Employers Rights Firm Wins Battle Against CIGA and Major Victory For California Businesses

KEY RULING PREVENTS CIGA FROM SHIFTING LIABILITY FOR UNPAID WORKERS’ COMP CLAIMS TO CALIFORNIA EMPLOYERS AND THEIR INSURERS


LOS ANGELES, CA, October 11, 2006—Los Angeles based law firm Roxborough, Pomerance & Nye, LLP (RPN) recently won a key ruling ensuring California employers and their insurers are not forced to cover workers’ compensation claims of employees provided by staffing companies, even when the staffing company’s carriers have been liquidated or become insolvent.

“We are pleased with the ruling and hope the decision brings a final resolution to a three-year old issue that moved up to Supreme Court and was later decertified,” says Michael Adreani, partner of RPN and lead attorney on the case. “The decision gives guidance to the workers’ compensation community and will impact hundreds of similar cases that are pending and in various stages of litigation.”

In Gilles v. Film Payment Services, et all (CIGA, Kelley Productions), the Workers’ Compensation Administrative Law Judge ruled that California Insurance Guarantee Association (“CIGA”)—California’s statutory insolvency guarantor—remains liable for compensation benefits when the workers’ compensation carrier of an employment agency (“general employer”) becomes insolvent. That liability does not shift to the agency’s client company (“special employer”) and its insurer.

Furthermore, the judge ruled that CIGA could no longer use its legal argument that a so-called “alternate employer endorsement” is the only way to limit the general employer policy. CIGA previously used this argument before the California Court of Appeal in the Miceli case (General Casualty Insurance v. WCAB) and advanced the same argument in this case, claiming the absence of such an endorsement makes the special employer’s policy unlimited in providing coverage to its own employees as well as borrowed employees from PEOs, payroll companies and staffing companies.

“Applying CIGA’s logic that exclusionary endorsements are needed would have meant that the California Department of Insurance, The Ratings Bureau and all California insurers writing this line of risk simply failed to follow the law for the last 40 years,” Adreani points out.

After determining that CIGA was precluded from arguing that an “alternate employer endorsement” was necessary, the judge turned to an evaluation of the parties’ intent. The judge in this case found that David E. Kelley Productions and its insurer, Fireman’s Fund, did not intend to cover employees supplied by the general employer, Film Payment Services (FPS), while FPS and its insurer policy did intend to cover those employees. CIGA filed a request for reconsideration after the decision was made on August 15, 2006. In its Report and Recommendation on Reconsideration, the Administrative Law Judge found no grounds to alter the decision.

By obtaining a favorable ruling at the administrative trial level, RPN prevents CIGA from shifting millions of dollars of liability for workers’ compensation benefits to California employers using payroll companies, staffing companies and PEOs for their employment needs.

“This is a victory for all California employers and their insurers,” adds Adreani. “Should the ruling be upheld, the implications will be far-reaching. Insurers save millions of dollars since they will not be stuck with CIGA’s bill to pay claims on employees they did not underwrite. And client companies of staffing agencies, payroll companies and PEOs can move forward with confidence knowing they will not face substantial premium increases as their insurers scramble to cover their losses.”

Roxborough, Pomerance & Nye LLP (RPN) is a Los Angeles County based law firm providing expert legal counsel and representation to the business community. Established in 1995, the firm offers a broad range of legal services in all facets of civil litigation, with its primary focus on litigation, legislation and policymaking issues involving insurance and business related concerns.

Contact: Linda O'Hanlon, Straightline Communications, (818) 386-1916

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