BILL ANALYSIS Ó
SB 465
Page 1
Date of Hearing: July 14, 2015
ASSEMBLY COMMITTEE ON BUSINESS AND PROFESSIONS
Susan Bonilla, Chair
SB 465(Hill) - As Amended July 8, 2015
SENATE VOTE: 40-0
SUBJECT: Contractors: discipline.
SUMMARY: Requires licensed contractors, within 90 days of a
conviction or infraction, to report to the Contractors State
License Board (CSLB) if the licensee has been convicted of any
felony, or any other crime substantially related to the
qualifications, functions, and duties of a licensed contractor,
or has been subject to a civil action settlement or binding
arbitration award above a certain amount resulting from
specified acts, and requires that information to be made
available to the public if the CSLB investigates that settlement
or binding arbitration award, as specified.
EXISTING LAW:
1)Provides for the licensure and regulation of more than 300,000
contractors under the Contractors' State License Law by the
CSLB within the Department of Consumer Affairs (DCA). The
CSLB is under the direction of the registrar of contractors
(Registrar). (Business and Professions Code (BPC) Section
7000 et seq.)
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2)Requires licensees to notify the Registrar in writing of any
unsatisfied final judgment imposed on the licensee, and
authorizes the Registrar to automatically suspend the license
on the date the Registrar is informed of an unsatisfied final
judgment if the licensee failed to notify the Registrar in
writing within 90 days of that judgment, as specified. (BPC
7071.17(b))
3)Provides that a conviction of a crime, substantially related
to the qualifications, functions and duties of a contractor,
constitutes a cause for disciplinary action, and that the
record of the conviction shall be conclusive evidence thereof.
(BPC Section 7123)
4)Provides that a plea or verdict of guilty, or a conviction
following a plea of nolo contendere, is deemed to be a
conviction, and that the CSLB may order a license to be
suspended or revoked, or may decline to issue a license, when
the time for appeal has elapsed, or the judgment of conviction
has been affirmed on appeal, as specified. (BPC Section 7124)
5)Requires the Registrar to make available to the public the
date, nature, and status of all complaints on file against a
licensee that do either of the following:
a) Have been referred for accusation; or,
b) Have been referred for investigation, after a
determination by CSLB enforcement staff, that a probable
violation has occurred, and have been reviewed by a
supervisor, and involve allegations that if proven would
present a risk of harm to the public and would be
appropriate for suspension or revocation of the
contractor's license or criminal prosecution. (BPC Section
7124.6 (a))
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6)Requires the CSLB to create a disclaimer that shall accompany
the disclosure stating that it is an allegation and any other
information the CSLB determines would be relevant to a person
evaluating the complaint. (BPC Section 7124.6 (b))
7)Provides that a complaint resolved in favor of the contractor
shall not be subject to disclosure. (BPC Section 7124.6(c))
8)Requires the Registrar to make available to the public the
date, nature, and disposition of all legal actions, subject to
the following:
a) Limits the disclosure of legal actions for citations
from the date of issuance for five years after the date of
compliance if no additional disciplinary actions have been
taken against the licensee during that period;
b) Limits the disclosure of accusations that result in
suspension, stayed suspension, or stayed revocation of the
contractor's license from the date accusation is filed for
seven years if no additional disciplinary actions have been
taken against the licensee during that period; and,
c) All revocations that are not stayed shall be disclosed
indefinitely from the effective date of the revocation.
(BPC Section 7124.6(e))
THIS BILL:
9)Requires a licensee, within 90 days, to report to the
Registrar in writing the occurrence of any of the of the
following events:
a) Conviction of any felony;
b) Conviction of any crime that is substantially related to
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the qualifications, functions, and duties of a licensed
contractor;
c) A civil action settlement or administrative action
resulting in a settlement, if the amount is $50,000 or
greater, involving fraud, deceit, misrepresentation, breach
or violation of a contract, negligence, incompetence, or
recklessness by the licensee; or,
d) A binding arbitration award or administrative action
resulting in binding arbitration award, if the amount is
$25,000 or greater, involving fraud, deceit,
misrepresentation breach or violation of a contract,
negligence, incompetence, or recklessness, by the licensee.
10)Specifies that failure of the licensee to report to the
Registrar the events in paragraph 1) above is grounds for
disciplinary action.
11)Defines "conviction" to mean a plea or verdict of guilty in a
criminal proceeding, or a conviction following a plea of no
contest.
12)Requires an insurer providing professional liability
insurance to a licensee, to report to the Registrar, within 30
days of payment of a civil action settlement or arbitration
award against a licensee, as described in paragraph 1) above,
the name of the licensee, the amount of the settlement or
arbitration award, the amount paid, and the identity of payee.
13)Requires a state or local government agency that self-insures
to report to the Registrar within 30 days of payment of a
civil action settlement or arbitration award against a
licensee, as described in paragraph 1) above, the name of the
licensee, the amount of the settlement or arbitration award,
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the amount paid, and the identity of payee.
14)Requires the Registrar to make available to the public all
civil action settlements, binding arbitration awards, and
administrative actions, as described in paragraph 1) above,
reported to it if those settlements or arbitration awards have
been referred for investigation, as specified.
15)Provides that all of these provisions shall only become
operative if the Legislature appropriates money from the
Contractors' State License Fund for the purposes of this
section and grants sufficient hiring authority to the CSLB.
FISCAL EFFECT: Unknown. This bill is keyed "fiscal" by the
Legislative Counsel.
COMMENTS:
Purpose. This bill is sponsored by the author. According to the
author, this bill is needed to amend state law because
"Currently, state law does not require contractors to report
defect settlement cases to the CSLB. Such disclosure
requirements are routine for such professionals as doctors,
architects, and engineers. This bill would empower the CSLB,
like other boards, to be made aware of licensee behavior for
which they may need to take swift action to promote public
health and safety. The bill additionally increases transparency
so that consumers have the tools necessary to make an informed
decision about the quality of the contractor they hire."
Background. According to the author, this bill increases
transparency so that consumers have the tools necessary to make
an informed decision about the quality of the contractor they
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hire. The bill also establishes greater accountability for
contractors by ensuring the public has critical information
about licensees. As an example of this need for transparency,
the author notes the tragic Berkeley balcony collapse, which
killed six people. According to the San Francisco Chronicle,
the company responsible for that project reportedly paid out
$26.5 million in construction defect settlements in just three
years, yet the CSLB, the state agency tasked with protecting
consumers from possibly lethal construction, remained ignorant
of such settlements. This is because licensees are not required
by law to report the result of incidents that are not handled
directly by the CSLB, to the Registrar. As a result,
information that can be used to help consumers protect
themselves from possible fraud or misrepresentation is not
known.
Specifically, SB 465 requires both licensees and insurers to
report to the CSLB certain settlements, arbitration awards and
administrative actions regarding a licensee as well as
convictions of crimes related to a licensee's practice as a
contractor. The bill also requires the Registrar of the CSLB to
make available to the public civil action settlements, binding
arbitration awards, and administrative actions that are required
to be reported to CSLB if the CSLB refers those settlements or
arbitration awards for investigation after staff determines, and
a supervisor has reviewed, that a probable violation has
occurred and involves allegations that, if proven, would present
a risk of harm to the public and would be appropriate for
suspension or revocation of the licensee, or criminal
prosecution. This standard is in existing law, which already
requires CSLB to report complaints that meet this standard to
the public.
Similar to other regulatory entities, in order to determine
whether a complaint is appropriate for investigation, the CSLB
reviews information on a case-by-case basis, looking at such
factors as the severity of the allegations, and whether a
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licensee has a history of complaints or discipline. Complaints
involving a threat to the public's health and safety, and cases
where consumers have suffered a significant financial injury are
given the highest priority. As a result, only those settlements
or arbitration awards that are investigated, and would subject a
licensee to suspension, revocation, or criminal prosecution, not
merely just a citation, would be made available to the public,
which is the type of information that is already disclosed. In
addition, licensees are already required to report unsatisfied
final judgments to the CSLB, and are required to disclose
convictions when applying for licensure. For licensees that
have already been fingerprinted by the CSLB, the CSLB will
receive notifications from the Department of Justice when that
licensee is the subject to additional criminal action; however,
not all licensees have submitted their fingerprints to the CSLB.
Similar Reporting Requirements Exist for Other Professions.
Architects, and the companies that insure them, are required to
report to their board any civil action judgment, settlement,
arbitration award, or administrative action resulting in a
judgment, settlement, or arbitration award against the licensee
in any action alleging fraud, deceit, negligence, incompetence,
or recklessness by the licensee in the practice of architecture
if the amount or value of the judgment, settlement, or
arbitration award is five thousand dollars ($5,000) or greater.
The report is made within 30 days of payment of all or any
portion of the action. This also applies if a party to the civil
action, settlement, arbitration award, or administrative action
is or was a sole proprietorship, partnership, firm, corporation,
or state or local governmental agency in which a licensee is or
was an owner, partner, member, officer, or employee and is or
was a licensee in responsible control of that portion of the
project that was the subject of the civil judgment, settlement,
arbitration award, or administrative action. The licensee will
not be found to have violated a confidential settlement
agreement or other confidential agreement by providing a report
to the board.
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Similar requirements exist for other licensed professionals,
including engineers (BPC Section 6770), land surveyors (BPC
Section 8776), medical professionals (BPC Section 801), and
accountants (BPC Section 5063). This bill is seeking to
establish consistency with other occupations that have as much
of an impact on the safety and well-being of the general public.
Current Related Legislation. SB 467 (Hill) of the current
legislative session, among other things, extends the sunset date
for the CSLB until January 1, 2020, repeals a requirement
relating to evidence of financial solvency, and increases the
amount for a licensee to be bonded from $12,500 to $15,000, as
specified. STATUS: This bill is in the Assembly Appropriations
Committee.
Prior Related Legislation. AB 2570 (Hill), Chapter 561,
Statutes of 2012, prohibited licensees of any board, bureau or
program under the DCA from including a "regulatory gag clause"
in civil settlement agreements.
SB 679 (Berryhill), Chapter 471, Statutes of 2013, revised the
monetary threshold for a licensed engineer or land surveyor to
report a civil action settlement or administrative action to the
Board for Professional Engineers, Land Surveyors, and Geologists
(BPELSG) from "$50,000 or greater" to "greater than $50,000,"
and requires a licensed engineer or land surveyor to report any
civil action judgment or binding arbitration award or
administrative action of $25,000 or greater.
SB 1549 (Figueroa), Chapter 691, Statutes of 2004, required
licensed engineers and land surveyors to report to the BPESLG a
felony conviction or a civil judgment, settlement, arbitration
award, or administrative action award of $50,000 or more,
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occurring on or after July 1, 2006, if funds are appropriated
for that purpose, as specified, and required a court rendering
the judgment or conviction and a local agency, if self-insured,
to report to the board.
ARGUMENTS IN SUPPORT:
California Newspaper Publishers Association (CNPA) writes in
support, stating, "Following the recent balcony collapse in
downtown Berkeley, an investigation by the San Francisco
Chronicle uncovered that the firm who built the balcony paid
$26.5 million in the last three years in construction defect
settlements. Often, as here, these settlement agreements remain
confidential until a catastrophic event occurs."
City of Berkley, Office of the Mayor, writes in support, stating
that, "On June 16, 2015 a balcony collapsed in the City of
Berkley, tragically leading to the deaths of six young people.
Compounding our community's immense sadness is the belief that
this unfortunate incident could have been prevented?.The City of
Berkeley supports SB 465 because of the increased transparency
it will provide for the community when dealing with contractors,
allowing for fully informed decisions about contracting work."
Center for Public Interest Law writes in support, stating that,
"There is simply no public policy reason why architects should
be required to report settlements but not the licensees who
actually build what the architects draw?.If a pattern of
settling cases for significant sums just might shed a poor light
on a contractor's competence, then the CSLB should know about
the settlements, with licensee knowing that the CSLB will, like
its sister boards, review such information proportionately and
appropriately."
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Center for California Homeowner Association Law writes in
support that, "[This information] will benefit consumers, local
governments, the nonprofit developers of housing, and even the
HUD, which can use [this information] to weed out builders and
contractors who produce defective housing or make sub-standard
repairs."
ARGUMENTS IN OPPOSITION:
California Building Industry Association writes in opposition,
stating that "We are strongly opposed to the disclosure of
settlements and arbitration awards, at least in construction
defect cases, because they are not an indication of "bad
actors"?.A settlement is not an admission of liability and is
not decided by a neutral third party?.The result of a
construction defect claim, whether a settlement or arbitration
award, arises from a fact well known and relied upon by the
construction defect plaintiff's bar: the cost to defend these
claims runs between 4 and 23 times the amount of the
settlement?. The bill applies to damage even where the
contractor unintentionally caused property damage or merely
breached a contract provision to perform services or make a
payment between contractors. These actions have nothing to do
with public safety. Bad actors should not be determined based on
actions without fault."
Construction Employers' Association (CEA) writes in opposition
that, "In a multi-employer environment where the general
contractor is the only licensee under contract to the project
owner, general contractors are a party to all settlements,
regardless of which party caused the underlying
problem?.Pursuant to this measure, the general contractor would
be required to report any settlements, even if they weren't at
fault?.It's also unclear what negligence, incompetence or
recklessness mean. If someone is injured and the contractor
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found it more expeditious to reach a settlement versus fight,
what is that considered?...The general contractor would
effectively receive a black mark on their license through no
fault of their own. This black mark would invariably be used to
disqualify otherwise qualified contractors from bidding." The
CEA also notes that while doctors and attorneys report such
settlements, in those instances, the doctor or attorney is the
one at fault, because there is no subcontractor.
United Contractors, Associated General Contractors and Southern
California Contractors Association, in a joint letter also write
in opposition, "In today's business environment, contractors
often need to settle cases even if they are completely without
fault. Settlements allow a party to avoid the costly expense of
pretrial discovery and a trial. The expense of litigation often
is in the hundreds of thousands of dollars, far outweighing even
the amounts in dispute. Our contractors and their insurance
carriers often settle for far more than $50,000 in order to
avoid the expense and disruption of having to go to
court?Contractors should not be punished for the litigious
environment they are forced to navigate through in order to stay
in business."
The Association of California Insurance Companies writes in
opposition, stating that "The bill also requires professional
liability insurers to report the information to the state as
well. This is duplicative since the contractor is already
required to report this information. This bill would add
additional expense to the insurance transaction and could act as
disincentive to insurers that may consider expanding into
California for contractors' professional liability [market]."
Civil Justice Association of California writes in opposition,
stating that "SB 465 would make it easier for attorneys to
target legitimate contractors for lawsuits. The bill will
encourage drive-by litigation, pushing contractors to settle
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meritless cases for values below the applicable thresholds
($25,000 or $50,000)?We believe the State already has
appropriate tools at its disposal through its regulatory powers.
If it cannot do the job now, it should look to restructure the
department's operations rather than create both new burdens on
contractors and new incentives for drive-by litigation."
POLICY ISSUE:
According to the opposition, nearly all claims filed against
contractors involve a "violation of contract," whether related
to breach for non-payment, failure to grant time extensions or
for delays, failure to issue change orders, or wages, and that
"negligence" may be too broad and encapsulate other types of
claims that are not related to the quality of the work.
Opposition also notes many lawsuits are settled every year for
a myriad of reasons, and that the vast majority of those
lawsuits are settled out of court. Lawsuits that are settled
typically do not assign fault to any of the parties involved,
hence one reason for settling, and usually involve multiple
parties regardless of the extent of their involvement in the
claim. According to some estimates, there may be thousands of
settlements that would have to be reported to the CSLB each
year.
This bill would only go into effect if the CSLB was appropriated
with additional staff. According to the CSLB, it may
necessitate hiring three additional staff in order to
implement this policy. This number is based upon the Board for
Professional Engineers, Land Surveyors, and Geologists'
(BPELSG) staffing levels. However it is unknown, at this
time, how many settlements or arbitration awards would be
reported. If the volume of reports is too large, it may be
difficult for the CSLB to sift through this information to
determine whether a contractor is truly incompetent, and
because most settlements do not assign fault to the numerous
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parties involved in a lawsuit, it would be difficult to
establish a pattern and assign fault or to determine whether
to investigate a contractor without possible extensive
research and data collection by the CSLB.
As a result, the Committee and author may wish to consider
requiring the CSLB to conduct a study on the types and number
of settlements and awards that would be reported, pursuant to
these provisions, in order to understand the scope of this
requirement, and whether the scope is too broad to make this
information useful to the CSLB, and the factors that may be
useful in helping the CSLB to properly investigate those
risking public harm. Additionally, the author may wish to
consider narrowing the scope of the bill to only apply to
those settlements or arbitration awards that are related to
the actual work product, and exempt non-work product related
claims to focus the CSLB's attention on licensees who pose the
most risk. Lastly, the author may wish to consider requiring
the CSLB to adopt regulations that would further define the
scope of these reporting requirements, as is required for the
BPESLG, and delay the implementation of this bill to allow the
CSLB time to prepare to implement these provisions in a
meaningful way.
REGISTERED SUPPORT:
California Newspaper Publishers Association
Center for Public Interest Law
Center for California Homeowner Association Law
City of Berkeley, Office of the Mayor
The Miller Law Firm
REGISTERED OPPOSITION:
Air Conditioning Trade Association
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American Fire Sprinkler Association
Associated Builders and Contractors - San Diego Chapter
Association of California Insurance Companies
Associated General Contractors
California Building Industry Association
California Professional Association of Specialty Contractors
Civil Justice Association of California
Construction Employers' Association
Plumbing-Heating-Cooling Contractors Association of California
United Contractors
Associated General Contractors
Southern California Contractors Association
Western Electrical Contractors Association
Analysis Prepared by:Robert Boykin and Eunie Linden / B. & P. /
(916) 319-3301