Man Gets $1-Million Workers’ Comp Award : Court: State Compensation Insurance Fund is penalized for withholding ex-engineer’s rehabilitation benefits.

In one of the biggest workers’ compensation penalties assessed in California, an insurance company has been ordered to pay more than $1 million to a Los Angeles man whose rehabilitation benefits were improperly cut off for 4 1/2 years.

While most of the criticism against the state’s troubled workers’ compensation system has focused on fraud by insurance claimants and their doctors and lawyers, the recently imposed penalty reflects an often-overlooked issue: insurers who drag their feet for years in handling claims, driving many disabled people into poverty or bullying them into unfair settlements.

In the recent case, State Compensation Insurance Fund was found by a Los Angeles workers’ compensation court referee to have “unreasonably” withheld vocational rehabilitation checks to a worker who claimed psychological stress and related problems.

The referee, Barbara Burke, also penalized SCIF--the state’s biggest workers’ compensation insurer--for repeatedly underpaying the engineer even after resuming his rehabilitation checks.

The case involves former South Coast Air Quality Management District engineer John McGregor, who was 61 when he filed his injury claim in 1983. The Los Angeles resident--who worked for the AQMD and a predecessor agency for 33 years--claims he developed psychiatric, voice and cardiovascular problems after being unfairly pressured by management to quit his job.

McGregor reached a settlement with SCIF in 1986 for $36,500 that covered lost wages and medical bills. But it left open the issue of vocational rehabilitation and related living expenses.

Shortly afterward, McGregor decided to pursue voice “retraining” to help him overcome speech problems and become a real estate agent. Contending that his strained voice stemmed from the stress of his job at the AQMD, he sought vocational rehabilitation payments from SCIF.

Although SCIF initially approved the payments, it cut them off in late 1987 based on medical evaluations that the voice retraining was unnecessary, according to SCIF spokesman Ron Christensen. Christensen said the company believed it was on solid legal ground so it continued to withhold all payments until suffering a legal reversal in the case in early 1992.

SCIF’s subsequent under-payments to McGregor, Christensen said, stemmed from “miscalculations” of what was owed in fines, and he acknowledged that other “missteps” were made during a period while the company reviewed its actions in the case.

Christensen portrayed the case as being emblematic of how the state’s much-criticized workers’ compensation system “has gone mad.”

The intent of vocational rehabilitation is to put people back to work, he said, “not to make a semi-retired man independently wealthy.”

“This is a case where technicalities show the flaws in the system,” Christensen added. “This should have been a minor expense but it’s expanded into something enormous.”

McGregor, who represented himself in the case after studying workers’ compensation law on his own, said in an interview Tuesday that he pressed his case because of the “arrogance” the company showed. He said SCIF representatives “laughed in his face” when he proposed various rehabilitation settlements. Back in 1987, McGregor said, the company turned down a rehabilitation plan that would have cost well under $10,000.

“This is not an isolated case,” McGregor said, referring to SCIF’s delays and under-payments. “The worker, unless he can do something for himself, is a pawn of the insurance companies and workers’ compensation attorneys.”

Burke, the workers’ compensation court referee, also has sharply criticized the company’s actions. In one of her rulings in the drawn-out case, she said SCIF’s refusal to pay McGregor “what he was owed despite repeated demands and threats of penalty and the years of delay have made this a case from hell” for him. Burke’s most recent ruling, imposing 20 penalties on SCIF, was issued quietly last month and has not previously been disclosed publicly.

All told, the penalties and back interest, along with a small amount of rehabilitation-related expenses, will cost SCIF at least $1.5 million. That includes $1.17 million paid last month, as a result of the referee’s latest ruling, and $331,000 paid previously.

Meanwhile, McGregor is seeking further penalties in an appeal filed with the seven-member Workers’ Compensation Appeals Board in San Francisco.

Christensen said that in the future, costly disputes over vocational rehabilitation are far less likely because rehabilitation costs now are normally limited to $16,000 per injury under a reform package passed by the California Legislature last summer.

Also, the key injury claimed by McGregor, psychological stress, is expected to come up less frequently in workers’ compensation cases because of tighter standards adopted in the reform package.