By Jack Jacobsmeyer
In one of the most anticipated appellate decisions of 2018, the California Supreme Court has reversed the Court of Appeal decision in King v CompPartners. The Court determined the Labor Code’s exclusive remedy provisions limit an employee’s ability to proceed outside the W.C.A.B for injuries alleged to have occurred as a result of the utilization review process. In doing so, the Court extended the employer’s exclusive remedy protections to entities providing statutorily required services on behalf of the employer.
This case arises out of a civil action filed by the Applicant, Kirk King, in a WC case whose medication (Klonopin) was not certified for continued use by a UR physician. The medication, which had previously been authorized, was terminated abruptly and King suffered 4 seizures with significant ongoing difficulties. King filed a civil action against the UR vendor, CompPartners and the UR physician, Dr. Sharma. King asserted the abrupt termination of Klonopin, without a warning that weaning of the medication was medically indicated, was negligent. He alleged the failure to provide weaning of the medication resulted in his seizures. King pleaded claims of negligence, professional negligence and intentional and negligent infliction of emotional distress as well as loss of consortium.
The trial court sustained defendants’ demurrer on the basis of exclusive remedy for both defendants and lack of a duty of care on the part of Dr. Sharma and further denied plaintiffs’ leave to amend.
The Court of Appeal affirmed the order sustaining the demurrer, agreeing the exclusive remedy protected defendants’ conduct in decertifying the medication. However, the appellate court viewed the failure to provide a warning as to the risks of abrupt termination of the medication as a separate act and not part of the UR process. That Court further concluded Dr. Sharma owed a duty of care to applicant but the scope of the duty of care could not be determined based on the information provided. The lower court noted the existence of a duty of care does not mean a physician is required to exercise the same degree of skill in every circumstance. The Court therefore suggested a case by case approach to evaluation of the physician’s obligation to exercise due care. The Appellate Court therefore upheld the demurrer to the complaint as filed, but granted leave to amend the complaint to establish a basis for breach of Dr. Sharma’s duty of care.
The Supreme Court however viewed the entire process for review of medical necessity as being part of the same continuum. Citing Vacanti v SCIF, the Court indicated even collateral matters, which were derivative of workers’ compensation claims, fell under the exclusive remedy provisions of Labor Code 3600. The Court pointed out:
“And where the remedy is available as an element of the compensation bargain it is exclusive of any other remedy to which the worker might otherwise be entitled from the employer: “The employer’s compensation obligation is ‘in lieu of any other liability whatsoever to any person.’ ”[citations omitted]
These established principles lead to a straightforward answer here. The Kings seek to recover for injuries that arose during the treatment of King’s industrial injury and in the course of the workers’ compensation claims process. Because the Kings allege injuries that are derivative of a compensable workplace injury, their claims fall within the scope of the workers’ compensation bargain and are therefore compensable within the workers’ compensation system.”
Turning to the lower court’s analysis of Dr. Sharma’s liability based on the failure to warn, the Supreme Court found the reliance on Vacanti’s discussion of injuries arising outside the employment relationship was misplaced. The Supreme Court found the ability to proceed outside the workers’ compensation act as more restrictive where there is a direct relationship between the conduct alleged to be causative of the injury and the employment relationship:
“This case presents no comparable circumstances. Certainly King, like the plaintiff in Weinstein, seeks recovery for injuries following his initial industrial injury. But unlike the injuries at issue in Weinstein, King’s injuries occurred within the scope of the employment relationship: King alleges the injuries resulted from errors in the utilization review process—a process that King’s employer, in its capacity as an employer, was required to establish for the review of the treatment recommended for King’s prior industrial injury. (See Lab. Code, § 4610.)”
The Supreme Court also rejected plaintiffs’ arguments that the UR vendor was not entitled to same protection under Labor Code 3600 as the employer.
“But as the Kings acknowledge, it has long been held that workers’ compensation exclusivity preempts tort claims against certain other persons and entities as well: insurers, as “the ‘alter ego’ of the employer” (see Unruh v. Truck Insurance Exchange (1972) 7 Cal.3d 616, 625 (Unruh)) and independent claims administrators and adjusters hired by self-insured employers to handle workers’ compensation claims (Marsh & McLennan, Inc. v. Superior Court (1989) 49 Cal.3d 1, 4 (Marsh)). The question is whether the WCA, properly interpreted, also preempts tort claims against utilization reviewers hired by employers to carry out their statutory claims processing functions. Viewing the question against the backdrop of our precedents, we conclude the answer is yes.
Perhaps most importantly, in performing their statutory functions, utilization reviewers, much like independent claims administrators, effectively stand in the shoes of employers: they perform utilization review on behalf of employers, to discharge the employers’ own responsibilities to their employees. Indeed, as the statute acknowledges, the utilization review function can be performed by the employer itself, as well as by the insurer or by an independent entity with which the employer or insurer contracts. (Lab. Code, § 4610, former subd. (b), now subd. (g).) The statute contains no suggestion that claims arising from the utilization review process should be treated differently depending on whether the employer conducts the review in-house or instead contracts with an independent utilization review organization. To the contrary, Labor Code section 4610.5—which sets out the procedures for resolving “[a]ny dispute over a utilization review decision” (id., § 4610.5, subd. (a))—expressly defines the term “employer” for that purpose to include the “employer, the insurer of an insured employer, a claims administrator, or a utilization review organization, or other entity acting on behalf of any of them.” (Id., § 4610.5, subd. (c)(4), italics added.) This special definitional provision tends to reinforce the conclusion that the Legislature regards utilization review organizations, like claims administrators, as acting on behalf of the employers that contracted for their services.”
The Court upheld the demurrer indicating the complaint failed to state a cause of action. It also reversed the lower appellate court ruling allowing leave to amend, finding it was not possible to state additional facts which would allow the matter to proceed in the face of the exclusive remedy provisions of Labor Code 3600.
There were two concurring opinions which were published in this case; both agreeing with the unanimous decision of the Court but both expressing concerns that Utilization Review might not be “working as the legislature intended”. Justice Liu suggested the legislature might wish to revisit the issue of whether existing safeguards (essentially the IMR and Audit processes) provided sufficient incentives for competent and careful UR. Justice Cuellar pointed out common law remedies are in place to provide protection to the public and remedy for wrongs. While making it clear the majority opinion properly determines such common law remedies do not apply in the exclusive remedy arena, the importance of the preventative and remedial purposes of common law remedies is suggested as a potential reason for the legislature to review whether the current statutory and regulatory safeguards, incentives and remedies are “set at optimal levels”
Comments and Conclusions:
Needless to say, the initial Court of Appeal opinion caused a significant level of anxiety in the employer/carrier/UR communities. More than just the potential for civil liability for UR vendors and physicians, the potential for opening the door to further erosion of the exclusive remedy was also a concern. The impact on availability of quality physicians to provide UR services was also very much a concern. The Supreme Court’s unanimous decision validating the exclusive remedy is certainly a welcome relief on those issues.
However, as noted by Justice Liu, there is a reason for common law remedies; one of which is to provide incentives for change in conduct where there is a potential for causing harm. The Court of Appeal decision, even though there had been a Supreme Court grant, did have a significant beneficial effect for the reason expressed in that concurring opinion. Virtually every UR vendor with whom I am familiar, including several to whom I provide consulting services, initiated changes in their procedures for medication denials. The UR vendors took steps to require consideration of weaning where there was a potential for withdrawal symptoms or consequences. Many implemented special procedures for communicating with treating physicians to establish a weaning protocol before terminating medication. In this respect the decision, even though now reversed, has already had the beneficial impact suggested by Justice Liu.
A copy of the decision is attached here.
1. For those not familiar with civil proceedings, a demurrer is a response to a complaint which raises the issue of whether there is a proper cause of action stated in the pleading. In that proceeding, defendant argues even if all of the facts alleged by plaintiff were true, the complaint did not state a cause of action. In appellate proceedings, the Court will assume all of the facts in the complaint are true in deciding if there is a properly stated cause of action. This case, like many appellate cases, was argued on just whether the pleadings were sufficient to proceed. No actual evidence was presented and not showing of negligence had yet been made.↩
Jake Jacobsmeyer is a name partner in the Oakland firm of Shaw, Jacobsmeyer, Crain & Claffey. He can be reached at firstname.lastname@example.org.
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