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.









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          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.








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          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 








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            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
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          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