Pearson Food Co. v. State Comp. Ins. Fund
| Decision Date | 17 March 2014 |
| Docket Number | B242556 |
| Court | California Court of Appeals Court of Appeals |
| Parties | PEARSON FOOD COMPANY, INC., Cross-Complainant and Appellant, v. STATE COMPENSATION INSURANCE FUND, Cross-Defendant and Respondent. |
NOT TO BE PUBLISHED IN THE OFFICIAL REPORTS
California Rules of Court, rule 8.1115(a), prohibits courts and parties from citing or relying on opinions not certified for publication or ordered published, except as specified by rule 8.1115(b). This opinion has not been certified for publication or ordered published for purposes of rule 8.1115.
(Los Angeles County
APPEAL from a judgment of the Superior Court of Los Angeles County, Bruce H. Minto, Judge. Affirmed.
Kerendian & Associates, Shab D. Kerendian, Shawn S. Kerendian, Erika P. Licon, Verlan Y. Kwan and Julie R. Woods for Cross-Complainant and Appellant.
Judith D. Sapper, Betty R. Quarles, Isabel C. Lallana and Katrina Manookian for Cross-Defendant and Respondent.
Pearson Foods, Inc. ("Pearson") appeals from the judgment entered after a trial by reference pursuant to Code of Civil Procedure section 639 in favor of State Compensation Insurance Fund ("SCIF") on Pearson's cross-complaint against SCIF alleging causes of actions for breach of contract, breach of the covenant of good faith and fair dealing, quantum meruit and violation of Business and Professions Code section 17200. Pearson's causes of action centered around three workers' compensations claims that Pearson alleged SCIF failed to fully investigate, had mishandled, over-valued and negligently adjusted in various ways resulting in overpayment and setting improper reserves on those claims. Pearson also claimed that as a result of SCIF's conduct Pearson was charged higher insurance premiums and was unable to secure less expensive insurance from another insurance company.
On appeal, Pearson asserts that the trial court erred in entering judgment upon the statement of decision because: (1) the referee's decision did not contain express findings or rule upon certain matters including the breach of contract and quantum meruit causes of action; (2) the referee's findings did not support a ruling in favor of SCIF on the other causes of action, and the referee applied the improper standard of care in assessing the case and incorrectly shifted the burden of proof on Pearson; and (3) the trial court erred in denying Pearson a new trial. As we shall explain, Pearson's claims do not warrant reversal of the judgment and accordingly, we affirm.
Pearson owns and operates a large food and sundries distribution warehouse in Los Angeles County, employing between 35-40 employees. From 2003 through 2005, SCIF, the state's largest workers compensation insurance carrier served as Pearson's workers compensation insurance provider. The workers compensation claims brought by Pearson employees during this time period were investigated and adjusted by SCIF on behalf of Pearson—SCIF paid benefits to the claimants and defended Pearson before the Workers Compensation Appeal Board.
At the end of the policy period for 2004-2005 an audit of Pearson's financial records by SCIF revealed that Pearson had under reported its payroll and therefore owed additional insurance premiums to SCIF in the amount of $8,341.61. SCIF ultimately assigned the collection of the unpaid premiums to a third party, Allied Interstate Incorporated ("Allied"). Allied subsequently brought a collection action in the superior court against Pearson on the claim.1
Pearson filed the cross-complaint against SCIF. Pearson claimed that during the period SCIF provided insurance for the company, SCIF failed to fully investigate and mishandled workers compensation benefit claims of three Pearson employees: Franz Herzog, Hernando Aguilar, and Michael Quinones, which in turn resulted in inappropriate increases in the experience modification,2 setting of reserves for the claims and costs of its insurance premiums.
In March 2010, Pearson propounded discovery requests seeking records pertaining to the handling, reserving, and settlement of workers compensation claims of Herzog, Aguilar, and Quinones.
SCIF objected to the discovery of the claimant's medical records based on privacy concerns, but agreed to the production of medical documents, subject to a protective order. SCIF also asserted an attorney-client privilege and attorney work-product objections in its response to the discovery requests.
In October 2010 Pearson moved to compel further production of "claimant medical records." The trial court granted Pearson's motion and ordered SCIF to "givenotice to all claimants that their medical records are produced and to provide them with the opportunity to request a protective order." The court further ordered SCIF to produce all claimant medical records.
In November 2010, SCIF filed a motion for protective order. On January 12, 2011, the trial court denied SCIF's motion for protective order, and ruled that "all documents previously ordered to be produced on 10/26/2010 are to be produced."3 SCIF produced the records, but did not produce a privilege log or otherwise indicate that any records were being withheld on the basis of privilege.
In May 2011, the trial court ordered the matter to reference under Code of Civil Procedure section 639, subdivisions (a)(1)-(3). The court stated that the reference was warranted because "The claims and counter claims involve the examination of a long account, which in turn involves extensive medical billings, records and reports [and] [t]he parties have estimated the trial in the case as requiring 55 court days." The order stated the scope of the reference as:
In January 2011, the trial by reference began before the assigned referee, Retired Judge Gregory O'Brien.
In July 2011, Pearson filed a second amended cross-complaint asserting claims for breach of contract, breach of the implied covenant of good faith and fair dealing, quantum meruit, and violation of Business and Professions Code section 17200.
Pearson's second amended complaint alleged that SCIF breached the insurance contract, and engaged in bad faith in various ways including: delaying making coverage determinations as to the Herzog, Lopez and Quinones claims; failing to conduct a full and complete investigation of the claims; failing to exercise diligence in processing the claims, overvaluing and overpaying on the claims and setting unreasonable reserves, failing to properly handle and administer the workers compensation insurance and the defense to the workers compensation claims; failing to provide Pearson with information about its coverage; ignoring facts and medical evidence about the claims which would have demonstrated that the claims were false and exaggerated; and failing to maintain proper files and failing to comply with insurance regulations. Pearson's cause of action based on the implied covenant of good faith and fair dealing was based upon the same allegations as the breach of contract claim, and included a request for punitive damages. Pearson claimed that SCIF's conduct (giving rise to the breach of contract, and the implied covenant and statutory violation) harmed Pearson because, as a result Pearson was charged higher insurance premiums by SCIF and was unable to find less expensive workers compensation insurance and liability insurance from another carrier.
During the trial4 Pearson presented the testimony inter alia of William Wilson, the CEO of Pearson, and Adam Wilson, the Vice President of Pearson. Pearson presented expert testimony of Sam Smith, a claims handling expert, Susan Silberman, an attorney and expert on claims handling and legal support, and Duncan Prince. SCIF's claim adjuster/employees George Ashkharian, Rosa Rodriguez-Cubero, and ChristopherPunzalan also testified. The SCIF employees testified about handling of the claims as to the three claimants, setting medical evaluations, and obtaining medical reports, and the process of determining benefit payments and setting reserves. SCIF presented expert witness William Spiegel, who testified about the proper methods of claims handling for workers compensation claims.
On the fourth day of the trial, Pearson's claims expert, Susan Silberman testified that SCIF had minimal information in the claims files. Her testimony prompted the referee to inquire whether SCIF maintained one or two files for each claim: "the file that's maintained by the adjustor, or are there two files, one maintained by the lawyer and one maintained by the adjustor?" Silberman responded that The Referee asked if "the reason we're not seeing this decision tree is because this is the attorney's decision tree and maybe all that's privileged?" Pearson's counsel interrupted and made the following representation:
"[Pearson's Counsel]: Before you do, let me interject and present one piece of evidence, that the files that were produced to us, there was no hold-back on anything based on privilege, so what we reviewed contained everything." Pearson's counsel stated that during discovery it had...
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