Insurance Litigation & Regulatory Law Blog : California Insurance Lawyer & Attorney : Barger & Wolen Law Firm : CA Insurance & Bad Faith Litigation

This week, the Administrative Director of the Division of Workers’ Compensation of the California Department of Industrial Relations (“DWC”) proposed a regulation, California Code of Regulations, title 8, Section 9789.70(c), that would completely exempt air ambulance companies from the Official Medical Fee Schedule (“OMFS”) that applies to all other providers who furnish medical services under the California workers’ compensation system.

The DWC’s purported impetus for this abrupt action was “to avoid the hazards and cost of litigation against the Division,” as stated in the DWC’s Initial Statement of Reasons. That Statement further advised that the DWC based its proposed regulation on the contention that the OMFS may likely be preempted by the Airline Deregulation Act of 1978, which it says “prohibits states from adopting or enforcing regulations which have any effect on airline rates of air carriers.”

This issue of preemption by the Federal Aviation Act of 1958, as amended by the Airline Deregulation Act of 1978 (“FAA/ADA”), was asserted in a lawsuit filed last year by California Shock Trauma Air Rescue (“CALSTAR”), an air ambulance company rendering services primarily in California. That action, filed in federal court in Sacramento against more than 75 workers’ compensation insurers and self-insured employers, is entitled California Shock Trauma Air Rescue v. State Compensation Insurance Fund, et al.  This blog reported on that case on July 30, 2009, after the federal district court dismissed the case, finding that the federal court lacked subject matter jurisdiction over CALSTAR’s claims.  

CALSTAR then appealed the action to the Ninth Circuit Court of Appeals, where the case is now fully briefed and awaiting oral argument.

Apparently not satisfied with the court's decision in its federal court action, CALSTAR threatened to sue the DWC unless it did something to offer relief to CALSTAR and other air ambulance companies.  In an article posted on workcompcentral.com, the president and chief executive officer of CALSTAR stated that, after having the federal trial court dismiss his company’s action, “we went back to the DWC and said, ‘We’ve been instructed to sue you,’ is what brought this action on their part.” It is clear that the threat of a lawsuit prompted the DWC to issue the proposed regulation and completely exempt CALSTAR and other air ambulance companies from the ambit of the OMFS.  

The defendants in the pending federal court action contend that the FAA/ADA does not preempt the OMFS as it applies to the medical services that air ambulance companies provide in California, and indeed exempting such companies from the scope of the OMFS on preemption ground is anathema to the legislative goals and purposes of the FAA/ADA. Larry Golub and Sandra Weishart of Barger & Wolen LLP represent a number of the defendants in the litigation.

The DWC will be holding a full-day hearing on the proposed regulation in Oakland on Tuesday, April 13, 2010, to receive statements and argument from all interested persons.

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On September 9, 2009, a unanimous panel of the California Supreme Court accepted review of the Court of Appeal decision in Clark v. Superior Court (National Western Life Insurance Company). In so doing, the Supreme Court will address an issue of first impression under California law – whether a statute that provides for trebling of penalties and fines can be applied to private actions under California’s Unfair Competition Law (UCL) that allows only restitution as the sole monetary remedy.

In the Court of Appeal decision issued May 21, 2009, the appellate panel found that Civil Code section 3345, which permits trebling of penalties and fines in cases involving seniors, could be applied to restitution awards under the UCL. No case had ever so held this trebling remedy to apply to private UCL actions since the enactment of section 3345 in 1988, and no case had ever permitted any sort of damages, be they compensatory, treble or punitive, under the UCL. On June 29, 2009, National Western Life Insurance Company filed its Petition for Review with the Supreme Court, raising a number of arguments as to why the Court of Appeal decision was in error and that the case raised an important question of law. Several parties submitted amicus curiae letters in support of the Petition.

With the granting of review, the Court of Appeal decision is now automatically de-published and no longer citable as precedent. Briefing before the Supreme Court will occur over the next several months, but a decision from the Supreme Court is not expected until at least the end of 2010.

Kent Keller and Larry Golub of Barger & Wolen are counsel for National Western Life Insurance Company and filed the Petition for Review.
 

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Earlier this year, California Shock Trauma Air Rescue (“CALSTAR”), an air ambulance company rendering services primarily in California, filed an action in federal court in Sacramento against more than 75 workers’ compensation insurers and self-insured employers. CALSTAR’s lawsuit, California Shock Trauma Air Rescue v. State Compensation Insurance Fund, et al., argued that, as a result of it being certified by the Federal Aviation Administration to operate as an air carrier, any claims for payment it submitted to workers’ compensation insurers and self-insured employers in California should not be limited to those amounts set forth in the Official Medical Fee Schedule for ambulance services, California Code of Regulations, title 8, section 9789.70.  

Rather, as a federally certified air carrier, CALSTAR asserted that the Fee Schedule is preempted by the Federal Aviation Act of 1958, as amended by the Airline Deregulation Act (“FAA/ADA”).  In other words, CALSTAR sought to avoid the limitations on payment that would apply to all other medical providers and even ground-based ambulances set forth in the Fee Schedule.  CALSTAR’s complaint alleged causes of action for declaratory relief and a number of state law claims.

The defendants filed motions to dismiss on a variety of grounds. Prominent among the bases for the motions was the claim that the federal court lacked subject matter jurisdiction over CALSTAR’s action.  Another basis for the lack of federal court subject matter jurisdiction was that CALSTAR’s claims are subject to California’s exclusive workers’ compensation system and which claims can and should be resolved through lien requests by CALSTAR at the Workers’ Compensation Appeals Board. 

In a detailed ruling issued July 24, 2009, the federal court granted the motions to dismiss on the basis that the court lacked subject matter jurisdiction over CALSTAR’s claim. The fact that CALSTAR sought to use a federal statute, the FAA/ADA, to claim that certain state laws were preempted was inadequate to support jurisdiction in the federal courts under well-established case law.  The court also observed that CALSTAR had not sued the State challenging its power to enforce the Fee Schedule, but rather only sued third parties (i.e., insurers and self-insured employers) who have neither “the ability to enact or enforce state laws.” In short, CALSTAR was asking the federal court for an advisory opinion as to the preemption of the Fee Schedule, something it lacked the power to do.

Barger & Wolen represented a number of the defendants in the litigation.

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