SAN FRANCISCO—The California State Compensation Insurance Fund will seek $50 million from Select Staffing Co. Inc. following a jury finding the employer guilty of fraud, the state insurer said Friday.

The jury's finding earlier this month stems from a lawsuit brought by SCIF alleging the Santa Barbara, Calif.-based temporary staffing company avoided paying tens of millions of dollars in premiums by “piggybacking” on a workers compensation policy purchased by a now-defunct professional employment organization.

In this case, “piggybacking” refers to Select Staffing allegedly gaining a lower experience modification by making its workers employees of a PEO named Onvoi Business Solutions Inc., sources said.

Insurers use experience modifications to calculate a policyholder's losses and premiums. The lower the experience-modification, the lower the premiums; and sources said Onvoi had an experience-modification of about 70 while Select Staffing's was closer to 300.

SCIF also alleged that Select Staffing underreported its payroll.

California law allowed San Francisco-based SCIF to choose among various options to calculate damages. On Thursday, a spokeswoman for the state insurer said it chose an option that results in the $50 million it is seeking from Select Staffing.

Select Staffing said that it strongly disagrees with the finding against it and will appeal .

“We are quite disappointed in the verdict that was returned from the jury, that was understandably overwhelmed by the complex nature of the workers compensation issues raised in this matter," Steve Sorensen, Select's chairman and CEO said in a statement.

Select also said that the dispute with State Fund stemmed from a business relationship it entered with Onvoi 10 years ago and that SCIF's employees had been made aware of the arrangement.

"The affiliation was sanctioned as rational and legitimate by both financial and legal consultants before proceeding." Mr. Sorensen said. “The fact is that we paid nearly $6 million in workers comp premium for $80 million of payroll. That works out to about $7.50 per $100. We paid a fair and full price.”

Select also said that it is currently insured by workers comp insurers with A+ ratings.