BILL ANALYSIS Ó SENATE COMMITTEE ON LABOR AND INDUSTRIAL RELATIONS Senator Tony Mendoza, Chair 2015 - 2016 Regular Bill No: AB 2883 Hearing Date: June 22, 2016 ----------------------------------------------------------------- |Author: |Committee on Insurance | |-----------+-----------------------------------------------------| |Version: |June 13, 2016 | ----------------------------------------------------------------- ----------------------------------------------------------------- |Urgency: |No |Fiscal: |Yes | ----------------------------------------------------------------- ----------------------------------------------------------------- |Consultant:|Gideon L. Baum | | | | ----------------------------------------------------------------- Subject: Workers' compensation: utilization review: employees KEY ISSUE Should the Legislature specify how officers and members of boards of directors at private corporations and managing members and general partners of Limited Liability Companies (LLCs) elect to not be covered by workers' compensation policies? Should the Legislature require the Commission on Health and Safety and Workers' Compensation to conduct a study on the extent to which physicians' requests for authorization of medical treatment for injured workers may be processed using an entirely paperless system? ANALYSIS Existing law : 1) Establishes a workers' compensation system that provides benefits to an employee who suffers from an injury or illness that arises out of and in the course of employment, irrespective of fault. This system requires all employers to secure payment of benefits by either securing the consent of the Department of Industrial Relations to AB 2883 (Committee on Insurance) Page 2 of ? self-insure or by securing insurance against liability from an insurance company duly authorized by the state. 2) Defines as an employee, for the purposes of workers' compensation coverage, officers and members of boards of directors of quasi-public or private corporations, except in cases of officers and members who are the sole shareholders of a private corporation who do not elect to be covered by a workers' compensation policy. (Labor Code §3351) 3) Defines as an employee, for the purposes of workers' compensation coverage, working members of a partnership or LLC receiving wages, except in cases where the managing or general partners do not elect to be covered by a workers' compensation policy. (Labor Code §3351) 4) Provides that medical, surgical, chiropractic, acupuncture, and hospital treatment that is reasonably required to cure or relieve the injured worker from the effects of his or her injury shall be provided by the employer. (Labor Code §4600) 5) Requires that all employers create a utilization review process, which is a process that prospectively, retrospectively, or concurrently review and approve, modify, delay, or deny, based in whole or in part on medical necessity to cure and relieve, treatment recommendations by physicians, prior to, retrospectively, or concurrent with the provision of medical treatment services. (Labor Code §4610) This bill creates an explicit process through which an officer or member of a board of directors or working members of a partnership or LLC may elect to be excluded from a workers' compensation policy. Specifically, AB 2283 would: 1) Permit an officer or member of the board of directors to opt out of a workers' compensation policy if he or she owns at least 15 percent of the issued and outstanding stock of the corporation and executes a written waiver of his or her rights under this chapter stating under penalty of perjury that the person is a qualifying officer or director. 2) Permit an individual who is a general partner of a AB 2883 (Committee on Insurance) Page 3 of ? partnership or a managing member of a limited liability company to opt out of a workers' compensation policy if he or she executes a written waiver of his or her rights under this chapter stating under penalty of perjury that the person is a qualifying general partner or managing member. 3) Require that the waiver be effective upon the date of receipt by the corporation's insurance carrier and remain effective until the officer, member of the board of directors, general partner, or managing partner provides the insurance carrier with a written withdrawal of the waiver. COMMENTS 1. Need for this bill? Under current law, nearly all employees must be covered through either a workers' compensation insurance policy or a recognized self-insurance certificate. However, there are some limited exceptions to this rule. One example is officers and members of a board of directors of a private corporation or managing partners or general partners of a LLC. In those cases, the individual workers can elect to not be covered by the employer's workers' compensation policy. However, the existing election process to opt out of coverage is not very clear. Beyond one limited statutory reference and very little regulatory guidance, insurers and LLCs are left to figure it out for themselves. The Association of California Insurance Companies (ACIC), one of the supporters of this bill, argues that this lack of clarity has led to abuses that have hurt injured workers and driven fraudulent activity. AB 2883 seeks to address this challenge by specifying, in the case of an officer or member of the board of directors, that he or she must own at least 15% of the stock of the corporation in order to opt out of workers' compensation coverage, as well as sign a waiver stating that the individual is a qualifying officer or member. Similarly, AB 2883 also requires a general partner of a partnership or a managing member of a LLC to execute a waiver to opt out of workers' compensation coverage. AB 2883 (Committee on Insurance) Page 4 of ? 2. Staff Comments: Possible Amendments First, the sentence structure of AB 2883 appears to assume that the officers and members of a private corporation or working members of a partnership or LLC receiving wages would automatically opt out of coverage. While that may not be the case, it does not assist statutory clarity. Therefore, the Committee may want to consider the following amendment: 1) On page 4, line 13, strike "pay" and insert "pay. An officer or member of a board of directors"; 2) On page 5, line 1, strike "company" and insert "company. A general partner of a partnership or a managing member of a limited liability company". Second, as noted above, the requirement of a signed waiver is key piece of a qualifying individual opting out of a workers' compensation policy. However, the plain reading of the statute seems to imply that a waiver that was signed - but not accepted by an insurer as legitimate - would trigger the opt out. The Committee may wish to consider the following amendment: 3) On page 8, line 7, strike "receipt" and insert "receipt and acceptance" 4) On page 8, line 16, strike "receipt" and insert "receipt and acceptance" Clarifying the LLC Exemption As currently drafted, AB 2883 extends a clear exception from the requirements of being covered by a workers' compensation policy to a managing member of a LLC. This is similar to language found in existing law, and insurance companies currently have exclusion endorsements for managing members of LLCs. However, the term "managing member of a limited liability company" is not defined in Labor Code or Corporations Code, where "general partner of a partnership" is defined. This may be something that should be clarified through a Letter to the Journal by the author. 3. Proponent Arguments : AB 2883 (Committee on Insurance) Page 5 of ? Proponents argue that the existing exceptions that allows an officer or a member of a board of directors or a general partner to opt out of workers' compensation coverage are intended to allow individuals who have a significant role in running the company or significant ownership shares to exempt themselves from workers' compensation insurance. Existing law, especially as to what constitutes an eligible individual of a corporation is ambiguous and has resulted in abuse of this provision. One proponent notes an example where an insurer found a company trying to exclude the "vice-president of dishwashing." In another example, a company provided coverage for all of their employees, but during the post audit conducted by the insurer, the company retroactively declared that several employees with a tiny ownership share were exempt under the corporate officer statute and demanded a premium refund. The proponents argue that AB 2883 addresses these issues by removing the uncertainty found in existing law by clearly defining what constitutes an eligible employee. 4. Opponent Arguments : None on file. SUPPORT ACIC California State Association of Electrical Workers California State Pipe Trades Council Western States Council of Sheet Metal Workers OPPOSITION -- END --