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 Bill No. 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:

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) (A) Subdivision (a) and paragraph (1) of this subdivision
do 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 equal to or greater
than two hundred fifty thousand dollars ($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 of the following
criteria:

(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 or is
represented by counsel during negotiations regarding an ancillary
agreement.

(ii) Has 500 or more employees.

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

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

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

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

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

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

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

(7) An ancillary agreement that is described in 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.

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

(c) If the commissioner notifies the insurer that a 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) 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 does 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 does 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,
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 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 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.