It's a beautiful night in New York. An hour ago I was strolling in Times Square after going to the theater.

A full moon was hanging right over the Empire State Building. You'd never know that beneath the veneer, Gotham City was in the grips of a crisis that may have far reaching implications.

But in boardrooms across the city, there was high financial drama today as key financial firms made desperate attempts to keep themselves afloat.

Among the firms endangered: AIG (the American International Group), one of the world's leading insurers and a major player in the California workers' comp insurance market.

Tonight the New York Times reports that AIG is seeking a $40 billion bridge loan from the Federal Reserve. AIG may be facing a ratings downgrade that would reflect the company's frail financial health and further doom its future.

AIG executives are said to have spent the weekend trying to figure out ways to get a capital infusion by selling assets or getting assistance from buyout firms. At least one report said that AIG officers were meeting with regulators to see if they could transfer capital from some AIG subsidiaries to the AIG holding company.

The folks at the California Insurance Guarantee Association had better perk up their ears. It's not clear how all of this will play out. CIGA would be required to pay off claims if AIG failed completely. That would be a whopper.

I look forward to hearing what California Insurance Commissioner Steve Poizner says about all of this. AIG is a major player in other lines of insurance in California in addition to comp.

Defense attorney firms could see payments of their AIG receivables frozen.

Perhaps the Federal Reserve will come to the rescue. But how many firms can the taxpayer be expected to guarantee (or bail out)?

If AIG fails, perhaps the company will be sold and profitable units such as workers' compensation absorbed by other carriers or financial behemoths. Every day over the next week is likely to bring some more drama to this story.

Stay tuned.

Julius Young
www.boxerlaw.com
(you can subscribe to the blog by clicking on one of the RSS reader buttons on the lower right column under "Most Recent Entries")

You're late on your mortgage payment. You owe a penalty.

You're late on your credit card payment. You owe a penalty.

You're late on your cell phone bill. Your service probably gets cut off.

But if you're a California workers' comp insurer and you are late on payments, what happens to you?

The answer? It depends.

The California Workers' Comp Appeals Board issued a ruling last week clarifying penalty rules, Ramirez vs. Drive Financial Services and One Beacon Insurance. We'll look at that. But first, some background.

For years, California law under Labor Code 5814 allowed penalties for unreasonably delayed payments of up to 10% of the "species" of benefits delayed.

Later, an automatic penalty for late payments was enacted, Labor Code 4650(d). Conceived as a "self-imposed penalty", 4650(d) required the insurer to automatically add 10% to any late payment of temporary disability, permanent disability, or vocational rehab maintenance allowance. 4650(d) did not require a judicial finding of fault or "unreasonable delay". Rather, 4650(d) was like the added payment you might make if you fail to pay your mortgage on time, sort of like an automatic late fee. This does provide some incentive for carriers to pay
benefits in a timely fashion.

The real kicker was the 5814 penalty. Insurers could be tagged with large penalties if there was "unreasonable delay".

But the problem? Since the penalty amount was based on the "specie of benefits", penalty amounts were tied to what amounts of a particular benefit had been paid out. In mature cases with large medical treatment and large indemnity costs, 10% of the specie of benefit might be a five-figure sum, or even more.

Some applicant attorneys went prospecting for penalty claims.

The unreasonable delays of medical treatment or temporary disability undoubtedly caused medical or financial suffering in many instances. The possibility of significant monetary penalties acted as an incentive for carriers to pay benefits and for attorneys to press aggressively on delay issues.

But in many other instances the imposition of a 10% penalty for a single delay created a windfall when the penalty was assessed against an entire specie of benefits. Moreover, there were penalties on penalties.

The remedy was at times excessive.

Frankly, the applicants bar was in denial over problems with the application of former 5814.

And thus The Golden Goose does sometimes get killed.

As part of the SB 899 reforms, Labor Code 5814 was amended. Penalties are now allowed at the discretion of the WCAB for unreasonable delay or denial of compensation up to 25% of the amount delayed or denied, or up to $10,000, whichever is less.

An employer can avoid the potential 25% penalty by paying a self-imposed 10% penalty along with the delayed payment if made within 90 days of discovery, if delay is discovered by the employer before the employee makes a claim for penalty.

Labor Code 5814 now provides that any 4650(d) automatic penalty is credited against the 5814 "unreasonable delay" 25% penalty.

Penalty litigation has slowed considerably, partly due to the automatic penalty offset and partly due to the imposition of ACOEM medical treatment guidelines, second surgical opinion procedures, medical provider networks and utilization review.

Moreover, collecting a 25% penalty on delay of a $1,000 MRI is simply not cost effective in the majority of cases from a litigation expense-standpoint.

Thus, penalty issues lack the urgency that they had several years ago.

But under what circumstances will the WCAB exercise its discretion to award 25% penalties?

What factors are relevant to the imposition of a penalty?

Is the impact of the delay on the disabled worker a relevant factor?

Does the worker's attorney has a right to do discovery on defendant's claims handling practices?

Ramirez vs. Drive Financial Services and One Beacon Insurance Co. answers some of these questions.

Here is a pdf copy of the WCAB en banc decision in Ramirez vs. Drive Financial Services and One Beacon Insurance Co.:
http://www.dir.ca.gov/wcab/EnBancdecisi ... 8-EB-3.pdf

In my next post I'll provide more commentary on Ramirez.

Stay tuned.

Julius Young
www.boxerlaw.com
(you can subscribe to the blog by clicking on the RSS reader button
at the bottom of the lower right column beneath "most recent entries")

Running out of money.

No, I'm not talking about Lehman Brothers, the venerable New York
investment bank that is teetering and "restructuring". And I'm not talking about Ford or General Motors, both of which have been burning through cash like there was no tomorrow.

I'm talking about the California unemployment fund.

At current rates, the fund will be almost $2 billion in the red by the end of 2009.

Meanwhile, California's unemployment insurance fund has a big backlog in processing unemployment eligibility appeals.

The situation is deteriorating in these tough economic times.

Add this to the list of problems that need to be addressed by the legislature.

You can see a good analysis by Associated Press journalist Steve Lawrence that appeared in the Sacramento Bee by clicking here:
http://www.sacbee.com/114/v-print/story/1225901.html

This is of more than passing interest for some disabled workers. I've had many clients who were "laid off" after their injures. While the layoff may have been discriminatory under Labor Code Section 132A or under the disability discrimination provisions of California's Fair Employment and Housing Act, 132A claims and FEHA litigation are time consuming.

As a practical matter, many individuals in those circumstances will seek unemployment benefits. Troubles at the fund could represent another instance in which the social safety net becomes shredded.

I'll continue to cover this story as it unfolds.

Julius Young
www.boxerlaw.com
(you can subscribe to the blog by clicking on the RSS reader button on the lower right column under "Most Recent Entries")

It's funny how circular life can be.

Schwarzenegger, whose efforts to recall Gray Davis jumpstarted his political career, may now be facing his own recall.

The California Correctional Peace Officers Association has issued a notice of intent to do just that. Whether this is posturing to get more concessions out of the budget or whether it's for real remains to be seen.

The next step would be a filing with California's Secretary Of State to be followed with a signature drive that would require over a million signatures.

With Schwarzenegger having low approval ratings and records being set every day for the longest time California has been without a budget, the idea could gain some political traction. And with little love being lost between some California Republicans and Schwarzenegger, it's not clear whether he would get strong or only tepid support in fighting a recall.

But the Governor could probably count on a big ally: John McCain.

Presumably Schwarzenegger would be able to raise large amounts from the business community that has benefitted from workers' comp reform and his "anti-job killer" stance on many bills. I suspect he would raise "whatever it takes" to avoid the fate of Gray Davis.

Signature gathering and recalls are expensive, even for a well-funded union like CCPOA. Most unions are focusing their efforts now on getting Obama elected, and it's not clear whether there are other unions or liberal interest groups that might join in taking the lead in a recall.

And with Obama appearing-at least at this moment-to be falling behind as polls show McCain taking an increasing share of likely independent voters, Democrats could be under more pressure than expected this fall.

The budget standoff appears likely to drag on for at least another few weeks, but some sort of resolution may take further wind out of the sails of any recall talk.

Bottom line: the Governor probably is vulnerable, but it's not clear this talk will go far at the moment.

If the recall is initiated, look for a fascinating scramble among the state's pols.

Stay tuned.

Julius Young
www.boxerlaw.com
(you can subscribe to the blog by clicking on the RSS reader button
at the lower right column under "Most recent entries")

Hopes for comprehensive healthcare reform in California in the near term crashed and burned in late 2007. Even a special legislative session failed to produce a comprehensive healthcare package.

But-to its credit-the legislature hasn't given up. Recognizing that millions of Californians have no healthcare coverage (including many disabled workers who are no longer covered by group medical), Democrats in the legislature have sponsored a number of bills to ease access to coverage and prevent abuses by health insurers.

Injured workers have a dog in this hunt.

AB 1945 (DeLaTorre) would prevent insurers from retroactively canceling coverage unless they could show that intentional misrepresentations were made in the application for coverage. Over the past few years there have been occasional horrendous stories of insurers yanking coverage from seriously ill folks. This bill would force insurers to face a high standard of proof before rescinding coverage.

SB 1440 (Kuehl) would require health insurers to spend 85% of premium dollar collected on patient care. That's a fine concept, and one the governor has supported as part of his 2007 healthcare proposal.

Other provisions would expand the list of required items to be covered.
AB 1877 (Beall) would require coverage for diagnosable mental illness.
AB 1962 (DeLaTorre) would require maternity care be covered. AB 1198
(Kuehl) would require durable medical equipment (wheelchairs, etc) be covered.

AB 2 (Dymally) would reform the high risk insurance pool, attempting to make insurance more available for high risk individuals.

You can read about these and other healthcare bills in an excellent article on the California Progress Report by Hanh Kim Quach of Healthcare Access California:
http://www.californiaprogressreport.com ... al_25.html

It's not clear what Governor Schwarzenegger will do with these bills.
Schwarzenegger's governorship will be in its sunset phase before we know it, and with that goes his chance of leaving a legacy. Piecemeal reform was clearly not his first choice, but it may be his only option.
If he fails to sign these bills, he may find that he will achieve absolutely nothing in healthcare reform during his tenure.

Given the state's budgetary distress, it's hard to envision comprehensive healthcare being enacted in next year's 2009 legislative session. One hopes the Goverrnor will think twice before rejecting these "piecemeal reforms".

Stay tuned.

Julius Young
www.boxerlaw.com
(you can subscribe to the blog by clicking on the RSS reader button on the right lower column under "Most recent entries")