BILL NUMBER: AB 1922 AMENDED
BILL TEXT
AMENDED IN SENATE JUNE 28, 2016
AMENDED IN SENATE JUNE 13, 2016
AMENDED IN ASSEMBLY APRIL 28, 2016
INTRODUCED BY Assembly Member Daly
FEBRUARY 11, 2016
An act to amend Section 11658 amend,
repeal, and add Se ctions 11658 and 11658.5 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. The bill
would make additional changes relating to collateral and security
agreements, as defined. 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.
The changes made by the bill would apply only until January 1,
2022.
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) (A) This
(2) (A) 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
retrospectively rated loss limitation equal to or greater than
two hundred fifty thousand dollars ($250,000)
($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, and the California employer meets
at least three or more of the
following criteria: (i)
has
(i) Is represented by a broker for
negotiations regarding the ancillary agreement and either has a
full-time risk manager involved in the evaluation of an ancillary
agreement; (ii) agreement or is
represented by counsel during negotiations regarding an ancillary
agreement; (iii) has agreement.
(ii) Has 500 or more
employees; (iv) has employees.
(iii) Has an annual
gross revenues nationwide payroll in
excess of twenty million dollars ($20,000,000); or (v) has
($20,000,000).
(iv) Has a workers' compensation
manual standard premium on a countrywide basis in excess of
seven hundred fifty thousand dollars ($750,000). one
million dollars ($1,000,000).
(B) Paragraph (1) shall control, and paragraph (3) shall
not apply, to this paragraph shall not apply to,
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
subparagraph (C). subdivision (g).
(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.
(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)
(3) Under no circumstances, however, may an ancillary
agreement amend do either of the following:
(A) 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. The
(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.
(4) 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.
(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.
(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.
(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.
(5)
(8) 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.
(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.
(f) This section shall not apply to limited policies submitted for
approval to the commissioner pursuant to Section 11657.
(g) For purposes of this section, the following definitions apply:
(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.
(B) "Ancillary agreement" does not include any of the following:
(i) Limiting and restricting endorsements.
(ii) Customized limiting and restricting endorsements.
(iii) Collateral and security agreements.
(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.
(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:
(A) A professional employer organization.
(B) A leasing employer, as defined in Section 606.5 of the
Unemployment Insurance Code.
(C) A temporary services employer, as defined in Section 606.5 of
the Unemployment Insurance Code.
(D) Any employer, regardless of name or form of organization, that
is in the business of providing workers to other employers.
(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:
(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.
(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.
(C) The type and amount of collateral the insured is required to
post as security for its obligations.
(D) Payment due dates and transmittal information.
(E) Terms or provisions related to claims administration,
including the method for selecting a claims administrator.
(F) Termination and dispute resolution provisions applicable to
the collateral and security agreement.
(G) Terms of default under the collateral and security agreement.
(5) "Customized limiting and restricting endorsement" means an
endorsement unique to a specific policy used under the following
circumstances or for the following purposes:
(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.
(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.
(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.
(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.
(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.
SEC. 2. Section 11658 is added to the
Insurance Code , 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) 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.
SEC. 3. Section 11658.5 of the
Insurance Code is amended to read:
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 policy
or endorsement policy, endorsement, ancillary
agreement, or collateral and security agreement, as defined in
Section 11658, 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
where 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 apply to workers' compensation policies
issued or renewed on or after July 1, 2012.
(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.
SEC. 4. Section 11658.5 is added to the
Insurance Code , to read:
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 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.