Cutting Through The Red Tape: Employers Have The Right To Third Party Claims Reviews

By Craig Pynes

For years, workers’ compensation insurers were free to place reserves (the estimated amount to be paid) on claim files entrusted to them without scrutiny from their employer insureds. Prior to 1993, employer insureds could not force their insurer to explain the basis for their file reserves or obtain any portion of their claim files.

This lead to an obvious conflict of interest in many instances, such as “loss sensitive” policies, where high reserves set by the insurer resulted in higher subsequent premiums. Under loss sensitive policies, the premium paid by the insured is directly proportionate to the total amount of workers’ compensation claims paid by the carrier plus reserved by the carrier on claims for the policy year, with a minimum and maximum due under the policy.

Over time, the legislature has required substantially greater access to claim files, arming employers with the knowledge to gain a complete understanding of the factors contributing to their premiums.

The right to claims review was established by the 1993 passage of Labor Code 3762, commonly called the “Employer’s Bill of Rights,” requiring the insurer to discuss all elements of the claim file that affect the employer’s premium with the employer, and to supply copies of the documents that affect the premium at the employer’s expense during reasonable business hours.

In 1999, the Legislature attempted to restrict access to claims files by the passage of AB 435 which was initiated at the request of AIDS activists concerned that information regarding claimants’ HIV status was being divulged to employers in the course of claims reviews. As a result of AB 435, subsection (c) was added to Labor Code 3762. Under the modified statute, employer representatives could obtain two categories of medical information and documentation from their insurers: (1) if the diagnosis of the injury for which workers’ compensation is claimed would affect the employers’ premium, then an insurer may disclose that diagnosis pursuant to subdivision (a); and (2) medical information regarding the injury for which workers’ compensation is claimed that is necessary for the employer to have in order for the employer to modify the employee’s work duties.

As a result of the 1999 amendments, there was some confusion as to what medical information could be produced to employers. In order to clear up the confusion, the code was amended again in 2003, at subsection (c)(1), stating that insurers must disclose: “Medical information limited to the diagnosis of the mental or physical condition for which workers’ compensation is claimed and the treatment provided for this condition.” The law as currently amended now allows employers, through their representatives, complete access to claim reviews while protecting claimants’ sensitive, private medical information not related to the injuries for which they are claiming workers’ compensation benefits.

Unfortunately, there is no effective mechanism under Labor Code 3762 to compel an insurer to provide claim files, absent filing and proceeding with a law suit. Even this mechanism was only achieved through active and aggressive trial and appellate work by this law firm resulting in the appellate decision of Notrica v. State Comp. Ins. Fund (1999) 70 Cal.App.4th 911.

There were also no other regulations promoting enforcement or remedying violations of Labor Code 3762. Thus, where insurers refused to comply and provide requested claim files to their insureds, an insured could only compel their production through an action for bad faith and/or violation of Business and Professions Code Section 17200. While the costs of litigation may seem onerous, employer insureds with significant suspicions about the handling of their workers’ compensation claims can obtain substantial rewards if they are patient and allow the legal process time to resolve their problems.

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