Initial Statement of Reasons
Title 8, Chapter 8, Group 2
Article 9, Section 15400
Record Keeping and Audits

Specific Purpose

This proposal will clarify existing requirements that every self administering self insurer or its administrative agency shall maintain a complete up-to-date claim file for each self insured workers' compensation indemnity or medical only injuries occurring after January 1, 2004 . In addition, the proposal will require specific documentation, arranged in some consistent chronological order, the most recent occurrence filed on the top utilizing metal file fasteners to keep documents in order and secured to the folder.


Labor Code Section 3702.6 requires the Director to establish an audit program addressing the adequacy of estimated future liability of claims for all self-insured employers. Labor Code Section 3701 requires workers' compensation liabilities to be secured based on liabilities reported on the Self Insurers' Annual Report referenced by Labor Code Section 3702.2. In order to set an estimate of future liability on a workers' compensation claim file, or claims adjuster would need access to the entire contents of the file.

The Administrative Director has adopted in California Code of Regulations (CCR) Title 8, Section 10101, a regulation specifying contents of workers' compensation claim files applicable to insured or self insured employers for workers' compensation claims prior to January 1, 1994. The Administrative Director has also adopted in the CCR, Title 8, Section 10101.1 requirements for workers' compensation claim files on or after January 1, 1994. This regulation requires each claim administrator to maintain a claim file of each work injury claim and the file shall contain, but not be limited to, the following items:

a. Either (1) a copy of the DWC 1, Employee Claim For Workers' Compensation Benefits; or (2) a copy of documentation of the date the employer or the claims administrator provided the DWC 1 claim for to the employee if the employee did not return the claim forms.

b. Employer's Report of Occupational Injury or Illness, DLSR Form 5020 or documentation of reasonable attempts to obtain the Form 5020;

c. A copy of every notice or report sent to the Division of Workers' Compensation;

d. A copy of every Doctor's First Report of Injury or Illness, DLSR Form 5021 or documentation of reasonable attempts to obtain the Form 5021.

e. The original or copy of every medical report pertaining to the claim or documentation of reasonable attempts to obtain the medical reports;

f. All orders or awards of the Workers' Compensation Appeals Board (WCAB) or the Rehabilitation Unit pertaining to the claim;

g. A record of payment of compensation;

h. A copy of the Application(s) for Adjudication of the claim filed with WCAB, if any;

i. Copies of notices sent to employers;

--Benefit Notices, including vocational rehabilitation notices

--Notices relating to Qualified Medical Evaluation process;

j. Documentation sufficient to determine injured workers' average weekly wage in order to determine if the maximum temporary disability rate is due;

k. Notes and documentation relating to provision, delay or denial of benefits, including any electronically stores documentation, year, as may be conveniently be taken to determine average weekly rate of pay;

l. Notes and documentation evidencing the legal, factual, or medical basis for non-payment or delay in payment of compensation benefits or expenses.

m. Notes describing telephone conversations relating to the claim which are significance to claims handling, including dates of calls, substance of calls and identification of parties to the calls.

The Director of Industrial Relations in California Code of Regulations (CCR), Title 8, Section 15400 essentially adopted the Administrative Director's requirements for claim file contents by referring to the requirements in Section 10101 and 10101.1 as required for self insured employers, as well.

Self Insured employers change claims administrators from time to time and among other requirements applicable to the change of the claims administrator possession, the claim files are transferred. In CCR, Title 8, Section 15402.2 a Report of Transfer is required to be submitted to the Manager of Self Insurance Plans accounting for all open and closed claim files in the possession of the former claims administrator and the disposition of the claims files, claim logs and any computerized claim file data information. Section 15202.2(b) specifies all claim files, claim logs and computerized data files shall be the property of the self insured employer and shall be returned to the self insurer or delivered to the new claims administrator that will handle the self insured claims for the self insured employer, except if otherwise specified in a contractual agreement between the self insurer and the former claims administrator.

CCR, Title 8, Section 15402.4(a) upon change of claims administrator, all your claims shall be immediately transferred to the new administrator; all closed files shall be transferred within 30 days; both transfer subject to any contrary agreement between the parties. Lastly, Section 15402.4(c) requires all computerized file data showing all historical claim information, including payments and reserve data as of the date of the transfer of open claim files, as well.

Despite the language of the existing statutes and self insurance regulations as to contents in the claim files, claims administrators are unclear as to exactly what specific items used be in the self insurers' claim files.

Self insurers are subject to periodic audits by Self Insurance Plans (SIP) to verify the workers' compensation liabilities reported and the adjusting of security deposit posted to secure payment of those liabilities. The intent of this is to determine the adequacy of the security deposit to pay all benefits due in case the self insured employer is unable to pay these workers' compensation liabilities for any reason.

Thus, SIP sees the contents of claim files for all self insured employers periodically as a result of our audits. We find expanding use of "drop" files -- essentially unorganized, loose files of documents in no particular order with increasing reliance upon summary information displayed on computer sources. Many claims administrators also have high case loads (in excess of 175 to 200 open indemnity claims) per adjuster coupled with the use of drop filing of claim documents. A more recent development is medical bill processing and payment off site from the claims administrator, sometimes out-of-state, with medical bills, processing records, and check issuance of medical expenses all done by a third party medical bill specialist. Most records relating to medical bill payment is being retained by this separate vendor. The result is claim files incomplete, unorganized and SIP audits are difficult or unable to be done until the files are reconstructed. There is considerable disagreement among the claims administrator community as to exactly what documentation needs to be in a claim file. When files are transferred to a new claims administrator, the ability to obtain missing documentation becomes more difficult for the subsequent claims administrator.

Amendments to Article 9 will expand and clarify the required contents of workers' compensation claims files to ensure that the entire documentation related to this claim are maintained in the claim file for the self insured employers.

By laying out in regulatory form a more complete listing of required contents of a self insured workers' compensation claim file, all claims administrator are put on a level playing field with respect to file contents. A well documented, complete workers' compensation claim file will assist the claims administrator in properly estimating workers' compensation claim liabilities on the Self Insurers' Annual Reports and, thereby, should provide a more accurate security deposit is posted by the applicable self insured employer. Aggregate understated liability found in SIP audits over the past 5 years have increased from a total of $79.1 million in 1997, to $124.9 million last year (2002). While all the increase in understated liability found in audits is not due to claim files, better content and organization of claim files can only improve estimates of future liability on the claims.

Existing regulations in Group 2, Article 9, of Chapter 8, Title 8, California Code of Regulations, contain general requirements for maintenance and retention of self insured workers' compensation case files and logs, self-insurance plan administration and audits. By making a more specific list of required items an requiring file organization and securing of the documents together in order, the claims administrator's duties will be better defined and made easier. All claims administrator will be held to the same level of file maintenance; estimates of future liability should improve over that seen today with incomplete or unorganized claim files; and when claims administration is transferred to a subsequent administrator to handle the files will be complete and well documented.

Proposed subsection (c) requires the administrator to maintain a complete claim file for each self insured indemnity or medical only injury in a some consistent order, such as chronological with the most recent material on top. This proposal will insure each claims administrator maintains for a self insured employer a claim files that will reflect a more complete history of the action taken by the administrative agency and better assist SIP to monitor the claims administrator's estimates of future liability on workers' compensation claims and will assist the claims auditor in their responsibility of handling the file.

Proposed subsection (c)(1) – (c)(21) requires specific documentation. In claim files. Labor Code Section 3702.1(d) requires third party administrators retained by a self insured employer's workers' compensation claims to estimate the total accrued liability of the employer for the payment of compensation on the Self Insurers' Annual Report to the Director. The claims administrator is further required by this section of the Labor Code to make this liability estimate both in good faith and with a reasonable degree of care. The self insurer that self administers claims is held to the same standard. Poor documentation and organization of claim files-- whether hard copy, computerized or imaged on a computer-- does not permit the claims administrator to meet this Labor Code mandate. In addition, the employer's self insurance can be revoked for good cause pursuant to Labor Code Section 3702 for, among other reasons, the failure or inability of the employer to fulfill the compensation obligation and for the employer or their agent (third party claims administrator) in charge of the administration of compensation obligations engaging in prohibited practices. Among the prohibited practices are:

(1) Habitually and as a matter of practice and custom inducing claimants for compensation to accept less then the compensation due; or by making it necessary for the claimant to resort to proceedings against the employer to secure compensation due;

(2) Where temporary disability indemnity is not in dispute, intentionally failing to pay temporary disability indemnity without good cause in order to influence the amount of permanent disability benefits due;

(3) intentionally refusing to comply with known and legally indisputable compensation obligations; and

(4) Discharging or administering his or her compensation obligations in a dishonest manner or in such a manner to cause injury to the public or those dealing with the employer;

Poor documentation, lack of necessary documentation, poor or no claim file organization--all contribute to unnecessary delay in the payment of benefits and may come close, on an individual claim file basis, to any of the prohibited practices in Labor Code Section 3701. Therefore, further definition of required contents of a workers' compensation claim file, as well as some reasonable, consistent organization of the claim file is needed beyond the current requirements.

The Director recognizes that existing files are numerous and it will take some time to change current practices and procedures so we prepare the new file contents to take effect for all self insured workers ' compensation claim files with dates on injury on or after January 1, 2004. The existing files will be run out to finalization in whatever condition they are currently maintained in.

The new requirements for claim files are:

  1. Employers Report of Occupational Injury and Illness (Form 5020)
  2. Employee Claim Form (DWC Form 1);
  3. All notes (including computer notes);
  4. All bills (including medical, rehab, legal, investigative, and other expenses;
  5. All Explanation of Benefits (EOB's documenting any review and/or reduction);
  6. List of all payments including date, amount, payment code, payee, and address;
  7. List of all reserve worksheets and dated changes broken down by category;
  8. Benefit notices;
  9. Wage statements;
  10. All correspondence (including letters, forms, faxes, and e-mails);
  11. Medical statuses, releases and prescriptions;
  12. Medical reports;
  13. Medical management reports;
  14. All vocational rehabilitation reports and forms, including Notice of Offer of Modified or Alternative Work (DWC Form RU 94) and Vocational Rehabilitation Plan (DWC Form RU-102);
  15. Investigative reports and statements;
  16. Audio and video tapes;
  17. Legal correspondence and notices;
  18. Subpoenaed reports (including medical, personnel, and employment records);
  19. Filings, pleadings, applications, orders, liens, subpoenas, settlements, petitions, awards, and other legal documents);
  20. All ratings (formal, informal, advisory, etc.);
  21. (21) All data submitted to Workers' Compensation Information System (WCIS) for Electronic Data Interchange (EDI), acknowledgements, error lists, and other correspondence from WCIS, dates and documentation of data exchange.

Item 1- the Employer's Report of Occupational Injury and Illness is necessary to be in the claim file because it is the employers documentation of the facts related to the injury or illness as required by California Code of Regulations, Title 8, Section 10101(a) and 10101.1(a).

Item 2- the Employee Claim Form, DWC Form 1, is required per Labor Code Section 5401, CCR, 10101(a) and 10101.1(a).

Item 3- All notes is required because they document activities that have occurred on a claim file and are necessary to allow a reviewer to determine the history of the claim.

Item 4- copies of all bills received for a workers' compensation claim are necessary to determine what was charged by the provider, when the bill was received, what was paid by the administrator and when it was paid.

Item 5- copies of all explanation of benefits provided to the injured worker are necessary to document what information has been provided to the injured worker and when it was provided.

Item 6- List of all payments including date, amount, payment code, payee and address is necessary to determine what has been paid. Self Insurance Plans auditors need to have this information to evaluate the payment and estimate future payments due. Additionally, the parties involved in a claim disputed what benefits have been provided. This is required per CCR, Title 8, Section 10101.1.

Item 7- List of all reserve worksheets and dated changes broken down by category is necessary to document the history of the claim.

Item 8- Benefits notices are required to be in the file pursuant to California Code of Regulations, Title 8, Section 10101.1.

Item 9- Wage statements are necessary to be in the claim file to determine if the injured worker can be paid at a temporary disability rate less than the maximum. This is also required pursuant to California Code of Regulations, Title 8, Section 10101.1.

Item 10- All correspondence related to a claim file is necessary to have because it documents the claim's history.

Items 11through 13- Medical statuses, medical reports and medical management reports is necessary to have in the claim file because it follows the injury's history and to allow future medical providers the information to provide appropriate treatment. This is also required pursuant to California Code of Regulations, Title 8, Section 10101.1.

Item 14- Vocational rehabilitation reports and forms including the Notice of Offer of Modified or Alternative Work (DWC Form RU 94) and Vocational

Rehabilitation Plan (DWC Form RU-102) is necessary to have in the claim file because it will support whether the injured worked has received all of his/her benefits that he/she is entitled to and if he/she needs additional benefits.

Items 15 to 16- Investigative reports and statements, such as audio tapes or video tape must be in the file in order to be used as part of the claim.

Item 17- Legal correspondence and notices must be in the claim file to document the history of the claim.

Item 18-Subpoenaed information must be in the claim file because it is part of the official record; and may be required as part of the defense of the claim.

Item 19- All legal documents are part of the official record of the claim. This is also required pursuant to California Code of Regulations, Title 8, Section 10101.1.

Item 20- A copy of all ratings must be in the claim file because they are an official determination of potential benefits due to an injured worker.

Item 21- All data submitted to Workers' Compensation Information System (WCIS) for Electronic Data Interchange is necessary to document what information has been provided to WCIS.

Proposed subsection (e) prohibits unorganized drop files. This is necessary because administrators change from time to time when the files are turned over to the new administrator the documents are not in any particular order or are lost or misplaced. The is also necessary because it take the auditor longer to review or audit the file.

Proposed subsection (f) is necessary because when the files are turned over to the new administrator they will have a full history of the claim file.

Proposed subsection (g) is necessary because when claim files are turned over to the new administrator they are in disarray.


The Department did not rely upon any technical, theoretical, or empirical studies, reports or documents in proposing the adoption of this regulation.


No other reasonable alternatives were presented or considered by the Department.


The Department has not identified any reasonable alternatives or that have otherwise been identified and brought to the attention of the agency that would lessen any adverse impact on small businesses.


Self Insurance Plans is not aware that there will be any significant adverse economic impact on business.