BILL ANALYSIS �
AB 2604
Page 1
Date of Hearing: April 23, 2014
ASSEMBLY COMMITTEE ON INSURANCE
Henry T. Perea, Chair
AB 2604 (Brown) - As Introduced: February 21, 2014
And As Proposed To Be Amended
SUBJECT : Workers' compensation: penalties
SUMMARY : Increases the potential penalties that can be imposed
on an insurer or employer if an unreasonable delay or denial of
medical treatment results in a catastrophic injury or death to
the injured worker. Specifically, this bill :
1)Provides that an unreasonable delay or denial of medical
treatment required to be provided to an injured worker through
the workers' compensation system that causes or results in a
catastrophic injury, the Workers' Compensation Appeals Board
(WCAB) may impose an award of up to $100,000.
2)Adopts a definition of "catastrophic injury" by reference to
an existing Labor Code Section that define the exceptions to
limitations on psychiatric injuries that are compensable
consequences of a primary injury. That provision provides
that the limitation on psychiatric "add-ons" does not apply in
cases where the injured worker's primary injury was a
"catastrophic injury, including, but not limited to, loss of
limb, paralysis, severe burn, or severe head injury."
3)Provides that an unreasonable delay or denial of medical
treatment required to be provided to an injured worker through
the workers' compensation system that causes or results in a
death, the Workers' Compensation Appeals Board (WCAB) may
impose an award of up to $250,000
4)Requires the WCAB, in imposing these awards, to use its
discretion to accomplish a fair balance and substantial
justice under the circumstances of the case.
EXISTING LAW :
1)Establishes a comprehensive system of workers' compensation
benefits, including medical treatment, indemnity benefits for
temporary and permanent disability, and death benefits, for
workers whose injuries arise out of or in the course of
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employment.
2)Establishes a system to ensure that benefits to which an
injured workers is entitled are provided in a timely manner,
including detailed time frames that must be complied with in
cases where disputes arise over whether the injured worker is
entitled to the benefits being sought.
3)Provides that where payment of compensation has been
unreasonably delayed or refused, the amount of the payment
that was unreasonably delayed or refused shall be increased up
to 25%, or up to $10,000, whichever is less.
4)Provides that the WCAB shall use its discretion to accomplish
a fair balance and substantial justice between the parties.
FISCAL EFFECT : Undetermined
COMMENTS :
1)Purpose . For a work-related injury, the workers' compensation
system is the injured worker's "exclusive remedy" to obtain
treatment and other compensation. The complexity of the
system, the author argues, frequently makes it difficult for
injured workers to obtain the benefits to which they are
entitled. While there are penalties for unreasonable delays
or denials of benefits, the author believes that these
penalties are not sufficient to cause insurers and other
payors to act properly, and least not in all cases. The
author points to a recent case where there was significant
misbehavior that led to the death of the injured worker, and
argues that where misbehavior has deadly or catastrophic
consequences, the potential penalties should be higher than
other cases.
2)Background . Labor Code Section 5814, and related provisions,
have long defined the penalties that can be imposed for the
unreasonable delay or denial in paying benefits. Prior to the
2004 workers' compensation reforms, "5814 penalties" presented
a highly controversial issue, as employers made reform of the
penalty process one of their highest priorities. Before the
2004 reform, a 5814 penalty applied to the entire specie of
benefits. As an example, if an employer failed to timely pay
a physician a $500 fee for treatment that was actually
provided to the injured worker, and it was determined the
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delay was unreasonable, the penalty - paid to the injured
worker, not the physician -- was imposed not only on the $500,
but also on all future medical payments. Another example
involved the requirement that benefit payments be made by
readily negotiable instruments. Some participants were able
to manipulate their cases by closing bank accounts so that
normal benefits checks were determined to be not readily
negotiable, and penalties applied to all future temporary or
permanent disability payments, even if made timely and direct
deposited into an account. The employer community sought
reforms to this system, arguing that results were random,
irrational, and incentivized gaming the system to generate
future increased payments. Current law on late payment
penalties was adopted as part of the 2004 reforms, and was
intended to ensure that significant penalties could be
imposed, but without the unintended consequences of prior law.
3)Romano case . One of the primary motivations behind the bill
is a case, Romano v. Kroeger, in which a grocery store
employee at a Ralph's store in southern California suffered an
injury. In that case, the claims adjuster, for reasons
difficult to explain, was quite hostile to authorizing
treatment for Mr. Romano's injuries. In fact, according to
the WCAB decision in the case, the adjuster ignored rulings by
Workers' Compensation Judges (WCJs) even after Mr. Romano
challenged denials and prevailed. His health status
deteriorated significantly, and he required surgery. A
surgery-based infection ultimately caused his death.
Proponents point to this case as an example where the penalties
available under existing law were inadequate to incentivize
proper behavior in approving treatment. The case involved
behavior that was beyond the normal range of "unreasonable
delay" and the consequences were undeniably catastrophic. The
opposition acknowledges that the Romano case was a tragedy
that should never happen, but point out that current law
penalties are imposed on a "per act" basis. In fact, over
$260,000 in penalties were imposed in the Romano case, and not
only was the adjuster fired, but the adjuster's supervisor was
also fired. The opposition argues that changing the penalty
laws will not change this sort of unusual abhorrent behavior,
but will create litigation and other challenges in cases that
do not present such clearly bad behavior.
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4)Catastrophic injury . The bill, as proposed to be amended,
applies only to death and catastrophic injury. The opposition
fears that the bill's formulation of "catastrophic injury"
will result in litigation, and tactical efforts to fit many
injuries into this category. Opponents note two aspects of
the proposed statute. First, the language addresses
"unreasonable" delays or denials, and under current law, it
does not take outrageous behavior to qualify as an
unreasonable delay. Second, the definition of "catastrophic"
will generate excess litigation, as claimants attempt to prove
that any serious injury was catastrophic, and that some delay
was the cause. This, they argue, turns the no-fault concept
of workers' compensation on its head.
The proposal does include, by simply referencing an existing
definition, an open-ended definition of "catastrophic" injury.
The referenced statute provides what "catastrophic," without
limitation, includes, but does provide more precise limiting
language. The author may wish to consider a definition of
"catastrophic" that is more precise, and that better describes
the cases to which the special penalty provisions would apply.
REGISTERED SUPPORT / OPPOSITION :
Support
Voters Injured At Work (sponsor)
Association for Los Angeles Deputy Sheriffs
California Applicants' Attorneys Association (CAAA)
California Association of Professional Employees
Fraternal Order of Police
Long Beach Police Officers Association
Los Angeles Police Protective League
Los Angeles Probation Officers Union, AFSCME Local 685
Los Angeles Professional Peace Officers Association
Peace Officers Research Association of California
Riverside Sheriffs' Association
Sacramento County Deputy Sheriffs Association
Opposition
Acclamation Insurance Management Services (AIMS)
Allied Managed Care Incorporated
ALPHA Fund
American Insurance Association
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Association of California Insurance Companies
California Association of Joint Powers Authorities (CAJPA)
California Chamber of Commerce
California Coalition on Workers' Compensation
California Farm Bureau Federation
California Manufacturers and Technology Association
California Professional Association of Specialty Contractors
California Restaurant Association
California Special Districts Association
California State Association of Counties
Construction Employers' Association
County of Los Angeles
CSAC Excess Insurance Authority
CSG Associates, Inc.
Independent Insurance Agents and Brokers of California
Liberty Mutual Insurance
National Association of Mutual Insurance Companies
National Federation of Independent Business
Pacific Compensation Insurance Network
Republic Indemnity
Safeway
State Compensation Insurance Fund
The Zenith
Analysis Prepared by : Mark Rakich / INS. / (916) 319-2086