BILL ANALYSIS Ó
AB 2219
Page 1
Date of Hearing: April 10, 2012
ASSEMBLY COMMITTEE ON BUSINESS, PROFESSIONS AND CONSUMER
PROTECTION
Mary Hayashi, Chair
AB 2219 (Knight) - As Amended: March 27, 2012
SUBJECT : Contractors' workers' compensation insurance
coverage.
SUMMARY : Eliminates the sunset date on existing law requiring
roofing contractors who hold a C-39 classification to maintain
workers' compensation insurance, whether or not they have
employees, and makes additional changes to law regarding C-39
contractors. Specifically, this bill :
1)Requires the Contractors State License Board's (CSLB)
Registrar of Contractors (Registrar) to remove the C-39
classification from any contractor's license that, on January
1, 2013, is active and includes a C-39 classification in
addition to any other classification, unless a valid
certification of workers' compensation insurance or
certification of self-insurance is received by the Registrar.
2)Requires automatic suspension of a license for any CSLB
licensee whose license, after January 1, 2013, is active and
has had the C-39 classification removed and who is found to
have employees and to lack required workers' compensation
coverage.
3)Requires annual payroll audits for C-39 roofing contractors,
which are performed by their insurers, to include an in-person
visit to the place of business of the contractor to verify
whether the number of employees reported by the contractor is
accurate.
4)Requires statistical data on contractors holding C-39
licenses, which is compiled by the Insurance Commissioner
(Commissioner), to include the number of employers, total
payroll, total losses, and the losses per $100 of payroll by
the employers' annual payroll at certain intervals, as
specified.
5)Deletes the sunset date of January 1, 2013, on current
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provisions of law amended by 1) through 4), above.
6)Makes conforming changes and deletes obsolete provisions.
EXISTING LAW :
1)Licenses and regulates contractors, including C-39 roofing
classification contractors, under the Contractors State
License Law by the CSLB within the Department of Consumer
Affairs (DCA). The Registrar is the CSLB's executive officer.
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, under the Contractors' State License Law, 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, as specified.
This requirement does not apply to a licensee who does not
hold a C-39 license and who files a statement certifying that
he or she has no employees and is not required to provide for
workers' compensation insurance coverage.
4)Requires the Registrar to remove the C-39 classification from
any license that, on January 1, 2011, is active and includes a
C-39 classification in addition to any other classification
unless a valid certification of workers' compensation
insurance or certification of self-insurance is received by
the registrar. Requires automatic suspension of a license for
any licensee whose license, after January 1, 2011, is active
and has had the C-39 classification removed and who is found
to have employees and to lack required workers' compensation
coverage. These provisions sunset January 1, 2013.
5)Requires a workers' compensation insurer who issues a policy
to a contractor with a C-39 classification to perform an
annual payroll audit for the contractor, and allows the
insurer to place a surcharge on the policy holder to recoup
reasonable costs of the audit. This provision sunsets January
1, 2013.
6)Requires the Commissioner, through the Workers' Compensation
Insurance Rating Bureau (WCIRB), to annually compile
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statistical data on contractors holding C-39 licenses, as
specified. This provision sunsets January 1, 2013.
FISCAL EFFECT : Unknown
COMMENTS :
Purpose of this bill . According to the author, "This measure
removes the sunset date?on a program that requires all Roofing
(C-39) contractors, regardless of whether or not they have
employees, maintain current workers compensation. It also
specifies that the mandatory annual review of C-39 contractor's
books will include an in-person visit to the place of business
of the roofing contractor.
"Eliminating the sunset on this program will ensure a
comprehensive approach to eliminating fraud in the roofing
industry, which increases system efficiency, protects property
owners and roofing employees, while also bringing down costs for
California's honest roofing contractors. Furthermore, annually
verifying reported payroll numbers through in-person visits (as
opposed to simply a phone call) by the insurer during the audit
period will further deter fraudulent claims, and will provide
insurers with a more accurate picture of the size of roofing
operations which they are insuring."
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. 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. California's workers'
compensation insurance laws are administered by the State
Department of Industrial Relations through the Division of
Workers' Compensation, which can take action against a
contractor who fails to secure payment of workers' compensation.
The CSLB licenses and regulates California's construction
industry. Anyone performing construction work in California
that totals $500 dollars or more in labor and materials must be
licensed by CSLB. There are about 300,000 licensed contractors
in the state, in 43 different licensing classifications,
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including 4,791 active C-39 licenses.
Every licensed contractor must report, in writing, the name and
address of the insurer carrying workers' compensation on his or
her employees to the Registrar within 90 days after any policy
of insurance is issued. The contractor must send a copy of this
report to the insurer. Failure to follow this reporting
requirement is a misdemeanor. Contractors must submit proof of
their workers' compensation insurance coverage in the form of a
certificate of workers' compensation insurance or certification
of self-insurance. If a contractor does not have employees, he
or she can fill out an exemption from workers' compensation.
According to the author, "The roofing industry in California has
among the highest workers compensation rates of all industries
in the state. The nature of the work requires considerable
investment in order to ensure the protection and safety of
industry workers and contractors. However, a high incidence of
payroll reporting fraud has also helped lead to these exorbitant
costs, as many roofing contractors under-report their payroll in
order to secure lower workers compensation premiums. When
roofing companies under report their payroll and carry
substandard levels of workers compensation insurance, their
employees are put at an even higher risk without appropriate
insurance coverage in place, homeowners are unwittingly
subjected to liability if a worker is injured, and honest
roofing companies must subsidize the premiums of dishonest
companies."
A C-39 roofing contractor is certified to install products and
repair surfaces that seal, waterproof and weatherproof
structures. Current law requires all licensed roofers to have
workers compensation insurance, authorizes the Registrar to
remove the roofing classification from a contractor license for
failure to maintain workers' compensation insurance, and
requires insurers who issue workers compensation policies to
roofing contractors to perform annual audits of these
policyholders. Current law also requires the Commissioner to
designate its rating organization (the WCIRB) to compile data on
individuals with C-39 designations and report to the
Commissioner each year on total annual payroll and loss data in
accordance with standard workers' compensation insurance
classifications. All of these provisions are scheduled to
sunset January 1, 2013.
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This bill extends these requirements indefinitely. It also
requires in-person visits as part of the annual payroll audits
that insurers must perform for their C-39 policyholders, to
verify the accuracy of contractor-reported employee counts.
This bill also requires more specificity in the statistical data
compiled by the Commissioner on C-39 contractors, including the
number of employers, total payroll, total losses, and the losses
per $100 of payroll by the employers' annual payroll at
specified monetary intervals.
According to the CSLB, "The cost of workers' compensation
insurance continues to escalate, in large part, because of
employers who fail to report employees. CSLB has performed a
study in select cities to measure roofing contractors'
compliance with insurance requirements. The study determined
that approximately 50% of roofing contractors insured with (the)
State Compensation Insurance Fund (SCIF) have "minimum
policies." Basically, a minimum policy is the least amount for
which the insurance provider is willing to insure an employer on
a given policy. However, the insured is required to notify the
carrier when they have payroll, but employers are not reporting
payrolls to the insurance carriers."
The CSLB goes on to report that roofing contractors pay premiums
of about 20% on every dollar of payroll for non-clerical labor.
A roofing contractor who pays four employees $50,000 per year,
for a total payroll of $200,000, would typically pay the
workers' compensation provider a $40,000 premium. A sample of
64 roofing contractors who are required to carry workers'
compensation insurance found that about 54% have either a
minimum or nearly minimum workers' compensation policy.
Related legislation .
AB 1794 (Williams) requires contractors to notify their workers'
compensation insurance carrier within 15 days of employing a
worker. This bill is pending in Assembly Business, Professions
and Consumer Protection Committee.
Previous legislation .
AB 397 (Monning) Chapter 546, Statutes of 2011, requires an
active contractor licensee with an exemption for workers'
compensation insurance to recertify the exemption upon license
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renewal or provide proof of workers' compensation insurance
coverage.
AB 878 (Bill Berryhill), Chapter 686, Statutes of 2011, requires
a workers' compensation insurer to report to the CSLB a licensed
contractor whose insurance policy it cancels, as specified.
AB 2305 (Knight), Chapter 423, Statutes of 2010, extends the
sunset date, from January 1, 2011, to January 1, 2016, on
existing law requiring a roofing contractor to obtain and
maintain workers' compensation insurance, even if he or she has
no employees, and extends the parallel sunset date requiring the
Commissioner to report on this effect.
AB 2390 (Buchanan) of 2010 requires a contractor who bids on a
public works project to show proof of workers' compensation
coverage when it submits the bid, rather than when it begins
work on the project. This bill was amended to address an
unrelated subject.
SB 1254 (Leno), Chapter 643, Statutes of 2010, authorizes the
CSLB to issue a stop work order when a contractor fails to
provide adequate workers compensation coverage for its
employees.
SB 313 (DeSaulnier), Chapter 640, Statutes of 2009, restructures
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, requires all
licensed roofers to have workers compensation insurance,
authorizes the Registrar to remove the roofing classification
from a contractor's license for failure to maintain workers'
compensation insurance, and requires insurers who issue workers
compensation policies to roofing contractors to perform annual
audits of these policyholders.
Double-referral . This bill is double-referred to the Assembly
Insurance Committee.
REGISTERED SUPPORT / OPPOSITION :
Support
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Roofing Contractors Association of California (sponsor)
American Subcontractors Association - California
BEST Contracting Services, Inc.
Brian Hobbs Roofing, Inc.
California Building Industry Association
California Professional Association of Specialty Contractors
Construction Industry Legislative Council
Eberhard Roofing
Lawson Roofing Company, Inc.
Roof Removal, Inc.
Roofing Contractors Association of California
Rosscrete Roofing, Inc.
State Building and Construction Trades Council
Troyer Contracting Co., Inc.
Union Roofing Contractors Association
Vance and Associates Roofing, Inc.
Opposition
None on file
Analysis Prepared by : Angela Mapp / B.,P. & C.P. / (916)
319-3301