BILL ANALYSIS Ó ------------------------------------------------------------ |SENATE RULES COMMITTEE | AB 878| |Office of Senate Floor Analyses | | |1020 N Street, Suite 524 | | |(916) 651-1520 Fax: (916) | | |327-4478 | | ------------------------------------------------------------ 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 CONTINUED AB 878 Page 2 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 CONTINUED AB 878 Page 3 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. CONTINUED AB 878 Page 4 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 CONTINUED AB 878 Page 5 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 CONTINUED AB 878 Page 6 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 **** END **** CONTINUED