substantially reduced the premium his agency was charged by the workers' compensation
insurer that accepted his company's application; accordingly, the trial court required that
Riddles pay, as restitution to the insurer, $37,000 in premiums the insurer would have
earned in the absence of his misrepresentation.
Contrary to his argument on appeal, a workers' compensation insurer may recover,
as restitution under Penal Code2 section 1202.4, the premiums it would have earned in
the absence of misrepresentations by an insurance applicant. (See People v. Petronella
(2013) 218 Cal.App.4th 945, 968-984 (Petronella).) The fact Riddles may have been
able to establish that the Labor Code did not require that he provide workers'
compensation coverage for the nurses does not relieve him of responsibility for providing
the insurer with a fraudulent application or alter the fact the nurses were covered by the
policy he obtained.
We also reject his contention that the trial court erred in imposing an $860 fine.
1 Riddles was permitted to plea under the provisions of People v. West (1970) 3 Cal.3d 595, 600-601. A plea under West allows a defendant to plead guilty to a charge without admitting that he or she committed the crime alleged. (Ibid.)
2 All further statutory references are to the Penal Code unless otherwise indicated. 2
FACTUAL AND PROCEDURAL BACKGROUND
From at least 2005 until 2009, Riddles operated Confident Care, a staffing agency
that placed nurses at residential care and skilled-nursing facilities. One facility expressly
required that Confident Care provide workers' compensation insurance for the nurses; the
record also shows that Confident Care provided certificates of workers' compensation
insurance to other facilities where it placed nurses.
Premium rates for workers' compensation insurance are based on the number of
workers employed in various classifications and the amount paid to workers in each
classification. Premium rates for computer programmers are as low as 26 cents per $100
of payroll. Premium rates for higher classification workers can be up to $50 per $100 of
payroll. Riddles classified the nurses he placed in health care facilities as computer
programmers and underreported their payroll.
Although the People's initial complaint, which was filed in January 2012, alleged
Riddles had fraudulently obtained workers' compensation for nurses commencing in
2005, Riddles's plea and conviction is based on a workers' compensation insurance policy
he obtained for Confident Care from First Comp Insurance (FCI) for the period between
January 21, 2007 and January 21, 2008. As a result of Riddles's fraudulent
misclassification, Confident Care paid FCI a premium of $554 for the year ending in
January 2008; however, an audit of three facilities that contracted with Confident Care
during that period showed the agency should have paid FCI a premium of $39,604. Thus,
an insurance investigator calculated that FCI lost the audited premium for the year
($39,604) minus the premium Confident Care paid ($554) or approximately $39,000.
Initially, following a restitution hearing, the court ordered Riddles to pay FCI
3
$52,259 in restitution. However, Riddles moved to reconsider and the court amended its
order and set restitution at $37,000. Riddles filed a timely notice of appeal.
DISCUSSION
I
Riddles contends the trial court abused its discretion when it ordered him to pay
restitution in the amount of premium loss suffered by FCI. We find no abuse of
discretion.
Restitution in criminal proceedings is mandated by article I, section 28,
subdivision (b) of the California Constitution, and that mandate has been carried out by
our Legislature in section 1202.4, which provides in part: "(f) [I]n every case in which a
victim has suffered economic loss as a result of the defendant's conduct, the court shall
require that the defendant make restitution to the victim or victims in an amount
established by court order, based on the amount of loss claimed by the victim or victims
or any other showing to the court. . . . The court shall order full restitution." (See People
v. Mearns (2002) 97 Cal.App.4th 493, 498.) We review a restitution order for abuse of
discretion. (People v. Baker (2005) 126 Cal.App.4th 463, 467.) " ' " 'When there is a
factual and rational basis for the amount of restitution ordered by the trial court, no abuse
of discretion will be found by the reviewing court.' " ' " (Ibid.)
The intent of voters in approving article 1, section 28 of the California
Constitution is plain: "[E]very victim who suffers a loss shall have the right to restitution
from those convicted of the crime giving rise to that loss." (People v. Phelps (1996) 41
Cal.App.4th 946, 950.) Accordingly, " ' " '[a] victim's restitution right is to be broadly
and liberally construed.' " ' " (People v. Keichler (2005) 129 Cal.App.4th 1039, 1045.)
4
By its terms, the restitution statute allows for recovery of a broad variety of
economic losses that are incurred as a result of the defendant's criminal conduct.
(§ 1202.4, subd. (f)(3).) The categories for which restitution may be ordered "includ[e],
but [are] not limited to" payment for the value of stolen or damaged property, medical
expenses, mental health counseling expenses, wages or profits lost by the victim,
noneconomic losses including psychological harm, interest, attorney fees, moving
expenses, extra security, and expenses to retrofit a house or car to make them accessible.
(Ibid.) However, "[b]ecause the statute uses the language 'including, but not limited to'
these enumerated losses, a trial court may compensate a victim for any economic loss
which is proved to be the direct result of the defendant's criminal behavior, even if not
specifically enumerated in the statute." (People v. Keichler, supra, 129 Cal.App.4th at p.
1046.)
In Petronella, the court directly considered whether, as here, a workers'
compensation insurer could recover the amount of premium it failed to obtain because
over a number of years the defendant had falsely reported the number and payroll of his
employees. At his sentencing, the prosecutor presented evidence that, in the absence of
defendant's misrepresentations, the insurer would have collected at least $11.6 million in
additional premiums. (Petronella, supra, 218 Cal.App.4th at p. 965.) Nonetheless, the
trial court only imposed $500,000 in restitution. On the People's appeal, the Court of
Appeal reversed because the trial court had not considered the evidence of premium loss
offered by the People. In doing so, although the defendant had not raised the issue, the
court expressly found that such a loss of premium was recoverable as restitution under
section 1202.4, subdivision (f): "No California case appears to have held the willful
5
underpayment of insurance premiums constitutes an economic loss under Penal Code
section 1202.4. But since 'the statute uses the language "including, but not limited to"
the[] enumerated losses, a trial court may compensate a victim for any economic loss
which is proved to be the direct result of the defendant's criminal behavior, even if not
specifically enumerated in the statute.' " (Petronella, at p. 969.) In finding that a loss of
premium was a direct result of the defendant's conduct, the court relied on the holding in
United States v. Simpson (6th Cir. 2008) 538 F.3d 459, which found that "unpaid
[workers' compensation] premiums fall squarely within the definition of 'loss' " under
federal sentencing guidelines, including the award of restitution to victims. (Id. at
p. 462.) The court in Simpson in turn stated: "When an individual underreports his
payroll, he is attempting to take coverage directly and thereby to deprive a carrier of
premiums directly." (Id. at p. 464.)
In United States v. Leahy (6th Cir. 2006) 464 F.3d 773, 799-800, a defendant
committed fraud in a manner remarkably similar to the fraud practiced by Riddles: the
defendant knowingly classified his warehouse workers as clerical workers. In requiring
restitution of the insurer's lost premium, the court in Leahy stated: "The insurance
companies were entitled to the benefit of their bargains—the amount of money they
would have charged to insure the actual risk that [the defendant's company] presented.
[Citation.] Otherwise, [the company] would obtain a windfall through its fraud, receiving
coverage for greater risks than the amount of premiums merited. The district court,
therefore, did not err in the restitution order when it calculated the entire amount [the
company] should have paid and subtracted what it did pay. The remainder returns the
insurance companies to the positions they would have occupied absent the fraud." (Ibid.)
6
The fact that Riddles's fraud may have given FCI a defense to payment to the
claimant had a claim been made on the policy would not necessarily relieve Riddles of
responsibility to FCI for either payment of an appropriate premium or, if FCI chose,
reimbursement from Riddles for the amount of any amount FCI paid the claimant. (See
De Campos v. State Compensation Ins. Fund (1954) 122 Cal.App.2d 519, 529.) In such
circumstance, the insurer, not the fraudulent insured, chooses the insurer's remedy, and,
as the court noted in De Campos, the insurer may determine that it is in its best interest to
pay an innocent worker and seek compensation from a fraudulent employer. (Ibid.) Of
course, here, because the term of the policy in question had expired by the time Riddles's
misrepresentation was discovered, rescission was not a practical remedy for FCI.
Rescission would have simply required that FCI return the $554 premium Confident Care
paid. Thus, the only realistic remedy for FCI was recovery of a premium that fully
compensated the insurer for the risk it in fact covered during the policy term.
Contrary to Riddles's argument, this is not an instance where, as in People v.
Busser (2010) 186 Cal.App.4th 1503, 1510, even in the absence of the insured's false
report about a hit and run accident, the insurer would have been required to pay for
damage suffered by the insured and a third party. In that case, we found there simply was
no causal link between the defendant's false statements to an accident investigator and
payments that, in any event, the insurer was required to make under its policy. (See ibid.)
Here, in contrast, the record shows that had Riddles accurately represented that the
covered individuals were working as nurses, FCI would have recovered substantially
more in premiums. The only circumstance that might break the causal link between
Riddles's conduct and FCI's loss of premium is a finding that Riddles would not have
7
paid for any coverage for the nurses had he been required to pay for them as nurses;
under that very hypothetical circumstance, FCI would not lose any premium because the
hypothetical assumes an honest Riddles would not have obtained any coverage. Such a
finding, however, is simply not possible on this record, which shows that over a number
of years Riddles in fact obtained workers' compensation coverage and was required to do
so by at least one of the facilities where the nurses worked. Those facts make it far more
likely than not that Riddles would have obtained coverage, even if he had to pay a higher
premium.
We also reject Riddles's contention the nurses' potential status as independent
contractors relieved him of responsibility for FCI's losses. It is indisputable that Riddles
obtained coverage for the nurses from FCI and intentionally mischaracterized them.
Their actual status as employees or independent contractors under the workers'
compensation law (Lab. Code, § 3700 et seq.) is not a defense to the misrepresentations
Riddles made to FCI and his consequent violation of Insurance Code section 11760,
subdivision (a), which, by its terms, makes it a crime to falsely represent any fact
"material to the determination of the premium rate, or cost of any policy of workers'
compensation insurance, for the purpose of reducing the premium, rate, or cost of the
insurance." Insurance Code section 11760 does not require that the prosecution establish
that a defendant was obligated to provide workers' compensation coverage, only that the
defendant made intentional misrepresentations for the purpose of reducing the cost of
coverage.
Importantly, as we have discussed, had a nurse made a claim on the policy,
Riddles—having fraudulently induced FCI to issue a policy—was in no position to then
8
insist that FCI assert an independent contractor defense. (See De Campos v. State
Compensation Ins. Fund, supra, 122 Cal.App.2d at p. 529; United States v. Simpson,
supra, 538 F.3d at pp. 467-468.) Riddles's representation to nursing facilities that the
nurses were covered by a workers' compensation policy, and an injured nurse's likely
contention that he or she relied on those representations, would substantially undermine
FCI's willingness and ability to assert such a defense. (See Simpson, at pp. 467-468.)
Finally, even if FCI was willing to assert an independent contractor defense,
contrary to Riddles's argument on appeal, by no means does the record here show that it
would have been successful. In particular, our review of the record shows not only that
Riddles represented to facilities that he had secured workers' compensation coverage for
the nurses, but that Confident Care itself treated them as employees by paying state
unemployment and disability insurance for them. This is significant because "whether or
not the parties believe they are creating the relationship of employer-employee" (S.G.
Borello & Sons, Inc. v. Department of Industrial Relations (1989) 48 Cal.3d 341, 351) is
an important factor a court must look to in determining whether a worker is an employee
for purposes of awarding workers' compensation benefits. Because the record shows that
in many important respects Riddles treated the nurses as employees, FCI would have
been hard pressed to prove they were nonetheless independent contractors.
In sum, the record shows that, for the period in question, FCI was exposed to the
workers' compensation risk posed by the nurses working through Riddles's agency;
hence, FCI was entitled to recover an appropriate premium for that risk. Accordingly, the
trial court did not abuse its discretion in making its restitution order.
9
II
Riddles also challenges the trial court's imposition of an $860 fine, which he
claims violated the terms of his plea agreement.
As Riddles acknowledges, the change of plea form he signed stated that, among
other matters, he understood the trial court might impose a fine of up to $1,000. Prior to
accepting the plea, the trial court advised Riddles: "There's usually a fine in these things,
but my feeling is that since you're going to be paying some restitution, I probably impose
the standard fine we seem to have now and then stay it and then have that paid, if at all,
after restitution is paid. That would be, I think, sensible." Riddles then entered his guilty
plea to count 3 of the information under People v. West.3 The People moved to dismiss
the remaining counts, and the trial court stated: "I can do a 3 year probationary period
starting right now, okay? Obey all laws. I'll make a fine of the standard. It seems like on
so many misdemeanors it's like 860 bucks. But I'll stay all of that pending a restitution
hearing." The court's minute order reflected imposition of the $860 fine, stayed pending
the restitution hearing.
Contrary to Riddles's argument on appeal, the trial court did not violate the terms
of his plea agreement by imposing the $860 fine. The record is clear that before Riddles
entered his plea, he was aware that the trial court intended to impose a fine; and he raised
no objection thereafter when the $860 fine was imposed. Under these circumstances,
where the record shows that the parties left to the trial court the power to set the amount
of a fine, the trial court did not err in thereafter imposing a fine within any statutory
3 See footnote 1, ante. 10
limits. (People v. Villalobos (2012) 54 Cal.4th 177, 179; People v. Crandell (2007) 40
Cal.4th 1301, 1309.)
DISPOSITION
The judgment of conviction is affirmed.
BENKE, Acting P. J.
WE CONCUR:
NARES, J.
HALLER, J.
11
AI Brief
AI-generated · verify before citing
Holding. A workers' compensation insurer may recover as criminal restitution the difference between the premiums actually paid by a defendant who fraudulently misclassified employees and the premiums the insurer would have earned had the risk been accurately reported.
Issues
Whether a workers' compensation insurer is entitled to restitution for lost premiums resulting from an insured's fraudulent misclassification of employees.
Whether the trial court violated the defendant's plea agreement by imposing an $860 fine.
Disposition. Affirmed
Quotations verified verbatim against the opinion
“The insurance companies were entitled to the benefit of their bargains—the amount of money they would have charged to insure the actual risk that [the defendant's company] presented.”