BILL ANALYSIS Ó
SB 662
Page 1
Date of Hearing: June 11, 2013
ASSEMBLY COMMITTEE ON BUSINESS, PROFESSIONS AND CONSUMER
PROTECTION
Richard S. Gordon, Chair
SB 662 (Galgiani) - As Introduced: February 22, 2013
SENATE VOTE : 27-8
SUBJECT : Structural pest control operators: financial
responsibility.
SUMMARY : Increases the minimum liability insurance and bond
coverage amounts that a registered pest control company must
maintain to engage in the practice of structural pest control
and prohibits any other type of financial deposit in lieu of
those requirements. Specifically, this bill :
1)Increases the minimum amount of liability insurance a pest
control company is required to carry from $25,000 to $500,000.
2)Increases the amount of the surety bond that must be
maintained by a pest control company from $4,000 to $12,500.
3)Increases the upper limit of the amount of the surety bond
required as a condition of the issuance, reissuance, or
restoration of a license or company registration issued by the
Structural Pest Control Board (SPCB) after a suspension or
revocation, from $8,000 to $25,000.
4)Deletes the option for a pest control company to file a
$25,000 surety bond with the SPCB in lieu of meeting the
liability insurance policy requirements.
5)Prohibits a pest control company from providing another method
of deposit, including a certificate of deposit (CD) or other
undertaking, to satisfy liability insurance or surety bond
requirements.
6)Deletes the requirement that a pest control company's evidence
of limited liability insurance be provided to the SPCB in a
written format.
7)Makes other technical and clarifying changes.
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8)States that no reimbursement is required by this bill pursuant
to Section 6 of Article XIIIB of the California Constitution
because the only costs that may be incurred by a local agency
or a school district will be incurred because this bill
creates a new crime or infraction, eliminates a crime or
infraction, or changes the penalty for a crime or infraction
within the meaning of Section 17556 of the Government Code, or
changes the definition of a crime within the meaning of
Section 6 of Article XIIIB of the California Constitution.
EXISTING LAW :
1)Provides for the licensing and regulation of pest control
operators, field representatives, and applicators in three
specified areas of pest control - fumigation, general pests,
and termites - by the SPCB under the Department of Pesticide
Regulation (DPR). (Business and Professions (BPC) Code Section
8500 et seq.)
2)Transfers the SPCB from under DPR to the Department of
Consumer Affairs beginning July 1, 2013. (Governor's
Reorganization Plan No. 2, 2012)
3)Requires a registered company to file with the SPCB written
evidence of an insurance policy approved by the SPCB or a bond
as a condition of the company's registration, subject to the
following requirements: (BPC 8690)
a) Requires an insurance policy to provide minimum liability
limits of $25,000 for any one loss due to bodily injury,
sickness, or disease, including death, sustained by a
person, and
$25,000 minimum for any one loss due to injury or destruction
of property, including loss of use; (BPC 8692) and,
b) Provides that in lieu of insurance a company may file a
$25,000 surety bond with the SPCB. (BPC 8693)
1)Provides that violation of the financial responsibility
provisions for structural pest control operators is a
misdemeanor. (BPC 8695)
2)Requires a registered company to maintain a $4,000 surety bond
payable for the benefit of any person damaged by fraud or
dishonesty of the registered company in the performance of a
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contract, or any person who is damaged as a result of a
violation by the registered company. (BPC 8697, 8697.2)
3)Provides that if a structural pest control operator license or
company registration is suspended or revoked, the registrar
shall require the applicant, licensee, or registered company,
as a condition of the issuance, reissuance, or restoration of
the license or company registration, to file a surety bond in
a sum determined by the registrar based upon the seriousness
of the violation, but not less than $1,000 nor more than
$8,000. (BPC 8697.3)
FISCAL EFFECT : Unknown
COMMENTS :
1)Purpose of this bill . This bill is intended to increase the
minimum liability insurance and surety bond requirements that
a registered pest control company must carry in order to
provide a guaranteed source of funds to satisfy consumer
claims that might arise over work performance issues. The
purpose of the increase is to update the insurance and bond
amounts to more accurately reflect higher property values.
This bill also aims to increase regulatory efficiency by
prohibiting a pest control company from posting other methods
of financial deposit in lieu of insurance and a bond because
few individuals utilize this option, which requires more SPCB
staff resources to track and validate. This bill is author
sponsored.
2)Author's statement . According to the author, "There have been
numerous consumer complaints throughout the state where the
only option for a consumer once a pest control company goes
out of business or [has its license] revoked, is to file a
claim against the [surety] bond. However, $4,000 does not
cover a lot of damage when dealing with home repairs.
"SB 662 would increase the minimum insurance and bond
requirements that a pest control company must maintain in
order to operate in California. The minimum limits for the
[liability] insurance policy would be increased from $25,000
to $500,000 and the minimum amount of the surety bond needed
to maintain license or company registration would be increased
from $4,000 to $12,500."
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3)Duties of pest control operators . Pest control operators
licensed by SPCB may perform structural repairs or
replacements and use pesticides, insecticides, rodenticides,
fumigants, allied chemicals or substances, or mechanical
devices for the purpose of eliminating, exterminating,
controlling or preventing infestations or infections of pests.
These include the control of non-vertebrate pests, including
mice, rats, pigeons, ants, roaches, termites, and other
household pests. There are approximately 24,000 licensed
structural pest control operators in California.
4)Existing pest control insurance and bond requirements . Pest
control companies are required to carry and maintain minimum
amounts of general liability and surety bond insurance as a
condition of licensure and to provide an avenue for consumers
to receive compensation for claims filed against a pest
control operator other than through litigation.
According to the SPCB, "Every company registered with the SPCB
must maintain a bond of $4,000 as well as general liability
insurance with a minimum of $25,000 for bodily injury and
$25,000 for property damage per loss. The bond covers
financial injury due to fraud, dishonesty, or damage suffered
by any person because of a violation of a statute. The
liability insurance covers financial loss due to property
damage as well as public injury or illness because of actions
by the pest control company."
5)Liability insurance and bond requirements . The current
liability insurance policy minimum of $25,000 became operative
in 1960 and has not changed since. The sponsor contends that
this minimum amount is outdated and does not realistically
reflect current property values in the real estate market. In
practice, pest control companies have voluntarily increased
their insurance coverage amount. According to the SPCB, "98%
of current pest control companies [in California] already have
a policy for at least $300,000" and the state of Arizona
requires a minimum $500,000 insurance policy.
This bill would increase the general liability insurance
coverage pest control companies must cover from $25,000 to
$500,000 to reflect present day property values in California
and the amount of coverage needed to repair damage that may
occur to those properties. Problems may include operators
using the wrong fumigant, neglecting to follow safety
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procedures, or improperly aerating a structure following
fumigation. The improper use of fumigants can affect humans,
animals, plants, and the environment, particularly in areas of
high population density where more people are vulnerable to
exposure to toxins because of poorer ventilation.
6)Surety bond requirements . The minimum bond requirement was
enacted in 1969 and set at $2,000, and was increased in 1991
to $4,000. However, the SPCB notes that the bond amount can
be easily depleted if multiple claims are filed against a pest
control company's surety bond, leaving consumers unable to
recoup their losses. This bill would increase the surety bond
amount a pest control operator is required to maintain to
$12,500, similar to the bond required of contractors.
Currently, SPCB requires licensees or pest control companies
that have faced disciplinary action and had their licenses
suspended or revoked to post additional surety bonds , between
$1,000 and $8,000 based on the seriousness of the violation,
in order to become active once again. Existing law sets the
upper limit of the surety bond amount for suspended or revoked
licensees and registrants at $8,000, which is twice the
regular surety bond amount ($4,000).
This bill would also increase the upper limit of the surety
bond amount for suspended or revoked licensees and registrants
to $25,000 or twice the amount of a regular surety bond
proposed under this bill ($12,500).
7)Rationale for prohibiting other types of financial deposits .
The SPCB's rationale for deleting the option for a pest
control operator to post a CD in lieu of insurance or bond
requirements is that it is difficult for SPCB staff to track a
CD and verify that it is still on deposit with a financial
institution because of consolidations in the banking industry.
On several occasions, SPCB staff has contacted a financial
institution to settle a consumer issue only to find out that
the CD was released back to the pest control company, meaning
that the money was not appropriately set aside in the event
that a consumer files a claim.
8)Arguments in support . According to the California Association
of Realtors, "There have been an increasing number of
complaints against pest control companies from our realtors in
recent years. Particular challenges arise when a pest control
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[company] goes out of business, leaving [behind] unresolved
claims of poor or incomplete pest services. SB 662 will help
resolve these inadequacies by increasing the minimum insurance
and bond requirements that a pest control company must
maintain in order to conduct business in California. These
minimum amounts have not been modified for many years and
should be brought up to the standards of today's consumers."
REGISTERED SUPPORT / OPPOSITION :
Support
California Association of Realtors
Opposition
None on file.
Analysis Prepared by : Joanna Gin / B.,P. & C.P. / (916)
319-3301