BILL ANALYSIS Ó
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|Hearing Date:June 20, 2011 |Bill No:AB |
| |878 |
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SENATE COMMITTEE ON BUSINESS, PROFESSIONS
AND ECONOMIC DEVELOPMENT
Senator Curren D. Price, Jr., Chair
Bill No: AB 878Author:B. Berryhill
As Amended:June 14, 2011 Fiscal: Yes
SUBJECT: Contractors: workers' compensation insurance.
SUMMARY: Requires a workers' compensation insurer to report to the
Contractors State License Board when the insurer cancels the insurance
policy of a licensed contractor after the insurer has conducted an
audit of the contractor, the contractor has made a material
misrepresentation that results in financial harm to the insurer, and
no reimbursement has been paid by the contractor to the insurer.
Provides that willful or deliberate disregard and violation of
workers' compensation insurance laws by a contractor constitutes a
cause for disciplinary action.
Existing law:
1)Licenses and regulates more than 300,000 contractors under the
Contractors State License Law by the Contractors State License Board
(CSLB) within the Department of Consumer Affairs (DCA). The CSLB is
under the direction of the Registrar of contractors (Registrar).
2)Requires private employers to secure the payment of compensation by
obtaining and maintaining workers' compensation insurance or to
self-insure as an individual employer or as one employer in a group
of employers. (Labor Code commencing with § 3200)
3)Requires every licensed contractor to have on file at all times with
the CSLB a current and valid Certificate of Workers' Compensation
Insurance or Certification of Self-Insurance; allows all specialty
and general contractors to claim exemption from the requirement to
have workers compensation insurance if the contractor certifies it
does not have any employees or is otherwise exempt from having
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workers' compensation insurance. (Business and Professions Code
(BPC) § 7125)
4)Provides that failure of a licensed contractor to obtain or maintain
workers' compensation insurance coverage, if required under the
Contractors State License Law, shall result in the automatic
suspension of the license by operation of law. The suspension shall
be effective on the earlier of the date that the workers'
compensation insurance coverage lapses or the date that workers'
compensation coverage is required to be obtained. (BPC § 7125.2)
5)Requires a workers' compensation insurer, including the State
Compensation Insurance Fund (SCIF), to report to the CSLB regarding
each licensed contractor's policy: the name, license number, policy
number, dates that coverage is scheduled to commence and lapse, and
cancellation date if applicable. (BPC § 7125 (d))
6)Establishes a cause for disciplinary action by the CSLB for a
contractor who:
a) Files a false certification of exemption from the workers'
compensation requirement.
b) Employs a person after the filing of an exemption certificate
without first filing a Certificate of Workers' Compensation
Insurance or Certification of Self-Insurance.
c) Employs a person subject to coverage under the workers'
compensation laws without maintaining coverage for that person.
(BPC § 7125.4)
This bill:
1)Requires a workers' compensation insurer to report to the CSLB a
licensed contractor whose workers' compensation insurance policy it
cancels when all of the following conditions are met:
a) The insurer has completed a premium audit or investigation.
b) The insured contractor makes a material misrepresentation that
results in financial harm to the insurer.
c) No reimbursement has been paid by the insured contractor to
the insurer.
1)Provides that willful or deliberate disregard and violation of
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workers' compensation insurance laws constitutes a cause for
disciplinary action.
2)Specifies that the information in Item #1 above, which is reported to
the CSLB by an insurer, shall be confidential and shall be exempt
from disclosure under the California Public Records Act.
3)Makes legislative findings and declarations regarding the
confidentiality of the information specified as exempt from
disclosure under the California Public Record Act.
FISCAL EFFECT: The Assembly Appropriations Committee analysis dated
May 18, 2011, indicates costs associated with this legislation would
be minor and absorbable within existing resources.
COMMENTS:
1.Purpose. This bill is sponsored by the Contractors State License
Board (CSLB) to require workers compensation insurance carriers to
provide the CSLB with a completed audit that resulted in
cancellation an insurance policy carried by a licensed contractor.
The Author states, "The proposed legislation is intended to reduce
premium insurance fraud and address construction employers engaged
in fraudulent activity but not at the level that warrants felony
prosecution. The CSLB understands that insurance carriers routinely
perform audits that determine fraudulent activity. Again, the most
egregious offenders are subject to felony prosecution; however, many
other violators are addressed by cancellation of the insurance
policy and are not subject to any disciplinary action."
The Author indicates that the bill would not create any additional
workload for the insurance carrier; they only need to forward the
CSLB a copy of their completed audit. Prosecutors will be able to
continue to focus on the most egregious offenders while the lesser
offenders are addressed administratively by the CSLB, according to
the Author.
2.Background. California law requires all employers to carry workers'
compensation insurance, even if they have only one employee or a
temporary employee. This allows employees to receive covered
medical treatment for on-the-job injuries or illnesses. Workers'
compensation insurance provides six basic benefits: medical care,
temporary disability benefits, permanent disability benefits,
supplemental job displacement benefits, vocational rehabilitation,
and death benefits. Insurance carriers charge employers premiums to
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provide workers' compensation insurance that factor in the company's
industry classification, history of work-related injuries, and
payroll history. SCIF is the largest provider of workers'
compensation insurance in California.
Each of the more than 300,000 licensed contractors must carry workers'
compensation insurance and file proof of coverage with the CSLB.
This proof can be in either of two forms: A Certificate of Workers'
Compensation Insurance issued and filed by an insurer licensed to
write workers' compensation insurance in California; or, a
Certification of Self-Insurance issued and filed by the Director of
Industrial Relations.
Contractors who meet the following conditions are not required to carry
workers' compensation insurance:
The contractor has no employees and files a statement with
the CSLB certifying that he or she has no employees and is not
otherwise required to provide for workers' compensation
insurance coverage.
The contractor does not hold a C-39 roofing classification
license.
Failure to carry workers compensation or to meet the exemption
requirements results in automatic license suspension and
reinstatement can be made at any time by showing proof of
compliance.
Workers' compensation fraud occurs when the employer misrepresents
the number of employees that need to be insured, or does not fully
provide coverage for employees. According to the Author, the CSLB
relates that the Special Investigation Unit staff with SCIF and
private carrier, First Comp Insurance, indicates that the CSLB can
expect to receive referrals for 2% of the 10% of insured licensed
contractors engaged in fraudulent activity, approximately 600
annually, if referrals are restricted to:
Completed audits that are not subject to referral for
criminal prosecution.
Failure to reimburse the insurance company.
Cancellation of the policy.
1.Related Legislation. AB 397 (Monning) requires a licensed contractor
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with an exemption for workers' compensation insurance to recertify
the exemption upon license renewal or provide proof of workers'
compensation insurance coverage to the CSLB. The bill passed this
Committee on June 6, on an 8-0 vote and is awaiting hearing in
Senate Appropriations Committee.
AB 1091 (Morrell) revises the provisions which allow a licensed
contractor to replace the person on the license who has the
experience and examination requirements necessary to maintain that
license, by requiring the licensee to notify the CSLB within 90 days
of a date of disassociation, if the person who meets the licensing
requirements is no longer associated with license. The bill passed
this Committee on June 6, on an 8-0 vote and is awaiting hearing in
Senate Appropriations Committee.
SB 865 (Negrete McLeod) requires the CSLB to provide legal
representation to any person hired to provide expertise in a
licensing or disciplinary matter when, as a result of providing that
expertise, that person is named as a defendant in a civil action,
and requires the CSLB to indemnify the expert for any judgment
rendered against him or her. That bill passed this Committee 8-0 on
April 4, 2011, and is now awaiting hearing in the Assembly Business,
Professions and Consumer Protection Committee.
SB 1254 (Leno, Chapter 643, Statutes of 2010) authorizes the CSLB to
issue a stop work order when a licensed or unlicensed contractor
fails to provide adequate workers compensation coverage for its
employees.
AB 2305 (Knight, Chapter 423, Statutes of 2010), extended a sunset
date, from January 1, 2011, to January 1, 2016, on the law requiring
a C-39 roofing contractor to obtain and maintain workers'
compensation insurance, even if the contractor has no employees, and
extends a parallel sunset date requiring the Department of Insurance
to report on this effect.
SB 313 (DeSaulnier, Chapter 640, Statutes of 2009) restructured the
laws governing penalties to be assessed on employers who do not
provide workers' compensation benefits, and increases the
per-employee penalty for the lack of workers compensation coverage
from $1000 to $1500.
AB 881 (Emmerson, Chapter 38, Statutes of 2006) required all C-29
licensed roofing contractors to have workers compensation insurance,
authorized the Registrar of contractors to remove the roofing
classification from a contractor license for failure to maintain
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workers' compensation insurance, and required insurers who issue
workers compensation policies to roofing contractors to perform
annual audits of these policyholders.
2.Arguments in Support. In sponsoring the bill, the CSLB indicates
that the bill is intended to help address the issue of premium
fraud, which occurs when an employer has a workers compensation
policy and intentionally misrepresents to their insurance company
the number of employees, nature of work performed by employees, or
amount of payroll.
The CSLB states: "The California Department of Insurance excels at
investigating various felony provisions of the Penal and Insurance
Codes; however, local prosecutors focus their limited resources on
the most egregious offenders. Moreover, investigation of felony
premium insurance fraud is labor intensive, difficult to prosecute
and, due to prison overcrowding, not a top priority for
incarceration. By requiring insurers to report this information,
the CSLB will be able to take disciplinary action against those
licensees. This will help reduce premium insurance fraud and
address construction employers engaged in fraudulent activity but
not at the level that warrants felony prosecution."
The Engineering Contractors' Association , California Fence
Contractors' Association , California Chapter of the American Fence
Association , Marin Builders Association , and the Flasher Barricade
Association are all in support of this bill. They state: "Existing
law provides too many opportunities for contractors to cheat on
their workers' compensation. Besides creating a bad environment for
injured workers, it also creates an unlevel playing field for all
legitimate contractors trying to compete against these criminals."
NOTE : Double-referral to Labor and Industrial Relations Committee
(second). Any amendments to this bill should be made in the
Industrial Relations Committee.
SUPPORT AND OPPOSITION:
Support:
Contractors State License Board (Sponsor)
California Chapter of the American Fence Association
California Fence Contractors' Association
California Spa & Pool Industry Education Council
Engineering Contractors' Association
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Flasher Barricade Association
Marin Builders Association
Opposition: None on file as of June 14, 2011
Consultant:G. V. Ayers