P. W. Stephens, Inc. v. State Compensation Ins. Fund, No. B063400

CourtCalifornia Court of Appeals
Writing for the CourtBOREN
Citation21 Cal.App.4th 1833,27 Cal.Rptr.2d 107
PartiesP.W. STEPHENS, INC., Plaintiff and Appellant, v. STATE COMPENSATION INSURANCE FUND, Defendant and Respondent.
Docket NumberNo. B063400
Decision Date28 January 1994

Page 107

27 Cal.Rptr.2d 107
21 Cal.App.4th 1833
P.W. STEPHENS, INC., Plaintiff and Appellant,
v.
STATE COMPENSATION INSURANCE FUND, Defendant and Respondent.
No. B063400.
Court of Appeal, Second District, Division 2, California.
Jan. 28, 1994.

[21 Cal.App.4th 1835]

Page 108

Hopper & Holmes and Douglas R. Holmes, Norwalk, for plaintiff and appellant.

Sheppard, Mullin, Richter & Hampton, Pierce T. Selwood, Finley L. Taylor, Justine M. Casey, Anthony Castrilli, Los Angeles, Richard A. Krimen, Chief Counsel, Charles W. Savage, Asst. Chief Counsel, and Jody A. Carr, Staff Counsel, for defendant and respondent.

BOREN, Presiding Justice.

In this appeal, we conclude that respondent State Compensation Insurance Fund (SCIF) may impose "surcharges" as part of the premiums charged to its insureds. However, such surcharges must be reasonably and fairly imposed and are subject to administrative review. Accordingly, we affirm the decision of the trial court.

BACKGROUND

Appellant P.W. Stephens, Inc. (appellant) provides residential and commercial asbestos abatement services. SCIF provides workers' compensation insurance to appellant. Appellant has no other recourse than to procure its insurance from SCIF, since no private insurance carriers are willing to offer such insurance to asbestos removal companies, such as appellant.

In its complaint for injunctive relief and damages, appellant alleged that as part of the premium SCIF charged appellant for workers' compensation insurance, SCIF imposed surcharges which are illegal, unreasonable and unfair. The trial court sustained SCIF's demurrer to the first amended complaint and dismissed the action.

DISCUSSION

I. SCIF AND ITS RATING ORGANIZATION

SCIF is at once both an agency of the State and an insurance carrier. In these two roles, it is self-operating and of a special and unique character. (Burum v. State Compensation Ins. Fund (1947) 30 Cal.2d 575, 585-586, 184 P.2d 505; Gilmore v. State Comp. Ins. Fund, (1937) 23 Cal.App.2d 325, 329, 73 P.2d 640.) While for purposes of the workers' compensation insurance [21 Cal.App.4th 1836] laws set forth in the Insurance Code (div. 2, pt. 3, chs. 2-4 [§§ 11630-11881] ) 1 SCIF is an "insurer" on the same basis as any private carrier offering workers' compensation insurance (§§ 11731, 11750.1, subd. (a)), the Legislature has also established it as a state agency with "unique characteristics" and one which is exempt from many of the immunities, requirements,

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restrictions and procedures applicable generally to state agencies. It is also subject to laws generally applicable to private insurance carriers (e.g., tax laws). (Courtesy Ambulance Service v. Superior Court (1992) 8 Cal.App.4th 1504, 1511-1514, 11 Cal.Rptr.2d 161; see § 11770 et seq.)

Article 2 of chapter 3 in the Insurance Code pertaining to workers' compensation policies sets forth what is known as the "Minimum Rating Law." The Minimum Rating Law empowers the Insurance Commissioner of the State of California (the Commissioner) to approve or issue "a classification of risks and premium rates relating to California workers' compensation insurance," which constitutes the minimum amount which insurers may charge as premiums to insureds falling within established categories or classifications. (§ 11732.) Thus, an insurer is prohibited from assessing premium rates less than those approved by the Commissioner. (§ 11736.) The purpose of the Minimum Rating Law is to require insurance premium rates which will assure adequate reserves to meet claims as they mature. (Contractor's etc. Assn. v. Cal. Comp. Ins. Co. (1957) 48 Cal.2d 71, 74-75, 307 P.2d 626.)

The Minimum Rating Law permits a system of "merit rating" or "schedule rating" and also allows "experience rating" to be used as a factor in setting rates for particular insureds. (§ 11730.) Essentially, workers' compensation insurers are permitted to determine premiums based on (1) schedules of rates or classifications by employers and occupations, and (2) the particular risk presented by the insured's experience or insurance history.

To assure that the minimum rates for workers' compensation rates are in fact "adequate" to meet all claims as they mature, and in order "to promote the public welfare," the Legislature authorized the establishment of rating organizations. (§ 11750 et seq.) A rating organization is defined in the Insurance Code as an organization having "as its primary object or purpose the collecting of rating information, the making of rates, rating plans and rating systems for workers' compensation insurance ... and presenting them to the commissioner for issuance or approval." (§ 11750.1, subd. (b).) The "Workers' Compensation Insurance Rating Bureau" (the Rating Bureau) [21 Cal.App.4th 1837] is the rating organization of which SCIF is a member. Any such rating organization must be licensed by the Commissioner (§§ 11751.1-11751.25), and, subject to the approval of the Commissioner, it "may adopt any reasonable constitution, articles of incorporation, or agreement of association, and may make reasonable rules for the regulation of its members and the conduct of its business by bylaws or otherwise." (§ 11751.3, subd. (a).) A rating organization must also permit the Commissioner to appoint "four members of the public, two representing organized labor and two representing insured employers, to serve on the managing or governing committee of the [rating] organization." (§ 11751.1, subd. (h); see also §§ 11751.3, subd. (b); 11751.35, subd. (a).) In addition, SCIF is entitled "without election to membership on the managing or governing committee and on the classification and rating committee" of its rating organization. (§ 11751.3, subd. (a).)

As SCIF's licensed rating organization, the Rating Bureau publishes the California Workers' Compensation Insurance Manual (January 1, 1991; hereinafter, the Manual), a compendium of administrative rules governing the issuance of workers' compensation insurance coverage by SCIF and other carriers. The Manual also contains classifications, rates and rating systems which the Commissioner has approved pursuant to section 11730 et seq. The Manual is composed of what are properly considered administrative rules and regulations. Its contents have been promulgated by the Commissioner pursuant to Government Code section 11344 and incorporated by reference in the California Code of Regulations. (Cal.Code, Regs. tit. 10, § 2350.)

II. SURCHARGES

The parties do not dispute that SCIF and other insurers impose surcharges as a means of defraying the hazard, risk, accident experience or insurance history relating to a particular insured. Nothing in article 2 of chapter 4 (§§ 11820-11823), the Insurance Code provisions governing the manner in which SCIF's board of directors must fix

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SCIF's rates, directly prohibits such surcharges. 2 Although SCIF is a special and unique state agency, the Legislature also designed it to "be fairly competitive with other insurers," [21 Cal.App.4th 1838] also to be "more [ ]or less ... self-supporting," and to "transact workers' compensation insurance required or authorized by law ... to the same extent as any other insurer." (§§ 11775, 11778.) Other California insurers impose surcharges to reflect the risk and insurance exposure presented by a particular insured. It is well settled that the experience of a particular insured may be used as a factor in setting the premium. (State Comp. Ins. Fund v. McConnell (1956) 46 Cal.2d 330, 294 P.2d 440.) Likewise, section 11820 mandates that SCIF's rates "be fixed with due regard to the physical hazards of each industry, occupation or employment." SCIF reasonably argues that "premium" may generally represent an incorporation of "the rate, experience modification...

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21 practice notes
  • Arteaga v. Brink's, Inc., No. B194082.
    • United States
    • California Court of Appeals
    • May 28, 2008
    ...premiums are based, in part, on the employer's claims history. (See P. W. Stephens, Inc. v. State Compensation Ins. Fund (1994) 21 Cal.App.4th 1833, 163 Cal.App.4th 357 1836-1839 [27 Cal.Rptr.2d 107]; State Comp. Ins. Fund v. McConnell (1956) 46 Cal.2d 330, 337-340 & fn. 1 [294 P.2d 440].) ......
  • Notrica v. State Compensation Ins. Fund, No. B097529
    • United States
    • California Court of Appeals
    • March 17, 1999
    ...an insurer is permitted to consider in setting premiums for its insureds. (P.W. Stephens, Inc. v. State Compensation Ins. Fund (1994) 21 Cal.App.4th 1833, 1836, 27 Cal.Rptr.2d 107.) In the instant case, SCIF employed what it termed the "maximum probable potential" standard to workers' compe......
  • Readylink Healthcare, Inc. v. State Comp. Ins. Fund, No. 12–56248.
    • United States
    • United States Courts of Appeals. United States Court of Appeals (9th Circuit)
    • June 12, 2014
    ...on the same basis as any private carrier offering workers' compensation insurance.” P.W. Stephens, Inc. v. State Comp. Ins. Fund, 21 Cal.App.4th 1833, 27 Cal.Rptr.2d 107, 108 (1994). When SCIF audited ReadyLink for the 2005 policy year, it found that ReadyLink had failed to report certain p......
  • People v. Clapp, C081690
    • United States
    • California Court of Appeals
    • April 5, 2021
    ...(Allied Interstate, supra , 203 Cal.App.4th at p. 817, 137 Cal.Rptr.3d 516 ; P.W. Stephens, Inc. v. State Comp. Ins. Fund (1994) 21 Cal. App.4th 1833, 1835, 27 Cal.Rptr.2d 107 ["SCIF is at once both an agency of the state and an insurance carrier. In these two roles, it is self-operating an......
  • Request a trial to view additional results
21 cases
  • Arteaga v. Brink's, Inc., No. B194082.
    • United States
    • California Court of Appeals
    • May 28, 2008
    ...premiums are based, in part, on the employer's claims history. (See P. W. Stephens, Inc. v. State Compensation Ins. Fund (1994) 21 Cal.App.4th 1833, 163 Cal.App.4th 357 1836-1839 [27 Cal.Rptr.2d 107]; State Comp. Ins. Fund v. McConnell (1956) 46 Cal.2d 330, 337-340 & fn. 1 [294 P.2d 440].) ......
  • Notrica v. State Compensation Ins. Fund, No. B097529
    • United States
    • California Court of Appeals
    • March 17, 1999
    ...an insurer is permitted to consider in setting premiums for its insureds. (P.W. Stephens, Inc. v. State Compensation Ins. Fund (1994) 21 Cal.App.4th 1833, 1836, 27 Cal.Rptr.2d 107.) In the instant case, SCIF employed what it termed the "maximum probable potential" standard to workers' compe......
  • Readylink Healthcare, Inc. v. State Comp. Ins. Fund, No. 12–56248.
    • United States
    • United States Courts of Appeals. United States Court of Appeals (9th Circuit)
    • June 12, 2014
    ...on the same basis as any private carrier offering workers' compensation insurance.” P.W. Stephens, Inc. v. State Comp. Ins. Fund, 21 Cal.App.4th 1833, 27 Cal.Rptr.2d 107, 108 (1994). When SCIF audited ReadyLink for the 2005 policy year, it found that ReadyLink had failed to report certain p......
  • People v. Clapp, C081690
    • United States
    • California Court of Appeals
    • April 5, 2021
    ...(Allied Interstate, supra , 203 Cal.App.4th at p. 817, 137 Cal.Rptr.3d 516 ; P.W. Stephens, Inc. v. State Comp. Ins. Fund (1994) 21 Cal. App.4th 1833, 1835, 27 Cal.Rptr.2d 107 ["SCIF is at once both an agency of the state and an insurance carrier. In these two roles, it is self-operating an......
  • Request a trial to view additional results

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