Verdict Vindicates Workers’ Comp Insurer

An Orange County jury has sided with California’s largest workers’ compensation insurer in finding that the State Compensation Insurance Fund did not in effect overcharge on premiums.

Smilecare Inc., a dental care company based in Irvine, was seeking millions of dollars in punitive damages, alleging that the insurer overestimated its premiums by at least $279,000. But Friday, after a two-month trial in Orange County Superior Court, an eight-person jury decided the insurance company did nothing improper.

“We’re very pleased,” said Andrew Guilford, one of the attorneys representing the State Compensation Insurance Fund, which insures hundred of thousands of California businesses. “Here’s a verdict where the jury looked at the situation and acted appropriately.”

Attorneys for Smilecare plan to file a motion for a new trial, and if that is not granted, they will appeal the decision.

Smilecare’s lawsuit is one of about a dozen cases in which businesses have accused the State Compensation Insurance Fund of overcharging on premiums. The fund is a nonprofit public agency that often insures companies that conventional carriers consider too risky. It also covers many firms that could find alternative insurers. Many of the complex and lengthy cases against the insurer are still under review, and none has produced a definitive conclusion about the allegation yet, attorneys say.

However, in one notable case last year, a Los Angeles jury agreed with a small grocery store chain about premium overcharging and hit the insurance company with a $20-million punitive verdict. That case is still under appeal.

In the last week’s case, Smilecare attorneys contended that the insurance carrier used a faulty method to calculate premiums called “over reserving.”

The practice occurs when a carrier sets aside too much money in reserve to cover a claim, which in turn artificially inflates premiums, attorneys said. This happens because reserves are weighed the same as claims paid, thus distorting subsequent premium calculations.