BILL ANALYSIS Ó AB 2219 Page 1 Date of Hearing: April 18, 2012 ASSEMBLY COMMITTEE ON INSURANCE Jose Solorio, Chair AB 2219 (Knight) - As Amended: March 27, 2012 SUBJECT : Contractors: workers' compensation insurance 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 the annual payroll audits for C-39 roofing contractors, which are conducted by their workers' compensation 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 provisions of law amended by 1) through 4), above. AB 2219 Page 2 6)Makes conforming changes and deletes obsolete provisions. EXISTING LAW : 1)Provides for the licensing and regulation of contractors by the CSLB within the Department of Consumer Affairs (DCA). The Registrar is the CSLB's executive officer. 2)Provides for a series of classifications within the broad category of contractors, and requires a licensed contractor to be licensed for the classifications appropriate to the work they perform. Roofing contractors are the C-39 classification. 3)Requires all employers to secure the payment of workers' compensation benefits by either obtaining and maintaining a workers' compensation insurance policy, or by obtaining a certificate of self-insurance from the Department of Industrial Relations. 4)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. Except for C-39 contractors, licensed contractors who certify that they have no employees are not required to provide a certificate of workers' compensation insurance. 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. AB 2219 Page 3 6)Requires the commissioner, through the Workers' Compensation Insurance Rating Bureau (WCIRB), to annually compile statistical data on contractors holding C-39 licenses, as specified. This provision sunsets January 1, 2013. FISCAL EFFECT : Unknown COMMENTS : 1)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 by insurers of C-39 contractors' 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." 2)Background . California law requires all employers to carry workers' compensation insurance, even if they have only one employee or a temporary employee. 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, including almost 4800 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. If a contractor does AB 2219 Page 4 not have employees, he or she can fill out an exemption from workers' compensation. Because of the relatively widespread history of fraud and abuse by some in the roofing industry, special rules have been put into place to ensure better compliance, and to ensure a level playing field for honest roofing contractors. This bill would retain and expand these special rules. 3)WCIRB report . One of the new provisions of the bill involves the WCIRB. As introduced, the analysis required by the bill would have been problematic. However, the March 27 amendments addressed those concerns, and the report required by the bill appears reasonable. 4)Related legislation . AB 1794 (Williams), also before the Insurance Committee at its April 18 hearing, would require contractors to notify their workers' compensation insurer within 15 days of employing a worker. 5)Previous legislation . AB 2305 (Knight), Statutes of 2010, Chapter 423, extended 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 extended the parallel sunset date requiring the Commissioner to report on this effect. SB 1254 (Leno), Statutes of 2010, Chapter 643, authorized the CSLB to issue a stop work order when a contractor fails to provide adequate workers compensation coverage for its employees. AB 881 (Emmerson), Statutes of 2006, Chapter 38, required all licensed roofers to have workers' compensation insurance, authorized the Registrar to remove the roofing classification from a contractor's license for failure to maintain workers' compensation insurance, and required insurers who issue workers compensation policies to roofing contractors to perform annual audits of these policyholders. REGISTERED SUPPORT / OPPOSITION : Support AB 2219 Page 5 Roofing Contractors Association of California (sponsor) American Subcontractors Association - California Associated Roofing Contractors BEST Contracting Services, Inc. Brian Hobbs Roofing, Inc. California Building Industry Association California Labor Federation California Professional Association of Specialty Contractors Construction Industry Legislative Council Eberhard Roofing Lawson Roofing Company, Inc. Malott/Peterson Roofing Company Reinhardt Roofing Roof Removal, Inc. Roofing Contractors Association of California (RCRC) Rosscrete Roofing, Inc. State Building and Construction Trades Council Troyer Contracting Co., Inc. Union Commercial Roofing Union Roofing Contractors Association (URCA) United Union of Roofers, Waterproofers and Allied Workers Local 40 Vance and Associates Roofing, Inc. Opposition None received Analysis Prepared by : Mark Rakich / INS. / (916) 319-2086