Introduction: Navigating the Final Stages of a Claim

The final stages of a workers’ compensation claim represent a critical crossroads where months or even years of investigation, litigation, and strategic maneuvering culminate in one of two primary outcomes: settlement or a final fraud referral for prosecution. These are not mutually exclusive paths; often, the evidence uncovered during settlement negotiations is what triggers the decision to pursue criminal charges. This endgame requires a unique blend of sharp negotiation tactics, a deep understanding of rating methodologies, and the procedural knowledge to build an ironclad referral package for the District Attorney.

This chapter provides a comprehensive playbook for navigating these final, high-stakes phases. We will first explore the intricacies of settlement strategy in California, from identifying the red flags of a fraudulent negotiation to understanding and combating the subtle art of rating manipulation. We will provide actionable guidance on how to structure settlement agreements to deter future fraud and how to implement post-award monitoring to ensure compliance. Subsequently, we will pivot to the critical process of fraud prosecution, offering a detailed, step-by-step guide on when and how to prepare a high-impact FD-1 fraud referral, what evidence prosecutors need to see, and how to effectively collaborate with law enforcement to turn your investigation into a conviction. This is your guide to successfully closing out a claim, whether at the negotiating table or in the courtroom.

Settlement Strategy in California Workers' Compensation

Settlement is often seen as the final act of a claim, but the way a case is resolved can either neutralize future risk or perpetuate ongoing fraud. Understanding the different settlement options and their strategic applications is essential.

A. The Primary Settlement Options

• Compromise & Release (C&R): This is a full and final settlement where the claimant receives a one-time lump sum payment. In exchange, the insurer is released from all liability for future medical care and any other benefits related to the claim.

• Best Used When: The goal is to achieve total closure on a claim, particularly when future medical costs are uncertain or when there is a high risk of future litigation. It is often preferred in cases with suspected fraud to sever the relationship with the claimant entirely.

• Stipulated Findings & Award (Stip): In this type of settlement, the parties agree (stipulate) to the level of permanent disability and the need for future medical care. The claimant receives bi-weekly permanent disability payments over a set period, and their right to future medical treatment for the injury remains open.

• Best Used When: The injury is legitimate and will likely require predictable, long-term medical care. It is less common in suspected fraud cases, as it keeps the claim open and maintains a relationship with the claimant.

• Findings & Award: This is not a settlement but a decision issued by a WCAB judge after a trial. It determines the benefits owed to the injured worker.

B. Red Flags During Settlement Negotiations

The negotiation process itself can be a rich source of investigative intelligence. Be alert for the following red flags:

• Aggressive Push for a Quick C&R: An unusual urgency to settle for a lump sum, especially before a comprehensive medical review can be completed, may indicate the claimant is trying to cash out before their fraud is exposed.

• Withholding Medical Records: A refusal or delay in providing access to prior medical records is a classic sign that the claimant is attempting to conceal a pre-existing condition that would impact apportionment.

• Refusal to Participate in a Deposition: A key objective of a deposition is to lock in testimony. A claimant’s refusal to be deposed often signals that they are unwilling to answer questions under oath for fear of being impeached.

• "Too Perfect" Medical Restrictions: When a doctor's report lists restrictions that seem perfectly tailored to maximize a disability rating but don’t align with the objective medical evidence, it suggests coaching by a legal or medical team.

Understanding and Combating Rating Manipulation

A significant portion of fraud and abuse at the settlement stage occurs through the manipulation of the permanent disability (PD) rating.

A. How Ratings Are Calculated

In California, PD ratings are based on the claimant’s Whole Person Impairment (WPI), which is determined by a physician using the AMA Guides, 5th Edition. This WPI percentage is then adjusted for the claimant's age, occupation, and Diminished Future Earning Capacity (DFEC) to arrive at the final PD rating.

B. Common Methods of Rating Manipulation

• Inflated Subjective Complaints: A claimant exaggerating their pain levels or functional limitations to a physician to secure a higher WPI.

• Cherry-Picked Diagnostic Language: An applicant attorney or "friendly" physician using specific, high-value phrases or diagnoses in a medical report that are not fully supported by objective findings.

• Unjustified Add-Ons: Attempting to add extra percentage points to the rating for factors like pain or sleep disturbance without sufficient medical justification.

C. Structuring Settlements to Deter Fraud

The settlement agreement itself can be drafted to protect against fraud.

• Strategic Clauses in a C&R: Include a fraud disclaimer where the claimant attests that they have provided truthful information, and a reservation of rights clause stating that the defense reserves the right to refer the matter for prosecution and seek restitution if evidence of fraud emerges post-settlement.

• Pre-C&R Surveillance: If suspicion is high, conducting a final round of surveillance just before a settlement conference can provide powerful leverage to reduce the demand.

From Suspicion to Prosecution – The Final Fraud Referral

When evidence of fraud is clear and a settlement cannot be reached fairly, or even after a settlement if significant fraud is discovered, the next step is a formal referral for criminal prosecution. A well-structured referral can turn an investigative finding into a conviction.

A. The Statutory Framework for Fraud Referrals

Prosecutions are primarily based on three key California codes:

• Insurance Code §1871.4: This is the core of workers' compensation fraud law, making it illegal to knowingly make any false or misleading statement to obtain or deny benefits.

• Penal Code §550: This code criminalizes a broader range of insurance fraud, including staging accidents or aiding and abetting a false claim.

• Labor Code §3820: This code allows for criminal courts to order restitution be paid to the victims of workers' compensation fraud.

B. When to Refer a Case for Prosecution

A referral should be made when you have clear, documented evidence of a material misrepresentation made with the intent to deceive. Key trigger conditions include:

• An Admitted Lie: A claimant admitting during a deposition that they misrepresented facts.

• Clear Contradiction with Video: Surveillance footage that irrefutably contradicts the claimant's sworn testimony about their physical abilities.

• Forged or Altered Documents: Physical proof that medical records or other documents were falsified.

• A Pattern of Deception: Evidence that a claimant, doctor, or attorney is involved in a pattern of similar fraudulent activities across multiple claims.

C. Preparing the FD-1 Referral Packet: A Blueprint for Prosecutors

The official vehicle for a referral is the FD-1 form, submitted to the California Department of Insurance. However, a successful referral is much more than just a form; it is a comprehensive evidence package. As one Orange County fraud prosecutor stated, "We file based on clarity and credibility. Make it easy to understand what was lied about, when, and why it matters."

Your referral packet should be structured like a digital binder:

• Tab 1: Referral Letter & FD-1 Form: A cover letter summarizing the case and the completed FD-1.

• Tab 2: Statement of Facts: A chronological narrative of the case, from the initial claim to the discovery of the fraud.

• Tab 3: Evidence Matrix: A simple chart that clearly shows the contradiction. For example:

Claimant's Sworn Statement (Deposition, 5/1/25)	Contradictory Evidence
"I cannot lift more than 5 pounds."	"Surveillance video from 5/15/25 shows claimant lifting a 40-lb bag of dog food."

Export to Sheets

• Tab 4+: Supporting Exhibits: This section should include all the primary evidence, clearly labeled: medical reports, deposition transcripts, surveillance videos and reports, and any other relevant documents.

D. Collaborating with Prosecutors

Once a referral is made, it is reviewed by the Department of Insurance and, if deemed credible, passed on to the local District Attorney’s office. To improve the chances of your case being filed:

• Make a Clear Presentation: Focus your summary on the most blatant material misstatements.

• Connect Evidence to the Law: Explicitly show how your evidence proves the elements of Insurance Code §1871.4 (a knowing, material, false statement for the purpose of obtaining benefits).

• Be a Resource: Offer to hold a pre-filing conference call with the assigned DA investigator to walk them through the evidence and answer any questions.

By following this structured, evidence-based approach to both settlement and potential prosecution, claims professionals can effectively manage the endgame of any claim, protecting their organization from fraud while ensuring that the integrity of the workers' compensation system is upheld.