SACRAMENTO — The battle over Indian tribal sovereignty has entered a hot new arena in California: workers' compensation insurance.
State regulators are questioning the legality of tribes' setting up unlicensed, unregulated workers' comp insurance operations on reservations and selling cut-rate coverage to businesses hundreds of miles away.
The California Department of Insurance investigation focuses on the 74-member Fort Independence Indian tribe in Inyo County and its Sonoma County consulting firm, which the department suspects of marketing bogus workers' comp coverage to employers desperate for relief from skyrocketing premiums. Investigators are seeking to determine whether the insurance offered is "an unacceptable substitute for workers' compensation coverage," said Jerry Whitfield, a state enforcement attorney in San Francisco.
The investigation puts the tribe in the middle of one of California's highest-profile political crusades: Gov. Arnold Schwarzenegger's effort to reform the state's costly workers' compensation system.
Tribal executives, anxious to protect a lucrative new business, are battling on legal, legislative and regulatory fronts. They've hired lawyers, lobbyists and public relations experts to try to convince the governor's office and lawmakers that they have come up with a practical alternative to a $29-billion-a-year workers' comp system that is widely criticized as broken.
The Fort Independence Indians say their approach can save employers money on insurance premiums while providing workers with first-class benefits by reducing fraud, cutting down on paperwork and removing lawyers from the claims-appeal process.
"Frankly, we think we can provide a viable model," said John Peebles, the tribe's lawyer in Sacramento.
The tribe, through a reservation-based company called Independent Staffing Solutions, "leases" workers to small businesses. That enables the businesses to save money by having a third party take care of many worker-related tasks, such as processing payroll checks, paying taxes and handling claims from injured workers.
And the premiums for the workers' comp insurance that Independent Staffing provides for the leased workers are 20% to 50% below those charged by traditional insurers or the state-run insurance pool. Those savings are a powerful lure to small businesses whose workers' comp premiums have doubled or tripled over the last four years.
