BILL ANALYSIS Ó
AB 1922
Page 1
CONCURRENCE IN SENATE AMENDMENTS
AB
1922 (Daly)
As Amended August 16, 2016
Majority vote
--------------------------------------------------------------------
|ASSEMBLY: |67-0 |(May 27, 2016) |SENATE: |36-0 |(August 18, |
| | | | | |2016) |
| | | | | | |
| | | | | | |
--------------------------------------------------------------------
Original Committee Reference: INS.
SUMMARY: Establishes exceptions from workers' compensation
insurance policy filing requirements for large employers that
purchase high deductible policies.
The Senate amendments:
1)Recast and clarify the definition of the ancillary agreements
that would not be subject to the filing and approval
requirements of current law.
2)Increase the criteria that define the large employers whose
large deductible workers' compensation policy ancillary
agreements are not subject to the filing and prior approval
requirements of current law.
AB 1922
Page 2
3)Add a requirement that these exempted ancillary agreements be
filed with the Insurance Commissioner within 30 days after
execution, but specify that these filings are not subject to
approval by the commissioner.
EXISTING LAW:
1)Requires every employer to provide workers' compensation
benefits to its employees who are injured or suffer conditions
that arise out of or occur in the course of employment.
2)Allows employers to satisfy this obligation by either
purchasing a workers' compensation insurance policy, or
obtaining a certificate of self-insurance from the Department
of Industrial Relations (DIR).
3)Authorizes workers' compensation insurance policies to be
either standard, guaranteed premium policies, or deductible
policies.
4)Provides that the California Workers' Compensation Coverage
Inquiry Board (WCIRB) is the commissioner's designated
statistical agent for workers' compensation purposes, and
specifies a range of functions the WCIRB performs on behalf of
and with the approval of the commissioner.
5)Requires insurers to file workers' compensation insurance
policies and endorsements with the WCIRB, and prohibits the
use of the policy or endorsement until 30 days have passed, or
the commissioner has approved the filing.
6)States that it is unlawful for an insurer to use an ancillary
agreement if the commissioner notifies the insurer that the
agreement does not comply with the law.
AB 1922
Page 3
7)States that it is unlawful for an insurer to use a policy or
endorsement if the commissioner notifies the insurer that the
agreement does not comply with the law.
8)Does not define "policy" or "endorsement" in statute, but the
commissioner has interpreted these terms in recently adopted
regulations that define "ancillary agreement" as within the
filing requirement, and "limiting and restricting documents"
and "customized limiting and restricting documents" as not
within the filing requirement.
9)Requires an insurer that uses an ancillary agreement that
addresses choice of law or choice of venue to disclose to the
policyholder, contemporaneously with a quote for the policy,
that the choice of law or choice of venue provisions are
negotiable.
10)Requires, even in cases of deductible workers' compensation
insurance policies where the benefits are within the
deductible amount retained by the employer, the insurer to pay
the benefits to the injured employee, and thereafter recover
those benefits payments from the responsible employer.
FISCAL EFFECT: According to the Assembly Appropriations
Committee, minor, absorbable costs to the Department of
Insurance.
COMMENTS:
1)Purpose. According to the author, this bill is necessary
because current law does not allow the Department of Insurance
(DOI) sufficient discretion to adopt a regulation that is
commercially reasonable. DOI plays an important role in
providing consumer protection to insurance policyholders who
AB 1922
Page 4
are not sufficiently sophisticated to protect their own
interests against large insurers that hold market power.
However, with respect to large, sophisticated employers, the
so-called consumer protection role of the DOI is worse than
unnecessary - it is counter-productive.
2)Policy and endorsement filing requirements. Existing statute
mandates that workers' compensation insurers file policies and
endorsements. The statutes do not specify what contractual
arrangements constitute a "policy" or an "endorsement." There
is substantial debate over the scope of this filing
requirement. In an effort to provide certainty on this issue,
the DOI adopted regulations earlier this year defining which
"ancillary" documents are covered by the statutory mandate. A
case can be made that the DOI's regulations are too broad, and
sweep into the "mandatory filing" category documents that are
neither a "policy" nor an "endorsement." Nonetheless, the
bill adopts the definitions of "ancillary agreement" (that
must be filed) and "limiting and restricting documents" and
"customized limiting and restricting documents" (that need not
be filed). Except for "large, sophisticated employers," the
bill does not attempt to overrule the recently adopted
regulations.
The filing requirements are not, and never have been, intended
to be a case-by-case rule. Rather, standard forms that will
be marketed to a large number of prospective policyholders are
filed, and upon approval or the deemer period expiring, the
policy forms may be sold in the marketplace. One of the
primary issues raised by the bill is that many high deductible
policies sold to large employers involve employer-specific
negotiations and contractual terms. This sort of contractual
relationship has never been of the class of document intended
for filing under the statute.
3)Large, sophisticated employers. The bill provides, in
essence, that specialized contractual arrangements negotiated
between an insurer and a large employer are, by definition
reasonable commercial transactions, and there is no reason to
AB 1922
Page 5
require DOI oversight to protect this class of "consumer."
Indeed representatives of large employers argue that DOI has
nothing to offer them, and the process of DOI filing and
review is an actual hindrance to executing necessary
commercial contractual arrangements. Assuming this to be
correct, the question becomes whether or not the bill's
definition of the class of employer for which filing
requirements do not apply is sound.
The definition of large, sophisticated employer contained in
the bill is designed to create two classes of employer - on
one hand, the small to medium-sized employer for which DOI's
consumer protection functions make sense, and on the other
hand, large, sophisticated employers who do not need or want
that "protection."
4)Duty of insurer to pay. The premise of a large deductible
workers' compensation insurance policy is that the
policyholder wishes to be partially, but not completely,
self-insured. However, even a partially self-insured employer
is on the face of the contract assuming a degree of risk. At
the time these arrangements were authorized by the
Legislature, the law mandated that the insurer be directly
responsible for paying benefits to injured workers. That
mandate was not changed. Thus, even though the employer is
obligated to provide the benefits to the injured worker up to
the amount of the deductible, the law mandates that the
insurer be responsible for paying those benefits. As a
result, it is necessary for the two parties to enter into an
ancillary agreement that details how repayments will be made,
what duties the two parties owe to each other, how disputes
will be resolved, and related matters. These are the bulk of
the agreements that the DOI regulations mandate be filed, and
that both large employers and workers' compensation insurers
argue should not have to be filed.
5)Choice of law and venue. When parties with operations in
multiple states contract, it is common practice that they
agree on where and how disputes will be resolved. Whether
this is an arbitration clause, a provision that specifies
AB 1922
Page 6
which state's laws will apply, or a clause that specifies
where court proceedings or arbitrations will occur, these
provisions are normal parts of contracts between sophisticated
parties entering into substantial contracts. Out of an
abundance of caution, the Legislature added a specific
disclosure requirement to ensure that parties to large
deductible workers compensation insurance policies understand
that these issues are negotiable. SB 684 (Corbett), Chapter
566, Statutes of 2011, - requires the insurer to make this
disclosure contemporaneously with any quote provided to a
prospective policyholder if a choice of law/venue contract may
be chosen.
6)Litigation. As with any class of contract involving
substantial amounts of money, disputes have arisen between
insurers and policyholders who have entered into large
deductible workers' compensation insurance policies. The
results of the various cases that have been litigated have
been mixed. Courts have split on the question of whether
these ancillary documents constitute "policies" or
"endorsements" that must be filed, and they have split on the
effect of an insurer not filing the documents. Some courts
declared that the non-filed documents are void; others have
not reached that far. But it should be noted that there is
usually an underlying dispute that generates the litigation,
and the validity of the ancillary agreements are actually
ancillary to that underlying dispute. In this regard, both
the DOI regulation, and the filing exemptions contained in
this bill, should clarify many issues and reduce the risk of
litigation.
Analysis Prepared by:
Mark Rakich / INS. / (916) 319-2086 FN:
0004247
AB 1922
Page 7