BILL ANALYSIS Ó
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|Hearing Date:July 2, 2012 |Bill No:AB |
| |2219 |
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SENATE COMMITTEE ON BUSINESS, PROFESSIONS
AND ECONOMIC DEVELOPMENT
Senator Curren D. Price, Jr., Chair
Bill No: AB 2219Author:Knight
As Amended:March 27, 2012Fiscal: Yes
SUBJECT: Contractors' workers' compensation insurance coverage.
SUMMARY: Deletes the sunset date, thereby extending indefinitely the
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.
Existing law:
1)Licenses and regulates more than 300,000 contractors, including C-39
roofing classification contractors, under the Contractors State
License Law by the Contractors State License Board (CSLB) within the
Department of Consumer Affairs (DCA). The CSLB is under the
direction of the registrar of contractors (Registrar). (Business
and Professions Code (BPC) § 7000 et seq.)
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. (Labor Code § 3700 et seq.)
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. (BPC § 7125)
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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 either the date that the workers' compensation
insurance coverage lapses or the date that workers' compensation
coverage is required to be obtained. (BPC § 7125.2)
5)Until January 1, 2013, requires the following regarding licensees who
hold a C-39 roofing classification:
a) 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 submitted to the Registrar.
b) 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 who does not have the required workers' compensation
coverage.
6)Until January 1, 2013, requires a workers' compensation insurer who
provides 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. (Insurance Code § 11665 (a))
7)Until January 1, 2013, requires the Insurance Commissioner, through
the Workers' Compensation Insurance Rating Bureau (WCIRB), to
annually compile statistical data on those holding C-39 licenses.
(Insurance Code § 11665 (b))
This bill:
1) Requires the Registrar to remove the C-39 classification from any
contractor license that, on January 1, 2013, 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 submitted.
2) Requires automatic license suspension for any contactor license
that, after January 1, 2013, has had the C-39 classification
removed and who is found to have employees and who does not have
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the required workers' compensation coverage.
3) Requires the 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 January 1, 2013 sunset date, on current provisions of
law amended by 1) through 4), above, thus extending those
provisions indefinitely.
FISCAL EFFECT: The Assembly Appropriations Committee analysis dated
May 9, 2012 cites the following:
1.A significant portion of the 4,800 active licensed roofing
contractors are insured by the State Compensation Insurance Fund
(SCIF). Requiring SCIF auditors to conduct annual in-person audits
on all of these contractors would likely cost in excess of $500,000
per year. The bill provides the insurers, including SCIF, with the
authority to charge fees to recoup their costs.
2.Minor and absorbable costs for the CSLB, Department of Industrial
Relations and CDI.
COMMENTS:
1.Purpose. This bill is sponsored by Roofing Contractors Association
of California (Sponsor) in order to remove the sunset date of
January 1, 2013 which was set in 2010 by AB 2305 carried by
Assemblymember Knight. This pilot program requires all roofing
(C-39) contractors, regardless of whether or not they have any
employees, to maintain current workers compensation insurance. This
measure 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.
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
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order to ensure the protection and safety of industry workers and
contractors. However, a high incidence of payroll reporting fraud
has also contributed 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."
2.Background. The CSLB licenses and regulates California's
construction industry. Anyone performing construction work in
California that totals $500 or more in labor and materials must be
licensed by CSLB. There are more than 300,000 licensed contractors
in the state, in 43 different licensing classifications, including
almost 4800 active C-39 licenses. A C-39 roofing contractor is
certified to install products and repair surfaces that seal,
waterproof and weatherproof structures.
Current law, which requires all C-39-licensed roofers in California to
maintain workers compensation insurance policies, sunsets on January
1, 2013. Insurers are required to complete an annual audit of their
California policyholders, with the costs of the audit included as a
portion of the insurer's customary basic underwriting charge.
Finally, The Workers Compensation Insurance Ratings Bureau (WCIRB)
is directed by the California Department of Insurance to gather
annual statistical data for the California roofing industry and
provide a written report each year to the Department of Insurance.
Data from the first two years of implementation of the insurance
mandate reflects the effectiveness of the legislation in that 436
more roofing contractors were insured at the end of 2008 than were
insured in 2000, despite fewer roofing contractors in business due
to economic attrition.
3.Workers' Compensation Insurance. California law requires all
employers to carry workers' compensation insurance, even if they
have only one employee or a temporary employee. 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 not have employees, he or she can
fill out an exemption from workers' compensation.
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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.
4.Related Legislation. AB 397 (Monning, Chapter 546, Statutes of 2011)
requires a licensed contractor with an exemption for workers'
compensation insurance to recertify the exemption upon license
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.
AB 2305 (Knight, Chapter 423, Statutes of 2010) extended the sunset
date, from January 1, 2011, to January 1, 2016, on the 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 Insurance Commissioner to report
on this effect.
AB 2390 (Buchanan, 2010) required a contractor who bids on a public
works project to show proof of workers' compensation coverage when
submitting the bid, rather than when beginning work on the project.
The was amended to address an unrelated subject.
SB 1254 (Leno, Chapter 643, Statutes of 2010) authorized 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) restructured the
laws governing penalties to be assessed on employers who do not
provide workers' compensation benefits, and increased the
per-employee penalty for the lack of workers compensation coverage
from $1000 to $1500.
AB 881 (Emmerson, Chapter 38, Statutes of 2006) required 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
required insurers who issue workers compensation policies to roofing
contractors to perform annual audits of these policyholders.
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5.Arguments in Support. In sponsoring the bill the Roofing Contractors
Association argues, there is increased awareness of the magnitude of
the underground economy and its impact on the construction industry
in particular and the state in general. Permanently extending the
roofing contractor workers compensation mandate is consistent with
the growing efforts to combat the underground economy. The bill
benefits legitimate businesses as well as consumers, and is broadly
supported by both labor and management, union and open shop
operations, public enforcement agencies, and numerous construction
trade groups outside the roofing industry.
The Associated Roofing Contractors of the Bay Area Counties states that
It is clear that the original mandate for all roofing contractors to
carry workers compensation insurance was an important first step in
combating insurance fraud in the roofing industry, but a lot of work
remains work to be done, especially in terms of requiring vigorous
audits of contractor's insurance as required by the bill.
The California Labor Federation supports the bill stating that despite
recent, and often successful, efforts to improve workers'
compensation law compliance within the roofing industry, far too
many roofing contractors continue to jeopardize worker safety by
committing blatant workers' compensation fraud. These mandates have
made a difference, but more work is needed these reforms must be
extended so that efforts to identify and eradicate workers'
compensation fraud in the roofing industry can continue.
The State Building and Construction Trades Council argues there is
significant incentive for roofing contractors to commit fraud due to
high workers compensation rates in the roofing industry. Prior to
the passage of AB 881, in 2006, almost half of the licensed roofing
contractors in California claimed they had no employees. Of those
employers who did carry insurance, over 30% claimed annual payrolls
of less than $5,000 per year. Given the labor intensive nature of
the roofing industry, these figures are evidence of workers'
compensation fraud on a massive scale. "It is crucial that the
provisions of AB 881 be extended so that efforts to indentify and
eradicate workers' compensation fraud in the roofing industry are
not undermined."
SUPPORT AND OPPOSITION:
Support:
Roofing Contractors Association (Sponsor)
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Associated Roofing Contractors of the Bay Area Counties
Associated Roofing Contractors of Northern California
Best Contracting Services
California Labor Federation
American Subcontractors Association-California
California Building Industry Association
Construction Industry Legislative Council
Eberhard Complete Roofing & Waterproofing
Northern California Tile Industry
Reinhardt Roofing
State Building and Construction Trades Council of California
Troyer Contracting Co.
Union Roofing Contractors Association
United Union of Roofers, Waterproofers and Allied Workers
Vance & Associates Roofing
Opposition:
None received as of June 26, 2012
Consultant:G. V. Ayers