Civil Code §3333.1 and Its Effect

Labor Code §4551 is essentially the flip side of Labor Code §4553. Section 4551 deals with the willful misconduct of an injured employee. Section 4551 provides that where an injury is caused by the serious and willful misconduct of the injured employee, the compensation otherwise recoverable shall be reduced by 1/2. The exception to this is where the injury results in death, causes permanent disability over 70% or is due to a failure of the employer to comply with a safety order, or where the injured employee is under 16 years of age at the time of the injury.

The Ferguson case held that the 50% increase in compensation for employer misconduct applies to the entire award, not just indemnity. There really is no reason why the Ferguson decision would not apply to employee misconduct as well as employer. The reason for this is that the Court hinged its decision upon its inquiry as to what constitutes “compensation”. Both §4553 (willful misconduct of employer) and §4551 (willful misconduct of injured employee) use the term “compensation”, providing that once there is a finding of serious and willful misconduct, the “compensation” will be increased or reduced.

I do believe that Justice Phelan is correct in his interpretation as that the Ferguson decision must be applied to Labor Code §4551. Obviously, the question arises, how does Ferguson apply as a practical matter where an employee was injured by his own serious and willful misconduct?

As a practical matter, the carrier may be paying out full benefits on an injured employee even though the carrier strongly suspects a serious and willful event. Yet it is difficult to obtain any type of decision before the worker is permanent and stationary. This means that the carrier may have to wait until after the benefits have already been paid out on TD and medical services before any decision is ever made on the matter. Theoretically, a workers’ compensation carrier could start withholding 50% of all payments made on the case where they think they have a strong serious and willful claim. The carrier is entitled to withhold payments where there is either a medical or legal doubt that amounts are in fact owed. Where there is strong evidence of serious and willful conduct on the part of the employee, this should constitute legal doubt that the amounts are in fact owed. Unfortunately, the carrier runs the risk of a penalty in the event that the workers’ compensation judge does not agree that there was a prima facie showing that the applicant acted in a serious and willful fashion.

The best way to solve the situation would be to file for an expedited hearing on the matter of the serious and willful claim alone. Unfortunately, Title 8 of Code of Regulation §10136 which deals with expedited hearings does not provide for such a request, although it could be argued that the issue is “a bona fide dispute” as to “entitlement to medical treatment” or “entitlement to temporary disability payments or amounts”. Arguably, one could request a special hearing on this issue alone. However, since this is an unusual request, most probably it will be ignored.

Perhaps this issue could be added to a wish list for our Legislature. A mechanism for an expedited hearing on the issue of serious and willful.

On June 21, 1991, defense psychiatrist Donald Patterson reported that no psychiatric injury existed. On July 16, 1991, applicant psychologist Karl Bergenstal evaluated the applicant. His conclusion was that the applicant did suffer a psychological injury and was in need of psychotherapy. Dr. Bergenstal referred the applicant to Linda Chaparro, Ph.D., a registered psychological assistant in his employ.

The defendants denied that there was any psychiatric injury. They refused to authorize any psychotherapy. In the interim, Dr. Chaparro treated the applicant on a lien basis. In a letter dated January 20, 1993, Dr. Bergenstal stated, “I am the primary treating physician in this case. I formulated the treatment plan, worked solely with the patient on a number of occasions to guide the treatment direction, interpreted test results and used all of this information to guide the intervention of [Doctor] Chaparro... Although I am not present in the room during the sessions with [Doctor] Chaparro, I am located on the premises. [Doctor] Chaparro and I then meet on a weekly basis to discuss treatment direction...”

On the case-in-chief, the WCJ found that there was a psychiatric injury. The judge awarded reimbursement for self-procured medical treatment to be adjusted by the parties. The parties later entered into a Compromise and Release Agreement providing that defendants were to adjust the medical expenses.

At the hearing on the lien of Doctors Bergenstal and Chaparro, the parties also stipulated that the treatment through Dr. Bergenstal’s office was provided by Linda Chaparro, a registered psychological assistant (although she was a Ph.D.). The parties further stipulated that defendants did not approve the care provided by Linda Chaparro.

In contesting the lien, defendants relied upon Labor Code §3209.3, which defines what constitutes a physician or psychologist for purposes of the Workers’ Compensation Act. Registered psychological assistants are not included within the definition.

The WCJ denied the lien in its entirety. However, the Court of Appeal reversed. The Court cited Business and Professions Code §2913, which allows such an individual to conduct psychotherapy as long as they are under the immediate supervision of a licensed psychologist or board certified psychiatrist who is responsible for insuring the extent, kind and quality of psychological services. In other words, Dr. Chaparro could lawfully provide psychological counseling as long as she was being supervised by Dr. Bergenstal,who was a licensed psychologist. The appellate court noted that when a massage therapy or a weight reduction program is provided at the direction of a physician, it is compensable even though not considered to be medical treatment under the Statute.

Labor Code §3209.8 requires that the employer approve the referral by a licensed physician or surgeon to a licensed MFC counselor or clinical social worker. However, this shall not be construed to preclude reimbursement for self-procured treatment, found by the appeals board to be otherwise compensable, where the employer has refused to authorize any treatment for the condition arising from the injury treated by the MFC counselor or clinical social worker.

The court stated that, “Although it would appear that Doctors Bergenstal and Chaparro have satisfied the supervision requirements of Business and Professions Code §2913, no such finding has been made by the WCJ or the WCAB as the triers of fact. Based on their conclusions that the treatment by Doctor Chaparro was not compensable under the Labor Code, they did not determine whether Doctors Bergenstal and Chaparro had complied with all of the provisions of §2913. Therefore, the matter must be remanded for that determination.”

It should be noted that Justice Yegan dissented. Judge Yegan stated, “The majority, under the guise of statutory construction, hold that an employer must pay for psychotherapy services provided by an unlicensed psychologist. In essence, the majority, by judicial fiat, added “psychological assistant” to the Labor Code §3209.3 list of physicians who are entitled to a lien for services provided.

Karl Bergenstal v. WCAB, 96 Daily Journal D.A.R. 6191

Employer is Not Required to Exhaust Administrative Remedies Before Bringing Civil Action for Bad Faith Conduct of Insurer

ance Camper Manufacturing Corporation (Insured) filed a civil cause of action against Republic Indemnity Company of America (the insurer) alleging breach of contract, breach of implied covenant of good faith and fair dealing, unlawful, fraudulent and unfair business practices, as well as unjust enrichment. The complaint alleged that from 1986 to 1990, the Insurer failed to

• (1) reasonably and in good faith evaluate the claims made by the Insured before settling its reserve amount;
• (2) conduct timely and competent claims investigations;
• (3) minimize the number of litigated claims;
• (4) provide adequate legal counsel to ensure a competent defense;
• (5) hire competent medical defense doctors;
• (6) adequately evaluate claims before entering settlements;
• (7) provide the Insured with experienced claims adjusters;
• (8) communicate with the Insured regarding the status of claims or provide an adequate defense to claims; and
• (9) avoid unnecessary delays in defending or otherwise closing out claims.

As a result of the multiple contractual breaches just listed, the Insured alleged it was compelled to pay higher premiums and was deprived of a dividend. Further, the Insurer allegedly acted in bad faith by failing to

• (1) evaluate adequately all claims prior to setting reserves;
• (2) monitor claims files conscientiously and adjust the reserves periodically;
• (3) communicate regularly with the Insured;
• (4) conduct meaningful claims reviews with the Insured;
• (5) show the Insured files regarding compensation claims against it for auditing purposes;
• (6) disclose its internal policies and procedures;
• (7) process claims fairly with a good faith regard toward their impact on the Insured’s premium and dividends; and
• (8) hire competent counsel and medical experts to protect the Insured’s interests.

The Insured alleged that the Insurer’s refusal to make its claims files available to the Insured for auditing purposes was an unfair, unlawful and fraudulent business practice inasmuch as it prevented the Insured from knowing whether the Insurer properly calculated the premium and reserve and whether the Insurer was properly performing its contractual duties. The Insurer did so to inhibit the Insured from discovering the negligent and fraudulent handling of claims against the Insured and to enable the Insurer to collect exorbitant premiums.

At the superior court level, the judge found that the employer must pursue an administrative review before suing its Insurer for breach of expressed and implied terms of the insurance contract. On appeal, the Insurance Commissioner, and State Compensation Insurance Fund filed amicus curiae briefs arguing that no civil actions could be brought before administrative remedies were exhausted.

The Court of Appeal reversed, stating that the Commissioner’s supervisory and regulatory power over the insurance industry does not give him power to adjudicate all insurance disputes. The Commissioner’s authority is only statutory. The authority must be specifically identified in the Statutes.

The Court of Appeal stated that the appeal before them was factually indistinguishable from the case of Security Officers Services, Inc. v. State Compensation Insurance Fund, (17 Cal.App.4th, 887) and the case of Tricorp California Inc. v. State Compensation Insurance Fund, 30 Cal.App.4th, 234. The holdings in those cases controlled in this case. The insured was not challenging the rates and reserves as being unfair and unreasonable and contrary to administrative regulations. Rather, the insured was challenging the claims handling practices that increased the insured’s reported losses, which resulted in higher premiums, higher reserves, and lower dividends. The insurance claim is not one that is subject to administrative review by the Commissioner.

The Court noted that the result urged by the Insurer and its supporters may be cost effective for the insurance industry. “Nevertheless, we cannot judicially create out of thin air an administrative remedy not contemplated by the Legislature for bad faith conduct in breach of a workers’ compensation insurance contract. Respondent and amici must first convince the Legislature to enact a law creating an administrative remedy before we can require a plaintiff to pursue it.”

Lance Camper Manufacturing Corporation v. Republic Indemnity Company of America, 44 Cal.App. 4th, 194, 61 CCC 371.