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(continued)
(o) First Payment of Temporary Disability Indemnity. (1) The first payment of temporary disability indemnity made to an injured worker for a work injury; or (2) the first resumed payment of temporary disability indemnity following any period of one or more days for which no temporary disability indemnity was payable for that work injury; or (3) the first resumed payment of temporary disability indemnity following issuance of a lawful notice that temporary disability benefits were ending.
(p) General Business Practice. Conduct that can be distinguished by a reasonable person from an isolated event. The conduct can include a single practice and/or separate, discrete acts or omissions in the handling of several claims.
(q) Indemnity Claim. A work-injury claim that has resulted in the payment of any of the following benefits: temporary disability indemnity or salary continuation in lieu of temporary disability indemnity, permanent disability indemnity, death benefits, or vocational rehabilitation.
(r) Insurer. Any company, group, or entity in, or which has been in, the business of transacting workers' compensation insurance for employers subject to the workers' compensation laws of this state. The term insurer includes the State Compensation Insurance Fund.
(s) Investigation.
(1) As conducted by a claims administrator, an investigation is the process of examining and evaluating a claim to determine the nature and extent of all legally required benefits, if any, which are due under the claim. Investigation may include formal or informal methods of gathering information relevant to evaluating the claim such as: obtaining employment records; obtaining earnings records; informal or formal interviews of the employee, employer, or witnesses; deposition of parties or witnesses; and, obtaining expert opinion where an issue requires an expert opinion for its resolution, such as obtaining a medical-legal evaluation.
(2) As conducted by the Audit Unit, an investigation is the process of reviewing and evaluating, pursuant to Section 10106.5 of these regulations and/or Government Code Sections 11180 through 11191, the extent to which a claims administrator meets its compensation obligations under the California Labor Code or Administrative Director's regulations. An investigation may be conducted concurrently as part of an on-going audit without separate notice issued by the Audit Unit, or may be conducted independently from a specific audit in order to determine if an audit will be conducted, or to determine the nature and extent of business practices for which one or more civil penalties may be assessed pursuant to Labor Code Section 129.5(e).
(t) Joint Powers Authority. Any county, city, city and county, municipal corporation, public district, public agency, or political subdivision of the state, but not the state itself, included in a pooling arrangement under a joint exercise of powers agreement for the purpose of securing a certificate of consent to self-insure workers' compensation claims under Labor Code Section 3700(c).
(u) Knowingly committed. Acting with knowledge of the facts of the conduct. A corporation is presumed to have knowledge of facts any employee receives while acting within the scope of his or her authority. A corporation is presumed to have knowledge of information contained in its records.
(v) Medical-Only Claim. A work-injury claim in which no indemnity benefits have been paid.
(w) Notice of Compensation Due. The Notice of Assessment issued pursuant to Labor Code Section 129(c).
(x) Open Claim. A work-injury claim in which future payment of compensation may be due or for which reserves for the future payment of compensation are maintained.
(y) Payment Schedule. Either:
(1) The two-week cycle of indemnity payments due on the day designated with the first payment as required by Labor Code Section 4650(c) or 4702(b), including any lawfully changed payment schedule; or
(2) The two-week cycle of payments of vocational rehabilitation maintenance allowance (VRMA) required by Title 8, California Code of Regulations, Division 1, Chapter 4.5, Subchapter 1.5, Article 7, Section 10125.1.
(z) Record of Payment. An accurate written or electronic record of all compensation payments in a claim file, including but not limited to:

(1) The check number, date the check was issued, name of the payee, amount, and for indemnity payments, including self-imposed increases, penalties, and/or interest, the time period(s) covered by the payment;
(2) All dates for which salary continuation as defined by Labor Code Section 4650(g) was provided instead of direct indemnity payments; the dates for which salary continuation was authorized; and documentation when applicable that sick leave or other leave credits were restored for any periods for which salary continuation was payable;
(3) A copy of each bill received which included as part of the bill a medical progress or work status report; and either a copy of each other bill received or documentation of the contents of that bill showing the date and description of the service provided, provider's name, amount billed, date the claims administrator received the bill, and date and amount paid.
(aa) Self-insured Employer. An employer, either as an individual employer or as a group of employers, that has been issued a certificate of consent to self-insure as provided by Labor Code Section 3700(b) or (c), including a joint powers authority or the State of California as a legally uninsured employer.
(bb) Third-Party Administrator. An agent under contract to administer the workers' compensation claims of an insurer, a self-insured employer, a legally uninsured employer. or a self-insured joint powers authority. The term third-party administrator includes the State Compensation Insurance Fund for locations that administer claims for legally uninsured and self-insured employers, and also includes Managing General Agents.
(cc) VRMA. Vocational rehabilitation maintenance allowance.


Note: Authority cited: Sections 59, 129.5, 133, 138.4 and 5307.3, Labor Code. Reference: Sections 7, 124(a), 129(a), (b), (c), 129.5(a), (b), 3700, 3702.1, 4636, 4650(c), 5307.1 and 5402, Labor Code.





s 10101. Claim File -Contents.
This section applies to maintenance of claims files for injuries occurring before January 1, 1994.
Every claims administrator shall maintain a claim file of each work-injury claim including claims which were denied. All open claim files shall be kept at the adjusting location for the file. The file shall contain but not be limited to:
(a) An employer date stamped copy of the Employee's Claim for Workers' Compensation Benefits, DWC Form 1, or documentation of reasonable attempts to obtain the form.
(b) Employers Report of Occupational Injury or Illness, DLSR Form 5020, or documentation of reasonable attempts to obtain it.
(c) Every notice or report sent to the Division of Workers' Compensation.
(d) A copy of every Doctor's First Report of Occupational Injury or Illness, DLSR Form 5021, or documentation of reasonable attempts to obtain them.
(e) The original or a copy of every medical report pertaining to the claim, or documentation of reasonable attempts to obtain them.
(f) All orders or awards of the Workers' Compensation Appeals Board pertaining to the claim.
(g) A record of payment of compensation.
(h) A copy of the application(s) for adjudication of claim filed with the Workers' Compensation Appeals Board, if any.
(i) Copies of all notices sent to the employee pursuant to the requirements of the Benefit Notice Program established by Labor Code Section 138.4 and the notices required by Article 2.6 of Chapter 2 of Part 2 of the Labor Code, commencing with Section 4635.


Note: Authority cited: Sections 59, 129.5, 133, 138.4, 4603.5 and 5307.3, Labor Code. Reference: Sections 124, 129, 129.5, 138.3, 138.4, 139.5, 4061, 4453, 4454, 4600, 4603.2, 4621, 4622, 4636, 4637, 4641, 4643, 4644, 4650, 4701 through 4703.5, 5401, 6409 and 6409.1, Labor Code.





s 10101.1. Claim File -Contents.
This section applies to maintenance of claim files for injuries occurring on or after January 1, 1994.
Every claims administrator shall maintain a claim file of each work-injury claim including claims which were denied. All open claim files shall be kept at the adjusting location for the file. The file shall contain but not be limited to:
(a) Either (1) a copy of the Employee's Claim for Workers' Compensation Benefits, DWC Form 1, showing the employer's date of knowledge of injury, the date the employer provided the form to the employee and the date the employer received the completed form from the employee; or (2) if the employee did not return the claim form, documentation of the date the employer provided a claim form to the employee. If the administrator cannot obtain the form or determine that the form was provided to the employee by the employer, the file shall contain documentation that the administrator has provided the claim form to the employee as required by Title 8, California Code of Regulations Section 10119.
(b) A copy of the Employer's Report of Occupational Injury or Illness, DLSR Form 5020, or documentation of reasonable attempts to obtain it;
(c) A copy of every notice or report sent to the Division of Workers' Compensation.
(d) A copy of every Doctor's First Report of Occupational Injury or Illness, DLSR Form 5021, or documentation of reasonable attempts to obtain them.
(e) The original or a copy of every medical report pertaining to the claim, or documentation of reasonable attempts to obtain them.
(f) All orders or awards of the Workers' Compensation Appeals Board or the Rehabilitation Unit pertaining to the claim.
(g) A record of payment of compensation.
(h) A copy of the application(s) for adjudication of claim filed with the Workers' Compensation Appeals Board, if any.
(i) Copies of the following notices sent to the employee:
(1) Benefit notices, including vocational rehabilitation notices, required by Title 8, California Code of Regulations, Division 1, Chapter 4.5, Subchapter 1, Article 8, beginning with Section 9810, or by Title 8, California Code of Regulations, Division 1, Chapter 4.5, Subchapter 1.5, Article 7, beginning with Section 10122;
(2) Notices related to the Qualified Medical Evaluation process required by Labor Code Section 4061;
(j) Documentation sufficient to determine the injured worker's average weekly earnings in accordance with Labor Code Sections 4453 through 4459. Unless the claims administrator accepts liability to pay the maximum temporary disability rate, including any increased maximum due under Labor Code s4661.5, the information shall include:
(1) Documentation whether the employee received the following earnings, and if so, the amount or fair market value of each: tips, commissions, bonuses, overtime, and the market value of board, lodging, fuel, or other advantages as part of the worker's remuneration, which can be estimated in money, said documentation to include the period of time, not exceeding one year, as may conveniently be taken to determine an average weekly rate of pay;
(2) Documentation of concurrent earnings from employment other than that in which the injury occurred, or that there were no concurrent earnings, or of reasonable attempts to determine this information;
(3) If earnings at the time of injury were irregular, documentation of earnings from all sources of employment for one year prior to the injury, or of reasonable attempts to determine this information.
(4) If the foregoing information results in less than maximum earnings, documentation of the worker's earning capacity, including documentation of any increase in earnings likely to have occurred but for the injury (such as periodic salary increases or increased earnings upon completion of training status), or of reasonable attempts to determine this information.
(k) Notes and documentation related to the provision, delay, or denial of benefits, including any electronically stored documentation.
( l) Notes and documentation evidencing the legal, factual, or medical basis for non-payment or delay in payment of compensation benefits or expenses.
(m) Notes describing telephone conversations relating to the claim which are of significance to claims handling, including the dates of calls, substance of calls, and identification of parties to the calls.


Note: Authority cited: Sections 59, 129.5, 133, 138.4, 4603.5 and 5307.3, Labor Code. Reference: Sections 124, 129, 129.5, 138.3, 138.4, 139.5, 4061, 4453, 4454, 4600, 4603.2, 4621, 4622, 4636, 4637, 4641, 4643, 4644, 4650, 4701 through 4703.5, 5401, 6409and 6409.1, Labor Code.







s 10102. Retention of Claim Files.
(a) All claim files shall be maintained at least until the latest of the following dates:
(1) five years from the date of injury;
(2) one year from the date compensation was last provided;
(3) all compensation due or which may be due has been paid;

(4) if an audit has been conducted within the time specified in (a)(1), until the findings of an audit of the file have become final.
(b) Open and closed claim files may be maintained in whole or in part in an electronic or other non-paper storage medium.


Note: Authority cited: Sections 59, 129.5(b), 133, 138.4, 4603.5 and 5307.3, Labor Code. Reference: Sections 124(a), 129(a) through (c), 129.5(a), (b), (d), 138.3, 4061, 4453, 4454, 4600, 4603.2(b), 4621, 4622, 4636, 4637, 4641, 4643, 4644, 4650, 4701 through 4703.5, 5401(a), 5401.6, 5405 and 5804, Labor Code.





s 10103. Claim Log -Contents and Maintenance.
This section shall govern claim log maintenance prior to January 1, 1994.
(a) Every claims administrator shall produce a claim log of all work-injury claims maintained at each adjusting location, prepared chronologically in alphanumeric or numeric ascending order, or in a combination thereof.
(b) The claim log shall contain at least the following information:
(1) Name of injured.

(2) The claims administrator's claim number.
(3) Date of injury.
(4) An indication as to whether the work-injury claim is an indemnity or medical-only case.
(5) An entry if all liability for a claim has been denied.
(6) For self-insurer, when a Certificate of Consent to Self-Insure has been issued, an entry identifying the corporation employing the injured.
(c) The claim log of a former self-insurer shall be maintained and made available to the audit unit within 5 days of request.
(d) A claims administrator shall provide a copy of a claim log within 14 days of receiving a written request from the Administrative Director.


Note: Authority cited: Sections 59, 129.5, 133 and 5307.3, Labor Code. Reference: Sections 124, 129, 129.5, 138.4, 3702.8 and 5401, Labor Code.





s 10103.1. Claim Log -Contents and Maintenance.
This section shall govern claim log maintenance on or after January 1, 1994.
(a) The claims administrator shall maintain annual claim logs listing all work-injury claims, open and closed. Each year's log shall be maintained for at least five years from the end of the year covered. Separate claim logs shall be maintained for each self-insured employer and each insurer for each adjusting location.
(b) Each entry in the claim log shall contain at least the following information:
(1) Name of injured worker.
(2) Claims administrator's claim number.
(3) Date of injury.
(4) An indication whether the claim is an indemnity or medical-only claim.
(5) An entry if all liability for a claim has been denied at any time. All liability is considered to have been denied even if the administrator accepted liability for medical-legal expense.
(6) If the claim log is for a self-insured employer and a Certificate of Consent to Self-Insure has been issued, the name of the corporation employing the injured worker. If the claim log consists of claims for two or more members of an insurer group, each entry on the log shall identify the insurer.
(c) The entries on a log provided to the Administrative Director shall reflect current information, to show at least any changes in status of a claim which occurred 45 days or more before the claim log was provided. However, once all liability for a claim has been denied the log shall designate the claim as a denial, even if the claim was later accepted.
(d) The claim log of each former self-insured employer and each self-insured employer which changes or terminates the use of a third-party administrator shall be maintained by that self-insured employer as required by subsection (a).
(e) A claims administrator shall provide a copy of a claim log within 14 days of receiving a written request from the Administrative Director.


Note: Authority cited: Sections 59, 129.5, 133 and 5307.3, Labor Code. Reference: Sections 124, 129, 129.5, 138.4, 3702.8 and 5401, Labor Code.





s 10103.2. Claim Log -Contents and Maintenance.
This section shall govern claim log maintenance on or after January 1, 2003.
(a) The claims administrator shall maintain annual claim logs listing all work-injury claims, open and closed. Each year's log shall be maintained for at least five years from the end of the year covered. Separate claim logs shall be maintained for each self-insured employer and each insurer for each adjusting location.
(b) Each entry in the claim log shall contain at least the following information:
(1) Name of injured worker.
(2) Claims administrator's claim number.
(3) Date of injury.
(4) An indication whether the claim is an indemnity or medical-only claim.
(5) An entry if all liability for a claim has been denied at any time. All liability is considered to have been denied even if the administrator accepted liability for medical-legal expense.
(6) If the claim log is for a self-insured employer and a Certificate of Consent to Self-Insure has been issued, the name of the corporation employing the injured worker. If the claim log consists of claims for two or more members of an insurer group, the log shall identify the insurer for each claim.
(7) If the claim has been transferred from one adjusting location to another, the address of the new location shall be identified on the initial adjusting location's log. Claims that are transferred from one adjusting location to another shall be listed on the claim log of the new adjusting location for the year in which the claim was initially reported, not for the year in which the claim was transferred.
(c) The entries on a log provided to the Administrative Director shall reflect current information, to show at least any changes in status of a claim which occurred 45 days or more before the claim log was provided. However, once all liability for a claim has been denied the log shall designate the claim as a denial, even if the claim was later accepted.
(d) The claim log of each former self-insured employer and each self-insured employer that changes or terminates the use of a third-party administrator shall be maintained by that self-insured employer as required by subsection (a).
(e) A claims administrator shall provide a copy of a claim log within 14 days of receiving a written request from the Administrative Director.


Note: Authority cited: Sections 59, 129.5, 133 and 5307.3, Labor Code. Reference: Sections 124, 129, 129.5, 138.4, 3702.8 and 5401, Labor Code.





s 10104. Annual Report of Inventory.
Each claims administrator shall maintain, and shall file with the Administrative Director, an Annual Report of Inventory for each of its adjusting locations. The report shall be filed annually by April 1. It shall include the name, address, and telephone number of the adjusting location and the name and title of the person responsible for audit coordination. Reports due on or after April 1, 2003 shall report, as of the preceding January 1, the numbers of indemnity, denied, and medical-only claims reported to the claims administrator during the preceding calendar year for insurers and private self-insured employers, or fiscal year for public self-insured employers. If the administrator adjusts for more than one entity at that location, the report shall give the total numbers of claims at that location and shall also identify the numbers of claims for each self-insured employer or insurer liable for the payment of compensation.


Note: Authority cited: Sections 59, 129.5(b), 133 and 5307.3, Labor Code. Reference: Sections 129(a), (b) and 129.5(a), (b), (d), Labor Code.





s 10105. Auditing, Discretion of the Administrative Director.
To carry out the responsibility pursuant to Labor Code Section 129(a) and Section 129(b), the Administrative Director or his/her representative shall audit claims administrators' claim files and claim logs at such reasonable times as he/she deems necessary. The Administrative Director or his/her representative may also utilize the provisions of Government Code Sections 11180 through 11191.

Note: Authority cited: Sections 59, 129.5, 133 and 5307.3, Labor Code. Reference: Sections 129 and 129.5, Labor Code.





s 10106. Random and Non-Random Audit Subject Selection; Complaint/Information Investigation.
(a) In its discretion, the Audit Unit may treat an affiliated group of insurers at a single adjusting location as individual insurers, or may combine all or any of them as a single insurer audit subject. In its discretion, the Audit Unit may treat parent and subsidiary self-insured employers at a single adjusting location as individual self-insureds, or may combine all or any of them as a single self-insured audit subject.
(b) The final selection of audit subjects shall be within the discretion of the Audit Unit. The Audit Unit may investigate information or complaints instead of, or in addition to, conducting an audit. Investigations and/or audits may be conducted if complaints or information indicate the possible existence of claims handling practices which would be assessed as a civil penalty under Labor Code Section 129.5(d).
(c) The Audit Unit shall select at least half of its audit subjects at random from any available listing of adjusting locations of workers' compensation insurers, self-insured employers, self-insured joint powers authorities, legally uninsured employers, and third-party administrators. If, after the results of an audit become final, none of the criteria qualifying an audit subject for a return non-random audit pursuant to subsection (f) of this section exist, the audit subject shall be removed from the pool of potential random audit subject selection for three years. However, eligibility under this subsection for removal from the pool for random audit subject selection shall not bar the non-random selection of the audit subject pursuant to this section or Labor Code Section 129(b).
(d) In order to establish priorities for audits pursuant to Labor Code s129(b), the Audit Unit shall review and compile complaints and information that indicate a claims administrator is failing to meet its obligations under Divisions 1 or 4 of the Labor Code or regulations of the administrative director.
(1) The information and complaints shall be tracked and compiled into a list of Claims Administrators Identified for Potential Non-Random Investigation as follows:
(i) Complaints or information available to the Audit Unit which indicate possible violations of the kind which, if found on audit, would be subject to the assessment of administrative penalties or issuance of notices of compensation due shall be retained in potential audit subject files by claims adjusting locations. Factual information and complaints shall be weighted on the basis of apparent severity of the alleged violation, using the assessment categories set forth in the subsections (a) through (d) of s10111 and s10111.1 to set a point value.
An alleged violation that would fall within subsection (a) is given one point, an alleged violation that would fall within subsection (b) is given five points, an alleged violation that would fall within subsection (c) is given ten points, and an alleged violation that would fall within subsection (d) is given fifty points. When multiple violations are alleged in one complaint, each potential violation is given the appropriate point(s).
Points assigned for violations which are evidenced by decisions or findings rendered by the WCAB or Rehabilitation Unit shall be multiplied by ten.
(ii) Periodically, the audit unit shall review and analyze the complaint and information data in order to establish a list of Claims Administrators Identified for Potential Non-Random Investigation. The total number of points assigned to a claims administrator at an adjusting location shall be compared to the total number of claims reported at that claims adjusting location as indicated on the Annual Report of Inventory or the Self Insurer's Annual Report. The claims administrators shall be ranked on the list of Claims Administrators Identified for Potential Non-Random Investigation on the basis of the ratio of weighted complaints to case load size at each adjusting location. It is within the discretion of the Audit Unit to determine when new lists shall be established.
(2) The audit unit shall select any number of the highest ranking claims adjusting locations for investigation from the list of Claims Administrators Identified for Potential Non-Random Investigation.

(i) The Audit Unit shall notify the claims administrator that it will conduct an investigation, and shall specify the files it will review by providing the names of the injured workers. The Audit Unit shall give the claims administrator a minimum of three working days notice of the date of commencement of the investigation. Notice may be given by telephone. The claim files shall be made available to the Audit Unit at the time of the commencement of the investigation. The Audit Unit may examine claim files and require a claims administrator to provide documents and information.
(ii) The Audit Unit shall examine the selected files and shall assign points for each violation found in the files in accordance with the point system set forth in subsection (d)(1)(i), except that there shall be no multiplier for violations evidenced by decisions or findings of the WCAB or Rehabilitation Unit. Points shall be assigned for every violation found in the file, both violations that were alleged in the complaints and additional violations found by the audit unit.
(iii) The Audit Unit shall send a notice to the claims administrator which outlines the violations found in the files investigated. The claims administrator may request copies of the complaints relating to the files investigated. The complaints may be kept confidential by the audit unit if confidentiality is requested by the complainant.
(iv) The claims administrator may present documentation and/or argument to the Audit Unit to disprove any or all of the violations found by the audit unit in the investigated files. The documentation and argument must be post-marked or personally delivered to the Audit Unit within fourteen days of receipt of the letter outlining the violations.
(v) The Audit Unit shall consider documents and argument submitted by the claims administrator to disprove the violations found in the investigated files and determine whether there is a basis to alter any of the points previously assigned.
(vi) The adjusting locations shall then be ranked on a list of Claims Administrators Identified for Potential Non-Random Audit on the basis of the ratio of violation points to the number of claims investigated at each adjusting location.
(e) The Audit Unit shall select non-random audit subjects from the list of Claims Administrators Identified for Potential Non-Random Audit, and shall endeavor to give priority in scheduling audits to those administrators that have been assigned the most points. However, the audit unit may also consider the results and recency of prior audits at the adjusting location, the resources of the audit unit, and the need to conduct random audits, in scheduling investigations and audits. The Audit Unit is not required to investigate or audit every claims administrator on the list, nor is it required to investigate or audit in the order in which claims administrators appear on the list.
If the Audit Unit is able to conduct more non-random audits than the number appearing on the list of Claims Administrators Identified for Potential Non-Random Audit, it may select any number of the next highest ranking adjusting locations appearing on the list of Claims Administrators Identified for Potential Non-Random Investigation. The adjusting locations shall then be investigated and ranked according to subsection (d)(2).
(f) Prior audit results shall be used independently as factual information to support selection of a claims administrator for non-random audit.
(1) The Audit Unit shall return for a repeat non-random audit of denied files of the audit subject within one to three years of the results of an audit becoming final if there is more than one unsupported denial and the number of unsupported denials exceeds 5% of the audited denied claims.
(2) The Audit Unit shall return for a repeat non-random audit of indemnity files of the audit subject within one to three years of the results of an audit becoming final if:
(i) The number of randomly selected audited files with violations involving the failure to pay indemnity exceeds 20% of the audited files in which indemnity is accrued and payable and the average amount of unpaid indemnity exceeds $200.00 per file in which indemnity is accrued and payable, or
(ii) The numbers of randomly selected files with violations involving the late first payments of temporary disability indemnity, permanent disability indemnity, vocational rehabilitation maintenance allowance, late subsequent indemnity payments, and late payments of death benefits, as mitigated for frequency under Section 10111.1(e)(3)(i) through (v), exceeds 30% of the audited files in which those indemnity payments have been made, and the number of audited files with violations involving the failure to issue benefit notices, as assessed under Section 10111.1(a)(7)(ii) of these regulations, exceeds 30% of the files in which there is a requirement to issue those notices.
(g) The Audit Unit shall send a claims administrator selected for non-random audit a Notice of Audit in accordance with s10107. The Notice of Audit for a non-random audit may be appealed as follows:
(i) Within 7 days after receiving a Notice of Audit the claims administrator may appeal its selection for audit by filing and serving a request for an appeals conference or a request for a written decision by the Administrative Director without a conference.
(ii) Within 21 days after the request for a written decision or an appeals conference is filed, the appellant shall file with the Administrative Director and serve a written statement setting forth the legal and factual basis of the appeal, and including documentation or other evidence which supports the appellant's position.
(iii) If a request for an appeals conference or a request for a written decision without conference or if the written statement and documentation are not timely filed and served under Subsections (g)(i) and (g)(ii), the claims administrator shall be deemed to have finally waived the issue of the propriety of its selection for audit. The claims administrator will be precluded from raising the issue at any subsequent appeals of Notices of Penalty Assessment or Notices of Compensation Due.
(iv) Service and filing are timely if the documents are placed in the United States mail, first class postage prepaid, or personally delivered between the hours of 8:00 a.m. and 5:00 p.m., within the periods specified in Subsections (g)(i) and (g)(ii). The original and all copies of any filing shall attach proof of service as provided in Section 10514.
(v) The appeal process shall be governed by Section 10115.2.


Note: Authority cited: Sections 59, 129.5, 133 and 5307.3, Labor Code. Reference: Sections 7, 53, 111, 124, 129 and 129.5, Labor Code; and Sections 11180, 11180.5, 11181 and 11182, Government Code.





s 10106.1. Routine and Targeted Audit Subject Selection; Complaint Tracking; Appeal of Targeted Audit Selection.
For audits conducted on or after January 1, 2003:
(a) The Division of Workers' Compensation shall maintain and update annually a list of known adjusting locations of California workers' compensation claims. The list will be based on information provided to the Division in Annual Reports of Inventory submitted pursuant to Section 10104, data submitted to the Division's Workers' Compensation Information System pursuant to Labor Code Section 138.6, and any other sources of information available. The list shall include all known adjusting locations, located in or out of California, of insurers, self-administered self-insured employers, and third-party administrators that administer California workers' compensation claims.
(b) The Audit Unit shall select each adjusting location from the list of adjusting locations for routine profile audit review pursuant to Labor Code Section 129(b)(1) at least once every five years. Audit subjects may be selected in any order, and routine audits may be scheduled by the Audit Unit in a manner to best minimize travel expenses and utilize audit personnel efficiently.
(1) For routine audit subject selection pursuant to Labor Code Section 129(b)(1), if the adjusting location includes claims of more than one insurance underwriting company, self-insured employer, or third-party administrator at the location and all claims at that location share the same local management, the location will be considered as one audit subject.
(2) Eligibility under this subsection for removal from the pool for routine audit subject selection shall not bar the targeted selection of the audit subject pursuant to subsections (c)(2), (c)(3), (c)(4), Labor Code Section 129(b)(3), or for investigation and/or audit pursuant to Section 10106.5 of these regulations.
(c) The Audit Unit shall target audit subjects based on prior audit results pursuant to Labor Code Section 129(b)(2) and subsection (c)(1) of this regulation. Pursuant to Labor Code Section 129(b)(3), the Audit Unit may also target audit subjects based on subsections (c)(2) through (c)(5) of this regulation.
(1) Audit results shall be used independently as factual information to support selection of a claims administrator for a return, targeted audit as follows:
(A) When a final audit report is issued, the report will include a final performance rating. The final performance rating will be calculated in the same manner as the performance audit review performance rating as set forth in Section 10107.1(c)(3), except that the rating shall be determined based on audit findings from all randomly selected claims, including additional claims selected pursuant to Sections 10107.1(d)(1) and (e)(1).
(B) If the audit subject's performance rating calculated pursuant to Section 10107.1(c)(3) or (d)(3) fails to meet or exceed the worst 10% of performance ratings for all audits conducted in the three calendar years before the year preceding the current audit, the Audit Unit will return for a targeted audit of the audit subject within two years of the date the audit findings become final.
(C) In the final audit report, the Audit Unit shall notify the audit subject that a return, targeted audit will be conducted based upon its performance rating. The return target audit shall be conducted in addition to any penalties assessed as a result of the qualifying audit.
(D) Any appeal of the audit subject's selection for a targeted audit based upon the audit findings must be made in the same manner as an appeal of the Notice of Penalty Assessment as set forth in Section 10115.1, and must be made within seven days of receipt of the audit findings upon which the selection for targeted audit is based.
(2) Audit subjects may be selected for targeted audit based on final decisions or findings of the WCAB issued pursuant to Labor Code Section 5814 as follows:
(A) The Division of Workers' Compensation will regularly submit copies of WCAB decisions, findings, and/or awards issued pursuant to Labor Code Section 5814 to the Audit Unit.

(B) Approximately once per year the audit unit will establish a list of claims administrators identified for potential targeted audit based on the documentation provided pursuant to subsection (c)(2)(A). For each adjusting location, the total number of decisions, findings, and/or awards issued pursuant to Labor Code Section 5814 shall be compared to the total number of claims reported at that claims adjusting location for the last year for that potential audit subject, as indicated on the Annual Report of Inventory or the Self Insurer's Annual Report, or as indicated in the data reported by the claims administrator to the Division of Workers' Compensation as part of the Workers' Compensation Information System pursuant to Labor Code Section 138.6. The Audit Unit may obtain data runs or claim logs from the claims administrator to verify the accuracy of the claims reported.
(C) The Audit Unit may select for target audit the highest-ranking subjects, based on the ratios of decisions, findings, and/or awards issued pursuant to Labor Code Section 5814 compared to the number of claims reported at the adjusting location, from the list. The Audit Unit may consider the results and recency of prior audits at the adjusting location, the resources of the Audit Unit, and the need to conduct routine audits in scheduling targeted audits. The Audit Unit is not required to audit every claims administrator on the list, nor is it required to audit in the order in which claims administrators appear on the list.
(D) The Audit Unit shall send the audit subject selected for targeted audit a Notice of Audit in accordance with s10107.1(a).
(3) The Audit Unit may also target audit subjects based on credible complaints and/or information received by the Division of Workers' Compensation that indicate possible claims handling violations, except that the Audit Unit will not target audit subjects based only on anonymous complaints unless the complaint(s) is supported by credible documentation. Complaints received by the Division of Workers' Compensation may be kept confidential if confidentiality is requested by the complaining party. In order to establish priorities for audits pursuant to this subsection, the Audit Unit shall review and compile complaints and information that indicate claims administrator adjusting locations are failing to meet their obligations under Divisions 1 or 4 of the Labor Code or regulations of the administrative director. Approximately once per year, complaints and information alleging improper claims handling shall be tracked and compiled into a list of claims administrators identified for potential target audits in two manners:

(A) On the basis of overall gravity and frequency of potential violations as measured by assigned points:
(i) Complaints or information indicating possible violations of the kind which, if found on audit, would be subject to the assessment of administrative penalties or issuance of notices of compensation due shall be weighted on the basis of apparent severity of the alleged violation. One point shall be assigned for each $100.00 in penalties assessable under the corresponding violations in Sections 10111 through 10111.2 of these regulations.
(ii) The Audit Unit may select for target audit the highest-ranking subjects, based on points assigned compared to the number of claims reported at the adjusting location. The Audit Unit may consider the results and recency of prior audits at the adjusting location, the resources of the Audit Unit, and the need to conduct routine audits in scheduling targeted audits. The Audit Unit is not required to audit every claims administrator on the list, nor is it required to audit in the order in which claims administrators appear on the list.
(iii) The Audit Unit shall send the audit subject selected for targeted audit a Notice of Audit in accordance with s 10107.1(a).

(B) On the basis of credible complaints or information indicating claims handling for which a civil penalty may be assessed pursuant to Labor Code Section 129.5(e):
(i) The Audit Unit may select for target audit the highest-ranking subjects based on the ratios of complaints or information regarding specific claims practices compared to the number of claims. In considering the potential for specific poor claims practices, the Audit Unit may consider the results and recency of prior audits at the adjusting location, the resources of the Audit Unit, and the need to conduct routine audits in scheduling targeted audits. The Audit Unit is not required to audit every claims administrator on the list, nor is it required to audit in the order in which claims administrators appear on the list.
(ii) The Audit Unit shall send the audit subject selected for targeted audit a Notice of Audit in accordance with s 10107.1(a).
(4) The Audit Unit may also select targeted audit subjects based on data from the Workers' Compensation Information System which indicates the claims administrator is failing to meet its obligations, including, but not limited to, high percentages of possible violations compared to other claims administrators. Possible violations include high percentages of apparent late first and/or subsequent indemnity payments, either overall or by class of indemnity, and/or high ratios of denied claims to indemnity claims
(5) The Audit Unit may also target an audit subject for any of the following:
(A) Failure to produce a claim for the Audit Unit within 30 days of receipt of a written request in a profile audit review conducted pursuant to Labor Code Section 129(b).
(B) Failure to pay or appeal pursuant to Section 10115 any Notice of Compensation Due issued by the Audit Unit.
(6) For target audits, the Audit Unit may randomly select claims pursuant to Section 10107.1 of these regulations and/or target claims based on information indicating the possible existence of specific claims handling practices.
(7) For target audits and/or for targeted claims in any audit, the Audit Unit is not required to audit an entire claim file, but may audit only those parts of the claim file that pertain to the complaint or to a specific type of possible violation(s).
(8) The Notice of Audit for a targeted audit selected pursuant to subsections (c)(2) through (c)(5) may be appealed as follows:
(A) Within 7 days after receiving a Notice of Audit the claims administrator may appeal its selection for audit by filing with the Administrative Director and serving on the Audit Unit a request for an appeals conference or a request for a written decision without a conference.
(B) Within 21 days after the request for a written decision or an appeals conference is filed, the appellant shall file with the Administrative Director and serve the Audit Unit with a written statement setting forth the legal and factual basis of the appeal, and including documentation or other evidence which supports the appellant's position.
(C) If a request for an appeals conference or a request for a written decision without conference or if the written statement and documentation are not timely filed and served under Section 10115.1(g)(1) and (g)(2), the claims administrator shall be deemed to have waived any issue concerning its selection for audit. The claims administrator will be precluded from raising the issue at any subsequent appeals of Notices of Penalty Assessment or Notices of Compensation Due.
(D) Service and filing are timely if the documents are placed in the United States mail, first class postage prepaid, or personally delivered between the hours of 8:00 a.m. and 5:00 p.m., within the periods specified in Section 10115.1(g). The original and all copies of any filing shall attach proof of service as provided in Section 10975.
(E) The appeal process shall be governed by Section 10115.2.


Note: Authority cited: Sections 59, 129, 129.5, 133, 138.6 and 5307.3, Labor Code. Reference: Sections 7, 53, 111, 124, 129 and 129.5, Labor Code; and Sections 11180, 11181 and 11182, Government Code.





s 10106.5. Civil Penalty Investigation.
Notwithstanding Sections 10106 and 10107 of these regulations, if the Audit Unit has information indicating the possible existence of claims handling practices which would be assessable as a civil penalty under Labor Code Section 129.5(e), it may conduct an investigation and/or audit pursuant to Labor Code Sections 129 and 129.5. The Audit Unit may also utilize the provisions of Government Code Sections 11180 through 11191 as the delagee of the Administrative Director's powers as a department head.
The Audit Unit shall report any suspected fraudulent activity uncovered during an audit and/or investigation to the appropriate law enforcement agencies, including but not limited to the Department of Insurance Fraud Bureau and the appropriate District Attorney having jurisdiction over the audit subject.


Note: Authority cited: Sections 129.5, 133 and 5307.3, Labor Code. Reference: Sections 11180 through 11191, Government Code; and Sections 59, 60, 111, 124, 129 and 129.5, Labor Code.





s 10107. Notice of Audit; Claim File Selection; Production of Claim Files; Auditing Procedure.
(a) Once a subject has been selected for an audit, the Audit Unit shall serve a Notice of Audit on the claims administrator. The Notice shall inform the administrator of its selection for audit, and shall include a request to provide the Audit Unit with a claim log or logs. The audit subject shall provide two copies of the specified claim log(s) within fourteen days of the date of the receipt of the Notice. The Audit Unit may select any or all claim files for audit.
(b) The Audit Unit shall send the audit subject a Notice of Audit Commencement identifying the files to be audited, except that no notice need be given to audit claim files which are the subject of inquiries or complaints. The audit shall commence no less than fourteen days from the date the Notice was sent, unless the audit subject agrees to earlier commencement.
(c) The Audit Unit shall randomly select separate samples of indemnity, denied, and medical-only files from two years' of the audit subject's claim logs, except that if the earliest of the last two completed years has already been the subject of an audit, claims will be randomly selected from only the last completed year.
(1) The total number of indemnity files randomly selected for audit will be determined based on the following table:
Population Sample Size
8 or less all
9-15 1 less than total
16-19 2 less than total
20-23 3 less than total
24-27 4 less than total
28-30 5 less than total
31-33 6 less than total
34-36 7 less than total
37-38 8 less than total
39-41 9 less than total
42 32
43-44 33
45 34
46-47 35
48-49 36
50-51 37
Population Sample Size
52-53 38
54-55 39
56-57 40
58-59 41
60-61 42
62-63 43
64-65 44
66-67 45
68-70 46
71-72 47
73-74 48
75-77 49
78-79 50
80-82 51
83-84 52
85-87 53
88-89 54
90-92 55
93-95 56
96-98 57
99-101 58
102-104 59
105-107 60
108-110 61
111-114 62
115-117 63
118-120 64
121-124 65
125-128 66
129-131 67
132-135 68
136-139 69
140-143 70
144-148 71
149-152 72
153-156 73
157-161 74
162-166 75
167-171 76
172-176 77
177-181 78
182-187 79
188-192 80
193-198 81
199-204 82
205-210 83
211-217 84
218-223 85
224-230 86
231-238 87
239-245 88
246-253 89
254-261 90
262-270 91
271-279 92
280-288 93
289-298 94
299-308 95
309-319 96
320-330 97
331-342 98
343-354 99
355-367 100
368-381 101
382-396 102
397-411 103
412-427 104
Population Sample Size
428-444 105
445-463 106
464-482 107
483-503 108
504-525 109
526-549 110
550-575 111
576-603 112
604-633 113
634-665 114
666-700 115
701-739 116
740-781 117
782-827 118
828-879 119
880-936 120
937-1,000 121
1,001-1,072 122
1,073-1,154 123
1,155-1,248 124
1,249-1,356 125
1,357-1,483 126
1,484-1,633 127
1,634-1,814 128
1,815-2,036 129
2,037-2,315 130
2,316-2,677 131
2,678-3,163 132
3,164-3,852 133
3,853-4,904 134
4,905-6,710 135
6,711-10,530 136
10,531-23,993 137
23,994 + 138


(2) In conducting the audit, the Audit Unit shall calculate the frequency of files with violations as percentages of the files with exposure for violations after the following number of randomly selected indemnity files are audited: (continued)