The dust is settling on the first round of Obamacare, but the radical changes to our insurance markets and healthcare are far from over. In the years ahead, the California insurance market runs the risk of having less competition, with fewer products and higher prices that shortchange consumers, unless we change direction soon. For a foreshadowing, look no further than Covered California, the health insurance exchange set up by the state to administer Affordable Care Act (ACA) plans. Covered California celebrated the news that 1.4 million Californians signed up for new health insurance plans through the exchange, but this number is likely vastly inflated, considering what will certainly be duplication in signups and customers who will default on their premiums. Covered California conveniently left out the fact that it canceled nearly a million plans even though the president himself - the Obama in Obamacare - told states they didn't need to cancel plans to be in compliance. The exchange’s decision left helpless consumers scrambling to find plans in the wake of the unnecessary and harmful decision. Nine million Californians might lose their plans next year when the ACA mandates affect employer-sponsored insurance. That number might even be higher. I won't see Covered California trample on these millions of families like it did with the million individual-market consumers. That's why I sued the exchange, to stop it from overstepping its authority and pulling the health insurance rug out from underneath a quarter of the state. My suit also takes dead aim at the reckless spending and waste at Covered California. The exchange infamously squandered nearly $1.4 million on a video of '80s fitness sideshow Richard Simmons prancing around on a stage with a contortionist in an attempt to reach out to millennials. I wish I was making this up, but I'm not. That $1.4 million is more than many Californians will make in a lifetime of work. The exchange, only four years old, already projects a $78 million deficit in 2015/16 and more than $30 million the next year. Politicians can't sit back and watch this happen. Without intervention, Covered California could come to the state’s general fund to bail it out or raise the monthly surcharge on health insurance plans so high that it will discourage people from buying insurance in the first place. Obamacare has valuable components, such as the coverage for pre-existing conditions, but under the costly and ineffective administration of Covered California it veers toward disaster. Meanwhile, attempts to amend California’s Medical Injury Compensation Reform Act, passed in 1975, could raise the liability limits for doctors. This would drive up insurance costs above even the inflated ACA-compliant plan costs and choke off the supply of medical care in the state, as doctors leave or limit the scope of their practices to manage their higher exposure. Even worse, a proposition on the ballot in California this fall would give the Department of Insurance (DOI) authority over increases in health insurance plan rates. This may sound good for consumers, but it's just the opposite.  As with any other product, it's competition - not government control - that drives down prices. Under this insurance commissioner, the DOI has hardly been the consumer's friend. The DOI already pressured Anthem Blue Cross, one of the state's largest health insurance providers, out of one critical state insurance market, leaving families with fewer choices to meet their healthcare needs. DOI is also slow to approve rate decreases that would benefit consumers. Rate decrease applications take between four and 12 months, leaving ratepayers hung out to dry while the bureaucratic process grinds on. Approvals of new products are slow to non-existent, meaning that Californians are robbed of advances that people in every other state use to protect themselves, their families and businesses, all while saving money. Putting this DOI in charge of health insurance would be a death blow to innovation and competition, leading to higher costs for everyone. This is a wild time in insurance in California, and Californians need an advocate fighting for them, now and in the future. With the right ideas and right leadership, California can enjoy a future every bit as great as its past.

For as long as anyone can remember, the basic method for calculating workers’ compensation premiums is RATE x PAYROLL x EXPERIENCE MOD. Rates vary based on job classification codes (which is much more complicated than it sounds), and the experience mod is based on prior losses. This is how premiums have been calculated for years. This method inevitably leads to a payroll audit at the end of the policy term to determine whether any audit premium is owed. This issue can lead to conflict between the carrier and the policyholder. One reason there is so much conflict is because of how “payroll” is defined by the rating agencies (NCCI, WCIRB, etc.). Actual wages paid to your employees are easy to define. But “payroll” goes beyond wages. There is some variation by state but, for the most part, “payroll” used to calculate workers’ compensation premiums includes things like vacation pay, holiday pay, bonuses (including stock), sick pay, auto allowances and commissions. The list is very extensive. An area of much contention right now relates to the inclusion of bonuses. Bonuses in the form of cash or stock are both treated as payroll. But I have frequently heard complaints from employers who were upset because they received a large premium audit bill because of these bonuses. Employers argue that these bonuses usually do not increase carriers’ claim exposures. Each state has a maximum indemnity benefit rate, with the highest being around $1,000 a week. That means that, if an employee earned wages of more than $80,000 a year, there is no impact on his benefit rate if he has a workers’ compensation claim. So a bonus would have no material impact on the claims exposure for a carrier. The problem arises because the payroll rules are outdated based on the reality of the U.S. workforce today. It used to be that only the top executives in companies received substantial bonuses. The payroll rules in every state include caps for the directors and officers of companies for this very reason: the recognition that their higher wages did not increase the carrier’s exposures. However, we are no longer a country where the majority of our workforce is in the manufacturing industry. A significant percentage of the workforce is now in highly skilled “white collar” jobs. More and more companies are using bonuses to assist in retaining their skilled workforce. Companies are making these benefits available to a wide segment of their workforce, far beyond the directors and officers who were considered in the rules for calculating workers’ compensation premium based on payroll. The solution to this is relatively simple – extend to all employees the director/officer payroll caps used in calculating premiums. Nevada has done this for several years. Implementing this change would not be overly complex, as these payroll caps and the methods for calculating them are already in place. This issue is currently being discussed by the NCCI Underwriting Committee. If NCCI were to recommend such a change, I would expect it would be quickly adopted by both NCCI states and the independent bureau states. Would these changes result in lower premiums for employees? Perhaps for some employers, it could. But other employers could see higher premiums as carriers adjust their rates to ensure adequate premiums are being collected. The workers’ compensation industry’s combined ratios have been more than 100% for a number of years. Because of this, carriers have to be cognizant of the impact any changes in premiums would have on their surplus. As workers’ compensation continues to evolve, we must constantly review the rules and regulations governing the industry to ensure they are still appropriate. Perhaps it is time to review one of the most basic issues, the method of calculating premiums.

The Equal Employment Opportunity Commission has challenged the legality of provisions commonly included in severance, separation or other settlements with employees being terminated. These provisions state that settlement benefits are to be paid only if the employee doesn’t file charges or otherwise communicate with the EEOC. Employers planning to use such provisions should note a lawsuit filed by the EEOC against the nation's largest integrated provider of prescriptions and health-related services, CVS Pharmacy. In Equal Employment Opportunity Commission v. CVS Pharmacy, Inc., CA no. 14-cv-863 (N.D. Ill., 2014), the EEOC charges that CVS unlawfully violated employees' right to communicate with the EEOC and file discrimination charges. The EEOC says CVS committed the violation through an overly broad severance agreement that included five pages of small print. The lawsuit claims CVS violated Section 707 of Title VII of the Civil Rights Act of 1964, which prohibits employer conduct that constitutes resistance to the rights protected by Title VII. The lawsuit also is notable because it is not filed in response to an investigation of a discrimination charge. According to the EEOC, Section 707 permits the agency to seek immediate relief without the same pre-suit administrative process that is required under Section 706 of Title VII, and does not require that the agency's suit arise from a discrimination charge. "Charges and communication with employees play a critical role in the EEOC's enforcement process because they inform the agency of employer practices that might violate the law," according to the EEOC attorney leading the litigation, John C. Hendrickson. "For this reason, the right to communicate with the EEOC is a right that is protected by federal law. When an employer attempts to limit that communication, the employer effectively is attempting to buy employee silence about potential violations of the law. Put simply, that is a deal that employers cannot lawfully make." EEOC District Director Jack Rowe added, "The agency's most recent strategic enforcement plan identified 'preserving access to the legal system' as one of the EEOC's six strategic enforcement priorities. That was no accident. The importance of employees' ability to participate in the agency's process, free from fear of adverse consequences, cannot be overstated. It is always difficult for an employee to report employer discrimination to federal law enforcement officials. Anything that makes that communication harder increases the risk that discrimination will go unremedied." The litigation showcases the need for employers to use caution when attempting to prevent employees from reporting to or cooperating with regulators investigating suspected discrimination or other legal violations. The EEOC’s challenge in the CVS litigation is not unique. Challenges have arisen under a wide range of federal and state laws. The Labor Department Wage and Hour Division has rules that say employers will receive no shield from investigations by the agency or from enforcement of wage and hour laws on settlements with terminated employees that didn’t involve the division. The Justice Department and other government enforcement agencies often view confidentiality provisions as prohibited obstruction or retaliation. In addition, government investigators often view the existence of gag rules as evidence that an organization does not maintain the required culture of compliance. The CVS litigation also cautions businesses against taking for granted the appropriateness of their current agreements with employees. The EEOC challenge is just one of several developments that can affect the design and use of severance, separation and other settlement agreements with employees intended to resolve employment discrimination claims. While many employers may assume they can safely use agreements used in connection with previous terminations, the CVS litigation highlights the potential advisability of seeking the advice of qualified legal counsel, even if the employer benefited from the advice of legal counsel in drafting the previous agreement.

Since the digital currency known as Bitcoin came on the scene in 2009, much has been written about it, both good and bad.  However, it seems clear that Bitcoin's underlying “protocol” has the potential to transform the global payments system. Entrepreneurs are flocking to the Bitcoin protocol. Private equity and venture capital, most notably in Silicon Valley, have also begun to make substantial investments in the technology. The technology for "crypto-currencies" like Bitcoin may hold particular promise for opening up the financial system to the masses of individuals in the world’s poorest countries, the majority of whom do not have access to bank accounts. The technology also has implications far beyond the financial system and could have fundamental impact on voting, legal contracts and real estate transactions, to name just a few. A debate is raging over whether Bitcoin should be regulated, and, if so, how far regulation should go, to minimize any dangers while not suppressing innovation as Bitcoin develops out of its “infancy.” Several events have galvanized those in favor of more robust regulation. In October 2013, the FBI arrested Ross Ulbricht, a.k.a. “Dred Pirate Roberts,” who is alleged to have been the mastermind behind Silk Road, a website that was devoted to selling illegal drugs and other illicit items and services. The sole medium of exchange on Silk Road: Bitcoin. In January 2014, Charlie Shrem, a well-known member of the Bitcoin community and the CEO of BitInstant, one of the best-known and largest Bitcoin exchanges at the time, was arrested on money-laundering charges. Then, Mt. Gox, a Tokyo-based digital currency exchange, collapsed, and the loss of millions of dollars of customer Bitcoins spread through the news like wildfire. Taken together, these events have caused many fraud prevention professionals working in law enforcement, regulatory agencies, compliance departments and other institutions where digital currencies could conceivably be an issue to eye Bitcoin and other “alternative” currencies with a healthy dose of skepticism. In spite of these events, Bitcoin has been gaining support commercially among merchants and retailers. The Sacramento Kings of the National Basketball Association, the Chicago Sun-Times and Overstock.com, among others, now accept Bitcoins as a method of payment. Thousands of small businesses scattered across the U.S., with notable concentrations in San Francisco and New York, also are accepting Bitcoins. Because Bitcoin is a disruptive technology, there were no real applicable regulatory or enforcement mechanisms in place when Bitcoin came into existence in 2009. The nature of the Bitcoin protocol is such that regulations already in existence, in most cases, could not be easily adapted. The exchange, transmission, trade, securitization and commoditization of Bitcoins all have regulatory implications. Regulators are rightly concerned about such issues as consumer protection, anti-money laundering/countering the financing of terrorism, fraud prevention and other important issues.  However, because of Bitcoin’s disruptive nature, the application of existing regulations often places Bitcoin in a regulatory “gray zone.” In March 2013, the U.S. Financial Crimes Enforcement Network, known as FinCEN, issued guidance that characterized Bitcoin exchanges in such a way that they must register with FinCEN and follow the Bank Secrecy Act’s (BSA) anti-money laundering (AML) regulations. Exchanges also must develop bank-level AML and Know Your Customer compliance standards for their businesses. In July 2014, the New York Department of Financial Services (NYDFS) issued proposed regulations regarding “virtual currencies.” The proposal has entered a 45-day comment period. The proposal would require companies involved in virtual currency business activities to have in place policies and procedures designed to mitigate the risks of money laundering, funding terrorists, fraud and cyber attacks. At the same time, the regulations seek to impose privacy and information security safeguards on companies operating in this environment. As the country’s leading financial center, New York has taken the lead in proposing regulations that seek to balance the need for anti-money laundering, fraud prevention and consumer protection safeguards against the desire to promote innovation within the nascent digital currency industry. Though it is unclear whether the proposed regulations achieve these ends, it might be argued that these regulations are preferable to a regulatory vacuum that leaves industry insiders and investors with more questions than answers. However, the danger of overregulation is that it could drive away legitimate industry actors and the innovation that would follow. Absent investment and innovation in the industry, the technology is largely left in the hands of those who wish to exploit it for nefarious purposes. Only time will tell. KEY TAKEAWAYS 1)  Digital currency technology is here to stay, and overregulation could stifle investment and innovation in the industry, leaving the technology in the hands of those who wish to exploit it for nefarious purposes. 2)   Bitcoin technology is still in its infancy, and venture capital and private equity elements are beginning to show real interest in the technology’s exciting potential to transform certain business practices across a wide range industries. 3)  Regulatory agencies have only recently begun to take notice of the potential issues that this disruptive technology presents.

If a million people say a foolish thing, it is still a foolish thing. Anatole France Maybe that quote should be, “If 1.3 million people. . . . “ That’s because Tim Draper, having spent $5 million, secured 1.3 million signatures and put a measure on the 2016 California ballot that would split the Golden State into six states. Calling himself the “risk master,” the 56-year-old, billionaire tech investor expresses his quirky desire to “reboot and refresh our state government” by creating separate areas that would be more governable – think “Hunger Games.” California is the largest state by population, with 38 million people (12% of the U.S.’s total of 316 million), and third largest by area behind Alaska and Texas. It is the world’s 8^th-largest economy. If Draper’s measure were approved, the new state of Silicon Valley would be the wealthiest in the country. Central California would be the poorest. No state has been created from an existing one since West Virginia split from Virginia in 1863. But California has had at least 30 serious proposals to divide it into multiple states since its statehood in 1850, including a proposal passed by the state senate in 1965 to divide California into two states with the boundary at the Tehachapi Mountains, near Bakersfield. In 1992, the state assembly passed a bill to allow a referendum to partition California into three states: North, Central and South. Pundits referred to these proposed states as Log Land, Fog Land and Smog Land. It is said that the area of the state adjacent to Oregon, long known by the fiercely independent locals as Jefferson State, produces 60% of the U.S. marijuana crop. Three years ago, ex-Google engineer-turned-political-economist Patri Friedman came up with a goofy proposal to build his own floating libertarian nation 12 miles off the coast of California – Googleland? Assuming the current state legislature and Congress both approve of Draper’s nonsensical measure, the area we currently call California would have 12 senators in Congress, not two. As much as Texans like their beer, I’m not sure they’d like to see California get a six-pack of senators. Among the serious repercussions that Draper fails to address are vital state infrastructure issues. These include water distribution, transportation systems, state prisons, the University of California system of 10 campuses and two national laboratories – and the largest and most progressive workers’ compensation system in the country. Workers’ compensation laws in the U.S. are promulgated on a state-by-state basis. Besides a myriad of workers’ compensation laws, each state’s bureaucracy must produce and enforce a plethora of complex regulations, licensing procedures, collateralization requirements and other rules. States have choices to make about self-insurance, including about workers’ comp pools of smaller employers. Perhaps one or more of the new six California states would be monopolistic – where workers’ compensation coverage is purchased through the state (as in North Dakota, Ohio, Washington and Ohio). Another possibility is an “opt-out” program (as in Texas, Oklahoma and Tennessee) that allows employers to litigate injuries in the civil system, as an alternative to the “exclusive remedy” system. As if this weren’t enough to be concerned about, the legacy of the current active California workers’ compensation claims would be an issue. Three key institutions were created by the state legislature and are operated like private companies: the State Compensation Insurance Fund (SCIF); the California Insurance Guaranty Fund (CIGA); and the Self-Insurers’ Security Fund (SISF). SCIF is the state’s largest workers’ comp insurer and provides an insurance alternative to those companies doing business in California that are unable or unwilling to: (1) purchase workers’ compensation coverage from private competitive insurance carriers, or (2) self-insure. CIGA provides insolvency insurance for property casualty insurers admitted to doing business in the state. SISF provides protection to the state and taxpayers for non-public, self-insured entities by taking over workers’ compensation obligations from entities that have defaulted (79 since its formation in 1984). These three entities combined cover billions of dollars of known and incurred but not reported (IBNR) workers’ compensation with open claims going back as far as World War II. Their combined assets total in the billions. How would those three entities be broken up into six pieces and reestablished?

Untold millions of people provide personal and private information on the Internet every day to pay their bills, to purchase a product, to post a picture and so on, even though data breaches have become practically a daily occurrence. The problem has focused attention on the lack of security by the companies that use the data, but consumers also need to take some responsibility. The hacking of Target at the end of 2013 is the best-known of recent data breaches, but hackers know no bounds. Virtually every individual who uses the Internet—no matter who he is or what she does professionally—is at risk for a data breach. For instance: In May 2014, three desktop computers were stolen from the California office of Bay Area Pain Medical Associates. About 2,780 patients were notified that their personal information was in a spreadsheet that could have been accessed by the thieves. In March 2014, about 1,700 people in the employee wellness program for Virginia-based Dominion Resources had their personal records accessed by a hacker who gained entry to the systems of a subcontractor, Onsite Health Diagnostics. The personal information of their spouses and domestic partners was also hacked, if they had scheduled a health-screening appointment online. In Encinitas, a California Public Employees' Retirement System (CalPERS) payment document containing 615 current and former employees’ personal information—including Social Security numbers—was inadvertently made public on the city’s website from May 18, 2014, to July 3, 2014, and was accessed by 16 unauthorized individuals before the data breach was discovered. In July 2014, Orangeburg-Calhoun Technical College in South Carolina had to notify 20,000 current and former students and faculty that their personal information—including Social Security numbers—was on a laptop that was stolen on July 7, 2014, from a staffer's office. In Texas, from Dec. 28, 2013, until June 20, 2014, the Houstonian Hotel Club & Spa’s payment processing systems were compromised when they were infected with malware. More than 10,000 customers had their payment card data exposed. In April 2014, Park Hill School District in Missouri learned that before leaving the district an employee downloaded 10,210 current and former staffers’ and students’ personnel and student files that contained their personal information. The former employee made the files accessible to untold numbers on the Internet. The Department of Managed Health Care (DMHC) discovered on May 16, 2014, that Blue Shield of California inadvertently made public the names, business addresses, business telephone numbers, medical groups, practice areas and Social Security numbers of about 18,000 doctors. The list could go on and on, but you get the message. Data breaches can occur on any computer system, anywhere and any time. So, who is ultimately responsible for data breaches? The company holding the data, because of its system’s vulnerability? Or the user/consumer, because we are responsible, through our passwords and PINs, for the security of all data we post? (If you read the privacy policies of the sites you use, the user is responsible.) The answer is not an easy one. If your information was hacked through an entity’s online systems, your answer most likely would be the entity, and you might participate in a class action. at least two dozen federal class actions have been filed against Target, alleging it did not adequately protect customer privacy. A class action has been filed against P.F. Chang’s China Bistro for a security breach that involved, according to the complaint, 7 million customers’ credit and debit card payment data stolen from its restaurants’ systems between March and May 2014. (It has been reported that the breach came to light only when a batch of card data was alleged to be up for sale at Rescator, an underground store best-known for selling customer data stolen in the Target breach.) But is it that simple, that the sole responsibility lies with the entity that was hacked? What about us, the consumers? Do we need to be part of the answer by accepting that we willingly create those passwords and PIN numbers and that we provide our personal and private information so we can shop on eBay (which just notified 145 million of us that a cyber attack may have compromised customers’ login information and other personal and private information) or pay bills online? Should it be our responsibility to understand that online systems, or the strips on the back of our credit and debit cards, that store the data we provide are moving targets (no pun intended) for theft? Saying “yes” would be the first step in the right direction. Everyone, user and organizations alike, is vulnerable, so the responsibility to protect our information lies with us all. The second step is for each of us to do whatever we can to manage our vulnerability. Such as:

• Making sure our anti-virus software is current, to prevent scammers from installing viruses on our computers that allow hackers to steal our personal and financial information. When the popular online ticket marketplace Stub Hub suffered a data breach, the hackers did not break directly into Stub Hub’s system; instead, they stole account information directly from the customer by downloading viruses onto each customer’s personal computer, or by collecting the information from data breaches of other websites.

• Monitoring our bank and credit card accounts every day. If you see charges or withdrawals you did not authorize, contact the bank or credit card company immediately. (The liability is still yours until you report that your information has been compromised.)

• Make sure your homeowner’s or renter’s insurance policy covers losses because of fraud, because, even if a class action is settled, there may be strings attached to how you can collect your share. For example: Vendini, another company that offers ticketing services to theaters and event venues, settled a class action in 2014 about compromised data. The settlement requires Vendini to pay as much as $3,000 a customer for identify theft losses. But here is the catch—you have to prove that the information used to make you a victim of identity theft actually came from Vendini’s systems.

Here is the bottom line: The landscape on cybersecurity is shifting rapidly as data breaches are spiking. Congress, regulators and state attorneys general are taking a hard look at how companies, universities and governmental agencies are protecting consumer information from unauthorized access. Hearings have been held and new laws pushed. As a result, organizations are facing critical questions about what their responsibilities are to ensure consumers’ private and personal information is secure and in compliance with old as well as new laws. But it is also imperative that you, the consumer, understand that you cannot depend on organizations to protect the information you provide to them. Rather, you need to take matters into your own hands and pose critical questions to yourself about how you use your own information online. You need to decide what information you are willing to turn over to be able to pay bills, make purchases or register for social media online. It is after all, your information and your life. Think about it. The information contained in this article is provided only as general information and may or may not reflect the most current developments legal or otherwise pertaining to the subject matter thereof. Accordingly, this information is not promised or guaranteed to be correct or complete and is not intended to create or constitute formation of an attorney-client relationship. The author expressly disclaims all liability in law or otherwise with respect to actions taken or not taken based on any or all of the content of this article.

In the last decade, pilots and trials of telematics have eked out only single-digit adoption rates for usage-based insurance (UBI) among drivers, but the opportunity is now here for a breakthrough. All that is required is a smartphone. To date, buying insurance based on actual, verified miles driven has involved installing expensive and privacy-invading tracking systems, mated to a vehicle port with a “dongle thingy,” or ghosting a cell phone’s reception turn for turn. These systems are complete overkill for verifying odometer readings. Instead, consumers who want to get low rates because they drive few miles can verify their actual readings on a timely basis by simply periodically taking pictures of their odometers with their smartphones. An app could verify the date and ensure that the photo is of the car that is being insured. Using a smartphone app for UBI would require insurers to leave behind their traditional approach and be much more responsive to drivers. At the moment, those insurers that offer low-mileage programs tend to just have one cutoff – for those who drive less than 7,500 miles a year – and offer them only something approaching a 10% discount off the rates for those who drive the average distance of roughly 12,000 miles a year. Yet someone who drives 5,000 miles a year should, based on industry data, get a discount of 30%. Given the sophistication of smartphone apps, drivers would expect rates to be set for actual miles driven, not just based on whether they stayed below that 7,500 cutoff. Someone who drives 3,473 miles in a year could pay just for that number. An app could also be used to win business. The interface will help the consumer not only remember to take the picture of the odometer but could alert them when carriers in their state offer better rates for those customers who drive less. (In many states, miles are not now used in rating.) Consumers who drive less are set to benefit hugely from telematics. All they need is the right app – and the savings on insurance could even pay the phone bill for some. Usage-based insurance for the mass market is here.

While there is considerable talk about fraud in workers’ compensation, the discussion usually refers to fraud by claimants or employers. Unfortunately, fraud and abuse also occurs in medical management. Poorly performing medical doctors produce high costs and poor claim outcomes. When they are also corrupt, the damage can be exponential. We know poorly performing and corrupt doctors are out there. More importantly, we also know how to find them! Disciplining providers by not paying them when they knowingly overtreat is one solution, but even better is avoiding them altogether. Identify the bad doctors and carve them out of networks.  Most agree with this philosophy, yet few medical networks in workers’ compensation have seriously addressed the issue. Efforts to solve the problem should focus on identifying the perpetrators by means of a well-designed analytic strategy. The data, when analyzed appropriately, will point out medical doctors who perform badly. There is a trail of abuse in the data. Bill review data, claims payer data, and pharmacy data, when integrated at the claim level including both historic and concurrent data, present a clear picture of undesirable practices. Outliers float to the surface. Fraudulent providers treat more frequently and longer than their counterparts. They also use the most costly treatment procedures, selected as first option. The timing of treatment can produce evidence of corruption, such as when more aggressive treatments like surgery are selected early in the claim process. Some of the more subtle forms of medical fraud involve manipulating the way bills are submitted. Corrupt practices attempt to trick standard computerized systems. They consistently overbill, knowing the bill review system will automatically adjust the bills downward. Systems can miss subtle combinations of diagnoses and procedures and allow payment. Likewise, some practitioners bill under multiple tax identifiers and from different locations. Unless these behaviors are being monitored, computer systems simply create different records for different tax ID’s and locations, making the records appear as different doctors. When attempting to evaluate performance, the results are skewed. Provider records must be merged and then re-evaluated to arrive at more realistic performance scores.

There is absolutely nothing good about a failed water system for the insurer, the customer or the community. One of the most unfortunate things is that many failures are predictable and avoidable -- but not by the plumbers, developers or contractors; the technical assurance of complex systems is the exclusive domain of the engineering discipline. This article demonstrates how a combination of many contributing factors may conspire to compromise an entire system. The insurer should be aware of common pitfalls and mitigate them before accepting the risk. When a failure occurs, the insurer should investigate if the cause of failure has been removed, and where the liability falls. For this investigation, we brought together a hydronic operations engineer, an analytical test engineer and a chemist to reconstruct a more-likely-than-not conclusion for a particular case: a six-year-old CPVC (chlorinated polyvinyl chloride) hydronic system that suffered extensive leaking and catastrophic failures, incurring substantial insurance claims and other economic loads. (A hydronic system uses water to heat and cool a building.) Failure records When leading an investigation, the first thing is to collect the maintenance records, if they exist (an insurer should mandate maintenance plans). These records can then be overlaid on a diagram of the building to see when, where and how severe the problems have been. In this case, there is no clear pattern, which suggests a system-wide failure.     Several significant problems were observed during a cursory review of building documentation, installation and operation. There was no single cause of failure; rather, there were multiple conditions. 1. CPVC was not the specified material. In fact, no specifications for hydronic piping material were called out, nor was any statement deferring the material selection to another party apparent. 2. There was no compensation for CPVC thermal expansion. 3. There was a general failure to meet the manufacturer's installation requirements. 4. Oxygen was allowed into a “closed” system. As a result, the air separator and pump impeller became corroded. 5. An unknown hydrocarbon contaminant was introduced that attacked the CPVC. Analysis The first set of photographs suggests a case where the threaded brass connections throughout the installation were improper for this application. NPT tapered threads (National Pipe Thread Standard) are designed to create interference fit between similar materials as a means of creating both a high-strength union and a positive fluid seal. Where one material is substantially stronger (brass) than its counterpart (CPVC), the strength of the union and the integrity of the seal may be compromised. Stress would be introduced that would accelerate the cracking and, ultimately, cause the failure of the CPVC. Figure 1: Sample 3, CPVC thread vs brass nut tightened to .080 gap. Figure 2: CPVC Thread effectively “bottomed out” on all samples. Note obvious leak path. In a proper application of CPVC threads, the manufacturer installation recommendation is to hand tighten for no more than one to two turns beyond finger tight, using a strap wrench. It is clear that these unions were tool-tightened to the point of CPVC material deformation, as the brass nut bottomed out on the CPVC male connector. This introduced mechanical stresses in the material. These stresses opened leak paths, while making the material more vulnerable to chemical contamination and degradation. Figure 3: Severe galling of threads observed on all CPVC vs. brass samples Figure 4: Evidence of leakage and corrosion of brass observed on all samples. Note tooling marks on CPVC connector. Figure 5: Dark staining on threads and thread root is typical of contaminant absorption under material stress conditions. Figure 6: Rust deposits, brass corrosion, evidence of leakage and Teflon tape remnants are consistent across all samples Classic environmental stress fracturing was found at the inside wall of the threaded area of the pipe. This is a precursor to failure because of excess mechanical forces applied to threads and the propensity for CPVC to absorb contaminants at such stress zones -- a textbook case. Figure 7; Classic ESC. Brown stains are rust deposits remaining after gentle cleaning of the sample. This cross-threaded sample was found in the demolition pile for the concurrent re-pipe. This sample provides a particularly egregious demonstration of combined deficiencies observed in this CPVC installation. A catastrophic failure at this union was imminent. Figure 8: Catastrophic failure was imminent CPVC is proven to be a robust piping material throughout the world, but when many adverse conditions are concurrent -- in this case, we had poor workmanship, multiple mechanical stresses, contamination and chemical attack -- no material is resilient enough to resist such abuse. Figure 9: The anatomy of a failure Figure 10: Radial and longitudinal ESC failures were present in the cross-threaded sample Figure 11: Two complete cracks form inside the threaded section of sample 5. Note micro-cracking surface patterns. Figure 12: “Dry desert” cracking pattern is typical of ESC. Figure 13: This ECS failure attributed to poor workmanship as excess cement was allowed to pool inside the pipe. An additional sample provided by the heating contractor demonstrates a condition where insufficient cement was applied, allowing the CPVC tube to fall out of the connector. This is notable because the failed sample is not the original installation; rather, it appears to be a later repair. This would suggest that there might have been many hands contributing to the failure record of this facility. Figure 14: An additional failure sample that was provided by the heating contractor does not appear to be an original installation. This suggests that even continued repairs would not necessarily guarantee a reliable system. Conclusion The architectural building specifications did not make it clear to engineering what material would be used for the piping of the hydronic system. The engineers designed a hydronic system without providing readily obvious identification of material. It appears from the drawings that a metal system was intended (given the omission of thermal expansion loops). In the absence of this specification, the builder or sub-contractor took it upon himself or herself to use an otherwise reliable industry standard such as CPVC piping product. Features such as thermal expansion loops and brass-inlaid connectors were not specified, so the contractor may not have known to include them. However, strict adherence to CPVC manufacturers installation requirements would have alerted the installer to seek additional information, if not to attend to industry practices. Further, the building was completed and operated without adequate regard for the make-up water pressure or constant venting for a closed system. A closed hydronic system would not hold enough oxygen to cause the iron corrosion that was observed. Only oxygen in the water would corrode the pump impeller. When the oxygen was inadvertently allowed to enter the system, that may have been when an incompatible corrosion inhibitor, cleaning agent or MIC inhibitor was also introduced. The incompatible chemical was likely absorbed in high-stress areas of the system such as the brass fittings and anywhere that unchecked thermal expansion would introduce stress. The system began to weaken. As repairs were made, they could not be attributed to any one cause because each occurred opportunistically at a microscopic level corresponding to invisible stress levels. Some failures were minor and some catastrophic. What is certain is that they would have continued until all components were replaced individually. Even then, those replaced components would have still been vulnerable to failure. A decision was made to replace a major part of the CPVC system with polypropylene. It was our recommendation to replace the entire CPVC system with an “engineered system” that is specified from beginning to end to perform the function of a modern and reliable hydronic heating and cooling system. Further, operating procedures and maintenance planning should be specified and overseen by a competent engineering firm that understands the vulnerabilities of all hydronic system components. Finally, if the owners want to determine exactly what chemical(s) was responsible for compromising the relative integrity of this CPVC system, further laboratory tests may be performed to extract the identity of the offending hydrocarbon. However, these are fairly expensive tests whose ultimate value ought to be weighed against the value of pursuing additional action. *** Dr. Duane Priddy, CEO of Plastics Failure Lab, whose assistance on this project is greatly appreciated, provided the following chart:

The goal in mediation is to define issues and resolve them. You can get a head start by alerting your mediator to the issues and suggesting why those issues tilt in your favor. Lack of a brief unnecessarily lengthens the mediation, and your mediator is probably being paid according to how much time is spent in mediation. Effective resource management dictates you don’t want the mediator to have to spend the first hour—or two or three—digging out the issues. Mediation can be an exhausting process. People get cantankerous, which makes negotiation more difficult. Short-cutting the mediation by defining issues in advance can keep participants at their best. The brief need not be formal. A letter may be adequate. If you are in doubt about how formal your brief must be, contact the mediator and ask. A party who does not brief the issues may be allowing the other side to define the discourse. What if your opponent briefs different issues than you do? No problem. Mediation is the place to get all the issues on the table. Preparing a brief helps you hone your arguments. The brief is a guide to make sure no issue is overlooked. Send your brief to the mediator far enough ahead of the mediation so the mediator has adequate time to review it. Did you know the mediation brief you send the mediator is confidential? You decide whether to share it with the opposing party. Information disclosed to the mediator during mediation is not discoverable. The mediator cannot be subpoenaed. This allows you to control when to reveal your “smoking gun”—maybe not until trial. Some parties prepare two briefs: one for the opposing party and a confidential one for the mediator.  More commonly, a party prepares just one, but may decide to waive confidentiality of the brief during mediation.