Filed 12/17/15 P. ex rel. Alzayat v. Hebb CA4/2

                      NOT TO BE PUBLISHED IN OFFICIAL REPORTS
 California Rules of Court, rule 8.1115(a), prohibits courts and parties from citing or relying on opinions not certified for
publication or ordered published, except as specified by rule 8.1115(b). This opinion has not been certified for publication
                                     or ordered published for purposes of rule 8.1115.


           IN THE COURT OF APPEAL OF THE STATE OF CALIFORNIA

                                   FOURTH APPELLATE DISTRICT

                                                 DIVISION TWO



THE PEOPLE ex rel. MAHMOUD
ALZAYAT,
                                                                         E060593
         Plaintiff and Appellant,
                                                                         (Super.Ct.No. INC1204627)
v.
                                                                         OPINION
GERALD HEBB et al.,

         Defendants and Respondents.




         APPEAL from the Superior Court of Riverside County. David M. Chapman,

Judge. Reversed.

         English Lloyd & Armenta and Juan M. Armenta for Plaintiff and Appellant.

         Rutan & Tucker, Duke F. Wahlquist, and Proud Usahacharoenporn, for

Defendants and Respondents.

                                               I. INTRODUCTION

         Plaintiff and appellant, Mahmoud Alzayat, brought a qui tam action against his

employer, defendant and respondent, SunLine Transit Agency (SunLine), and his


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supervisor, defendant and respondent, Gerald Hebb, to recover statutory penalties under

Insurance Code section 1871.7, subdivision (e)(2) based on alleged misrepresentations

Hebb made relating to plaintiff’s claim for workers’ compensation benefits. The trial

court granted judgment on the pleadings, without leave to amend, on the ground that self-

insured risk pools, under which SunLine was covered through a joint powers agreement,

are not considered insurance and not subject to regulation under the Insurance Code.

       Alzayat appeals, contending that (1) self-insurance for workers’ compensation

purposes is specifically defined as insurance under Labor Code section 3211; (2)

although self-insured pools operate free from regulations applicable to traditional

insurers, they are not exempt from remedies for insurance fraud; and (3) Hebb, as an

individual, enjoys no exemption from liability for insurance fraud. We reverse.

                   II. FACTS AND PROCEDURAL BACKGROUND

       We set forth the statement of facts consistent with the standard of review that

applies to a judgment on the pleadings: “‘A motion for judgment on the pleadings, made

after the time for a demurrer has expired, in all other respects is the equivalent of a

general demurrer. Like a demurrer, grounds for the motion must appear on the face of

the complaint or be based on facts capable of judicial notice. We review the complaint

de novo to determine whether the complaint states a cause of action, as a matter of law.’”

(Caldera Pharmaceuticals, Inc. v. Regents of University of California (2012) 205

Cal.App.4th 338, 350.)




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       SunLine is a public agency that provides transportation services in the Coachella

Valley. SunLine entered into a joint powers agreement with other public entities to pool

and self-insure various potential liabilities, including workers’ compensation, and

obtained the required certificate of consent to self-insure. The joint powers agreement is

administered by the Public Entity Risk Management Authority.

       SunLine employed Alzayat to maintain bus stop infrastructure; Hebb was his

supervisor. Before August 30, 2011, Alzayat suffered a lumbar injury. On August 30, he

asked Hebb if someone could assist him to move a 90-pound bag of concrete mix or if he

could break down the bag. After some discussion, Hebb refused both requests, and when

Alzayat lifted the bag, he felt pain in his lumbar spine area, which caused Alzayat to

partially collapse and drop a bag, which broke open and spilled its contents. Hebb asked

Alzayat why he had spilled the bag, and Alzayat informed Hebb he had injured his back

while lifting it.

       The next day, Alzayat filled out a workers’ compensation claim form, and Hebb

filled out an incident report stating he had not seen Alzayat’s injury. Alzayat alleged that

Hebb’s account was a false statement that Hebb knew would be transmitted to those

charged with the responsibility of accepting or denying liability for Alzayat’s workers’

compensation claim. Alzayat further alleged that Hebb testified falsely in a later

deposition that he had never had an argument with Alzayat about lifting the bags, and he

denied having seen Alzayat partially collapse and drop a bag.




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       Alzayat’s workers’ compensation claim was initially denied.1

                                      III. DISCUSSION

A. Standard of Review

       This court applies independent review to a judgment based on an order granting a

motion for judgment on the pleadings. (Gerawan Farming, Inc. v. Lyons (2000) 24

Cal.4th 468, 515.) We accept as true the facts alleged in the underlying complaint. (Id.

at p. 516.) We review de novo the trial court’s interpretation of a statute. (Harustak v.

Wilkins (2000) 84 Cal.App.4th 208, 212.)

B. Applicability of Insurance Code Section 1871.7, Subdivision (b)

       Alzayat contends that defendants are subject to statutory penalties because they

made false statements about his eligibility for workers’ compensation benefits. Insurance

Code section 1871.7, subdivision (b), provides: “Every person who violates any

provision of this section or Section . . . 550 . . . of the Penal Code shall be subject, in

addition to any other penalties that may be prescribed by law, to a civil penalty of not less

than five thousand dollars ($5,000) nor more than ten thousand dollars ($10,000), plus an

assessment of not more than three times the amount of each claim for compensation, as

defined in Section 3207 of the Labor Code or pursuant to a contract of insurance. . . .”

Penal Code section 550, subdivision (b), in turn, provides: “It is unlawful to do, or to

knowingly assist or conspire with any person to do, any of the following: [¶] . . . [¶] (3)

       1 Alzayat represents in his opening brief that SunLine’s risk pool ultimately
provided benefits because an independent witness verified his version of the events, and a
panel qualified medical examiner confirmed the injury.

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Conceal, or knowingly fail to disclose the occurrence of, an event that affects any

person’s initial or continued right or entitlement to any insurance benefit or payment, or

the amount of any benefit or payment to which the person is entitled.”

       The trial court held that SunLine was not subject to Insurance Code section 1871.7

because Government Code section 990.8, subdivision (c), provides: “The pooling of self-

insured claims or losses among entities as authorized in subdivision (a) of Section 990.4

[of the Government Code] shall not be considered insurance nor be subject to regulation

under the Insurance Code.” However, this case involves self-insurance for workers’

compensation, and Government Code section 990 provides: “Except for a liability which

may be insured against pursuant to Division 4 (commencing with Section 3200) of the

Labor Code, a local public entity may” insure itself and its employees against various

forms of liability. (Italics added.)

       Labor Code section 3200 et seq. set forth the laws of this state governing workers’

compensation insurance. SunLine’s self-insurance coverage for workers’ compensation

claims arose under Labor Code section 3700, which provides: “Every employer except

the state shall secure the payment of compensation in one or more of the following ways:

[¶] . . . [¶] (c) For any . . . public agency, . . . including each member of a pooling

arrangement under a joint exercise of powers agreement (but not the state itself), by

securing from the Director of Industrial Relations a certificate of consent to self-insure

against workers’ compensation claims, which certificate may be given upon furnishing

proof satisfactory to the director of ability to administer workers’ compensation claims


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properly, and to pay workers’ compensation claims that may become due to its

employees. . . . The certificate shall be issued and be subject to the provisions of [Labor

Code] Section 3702.” SunLine’s certificate states that it was issued under Labor Code

sections 3700 through 3705.

       In short, SunLine’s authorization to self-insure for workers’ compensation claims

arose under Labor Code section 3700, not Government Code section 990.4, and

Government Code section 990.8 is therefore inapplicable.

C. Is Self-insurance Defined as Insurance?

       SunLine next argues that its self-insurance plan does not qualify as insurance as

that term is defined by the Insurance Code, and Insurance Code section 1871.7 and its

incorporation of Penal Code section 550 therefore do not apply.

       In Denny’s Inc. v. Workers’ Comp. Appeals Bd. (2003) 104 Cal.App.4th 1433, the

court addressed whether a self-insured employer was an insurer for purposes of

apportioning liability. The employer in that case argued that a self-insurer was not an

insurer within the meaning of Insurance Code section 22, which defines insurance as “‘a

contract whereby one undertakes to indemnify another against loss, damage, or liability

arising from a contingent or unknown event’” and Insurance Code section 23, which

defines an insurer as “‘[t]he person who undertakes to indemnify another by insurance

. . . .’” (Denny’s Inc. v. Workers’ Comp. Appeals Bd., supra, at p. 1440.) The court

stated that while Insurance Code sections 22 and 23 provided general definitions, Labor

Code section 3211 applies a definition specifically applicable to workers’ compensation


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insurance, as follows: “‘“Insurer” includes . . . any employer to whom a certificate of

consent to self-insure has been issued.’ (Italics added.)” (Denny’s Inc. v. Workers’

Comp. Appeals Bd., supra, at p. 1440.)

       Similarly, under the Workers’ Compensation Insurance Fraud Reporting Act (Ins.

Code, § 1877 et seq.), an insurer is defined to include “an employer that has secured a

certificate of consent to self-insure pursuant to subdivision (b) or (c) of Section 3700 of

the Labor Code . . . .” (Ins. Code, § 1877.1, subd. (c).) The specific definitions under

Insurance Code section 1877.1, subdivision (c) and Labor Code section 3211 prevail over

the general definitions of Insurance Code sections 22 and 23. (Denny’s Inc. v. Workers’

Comp. Appeals Bd., supra, 104 Cal.App.4th at pp. 1440-1441.) We thus conclude that

SunLine is an insurer for purposes of Insurance Code section 1871.7.

       SunLine next argues that the Insurance Frauds Prevention Act, of which Insurance

Code section 1871.7 is a part, applies only to the making or supporting of a fraudulent

claim, not to the fraudulent denial of a claim. SunLine relies on State of California ex

rel. Nee v. Unumprovident Corp. (2006) 140 Cal.App.4th 442, 450-451, in which the

court stated that Insurance Code section 1871.7 was designed to prohibit submission of

fraudulent claims to insurers, not to prohibit fraud on the part of an insurer or its agents.

However, the court in Unumprovident specifically gave as an example of conduct that

could violate the statute “an employer who makes a false statement in opposition to” a

workers’ compensation claim. (State of California ex rel. Nee v. Unumprovident Corp.,

supra, at p. 450.) Thus, the case on its face does not support SunLine’s position.


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       SunLine also relies on People v. Blick (2007) 153 Cal.App.4th 759, in which the

court held that a violation of Penal Code section 550, subdivision (b)(3), requires specific

intent: “[T]o violate [Penal Code] section 550[, subdivision] (b)(3) a person, in addition

to concealing or knowingly failing to disclose, must intend to obtain benefits to which he

or she would not be entitled if they had made the disclosure. In short, the person must

intend to commit a fraud.” (People v. Blick, supra, at p. 772; see also People v.

Kurtenbach (2012) 204 Cal.App.4th 1264, 1283 [repeating the language quoted from

Blick].) We do not interpret Blick as holding that Penal Code section 550, subdivision

(b)(3), may be violated only by a person who commits fraud for the purpose of obtaining

benefits; that issue was simply not before the court. Rather, the court’s holding addressed

only the specific intent required to violate the statute.

                                     IV. DISPOSITION

       The judgment is reversed. Costs are awarded to appellant.

       NOT TO BE PUBLISHED IN OFFICIAL REPORTS


                                                                KING
                                                                                             J.


We concur:

HOLLENHORST
          Acting P. J.

McKINSTER
                           J.



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