Amended in Senate June 28, 2016

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 begin delete amend Section 11658 end delete begin insert amend, repeal, and add Sections 11658 and 11658.5 end insert of the Insurance Code, relating to workers’ compensation insurance.

LEGISLATIVE COUNSEL’S DIGEST

AB 1922, as amended, Daly. Workers’ compensation policies: ancillary agreements.

Existing law prohibits a workers’ compensation insurance policy or endorsement from being 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 agreement, as defined, to a workers’ compensation insurance policy from being issued or renewed by an insurer to a California employer, as defined, 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. 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. begin insert The bill would make additional changes relating to collateral and security agreements, as defined. end insert The changes made by the bill would apply to ancillary agreements issued or renewed on or after January 1, 2017. The bill would also make conforming changes.

begin insert

The changes made by the bill would apply only until January 1, 2022.

end insert

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.

begin delete

(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.

end delete begin delete

(3) (A) This

end delete

begin insert (2) end insert begin insert   end insert begin insert (A) end insert begin insert   end insert begin insert This end insert 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 begin delete retention obligation end delete begin insert retrospectively rated
loss limitation end insert equal to or greater than two hundred fifty thousand
dollars begin delete ($250,000) end delete begin insert ($250,000), provided that, for an endorsement
containing a deductible obligation, the endorsement complies with
the requirements of subdivision (e) of Section 11735, or, for a
retrospectively rated policy, is contained in an endorsement filed
by a rating organization pursuant to Sections 11750.3 and 11753
and approved by the commissioner, end insert and the California employer
meets begin insert at least end insert three begin delete or more end delete of the following criteria: begin delete (i) end delete begin delete   end delete begin delete has end delete

begin insert (i) end insert begin insert   end insert begin insert Is represented by a broker for negotiations regarding the
ancillary agreement and either has end insert a full-time risk manager
involved in the evaluation of an ancillary begin delete agreement; (ii) end delete begin insert agreement
or end insert is represented by counsel during negotiations regarding an
ancillary begin delete agreement; (iii) has end delete begin insert agreement. end insert

begin insert (ii) end insert begin insert   end insert begin insert Has end insert 500 or more begin delete employees; (iv) has end delete begin insert employees. end insert

begin insert (iii) end insert begin insert   end insert begin insert Has an end insert annual begin delete gross revenues end delete begin insert nationwide payroll end insert in excess
of twenty million dollars begin delete ($20,000,000); or (v) has end delete begin insert ($20,000,000). end insert

begin insert (iv) end insert begin insert   end insert begin insert Has end insert a workers’ compensation manual standard premium
on a countrywide basis in excess of begin delete seven hundred fifty thousand
dollars ($750,000). end delete begin insert one million dollars ($1,000,000). end insert

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

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

begin delete subparagraph (C). end delete begin insert subdivision (g). end 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.

begin delete

(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:

(i) A professional employer organization.

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

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

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

(4)

end delete

begin insert (3) end insert  Under no circumstances, however, may an ancillary
agreement begin delete amend end delete begin insert do either of the following: end insert

begin insert (A) end insert begin insert   end insert begin insert Amend end insert 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 delete The end delete

begin insert

(B) Include charges or costs as allocated loss adjustment
expenses that are not defined as allocated loss adjustment expenses
in the California Workers’ Compensation Uniform Statistical
Reporting Plan - 1995, as identified in Section 2318.6 of Title 10
of the California Code of Regulations and any subsequent
revisions, unless the ancillary agreement is filed and approved in
accordance with this section.

end insert

begin insert (4) end insert begin insert   end insert begin insert The end insert 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.

begin insert

(5) Contemporaneously with any written quote to provide
workers’ compensation coverage to a California employer, the
insurer shall provide to the insurance agent or broker for the
employer a draft of any ancillary agreement that the insurer
reasonably expects to require the employer to sign, together with
a notice that the terms of the ancillary agreement are negotiable
between the insurer and the employer.

end insert begin insert

(6) Within 30 days after execution of an ancillary agreement
subject to paragraph (2), the insurer shall notify the insurance
commissioner of the agreement. The ancillary agreement shall not
be subject to filing with the commissioner or rating organization
or approval by the commissioner.

end insert begin insert

(7) An ancillary agreement that is subject to paragraph (2) shall
include language stating that the ancillary agreement has not been
filed with the rating organization or filed with, or approved by,
the commissioner.

end insert begin delete

(5)

end delete

begin insert (8) end insert  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.

begin delete

(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.

end delete begin insert

(e) The terms and provisions of collateral and security
agreements shall be 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 shall be mutually agreed upon by the parties.

end insert begin insert

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

end insert begin insert

(g) For purposes of this section, the following definitions apply:

end insert begin insert

(1) (A) “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 is inconsistent
with the obligations of either the insured or the insurer under an
insurance policy or endorsement.

end insert begin insert

(B) “Ancillary agreement” does not include any of the
following:

end insert begin insert

(i) Limiting and restricting endorsements.

end insert begin insert

(ii) Customized limiting and restricting endorsements.

end insert begin insert

(iii) Collateral and security agreements.

end insert begin insert

(2) “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.

end insert begin insert

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

end insert begin insert

(A) A professional employer organization.

end insert begin insert

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

end insert begin insert

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

end insert begin insert

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

end insert begin insert

(4) “Collateral and security agreement” means an agreement
between a California employer and an insurer under a large
deductible program, large risk-rating program, or retrospectively
rated program that relates to payments and reimbursements that
the insured is contractually obligated to make to the insurer and
that includes one or more of the following terms or provisions:

end insert begin insert

(A) The timing, method, and conditions for making payments
to the insurer for amounts imposed by any state or regulatory
taxing authority that are made on the insured’s behalf.

end insert begin insert

(B) The timing, method, and conditions for funding, paying, or
reimbursing deductible or retrospectively rated amounts or other
policy-related charges due under a policy.

end insert begin insert

(C) The type and amount of collateral the insured is required
to post as security for its obligations.

end insert begin insert

(D) Payment due dates and transmittal information.

end insert begin insert

(E) Terms or provisions related to claims administration,
including the method for selecting a claims administrator.

end insert begin insert

(F) Termination and dispute resolution provisions applicable
to the collateral and security agreement.

end insert begin insert

(G) Terms of default under the collateral and security
agreement.

end insert begin insert

(5) “Customized limiting and restricting endorsement” means
an endorsement unique to a specific policy used under the following
circumstances or for the following purposes:

end insert begin insert

(A) 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.

end insert begin insert

(B) 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.

end insert begin insert

(C) 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.

end insert begin insert

(6) “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.

end insert begin insert

(h) This section shall remain in effect only until January 1, 2022,
and as of that date is repealed, unless a later enacted statute, that
is enacted before January 1, 2022, deletes or extends that date.

end insert

begin insert

begin insert SEC. 2. end insert   

end insert

begin insert Section 11658 is added to the end insert begin insert Insurance Code end insert begin insert , to read: end insert

begin insert

begin insert 11658. end insert   

(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) If the commissioner notifies the insurer that the filed form
or endorsement 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 or endorsement in that form.

(c) The withdrawal of a policy form or endorsement 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 or endorsement was in effect.

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

(e) This section shall become operative on January 1, 2022.

end insert

begin insert

begin insert SEC. 3. end insert   

end insert

begin insert Section 11658.5 of the end insert begin insert Insurance Code end insert begin insert is amended to
read: end insert

11658.5.  

(a) (1) An insurer that intends to use a dispute
resolution or arbitration agreement to resolve disputes arising in
California out of a workers’ compensation insurance begin delete policy or
endorsement end delete begin insert policy, endorsement, ancillary agreement, or
collateral and security agreement, as defined in Section 11658, end insert
issued to a California employer shall disclose to the employer,
contemporaneously with any written quote that offers to provide
insurance coverage, that choice of law and choice of venue or
forum may be a jurisdiction other than California and that these
terms are negotiable between the insurer and the employer. The
disclosure shall be signed by the employer as evidence of receipt
begin delete where end delete begin insert if end insert the employer accepts the offer of coverage from that
insurer.

(2) After compliance with paragraph (1), a dispute resolution
or arbitration agreement may be negotiated by the insurer and the
employer before any dispute arises.

(b) Nothing in this section is intended to interfere with any
authority granted to the Insurance Commissioner under current
law.

(c) Failure by the insurer to observe the requirements of
subdivision (a) shall result in a default to California as the choice
of law and forum for resolution of disputes arising in California.

(d) For 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.

begin delete

(e) This section shall apply to workers’ compensation policies
issued or renewed on or after July 1, 2012.

end delete begin insert

(e) This section shall remain in effect only until January 1, 2022,
and as of that date is repealed, unless a later enacted statute, that
is enacted before January 1, 2022, deletes or extends that date.

end insert

begin insert

begin insert SEC. 4. end insert   

end insert

begin insert Section 11658.5 is added to the end insert begin insert Insurance Code end insert begin insert , to
read: end insert

begin insert

begin insert 11658.5. end insert   

(a) (1) An insurer that intends to use a dispute
resolution or arbitration agreement to resolve disputes arising in
California out of a workers’ compensation insurance policy or
endorsement issued to a California employer shall disclose to the
employer, contemporaneously with any written quote that offers
to provide insurance coverage, that choice of law and choice of
venue or forum may be a jurisdiction other than California and
that these terms are negotiable between the insurer and the
employer. The disclosure shall be signed by the employer as
evidence of receipt if the employer accepts the offer of coverage
from that insurer.

(2) After compliance with paragraph (1), a dispute resolution
or arbitration agreement may be negotiated by the insurer and the
employer before any dispute arises.

(b) Nothing in this section is intended to interfere with any
authority granted to the Insurance Commissioner under current
law.

(c) Failure by the insurer to observe the requirements of
subdivision (a) shall result in a default to California as the choice
of law and forum for resolution of disputes arising in California.

(d) For 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.

(e) This section shall become operative on January 1, 2022.

end insert