Tag Archives: california supreme court

Montrose: Gift That Keeps on Giving

On Jan. 7, 2020, the California Supreme Court heard oral arguments in Montrose v. Superior Court, 14 Cal App. 5th 1306, 2017. The issue in the underlying continuous environmental contamination damage claim is whether the upper excess layer of coverage should participate in funding only after all directly underlying excess coverage during the coverage continuum exhausts. This is known as horizontal exhaustion. 

On April 6, 2020, the California Supreme Court ruled in Montrose’s favor, finding that vertical exhaustion is appropriate. 

On my very first day at Admiral Insurance, ove,r 26 years ago, the first claim I reviewed involved the Stringfellow Acid Pits Superfund Site in California. Admiral’s insured, Montrose Chemical, was a major contributor of toxic wastes to the site and a major target of the EPA. I had the opportunity to attend oral arguments before the California Supreme Court in the subsequent coverage litigation against Admiral which is the subject of this article. 

One can only speculate about how many hundreds of millions of dollars of transaction costs were paid, i.e. attorney fees and other expenses, arising from the many underlying claims against Montrose, including Stringfellow, and the ensuing coverage litigation against Admiral and Montrose’s other insurers. 

In July 1995 (modified Aug. 31, 1995), the California Supreme Court in Montrose Chemical Corporation v. Admiral Insurance Company, 10 Cal. 4th 645, turned the concept of fortuity on its head, eventually compelling the insurance industry to respond with significant policy modifications. 

It’s Fundamental – Known Loss and Fortuity 

The concept of fortuity, or chance, is the cornerstone of insurance and its operation. Individual losses must be unpredictable and, through the magic of the law of large numbers, these individual losses collectively must be predictable. 

Unless a loss is fortuitous, it is not insurable. Otherwise, those who knew a loss would occur or could somehow influence the occurrence would buy insurance and those who knew that a loss would not occur would not buy it. This “adverse selection” plays havoc with sound actuarial predictions. 

It is that simple. Or is it? 

Montrose v Admiral affected the principle of known loss and caused the insurance industry to react with a variety of “Montrose Exclusion” endorsements and the Insurance Services Office to change the insuring agreement in the CGL policy. Its impact was, and still is, felt beyond California’s borders. 

Montrose v. Admiral involved underlying environmental contamination claims and insurance coverage. The court’s rulings cast a wide net that affected construction defect claims, as well. The underlying litigation involved several claims against Montrose, referred to as “the Stringfellow cases” and the “the Levin Metals cases.” This article will focus on Stringfellow. 

Montrose Chemical manufactured DDT, dichloro-diphenyltrichlorethane, a very effective pesticide, at its plant in Torrance, CA, from 1947 until 1982. (I visited the site in the mid-’90s and vividly recall the eerie fenced-in property with skull and crossbones warning.) In August 1982, the company received a PRP (potentially responsible party) letter from the Environmental Protection Agency, followed by a lawsuit, with respect to contamination and response costs at the Stringfellow Acid Pits site. The Admiral policies commenced in October 1982 and expired in March 1986. 

The Stringfellow site opened in 1956 and closed in 1972. James “Jimmy” Stringfellow owned the site and operated Stringfellow Quarry. He was approached twice by the State of California in 1955 to use the property as a hazardous waste disposal site. Stringfellow declined twice. But the third time was a charm. State officials touted the property as “a ‘natural’ for a waste disposal site because it was underlain by impermeable rocks.” They weren’t. State investigations conducted the investigation and designed the dump site. But not very well. In fact, in the subsequent complex litigation, United States v. Stringfellow, the special master, in the State Share Fact Finding Hearing, called the state’s conduct “grossly negligent, if not reckless.”

Chemical wastes generated by Montrose at its plant were deposited at Stringfellow between 1968 and 1972, when Montrose paid a hauling company to transport byproducts of its DDT manufacturing process to the state-approved and licensed disposal facility. As early as 1970, toxic wastes were detected seeping from the site, and in 1975 the Santa Ana Regional Water Quality Control Board declared the site a public nuisance.

According to the allegations in the CERCLA complaint, the property damage began in 1956 and continued throughout the periods when Admiral’s CGL policies issued to Montrose were in effect.

The following chronology is helpful to understand the coverage issues: 

1947 — Montrose began manufacturing DDT

1956 — Stringfellow Acid Pits opened

1968 — Montrose began depositing DDT wastes

1970 — Toxic wastes seeping from site detected

1972 — Stringfellow closed

1982 — Montrose ceased manufacturing DDT

8/31/82 — EPA notified Montrose that it was a PRP

10/13/82 — 3/20/86 Effective dates of Admiral policies 

In applying a continuous trigger, the California Supreme Court ruled that it is when the property damage occurs that determines which policy(s) is triggered. In the case of continuous and progressive property damage or bodily injury, all of the policies in effect at the time the damage or injury occurs are triggered. Of course, determining when property damage, caused by contamination that is continuous and latent, begins and ends is not easy. 

See also: P&C Insurance Is Losing Importance  

Essentially, at issue was the termination date of the triggered period relative to the timing of the Admiral policies. Given the dates of operations, the termination of which occurred before the first Admiral policy, and the manifestation of the contamination occurring before the Admiral policy (certainly no later than Montrose’s receipt of the PRP letter), it seemed reasonable to conclude that any trigger period should not extend beyond the date of the PRP letter. At that point, the loss became known and was not insurable. 

But the court saw it another way: 

According to Admiral, Montrose’s knowledge of the problems at the Stringfellow site defeats coverage. In particular, Admiral points to the fact of Montrose’s receipt of the PRP letter from the EPA on Aug. 31, 1982, prior to the inception of the first of Admiral’s four successive CGL policies issued to Montrose. Admiral misses the point. The PRP notice is just what its name suggests — notice that the EPA considered Montrose a “potentially” responsible party. While it may be true that an action to recover cleanup costs was inevitable as of that date, Montrose’s liability in that action was not a certainty. There was still a contingency, and the fact that Montrose knew it was more probable than not that it would be sued (successfully or otherwise) is not enough to defeat the potential of coverage (and, consequently, the duty to defend).  

Citing the “loss-in-progress rule as codified in sections 22 and 250,” the court asserted that the loss in question in a liability policy is legal liability and that known liability is not insurable. When liability is known occurs when liability is “established” with certainty: 

“We therefore hold that, in the context of continuous or progressively deteriorating property damage or bodily injury insurable under a third party CGL policy, as long as there remains uncertainty about damage or injury that may occur during the policy period and the imposition of liability upon the insured, and no legal obligation to pay third party claims has been established, there is a potentially insurable risk within the meaning of sections 22 and 250 for which coverage may be sought. Stated differently, the loss-in-progress rule will not defeat coverage for a claimed loss where it had yet to be established, at the time the insurer entered into the contract of insurance with the policyholder, that the insured had a legal obligation to pay damages to a third party in connection with a loss.” 

Montrose’s receipt of the PRP letter prior to its purchase of Admiral’s policies did not establish any legal obligation to pay damages or cleanup costs in connection with the contamination at the Stringfellow site, such as would implicate the loss-in-progress rule and preclude Montrose from seeking to obtain the liability coverage sought. The PRP letter did no more than formally place Montrose on notice of the government’s asserted position and initiate proceedings that could result in subsequent findings and orders.

In this author’s opinion, the court pushed the envelope in its interpretation of what constitutes a contingent or unknown event in the context of liability coverage. The court concedes that “an action to recover cleanup costs (may have been) inevitable” at the time Montrose received the PRP letter, yet defines the contingency underlying the fortuity principle only in the context of the establishment of legal liability and not the happening of the event, i.e. the discharge of hazardous wastes at the site, which initiated the PRP letter being sent to Montrose in the first place, followed by the probable inevitability of liability being established and damages awarded. 

The insurance policies at issue provide coverage for damages the policyholder is legally obligated to pay as a result of an occurrence. If the analysis were to stop here, and if one accepts the court’s depiction of the contingency that underlies fortuity and insurability as the establishment of legal liability as opposed to the event that ultimately led to the establishment of legal liability, the ruling seems reasonable. 

However, the analysis cannot stop here. In addition to coverage for the legal liability of the insured to pay damages, the policy also provides another vital type of coverage, and that is defense. The insurer’s obligation to defend does not depend on a finding of legal liability. Rather, it is “triggered” when there is a potential that an insured can be found legally liable, and the defense obligation commences when a suit, or its equivalent, is served upon the insured. So, if a PRP letter is tantamount to a suit the defense obligation would be triggered. 

However, Montrose received a PRP letter prior to the inception of the Admiral policy. With respect to defense coverage, there was no longer a contingency. The obligation to defend existed prior to a finding of liability and was triggered at the time Montrose received the PRP letter unless this occurred prior to the inception of the Admiral policy. It did. 

CA Ins. Code, § 22, defines “insurance” as a “contract whereby one undertakes to indemnify another against loss, damage or liability arising from a contingent or unknown event.” The court rewrote the law by restricting, in a liability policy, the contingent or unknown event to the establishment of legal liability rather than the event that resulted in legal liability and despite the fact that insurance defense coverage is triggered long before a formal finding of liability. The subject of the code, the event, resulted in the receipt by Montrose of the PRP letter. As of the date of the policy, which is after the receipt of the PRP letter by Montrose, the event, otherwise triggering a duty to defend, is no longer contingent and, therefore, no longer insurable. 

The court cast its net broadly and specifically brought construction defect claims within its decision by nullifying the previously applied manifestation trigger in such claims. The industry first reacted with a variety of so-called “Montrose exclusions,” and ISO subsequently amended the insuring agreement in the CGL policy. The manuscripted exclusions varied but the common thrust was that losses in progress (known and, sometimes, unknown) were not covered. ISO modified the insuring agreement to preclude coverage for known losses and was less draconian than the “known and unknown” version of the “Montrose exclusions.” As to the former, the burden is on the insured to demonstrate a potential for coverage. In the case of the exclusion, the insurer has the burden to demonstrate that the loss is excluded. 

The intent of the “Montrose exclusions” was simply to limit coverage in the case of one occurrence to the first policy during which the property damage or bodily injury first began. Neither the manuscripted exclusions nor the ISO modification are a “one size fits all” remedy to the Montrose court’s corruption of the fundamental insurance principles of fortuity and known loss. Application of either requires a (very) fact-intensive analysis within the context of the duty to defend (“potential” criterion) versus the duty to indemnify (“actual” criterion), and the differences between them. 

See also: 10 Tips for Moving Online in COVID World  

Some factors to consider when handling these types of claims: 

  • What are the underlying facts? What is the insured’s role in the cause of the injury or damage? 
  • Bodily injury or property damage? What is the injury or damage process? For example, the injury process of asbestos is different than the damage process of construction defects. 
  • What is the trigger of coverage? Continuous, exposure, injury-in fact and their variations? 
  • Number of occurrences? Is it the cause or the effect that determines the number of occurrences? Are there additional factors that affect a cause application, i.e. timing of the injury or damage, number of products, trades, homes, claimants, etc.? 
  • Are there multiple effects of the same cause, or are the effects the same? Does the “sameness test” affect the number of occurrences even if there is a single cause and the loss occurred in a “cause state”? 
  • While injury or damage may precede the policy inception, did the insured’s product or work contribute to the existing injury after policy inception?

Any views expressed here are mine and do not necessarily represent the views of Admiral Insurance Group or any of its affiliates.

Long-Awaited Ruling in King v. CompPartners

The long-awaited decision by the California Supreme Court in King v. CompPartners (2018) S232197 is finally out. In it, the court unanimously held, through a majority and two concurring opinions, that a claim for malpractice against a utilization review (UR) physician for injuries arising from a review decision for the treatment of a compensable injury could not be maintained under the workers’ compensation system and is barred by exclusive remedy.

The case will be extensively analyzed by all participants in the workers’ compensation system. This will include parsing of various comments in the two concurring opinions regarding whether the UR process is performing up to expectations. As noted by Associate Justice Goodwin Liu in his concurring opinion, “The legislature may wish to examine whether the existing safeguards provide sufficient incentives for competent and careful utilization review.” The other concurring opinion, by Associate Justice Mariano-Florentino Cuéllar, stated, “Even now, those safeguards and remedies may not be set at optimal levels, and the legislature may find it makes sense to change them.”

It is difficult to find a point in time where a thorough analysis of the system is contemporaneous with the judicial review of it. Such is the case here. The utilization review events that caused this case to be brought occurred in 2013. Given that this case was dealing with a review of prescription drugs, it is important to note that “safeguards and remedies” now include the Medical Treatment Utilization Schedule Formulary.

As stated in the formulary, “ For injuries occurring prior to Jan. 1, 2018, the MTUS Drug Formulary should be phased in to ensure that injured workers who are receiving drug treatment are not harmed by an abrupt change to the course of treatment. The physician is responsible for requesting a medically appropriate and safe course of treatment for the injured worker in accordance with the MTUS, which may include use of a non-exempt drug or unlisted drug, where that is necessary for the injured worker’s condition or necessary for safe weaning, tapering or transition to a different drug.” [8 CCR 9792.27.3(b)(1)]

See also: Where the Oklahoma Court Went Wrong  

This particular regulation also states, “Previously approved drug treatment shall not be terminated or denied except as may be allowed by the MTUS and in accordance with applicable utilization review and independent medical review regulations.” [8 CCR 9792.27.3(b)(4)]

In addition, Senate Bill 1160 (Mendoza) requires UR processes to be accredited by July 1, 2018. The accrediting agency is URAC, although the Division of Workers’ Compensation has the authority to add requirements for certification. The purpose of accreditation is to have an independent, nonprofit entity “…certify that the utilization review process meets specified criteria, including, but not limited to, timeliness in issuing a utilization review decision, the scope of medical material used in issuing a utilization review decision, peer-to-peer consultation, internal appeal procedure and requiring a policy preventing financial incentives to doctors and other providers based on the utilization review decision.” [Labor Code Sec. 4610(g)(4)]

Much has happened to the system that was under review by the court in King. To improve on this progress, we need to understand what has been done already to provide more safeguards and remedies for injured workers while being faithful to the “grand bargain” that is workers’ compensation. This cannot be done by turning back the clock.

Court Dumps Lien Filing Fee Challenge

The 2nd District Court of Appeal has handed down a decision affirming the legislature’s creation of the lien filing fee as part of SB 863. In Chorn v. W.C.A.B., a physician (Robin Chorn M.D.) filed a complaint that was joined by two injured workers in an effort to challenge, on constitutional grounds, the imposition of a lien filing fee. The court, with frequent references to Angelotti Chiropractic Inc v. Baker, rejected similar arguments that were raised, which, unsuccessfully, (thus far) challenged the lien activation fee provisions of SB 863.

First, the court dealt with the issue of judicial standing for the injured workers—whether they could raise an issue of constitutionality regarding the lien filing fee provisions and in short order dismissed their claims in the case.

From the ruling:

Petitioners Kalestian, Vounov and Buie contend they have a “real and direct interest in challenging constitutionally infirm provisions of law that are transparently intended to impair access to expeditious treatment of their workplace injuries.” They claim that “the imposition of a lien filing fee that bears no connection to the value of the services rendered will make it less likely that medical providers will offer or render care to workers’ compensation patients on a lien basis,” and will “deprive injured workers of any choice as where [sic] they receive their care (if they receive care at all),” thereby “impairing the promise of unencumbered access to medical treatment of their injuries.” But petitioners have not submitted any evidence in support of these claims or any details of their alleged injuries beyond the bare assertion that they have “been denied medical care access as a consequence of SB863.” Moreover, they have not demonstrated that they are more affected than the “public at large” by the operation of sections 4903.05 and 4903.8, or that their constitutional challenges, if successful, would directly affect their rights.”

See Also: Hidden Motives on Workers’ Comp

After dismissing the causes of action by the purported injured workers (no doubt added into the mix in an unsuccessful effort to piggyback onto a more sympathetic plaintiff than the medical provider), the court turned to the multiple arguments raised by the medical provider plaintiff.

On the issue of the imposition of a lien filing fee as an impermissible “encumbrance” on the system, the court was unimpressed, noting the plaintiff failed to cite any legal authority as the basis of its assertions. The court pointed out that the courts have rarely been willing to substitute their judgment for the legislature’s in its efforts to create or maintain a system of workers’ compensation. Noting the legislature’s findings regarding workers’ compensation abuse on a broad scale, the court found the imposition of a $150 filing fee to be a rational exercise of legislative authority.

The court then sequentially addressed the additional arguments: right to petition, due process, equal protection and right to contract.  In each argument, the court found the medical lien provider failed to demonstrate a constitutional violation based on the obligation to pay a filing fee. The court was particularly swayed by the fact that the lien claimants could, upon meeting the statutory criterion and prevailing in litigation, recover their fees:

“…The compromise effected by section 4903.05—lien claimants must pay to file their liens, but may recoup their filing fees if they ultimately prevail—sufficiently protects the due process rights of lien claimants while serving the legitimate goal of deterring frivolous filings.”

The court was particularly dismissive of the claim of contractual impairment, as the court noted the contracts that the plaintiff claimed were being impaired had not yet been created. The statutory prohibition on impairing contractual rights essentially prevents the government from changing existing contracts, but it does not extend to future contracts.

The petition requesting an injunction enforcing the lien activation provisions of SB 863 was denied for the medical lien provider and for the injured worker plaintiffs, with respondents to recover their costs.

Comments and Conclusions:

This case had more or less dropped off the radar, particularly since the initial filing by the medical lien provider, Dr. Chorn, The refiled petition was filed directly with the Court of Appeal, the first level of appellate review that can consider constitutional issues. As a result, there really is no factual record to review. The court’s decision rests almost entirely upon statutory interpretation and the court’s conclusions (based on much the same logic as in the Angelotti case) that the legislature has broad discretion. The imposition of a recoverable filing fee turns out to be no more of an impermissible exercise of the legislature’s power than the activation fee.

This case is likely to be appealed to the California Supreme Court, where it is almost just as likely to fail.

On Hand-Eating Clams And Independent Contractors

Is that guy you have doing that work you need done an independent contractor or an employee? Why does it matter? Well, aside from a whole host of other issues, liability for industrial injuries may hinge on whether that worker was an employee or an independent contractor.

Your humble author recently had occasion to visit his uncle Olaf. For those familiar with the exciting sport of competitive clam-breeding, you’ll no-doubt have heard of Olaf the Clamtastic, world-famous for his exceedingly rare clam-breeding abilities. He also has a business which sells the Giant Clams he raises, “Olaf’s World of Clams.” “Uncle Olaf,” I said, “who is that nice young man cleaning your prize-winning clams?” Uncle Olaf looked up from his magazine, Clams and Claims, and peered at his Olympic-sized swimming pool, the one where his giant clams ruled and all others feared to tread.

There, scrubbing the giant clams, was a young gentleman with a nervous look concealed by goggles and a breath mask.

“Oh,” said Uncle Olaf, “That’s Jim — he’s my independent contractor helping me keep the Clams clean.” As Uncle Olaf turned the page with one of his two hook-hands, I remarked “it’s a good thing he’s a contract worker and not an employee, those clams can be vicious!” But, the workers’ compensation defense attorney in me felt something was amiss. So, being the good nephew that I am, I asked Uncle Olaf, “how do you know he’s a contractor and not an employee?”

Uncle Olaf smiled, as if his silly nephew couldn’t be any sillier, and said “because I didn’t buy workers’ compensation insurance for him, of course!”

Poor Uncle Olaf …

The State of California does not require independent contractors to be covered by workers’ compensation insurance. In theory, one could have a thriving business using nothing but independent contractors and saving untold fortunes on workers’ compensation policy payments.

But, the law requires employers to either self-insure or obtain workers’ compensation insurance for their employees. And, much to Uncle Olaf’s surprise, the nature of a relationship, with respect to employer or contractor, is not determined by the possible employer’s purchase or failure to purchase workers’ compensation insurance. There is another test out there …

But, let’s start with the basics.

California Labor Code section 3353 defines an independent contractor as “any person who renders service for a specified recompense for a specified result, under the control of his principal as to the result of his work only and not as to the means by which such result is accomplished.” Section 3353 was enacted in 1930, codifying the common law distinction between employees and independent contractors. But, this distinction wasn’t concerned with workers’ compensation, but rather with tort law. Whereas an employee could make his employer liable for injuries caused to third parties (imagine an employee-bartender accidentally dropping a crate of fine whiskey on a poor bar patron — an unbearably cruel thought, I know, but one necessary to shock and make the point), the liability buck stopped with an independent contractor.

But, as California Labor Code section 3357 specifically excludes independent contractors from the presumption of employment (and therefore the presumed requirement for the employer to insure or self-insure against those workers’ industrial injuries), the issue is an important one — and case-law expanded the test. So, poor Uncle Olaf can’t put his checkbook away just because he never took it out to insure against a worker’s injuries. Uncle Olaf can’t even put his checkbook away just because he doesn’t micromanage the work or “control the means by which such result is accomplished.”

After all, Uncle Olaf thought that, so long as he doesn’t stand over the young gentleman’s shoulder … hovering … judging … making little comments and directing his every move (“you missed a spot, scrub that clam harder, put your hand inside the clam to get a better grip …”) the young gentleman could remain an independent contractor and Uncle Olaf could laugh at the competitor Clam stores paying insurance premiums every month.

So, dear readers, there I sat in my beloved Uncle Olaf’s kitchen as he ground his hooks into his wooden table, nervously watching the man he hired to clean his prize-winning clams for his Clam sale business, who he thought was his independent contractor but was actually allegedly (your humble author is a zealous defense attorney, after all) an employee, place his hands inside the snappiest of Uncle Olaf’s prize-winning clams. “Scrub from the outside!” he shouted, but the young gentleman cleaning the clams couldn’t hear him …

The California Supreme Court issued its opinion in the case of S.G. Borello & Sons, Inc. v. Department of Industrial Relations (1989), outlining the proper analysis for determination of the question of employment or independent contractor status. S. G. Borello & Sons owned farmland near Gilroy (a place with a wonderful Garlic Festival). Although they kept regular employees for the various crops grown on these farms, for cucumbers, the nature of the market dictated another approach. Cucumber harvesting was contracted out to various migrant farm-worker families.

The families were provided with the opportunity to lay claim to a certain amount of plots of cucumbers, were provided with crates into which to harvest the cucumbers, but were otherwise left to their own devices. The cucumbers were sold to a pickle company in the area, and the profits were shared between the land-owners and the harvesters.

For the multi-week cucumber harvesting season, the harvesters were responsible for taking care of the cucumbers, picking only those ripe and ready for picking, and generally seeing about maximizing profits. The most aggressive task-masters in S.G. Borello & Sons employ found themselves absolutely powerless at the edge of the cucumber plots, for no employees dwelt there — only independent contractors.

That is, until, the Department of Industrial Relations issued a stop-work order. Finding that the independent-contractors were actually employees, and uninsured employees at that, the Department of Industrial Relations went on the war path against poor Mr. Borello and his sons (as well, effectively, against all other farmers in the Gilroy area that adopted the same practices).

Borello’s argument before the Supreme Court was simple — unlike other crops, cucumbers required a degree of knowledge and skill for harvesting, and the harvest workers were compensated for the final product and not the means of rendering service. But the Supreme Court found that other factors, primarily found in the Restatement Second of Agency, play into the analysis as well, among them:

  1. The right to discharge at will, without cause;
  2. Whether the worker is engaged in a distinct occupation or business;
  3. Whether the occupation, in that locality, is typically performed by a specialist without supervision;
  4. The skill required in the particular occupation;
  5. Whether the worker supplies the instrumentalities, tools, and the place for doing the work;
  6. The length of time for which services are performed;
  7. The method of payment (hourly or by task);
  8. Whether the work is part of the regular business of the principal; and
  9. The intent of the parties.

The Borello Court noted that “under the [Workers’ Compensation] Act, the “control-of-work-details” test for determining whether a person rendering service to another is an ’employee’ or an excluded ‘independent contractor’ must be applied with deference to the purposes of the protective legislation.”

The Court also noted that the workers made minimal investment in their work — no heavy equipment but just basic tools.

Other cases followed too.

In the case of Jose Luis Lara v. Workers’ Compensation Appeals Board (2010), for example, the Court of Appeal examined whether a garden-variety handy-man could be an independent contractor. Lara sustained a pretty serious injury while doing work for a small shop called Metro Diner. Metro Diner didn’t have Lara covered by its workers’ compensation policy because he had no regular employment — he was called up to do odd work such as trimming bushes along Metro Diner’s roofline.

Lara provided his own equipment, paid his own taxes, and, although he was paid by the hour, was hired by the job rather than on a general basis. Nor did Metro Diner set Lara’s hours — he was just told to come early or late to avoid interfering with the operation of the Diner.

The workers’ compensation Judge found that Lara was an employee, and the Workers’ Compensation Appeals Board reversed. In affirming the Workers’ Compensation Appeals Board’s finding that Lara was a contract employee, the Court of Appeal cited Borello. Specifically, the Court noted that gardening was Lara’s line of work (and not the Diner’s), that Diner could not control the manner of Lara’s work, Lara had his own clients (other than Diner), and Lara had a substantial investment in his business (lots of tools, equipment, etc.).

As Uncle Olaf scratched his head (very carefully, mind you, as those razor sharp hooks hurt!), I could see that he wasn’t convinced. His prize-winning, hand-eating, giant-clam-raising mind was working. What else did Uncle Olaf think he had up his sleeve?

Uncle Olaf was beginning to get worried — what if his upstart nephew was right and, even though Uncle Olaf didn’t get insurance for the Clam Cleaner, an employment relationship was formed. After all, if Mr. Clam Cleaner was an employee, Uncle Olaf would be liable for any injuries sustained by Mr. Clam Cleaner, and, having lost both hands to giant Clam Bites before, was very much aware of the risks involved.

“I’m pretty sure he is an independent contractor,” said Olaf. Just then we heard a loud *SNAP* as a clam slapped shut, and the young gentleman in the Clam tank yanked his hand away just in time. Uncle Olaf breathed a sigh of relief and said “but he signed a contract … the contract says ‘I am not an employee; I am an independent contractor. I will clean Olaf’s clams. And if I should lose a hand or two, I will only sue the clam or clams that got me, and not poor Uncle Olaf.'”

I shook my head and told poor Uncle Olaf of the panel decision in the case of Leonard Key v. Los Angeles County Office Education. Leonard Key had signed a contract stating that he was an independent contractor paid to teach music lessons at one of the Los Angeles County schools. However, the Workers’ Compensation Judge found that Mr. Key was, in fact an employee, and his injury was compensable. Workers’ Compensation in California is compulsory, after all, and Mr. Key was simply an employee by any other name. And, after all, the farmers in the Borello case had signed a contract as well.

The most important thing for Uncle Olaf to remember is the guiding policy of workers’ compensation — to shift the costs of industrial injuries to the producers and not the consumers/public. Even the Legislature might make efforts to amend the law, defining a contractor vs. an employee based on a long list of factors.

So, dear readers, what should Uncle Olaf do? Before the young gentleman sticks his hand into another one of Uncle Olaf’s clams, should Olaf pull him out of the tank and cease operations until he can get a workers’ compensation policy?

New Laws … New Responsibilities … New Opportunities

SB 863 was signed by California’s Governor back in October but with an official start date of January 1, 2013. For that reason and just because I don’t trust either the legislature or the courts to change their minds, I thought I would wait until now to start talking about what is good, what is bad and what is downright ugly.

Let’s Start With A Good…
In 1917, the first Industrial Accident and Safety Act went into effect. There were lots of pieces, but one that has endured the test of time is the one that allows an injured employee to choose to be treated by his own consulting or attending physician, at the employee’s own expense. The current version of that section is now Labor Code Section 4605 (until 1/1/2013). In my mind, it has been used, or should I say abused, over the past years with an ongoing controversy over this section and what it really means.

There are two major issues surrounding this section of the code. The first has been the question of who is really responsible to pay the bill. The second is whether or not the non-Medical Provider Network doctors’ reports are admissible in court. Well, thanks to an energetic applicants’ attorney (A/A) named Mendoza, both of these issues became ripe for the courts with the recent 2012 Valdez case.

First, I must note that there was a viable Medical Provider Network in place at the time of the injury. The employee initially went to the carrier’s Medical Provider Network doctor, but he also self-procured his own, non-Medical Provider Network doctor.

The carrier objected on the basis that the Medical Provider Network controlled all medical treatment. However, the trial judge admitted and relied totally on the report of the self-procured, non-Medical Provider Network doctor in making his decision as to compensability and the amount that would be due the injured employee. This matter was then taken up by the Workers’ Compensation Appeals Board who reversed the trial judge not once but twice.

However, Mr. Valdez’ attorney was not letting go so easily. So the matter was then taken up by the Court of Appeals who agreed with the Workers’ Compensation Appeals Board. Mr. Mendoza was still not satisfied and took the matter to the California Supreme Court for consideration. The matter has been accepted by the Supreme Court and we await their decision which I predict will be in our favor.

However, while all of this was going on in the courts, the legislature was in the process of passing SB 863, which has some interesting changes … one of which is directly related to this issue. To put it in perspective, you must understand the current language of 4605 which reads as follows:

L/C 4605 — Consulting or attending physicians provided at employee’s expense. Nothing contained in this chapter shall limit the right of the employee to provide, at his own expense to a consulting or attending physicians whom he desires.

As noted above, one of the problems has been who has been paying the non-Medical Provider Network doctors’ fees. Up to this point in time, the applicant’s attorneys have been burying these costs when they send the injured employees to their doctors. The doctors are instructed to treat and to then file a lien for their fees which are normally dealt with at the time the claim itself is decided. I am sorry to say, that in the end, the carriers have rolled over and have been picking up these costs without a fight. This, even when there is a valid Medical Provider Network in place and all such services by the non-Medical Provider Network doctor should be objected to and paid for by either the injured employee or better yet, his attorney.

Non-Medical Provider Network Doctors’ Reports
The next issue is the admissibility of the non-Medical Provider Network doctor’s report. The argument has been that since the employee is paying for it, it should be allowed to have weight in the final determination of the claim. Needless to say, we have vigorously objected and in many cases have won. However, the issue was still there until the legislature made a significant change to L/C 4605 which clarified whether these reports could or should be admitted. L/C 4605 has been changed to read as follows effective 1/1/2013:

Nothing contained in this chapter shall limit the right of the employee to provide, at his or her own expense, a consulting physician or any attending physicians who he or she desires. Any report prepared by consulting or attending physicians pursuant to this section shall not be the sole basis for an award of compensation. A qualified medical evaluator (QME) or authorized treating physician (read MPN Primary Treating Physician — PTP) shall address any report procured pursuant to this section and shall indicate whether he or she agrees or disagrees with the findings or opinions stated in the report and shall identify the bases for this opinion.

So you can see that the legislature has spoken and the issue of the admissibility of the reports has been addressed and settled. That is why I feel we will win at the Supreme Court as the legislature has already made the necessary changes to make clear their intent with the law.

So You Ask, “How Does All This Affect Me?”
Effective January 1, 2013, when you have a strong Medical Provider Network in place, the “consulting or attending physician’s” reports will be admissible but will be sent only to the Medical Provider Network’s Primary Treating Physician. That doctor will either accept what the non-Medical Provider Network doctor has stated or reject it. If our doctor rejects it, he/she must justify why they disagree with what the report says. And of greater import is that if they reject it, there is now a dispute over the diagnosis and treatment of the injury and the matter will be sent out for a second opinion by our Medical Provider Network doctor and not the non-Medical Provider Network one chosen by the injured employee.

This approach will save both time and a great deal of money by shortening how long it takes to get an acceptable medical opinion. This will allow the claim to be moved forward and closed in a timely manner and at a much reduced cost.

What Your Injured Employee Needs To Know When Reporting An Injury
The most important thing to remember here is that when an injury occurs to one of your employees, you need to make sure that they know and understand their right to secure outside treatment but at their own expense. This has already had the affect of limiting applicant attorneys from sending their clients out to doctors who list every possible body part available and then treat and treat and treat and treat.