Tuesday, September 16, 2008, 11:03 AM - Political developmentsAfter passing a budget, the California Senate has now adjourned.
Carrie Nevans, the AD of California's Division of Workers' Compensation, was not confirmed before the Senate adjourned.
Without confirmation, Nevans will presumably have to step down soon. In politics, anything is possible, of course. But unless the Governor calls a special session and vetos the budget agreement handed him yesterday (an agreement that kicks the California budget crisis down the road but does not solve the underlying problems), there will be no vote on Nevans.
So her tenure is likely to end with a whimper rather than a bang.
Meanwhile, keep your eyes on the drama unfolding in New York (where I am at the moment). A.I.G's may be filing for bankruptcy in the next 48 hours absent a dramatic move by the Federal Reserve. Weak financial results at Goldman Sachs and Morgan Stanley make it unlikely that investment banks will be able to raise capital to save AIG without explicit guarantees by the Fed.
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Monday, September 15, 2008, 07:04 PM - Political developmentsHere's tonight's report on A.I.G. from Bloomberg.com:
http://www.bloomberg.com/apps/news?pid= ... refer=home
Clearly, parts of A.I.G. will be auctioned.
One immediate concern is whether regulatory authorities in various states will object to transfer of assets from some solvent A.I.G. subsidiaries to the parent A.I.G. It's complicated because various types of insurance have different capital requirements.
The parent company could end up cannibalizing various subsidiaries.
Aircraft leasing? Life insurance? Property and casualty? Workers comp?
AIG writes and adjusts California workers comp under a variety of subsidiaries.
Given the complexity of A.I.G. and the number of countries and insurance products it offers, it's hard for an outside observer to know
whether reserves for California's workers' comp will be prime targets to be tapped for capital to "save the parent".
We'll see over the next few days whether they can survive or whether the parent crashes and buzzards pick over the bones of solvent subsidiaries.
Here's the report on today's developments re A.I.G. just filed by the New York Times:
http://www.nytimes.com/2008/09/16/busin ... nted=print
The Wall Street Journal recap of today's A.I.G. developments is here:
http://online.wsj.com/article/SB1221485 ... l_coverage
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Sunday, September 14, 2008, 08:20 PM - Political developmentsIt'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.
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Sunday, September 14, 2008, 09:26 AM - Understanding the CA WC systemYou'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.
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Wednesday, September 10, 2008, 09:27 PM - Political developmentsRunning 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:
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.
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