BILL ANALYSIS                                                                                                                                                                                                    



                                                                       



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          |SENATE RULES COMMITTEE            |                  AB 1117|
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                                 THIRD READING


          Bill No:  AB 1117
          Author:   Fuentes (D)
          Amended:  6/28/09 in Senate
          Vote:     27 - Urgency

           
           SENATE BANKING, FINANCE, AND INS. COMMITTEE  :  11-0, 6/17/09
          AYES:  Calderon, Cogdill, Correa, Cox, Harman, Kehoe, Liu,  
            Lowenthal, Padilla, Runner, Wolk
          NO VOTE RECORDED:  Florez
           
          ASSEMBLY FLOOR  :  73-0, 5/14/09 (Consent) - See last page  
            for vote


           SUBJECT  :    State Compensation Insurance Fund:  board

           SOURCE  :     State Compensation Insurance Fund


           DIGEST  :    This bill amends the State Compensation  
          Insurance Fund (SCIF) law to clarify, for purposes of SCIF  
          board actions affecting generally applicable rates, that a  
          member of the board of directors is not deemed to have a  
          financial interest, as defined by current law, in a  
          contract of insurance between SCIF and an organization of  
          which any member of the board of directors is an owner,  
          officer or employee.  Includes legislative findings that  
          the amendments made by the act are technical in nature, do  
          not change the law, and are intended to clarify that  
          members of the SCIF Board of Directors are not disqualified  
          from participating in decisions.  

                                                           CONTINUED





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           ANALYSIS  :    

           Existing Law
           
          1. Current Government Code provisions prohibit a public  
             official from using their public position to influence a  
             governmental decision in which the party knows or has  
             reason to know they have a financial interest.

          2. For the purposes of this same law, having a financial  
             interest in a decision includes situations where it is  
             reasonably foreseeable that the decision will have a  
             material financial effect, distinguishable from its  
             effect on the public generally, on the public official,  
             on a member of his/her immediate family, or on any of  
             specified situations, including any business entity in  
             which the public official is a director, officer,  
             partner, trustee, employee or holds any position of  
             management.

          3. Other Government Code provisions, also applicable to the  
             SCIF Board, prohibit a public official from being  
             financially interested in any contract made by them in  
             their official capacity.

          4. Board members of SCIF are subject to the above  
             Government Code law concerning financial conflicts of  
             interest and having an improper financial interest in  
             any contract made by their governing body.

          5. The SCIF Board is an 11-member board.

          6. An express provision of current SCIF law, in the section  
             prohibiting financial conflicts of interest, states "the  
             existence of a contract of insurance between the State  
             Compensation Insurance Fund and the policyholder member  
             appointed by the Senate Committee on Rules shall not  
             constitute a conflict pursuant to this section."

          This bill:

          1. Adds to the SCIF conflict of interest law to provide,  
             for purposes of SCIF board actions affecting generally  
             applicable rates, that a member of the board of  







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             directors is not deemed to have a financial interest, as  
             defined by current law, in a contract of insurance  
             between SCIF and an organization of which any member of  
             the board of directors is an owner, officer or employee.

          2. States legislative findings that the amendments made by  
             the act are technical in nature, do not change the law,  
             and are intended to clarify that members of the SCIF  
             Board of Directors are not disqualified from  
             participating in SCIF.

           Background  

          Oversight hearings conducted by the Senate Banking,  
          Finance, and Insurance Committee, in prior legislative  
          sessions. have examined the administration and internal  
          operational controls of SCIF and identified numerous  
          deficiencies, including deficiencies with respect to  
          conflicts of interest generally and more specifically  
          financial conflicts of interest.  To address these matters,  
          Section 11770 of the Insurance Code was amended last year  
          to add the provisions described above concerning conflicts  
          of interest, including expressly subjecting board members  
          to the financial conflict of interest provisions described  
          above in the Existing Law section which are found in the  
          Government Code.

          The SCIF was created by statute in 1914 to act as a  
          workers' compensation insurer for the state and to serve as  
          the workers' compensation insurer of last resort in the  
          private market.  

          The Government Code provisions apply to situations where a  
          public official is an employee or manager of an  
          organization if the public official participates in a  
          decision which it is reasonably foreseeable will have a  
          material financial effect on the organization which is  
          distinguishable from its effect on the public generally.

          Under the Government Code financial conflict of interest  
          provisions, every SCIF board member who is either a manager  
          or an employee of an organization seeking a contract of  
          insurance with SCIF is currently prohibited from seeking  
          such insurance on terms that it is reasonably foreseeable  







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          would benefit their organization in a way materially  
          different from the terms available to other members of the  
          public, which should reasonably be construed here to mean  
          other similarly situated businesses.  

          Insofar as all Board members are subject to the above rules  
          under current law, every SCIF Board member is currently  
          prohibited from seeking to obtain a material financial  
          advantage in terms for insurance coverage on behalf of an  
          organization they are a manager of employee which is  
          distinguishable from the terms available to the public. 

          Notwithstanding the above, the stipulation added last fall  
          to the SCIF Board conflict of interest law stating that "a  
          contract of insurance" between SCIF and "the policyholder  
          member appointed by the Senate Committee on Rules shall not  
          constitute a conflict pursuant to this section" can be  
          construed to imply that such a contract between any other  
          board member and SCIF "shall" constitute a conflict, even  
          if it passes scrutiny under the more stringent Government  
          Code provisions. 

           FISCAL EFFECT  :    Appropriation:  No   Fiscal Com.:  No    
          Local:  No

           SUPPORT  :   (Verified  6/26/09)

          State Compensation Insurance Fund (source)


           ASSEMBLY FLOOR  : 
          AYES:  Adams, Anderson, Arambula, Beall, Bill Berryhill,  
            Tom Berryhill, Blakeslee, Block, Blumenfield, Brownley,  
            Buchanan, Caballero, Charles Calderon, Carter, Chesbro,  
            Conway, Cook, Coto, Davis, De La Torre, De Leon, DeVore,  
            Duvall, Emmerson, Eng, Evans, Feuer, Fletcher, Fong,  
            Fuller, Furutani, Galgiani, Gilmore, Hagman, Hall,  
            Harkey, Hayashi, Hernandez, Hill, Huber, Huffman,  
            Jeffries, Jones, Knight, Krekorian, Lieu, Logue, Bonnie  
            Lowenthal, Ma, Mendoza, Miller, Monning, Nava, Nestande,  
            Niello, Nielsen, John A. Perez, V. Manuel Perez,  
            Portantino, Price, Ruskin, Salas, Silva, Skinner,  
            Solorio, Audra Strickland, Swanson, Torlakson, Torres,  
            Torrico, Tran, Villines, Yamada







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          NO VOTE RECORDED:  Ammiano, Fuentes, Gaines, Garrick,  
            Saldana, Smyth, Bass


          JJA:mw  6/28/09   Senate Floor Analyses 

                         SUPPORT/OPPOSITION:  SEE ABOVE

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