Amended in Senate August 22, 2016

Amended in Senate August 16, 2016

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 BillNo. 1922


Introduced by Assembly Member Daly

February 11, 2016


An act to amend, repeal, and add Sections 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 an ancillary agreement, as defined, to a workers’ compensation insurance policy from being issued 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 prohibition would 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 retrospectively rated loss limitation and meets specified criteria. The bill would authorize an insurer to use such an ancillary agreement and would require an insurer to submit a copy of that ancillary agreement to the commissioner within 30 days of issuing the ancillary agreement. 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:

P2    1

SECTION 1.  

Section 11658 of the Insurance Code is amended
2to read:

3

11658.  

(a) A workers’ compensation insurance policy or
4endorsement shall not be issued by an insurer to any person in this
5state unless the insurer files a copy of the form or endorsement
6with the rating organization pursuant to subdivision (e) of Section
711750.3 and 30 days have expired from the date the form or
8endorsement is received by the commissioner from the rating
9organization without notice from the commissioner, unless the
10commissioner gives written approval of the form or endorsement
11prior to that time.

12(b) (1) An ancillary agreement shall not be issued by an insurer
13to a California employer unless the insurer files a copy of the
14ancillary agreement with the rating organization pursuant to
15subdivision (e) of Section 11750.3 and 30 days have expired from
P3    1the date the ancillary agreement is received by the commissioner
2from the rating organization without notice from the commissioner
3unless the commissioner gives written approval of the ancillary
4agreement prior to that time.

5(2) (A) Subdivision (a) and paragraph (1) of this subdivision
6do not apply to an ancillary agreement between an insurer and a
7California employer issued in conjunction with a workers’
8compensation policy or endorsement that contains a deductible
9obligation or retrospectively rated loss limitation equal to or greater
10than two hundred fifty thousand dollars ($250,000), provided that,
11for an endorsement containing a deductible obligation, the
12endorsement complies with the requirements of subdivision (e) of
13Section 11735, or, for a retrospectively rated policy, is contained
14in an endorsement filed by a rating organization pursuant to
15Sections 11750.3 and 11753 and approved by the commissioner,
16and the California employer meets at least three of the following
17criteria:

18(i) Is represented by a broker for negotiations regarding the
19ancillary agreement and either has a full-time risk manager
20involved in the evaluation of an ancillary agreement or is
21represented by counsel during negotiations regarding an ancillary
22agreement.

23(ii) Has 500 or more employees.

24(iii) Has an annual nationwide payroll in excess of twenty
25million dollars ($20,000,000).

26(iv) Has a workers’ compensation manual standard premium
27on a countrywide basis in excess of one million dollars
28($1,000,000).

29(B) Paragraph (1) controls, and this paragraph does not apply
30to, an ancillary agreement between an insurer and a California
31employer that is either of the following:

32 (i) Issued pursuant to a coemployment arrangement, as defined
33in subdivision (g).

34(ii) Negotiated, managed, or administered, in whole or in part,
35by a managing general agent (MGA), as defined in subdivision
36(c) of Section 769.81.

37(3) An ancillary agreement shall not do either of the following:

38(A) Amend or revise the coverage provided,begin insert any cancellation
39provision, any dispute resolution agreement, any premium or other
40costs,end insert
or the benefits payable, under a workers’ compensation
P4    1policy unless it is filed and approved in accordance with this
2section.

3(B) Include charges or costs as allocated loss adjustment
4expenses that are not defined as allocated loss adjustment expenses
5in the California Workers’ Compensation Uniform Statistical
6Reporting Plan - 1995, as identified in Section 2318.6 of Title 10
7of the California Code of Regulations and any subsequent revisions,
8unless the ancillary agreement is filed and approved in accordance
9with this section.

10 (4) The terms and conditions of a workers’ compensation policy
11and any endorsements shall take precedence over the provisions
12contained in an ancillary agreement if there is an inconsistency or
13a conflict between the policy or endorsement and the ancillary
14agreement.

15(5) Contemporaneously with any written quote to provide
16workers’ compensation coverage to a California employer, the
17insurer shall provide to the insurance agent or broker for the
18employer a draft of any ancillary agreement that the insurer
19reasonably expects to require the employer to sign, together with
20a notice that the terms of the ancillary agreement are negotiable
21between the insurer and the employer.

22(6) An insurer may use and shall subsequently notify the
23 insurance commissioner of an ancillary agreement described in
24paragraph (2) by providing a copy of the ancillary agreement to
25the commissioner within 30 days of the insurer issuing the ancillary
26agreement. The ancillary agreement shall not be subject to filing
27with the commissioner or rating organization or approval by the
28commissioner, but it shall be subject to all other authority granted
29to the commissioner under law.

30(7) An ancillary agreement that is described in paragraph (2)
31shall include language stating that the ancillary agreement has not
32been filed with the rating organization or filed with, or approved
33by, the commissioner.

34(8) This subdivision applies to ancillary agreements issued or
35renewed on or after January 1, 2017.

36(c) If the commissioner notifies the insurer that a policy form,
37endorsement, or ancillary agreement does not comply with the
38requirements of law, specifying the reasons for his or her opinion,
39it is unlawful for the insurer to issue any policy form, endorsement,
40or ancillary agreement in that form.

P5    1(d) The withdrawal of a policy form, endorsement, or ancillary
2agreement by the commissioner pursuant to this section shall not
3affect the status of the policyholder as having secured payment
4for compensation or affect the substitution of the insurer for the
5policyholder in workers’ compensation proceedings as set forth
6in the provisions of Chapter 4 (commencing with Section 3700)
7of Part 1 of Division 4 of the Labor Code during the period of time
8in which the policy form, endorsement, or ancillary agreement
9was in effect.

10(e) The terms and provisions of collateral and security
11agreements shall be negotiated contemporaneously with the
12inception or renewal of the underlying policy, and any revisions
13or additions to those terms subsequent to the inception or renewal
14of the policy shall be mutually agreed upon by the parties.

15(f) This section does not apply to limited policies submitted for
16approval to the commissioner pursuant to Section 11657.

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

18(1) (A) “Ancillary agreement” means an agreement that is a
19supplementary writing or contract relating to a policy or
20endorsement form that adds to, subtracts from, or is inconsistent
21with the obligations of either the insured or the insurer under an
22insurance policy or endorsement.

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

24(i) Limiting and restricting endorsements.

25(ii) Customized limiting and restricting endorsements.

26(iii) Collateral and security agreements.

27(2) “California employer” means an employer whose principal
28place of business is in California and whose California payroll
29constitutes the majority of the employer’s payroll for purposes of
30determining premium under the policy.

31(3) “Coemployment arrangement” means any arrangement,
32under contract or otherwise, whereby an entity utilizes the services
33of a third party to provide workers or human resources services
34for a fee or other compensation, including, but not limited to:

35(A) A professional employer organization.

36(B) A leasing employer, as defined in Section 606.5 of the
37Unemployment Insurance Code.

38(C) A temporary services employer, as defined in Section 606.5
39of the Unemployment Insurance Code.

P6    1(D) Any employer, regardless of name or form of organization,
2that is in the business of providing workers to other employers.

3(4) “Collateral and security agreement” means an agreement
4between a California employer and an insurer under a large
5deductible program, large risk-rating program, or retrospectively
6rated program that relates to payments and reimbursements that
7the insured is contractually obligated to make to the insurer and
8that includes one or more of the following terms or provisions:

9(A) The timing, method, and conditions for making payments
10to the insurer for amounts imposed by any state or regulatory taxing
11authority that are made on the insured’s behalf.

12(B) The timing, method, and conditions for funding, paying, or
13reimbursing deductible or retrospectively rated amounts or other
14policy-related charges due under a policy.

15(C) The type and amount of collateral the insured is required to
16post as security for its obligations.

17(D) Payment due dates and transmittal information.

18(E) Terms or provisions related to claims administration,
19including the method for selecting a claims administrator.

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

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

23(5) “Customized limiting and restricting endorsement” means
24an endorsement unique to a specific policy used under the
25following circumstances or for the following purposes:

26(A) When the employer’s business is conducted in such a
27manner that it is impossible or impracticable to determine the
28nature, scope, and extent of employment covered by the insurer.

29(B) To prevent the performance of work in such an extremely
30hazardous manner or under such hazardous conditions as would
31reflect a reckless disregard by the employer for the welfare of its
32employees.

33(C) To prevent the issuance of an unrestricted policy if it would
34encourage an operation that is contrary to law or to the rules of a
35regulatory agency.

36(6) “Limiting and restricting endorsement” means an
37endorsement that excludes from coverage some portion of workers’
38compensation liability for which the employer is required to secure
39payment pursuant to the Labor Code that, after approval of the
P7    1endorsement by the Insurance Commissioner, may be endorsed to
2a workers’ compensation policy.

3(h) This section shall remain in effect only until January 1, 2022,
4and as of that date is repealed, unless a later enacted statute, that
5is enacted before January 1, 2022, deletes or extends that date.

6

SEC. 2.  

Section 11658 is added to the Insurance Code, to read:

7

11658.  

(a) A workers’ compensation insurance policy or
8endorsement shall not be issued by an insurer to any person in this
9state unless the insurer files a copy of the form or endorsement
10with the rating organization pursuant to subdivision (e) of Section
1111750.3 and 30 days have expired from the date the form or
12endorsement is received by the commissioner from the rating
13organization without notice from the commissioner, unless the
14commissioner gives written approval of the form or endorsement
15prior to that time.

16(b) If the commissioner notifies the insurer that the filed form
17or endorsement does not comply with the requirements of law,
18specifying the reasons for his or her opinion, it is unlawful for the
19insurer to issue any policy or endorsement in that form.

20(c) The withdrawal of a policy form or endorsement by the
21commissioner pursuant to this section shall not affect the status of
22the policyholder as having secured payment for compensation or
23affect the substitution of the insurer for the policyholder in workers’
24compensation proceedings as set forth in the provisions of Chapter
254 (commencing with Section 3700) of Part 1 of Division 4 of the
26Labor Code during the period of time in which the policy form or
27endorsement was in effect.

28(d) This section does not apply to limited policies submitted for
29approval to the commissioner pursuant to Section 11657.

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

31

SEC. 3.  

Section 11658.5 of the Insurance Code is amended to
32read:

33

11658.5.  

(a) (1) An insurer that intends to use a dispute
34resolution or arbitration agreement to resolve disputes arising in
35California out of a workers’ compensation insurance policy,
36endorsement, ancillary agreement, or collateral and security
37agreement, as defined in Section 11658, issued to a California
38employer shall disclose to the employer, contemporaneously with
39any written quote that offers to provide insurance coverage, that
40choice of law and choice of venue or forum may be a jurisdiction
P8    1other than California and that these terms are negotiable between
2the insurer and the employer. The disclosure shall be signed by
3the employer as evidence of receipt if the employer accepts the
4offer of coverage from that insurer.

5(2) After compliance with paragraph (1), a dispute resolution
6or arbitration agreement may be negotiated by the insurer and the
7employer before any dispute arises.

8(b) Nothing in this section is intended to interfere with any
9authority granted to the Insurance Commissioner under current
10law.

11(c) Failure by the insurer to observe the requirements of
12subdivision (a) shall result in a default to California as the choice
13of law and forum for resolution of disputes arising in California.

14(d) For purposes of this section, a “California employer” means
15an employer whose principal place of business is in California and
16whose California payroll constitutes the majority of the employer’s
17payroll for purposes of determining premium under the policy.

18(e) This section shall remain in effect only until January 1, 2022,
19and as of that date is repealed, unless a later enacted statute, that
20is enacted before January 1, 2022, deletes or extends that date.

21

SEC. 4.  

Section 11658.5 is added to the Insurance Code, to
22read:

23

11658.5.  

(a) (1) An insurer that intends to use a dispute
24resolution or arbitration agreement to resolve disputes arising in
25California out of a workers’ compensation insurance policy or
26endorsement issued to a California employer shall disclose to the
27employer, contemporaneously with any written quote that offers
28to provide insurance coverage, that choice of law and choice of
29venue or forum may be a jurisdiction other than California and
30that these terms are negotiable between the insurer and the
31employer. The disclosure shall be signed by the employer as
32evidence of receipt if the employer accepts the offer of coverage
33from that insurer.

34(2) After compliance with paragraph (1), a dispute resolution
35or arbitration agreement may be negotiated by the insurer and the
36employer before any dispute arises.

37(b) Nothing in this section is intended to interfere with any
38authority granted to the Insurance Commissioner under current
39law.

P9    1(c) Failure by the insurer to observe the requirements of
2subdivision (a) shall result in a default to California as the choice
3of law and forum for resolution of disputes arising in California.

4(d) For purposes of this section, a “California employer” means
5an employer whose principal place of business is in California and
6whose California payroll constitutes the majority of the employer’s
7payroll for purposes of determining premium under the policy.

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



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