Employers and Injured Workers At Serious Risk…

CDI & DIR Ineffective in the Face of Unlicensed MEWA

The California Department of Insurance filed earlier this year for a $3.4 million penalty against American Labor Alliance for selling illegal workers’ comp “coverage” without a license and in violation of multiple cease and desist orders. And it argues that the penalties should continue to accrue at a rate of $5,000 per day up through the time they are actually assessed.

The MEWA doesn’t seem to care, hasn’t paid and remains operational in one name or another. And why should it?  Neither CDI nor the Department of Industrial Relations has acted to either shut it down or shut down the several hundred employers operating without legal workers’ comp insurance. The Department of Industrial Relations is obligated to shut down employers without valid workers’ comp insurance and failed to do so despite knowing who they are.

The potential penalty is now over $4.3 million and growing as CDI alleges that the original illegal operations are continuing albeit under a different name.

Before it was American Labor Alliance and its CompOneUSA program and now the department says it is Omega Community Labor Association selling the same types of “coverage” – still without a license. Both organizations claim to be offering benefits that are exempt from state regulation which a state administrative law judge ruled is untrue.

The case is now in the penalty phase. Moreover, the MEWA is still ignoring CDI officials.

“The evidence shows that ALA ignored the Commissioner’s Order and merely changed its name to avoid the penalties. ALA continues operating in violation of the Commissioner’s Order,” argues CDI attorney Tiffany Toy in a post-hearing brief in the case. “Moreover, ALA is subject to a penalty of $5,000 per day starting from the date of the earliest illegal act until the date that the illegal acts are proven by the Respondents to be discontinued. Respondents have provided no evidence that the acts have discontinued. Therefore, the penalty calculation should continue until at least the date of the Order assessing the penalty.”

CDI maintains that Marcus Asay created both organizations and notes that Omega became operational at the time the Department’s decision against ALA was coming down. Both organizations share the same address and Omega took over ALA’s clients, the Department says.

According to independent legal experts, employers operating without statutory workers’ comp coverage likely do not have the protection of California’s sole and exclusive remedy law. Injured workers, therefore, could bring damages cases against employers asserting all sorts of claims such as negligence. Such complaints from employees are excluded from all Commercial General Liability policies, according to experienced brokers.

The MEWA admitted in an exclusive interview with Workers’ Comp Executive that it is paying claims out of cash flow and has no reserves, reinsurance, or excess coverage.

Deliberate Effort

“The evidence shows that upon learning that Respondent ALA might be subject to CDI regulation, Respondent Asay began a conscious and deliberate effort to adopt an operational name change of the organization to Omega Community Labor Association,” CDI’s Toy notes. “However, the name was the only aspect of the company that he changed. Omega operated and continues to operate exactly as ALA did – this includes using the same officers, address, fax number and business model.”

Charles Manock, counsel for American Labor Alliance and Marcus Asay, argues in his post-hearing brief that there can be no monetary penalty against his clients because the penalty provisions in the Insurance Code are unconstitutional. In the next sentence though he argues for “no penalty (or a very small penalty, at best)” maintaining that the Department failed to prove the unauthorized acts occurred.

The brief also raises the argument that there has been no evidence to show that either Asay or ALA could pay a multi-million penalty – a claim that did not go unnoticed by the Department.

“Respondents claim that this penalty will bankrupt them. But that is one of the very concerns the Department had when it issued the underlying Cease and Desist order against Respondents,” Toy notes in a response brief. She points out that a major piece of ALA’s business was covering farmworkers who toil in dangerous conditions that can lead to serious accidents with the need for lifelong medical care. “As a result, ALA’s liabilities and claim exposure could add up to an amount far greater than any CDI penalty can ever amount to. If this penalty would bankrupt ALA, then it appears the Department’s concerns were well-founded,” she maintained.

ALA through Manock also took aim at another Department allegation – that ALA and Omega are the same organization. “The status of Omega as a separate legal entity cannot be ignored in this case for the most basic of reasons – there is no evidence that ALA or Mr. Asay have any ownership interest of any kind in Omega,” he argues.

The issue is currently in the hands of the administrative law judge, and if the Department is correct, the penalty continues to accrue at the pace of $5,000 per day. The final penalty, however, may ultimately prove unrecoverable.

In the meantime, there are an estimated 300 employers with 7,000 workers operating in high-risk industries with workers’ comp coverage that the Department says is illegal and that the Department of Industrial Relations will not accept as valid coverage.

The Department issued its cease and desist order nearly two years ago with no material effect on the program. The Federal Bureau of Investigations raided the corporate offices of ALA over a year ago which are the same offices Omega began using upon its formation. Such is the current state of California’s workers’ comp oversight and enforcement.

The real questions remaining are those revolving around the unwillingness or inability of either CDI or DIR to take action against the MEWA and to protect innocent workers by shutting down employers who have illegal workers comp plans.