Insurance Litigation & Regulatory Law Blog

Action Based on 7-Eleven's Payroll System Fails, Court of Appeal Rules

Michael Newman — Thu, 10 May 2012 11:08:38 -0800

In Aleksick v. 7-Eleven, Plaintiff Aleksick represented a class claiming that 7-Eleven's payroll system violated California Business and Professional Code 17200. The complaint alleged that 7-Eleven's method of converting partial hour worked from minutes to hundredths of an hour sometimes docked employees of few seconds of time, and therefore shorted them commensurate pay. The trial court had granted 7-Eleven's summary judgment motion. The California Court of Appeal, Fourth Appellate District, Division One, affirmed.

First, the Court held, raising a 17200 claim based on "unlawful" conduct required Aleksick to point to a particular statute that 7-Eleven had violated, since "section 17200 'borrows' violations of other laws and treats them as unlawful practices." Although Aleksick cited to various Labor Code sections in her appellate papers, she had not cited to any in her complaint. The Court ruled that Aleksick should have sought leave to amend to allege such violation, but did not do so, and therefore she had forfeited her argument under the Labor Code wage statutes.

Second, even if her complaint had alleged violation of the Labor Code wage statutes, the Court still would have found against her because the Labor Code governs "the employer-employee relationship, and undisputed evidence shows 7-Eleven was not the class members' employer." Aleksick's employer was the franchisee who operated a 7-Eleven franchise. 7-Eleven was the franchisor. Aleksick conceded that 7-Eleven was not her employer. The Court held that 7-Eleven's provision of payroll services to its franchisees did not change this relationship or render 7-Eleven liable under the Labor Code.

Third, Aleksick failed to establish "unfair" conduct on the part of 7-Eleven under section 17200. Where an "unfair" act is predicated on public policy, the Court explained, "the public policy which is a predicate to the action must be 'tethered' to specific constitutional, statutory, or regulatory provisions." Aleksick argued that 7-Eleven's payroll practices are "tethered" to the public policy in favor of full payment to employees of all hours worked, as codified in the Labor Code. However, because 7-Eleven was not the employer, these statutes did not apply to it.

Comment:
The narrow basis of this ruling is simply that 7-Eleven was not the employer, and therefore a 17200 claim based on violation of Labor Code statutes could not apply to it. It is important to note that the Court of Appeal explicitly did not rule on the issue of whether an employer could be liable under the Labor Code wage statutes and section 17200 for using the payroll practices that 7-Eleven uses. (See Opinion, at 22, fn. 6.) Thus, this ruling provides no guidance to employers as to whether the practice of converting partial hours worked from minutes to hundredths of an hour is permissible. As the Court recounts, the trial court had determined that the amounts docked were too minimal to be a sufficient basis for a 17200 claim -- however, the Court of Appeal did not affirm this part of the trial court's ruling.

Originally posted at Barger & Wolen's Employment Law Observer blog.

California Assembly Passes Bill Requiring Health Insurance Filing and Disclosures

Samuel Sorich — Mon, 07 May 2012 12:32:55 -0800

On May 3, 2012, the California Assembly passed a bill that would require health insurers that are regulated by the Department of Insurance to submit information to the department when the insurer plans to terminate its contract with a provider group or hospital. The bill also would require insurers to provide insureds with additional disclosures. The 80-member Assembly passed Assembly Bill 2152 with a 46-25 vote.

AB 2152, which is sponsored by the Department of Insurance, has three major elements.

The bill would require a health insurer to notify the Department of Insurance at least 75 days before the insurer terminates its contract with a provider group or hospital to provide services at alternative rates of payment. The department would have the authority to review and approve the written notice that the insurer proposes to send to the insureds affected by the termination.
AB 2152 would require a health insurer to include in its disclosure form a statement clearly describing the basic method of reimbursement made to its contracting providers of health care services, and whether financial bonuses or any other incentives are used.
AB 2152 would require health insurance policies to include additional notices and disclosures.

The bill is now waiting to be assigned to a Senate committee.

Originally published on Barger & Wolen's Life, Health and Disability Insurance Law blog.

California Legislation Aims to Protect Personal Social Media Account Access by Employers

Timothy Moroney — Thu, 03 May 2012 13:40:56 -0800

In effort to protect employees and prospective employees, the California Legislature is taking steps to prevent an employer’s ability to gain access to their employees’ or prospective employees’ social media accounts.

On May 2, 2012, the California Assembly Committee on Labor and Employment unanimously approved Assembly Bill 1844 a bill which will prohibit an employer from requiring an employee or prospective employee to disclose user names and passwords to personal social media accounts. AB 1844 is a direct result of national stories and statements by Facebook that employers have been asking for such information more frequently to monitor employees’ activities or to screen prospective employees.

AB 1844 is expected to sail through the Legislature with little opposition, though the Governor has not indicated his position on the bill. At least eight other states are currently considering similar legislation.

Related legislation has also been introduced – Senate Bill 1349 – The Social Media Privacy Act. SB 1349 would prohibit a postsecondary educational institution and employer, whether public or private, from requiring, or formally requesting in writing, a student or an employee, or a prospective student or employee, to disclose the user name and account password for a personal social media account.

While SB 1349 currently would allow postsecondary educational institutions and employers to request access to a personal social media account to aid in a formal investigation conducted by the institution or employer regarding specific allegations of harassment, discrimination, intimidation, or potential violence, the bill would prohibit the post secondary institution and employer from discharging, disciplining, threatening to discharge or discipline, or otherwise in any way penalizing a student or employee for refusing to disclose the requested information related to their personal social media account. SB 1349 is making its way through the Senate.

For more information or any questions, please contact Tim Moroney 415-743-3713 or tmoroney@bargerwolen.com.

NRLB Takes Aim At 24 Hour Fitness Over Employee Arbitration Opt-Out Policy

Michael Newman — Wed, 02 May 2012 18:00:00 -0800

As reported in The Recorder, (subscription required) the National Labor Relations Board has filed a formal complaint against 24 Hour Fitness, alleging the gym company's arbitration opt-out policy compels employees to waive their rights to utilize the civil litigation system, and in particular, class actions.

According to The Recorder, 24 Hour Fitness requires employees to opt out of the mandatory arbitration agreement within 30 days of receiving the employee handbook. Opting out requires the employee to request a form and then mail it in.

The NLRB alleges this policy is coercive and constitutes a violation of the protections guaranteed by the National Labor Relations Act.

The NLRB has previously found that mandatory arbitration clauses violate federal labor law -- a decision now on appeal. See D.R. Horton Inc., 374 NLRB No. 184 (the employer, a home building company, violated Section 8(a)(1) of the Act by maintaining, as a condition of employment, a mandatory arbitration agreement that did not allow its employees to file joint, class, or collective employment-related claims in any forum, arbitral or judicial.)

Arbitration has a long history. Sir Edward Coke’s report in Vynior’s Case (1609) was the first published decision about arbitration in our jurisprudence, but in fact it is older than English common law itself. Indeed, Romans and even the ancient Egyptians utilized it.

For many years in the early history of our country, the American judiciary viewed this method of dispute resolution with hostility. But that ended with the passage of the Federal Arbitration Act in 1925 (“FAA”), when Congress announced a complete reversal of the governmental attitude towards arbitration, signaling a rejection of “generalized attacks on arbitration” that “res[t] on suspicion of arbitration as a method of weakening the protections afforded in the substantive law to would-be complainants.” Gilmer v. Interstate/Johnson Lane Corp., 500 U.S. 20, 30 (1991).

Thus, the FAA established a governmental policy favoring arbitration and requiring the rigorous enforcement of agreements to arbitrate, preempting contrary state law.

The seasaw is now moving in the other direction, with Federal authorities viewing arbitration agreements as a hindrance to the rights of employees to form classes and utilize the court system.

Barger & Wolen will continue to follow developments in this area.

Iran-Related Investment Bill Clears Committee

Samuel Sorich — Wed, 02 May 2012 13:38:12 -0800

On May 2, 2012, the California Assembly Insurance Committee approved a bill that would direct the insurance commissioner to treat a domestic insurer’s investment in a company that has business operations in Iran as a non-admitted asset.

Assembly Bill 2160 requires any domestic insurer doing business in California to determine whether it has investments in companies doing business with certain segments of the Iran economy. The bill allows an insurer to rely on the list of companies published by the Department of General Services to make that determination. AB 2160 provides that the insurer’s investments in any of the companies on the DGS list are to be treated as non-admitted assets.

After more than one hour of testimony and debate on AB 2160, eight members of the 13-member Assembly Insurance Committee voted to approve the bill. AB 2160 now goes to the Assembly floor for consideration by the 80-member Assembly.

During the committee hearing, supporters of the bill argued that Iran’s volatile political environment makes it risky for an insurer to make investments in companies that do business in Iran. Moreover, supporters asserted that it is good public policy to take action to weaken Iran’s economy. The bill’s supporters conceded that AB 2160 may face litigation challenges if it is enacted, however they argued that concerns about litigation should not block passage of the bill.

Insurer representatives opposed the bill. They argued that rulings by the U.S. Supreme Court and other federal courts make clear that AB 2160 is pre-empted by federal law. The insurer representatives pointed out that there is no evidence that the investments targeted by AB 2160 threaten the solvency of insurers. Finally, the opponents of the bill reminded the committee that Insurance Commissioner Dave Jones has settled a lawsuit that challenged the Department of Insurance’s directive to insurers regarding insurer investments in companies doing business in Iran. The settlement does not authorize the commissioner to treat the investments as non-admitted assets but it does allow the commissioner to publicize the names of insurers that have investments in Iran-related businesses. The settlement is discussed in this blog here.

No Attorney Fees Can Be Awarded for Non-Payment of Rest Breaks, California Supreme Court Rules

Michael Newman — Tue, 01 May 2012 12:32:44 -0800

In Kirby v. Immoos Fire Protection, Inc., the California Supreme Court held that neither California Labor Code section 1194 nor section 218.5 authorize the payment of attorney fees in an action seeking recovery for denial of required rest breaks under section 226.7.

Section 1194 authorizes recovery of attorney fees by a prevailing employee on a claim for unpaid minimum or overtime wages. It provides for one-way fee-shifting to plaintiffs.

Section 218.5, by contrast, provides for attorney fees to be paid to the prevailing party in any action brought for the nonpayment of wages, fringe benefits, or health and welfare or pension fund contributions. It is thus a two-way fee-shifting statute. However, it is also limited, since it does not apply to any action for which attorney’s fees are recoverable under section 1194.

Section 226.7 imposes an obligation upon employers to provide mandated meal and rest breaks.

Plaintiffs, employees of Defendant (“IFP”), sued the employer for nonpayment of mandated rest breaks, but subsequently dismissed this claim. IFP sought roughly $50,000 of attorney fees for successfully defending this claim.

The first question the Supreme Court had to address was whether attorney fees would have been recoverable under 1194. The Supreme Court found that fees would not have been recoverable under 1194, since rest breaks do not constitute a type of “minimum wage,” as Plaintiffs had argued.

The second question was whether, in that case, attorney fees were recoverable under the two-way fee-shifting of section 218.5. Here, it was IFP that argued that non-payment of rest breaks constituted a “wage,” and therefore qualified under section 218.5. Again, the Supreme Court disagreed. Rest breaks do not constitute wages of any kind.

Thus, the Court held, attorney fees were not recoverable in actions seeking mandated rest breaks under section 226.7.

What makes this case interesting (and a little ironic) from a procedural standpoint is that it was the defendant employer seeking the attorney fees, and the employee plaintiffs who resisted. Thus, in losing their claim for attorney fees, the employer ended by establishing law generally advantageous to employers. And in winning this battle over the payment of roughly $50,000 in fees, the employees essentially nullified the ability of future plaintiffs to seek attorney fees in actions based on the denial of required rest breaks.

Originally posted on Barger & Wolen's Employment Law Observer blog.

California Senate Committee Approves Two Bills Based on NAIC Models

Samuel Sorich — Tue, 01 May 2012 08:23:49 -0800

The California Senate Insurance Committee has given unanimous approval to two bills that are based on NAIC model laws relating to reinsurance and insurance holding companies. The Department of Insurance testified in support of both bills at the committee’s April 25 hearing on the measures. There was no opposition to either bill.

Senate Bill 1216 (Lowenthal) would conform California law to the 2011 version of the NAIC Credit for Reinsurance Model Law.

SB 1216 would allow the insurance commissioner to designate a domestic insurer as a professional reinsurer if the insurer is principally engaged in the business of reinsurance and meets other requirements; the designation would affect the credit that is granted for reinsurance provided by the professional reinsurer. SB 1216 would establish new requirements for an insurer’s reinsurance contracts in order for the insurer to obtain credit for reinsurance. The bill also would introduce new regulatory standards for allowing an insurer to get credit for reinsurance as an asset or a deduction from liability.

Senate Bill 1448 (Calderon) would conform California law to the 2010 version of the NAIC Insurance Holding Company System Regulatory Model Act. Among other things, SB 1448 would:

require the board of directors of an insurer that is part of a holding company system to file a statement affirming that the board is responsible for overseeing corporate governance and internal controls,
authorize the insurance commissioner to evaluate the enterprise risk related to an insurer that is part of a holding company, and
require an insurer that is part of a holding company to obtain regulatory approval of amendments to affiliate agreements that were previously filed.

SB 1216 and SB 1448 are pending before the Senate Appropriations Committee.

Big Brother - Are Americans Ready for the Growth of Usage (Telematics) Based Insurance?

Timothy Moroney — Wed, 25 Apr 2012 15:07:53 -0800

Fox News.com (“Fox”) reported on April 24, 2012, Are drivers ready for Big Brother car insurance plans? that a new study points to the fact that good drivers seem poised to give up privacy rights in order to achieve savings in their auto insurance premiums through usage based insurance programs such as pay-as-you-drive (PAYD) models.

Specifically, the Fox article noted that a UK-based insurance aggregator, GoCompare.com, conducted a survey that found 92 percent of drivers surveyed believe that insurance premium should be based on how they drive and that 97 percent indicated that good drivers should get better insurance rates.

While PAYD programs now exist in many states from many carriers, as reported by Fox, Americans once thought to be protective of their privacy may now be willing to give up some privacy in order to obtain rewards such as cheaper insurance premiums.

While no reasons or support were provided in the Fox article to suggest that Americans are in fact willing to give up some privacy, any loosening of views in this area may result from the fact that consumers in today’s Google or Facebook America may not have the same expectations of privacy when it comes to giving private companies (as opposed to government actors) access to their private information, including driving data.

Insurance regulators across the country are surely going to adopt rules on how and what types of information may be collected – California has already done so (Title 10 California Code of Regulations section 2632.5) – in connection with such programs. We will keep you posted on any state developments in this regard.

California Supreme Court Refines the Scope of Considering "the Merits" of the Case in Class Certification Motions

Larry Golub — Thu, 12 Apr 2012 18:32:39 -0800

by Larry M. Golub and Sandra I. Weishart

On April 12, 2012, the California Supreme Court issued its long-awaited decision in Brinker Restaurant Corp. v. Superior Court. Plaintiffs had sought to certify three subclasses of California restaurant employees based on the employer’s alleged violations of California’s wage and hour laws relating to rest breaks and meal breaks. The decision provides critical guidance for all employers, including insurers, as to how they should address the issue of rest breaks and meal breaks for their employees.

The trial court in San Diego certified the three subclasses, and the Court of Appeal, Fourth Appellate District, reversed that order, rejecting certification of all three subclasses. The Supreme Court accepted review in October 2008 and, on review, affirmed certification of one subclass, rejected certification of one subclass, and remanded the case to the trial court for further proceedings as to whether the third subclass should be certified. More significantly, the Supreme Court clarified when trial courts may consider the merits of a claim at the certification stage – and the Court itself addressed the merits on one issue in the case so as to provide guidance to the trial court in the next phase of the lawsuit.

In the course of its opinion, the Supreme Court also provided important substantive rulings as to the nature of employers’ duty to provide rest periods and meal breaks to non-exempt restaurant employees, in particular, and non-exempt employees in other industries, more generally. This post addresses the Court’s class certification rulings, and Michael Newman of this office analyzes the substantive employment law questions here.

Considering the Merits:

After reviewing the basic class certification principles, the Supreme Court addressed the often-disputed issue as to when a trial court should consider the merits of a plaintiff’s claims in deciding a motion for class certification. In Brinker, the only class certification element at issue was whether individual questions or questions of common interest predominated with respect to the three subclasses the plaintiffs sought to certify.

The trial court ruled that the three subclasses presented common questions that predominated and, in certifying the class, it refused to consider the correctness of the employer’s legal position concerning its obligations to provide rest breaks and meal breaks. In contrast, the court of appeal concluded the refusal to consider the merits was erroneous because the trial court needed to resolve the “threshold issue” of duty in determining whether individual or common issues predominated. The Supreme Court charted a mid-course between these two extremes.

In analyzing the issues, the Supreme Court reviewed a number of its prior decisions, confirming that class certification is essentially a procedural device “that does not ask whether an action is legally or factually meritorious,” and that “resolution of disputes over the merits of a case generally must be postponed until after class certification has been decided.” The Court nevertheless explained that there are “issues affecting the merits of a case [that] may be enmeshed with class action requirements.” In those instances, when “evidence or legal issues germane to the certification question bear as well on aspects of the merits, a court may properly evaluate them.” In other words:

“To the extent the propriety of certification depends upon disputed threshold legal or factual questions, a court may, and indeed must, resolve them.”

Independent of these basic tenets of class certification, the Supreme Court next explained that a trial court can, at the parties’ request, examine the merits of their substantive legal disputes. Quoting its well-known decision on the ability of trial courts to consider the merits on class certification motions, Linder v. Thrifty Oil Co., 23 Cal. 4th 429, 443 (2000), the Court stated:

“[W]e see nothing to prevent a court from considering the legal sufficiency of claims when ruling on certification where both sides jointly request such action.”

While the Court did not address any merits issues “enmeshed” with the class action requirements, it did nevertheless analyze a merits issue specifically requested by the parties concerning whether the employer’s duties to provide employee rest periods and meal breaks are common issues in the plaintiffs’ three subclasses.

The Class Certification Rulings:

The first subclass the Court examined was the “rest period subclass” that covered class members “who worked one or more work periods in excess of three and a half (3.5) hours without receiving a paid 10 minute break during which the Class Member was relieved of all duties.” On this subclass, the plaintiffs merely asserted that the employer failed to provide the requisite rest periods for non-exempt employees based on the employer’s own “uniform corporate rest break policy” that allegedly violated the applicable Wage Order. The Court observed that the employer “conceded” the existence of “a common, uniform rest break policy.”

The Court rejected the employer’s argument that employees could waive their rest breaks and that this was an individual issue, advising that “[n]o issue of waiver ever arises for a rest break that was required by law but never authorized; if a break is not authorized, an employee has no opportunity to decline to take it.” Accordingly, the Court concluded that the “rest period subclass” was certifiable and that this issue was not “dependent upon resolution of threshold legal disputes over the scope of the employer’s rest break duties.”

The Court then turned to the “meal period subclass,” defined as class members “who worked one or more work periods in excess of five (5) consecutive hours, without receiving a thirty (30) minute meal period during which the Class Member was relieved of all duties.” On this subclass, the Court found, among other issues, that the subclass not only covers every employee who might have a claim under the plaintiffs’ failure to provide meal periods theory, but also, because of the timing as to when a meal break was taken, might include employees with no possible claim under the applicable Wage Order or Labor Code statute.

The Supreme Court merits ruling concerning the existence of employees who would have no claim was, as noted above, specifically requested by the parties. The Court found the subclass definition adopted by the trial court to be over-inclusive since it “embraces individuals who now have no claim” against the employer. Accordingly, the Court remanded the certification question as to this subclass to the trial court to reconsider based on the clarification of the substantive law provided by the Court.

Finally, the Court addressed the “off-the-clock subclass,” which was an offshoot of the meal period subclass, and was composed of class members who worked without pay, allegedly because the employer “required employees to perform work while clocked out during their meal periods” and “they were neither relieved of all duty nor afforded an uninterrupted 30 minutes, and were not compensated.”

For this claimed subclass, the Court found that, unlike the rest period subclass, there was no common policy or apparent common method of proof. Rather, the “only formal Brinker off-the-clock policy submitted disavows such work, consistent with state law.” Additionally, plaintiffs had failed to present “substantial evidence of a systematic company policy to pressure or require employees to work off the clock.” Consequently, “proof of off-the-clock liability would have had to continue in an employee-by-employee fashion, demonstrating who worked off the clock, how long they worked, and whether Brinker knew or should have known of their work.” Such individual issues and a lack of common issues required dismissing any “off the clock subclass.”

Barger & Wolen partner to speak at The International Life Settlements Conference

Barger & Wolen LLP — Wed, 11 Apr 2012 12:57:58 -0800

Randall Doctor, Partner, Barger & Wolen, will participate in a panel discussion at The International Life Settlements Conference to be held in London, May 1-2, 2012.

The panel discussion, "Legislation & Regulation: New Laws and Regulations in 2012" will be moderated by Brian Casey, Partner, Locke Lord, and will include Mr. Doctor; Michael Freedman, Sr. Vice President, Government Affairs, Coventry; and John McCarroll, Vice President-General Counsel, Q Capital Strategies.

Program description:

Forty states and Puerto Rico have passed laws regulating the market. But this is only the first step. Regulations also must be drafted by the states. Market participants discuss what new laws have been recently passed, how older ones have been tweaked, and what regulations are being put into place.

The International Life Settlements Conference is an annual gathering of the most active investors, investment bankers, hedge fund managers, providers, brokers and attorneys involved in the market. This international group of professionals will meet for two-full days of unique educational programming and take part in an abundance of networking opportunities.

For more information, please visit the conference website.

California Department of Insurance Imposing Strict Standards on Applicants for Life Settlement Provider Licenses

Barger & Wolen LLP — Mon, 09 Apr 2012 08:11:07 -0800

Recently, the California Department of Insurance has issued “Intent to Deny” letters to at least four applicants for life settlement provider licenses based upon a “lack of financial stability.” Ironically, at the same time the Department held a pre-notice hearing to discuss its plans to seek to promulgate regulations that will set forth financial stability standards.

In an article published by The Life Settlements Report on April 4, 2012, Barger & Wolen attorney Randall Doctor examined the Department’s actions. "That's a very vague standard,” Doctor, chair of the Insurance Regulatory and Compliance Practice Group in Barger & Wolen's San Francisco office. “A state agency is subject to a duty to have consistent, objective standards to apply.”

Doctor told the publication there is no formal financial stability requirement in place, yet the Department still threatened to deny at least four provider's applications recently.

"They can't say willy-nilly, 'you lack financial stability.' They recognize they are lacking the legitimate authority to do that,” Doctor told The Life Settlements Report. “At the same time, they're denying providers on this flimsy basis.”

One of the companies opted to voluntarily withdraw its application to avoid a formal denial that could hurt its chances of getting licenses in other states, Doctor said.

Doctor notes that while the state has the legal authority to request the financial information, there is no set standard as to what constitutes “profitability.” He said that one of the providers that received notice its application would be denied, did make a profit last year, just not a big enough one, apparently. "It didn't meet the double-secret, unknown profitability standard," he said.

Click here for the original article and for more information.

California Court of Appeal Issues Two Rulings on Bail Bonds

Samuel Sorich — Thu, 05 Apr 2012 08:00:00 -0800

During the past two weeks, the California Court of Appeal for the Fifth Appellate District handed down two decisions on the forfeiture of bail bonds.

On March 21, 2012, the court in People v. International Fidelity Insurance Company directed the trial court to vacate the forfeiture of a surety’s $65,000 bail bond. The Court of Appeal characterized bail bonds as a contract between the government and the surety. In this case, the government failed to provide the additional security on which the surety relied when the surety posted the $65,000 bail bond. As a result, the bond was void and the trial court was in error when it ordered the forfeiture of the bond. The Court of Appeal noted that voiding the bond was consistent with the policy disfavoring forfeitures in general and forfeiture of bail in particular.

On April 2, 2012, the court refused to vacate the forfeiture of the bail bond at issue in People v. Western Insurance Company. Western posted a $50,000 bond to secure the release of a criminal defendant. The trial court declared the bond forfeited when the defendant did not appear at a hearing. Western’s bail agent found the defendant in India. The prosecuting agency advised Western that the government was seeking extradition. Based on these developments, Western filed a motion to vacate the forfeiture of the bond.

Penal Code section 1305(g) provides that where a defendant is not in custody and is beyond the jurisdiction of the state, the court is to vacate the forfeiture of a bond when the prosecuting agency does not seek extradition. The facts of this case did not fit within section 1305(g) because the prosecuting agency was seeking extradition, even though the extradition process was not complete and the defendant was not in custody within the appearance period called for in the bond.

Western argued that, under the doctrine of equitable tolling, the trial court should have tolled the appearance period to allow the extradition process to run its course. The Court of Appeal ruled that equitable tolling was inappropriate because equitable tolling is inconsistent with explicit provision of section 1305(g).

California Workers' Compensation Looms as a Major 2012 Legislative Issue

Samuel Sorich — Wed, 04 Apr 2012 11:00:00 -0800

On March 28, two California legislative committees met to hear concerns about the California workers’ compensation system. The chairs of the committees declared that the hearing was the Legislature’s first-step in this year’s effort to solve problems that plague the system.

During the joint hearing of the Assembly Insurance Committee and the Senate Labor & Industrial Relations Committee, stakeholders in the California workers’ compensation system identified problems and gave their perspectives on how those problems should be addressed.

Representatives of the California Workers’ Compensation Institute outlined the increase in workers’ compensation costs. In the years immediately after the enactment of the 2003 and 2004 reform laws, the total loss per indemnity claim decreased. However, in recent years, workers’ compensation claim costs have been increasing. The total loss for an indemnity claim is higher today than prior to the enactment of the 2003-2004 reforms. Institute data show that escalating medical costs are driving the increase in claim costs. Increasing costs are affecting insurers. The most current accident year combined loss and expense ratios are at 130.

Insurance Commissioner Dave Jones observed that the high combined ratios will probably result in a rise in workers’ compensation insurance rates. The commissioner expressed concern about the higher premiums that may be charged to employers. In wrestling with workers’’ compensation issues, the Legislature has operated under the theory that a dollar increase in benefits should be accompanied by a dollar in savings in the workers’ compensation system. Commissioner Jones explained that because of the sharp increase in costs, that theory is no longer useful. It appears that it will take more than one dollar in savings to offset a dollar in benefit increase.

Christine Baker, director of the Department of Industrial Relations, testified that her department is seeking comprehensive workers’ compensation reforms that achieve both cost savings and benefit increases. Baker explained that such comprehensive reforms will require both legislative and regulatory changes. The Division of Workers’ Compensation is conducting public forums throughout the state aimed at reaching a consensus on the changes that should be made.

Frank Neuhauser, professor at the University of California at Berkeley argued that the 2003-2004 reforms have reduced compensation paid to injured workers. Neuhauser said the reforms resulted in a 61% decrease in overall compensation. He stated that workers who are not represented by attorneys have been especially affected by the decline in compensation paid.

A representative of the California Federation of Labor accused insurers of undermining the workers’ compensation administrative process and delaying medical treatment for injured workers. The Federation called for the prior approval of workers’ compensation insurance rates and significant adjustments to the permanent disability rating schedule.

A representative of Grimway Farms, which is self-insured for workers’ compensation, challenged the allegation that high costs can be solved by stricter insurance regulation. As a self-insurer, Grimway is facing the same increase in workers’ compensation costs as insurers. The Grimway representative complained that there are too many lawyers in the workers’ compensation system. A representative of public schools urged the adoption of measures to reduce the number of workers’ compensation liens.

A representative of the California Medical Association asserted that further restrictions on fees that may be charged for workers’ compensation medical treatment would lead to a reduction in access to care. A representative of the California Society of Industrial Medicine and Surgery complained about delays in utilization reviews and the administration of medical provider networks.

At the close of the hearing, Senator Ted Lieu, chair of the Senate Labor & Industrial Relations Committee, and Assembly Member Jose Solorio, chair of the Assembly Insurance Committee, said that they are committed to achieving both workers’ compensation savings and workers’ compensation benefit increases. The committee chairs said that they will proceed in an honest, cautious and transparent manner.

"Do Not Track" and Telematics

Timothy Moroney — Wed, 04 Apr 2012 10:00:00 -0800

Most major U.S. auto insurers have launched or are exploring usage-based insurance (UBI) programs. The most common of these programs, pay-as-you-drive (PAYD), uses actual driving data to determine accurate rates in order for insurers to give customers more control over premiums.

One issue of concern that has been voiced is that, in addition to collection of mileage data, telematic devices monitor and collect all sorts of other driving information, so-called GPS data, including such things as location, speeds, braking patterns etc. The collection and use of this GPS data raises privacy concerns.

The recently released Federal Trade Commission (FTC) report, “Protecting Consumer Privacy in an Era of Rapid Change” pledges that part of a “best practices” framework for the Internet industry concerning how companies should address consumer privacy includes either an industry-created “easy to use and effective” “Do Not Track” option by the end of 2012, or “Do Not Track” legislation from Congress in 2013. “Do Not Track” is the proposed ability by consumers to opt out of tracking procedures.

At this point, it is too early to tell the impact that the renewed call for a “Do Not Track” requirement will have on the telematics industry, but it is worth noting that federal “Do No Track” legislation last year, the Do Not Track Online Act, would have allowed consumers to opt out from having online services collect personal information that can be used for data mining.

That legislation applied to all online activities, including mobile telephone applications and auto-based telematics options. Important to the telematics industry last year was the fact that that legislation permitted providers to collect data, even for those who have previously opted out, in order to provide a service requested by the individual. So, even if it was enacted, the Do Not Track Online Act did not threaten the telematics industry. It should be noted that there was a similar legislative effort last year in California, Senate Bill 761, which failed to pass.

The operational provisions of the federal Do Not Track Online Act and California’s SB 761 were broadly similar by allowing exceptions to data collection and tracking opt-outs in order to provide an expressly requested service. As such, if those statutes had been enacted, it was not believed that they would have had any significant impact on telematics services.

However, with the recent renewed calls by the FTC for “Do Not Track” requirements, the telematics and insurance industries need to protect their business models by watching all federal or state pronouncements on this topic to make sure similar exceptions are present.

For more information or any questions, please contact Tim Moroney 415-743-3713 or tmoroney@bargerwolen.com.

FTC Issues Best Practices Guide to Protecting Consumer Privacy

Timothy Moroney — Wed, 28 Mar 2012 08:14:19 -0800

The Federal Trade Commission (FTC) recently issued a report, “Protecting Consumer Privacy in an Era of Rapid Change.”

Two years in the making, the report outlines a “best practices” framework for the Internet industry concerning how companies should address consumer privacy.

The FTC pledged that consumers will have an industry-created “easy to use and effective” “Do Not Track” option by the end of the year, or it will almost certainly face “Do Not Track” legislation from Congress next year. "Do Not Track" is the proposed ability by consumers to opt out of tracking procedures.

The Report calls on companies to act now to implement “best practices” to protect consumers’ private information. The “best practices” are based on the following key principles:

Privacy by Design (building privacy at every stage of product development);
Simplified Choice for Business and Consumers (give consumers the ability to make decisions about their information at the relevant time and context, including Do Not Track mechanism); and,
Greater Transparency (make information collection and use practices transparent).

The Report indicates that, over the course of the next year, FTC staff will work to encourage consumer privacy protections by focusing on the following five main action items:

Do Not Track - The FTC will work with interested groups to complete implementation of an easy-to-use, persistent, and effective Do Not Track system.

Mobile Services - The FTC will be urgings companies offering mobile services to work toward improved privacy protections, including disclosures. To this end, the FTC is trying to do what the California Attorney General did in February to improve and define consumer privacy on mobile apps. See our post dated February 24, 2012.

Data Brokers - The FTC will be calling on data brokers to make their operations more transparent by creating a centralized website to identify themselves, and to disclose how they collect and use consumer data.

Large Platform Providers - The FTC cited heightened privacy concerns about the extent to which large platform platforms, such as Internet Service Providers, operating systems, browsers and social media companies, seek to comprehensively track consumers’ online activities.

Promoting Enforceable Self-Regulatory Codes - The FTC will be working with the Department of Commerce and stakeholders to develop industry-specific codes of conduct.

The FTC Report appears to be a broad warning to the Internet industry that it must adhere to what it considers reasonable behavior and has laid out a road map of its expectations in connection therewith.

For more information or any questions, please contact Tim Moroney at 415-743-3713 or tmoroney@bargerwolen.com.

TranscriptPad for iPad Offers Powerful Mobile Transcript Review

John LeBlanc — Thu, 22 Mar 2012 15:02:12 -0800

TranscriptPad is an elegant, fast and powerful transcript review app for the Apple iPad, designed specifically for the legal field, from the same folks who designed TrialPad, their flagship trial presentation and legal file management app. Similar software exists for your PC or Mac, such as the excellent Deposmart (from Clarity Legal), but TranscriptPad is the first dedicated transcript review and annotation app for the iPad.

TranscriptPad accepts transcripts in .txt format, and exhibits in .pdf format. (Make sure you request the transcript in .txt format, as some court reporting agencies have their own proprietary format). The .txt format is a simple and relatively small file format that all court reporters can generate, and usually do so at no extra charge. Importing is a breeze, and can be done via email, Dropbox or even iTunes. I’ve uploaded multiple transcripts simultaneously, quickly and without any problems.

Transcripts are imported into case folders that you create and that are stored on your iPad. Opening a case folder reveals a deponent folder (created automatically upon import, with the deponent’s name and date of the deposition, along with the volume number). Multiple sessions of the same deponent are placed automatically in the deponent’s folder.

You can read a transcript hands-free by pressing the play button at the bottom of the screen, which allows you to adjust the speed. You can also flip back and forth as if you are reading a book (either in landscape or portrait orientation).

Most attorneys like to annotate their transcript when reviewing, and here’s where the software really shows off. You can create your own “issue” codes to any part of the transcript. Issue codes can be assigned any name along with a choice of six colors, and appear in the margins of the transcript. You can also flag a portion of the transcript for later review. Issues codes, flags or any portion of the transcript can be emailed or exported to Dropbox.

TranscriptPad contains a powerful search feature that allows you to search across any transcript or even multiple transcripts. Each hit is highlighted in the text, and you can create issue codes or flags from there, or email the section containing the search result. Detailed or summary reports of your issue codes, flags and searches are easily generated, and can be exported in .pdf or .txt format.

TranscriptPad’s price tag is $49.99, which is pricey for an app, but on the other hand, this is robust and professional software. Similar software for the Mac or PC start at $200, and go much higher. For lawyers, paralegals, experts, in house counsel, and others who review and annotate transcripts, and who place a premium on mobility, TranscriptPad is a must. TranscriptPad can be found here (www.transcriptpad) and purchased in the Apple App store.

Originally posted on Barger & Wolen's Life, Health & Disability Insurance Law blog.

Significant Insurance Bills Being Considered by California Legislature

Samuel Sorich — Mon, 19 Mar 2012 13:33:01 -0800

California legislators will consider a variety of insurance-related issues before the 2012 legislative session ends on August 31, 2012.

Hundreds of bills were introduced prior to last month’s deadline for bill introduction. Many of the newly introduced bills would affect insurers doing business in California.

Most bills propose specific statutory changes. However, as is typical at this point in the legislative process, a number of bills merely contain general language. These so-called “spot bills” will be amended to include specific statutory changes later during the legislative session.

Here are seven newly introduced bills that merit insurers’ attention. These bills are not yet scheduled for hearings.

SB 1172 is a spot bill. It is expected that the bill will be amended to include provisions which would give the insurance commissioner the power to order an insurer or agent to pay restitution for Insurance Code violations and would grant the insurance commissioner authority to force the insurer or agent to pay the Department of Insurance’s attorney’s fees and costs related to the restitution order. These provisions were contained in SB 631, which failed to pass last year.

SB 1448 would make numerous changes to California’s insurance holding company statutes. Among other things, SB 1448 would require an insurer that is a member of a holding company to file with the insurance commissioner statements affirming the maintenance of corporate governance and internal control procedures. SB 1448 also would require an insurer’s ultimate controlling person to file an annual enterprise risk report that identifies material risks within the holding company that could pose risk for the insurer.

SB 1449 would enact the Interstate Insurance Product Regulation Compact. Enactment of the Compact would result in California’s membership in the commission that establishes uniform standards for the review and approval of products relating to life insurance, annuities, disability insurance and long-term care insurance.

SB 1460 would enact new statutes relating to the use of replacement crash parts that are not manufactured by the original equipment manufacturer (non-OEM crash parts). The bill would give statutory recognition to certified new non-OEM crash parts.

SB 1528 would allow a plaintiff in a liability lawsuit to recover the reasonable cost of the medical services provided to the plaintiff without regard to the amount that was actually paid for the services. The bill would nullify the California Supreme Court’s 2011 decision in Howell v. Hamilton Meats & Provisions, Inc., which held that a plaintiff’s recovery for medical damages is limited to the amount the medical care provider accepted for medical services. See this blog’s recent discussion of the Howell decision here.

AB 1687 would authorize the Workers’ Compensation Appeals Board to award attorney’s fees to a workers’ compensation applicant who is involved in a dispute over the appropriateness of medical treatment.

AB 2160 would require the insurance commissioner to treat a domestic insurer’s indirect investments in Iran as non-admitted assets on the financial statements the insurer files with the commissioner. See this blog's recent update here.

Many bills introduced last year are still pending before the Legislature. Two measures are especially noteworthy for insurers.

AB 52 would require health service plans and health insurers to obtain the insurance commissioner’s prior approval of rate changes. AB 52 was passed by the Assembly. The bill is now in the Senate Inactive File.

AB 53 would require each admitted insurer with premiums of $100,000,000 or more to file with the insurance commissioner a report on its minority, women and disabled veteran-owned business procurement efforts. AB 53 was passed by the Assembly. The bill is now pending before the Senate Rules Committee.

Ninth Circuit Holds Federal Arbitration Act Preempts California Law Prohibiting Arbitration of Claims for Broad Public Injunctive Relief

Gregory Eisenreich — Tue, 13 Mar 2012 09:39:49 -0800

On March 7, 2012, the Ninth Circuit Court of Appeals issued an opinion that significantly limits the power of California, and other states, to restrict the enforcement of arbitration agreements and class action waiver clauses.

In Kilgore, et al. v. KeyBank, et al., the plaintiffs were students of a private helicopter vocational school that had taken out private student loans from KeyBank. The helicopter school filed for bankruptcy before the students completed their training.

The students brought an action under California's Unfair Competition Law ("UCL"), Business and Prof. Code section 17200, alleging that KeyBank had knowledge that "the private student loan industry - and particularly aviation schools - was a slowly unfolding disaster," yet continued to make loans to students. The students sought an injunction preventing KeyBank from attempting to collect on the student loans or from reporting students who failed to pay their loans to credit rating agencies. KeyBank moved to compel arbitration under a contractual arbitration provision in the promissory notes the students had signed. The arbitration provision provided:

IF ARBITRATION IS CHOSEN BY ANY PARTY WITH RESPECT TO A CLAIM, NEITHER YOU NOR I WILL HAVE THE RIGHT TO LITIGATE THAT CLAIM IN COURT OR HAVE A JURY TRIAL ON THAT CLAIM . . . FURTHER, I WILL NOT HAVE THE RIGHT TO PARTICIPATE AS A REPRESENTATIVE OR MEMBER OF ANY CLASS OF CLAIMANTS . . . I UNDERSTAND THAT OTHER RIGHTS THAT I WOULD HAVE IF I WENT TO COURT MAY ALSO NOT BE AVAILABLE IN ARBITRATION. THE FEES CHARGED BY THE ARBITRATION ADMINISTRATOR MAY BE GREATER THAN THE FEES CHARGED BY A COURT.

There shall be no authority for any Claims to be arbitrated on a class action basis. Furthermore, an arbitration can only decide your or my Claim(s) and may not consolidate or join the claims of other persons that may have similar claims.”

The arbitration clause also permitted the students to opt-out of the arbitration provision if they gave written notification within sixty days of signing the note.

The United States District Court refused to order arbitration under California's Broughton-Cruz rule which prohibited the arbitration of claims for broad, public injunctive relief such as those made under the UCL and the California Legal Remedies Act. The Ninth Circuit reversed.

The Ninth Circuit noted that the Federal Arbitration Act ("FAA") has a savings clause that allows arbitration agreements to be invalidated "upon such grounds as exist at law or in equity for the revocation of any contract." 9 U.S.C. section 2. The FAA, therefore,

preserves generally-applicable contract defenses and thus allows for invalidation of arbitration agreements in limited circumstances - that is, if the clause would be unenforceable 'upon such grounds as exist at law or in equity for the revocation of any contract.' 9 U.S.C. section 2.

However, any other state law rule that purports to invalidate arbitration agreements is preempted because the Act 'withdrew the power of the states to require a judicial forum for the resolution of claims which the contracting parties agreed to resolve by arbitration.'"

In applying these principles, the Ninth Circuit recognized that the United States Supreme Court has identified two situations where the state law rule will be preempted. The first is when the state law rule provides an outright prohibition to the arbitration of a particular type of claim. The other, more complicated, situation is when a doctrine thought to be generally applicable, such as duress or unconscionability, is applied in a fashion that disfavors arbitration.

The Ninth Circuit held that the Broughton-Cruz rule was an outright prohibition on the arbitration of a particular type of claim, specifically claims for broad public injunctive relief, and was, therefore, preempted by the FAA. In so holding, the Ninth Circuit recognized that its ruling would undercut the public policy behind state statutes:

We are not blind to the concerns engendered by our holding today. It may be that enforcing arbitration agreements even when the plaintiff is requesting public injunctive relief will reduce the effectiveness of state laws like the UCL It may be that FAA preemption in this case will run contrary to a state's decision that arbitration is not as conducive to broad injunctive relief claims as the judicial forum. And it may be that state legislatures will find their purposes frustrated. These concerns, however, cannot justify departing from the appropriate preemption analysis as set forth by the Supreme Court in Concepcion."

In addition, the Ninth Circuit found that the arbitration clause at issue was not unconscionable, reasoning that it was conspicuous, plainly set forth, and provided a means of opting-out.

California Court of Appeal Extends Howell v. Hamilton Meats Rule to Limit Injured Person's Medical Expenses to Discounted Amounts Paid Under Workers' Compensation

Larry Golub — Sun, 11 Mar 2012 20:19:10 -0800

Last year, the California Supreme Court held in Howell v. Hamilton Meats & Provisions, Inc. that an injured plaintiff whose medical expenses were paid through private health insurance could not recover as economic damages against a tortfeasor any more than the amounts paid by the plaintiff’s insurer for those medical services, and that this discounted amount did not fall within the collateral source rule. We reported on that decision at the time.

The California Court of Appeal has now extended that holding to the analogous situation in which the insured employee’s medical expenses are paid through workers’ compensation. The decision is Sanchez v. Brooke, decided March 8, 2012 by the Second Appellate District of the Court of Appeal.

In Sanchez, the plaintiff was a home health care worker who provided care for an elderly woman. The woman was smoking in bed and, after the bed caught fire, the plaintiff was seriously injured in her efforts to rescue the woman, who died in the fire. The workers’ compensation insurer for plaintiff’s employer paid her medical benefits at the statutory workers’ compensation rates, and plaintiff was not responsible for the costs of her medical case above those paid amounts. At trial, the jury found that the employer and the estate of the deceased woman were both 50% at fault. The workers’ compensation carrier filed a lien against plaintiff’s potential recovery against the estate.

While plaintiff argued that the amount of her damages should be the total amount of her economic damages (as then offset by the amount of workers’ compensation benefits received as attributable to the employer’s liability), the defendant trustees contended that the starting amount must be further reduced to reflect the fact that the injured person’s medical expenses have been paid in full by workers’ compensation and the injured employee is not liable for the unpaid balance. The trial court ruled in favor of plaintiff, but the Court of Appeal reversed.

Noting that the Howell decision was pending while the trial court case proceeded, the Court of Appeal concluded that Howell should be extended to the workers’ compensation context:

“Applying the court’s reasoning in Howell to this case, we conclude that where an employer is required under the workers’ compensation laws to pay in full an injured employee’s medical expenses, the injured employee may not recover, as economic damages from a third party tortfeasor, medical fees that the provider is precluded, either by agreement or by law (including the statutory fee schedule), from collecting from the employer. Because fees that the provider may not collect from the employer under the workers’ compensation law do not represent an economic loss for the employee, they are not recoverable in the first instance.”

The appellate court remanded the case back to the trial court to determine the limited issue as to whether the workers’ compensation insurer paid the full amount sought by the medical providers and, if so, then that amount would establish the past medical expenses recoverable by the plaintiff as economic damages from defendants, which amount would then need to be offset to reflect the percentage attributable to the employer’s negligence.

While the extension of the Howell holding into the workers’ compensation context appears to be the correct result, undoubtedly the plaintiff will seek Supreme Court review of the unanimous Court of Appeal decision. We will report on any further developments.

Workshop held by California Department to Discuss Contemplated Changes to Life Settlement Regulations

Timothy Moroney — Fri, 09 Mar 2012 14:04:26 -0800

Can Servicers Expect to be Brought into the Regulatory Fold?

On March 9, 2012, the California Department of Insurance (“Department”) held a Pre-Notice Public Discussion on contemplated revisions it intends to make to California’s life settlement regulations, Title 10 California Code of Regulations §§ 2548.1 et seq. (the “Workshop”)

The Workshop was chaired by Staff Counsel Audrie Lee of the Department’s Corporate Affairs Bureau, and was attended by Special Counsel to the Commissioner Geoff Margolis, Deputy Commissioner John Finston, and Senior Staff Counsel Jennifer Chambers also of the Corporate Affairs Bureau. The industry turnout included representatives from Coventry, Maple Life, and various other trade industry representatives. The purpose of the Workshop was to discuss the following contemplated revisions to the life settlement regulations.

Prohibiting the commingling or investment of escrowed life settlement proceeds due to the owner in a life settlement transaction.
Defining grounds for the denial of a license application or the revocation of a license. For life settlement providers, failure to show financial stability will serve as grounds.
Regulating the life settlement transactions that allow the owner to retain an interest in the policy by requiring the owner to designate an irrevocable beneficiary and requiring contractual provisions intended to protect and preserve the seller’s interest.
Permitting the owner who has entered a life settlement contract to purchase annuities and retain additional benefits or optional riders that were part of the insurance policy; however, if the owner elects not to purchase an annuity or continue any additional benefit or optional rider, such elections would be terminated when the life settlement takes place.
Requiring any subsequent life settlement purchaser that transfers ownership or changes the beneficiary to notify the provider so that the provider may again notify the insured of the subsequent change in ownership or beneficiary.
Clarifying that a life settlement provider applicant or licensee must disclose any pending investigations of any criminal, civil, regulatory, or administrative action(s) taken against the applicant or licensee.

One of the big issues discussed concerned the Department’s plan to amend the life settlement regulations to include lack of financial stability as a ground for denying or revoking a provider license. The Department believes that it has the power to promulgate such a standard as the commissioner has the discretion to deny an application if the commissioner determines that issuance of a license is contrary to public interest. The Department has concluded that it is contrary to the public interest to license an entity that does not have staying power because there are ongoing obligations owed by providers to insured sellers after the close of a life settlement transaction.

The industry offered that, unless there is an objective standard for finding a lack of financial stability, it would be hard for the Department to enforce any such requirement since it would lead to arbitrary results. Also, the industry posited that the Department was not thinking of providers in the correct light, arguing that nearly all providers are simply fund originators and are not risk bearing entities since they generally do not hold policies for their own account. The industry also added that there are many reasons why providers go out of business – it is not always because of a lack of financial stability.

As for continuing post-closure obligations, the industry reported that most of the time life insurance policy servicers contract to undertake any post-closure obligations, not providers, and suggested that a better approach would be if the Department institutes a servicer registration or licensing requirement. The Department indicated that it will consider the servicers’ role in the transactions.

There was also a fair amount of discussion around retained death benefit cases and why in those cases the providers may be risk bearing entities as well as how the Department can protect insureds who try to retain some death benefits from a secondary market buyer who may stop paying premiums, thus impacting the insured. There was also discussion of the whether coverages and rights owed to the insured should transfer to the new owner. The industry believes that there is no difference in the rights and obligations under a policy sold in the secondary market since the secondary buyer simply stands in the shoes of the insured.

There were clearly differences of opinion between the Department and the industry, but the Workshop was productive. We will not know how much traction the industry’s positions will get until the Department publishes its proposed revised regulations.

The Department invited interested parties to submit written comments to assist in crafting of revised regulations. Any written comments should be received by the Department by March 23, 2012.

For more information or any questions, please contact Tim Moroney 415-743-3713 or tmoroney@bargerwolen.com.