BILL ANALYSIS                                                                                                                                                                                                    Ó



                                                                      



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          |SENATE RULES COMMITTEE            |                   AB 878|
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                                 THIRD READING


          Bill No:  AB 878
          Author:   Bill Berryhill (R), et al
          Amended:  8/16/11 in Senate
          Vote:     21

           
           SENATE BUSINESS, PROF. & ECON. DEV. COMM.  :  9-0, 6/20/11
          AYES:  Price, Emmerson, Corbett, Correa, Hernandez, Negrete 
            McLeod, Vargas, Walters, Wyland

          SENATE LABOR & INDUSTRIAL RELATIONS COMM.  :  6-0, 6/29/11
          AYES:  Lieu, Wyland, DeSaulnier, Leno, Padilla, Yee
          NO VOTE RECORDED:  Runner

           SENATE APPROPRIATIONS COMMITTEE  :  Senate Rule 28.8

           ASSEMBLY FLOOR  :  75-0, 5/26/11 (Consent) - See last page 
            for vote


           SUBJECT  :    Contractors:  workers compensation insurance

           SOURCE  :     Contractors State License Board


           DIGEST  :    This bill 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.  This bill also provides that 
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          willful or deliberate disregard and violation of workers' 
          compensation insurance laws by a contractor constitutes a 
          cause for disciplinary action by the Registrar of 
          Contractors against the licensee.

           ANALYSIS  :    

          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.  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.

          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 workers' compensation insurance.

          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. 

          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 

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             cancellation date if applicable.

          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. 

          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. 

          2. Provides that willful or deliberate disregard and 
             violation of workers' compensation insurance laws 
             constitutes a cause for disciplinary action by the 
             Registrar against the licensee. 

          3. 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.


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          4. Makes legislative findings and declarations regarding 
             the confidentiality of the information specified as 
             exempt from disclosure under the California Public 
             Record Act.

           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 
          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 

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          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's office, 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 two percent of the 10 
          percent 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.

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

           SUPPORT  :   (Verified  8/15/11)

          Contractors State License Board (source)
          Associated General Contractors
          California Chapter of the American Fence Association
          California Fence Contractors' Association
          California Landscape Contractors Association
          California Spa and Pool Industry Education Council
          Engineering Contractors' Association
          Flasher Barricade Association 
          Marin Builders Association

           ARGUMENTS IN SUPPORT  :    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 

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          not subject to any disciplinary action."

          The author indicates that the bill does 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.


           ASSEMBLY FLOOR  :  75-0, 5/26/11
          AYES:  Achadjian, Alejo, Allen, Ammiano, Atkins, Beall, 
            Bill Berryhill, Block, Blumenfield, Bonilla, Bradford, 
            Brownley, Buchanan, Butler, Charles Calderon, Carter, 
            Chesbro, Conway, Cook, Dickinson, Donnelly, Eng, Feuer, 
            Fletcher, Fong, Fuentes, Furutani, Beth Gaines, Galgiani, 
            Garrick, Gatto, Gordon, Grove, Hagman, Halderman, Hall, 
            Harkey, Hayashi, Roger Hernández, Hill, Huber, Hueso, 
            Huffman, Jeffries, Knight, Lara, Logue, Bonnie Lowenthal, 
            Ma, Mansoor, Mendoza, Miller, Mitchell, Monning, Morrell, 
            Nestande, Nielsen, Norby, Olsen, Pan, Perea, V. Manuel 
            Pérez, Portantino, Silva, Skinner, Smyth, Solorio, 
            Swanson, Torres, Valadao, Wagner, Wieckowski, Williams, 
            Yamada, John A. Pérez
          NO VOTE RECORDED:  Campos, Cedillo, Davis, Gorell, Jones


          JJA:do  8/15/11   Senate Floor Analyses 

                         SUPPORT/OPPOSITION:  SEE ABOVE

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