American Labor Alliance and its founder Marcus Asay are being fined $3.4 million for selling bogus workers’ comp “coverage” without a license in defiance of multiple cease and desist orders from the California Department of Insurance. But indications are that the very activities the Department deemed to be illegal and ordered stopped are continuing.
Employers being sold this stuff are continuing to put themselves and their employees at risk.
ALA and Asay were on the losing end of a precedential decision last fall that rejected each of their legal arguments as to why they should not be subject to California insurance laws. California Department of Insurance assistant chief counsel Teresa Campbell successfully prosecuted the earlier case. She is now seeking penalties under Insurance Code section 12921.8(a). The penalties are based on a daily $5,000 fine for each day they violated state law.
The fines are for continuing to solicit, market, sell and issue insurance certificates to employers and agents without a license, and for selling “policies” both Departments say are illegal. Department of Industrial Relations and the state Labor Commissioner announced last November that they do not accept certs issued by ALA or its CompOne USA program.
According to independent legal experts, employers operating without statutory workers’ comp coverage may 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.
ALA claimed to be an “entity claiming exemption” (ECE) that under the Federal Employee Retirement Income Security Act (ERISA) rules was exempt from state regulation as a multiple employer welfare arrangement or MEWA. Officials testified that they were selling workers’ comp benefits, not insurance, but then issued standard insurance industry certificates of liability coverage. In some cases, it even issued certificates to employers that listed insurance policy numbers that were for policies ALA purchased for itself from admitted carriers, according to the Department.
Still Selling “Coverage”
In the past, ALA did business as CompOne USA and is also known as Agricultural Contracting Services Association. As recently as last month, however, Asay told this publication that “in terms of us writing business with CompOne that is not happening any more” before declining to answer any more questions.
This statement appears to be correct, but it is far from the whole story.
Evidence produced by the Department indicates that ALA just switched to writing business into a program called Compass Pilot which on its face claims to be the exact same sort of program that the Department found to be illegal. Compass Pilot is marketed as an ERISA benefit program of Omega Community Labor Association which in turn is linked to Omega Community Labor Union.
State records indicate that Marcus Asay registered Omega Community Labor Union with the California Secretary of State last summer. It is registered at the same address as American Labor Alliance. Marketing materials for the Compass Pilot program claim that it belongs to this union. A search of the Federal databases returned no hits for this union.
Marketing materials for Omega Community Labor Association state that it is a non-profit, tax-exempt labor organization – a 501(c)(5). Workers’ Comp Executive has been unable to locate any financial records for this entity, and a search of the Internal Revenue Service’s exempt organization database also produced no hits.
Attempted Coup d’état
Workers’ Comp Executive also obtained an e-mail from Asay to members in the organization alleging that other officials in American Labor Alliance and individuals connected to it and the LiBu marketing arm had attempted a palace coup of sorts. The lengthy, rambling message levied allegations against at least a half-dozen individuals and included claims that $500,000 had been embezzled from American Labor Alliance. Other claims alleged theft of trade secrets and data.
During the lengthy CDI hearing it became clear that ALA’s workers’ comp program was never capitalized from the outset and, as Asay told Workers’ Comp Executive early on, it was paying claims from cash flow. Company officials testified that the organization did not maintain individual case reserves and that it did not carry any excess or reinsurance. If the alleged embezzlement did in fact occur, what impact this would have on ALA’s ability to pay claims is unknown.