SAN FRANCISCO— State Fund lost a big one yesterday. The First District Court of Appeal found that Superior Court Judge Donald Mitchell erred when he reversed a jury's decision. Mitchell's error was reversing a jury which found that State Fund treated Palm Medical Group unfairly in how it excluded Palm from a PPN, and awarded Palm $1.1M. The award, also reinstated, could reach nearly $1.5M after interest. A link to the decision appears below.

The Justices found "The record includes ample evidence to support the jury's finding that SCIF "possessed power so substantial over the market for the treatment of occupational injuries in the Fresno area in 2001-2002 that the failure to admit an ordinary, competent medical provider to its [PPN] would significantly impair that provider's ability to practice occupational medicine in the Fresno area" and, therefore, that SCIF owed Palm a duty of fair procedure in acting on its application to the PPN. We find no merit in SCIF's alternate arguments in support of the judgment."

State Fund management, according to sources, has a general practice and pattern of ordering its outside lawyers to appeal nearly every decision it loses on any level.  Occasionally, SCIF wins an appeal but frequently its losses become bad precedent for it or for the industry as a whole. This is no exception.

In the underlying case State Fund's motion for a Judgment Notwithstanding the Verdict (JNOV), was granted by Mitchell. In other words, the judge reversed the jury's finding and erased the award. Palm's attorney Drew Pomerance of Roxbourough, Pomerance & Nye then filed the appeal.

The Court of Appeal noted State Fund is the largest workers' comp carrier in California and that between 1998 and 2003, State Fund's share of the market in California grew from 22.36% to 53%. [In 2003, the next largest insurer wrote only 5% of the market and in 2002 employers paying half of all State Fund's written premiums were participating in the PPN program. And 61% of State Fund's Fresno County insureds were participating in the PPN program.] This evidence according to the Court of Appeal established that State Fund possessed "Substantial power" in the Fresno area and that "any significant impairment" to Palm's ability to practice occupational medicine resulted from Palm's failure to gain admission to the State Fund PPN.

Evidence presented at the trial pegged Palm's losses at $2.6M to $3.3 million, but ultimately the jury awarded less than half—$1,131,000 in damages—in finding that SCIF had excluded Palm in violation of the common law fair procedure doctrine. The Court of Appeal examined the evidence supporting the jury verdict and found the jury's award was not speculative and was based on competent evidence.

In the opinion authored by Justice Stuart R. Pollak, the court noted that it would not address the applicability of its conclusions to MPNs, but Pomerance agreed to take that step.

"The important thing is when you have a company the size of State Fund that can exert economic control and injure business when it acts inappropriately, then whether it's a PPN or an MPN fair procedure will apply," Pomerance told Workers' Comp Executive. "It's clear that State Fund because of their size and economic clout has to deal fairly and in good faith with businesses. And that's not a hard standard to meet. They only have to act procedurally fair and make decisions that are not arbitrary and irrational. That should be the goal for all businesses."

A State Fund spokeswoman says the insurer is reviewing the decision and has not made any decisions as to how it will proceed.

Here is a link to the Appellate decision: http://www.wcexec.com/articles/WCE05-20080326-000.pdf.aspx