MEWA Still Operating Despite CDI Efforts

It’s now been nearly three years since the first cease and desist order to shut down a purported alternative to workers’ comp insurance, a MEWA – Multiple Employer Welfare Arrangement. California Department of Insurance officials are no closer to shutting it down today than they were then.

At least three cease and desist orders have been issued, $4.3 million in fines levied, all ignored. Even Federal charges against two key players have been filed, the players arrested, and yet nearly 200 employers with some 6,000 workers are still operating with coverage that officials say is bogus.

California law permits only three sources of workers cop coverage, A carrier approved by the CDI, a licensed single stand-alone self-insurer, or a licensed Self-Insured Group. MEWAs are not permitted. In any event, the United States Department of Labor has provided evidence indicating this MEWA does not meet its requirements.

The California Department of Industrial Relations Division of Labor Standards Enforcement has – despite having the list of employers using the MEWA – refused to shut down the affected employers.

Omega Community Labor Union, which CDI finds to be the alter ego of American Labor Alliance, continues to market a product called Compass Pilot in spite of a January 23, 2019, cease and desist order (for past coverage see Another Cease…). Omega claims that Compass Pilot supplants workers’ comp insurance requirements with ERISA benefits. It was in a CDI hearing room earlier this month challenging the order and will be back again next month after its CEO William Flores ignored a notice to appear and skipped the hearing.

CDI officials named Flores in its witness list and delivered the list to Omega attorney Charles Manock at least ten days before the evidentiary hearing, which under state rules holds the same weight as a subpoena. CDI officers also attempted to serve a formal subpoena on Flores at the residence he has listed with the California DMV. The person who answered the door confirmed that Flores lived there but told investigator Thomas Johnson that he was away on vacation, according to Johnson. Flores was still a no show.

Who’s The Boss?

At the hearing, Omega and Manock attempted to tell a different story when chief administrative law judge Kristin Rosi demanded to know why Flores was not in her hearing room. “Failure to be here is contempt and sanctionable,” ALJ Rosi reminded him.

Manock, however, claimed that Flores now resides in Texas and is no longer the CEO of Omega and hadn’t been for some time. ALJ Rosi pointed out that there had been no notice from the defense before the hearing of any change in Omega’s leadership. Additionally, Rosi noted that she had specifically asked for a list of Omega’s officers and directors before the hearing to avoid this confusion.

“The response I got from [Mr. Manock] was we don’t have a list of board of trustees or officers,” noted ALJ Rosi in an exchange with Antonio Gastelum who handles finances and logistics for Omega as he did for ALA (see photo). “Of course, you know this is nonsense because that information would need to be filed with federal and state agencies.”

Gastelum is under federal indictment along with Marcus Asay for his prior involvement with American Labor Alliance.

Blah Blah Blah

The defense attempted to prove that Flores was no longer the CEO by calling up the statement of information on file with the Secretary of State for Omega Community Labor Union. Manock noted that the latest statement of information in the evidentiary record was out of date and told the court that the online version would show that Mr. Flores was no longer the CEO. It didn’t.

Clearly flustered, Manock shifted gears and claimed that the Secretary of State information had not been updated due to some oversight but maintained that there is a resolution by Omega’s board that would prove that Flores was removed as CEO in late April. The document produced to support the contention, however, was a board resolution to adopt “changes in Board Officers and Trustees”  –– not a change in CEOs.

Flores was listed as a Trustee, but there was no mention of any change in the corporate officers or any mention of the CEO position at all.

And even if the document were to show what Manock claimed it did, ALJ Rosi noted that it would not be sufficient as a quorum vote by the board of trustees would not meet the legal requirements outlined in Omega’s constitution and bylaws for making a change in the CEO position.

Additionally, CDI counsel Teresa Campbell noted that a form filed with federal labor officials on May 20, 2019 – nearly a month after Omega’s counsel said Flores was removed as CEO – also listed Flores as Omega’s CEO.

With all signs pointing to the fact that Flores was and is CEO of Omega, ALJ Rosi ordered the defense to produce him for a second day of hearings to be held in early October.

“So my hope, and I can put this in the kind of hope that’s in subpoena form, my hope is that Mr. Flores is here [for the next hearing] as somebody who can speak to these collective bargaining agreement negotiations or at least to the signatures and how these things get signed because he, in fact, is the person on both of the collective bargaining agreements I have in front of me,” noted ALJ Rosi. “So, I’d like to see Mr. Flores here, and I’ll do what I have to do to get Mr. Flores here.”

It was originally expected that a single day of evidentiary hearings would be enough, but Mr. Flores’ absence made it impossible to conclude the proceedings in one day.

Questionable Certs

Beyond the sometimes-comical exchanges over Flores role at Omega, the hearing did produce some interesting revelations about Omega’s operations and how it conducts business. Of particular interest are the certs Omega issues to employers, including in some instances staffing companies.

The certs at first glance look like a typical ACORD Certificates of Liability Insurance, but a closer inspection reveals that they’ve been reformatted to remove any reference to insurance. Instead of an ACORD Certificates of Liability Insurance, Omega is issuing a “Certificate of Liability Coverage.” And where a typical cert lists Insurer A, Insurer B, and Insurer C, Omega’s certs list Issuer A, Issuer B, and Issuer C.

By their reaction, CDI officials appeared to have been unaware of the differences between Omega’s certs and a typical ACORD cert until the differences were pointed out during testimony.

Omega’s Gastelum says the changes were intentional and made in response to the state’s case against ALA. He noted that ALA was faulted for using a standard ACORD form for its program since in mentioned insurance, so Omega set out to create a new form without those references.

While on the stand, Gastelum also testified that Omega had signed agreements with 183 employers and the organization is currently providing coverage to around 6,000 workers. Gastelum says Omega, which took on the liabilities of ALA, has about $750,000 in its “claims trust” and typically has about $250,000 in other assets at any given time. He testified that Omega has applied for reinsurance but at this time does not have any.

Additional details should be forthcoming next month. That is if anyone shows up to testify.