Does CIGA Have to Pay Medical Providers When They’re “Assigned” to a Collection Company?
There has been a great deal of litigation as to when CIGA is responsible for payment of benefits after taking over from an insolvent insurer. Now, with a recent panel decision, a question that has arisen is: When a medical provider assigns its rights and title to a collection account, is CIGA responsible for payment of that “assigned claim”?
Purpose of CIGA in regards to paying benefits from an insolvent insurer
California Insurance Guarantee Associations’ (CIGA) general purpose is to pay the obligations of an insolvent insurer. When an insurance company becomes insolvent, CIGA takes over the claim and pays benefits that the insolvent insurance carrier was obligated to pay, which includes medical liens.
CIGA primarily receives it funding from Member Insurers, distributions from the estates of insolvent Member Insurers, and investment income.
While CIGA's general purpose is to pay the obligations of an insolvent insurer, it is not itself an insurer. (R. J. Reynolds Co. v. California Ins. Guarantee Assn., supra, 235 Cal.App.3d at p. 600.) ''CIGA is not in the 'business' of insurance . . . . CIGA issues no policies, collects no premiums, makes no profits, and assumes no contractual obligations to the insureds.'' (Isaacson v. California Ins. Guarantee Assn., supra, 44 Cal.3d at p. 787.) Rather, it is authorized by statute to pay only covered claims of an insolvent insurer, those determined by the Legislature to be in keeping with the goal of providing protection for the insured public. (R. J. Reynolds Co. v. California Ins. Guarantee Assn., supra, at p. 600.)
What is a “covered claim” that makes CIGA liable when it takes over an insolvent insurer?
An issue to be resolved is whether the payment sought is for a “covered claim”.
Insurance Code section 1063.1, subdivision (c)(9) provides: “ ‘Covered claims’ does not include (i) any claim to the extent it is covered by any other insurance … nor (ii) any claim by any person other than the original claimant under the insurance policy in his or her own name … and does not include any claim asserted by an assignee or one claiming by right of subrogation, except as otherwise provided in this chapter.”
California Ins. Guarantee Assn. v. Workers' Comp. Appeals Bd., 153 Cal. App. 4th 524, 62 Cal. Rptr. 3d 855, 2007 Cal. App. LEXIS 1196, 72 Cal. Comp. Cas. 910 (Cal. App. 2d Dist. 2007)
“As is relevant here, a “covered claim” means “(1) … the obligations of an insolvent insurer, including the obligation … (i) imposed by law and within the coverage of an insurance policy of the insolvent insurer; (ii) which were unpaid by the insolvent insurer; … (iv) which were incurred prior to the date coverage under the policy terminated … (vi) in the case of a policy of workers' compensation insurance, to provide workers' compensation benefits under the workers' compensation law of this state … .” (Ins. Code, § 1063.1, subd. (c)(1).)”
Woodliff v. California Ins. Guarantee Assn., 110 Cal. App. 4th 1690, 3 Cal. Rptr. 3d 1, 2003 Cal. App. LEXIS 1207, 2003 Cal. Daily Op. Service 7076 (Cal. App. 2d Dist. 2006)
In regard to the requirement that a “covered claim” be “within the coverage of the insurance policy of the insolvent insurer,” we concluded the latter phrase “to mean within the risks of loss protected against by an insurance policy. Thus the reading of the pertinent portion of subdivision (c)(1) would be: the obligations of an insolvent insurer within the risks of loss protected against by an insurance policy of the insolvent insurer.”
Subdivision (c)(1) of Insurance Code section 1063.1 defines the term “covered claim” to include, “in the case of a policy of workers’ compensation insurance,” “the obligations of an insolvent insurer … to provide workers’ compensation benefits under the workers’ compensation law of this state.”
However, recently CIGA has attempted to claim the defense that an assignment of a claim from the original provider is a basis for not paying medical provider liens. According to CIGA an assignment relieves them of their responsibility to pay medical providers claims against insolvent Workers’ Compensations Carriers that have been taken over by CIGA.
There are several appellate cases that address the issue of when CIGA is responsible for covered claims. This includes, but is not limited to, another solvent insurance carrier, whether fully liable, partially, liable, or mistakenly pays the claimed benefits. In such instances, CIGA is not responsible for payment or indemnification of those claims.
Furthermore, in the case of California Ins. Guarantee Assn. v. Workers' Comp. Appeals Bd., 153 Cal. App. 4th 524, 62 Cal. Rptr. 3d 855, 2007 Cal. App. LEXIS 1196, 72 Cal. Comp. Cas. (MB) 910 (Cal. App. 2d Dist. 2007)
“The Legislature did not intend CIGA to defray or diminish the responsibility of other carriers. Because other insurance was available, and the insurers were jointly and severally liable to satisfy the employer's responsibility to the worker, CIGA had no liability for any portion of the award. (Garcia, supra, 60 Cal.App.4th at p. 559.) Even if Garcia had elected to proceed against only one of the solvent insurers for all his benefits, that insurer would have been obligated to pay the entire award and could not institute proceedings against CIGA for contribution.”
California Ins. Guarantee Assn. v. Workers' Comp. Appeals Bd., 128 Cal. App. 4th 307, 26 Cal. Rptr. 3d 845, 2005 Cal. App. LEXIS 540, 70 Cal. Comp. Cas. (MB) 556, 2005 Cal. Daily Op. Service 3060, 2005 D.A.R. 4123 (Cal. App. 2d Dist. 2005)
“Under the unambiguous language of the statutory scheme, an original claimant can be any person (other than the insurer) instituting a liability claim within the coverage of the policy, provided that he or she does so in his or her own name and not through assignment or by right of subrogation.”
What does the recent panel decision in Licea mean?
Applicant Mirnia Licea, while employed as a laborer by Minson Corporation sustained injury, arising out of and in the course of employment to her back, right leg, right wrist, right hand and right hip. At the time of the injury, the employer’s workers’ compensation carrier was Phico Insurance Company. CIGA assumed the obligations of Phico Insurance which it became insolvent. The matter resolved by Compromise and Release for $70,000.00.
Missurian Orthopedic provided treatment to the applicant for charges in the amount of $39,354.07.
The Trial Judge’s Opinion and Recommendation on Petition for Reconsideration, which was incorporated into the Appeals Boards’ Denial of Petition for Reconsideration, held that “[KM Financial] did not establish any basis for reimbursement under the Guarantee Act and accordingly, its lien in the amount of $39,354.07 was correctly disallowed.’’
The Trial Judge relied on the case of Baxter Healthcare Corp v. California Insurance Guarantee Assn. (2000) 85 Cal. App. 4th 306, 314, wherein the Court held,
“The Guarantee Act excludes from coverage claims asserted by an assignee. That term is not defined or qualified by the act. It must be read in the context of the entire statute and given the meaning it bears in ordinary usage.”
It is unclear from the documents reviewed if KM Financial purchased the account of Missirian Orthopedic Medical Group (Missirian) or if they assigned KM Financial for collections (based on wording below it appears the account was purchased), as set forth in the Trial Judge’s recommendation and opinion;
“The Notice of Assignment is undated but indicates that Missirian “hereby assigns all title and thereby transfers, without recourse, to KM Financial Services, Inc. “Assignee” or “Buyer” all rights, title interest in the attached Medical Account Receivable’ KM in turn appointed Alliance Medical Billing and Collection Services as representative In Fact for the purpose of securing payment of Medical Bills. KM offered no evidence to refute this assignment. Thus the asserted claim here is clearly the claim of the assignee.”
In the language of Licea supra, the Judge states that the claim in the case was clearly a claim of assignee in that the provider transferred all interest in the claim without recourse, and, therefore, no dispute of an assignment for the purpose of relieving the original claimant has taken place and would be different if the claim had been assigned for collection purposes only with the original claimant retaining title and ownership interest.
The Guarantee Act, which created CIGA in 1969, requires CIGA to "pay and discharge covered claims and in connection therewith pay for or furnish loss adjustment services and defenses of claimants when required by policy provisions." (§ 1063.2, subd. (a).) The term "covered claims" means, "the obligations of an insolvent insurer, including the obligation for unearned premiums, (i) imposed by law and within the coverage of an insurance policy of the insolvent insurer; (ii) which were unpaid by the insolvent insurer; (iii) which are presented as a claim to the liquidator in this state or to the association on or before the last date fixed for the filing of claims in the domiciliary liquidating proceedings; (iv) which were incurred prior to the date coverage under the policy terminated and prior to, on, or within 30 days after the date the liquidator was appointed; (v) for which the assets of the insolvent insurer are insufficient to discharge in full; (vi) in the case of a policy of workers' compensation insurance, to provide workers' compensation benefits under the workers' compensation law of this state; and (vii) in the case of other classes of insurance if the claimant or insured is a resident of this state at the time of the insured occurrence, or the property from which the claim arises is permanently located in this state." (§ 1063.1, subd. (c)(1).)
Excluded from the definition of "covered claims" is "any claim by any person other than the original claimant under the insurance policy in his or her own name, . . . and . . . any claim asserted by an assignee . . . ." (§ 1063.1, subd. (c)(9)(ii).)
KM Financial in its petition for reconsideration cited two cases, the first of which is Richey v. Ziegler (1938) 89 Cal App. 35, in which the Court found that the award to the employee could be assigned legally to the assignee. However, the court dismissed the relevancy of the case as not addressing the Insurance Code 1063.1 issue of assignment.
The second case cited by KM Financial in its petition for reconsideration was the case of Burrow v. Pike (1987) 190 Cal. App. 3d 384, which held that the California Department of Transportation’s lien for workers’ compensation benefits was not excluded from the definition of a ‘covered claim” and found CIGA liable for reimbursement of benefits to the injured worker. However, the Court stated the case had no applicability as the case had to do with the employer failing to file a claim with CIGA regarding the obligations of a third party liability carrier.
It appears in Licea, supra, that the WCAB panel stated that an assigned claim cannot be brought forth against CIGA:
Subdivision (c)(1) of Insurance Code section 1063.1 defines the term “covered claim” to include, “in the case of a policy of workers’ compensation insurance,” “the obligations of an insolvent insurer … to provide workers’ compensation benefits under the workers’ compensation law of this state.”
Case research
In the workers’ compensation system, medical benefits are considered a covered claim, regardless of whether the provider is bringing forth the claim.
California Ins. Guarantee Assn. v. Workers' Comp. Appeals Bd., 136 Cal. App. 4th 1528, 39 Cal. Rptr. 3d 721, 2006 Cal. App. LEXIS 265, 71 Cal. Comp. Cas. (MB) 139, 2006 Cal. Daily Op. Service 1668, 2006 D.A.R. 2296 (Cal. App. 2d Dist.)
“CIGA's authority and liability in discharging ‘its statutorily circumscribed duties’ are limited to paying the amount of ‘covered claims.’ [Citations.]” ’ ” (California Insurance Guarantee Assn. v. Workers' Comp. Appeals Bd., supra, 112 Cal.App.4th at p. 363.) With certain exceptions, “covered claims” are “the obligations of an insolvent insurer” ’ (Ins. Code, § 1063.1, subd. (c)(1)), including the obligation “to provide workers compensation benefits under the workers' compensation law of this state.” (Ins. Code, § 1063.1, subd. (c)(1)(vi).)”
“With regard to the lien of St. Joseph's Hospital, the WCAB stated that reasonable charges for treatment that relate to Applicant's injury would constitute a ''covered claim'' within the meaning of Insurance Code § 1063.1.”
California Insurance Guarantee Assn. v. Workers' Compensation Appeals Bd. , 71 Cal. Comp. Cas. 808 (Cal. App. 1st Dist.2006)
“In addressing CIGA's contention that the WCJ erred in allowing the lien claim of EDD and in ordering CIGA to pay EDD, the WCAB observed that the parties stipulated at trial to defer all liens. The WCAB stated in relevant respects:
"Furthermore, we note that CIGA must generally pay and discharge the ''covered claims'' of an insolvent insurer. (Ins. Code § 1063.2.) However, ''covered claims'' do not include ''any obligations to any state'' government. (Ins. Code § 1063.1(c)(4).) EDD is a ''state'' agency for purposes of applying Insurance Code section 1063.1(c)(4) (Gov. Code, §§12800, 12803.)”
“In Viveros, supra, and in its companion case, Karaiskos v. Metagenics, Inc. (2002) 69 Cal.Comp.Cases 900 [Appeals Board en banc opinion], the Appeals Board en banc held that EDD's liens for UCD benefits are not obligations to the state and therefore are ''covered claims'' for which CIGA is responsible. We explained that when the Appeals Board finds CIGA or its insolvent carrier ''liable for compensation against which an EDD lien may be allowed, whether by Findings & Award, Stipulations & Award, or Order Approving Compromise & Release (OACR), the EDD lien is, in essence, an 'obligation' to the injured worker and not to the 'state.' '' Therefore, we concluded that Insurance Code section 1063.1(c)(4)] does not exclude EDD's liens from the definition of ''covered claims.'' (Italics added [by WCAB]).”
Black Diamond Asphalt, Inc. v. Superior Court, 114 Cal. App. 4th 109, 7 Cal. Rptr. 3d 466, 2003 Cal. App. LEXIS 1827, 2003 Cal. Daily Op. Service 10641, 2003 D.A.R. 13420 (Cal. App. 3d Dist. 2003)
Section 1063.1, subdivision (g), states a “claimant” includes “any insured making a first party claim or any person instituting a liability claim.” . . .Accordingly, the plaintiffs in this action are claimants within the meaning of laws applicable to CIGA since they assert liability claims under third party insurance.
The question must be asked: If it is the obligation of CIGA to pay the claims of the insolvent insurer, is there an obligation of the insolvent insurer to pay the medical bills? If the answer is yes, how could CIGA be relieved from the obligation to pay the medical benefits? If CIGA is not responsible for paying the medical benefits, then what is the purpose of CIGA?
It is understood that Licea supra was decided because the medical provider no longer retained any legal or financial interest in the claim based on the language of the assignment, and in this writers’ opinion, this may have been the justification for the decision.
Claim Assigned to Collection Agency
The question that remains unanswered in Licea supra is what happens when a claim is assigned to a collection company for collection purposes only, where the provider does not assign all right, title, and interest to the claim and is not substituting one claimant for another?
Under the language of the Insurance Code § 1063.1, an original claimant can be any person (other than the insurer) instituting a liability claim within the coverage of the policy, provided that he or she does so in his or her own name and not through assignment or by right of subrogation. As interpreted by the case cited below, subrogation and assignment of a claim is the passing of title of a cause of action. Therefore, when a party transfers a claim and or “assigns” a claim to a representative for the qualified and limited purpose to collect on an account in the name of the medical provider without transferring title, it is not excluded under Insurance Code § 1063.1 as not being a covered claim.
National Union Fire Ins. Co. of Pittsburgh, PA v. Cambridge Integrated Services Group, Inc., 171 Cal. App. 4th 35, 89 Cal. Rptr. 3d 473, 2009 Cal. App. LEXIS 170, 74 Cal. Comp. Cas. (MB) 184 (Cal. App. 1st Dist. 2009)
“Whether the transfer be technically called assignment or subrogation or equitable assignment or assignment by operation of law its ultimate effect is the same, to pass the title to a cause of action from one person to another.''
In Licea supra it can be seen that the title and rights to the claim was transferred to KM Financial, with the provider retaining no legal right to the claim of liability..
“The Notice of Assignment is undated but indicates that Missirian “hereby assigns all title and thereby transfers, without recourse, to KM Financial Services, Inc. “Assignee” or “Buyer” all rights, title interest in the attached Medical Account Receivable.”
One may argue that this is not a subrogated claim, however, because of the plain language of Insurance Code § 1063.1. It would be hard pressed, if not impossible, to show that the claim was not assigned, as the provider in this case no longer had any rights and/or claim against CIGA. Therefore, the ruling that the claim was not a covered claim seems justified at face value. In addition, as stated by the Trial Judge, KM Financial did not argue the issue of assignment.
Conclusion
This writer contends, even in the strictest interpretation of “Insurance Code § 1063.1, subd. (c)(9)(ii))”, the law does not limit the providers’ legal right to assign a claim to a Collection Company for collection purposes.
Due to the lack real clarity in Licea supra, we contend that the issue of assignment may cause additional litigation and force medical providers to once again rethink if practicing industrial medicine is financially feasible and viable.
Based upon the case law cited and from a practical standpoint, we contend that CIGA must pay when a claim is assigned for collection purposes only, but may have a valid defense under the Insurance Code if the original provider has divested itself of all interest in the claim.
This blog was written by Reid Steinfeld, Esq. and Richard J. Boggan, J.D.