Tag: 2019 News

Michael Vincent Petronella owned several businesses, including The Reroofing Specialists, Inc., doing business as Petronella Roofing, Western Cleanoff, Inc., and Petronella Corporation.

An SCIF claims manager compiled a list of 42 persons who filed workers’ compensation claims under Petronella Roofing’s policy whose payroll had not been reported to SCIF. A certified public accountant compared the payroll reports and audit documents defendant provided SCIF with the quarterly employee wage reports actually received by EDD. Over that 8-year span, the difference in payroll reported to EDD and that reported to SCIF exceeded $29 million.

Petronella was convicted of 33 counts of insurance premium fraud. The superior court sentenced defendant to 10 years in state prison. It also and ordered him to pay $500,000 in restitution award in 2013. The Court of Appeal reversed the trial court’s restitution order, but otherwise affirmed the judgment in the 2013 published case of The People v Michael Vincent Petronella (2013) 218 Cal.App.4th 945. (Petronella 1 )

After additional restitution hearings, the trial court ordered Petronella to pay restitution in the amount of $13.4 million, which is $18 million less than what the prosecution requested, but $12 million more than what he felt he owed. So he again appealed, contending that the court’s restitution order is irrational and lacking evidentiary support.

The Court of Appeal disagreed with Petronella, and affirmed the restitution order in the unpublished case of People v. Petronella (2019) – (Petronella II).

In affirming the restitution order of $13.4 million, the Court of Appeal concluded: “The fact of the matter is appellant carried out one of the largest insurance premium scams in the history of California’s workers’ compensation system. To the extent the scope and nature of his misconduct precludes an exact determination of SCIF’s losses, the equities favor SCIF as far as calculating the amount of restitution it is due. (See People v. Prosser (2007) 157 Cal.App.4th 682, 691; People v. Baker (2005) 126 Cal.App.4th 463, 469.) In light of all the relevant considerations, we are satisfied there is a factual and rational basis for the trial court’s restitution order. No abuse of discretion or other ground for reversal has been shown.”

The imprisoned former owner of Pacific Hospital in Long Beach has agreed to plead guilty to new federal criminal charges for illegally selling his luxury cars and keeping the proceeds for himself, disobeying a court order that he forfeit the money because of a previous conviction for orchestrating a nearly $1 billion health care fraud scheme.

Michael D. Drobot, 74, formerly of Corona del Mar but who is now imprisoned at Taft Correctional Institution in Kern County, has been charged in a three-count criminal information with wire fraud, engaging in monetary transactions in property derived from unlawful activity, and criminal contempt of court.

Drobot is scheduled to be arraigned on the information in the coming weeks in United States District Court in Santa Ana. He faces a statutory maximum sentence of 50 years in federal prison.

Drobot pleaded guilty in 2014 to charges of conspiracy and paying illegal kickbacks, admitting that he orchestrated a wide-ranging fraudulent kickback scheme where paid more than $50 million in bribes to doctors to steer hundreds of millions of dollars in spinal surgeries to his hospital. Drobot ultimately profited millions of dollars from the scheme.

According to his plea agreement filed on Tuesday, in January 2018, Drobot was sentenced to five years in federal prison and was ordered by the court to forfeit $10 million to the United States government and to partially satisfy the forfeiture by selling his 1965 Aston Martin, 1958 Porsche, and 1971 Mercedes-Benz automobiles. Drobot was ordered to perform this obligation by July 5, 2018.

Instead, from June 22, 2018 until September 14, 2018, Drobot intentionally violated the court’s forfeiture order in an effort to keep his criminal proceeds, the plea agreement states.

For example, on June 22, 2018, Drobot conveyed an interest in the Aston Martin car to a classic car auction company in exchange for a $1 million advance on the proceeds of the car’s sale, according to the plea agreement. Drobot admitted that he caused the auction company to wire $1 million to Drobot’s bank account. Drobot also admitted he used that money for personal expenses and not to satisfy the court’s forfeiture order. Drobot further admitted to laundering the money via transfers to third parties.

After Drobot violated the court’s forfeiture order, the government moved successfully in February 2019 to satisfy the outstanding money judgment by forfeiting Drobot’s interest in his Newport Beach residence and Perris, California business property.

As part of the underlying health care fraud scheme for which he was imprisoned, Drobot paid bribes to California State Senator Ronald Calderon in exchange for Calderon performing official acts to keep the spinal pass-through law on the books. Calderon served a 3½-year sentence in federal prison after admitting that he took bribes from Drobot and undercover FBI agents.

Prosecutors have charged 17 individuals and obtained 10 convictions as part of Operation Spinal Cap, which targets a long-running health care fraud scheme that generated nearly $1 billion in fraudulent claims to federal government, California state, and private insurers. Drobot spearheaded the scheme.

This case was investigated by the Federal Bureau of Investigation, IRS-Criminal Investigation, the California Department of Insurance, and the United States Postal Service, Office of the Inspector General.

This matter is being prosecuted by Assistant United States Attorneys Joseph T. McNally of the Violent and Organized Crime Section, Scott D. Tenley of the Santa Ana Branch Office, Ashwin Janakiram of the Major Frauds Section, and Jonathan S. Galatzan of the Asset Forfeiture Section.

The Division of Workers’ Compensation has assigned a California Highway Patrol officer to each of the state’s 22 Workers’ Compensation Appeals Board offices after a handful of violent attacks against lawyers.

But sometimes it’s the lawyers themselves that need policing.

According to the report in the Insurance Journal, Paige Levy, chief judge for the DWC, said that in the past several years “there has been a degradation of civility” among the attorneys who practice before the board. It’s gotten to the point, she said, that she’s posted notices in some of the boards reminding attorneys to be civil to one another. She said eventually such notices may be posted at all of the board offices.

“Over the last few years we have seen an increase in bad behavior among lawyers including in their treatment of judges, their treatment of court personnel and their treatment of their adversaries,” Levy said during the California Coalition of Workers’ Compensation’s annual conference. “I have too many times needed to call an officer into the courtroom just to deal with the fighting between counsel. I know our hearings and our offices are less formal. Please do not let that fool you. What we do at the WCAB is extremely important to our community and our state, even though we are in informal settings let’s never forget that.”

Levy said workers’ compensation judges don’t enjoy being forced in the role of scolding kindergarten teachers but frequently have no other choice but to tell educated professionals how to behave.

“It’s unfortunate that sometimes attorneys act that way,” she said. “We have to remember who we are and what we represent.”

Levy’s comments came as she updated members of the employer advocacy group on happenings at the DWC and WCAB. During the presentation, she mentioned that a CHP officer is assigned to each of the 22 WCAB district offices. Security at the Los Angeles board became a concern in 2010, when an injured worker stabbed a defense attorney in the back.

In 2017, the California State Bar added a supplement to the oath that attorneys take when they enter the profession. Rule 9:4 requires attorneys to recite: “As an officer of the court, I will strive to conduct myself at all times with dignity, courtesy and integrity.”

So why has attorney dignity declined so badly that the state’s chief workers’ comp judge felt it necessary to issue a reminder?

“That’s just not an answer that I have,” Levy said. “I think we just don’t treat each other as well as I would like.”

The OSIP summary of private self-insured data issued on July 1 offers a look at California’s private, self-insured claims experience for cases reported in 2018. The summary includes medical-only and indemnity claim counts, as well as the total paid and incurred losses on those claims through December 2018.

The new report summarizes the experience of private self-insured employers who covered 2.260 million employees last year. Wages and salaries for those private self-insured employees totaled $112.7 billion in 2018, or 9.1 percent more than the $103.3 billion noted for self-insured employees in the 2017 summary, according to CWCI.

Workers’ compensation claim frequency reported by private self-insured employers in California rose last year, as the incidence of both indemnity and medical-only claims rose from the 2017 levels, the California Workers’ Compensation Institute reported.

This is the second consecutive year frequency rose, according to the CWCI, which reviewed data released this month by the state Office of Self-Insurance Plans.

Private self-insured employers reported 83,873 claims in the initial reports for 2018, which is 4,218 more than in the 2017 first reports.

Private self-insured employers reported a total of $238.6 million in paid losses on 2018 claims through the end of the year, which was $19.9 million more than the comparable payout for 2017 claims, as total indemnity payments in the initial reports were $12.1 million higher and total medical payments were up by $7.8 million, according to CWCI.

The total incurred losses on these claims jumped to $659 million, up $28 million from the initial incurred reported for 2017 claims, as incurred indemnity increased by $14.1 million and incurred medical was up by $13.9 million. Since 2015 claim volume has been on the rise, with the latest count showing 83,873 claims in 2018, which is up 10.8 percent from a low in 2015, and that increase has become a key factor in driving up both total paid and total incurred losses over the past three years, according to CWCI.

New York Department of Financial Services (DFS) announced that the Department has fined Berkshire Hathaway owned Applied Underwriters $3 million for offering workers’ compensation insurance bundled with side agreements called “Reinsurance Participation Agreements,” which were not filed with or approved by the Department. Under these side agreements many employers, including small businesses, paid substantially more than what would have been paid under similar workers’ compensation plans.

Applied offered workers compensation insurance products from as early as January 2010, to late 2016, in New York under multiple names, including “SolutionOne” and “EquityComp.” The products included guaranteed-cost workers’ compensation policies issued by Applied subsidiary Continental Indemnity Company, on forms and rates approved by DFS along with a side agreement titled a “Reinsurance Participation Agreement” that employers were also required to enter into as part of the bundle. However, the side agreement, or RPA, was not filed with DFS, and as a result the RPA and the Program as a whole were not reviewed or approved by the Department.

Back in 2016 the California Department of Insurance announced its decision against a Berkshire Hathaway owned workers’ compensation insurer that it said used a complex insurance scheme involving EquityComp to circumvent regulatory review of its rates and policy terms to the disadvantage of small and medium sized businesses. At the time the companies involved also used side agreements that were not approved by the CDI.

DFS’s investigation found that the formula by which the RPAs calculated costs was complex and the way in which it was presented to employers was misleading. Under the formula, policy fees could rise rapidly with the first few claims to levels substantially higher than what would have been paid under a typical linear retrospective model. Many New York employers paid more for coverage than they would have paid under the workers’ compensation policies alone, with many paying significantly more.

The DFS investigation found that Applied’s offering was misleading in how it represented potential costs, required employers to wait three years, or in some cases up to seven years, for advertised “profit distributions” and often resulted in fees that were higher than the rates in the filed and approved insurance policy.

DFS’s Consent Order states that Applied has ceased offering the bundle in New York, will not offer any equivalent side agreements going forward, and will file any future products with the Department for approval. Additionally, Applied will not enforce any arbitration provisions under contracts agreed to in New York or with New York employers.

Berkshire Hathaway agreed this year to sell Applied Underwriters, to Bahamas-based United Insurance Co.,