Welcome to 2025 and Workers’ Comp Executive’s 35th year covering the California workers’ comp industry.
Here is our annual review of the top workers’ comp stories that made headlines last year. Some of the issues that emerged over the previous twelve months were one-time events, while others generated headlines throughout the year. People behaving badly remained a constant theme throughout the year as state and local officials continued the fight against workers’ comp fraud in all its various forms.
Many of these stories were not reported elsewhere. They are the result of good old-fashioned diligent research, persistence, and factual reporting.
The increasing cost of fighting that fraud and funding the other aspects of running the state’s workers’ comp system also drove headlines. Employers learned the true scope of their liabilities for a key fund that provides benefits to injured workers with preexisting disabilities, while another fund saw demand outstrip supply for the first time in its history. Not to worry, state officials reworked their interpretation of the statute to spend more than they previously said they could in any given year and kept the money flowing to injured workers. Then, there were the rates and carrier results.
The top headlines from 2024 also included some notorious actors from prior years. Officials secured and/or sustained convictions in a handful of long-running cases, one concerning the MEWA developed from investigation and factual stories in Workers’ Comp Executive. In another, the seizure of a formerly major workers’ comp insurance carrier’s lengthy court battle after the shutdown of a program which Workers’ Comp Executive’s reporting exposed. Now, litigation has turned the corner, but only to begin a new phase that likely guarantees its inclusion in next year’s list of top stories.
So, without further delay, here are the stories that drove the headlines in 2024. See how many you remember.
Employer Assessments Up 21%
The Department of Industrial Relations revealed that the annual cost to run its operations and resupply the various special funds that aid injured workers is growing and has now topped $2 billion. The annual assessment for California employers was up 21% from the prior year, with nearly all of the increase driven by the Subsequent Injuries Benefits Trust Fund (SIBTF).
Insured employers pay the assessments as part of their workers’ compensation insurance bill. This year, the ass
essments add over 5% of the premium to their workers’ compensation costs. Self-insured employers pay assessments directly to DIR and are billed based on a percentage of the workers’ comp indemnity benefits that they pay to injured employees. This year, the total is 8.5% of their indemnity payments.
DIR collects assessments for six funds. The Workers’ Compensation Administration Revolving Fund (WCARF), which covers the administrative costs of the workers’ comp system, has historically had the highest rate until this year. A 74% increase in the assessment for the SIBTF, which pays benefits to injured workers with prior disabilities, now has the highest assessment at $848 million.
The WCARF assessment followed at $699 million, including collecting $120 million that DIR needed to resupply the Return-to-Work Supplement Fund. The RTW supplement gives $5,000 to injured workers who were unable to return to their at-injury employer. State officials revealed that they actually distributed $128 million in RTW benefits last year, which marked the first time in the fund’s history that it hit full capacity.
DIR admitting spending more than the $120 million provided annually for the program was revealing. In 2015, when DIR completed the program’s regulations, it maintained that it could not roll over unspent funds from one year to the next without specific Legislative authority. Now, without saying when or how such authority magically appeared, DIR says there are $339 million in unspent funds from prior fiscal years that can go to the program.
Assessments for the four remaining funds were:
- Occupational Safety and Health Fund Assessment – $190 million
- Labor Enforcement and Compliance Fund Assessment – $182 million
- Workers’ Compensation Fraud Account Assessment – $90 million
- Uninsured Employers Trust Fund Assessment – $53 million.
Overall, the Department says it is holding more than $725 million in reserves for the six funds. The reserves range from a low of 0.5% of the assessment for the anti-fraud fund to a high of 60% for the SIBTF.
Future SIBTF Liability
While the $848 million assessment for the SIBTF program helped drive employers’ overall assessments to record levels, a study revealed that their long-term liabilities to the program are magnitudes larger. The report, which DIR commissioned with employers’ monies, found that current liabilities were $7.9 billion for claims resolved before May 2023.
DIR officials kept the report and its findings secret until the Workers’ Comp Executive forced its release through the public records act.
The $7.9 billion figure was the researchers’ best estimate of the outstanding liabilities, but costs could be as high as $10.5 billion or as low as $6.4 billion. The thousands of claims resolved since May 2023 are not included in the totals. Overwhelmingly, the SIBTF claims that resolve with benefits being owed are resulting in awards of 100% permanent total disability. The study revealed that claims for 100% PTD cost four times as much as a claim with a 99% award — $938,000 compared to $230,000.
It was a 2020 Workers’ Compensation Appeals Board decision that is driving much of the increase in costs. The decision changed the methodology for calculating the combined disability of the subsequent injury and the original, preexisting disability. Instead of using the combined values chart as is done in standard workers’ comp claims involving multiple body parts, the WCAB held that simple addition of the impairment ratings is sufficient. The change led to over 80% of all cases that resolve with benefits having combined disability ratings of 100%, the researchers found.
Fight Over Fraud Funds
The California Department of Insurance’s fraud division surprised the state’s district attorneys when it sought a realignment in how the anti-fraud funds that California employers supply are split. The funds have historically been split 60/40, with the DAs taking the larger half.
The Department made the move after the DAs failed to spend $8.8 million of the roughly $50 million they were awarded the prior year. The unspent funds amounted to 17% of the total funds they had received.
The Fraud Assessment Commission approved a one-time realignment to split the funding between the DAs and the Department at 53% and 47%. However, the realignment issue is back again this year (see related item).
Guilty Verdict In MEWA Case
Five years after a federal indictment and nearly eight years after the California Department of Insurance issued its first cease and desist order against an illegal workers’ comp program, a federal jury decided guilty verdicts against the company, its founder, and its head of finance were appropriate. Founder Marcus Asay was convicted on all 18 felony counts filed against him, as was the company – Agricultural Contracting Services Association, and its alter ego, American Labor Alliance. Finance head Antonio Gastelum was convicted on three felony counts.
The scheme sold a purported alternative to workers’ compensation insurance that it claimed was exempt from oversight by the Department. The program was marketed as CompOneUSA and later as CompassPilot and did not meet the statutory requirements of Labor Code section 3700.
The federal convictions against all three included mail fraud. Asay was also convicted of money laundering and wire fraud. Asay is due to stand trial in a separate income tax and Social Security disability fraud case later this year. Asay and Gastelum have challenged their convictions (see related item).
Applied Underwriters’ Calif Ins Co Rehab
Another long-running legal case resulted in a decision last year, but the losing party—Applied Underwriters and its California Insurance Company subsidiary—is also challenging it. A San Mateo Superior Court judge issued a decision approving the California Department of Insurance Conservation and Liquidation Office’s rehabilitation plan for CIC. But Applied Underwriters and its subsidiary, as usual, are going full scorched earth.
State officials first obtained a court order to put CIC into conservation in November 2019 as Applied Underwriters was attempting to move the carrier to New Mexico without Insurance Commissioner Ricardo Lara’s approval. Legal battles ensued in numerous state and federal courts.
The approved plan sets the stage for kicking CIC out of the state, but not until after resolving ongoing litigation concerning its EquityComp program with dozens of California employers and removing claims from Applied’s control. The plan includes three options for settling the policyholder litigation. The rehabilitation plan also envisions an auction to allow an admitted, unaffiliated insurer to assume for fair market value CIC’s in-force California policies and reinsure the liabilities under the expired California policies. If no independent carriers are interested, the plan calls for a transfer to an affiliated insurer, with control over claims given to an independent third-party administrator.
The San Mateo court rejected Applied’s request to reconsider its decision. Briefing is now underway in Applied’s appeal of the decision with California’s First District Court of Appeal.
Staffing Industry Bust
Federal officials scored a major victory when they secured a conviction against the head of the BaronHR staffing empire, and a state case is still waiting in the wings. Luis E. Perez reached a plea agreement on federal tax evasion charges. He cheated the federal government out of nearly $30 million in taxes, penalties, and interest, and he helped his staffing companies avoid another $30 million in tax liabilities.
The federal case dated back to 2018, which included an indictment for allegedly evading $29 million in payroll taxes. A second superseding indictment followed in 2021, adding charges that he failed to report another $29.6 million in payroll taxes while under indictment for the first charges. Perez operated a number of companies formerly doing business as:
- Checkmate Staffing
- BaronHR
- Legendary Staffing
- Staffaide
- Staffcore Intelligent Solutions
- Staffstore Enterprises, and
- Fortress Holding Group
- The still-pending state charges by the Orange County District Attorney predate the federal cases and are now getting underway. Pre-trial hearings are slated for later this month.
The state case alleges that Perez continued to operate BaronHR without workers’ comp coverage beginning in July 2013. The District Attorney alleges that Perez worked with associates to shift liability for claims that arose after the policy lapsed to the workers’ comp carrier for Titan Personnel Inc. – a staffing company formed by BaronHR’s former director of safety Scott Wesley Smith. They allegedly claimed that the injured workers were Titan’s employees. The case also includes charges that Perez failed to report wages to the Employment Development Department, withhold payroll taxes, or pay employment taxes for three dozen workers.
AB 5 Litigation
State and federal courts continued to deal with the legal fallout from the 2019 passage of AB 5 and the subsequent passage by voters of Proposition 22 to exempt some gig economy companies from the legislation. The bill codified and expanded the California Supreme Court’s Dynamex decision adopting the ABC test for classifying workers as employees or independent contractors.
The federal district court for the Southern District of California rejected a bid by California’s trucking industry to block state enforcement of the ABC test on the relationship between owner-operator drivers and trucking companies. Enforcement was stayed under an earlier injunction, but that was overturned by the Ninth Circuit Court of Appeal, which returned the case to the lower court.
The Ninth Circuit did grant a request for an en banc review in another case filed by Uber, Postmates, and two of their drivers. It challenged the basis of the law granting exemptions to some industries but not others. California Attorney General Rob Bonta requested the en banc review after the Ninth Circuit issued an earlier decision reinstating the equal protection clause challenge. The full panel, however, ruled that the district court properly dismissed the gig economy companies’ equal protection challenge. The Ninth Circuit held that the Legislature had plausible reasons for granting exemptions to some industries but not to others.
The California Supreme Court also ruled on the constitutionality of Proposition 22. The voter-backed initiative carved out an exemption from the ABC test for app-based delivery drivers. State officials maintained that the proposition infringed on the Legislature’s plenary power to create a complete system for workers’ compensation. The Supreme Court found no constitutional violations and upheld the proposition.
The United States Supreme Court later rejected two different challenges to AB 5 filed by gig economy companies. The move cleared the way for AG Bonta, Labor Commissioner Lilia Garcia-Brower, and several local city attorneys to enforce California wage and hour laws on ridesharing companies from the time AB 5 passed until Proposition 22 took effect. SCOTUS also refused to take up the equal protection clause claims that the Ninth Circuit rejected in finding that AB 5 was constitutional.
WCAB Cases
The Workers’ Compensation Appeals Board suffered multiple defeats in the courts over its tardy handling of some petitions for reconsideration. The WCAB is challenging one of the decisions that rejected the notion that equitable tolling could extend the 60-day statutory deadline in certain circumstances and the California Supreme Court agreed to take up the petition (see related story).
The Second District held that a petition for reconsideration is deemed denied if the WCAB doesn’t act on it within 60 days. The decision came in a case filed by Zurich American Insurance Company challenging the board’s decision to grant a timely-filed petition well after the 60 days allowed by Labor Code section 5909 had run out.
The WCAB responded by issuing a significant panel decision outright challenging the Second District’s findings. The board maintained that it would continue acting on petitions for reconsideration outside the 60-day statutory deadline as long as the petitions were filed in a timely manner and the delay was due to an administrative irregularity.
The First District Court of Appeal then weighed in on the dispute, issuing a decision in August reaffirming that the WCAB has only 60 days to act on a petition. Failure to do so means the petition is deemed denied. The court rejected the board’s argument that equitable tolling should extend the timeline because it was unaware of the petition until after the 60 days to act had already lapsed. The Supreme Court will review arguments in the Mayor v. WCAB/Ross Valley Sanitation District case later this year.