Amended in Senate June 13, 2016

Amended in Assembly April 28, 2016

California Legislature—2015–16 Regular Session

Assembly Bill No. 1922

Introduced by Assembly Member Daly

February 11, 2016

An act to amend Section 11658 of the Insurance Code, relating to workers’ compensation insurance.

LEGISLATIVE COUNSEL’S DIGEST

AB 1922, as amended, Daly. Workers’ compensation begin delete policies. end delete begin insert policies: ancillary agreements. end insert

Existing law begin delete requires that end delete begin insert prohibits end insert a workers’ compensation insurance policy or endorsement begin delete not be end delete begin insert from being end insert issued by an insurer unless the insurer files a copy of the form or endorsement with a rating organization and 30 days have expired from the date the form or endorsement is received by the Insurance Commissioner from the rating organization without notice from the commissioner, unless the commissioner gives written approval of the form or the endorsement prior to that time.

This bill would prohibit, except as provided, an ancillary begin delete agreement end delete begin insert agreement, as defined, end insert to a workers’ compensation insurance policy from being issued or renewed by an insurer to a California employer, as defined, begin delete on or after January 1, 2017, end delete unless the insurer files a copy of the ancillary agreement with a rating organization and 30 days have expired from the date the ancillary agreement is received by the commissioner from the rating organization without notice from the commissioner unless the commissioner gives written approval of the ancillary agreement prior to that time. begin delete The bill would define “ancillary agreement” to mean an agreement that is a supplementary writing or contract relating to a policy or endorsement form that adds to, subtracts from, or revises the obligations of either the insured or the insurer regarding any terms of an insurance policy, including, but not limited to, dispute resolution agreements, policy premium amounts or rates, expense or tax reimbursement or allocation, deductible amounts, policy duration, cancellation, or claims administration. end delete begin insert The bill would provide that the terms and conditions of a workers’ compensation policy and any endorsements take precedence over the provisions contained in an ancillary agreement in the case of an inconsistency or conflict between the policy or endorsement and the ancillary agreement. The changes made by the bill would apply to ancillary agreements issued or renewed on or after January 1, 2017. end insert The bill would also make conforming changes.

Vote: majority. Appropriation: no. Fiscal committee: yes. State-mandated local program: no.

The people of the State of California do enact as follows:

SECTION 1.  

Section 11658 of the Insurance Code is amended
to read:

11658.  

(a) A workers’ compensation insurance policy or
endorsement shall not be issued by an insurer to any person in this
state unless the insurer files a copy of the form or endorsement
with the rating organization pursuant to subdivision (e) of Section
11750.3 and 30 days have expired from the date the form or
endorsement is received by the commissioner from the rating
organization without notice from the commissioner, unless the
commissioner gives written approval of the form or endorsement
prior to that time.

(b) (1) An ancillary agreement shall not be issued by an insurer
to a California employer unless the insurer files a copy of the
ancillary agreement with the rating organization pursuant to
subdivision (e) of Section 11750.3 and 30 days have expired from
the date the ancillary agreement is received by the commissioner
from the rating organization without notice from the commissioner
unless the commissioner gives written approval of the ancillary
agreement prior to that time.

(2) For the purposes of this section, a “California employer”
means an employer whose principal place of business is in
California and whose California payroll constitutes the majority
of the employer’s payroll for purposes of determining premium
under the policy.

(3)  begin insert (A) end insert begin insert   end insert This section shall not apply to an ancillary agreement
between an insurer and a California employer issued in conjunction
with a workers’ compensation policy or endorsement that contains
a deductible obligation or retention obligation equal to or greater
than two hundred fifty thousand dollars ($250,000) and the
California employer meets three or more of the following criteria:
begin delete (A) end delete begin insert (i) end insert has a full-time risk begin delete manager; (B) end delete begin insert manager involved in the
evaluation of an ancillary agreement; (ii) end insert is represented by counsel
during begin delete negotiations; (C) end delete begin insert negotiations regarding an ancillary
agreement; (iii) end insert has 500 or more employees; begin delete (D) end delete begin insert (iv) end insert has annual
gross begin delete revenue end delete begin insert revenues end insert in excess of twenty million dollars
($20,000,000); or begin delete (E) end delete begin insert (v) end insert has a workers’ compensation manual
standard premium on a countrywide basis in excess of seven
hundred fifty thousand dollars ($750,000).

begin insert

(B) Paragraph (1) shall control, and paragraph (3) shall not
apply, to an ancillary agreement between an insurer and a
California employer that is either of the following:

end insert begin insert

(i) Issued to a coemployment arrangement, as defined in
subparagraph (C).

end insert begin insert

(ii) Negotiated, managed, or administered, in whole or in part,
by a managing general agent (MGA), as defined in subdivision
(c) of Section 769.81.

end insert begin insert

(C) “Coemployment arrangement” means any arrangement,
under contract or otherwise, whereby an entity utilizes the services
of a third party to provide workers for a fee or other compensation,
including, but not limited to:

end insert begin insert

(i) A professional employer organization.

end insert begin insert

(ii) A leasing employer, as defined in Section 606.5 of the
Unemployment Insurance Code.

end insert begin insert

(iii) A temporary services employer, as defined in Section 606.5
of the Unemployment Insurance Code.

end insert begin insert

(iv) Any employer, regardless of name or form of organization,
that is in the business of providing workers to other employers.

end insert

(4) Under no circumstances, however, may an ancillary
agreement amend or revise the coverage provided, or the benefits
payable, under a workers’ compensation policy unless it is filed
and approved in accordance with this section. begin insert The terms and
conditions of a workers’ compensation policy and any
endorsements shall take precedence over the provisions contained
in an ancillary agreement if there is an inconsistency or a conflict
between the policy or endorsement and the ancillary agreement. end insert

(5) This subdivision shall apply to ancillary agreements issued
or renewed on or after January 1, 2017.

(c) If the commissioner notifies the insurer that the filed policy
form, endorsement, or ancillary agreement does not comply with
the requirements of law, specifying the reasons for his or her
opinion, it is unlawful for the insurer to issue any policy form,
endorsement, or ancillary agreement in that form.

(d) The withdrawal of a policy form, endorsement, or ancillary
agreement by the commissioner pursuant to this section shall not
affect the status of the policyholder as having secured payment
for compensation or affect the substitution of the insurer for the
policyholder in workers’ compensation proceedings as set forth
in the provisions of Chapter 4 (commencing with Section 3700)
of Part 1 of Division 4 of the Labor Code during the period of time
in which the policy form, endorsement, or ancillary agreement
was in effect.

(e) “Ancillary agreement” means an agreement that is a
supplementary writing or contract relating to a policy or
endorsement form that adds to, subtracts from, or revises the
obligations of either the insured or the insurer regarding any terms
of an insurance policy, including, but not limited to, dispute
resolution agreements, policy premium amounts or rates, expense
or tax reimbursement or allocation, deductible amounts, policy
duration, cancellation, or claims administration. “Ancillary
agreements” do not include: (1) limiting and restricting
endorsements as defined in subdivision (g) of this section; (2)
customized limiting and restricting endorsements as defined in
subdivision (h) of this section; or (3) agreements specifying only
terms described in subparagraphs (A) to (F), inclusive, following,
but only if those terms are disclosed and negotiated
contemporaneously with the inception or renewal of the underlying
policy and any revisions or additions to those terms subsequent to
the inception or renewal of the policy are mutually agreed upon
by the parties: (A) the method for making payments; (B) the
method for funding deductible amounts or other policy-related
charges due under a policy; (C) the amounts of collateral or security
the insured is required to maintain for claims that do not exceed
the deductible; (D) payment due dates; (E) payment transmittal
information; or (F) the method of selecting a claims administrator,
provided that the claims administrator may only administer claims
that do not exceed the deductible.

(f) This section shall not apply to limited policies submitted for
approval to the commissioner pursuant to Section 11657.

(g) “Limiting and restricting endorsement” means an
endorsement that excludes from coverage some portion of workers’
compensation liability for which the employer is required to secure
payment pursuant to the Labor Code that, after approval of the
endorsement by the Insurance Commissioner, may be endorsed to
a workers’ compensation policy.

(h) “Customized limiting and restricting endorsement” means
an endorsement unique to a specific policy used (1) when the
employer’s business is conducted in such a manner that it is
impossible or impracticable to determine the nature, scope, and
extent of employment covered by the insurer; or (2) to prevent the
performance of work in such an extremely hazardous manner or
under such hazardous conditions as would reflect a reckless
disregard by the employer for the welfare of its employees; or (3)
to prevent the issuance of an unrestricted policy if it would
encourage an operation that is contrary to law or to the rules of a
regulatory agency.