CDI Fines Agents over Workers’ Comp Policies

January 25, 2005

California Insurance Commissioner John Garamendi has imposed discipline upon two agents and the companies they work for over their marketing of an illegal tribal-based insurance product. The actions taken by the commissioner include fines, cost reimbursement, and a restriction on one agent’s license.

The case involves an employee staffing product offered by Mainstay Business Solutions, which is owned by the Blue Lake Rancheria, an American Indian tribe. The agents allegedly introduced the product to a potential customer as workers’ compensation coverage, even though Mainstay is not authorized to provide workers’ comp coverage in California.

“I took this action to protect injured workers and the businesses that employ them,” said Commissioner Garamendi. “The Mainstay product is not authorized and puts everyone involved at risk. Under this product injured employees don’t have the full protection of California insurance law, and business owners face enormous fines and even closure.”

The California Labor Code requires that every employer secure workers’ comp coverage through an authorized insurer, or provide proof to the state Department of Industrial Relations of the employer’s ability to self-insure. Businesses that have purchased the Mainstay product in lieu of authorized workers’ comp coverage face potential criminal liability, penalties up to $100,000 and civil lawsuits from employees.

Several American Indian tribal entities have established employee leasing companies, temporary staffing agencies and/or professional employer organizations offering this type of “alternative” workers’ comp coverage. This unauthorized “alternative” is often just one component of a bundle of services that may include human resources management, payroll services, tax filing and insurance administration.

In this case, John David Evans, an agent of Hall-Schenk Inc. in Camarillo, and Christian Oliver Muller, an agent of Barlocker Insurance Agency Inc., in Salinas, allegedly attempted to sell Mainstay’s product to a potential customer, offering it to her as workers’ comp insurance. Once the customer determined that the product was tribal-based, she declined to purchase it.

Evans, of Camarillo, had his license revoked by the Department of Insurance and was issued a one-year restricted license. His employer, Hall-Schenk Inc., agreed to pay a $4,000 penalty and $6,000 in cost reimbursements. The company and Evans agreed not to sell, market or solicit any PEO products that do not provide coverage from a California admitted insurer.

Christian Oliver Muller of Woodland Hills, an agent of Barlocker Insurance Agency of Salinas, agreed to a $4,000 penalty and is also prohibited from selling non-admitted products. Barlocker Insurance paid a cost reimbursement of $5,000 and agreed not to sell non-admitted products.

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