IR #98-34
Tuesday, September 1, 1998

Rick Rice
(415) 972-8835
Richard Stephens
(415) 975-0721

DWC Audit Procedures Upheld by Court

SAN FRANCISCO --State auditors will continue to have access to workers' compensation claims files maintained by claims administers without having to subpoena them as a result of a decision by the San Francisco Superior Court, the Department of Industrial Relations has announced.

"This is an important legal victory for the Division of Workers' Compensation's audit program and good news for California's employees and employers," said DWC's Deputy Administrative Director Peggy Sugarman.

"DWC audits files at claims adjusting locations to ensure that injured workers and their families are being properly compensated for industrial injuries," she said. "Employers also need to know that their insurance carrier is properly complying with state requirements in administering claims filed by their workers," she noted.

In this case, auditors were investigating allegations that Fremont Compensation Insurance Group had illegally falsified dates on benefit notices to injured workers, backdated checks to avoid paying penalties, and altered medical bills and invoices at several of its adjusting locations, including San Francisco, Glendale, and Fresno.

In June, 1998, the company abruptly denied DWC further access to claims files and filed a lawsuit in San Francisco Superior Court, requesting the court to require the agency to obtain a subpoena before releasing records to auditors.

In his opinion denying the preliminary injunction, Judge Raymond D. Williamson, Jr. found that: "The procedures used by DWC to audit and investigate Fremont are clearly constitutional on their face and as applied." At a later point he added that if a preliminary injunction were to be issued, "it is clear that the Audit Unit would be prevented from carrying out its legislative ensure payment of compensation to injured workers."

"This action will allow the audit program to continue to do its job," said Sugarman. "The audit program is a critical element in the state's efforts to ensure that all parties in the workers' compensation system are carrying out their responsibilities as mandated by law and plays a major role in the state's anti-fraud efforts."

The court order denying the preliminary injuction is Fremont Compensation Insurance Group v. Department of Industrial Relations, et al, San Francisco Superior Court Case No. 996193, filed Aug. 20, 1998.

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