This information is provided free of charge by the Department of Industrial Relations from its web site at www.dir.ca.gov. These regulations are for the convenience of the user and no representation or warranty is made that the information is current or accurate. See full disclaimer at http://www.dir.ca.gov/od_pub/disclaimer.html.

Chapter 4.5. Division of Workers' Compensation
Subchapter 1.5. Injuries on or After January 1, 1990
Article 3. Auditing

New query

§10108. Audit Violations--General Rules.


The following general rules apply to audits and audit processes under Labor Code sections 129 and 129.5:

(a) If the date or deadline (including any applicable extension) to perform any act falls on a weekend or holiday, the act may be performed on the last business day before or the first business day after the weekend or holiday. A payment date which is changed under this provision shall not change the normal dates for later payments in an existing two-week payment schedule.

(b) For the purpose of imposing audit penalties, if the claims administrator does not record the date it received a document, it shall be deemed received five days after the latest date the sender wrote on the document.

(c) Audit penalties will be based on each claim's status when the claim is audited.

  (1) If, at the time of the audit, the claims administrator has failed to perform a required act, but remedies the failure prior to the receipt of the Notice of Audit Commencement, when the claims administrator was notified that the claim was selected for audit, the claims administrator will be accountable for the violation. The penalty for an unlawful delay of more than 30 days in performing an act is the same as the penalty for not performing the act unless these regulations specifically provide otherwise. However the penalty will be mitigated for good faith because the act, though late, was eventually performed.  


  (2) If the claims administrator remedies a failure to perform a required act only after receipt of the Notice of Audit Commencement, the claims administrator will nonetheless be accountable for the violation as a failure to act and audit findings related to the violation will be based on the failure to perform the act. In cases where there is an unlawful delay of more than 30 days in performing an act and the act was performed only after the audit subject was notified that the claim was selected for audit, penalties will be assessed as though there was a failure to perform the act rather than late performance of the act. There will be no mitigation for good faith if the act was performed after notification to the audit subject that the claim was selected for audit.  


(d) Penalties will not be assessed during the period a claims administrator is actively investigating its liability for provision of benefits or payment of compensation, provided that a Notice of Delay has been timely and properly issued in accordance with California Code of Regulations, title 8, sections 9812 or 9813. However, penalties shall still be issued for violations during the period of delay for: the failure to timely pay or object to medical bills for treatment authorized under Labor Code section 5402(c); the failure to timely pay or object to medical treatment bills in accordance with Labor Code section 4603.2, or the failure to timely pay or object to medical legal expenses in accordance with Labor Code section 4620, et seq.

(e) Penalties will not be assessed for an act or omission where an injured worker's unreasonable refusal to cooperate in the investigation has prevented the claims administrator from determining its legal obligation to perform the act.

(f) Where a penalty is provided for failure to pay mileage fees related to medical treatment or evaluation, a penalty will be imposed if payment is not made at a rate that is at least the minimum rate adopted by the Director of the Department of Personnel Administration pursuant to Section 19820 of the Government Code for non-represented (excluded) employees at California Code of Regulations, title 2, section 599.631(a).

(g) Failure, delay, or refusal to pay compensation benefits or expenses shall be subject to the applicable penalties under California Code of Regulations, title 8, sections 10111, 10111.1, or 10111.2 unless the legal, factual, or medical basis for the failure, refusal, or delay is documented in the claim file.

(h) The Audit Unit will not assess penalties for violations of failure to make payment of indemnity due if the total indemnity is less than twenty-five dollars ($25.00) aggregate per claim. Although penalties may not be assessed, the audit subject shall pay all indemnity owed.

(i) Nothing in these regulations will bar the assessment of a civil penalty under Labor Code section 129.5(e), whether or not the audit subject meets or exceeds performance rating standards calculated pursuant to California Code of Regulations, title 8, section 10107.1(c)(3) or (d)(3).

(j) Claims that are randomly selected for audit pursuant to California Code of Regulations, title 8, sections 10107.1(c)(1) and (d)(1) will be considered as randomly selected claims for purposes of determining whether or not an audit subject meets or exceeds performance standards pursuant to sections 10107.1(c)(3) or (d)(3), whether or not complaints or information indicating claims handling violations in those claims have been received by the Audit Unit. If the Audit Unit cannot ascertain the extent to which benefits have been paid on a claim randomly selected for audit without auditing a companion or master claim to that claim, the Audit Unit may add the companion or master claim to the random sample. The companion or master claims will be considered as randomly selected claims for purposes of determining whether or not the audit subject meets or exceeds performance standards pursuant to sections 10107.1(c)(3) and/or (d)(3).

(k) Notwithstanding section 10111.2(a) and (b), penalties may be assessed for failure to timely submit an accurate Annual Report of Inventory regardless of whether or not an audit has been conducted, or, if an audit was conducted, whether or not the audit subject's performance rating in the key performance areas calculated pursuant to section 10107(c) warrants the audit of a full sample of indemnity claims pursuant to section 10107(c)(4), or a return, targeted audit based on performance in those areas pursuant to California Code of Regulations, title 8, section 10106(c)(2).

(l) Notwithstanding penalty amounts established pursuant to section 10111.2, penalties for late performance of an act may not exceed penalty amounts for the failure to perform an act.

(m) If more than one claims administrator has adjusted a claim file that is being audited or investigated, penalties will be assessed against the audit subject only for violations that occurred subsequent to the date the audit subject began adjusting the claim file, except that the audit subject will be assessed penalties for the failure to pay compensation due if the claim was open when transferred to the audit subject or re-opened subsequent to its transfer and the compensation remained unpaid. The audit subject is required to correct any failures to issue notices which are still pertinent, to recalculate and correct any improperly calculated payments due to the worker, and to pay any interest and increase due for late paid medical payments.

(n) Successor liability may be imposed on a claims administrator or insurer that has merged with, consolidated, or otherwise continued the business of a corporation or other business entity that is a responsible party and failed to meet its obligations under Divisions 1 and 4 of the Labor Code or regulations of the administrative director. The surviving claims administrator shall assume and be liable for all the liabilities, obligations and penalties of the prior corporation or business entity. Successor liability will be imposed if there has been a substantial continuity of business operations; and/or the new business uses the same or substantially the same work force. In such circumstances, due consideration of the appropriateness of penalties with respect to the history of previous violations pursuant to Labor Code section 129.5(b)(3) will encompass findings related to the last audit of the predecessor claims administrator applied in conjunction with audit results of the successor claims administrator pursuant to California Code of Regulations, title 8, section 10111.2(c)(4).


     Note: Authority cited: Sections 59, 129.5, 133, 138.3, 138.4, 138.6 and 5307.3, Labor Code. Reference: Sections 124, 129, 129.5, 138.6, 4600, 4603.2, 4621 and 5402, Labor Code; and Sections 7, 9, 10 and 11, Civil Code.  


 HISTORY 
   
1. Renumbering of former section 10108 to section 10111 and new section filed 1-28-94; operative 1-28-94. Submitted to OAL for printing only pursuant to Government Code section 11351 (Register 94, No. 4).

2. Amendment of subsection (e) filed 2-14-96; operative 2-14-96. Submitted to OAL for printing only pursuant to Government Code section 11351 (Register 96, No. 7).

3. Amendment of subsection (c) filed 10-26-98; operative 11-25-98 (Register 98, No. 44).

4. Amendment of subsections (c) and (f) and new subsections (h)-(n) filed 12-30-2002; operative 1-1-2003 pursuant to Government Code section 11343.4 
(Register 2003, No. 1).

5. Amendment of section and Note filed 4-20-2009; operative 5-20-2009 (Register 2009, No. 17).

Go BackGo Back to Article 3 Table of Contents