LESTER HERSHMAN, Applicant,
v.
JAMES EISENBERG MEDICAL GROUP; CALIFORNIA COMPENSATION INSURANCE COMPANY, In Liquidation; CALIFORNIA INSURANCE GUARANTEE ASSOCIATION; and KEMPER EMPLOYERS CLAIMS SERVICE (Servicing Facility) Defendants.
No. PAS 0023953
California Workers Compensation Decisions
Workers Compensation Appeals Board State Of California
June 11, 2002
OPINION AND DECISION AFTER RECONSIDERATION (EN
BANC)
MERLE
C. RABINE, CHAIRMAN.
On
October 29, 2001, the Board granted reconsideration of the
Interim Findings and Award issued by a workers'
compensation administrative law judge ("WCJ") on
August 7, 2001. In that decision, the WCJ concluded in
substance that the California Insurance Guarantee Association
("CIGA") could be liable for Labor Code section
5814 penalties resulting from the pre-liquidation
unreasonable delays in paying benefits by the insolvent
insurance carrier, California Compensation Insurance Company
("Cal Comp"), i.e., that section 5814 penalties are
"covered claims" under Insurance Code section
1063.1 et seq.. The WCJ, however, did not determine
CIGA's "precise liability;" rather, she stated
she would be "requesting further information and
evidence with regard to the matters of [the] reasonableness
and/or unreasonableness of the delays and/or refusals."
In its
petition for reconsideration (which, alternatively, was also
a petition for removal), CIGA contended: (1) that, because
Insurance Code section 1063.1(c)(8) excludes "punitive
or exemplary damages" from the definition of
"covered claims," it is not liable for section 5814
penalties that are awarded against an insolvent insurer,
after its liquidation, based on the insurer's
pre-liquidation unreasonable delays in paying benefits; and
(2) that, based on various public policy arguments, it is not
liable for such section 5814 penalties.
Because
of the important legal issue presented, and in order to
secure uniformity of decision in the future, the Chairman of
the Board, upon a majority vote of its members, has
reassigned this case to the Board as a whole for an en banc
decision. (Lab. Code, §115.)
1 Based on our review of
the relevant statutory and case law, we conclude that Labor
Code section 5814 penalties imposed based on an insolvent
insurer's pre-liquidation unreasonable delays in paying
benefits are "covered claims" within the meaning of
Insurance Code section 1063.1 et seq., and that CIGA's
public policy arguments do not absolve it from liability for
such penalties. Accordingly, we will affirm the WCJ's
August 7, 2001 decision and remand the matter to her for
further proceedings on the issue of what penalties, if any,
should actually be awarded.
2
I.
BACKGROUND
The
essential facts are not in dispute.
Applicant,
Lester Hershman, sustained an industrial injury to various
body parts on June 18, 1993, while employed as a physician by
the James Eisenberg Medical Group ("employer"). At
the time of applicant's injury, Cal Comp insured the
employer.
On
December 17, 1998, the WCJ issued a Findings and Award
determining that applicant's injury caused temporary
disability from August 2, 1993 through June 3, 1994, that it
caused permanent total disability (100%), and that applicant
was entitled to recover on various medical expenses.
Additionally, the WCJ found that Cal Comp had unreasonably
delayed payment of both temporary disability indemnity and
permanent disability indemnity and she awarded 10-percent
penalties against both species of benefits under section
5814.
Thereafter,
Cal Comp sought both reconsideration and appellate review,
but its petitions were denied.
Subsequently,
applicant raised additional penalty claims under section 5814
against Cal Comp for its alleged failure to timely and
properly pay the December 17, 1998 award.
On
September 26, 2000, prior to any trial on applicant's new
penalty claims against Cal Comp, the Superior Court found Cal
Comp to be insolvent and directed the Insurance Commissioner
to liquidate Cal Comp and to wind up its business. At this
time, CIGA began defending against applicant's claims
(Ins. Code, §1063.2(b)) and became obligated to pay Cal
Comp's "covered claims." (See, Ins. Code,
§1063.1 et seq.; Carver v. Workers' Comp.
Appeals Bd. (1990) 217 Cal.App.3d 1539, 1543 [55
Cal.Comp.Cases 36, 38].)
On
February 21, 2001, a trial on applicant's new penalty
claims took place. Prior to trial, CIGA filed a brief
contending that it has no liability for section 5814
penalties relating to the pre-liquidation unreasonable delays
of an insolvent carrier, as well as raising other defenses.
On
August 7, 2001, the WCJ issued the Interim Findings and Award
in question here.
II.
DISCUSSION
CIGA's
fundamental statutory mandate is that it "shall pay and
discharge [the] covered claims" of insolvent insurers.
(Ins. Code, §1063.2(a).)
Insurance
Code section 1063.1(c)(1) sets forth the general definition
of "covered claims," which definition is then
qualified and limited by the specific statutory exclusions to
"covered claims" set forth in sections 1063.1(c)(3)
through (c)(12) and 1063.2. (American Nat. Ins. Co. v.
Low (2000) 84 Cal.App.4th 914, 920-921; Industrial
Indemnity Co. v. Workers' Comp. Appeals Bd.
(Garcia) (1997) 60 Cal.App.4th 548, 557 [62
Cal.Comp.Cases 1661, 1667]; CIGA v. Workers' Comp.
Appeals Bd. (Jenkins) (1992) 10 Cal.App.4th
988, 995 [57 Cal.Comp.Cases 660, 664]; Interstate Fire
& Casualty Co. v. CIGA (1981) 125 Cal.App.3d 904,
908.)
A. Labor Code Section 5814 Penalties Fall Within
The Insurance Code Section 1063.1(c)(1) General Definition Of
"Covered Claims."
We
conclude that Labor Code section 5814 penalties, which are
imposed based on an insolvent insurance carrier's
unreasonable failure to pay (or unreasonable delay in paying)
its workers' compensation obligations before the
appointment of a liquidator, fall within the general
definition of "covered claims."
In
relevant part, Insurance Code section 1063.1(c)(1) states:
" 'Covered claims' means the obligations of an
insolvent insurer ... (i) imposed by law and within the
coverage of an insurance policy of the insolvent insurer
… [and] (vi) in the case of a policy of workers'
compensation insurance, to provide workers'
compensation benefits under the workers' compensation law
of this state … " (Emphasis
added.)3
The
phrase "workers' compensation benefits under the
workers' compensation law of this state" is broad
enough to include penalties under section 5814. (CIGA v.
Workers' Comp. Appeals Bd. (Harris) (2002)
67 Cal.Comp.Cases 171, 172 (writ den.).) Labor Code section
3207 defines the term "compensation" to include
"every benefit or payment conferred by Division 4 [of
the Labor Code] upon an injured employee" (Lab. Code...
