Tag Archives: court of appeal

Legislative Preview for Work Comp in 2016

Common wisdom suggests that major workers’ compensation legislative activity won’t take place during an election year. For 2016, that would seem to hold true.

That is not to say, however, that various interested parties will be sitting idly by, waiting for the clock to turn to 2017.

CENTERS FOR DISEASE CONTROL ADD TO THE LIST OF CHRONIC PAIN GUIDELINES

On Jan. 13, the Centers for Disease Control and Prevention (CDC) closed the public comment period for its proposed Guideline for Prescribing Opioids for Chronic Pain. According to the CDC, the guideline is being proposed to offer “… clarity on recommendations based on the most recent scientific evidence, informed by expert opinion, with stakeholder and constituent input considered.”

The guideline goes to great lengths to address two important issues. The first is that current guidelines in many states – both public and private – are based on dated information. The second, which is critical, adds to the growing number of voices to say that best practices for providers include accessing physician drug monitoring programs (PDMP) to reduce the risk of doctor shopping and toxic – and sometimes fatal – mixtures of prescription drugs when the patient provides incomplete histories or none at all of their drug use (both prescription and illicit).

This need to access a PDMP before, and during, treatment with opioids is echoed by the Medical Board of California (MBC) and the DWC. Their comments also underscore a considerable problem facing California policymakers when trying to create incentives for providers to use the Controlled Substance Utilization Review and Evaluation System (CURES) without directly mandating access.

This dilemma is best summed up by the analysis of Senate Bill 482 by Sen. Ricardo Lara (D – Bell Gardens) that is at the Assembly Desk pending referral to committee. The bill, which would mandate participation in the CURES system as well as other measures to curb the abuse of opioids, has garnered opposition from medical associations and one medical malpractice insurer. The opposition, according to analyses by legislative staff, is based on two issues – the first being whether the CURES system is capable of handling the volume of inquiries a mandate would engender, and the second being concern that requiring CURES access will become a standard of care that could subject providers to malpractice liability.

As to the former, this issue arose during the campaign waged against the 2014 ballot measure Proposition 46. According to the non-partisan Legislative Analyst’s Office (LAO), “Currently, CURES does not have sufficient capacity to handle the higher level of use that is expected to occur when providers are required to register beginning in 2016.” This raises an important question – does the CURES system now have the capability to meet the demand that a mandate would create? If it doesn’t, then the legislature needs to understand why.

As to the second issue, it is difficult to comprehend the level of distrust that is subsumed in the position that opposing a mandatory review of possible prescription drug abuse by a patient would establish more potential malpractice liability than knowing that the CURES database exists and not checking it. In time, perhaps, it will be the appellate courts that resolve that issue.

There is no shortage of guidelines that address the appropriate use and cessation of use of opioids for non-cancer chronic pain. The DWC is finalizing its latest iteration on this issue as part of the MTUS. It will differ from both the CDC and the MBC guidelines to some degree, but the overall treatment of this issue is very similar. In addition, the division will be implementing a prescription drug formulary as required by Assembly Bill 1124 by former Assembly member Henry Perea (D – Fresno). That, too, will likely provide opportunities to address the proper use of opioids in the workers’ compensation context, preferably after the chronic pain guidelines are completed.

As noted by the CDC and the MBC, and implicit in the DWC’s guidelines, this is not just a question of UR. If all the work by the division is simply viewed as a more effective way of saying “no” regardless of the circumstances, then the public health issues associated with the abuses of opioids will continue.

Workers’ Compensation Insights is a bi-monthly publication of Prop 23 Advisors. Subscribers will receive in-depth analyses of pending California legislation and regulations, review of important WCAB and appellate court decisions and commentary on trends within the system in California and nationally. To read the rest of this newsletter, click here.

Do Brokers, Agents Owe Fiduciary Duty?

Insurers, insureds and even their attorneys frequently incorrectly assume that insurance agents and brokers owe fiduciary duties to their insureds. While the law is not completely clear regarding the applicability of agency principles and fiduciary duties in this area, legal precedent can offer some guidance on the issue.

Currently, there is no appellate precedent permitting an insured to sue its agent or broker under a common law action for breach of fiduciary duty. However, the California courts have yet to be willing to rule that the cause of action based on common law agency principles is completely inapplicable to brokers and agents.

Demonstrative of the court’s unwillingness to create a bright-line rule is the heavily litigated case of Workmen’s Auto Insurance Company v. Guy Carpenter & Co., Inc. In 2011, the court of appeal in Workmen’s answered the question regarding fiduciary duties of brokers and agents definitively in the negative, ruling that “an insurance broker cannot be sued for breach of fiduciary duty.” The ruling finally provided the guidance and rule necessary to put the issue to rest. However, the relief was short-lived; in 2012, after a rehearing that affirmed the court’s ruling, the opinion was vacated and depublished, again leaving the law in this area without any clear precedent to follow. After rehearing, the court deleted the quotation stating the new rule from its summary of opinion, instead stating “these authorities do not close the door on fiduciary duty claims against insurance brokers.”

Prior to Workmen’s, several cases made steps toward supporting the idea that no fiduciary duty is owed. In Kotlar v. Hartford Fire Insurance Company, the court held an insurance broker need only use reasonable care to represent its client, and declined to apply a higher standard such as that applied to an attorney. The court found that the broker’s duties are defined by negligence law, not fiduciary law. In Hydro-Mill Company, Inc. v. Hayward, Tilton & Rolapp Insurance Associates, Inc. the court expanded on Kotlar, finding that the standard of professional negligence applied, but refused to recognize a separate cause of action for breach of fiduciary duty against the insurance broker.

The California Supreme Court previously held in Vu v. Prudential Property & Casualty Insurance Company that the insurer-insured relationship “is not a true ‘fiduciary relationship’ in the same sense as the relationship between trustee and beneficiary, or attorney and client.” The court went on to state that any special or additional duties applicable to the broker or agent were only the result of the unique nature of the insurance contract, and “not because the insurer is a fiduciary.” The court in Hydro-Mill applied the concept in Vu, finding that if an insurer does not owe fiduciary duties, then a broker and agent could not.

In Jones v. Grewe, an insured sued its broker for misrepresenting coverage, negligence and breach of fiduciary duty. The court declined to recognize the cause of action for breach of fiduciary duty, holding that the broker had only the obligation to use reasonable care and no fiduciary duty absent an express agreement or a holding out otherwise.

Despite the fact that it appears from these precedents that the courts are unwilling to find a fiduciary duty exists, the California Supreme Court in Liodas v. Sahadi ruled that the existence of a fiduciary relationship could not be ruled upon, as the issue is not one of law, but of fact. This rule appears to be restated in the Workmen’s unpublished opinion.

While it is clear the courts are hesitant to find a fiduciary duty is owed by agents and brokers to their insured, the fact remains that it is still a possibility and, under the right circumstances and facts, could be found. Thus, it is important that agents and brokers not only use reasonable care when procuring insurance, but that they do not hold themselves out as being a fiduciary, or expressly agree to the existence of a fiduciary relationship. So long as agents and brokers do not create circumstances in which a fiduciary relationship is agreed to or implied, the law will infer no such relationship exists.

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?

A Tale Of Two Broken Hearts

Imagine, if you will, twin boys born on some sunny day not too long ago. Neither one of the boys, nor their parents, nor even the delivering doctors knew that both boys were born with a heart condition. This congenital heart anomaly, a patent foramen ovale, left a small hole open in the walls of each brother’s heart, exposing them to higher risks of stroke.

These twin brothers, let’s call them Keven and Kenny, seemed to be joined at the hip. They enjoyed all the same activities, all the same food, went to the same school, and, when they decided it was time to purchase homes of their own, bought two adjacent houses. Being as close as they were, they tore down the fence between their properties and right in the middle built a small gazebo where they could enjoy breakfast with their families every weekend morning.

In choosing a profession, Keven wanted a job that would keep him physically fit while allowing him to serve the community and even save the lives of his fellow citizens. So he became a firefighter. The job kept him physically fit and allowed him to maintain a clean bill of health … except for that congenital heart anomaly, which no one knew about.

Kenny, on the other hand, decided to pursue the absolute highest calling — the profession which the bravest and noblest aspire to. He didn’t want to become a physician, or an engineer, or even a scientist. He decided to become a workers’ compensation defense attorney (not unlike your humble author).

Still, the two twin brothers were in every other respect exactly alike, and spent every Sunday morning having breakfast together in that shared gazebo, along with their wives and children.

Then, tragedy struck! One morning, as Kenny and Keven sat next to each other, enjoying the morning air, each with a newspaper in the left hand and a piece of toast in the right, they suddenly sat straight up, looked into each other’s eyes, and both collapsed to the ground with strokes.

Their families rushed them to seek medical treatment and, fortunately, each of the two brothers recovered. Before long, they were sitting next to each other in their shared gazebo, when Kenny had an idea. Why not file workers’ compensation claims for the strokes — surely, the stress of being a firefighter caused Keven’s stroke. And, if being a firefighter is stressful enough to cause a stroke, then being a workers’ compensation defense attorney is even more so!

As the cases progressed, each of the two brothers agreed to use an Agreed Medical Evaluator, and each AME came to the same conclusion: the AMEs both found that, in their respective cases, the “stroke … occurred in an individual whose only major risk factor for stroke in terms of this industrial analysis appears to be his congenital heart defect … all of his conditions apportion 100% to non-industrial causation.”

Kenny was crushed — his case was effectively at an end as the workers’ compensation Judge ordered him to take nothing. After all, the Agreed Medical Evaluator had found that there was only one cause for his stroke — a non-industrial condition acquired at birth. How could any legal system, short of denying a defendant-employer due process, require workers’ compensation payment for something so patently and obviously unrelated to any work causes? Keven’s case, on the other hand, was just warming up.

Keven’s attorney argued that, under Labor Code section 3212, “any heart trouble that develops or manifests itself during a period while [the firefighter] is in the service of the office, staff, department, or unit … shall be presumed to arise out of and in the course of the employment.”

Now, isn’t that presumption rebutted? After all, as in both the case of Kenny and Keven, the Agreed Medical Evaluators have found that the sole reason for both strokes was the congenital heart condition — exactly 0% of the causation had anything to do with work as a firefighter or as a workers’ compensation defense attorney.

Well, as Kenny feels once again misused and ignored by the system he so gallantly serves, Keven has another line of defense: “The … heart trouble … so developing or manifesting itself … shall in no case be attributed to any disease existing prior to that development or manifestation.”

Keven’s attorney would have to prove that Keven is a firefighter — something he could establish without much difficulty (showing up at the Board with a fire axe is not recommended, even if you believe you’ve got “an axe to grind”). Then, he would have to prove that Keven’s injury could be considered “heart trouble.” This should be no problem, considering the fact that case-law has established that there are very few non-orthopedic injuries that might be considered not heart trouble (Muznik v. Workers’ Comp. Appeals Bd. (1975)).

But what about that pesky requirement of “in the service of the office …” as required by Labor Code Section 3212? If the firefighter is sitting in his and his brother’s gazebo, drinking coffee on a beautiful Sunday morning and indulging in that antique of an information-delivery device that people so often read, is he really in the service of the fire department?

For example, the Court of Appeal in Geoghegan v. Retirement Board (1990) upheld a retirement board’s denial of benefits for a firefighter who sustained a heart attack while skiing.

Now, before the applicants’ attorneys out there start mumbling something about a ski-lodge burning and a San Francisco firefighter being called in to ski down the slopes and shovel ice onto the flames, your humble author assures you, this was a vacation. The treating physician found that the heart attack was caused by the altitude and Mr. Geoghegan had recently passed the fire department’s physical exams with skiing flying colors.

The Board of Retirement had rejected Geoghegan’s application for retirement benefits, and he appealed. There, the Court of Appeal rejected Geoghegan’s argument that Labor Code section 3212 applied and that he should be, at that very moment, counting his money instead of appealing his case, because the trial court had found that “the conclusion is inescapable that plaintiff’s disability was due to the myocardial infarction caused by the cold and altitude encountered while skiing.”

Previous decisions, as cited by the Geoghegan Court, included Turner v. Workmen’s Comp. App. Bd. (1968) and Bussa v. Workmen’s Comp. App. Bd. (1968). In Turner, a police officer’s heart attack sustained while on duty after a day off spent abalone fishing was found non-industrial, and the presumption of Labor Code Section 3212.5 was rebutted. In Bussa, a firefighter’s exertions on a second job were used to rebut the presumption of industrial causation for his heart attack.

Well, Keven’s attorney could easily fire back that those three cases can be distinguished because they don’t touch on the anti-attribution clause (“[t]he … heart trouble … so developing or manifesting itself … shall in no case be attributed to any disease existing prior to that development or manifestation.”) And, as the Agreed Medical Evaluator in Keven’s case had found that 100% of the disability was caused by a congenital heart defect, that leaves (let me get my calculator here …) 0% available for causes not “attributed to any disease existing prior to that development or manifestation.”

Geoghegan was already a firefighter when he sustained his heart attack; Turner was already a police officer when he sustained his heart attack; and Bussa was already a firefighter when he had his heart attack. On the other hand, each of these cases showed an injury attributed to something other than a condition in existence prior to the start of the applicant’s career with the fire or police department.

Keven, on the other hand, was not exerting himself at all — he was having coffee with his twin brother and their respective families over a relaxing Sunday breakfast.

But doesn’t something seem strange about sticking the fire department with the bill for a condition which existed at birth? After all, we’re talking about medical care and temporary disability and permanent disability and maybe even a pension. That’s not to mention the litigation costs. The city in which Keven is a firefighter could be deprived of a firetruck or several firefighters’ salaries if it is liable for Keven’s stroke.

Your humble author directs you to the recent case of Kevin Kennedy v. City of Oakland. Mr. Kennedy, a firefighter, had sustained a stroke while he was off work and filed a workers’ compensation claim against the City of Oakland, reasonably arguing that the stroke was “heart trouble” as contemplated by Labor Code section 3212. After an Agreed Medical Evaluator found that Mr. Kennedy’s stroke was entirely caused by a congenital heart anomaly, and had nothing to do at all with any work-related activities or trauma, the workers’ compensation judge found that the City of Oakland was not liable for the injury.

Mr. Kennedy’s attorney made a fairly logical argument: Labor Code Section 3212 prohibits the attribution of heart trouble to “any disease existing prior to that development or manifestation” of heart trouble. Additionally, the same Labor Code section requires heart trouble in firefighters to be presumed industrial, although this presumption may be rebutted by other evidence. Here, there is no evidence available with which to rebut this presumption, because the AME found that 100% of the causation should be attributed to the congenital heart condition.

The workers’ compensation Judge, however, found that Mr. Kennedy could not recover — based on the opinions of the AME, the stroke had absolutely nothing to do with Mr. Kennedy’s employment.

Applicant petitioned for reconsideration, and the Workers’ Compensation Appeals Board granted reconsideration, reasoning that Mr. Kennedy’s patent foramen ovule was a condition existing prior to the development or manifestation of the stroke, and that Labor Code Section 3212 necessitated a finding of compensability. The Court of Appeal denied defendant’s petition for a writ of review.

In issuing its opinion, the Workers’ Compensation Appeals Board was consistent, echoing a similar decision in the matter of Karges v. Siskiyou County Sheriff, finding a deputy sheriff’s congenital heart condition compensable under Labor Code section 3212.5.

So … what’s to be done? Common sense and a basic inclination for fairness militate against this outcome. We’re not talking about a weak heart being aggravated by work conditions, but rather a firefighter at peak physical fitness succumbing to a condition with which he was born and an illness in which his work played no part. It’s entirely possible that if Mr. Kennedy had spent his life behind a desk, much like his imaginary twin brother Kenny, his heart would have been strained by office junk food and a sedentary lifestyle, much like your humble author’s.

As promised, here are a few crackpot arguments to be used only by the most desperate in such cases. Your humble author doesn’t know if these will work, but if they are the only alternative to writing a big check, perhaps they are worth exploring.

  1. As with the Karges decision, the argument should be raised that Labor Code Section 4663 is the more recent law, and therefore reflects the more current legislative intent. In litigated matters, judicial authority should be used to further this Legislative intent and not find impairment caused entirely by non-industrial factors to be compensable.
  2. In the writ denied case of Michael Yubeta v. Workers’ Compensation Appeals Board, a corrections officer’s claim for heart disease was ruled non-compensable when the Agreed Medical Evaluator found cardiovascular disease manifested prior to the start of his tenure with the Department of Corrections. In the Kennedy, matter, the defense might argue that the patent foramen ovule is the “heart trouble” contemplated by section 3212, and it manifested itself at birth, before the term of service with the fire department. Mr. Kennedy’s stroke, being directly and exclusively caused by this manifestation, should not be presumed compensable.

    After all, the poor guy had a hole in his heart — not in the sense that he couldn’t love or open up to other people, but the wall to his heart had an actual hole. Studies had shown that this practically guaranteed that he would sustain a stroke at some point in his life. (Understandably, this one is a stretch).

  3. Webster’s dictionary defines “attribute” as “to regard as resulting from a specified cause.” However, as the Labor Code does not use the words “apportionment” and “attributed” interchangeably, we can only suppose that they mean two different things. So, while section 3212 prohibits us from attributing heart trouble for purposes of AOE/COE (Arising Out Of Employment/In The Course Of Employment), perhaps we are still permitted to “apportion” the heart trouble to non-industrial causes. If such is the case, the Kennedy matter should have found the stroke compensable, and yet apportioned 100% to non-industrial causes.

    In other words, Mr. Kennedy should get the medical treatment but not the permanent disability indemnity.

Slumlord Must Repay Insurer for Settlement Contribution

Insurers Should Never Allow Slumlord to Profit From Bad Acts
In Axis Surplus Insurance Company v. Reinoso No. B228332 (2012) WL 2389324) an insurer, under a full reservation of rights, including the right to recover any costs of defense or settlements paid, defended Edgar and Linda Reinoso from claims by their tenants. Evidence, as the defense progressed clearly established that the Reinosos operated rental properties in a manner that allowed infestations of insects, vermin, and rats. Mr. Reinoso had pleaded no contest to at least two charges about properties he owned and was classified as a “slum lord.”

Ultimately, the tenants settled their claims against the Reinosos and their management company, Proud American, for over $3 million, with Axis contributing over $2 million under a reservation of rights.

Axis sued the Reinosos and Proud American for reimbursement of defense and settlement costs, based on the policy’s exclusion for injuries that were “expected or intended from the standpoint of the insured.” The trial court awarded Axis recovery of its $2 million+ settlement contribution, concluding that Axis had proven that the tenants’ claims were not actually covered.

The California Court of Appeal affirmed the judgment allowing Axis reimbursement of its settlement contribution and found wanting Mrs. Reinoso’s argument that she was an “innocent” insured and that the exclusion for “expected or intended” injuries thus did not apply to her.

Since an insurer only has a duty to indemnify the insured for covered claims, and no duty to pay for non-covered claims because the insured did not pay premiums for such coverage, and since both Reinosos owned and operated the apartment complex in a manner that damaged their tenants and profited from the operation of the apartments Mrs. Reinoso was not innocent of the charges made by the tenants. Since evidence showed that Linda had a sufficient benefit from the settlement such that not to allocate to her joint and several liability to the insurer of the full amount paid by the insurer to settle the Tenant Action the Court of Appeal concluded would amount to unjust enrichment.

Mrs. Reinoso was a co-owner of the property in question with Edgar, and the property was held as community property. She participated in the management of the property. Defendants in a joint venture are jointly and severally liable for non-economic damages whatever their respective interests in the joint venture. Moreover, Linda’s community property interest would be liable for obligations in connection with the property. Faced with exposure of many millions of dollars, perhaps up to $30 million, and punitive damages, Linda received the full benefit of the settlement.

The Court of Appeal agreed with the trial court that the insurer was entitled to reimbursement of the amounts it contributed to the settlement.

Conclusion
When defending a case under a reservation of rights it is imperative to, as did Axis, properly reserve rights to contribute to a settlement. If done properly it is imperative that the insurer then file suit to recover the amounts paid if the insured will not voluntarily pay.

To do so, the Court of Appeal noted, that the insurer must create and deliver to the insured:

  1. a timely and express reservation of rights;
  2. an express notification to the insureds of the insurer’s intent to accept a proposed settlement offer; and,
  3. an express offer to the insureds that they may assume their own defense when the insurer and insureds disagree whether to accept the proposed settlement.

Axis did so, and all insurers considering paying a settlement in a case where there is no coverage for indemnity should follow the recommendation.