Hawthorne Hires Firm to Process Workers’ Claims : Government: State auditors find improper handling of workers compensation program and order the city to hire an outside administrator.

The city of Hawthorne has hired an outside firm to administer its workers compensation program after a critical state audit showed that a large number of claims by injured and sick employees were wrongly denied or underpaid.

In a confidential report issued in early June, state officials criticized the city-run program, telling Hawthorne it would lose the right to insure itself against workers compensation claims if it didn’t hire a competent administrator for the program. The state’s action came to light earlier this week after the city hired North American Claims Management Co. to administer its claims.

The city is training a new administrator in the hope that the state will later permit a city employee to oversee the workers compensation program.

Among other problems, the audit found: a family of a deceased worker was owed more than $31,000 in death benefits; the workers compensation administrator had failed a state certification test in 1980, and workers unhappy with decisions about claims were suing the city at almost twice the statewide average.

Richard Stephens, a spokesman for the state Department of Industrial Relations, which monitors and approves self-insured agencies, said the state acted against Hawthorne because “cases weren’t being properly documented; they weren’t being handled to the standards we require. In some cases, the employees weren’t being paid enough. In other cases, they were being paid too much. It just wasn’t being done right.”

Most large companies and public agencies are self-insured against workers compensation claims to avoid paying premiums charged by insurance companies. Under state law, agencies or companies seeking to be self-insured must have the approval of state officials and must have a fund to cover their liabilities.

But according to the audit, which covered a three-year period from 1986 to 1989, Hawthorne’s workers compensation administrator, Lois Duncan, kept an insufficient reserve, failed to properly maintain files and made “excessive errors” in more than 42% of cases in one category.

The audit was not made public to protect the privacy of employees. State officials, instead, released copies of its correspondence with the city and an addendum to the audit that describes problems in files that were reviewed. Names and claim numbers were deleted from the information.

The audit consisted of a random sampling of cases and included a review of more than 160 claims, including those covering lost wages, medical bills and death benefits.

According to a letter to the city dated June 6, state auditors found errors in 26 of 61 indemnity cases they reviewed. Indemnity cases involve wages lost by employees due to work-related injuries or illnesses.

In several examples, city officials improperly denied stress-related medical claims without conducting a proper investigation, auditors said. In other instances, employees lost wages when sick days were not properly credited to them. In another case, the family of an employee who died in September, 1987, had yet to be paid for burial expenses, along with $31,000 of a $61,000 death benefit, the audit said.

State auditors found that Hawthorne employees sue the city over workers compensation benefits almost twice as often as the statewide average. In 1989, city employees litigated 16% of all claims. In 1987, the last year state figures were compiled, the statewide average was 8.9%. State officials say they believe the statewide average has not changed significantly in the last three years.

The audit also showed that Duncan, who administered the city’s workers compensation program for 13 years, failed a state certification exam in 1980 and thus is not qualified to monitor claims. None of the state’s previous audits, which occur every three years, was critical of the city’s program, and Duncan’s competence in handling claims was never mentioned, Stephens said.

But in a letter dated June 8, Mark Ashcraft, manager of the Department of Industrial Relations’ self-insured unit, told Duncan that the city claims program “is not acceptable and a major overhaul will be necessary if your city wishes to continue to self insure workers compensation liabilities.”

Duncan, who is retiring next month after 17 years with the city, declined to comment.

City Atty. Michael Adamson said in an interview Tuesday that he is not aware that Duncan had ever taken the state test. He said Duncan began handling claims long before the state required administrators to be certified, and that Duncan had assured him she was not required to be certified because of that.

The state is investigating whether she was ever given such approval.

“A lot of the problem was that Lois kept a lot of information in her head instead of fully documenting everything,” Adamson said.

As a result of the audit, Duncan is no longer processing claims, Adamson said. She is, however, assisting North American in establishing a computerized system and is helping to train a new city claims administrator, Gloria Hicks.

After Hicks is trained and certified, the city will ask the state to allow her to administer the program, Adamson said. State officials, however, say it could be as long as two years before they would allow a city employee to resume the program’s administration.

Attorney Kenneth H. Rowen, who is representing several workers who have claims against the city, said in an interview Tuesday that some city employees have been intimidated by supervisors not to file workers compensation claims.

“They have scorned and punished police officers and firefighters who have tried to exercise their rights” to receive workers compensation benefits, Rowen said.

One of his clients, former Hawthorne Police Officer Tim Lynch, said he was shocked at the treatment he received in 1987 when he applied for workers compensation benefits for an on-duty injury.

Lynch, who is now suing the city for vocational training funds, said he believed the state was finally pressed to take action against the city when he complained to state Assemblyman Richard E. Floyd (D-Carson) about Duncan’s lack of credentials.

He said he had threatened to sue both the city and state for their negligence in allowing Duncan to operate the program and that if it hadn’t been for his threats, “I don’t believe they were going to act on this at all.”

Adamson also said he believed that calls from Lynch and Floyd spurred the state to take action against the city.

However, Stephens, the state agency’s spokesman, said the audit was completed by the time the legislator called the Department of Industrial Relations.

“There was absolutely no pressure from any legislator regarding this audit,” Stephens said.