The egregious ­mismanagement of a Californiaworkers' compensation claim is being blamed for an injured worker'ssevere infection and resultant death.

The ongoing case is drawing ire from various associations,including the California Applicants' Attorneys Association (CAAA),which is lobbying that criminal charges be filed against SedgwickClaims Management Services, the third-party administrator involvedin the claim, as well as one of its adjusters.

The initial workers' compensation claim originated when CharlesRomano injured his shoulder and cervical spine on Dec. 20, 2003while stocking shelves at a Ralph's grocery store (part of TheKroger Co.) in Camarillo, Calif. After undergoing surgery for theresultant injuries on August 29, 2005, Romano contractedmethicillin-resistant straphylococcus aureus (MRSA), which not onlycaused renal and pulmonary failure but also paralysis below theshoulders (from C8 down).

Romano later sought treatment for the serious infection at theVentura County Medical Center, where he had no choice but to useMedi-Cal—the state's version of Medicaid—because Sedgwick refusedto authorize treatment. In fact, Medi-Cal paid for Romano's medicalbills dating from November 2005 through February 2007, ultimatelypicking up a tab for $300,000.

Fatal Consequences

On October 25, 2006, a workers' compensation judge issued anamended findings and award, ruling that the MRSA infection was a“compensable consequence” of Romano's work injury. Under thejudgment, Sedgwick was required to pay for all reasonable expensesrelated to medically treating the infection. However, theself-insured employer—Ralph's, a Kroger company—as well as SedgwickCMS, the acting TPA, failed to comply. Ostensibly ignoring thejudge's orders, the entities continued to deny and delay Romano'streatment.

Sadly after numerous hospitalizations, Romano's conditioncontinued to deteriorate, leading to his death on May 2, 2008. Hedied at Community Memorial Hospital from cardiorespiratory arrest,respiratory failure, and pneumonia, all caused by his healthcare-associated MRSA infection and related medical conditions.Remarkably, Sedgwick denied payment until the bitter end, refusingto grant treatment at Community Memorial.

As of April 16, 2013, the date of the Opinion and Decision AfterReconsideration, the medical bills had still not been paid, evenafter the October 25, 2006 award.

Legal and Ethical Oversights

In May of this year, the state Workers' Compensation AppealsBoard (WCAB) referred Sedgwick CMS to the Division of Workers'Compensation's Audit Unit for “unreasonably delaying or denyingtreatment for a patient who was dying from an infection hecontracted after undergoing surgery for a compensable workinjury.”

In the decision, Romano v. Kroger Co., the WCAB chargedthat Sedgwick demonstrated “blithe disregard for its legal andethical obligations and a callous indifference to the catastrophicconsequences of its delays, inaction and outright neglect.”

The WCAB upheld penalties imposed against Sedgwick CMS in theamount of the maximum penalty allowed by law—$10,000 for each of 11instances of unreasonably delaying medical care.

Covering the case, Greg Jones, the Western Bureau Chief atWorkCompCentral, reported in “California Applicants' AttorneysAssociation Wants TPA, Adjuster Prosecuted for Workers' Death,”that the CAAA is now urging the Ventura County District Attorney'sOffice to file criminal charges against Sedgwick Claims ManagementServices and Theresa McDivitt, the claims adjuster who handledRomano's case.

Jones quoted Jill Singer, the president of the central coastchapter of the CAAA, as saying McDivitt “had callous indifferenceand reckless disregard for approving necessary medical treatmentand went so far as to deny a court order.”The following is anexcerpt from Jones's article:

“The WCAB decision says McDivitt on several occasions denied orrefused to authorize treatment 'without consulting a medicalprofessional and without referring the request for treatment forutilization review. [Moreover] in one case, the Appeals Board saidMcDivitt refused to authorize a bi-level positive air pressuremachine because Romano's paralysis was affecting the muscles thatcontrol his breathing based on her own interpretation of themedical records. In another case, Sedgwick didn't approve Romano'shospitalization in April 2008 for potential heart failure becausethe adjuster said she had no clue as to why he was beinghospitalized.”

The Specter of Bad Faith

Remarkably, in the Romano v. Kroger/Sedgwick case thethreat of fines, penalties and audits apparently did nothing todeter the TPA from what the WCAB, in its April 16, 2013 Opinion andDecision After Reconsideration, called “a callous indifference tothe catastrophic consequences of delays, inaction and outrightneglect,” as noted.

The WCAB adds that “the adjuster studiously avoided informationthat might lead to the provision of benefits, a tactic that mayhave saved her employer some money in the short run—at great costto Mr. Romano—but which clearly violated the demands of section4600.”

The WCAB further stated the Defendant's Petition forReconsideration “cites no evidence in the record indicating that itmade any serious, timely investigation into the applicant's April2008 hospitalization. This breach of defendant's affirmativestatutory and regulatory duties exemplifies defendant's efforts toevade liability, through a see-no-evil, hear-no-evil, passiveapproach to claims administration in a catastrophic, life-and-deathcase…”

In some other states, when the courts or the legislaturerecognized that fines, penalties and audits were not persuasive inconvincing the defendants to properly handle worker's comp claimsand provide the injured worker with the needed medical care andwage benefits, the tort of bad faith has been allowed. Californiamay soon follow this path.

Avoiding Bad Faith

So what can we, as an industry, learn from the Romano tragedy?Whether your state follows the exclusive remedy rule or allows badfaith lawsuits, the workers' compensation claim should be handledin such a manner as to preclude any allegations of improperconduct.

When the claim is reported or made known to the employer and/orcarrier, the investigation to determine compensability should beprompt, objective, and reasonable. If the injured worker's versionof the accident and injury indicates a compensable claim, and thereis no reasonable basis or red flag to indicate otherwise, then theadjuster should proceed with accepting the claim and providingbenefits as promptly as possible.

James J. Markham, editor of Principles of WorkersCompensation Claims, an Insurance Institute of Americatextbook, explains the Burden of Proof:

In most areas, the claimant has theminimal burden of proof to show that he or she sustained anaccidental ­injury arising out of and in the course of employment.This is not a rigorous standard. A claimant's uncorroboratedtestimony may establish a prima facie case of compensability. Oncethe claimant meets this burden of proof, the burden shifts to theemployer/insurer to show why the claimant's ­injury is notcompensable.

If there is a reasonable question or red flag indicatingpossible non-compensability, then an investigation should bepromptly initiated and completed. The adjuster should try as hardor harder to prove compensability as he does to provenon-compensability. The claims handler should not focus solely onfinding an excuse or basis for denial or delay. It would be badfaith to ignore facts supporting compensability while trying tofind facts to support a denial.

A denial or delay in providing benefits should not be based onspeculation, rumor or ambiguous information. An investigation andcoverage decision cannot rely on a gut-feeling or a doubt by theemployer or the adjuster. Any denial or delay should be based ondocumented and proven facts and explained as such in the file. Ifthe adjuster cannot clearly list the facts and proof being reliedon to deny or delay the claim, then strong consideration should begiven to accepting and paying the claim without delay.

To do otherwise is to invite what has become a commonresult—fines, penalties, audits or a lawsuit for bad faith. If yourstate has not allowed bad faith lawsuits in workers' comp cases, anegregious enough case might be a tipping point.

Workers' Comp and BadFaith

The delay or denial of benefits may result from an understaffedclaims office, an overworked adjuster, a poorly trained adjuster, avindictive employer, an improper incentive program, or any numberof other unacceptable reasons.

Some of the less-than-ideal claims handling resulting from thesereasons and others have led legislatures to impose fines andpenalties and audits on defendants in an attempt to convince thedefendants to properly adhere to the intent of the workers' compsystem. A problem with the use of fines and penalties is that somestates have the fines and penalties payable to the governmentalbody and not to the injured worker.

While fines against the carrier or self-insured may have somedeterrent effect, they do little or nothing to alleviate thesuffering of the injured worker or to compensate him for beingdeprived of his or her benefits by the wrongful act of the claimshandler.

Many courts have ruled that the workers' comp carrier has a dutyof “good faith and fair dealing” to the injured worker under theworkers' comp policy in the same manner as to the named insuredunder any other insurance policy or contract.

If (and when) these legislative measures fail some of thelegislatures or the courts may conclude that a stronger measuremust be taken, namely to allow bad faith tort claims to be filedoutside of the workers' comp administrative system. The rationaleexpressed by some courts has been that the injury or damage causedby the claims handling arouse out of handling the claim as opposedto arising out of or in the course of the injured worker'semployment.

In some states, the courts have reasoned that subsequent to theworkers' comp accident and injury, if the unreasonable claimshandling causes additional pain, suffering, distress or damages inaddition to the initial comp injury, the responsible party can besued under a tort theory for knowingly, willfully or recklesslyinflicting injury or damage. Some states will allow the tort claimfor bad faith only if the injured worker is successful within thecompensation system, whereas other states will allow suit fordamages because of unreasonable delay and or denial even if theclaim is eventually found to be non-compensable.