not taken adequate corrective action to prevent the substantial risk of serious detriment to the State and its residents. Corrective action is adequate when it prevents a risk – such as the risk of fraud – from presenting a substantial risk of serious detriment. Because the potentially fraudulent payments have already occurred, have not been fully identified, and have largely not been recovered, EDD’s corrective action is not adequate.”
The Auditor “noted this issue in Report 2021-001.1, March 2023, the report that reviewed internal controls and compliance. In fact, we found that EDD’s estimate of potentially fraudulent payments omitted certain payments to claimants who made false statements to obtain benefits and also incorrectly included valid claims for benefits. EDD has established a process to pursue recovery of ineligible payments, but until it identifies all inappropriate transactions, it cannot effectively manage that process or allocate appropriate resources to pursuing recovery. Thus EDD’s current corrective action remains insufficient and is a contributing element to our designation of the agency as high-risk.
“Apart from the potentially fraudulent UI payments that EDD made during the pandemic, which it has estimated to be in the tens of billions of dollars and which continue to affect the State’s financial reporting, EDD’s eligibility decisions are frequently overturned during appeal and have resulted in the substantial risk of serious detriment to California residents.”
” From 2017 through 2022, about half of the issues in UI claims that claimants appealed were ultimately overturned in favor of the claimant. This rate of overturned decisions is consistent with the high rate of overturned decisions we noted in Report 2014-101, August 2014.” The Auditor added that “as of March 2023, California had the third highest reversal rate in the nation.”