BILL ANALYSIS
SENATE COMMITTEE ON BANKING, FINANCE,
AND INSURANCE
Senator Ronald Calderon, Chair
AB 1117 (Fuentes) Hearing Date: June 17, 2009
As Amended: April 13, 2009
Fiscal: No
Urgency: Yes
SUMMARY Would amend the State Compensation Insurance Fund
(SCIF) law to clarify that existence, amendment, or renewal of a
contract of insurance between SCIF and an organization of which
any member of the board of directors is an officer or employee
shall not constitute a conflict of interest for purposes of the
SCIF law. Includes legislative findings that the amendments
made by the act are technical in nature, do not change the law,
and are intended to clarify that members of the SCIF Board of
Directors are not disqualified from participating in decisions.
The act would take effect as an urgency measure.
DIGEST
Existing law
1. Current Government Code provisions prohibit a public
official from using their public position to influence a
governmental decision in which the party knows or has reason
to know they have a financial interest.
2. For the purposes of this same law, having a financial
interest in a decision includes situations where it is
reasonably foreseeable that the decision will have a
material financial effect, distinguishable from its effect
on the public generally, on the public official, on a member
of his or her immediate family, or on any of specified
situations, including any business entity in which the
public official is a director, officer, partner, trustee,
employee or holds any position of management.
3. Other Government Code provisions, also applicable to the
SCIF Board, prohibit a public official from being
financially interested in any contract made by them in their
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official capacity.
4. Board Members of the State Compensation Insurance Fund
(SCIF) are subject to the above Government Code law
concerning financial conflicts of interest and having an
improper financial interest in any contract made by their
governing body.
5. The SCIF Board is an 11 Member Board.
6. An express provision of current SCIF law, in the section
prohibiting financial conflicts of interest, states "the
existence of a contract of insurance between the State
Compensation Insurance Fund and the policyholder member
appointed by the Senate Committee on Rules shall not
constitute a conflict pursuant to this section".
This bill
1. Would add to the SCIF conflict of interest law a statement
that the "existence, amendment, or renewal of a contract of
insurance between" SCIF and an organization "of which any
member of the board of directors is an officer or employee
shall not constitute a conflict of interest pursuant to
this subdivision".
2. States legislative findings that the amendments made by the
act are technical in nature, do not change the law, and are
intended to clarify that members of the SCIF Board of
Directors are not disqualified from participating in SCIF.
3. The act would take effect as an urgency measure.
COMMENTS
1. Purpose of the bill The sponsor states that this bill is
intended to ensure that members of the SCIF Board of
directors are not incorrectly disqualified from
participating in important decisions of the board that
impact policyholders generally and no board member uniquely.
The bill is an urgency measure so that upon enactment it's
provisions will apply to current SCIF board members and
operations.
AB 1117, Page 3
2. Background Oversight hearings conducted by this committee in
prior legislative sessions have examined the administration
and internal operational controls of SCIF and identified
numerous deficiencies, including deficiencies with respect
to conflicts of interest generally and more specifically
financial conflicts of interest. To address these matters,
Insurance Code Section 11770 was amended last year to add
the provisions described above concerning conflicts of
interest, including expressly subjecting board members to
the financial conflict of interest provisions described
above in the Existing Law section which are found in the
Government Code.
3. The State Compensation Insurance Fund (State Fund) was
created by statute in 1914 to act as a workers' compensation
insurer for the state and to serve as the workers' comp
insurer of last resort in the private market.
4. The Government Code provisions apply to situations where a
public official is an employee or manager of an organization
if the public official participates in a decision which it
is reasonably foreseeable will have a material financial
effect on the organization which is distinguishable from its
effect on the public generally.
5. Under the Government Code financial conflict of interest
provisions, every SCIF board member who is either a manager
or an employee of an organization seeking a contract of
insurance with SCIF is currently prohibited from seeking
such insurance on terms that it is reasonably foreseeable
would benefit their organization in a way materially
different from the terms available to other members of the
public, which should reasonably be construed here to mean
other similarly situated businesses.
6. Insofar as all Board Members are subject to the above rules
under current law, every SCIF Board Member is currently
prohibited from seeking to obtain a material financial
advantage in terms for insurance coverage on behalf of an
organization they are a manager of employee which is
distinguishable from the terms available to the public.
7. Notwithstanding the above, the stipulation added last fall
to the SCIF board conflict of interest law stating that "a
contract of insurance" between SCIF and "the policyholder
AB 1117, Page 4
member appointed by the Senate Committee on Rules shall not
constitute a conflict pursuant to this section" can be
construed to imply that such a contract between any other
board member and SCIF "shall" constitute a conflict, even if
it passes scrutiny under the more stringent Government Code
provisions.
8. Support . State Compensation Insurance Fund
9. Opposition None
10. Questions Inasmuch as the substantive law governing
financial conflicts of interest for SCIF board members is
now in found in Chapter 7 of Title 9 of the Government Code,
commencing with Section 87100) and in Article 4 (commencing
with Section 1090) of Chapter 1 of Division 4 of Title 1 of
the Government Code, shouldn't the effort to clarify that
contracts of insurance do not in themselves trigger
conflicts of interest be based explicitly on adherence to
those provisions?
11. Suggested Amendments . On page 4, line 24, after
"subdivision.", strike the remainder of line 24, then strike
lines 25 through 28, inclusive, and insert:
For purposes of board actions affecting generally applicable
rates, a member of the board of directors shall not be
deemed to have a financial interest in a contract of
insurance between the State Compensation Insurance Fund and
an organization of which any member of the board of
directors is an owner, officer or employee pursuant to
Chapter 7 of Title 9 (commencing with Section 87100) of the
Government Code or Article 4 (commencing with Section 1090)
of Chapter 1 of Division 4 of Title 1 of the Government
Code"
12. Prior Legislation AB 1874 (Coto), Chapter 322, Statutes of
2008
POSITIONS
Support
AB 1117, Page 5
State Compensation Insurance Fund
Oppose
None
Consultant: Kenneth Cooley
(916) 651-4102