BILL ANALYSIS
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THIRD READING
Bill No: AB 1117
Author: Fuentes (D)
Amended: 6/28/09 in Senate
Vote: 27 - Urgency
SENATE BANKING, FINANCE, AND INS. COMMITTEE : 11-0, 6/17/09
AYES: Calderon, Cogdill, Correa, Cox, Harman, Kehoe, Liu,
Lowenthal, Padilla, Runner, Wolk
NO VOTE RECORDED: Florez
ASSEMBLY FLOOR : 73-0, 5/14/09 (Consent) - See last page
for vote
SUBJECT : State Compensation Insurance Fund: board
SOURCE : State Compensation Insurance Fund
DIGEST : This bill amends the State Compensation
Insurance Fund (SCIF) law to clarify, for purposes of SCIF
board actions affecting generally applicable rates, that a
member of the board of directors is not deemed to have a
financial interest, as defined by current law, in a
contract of insurance between SCIF and an organization of
which any member of the board of directors is an owner,
officer or employee. 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.
CONTINUED
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ANALYSIS :
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/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 official capacity.
4. Board members of 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. Adds to the SCIF conflict of interest law to provide,
for purposes of SCIF board actions affecting generally
applicable rates, that a member of the board of
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directors is not deemed to have a financial interest, as
defined by current law, in a contract of insurance
between SCIF and an organization of which any member of
the board of directors is an owner, officer or employee.
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.
Background
Oversight hearings conducted by the Senate Banking,
Finance, and Insurance 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,
Section 11770 of the Insurance Code 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.
The SCIF was created by statute in 1914 to act as a
workers' compensation insurer for the state and to serve as
the workers' compensation insurer of last resort in the
private market.
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.
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
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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.
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.
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
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.
FISCAL EFFECT : Appropriation: No Fiscal Com.: No
Local: No
SUPPORT : (Verified 6/26/09)
State Compensation Insurance Fund (source)
ASSEMBLY FLOOR :
AYES: Adams, Anderson, Arambula, Beall, Bill Berryhill,
Tom Berryhill, Blakeslee, Block, Blumenfield, Brownley,
Buchanan, Caballero, Charles Calderon, Carter, Chesbro,
Conway, Cook, Coto, Davis, De La Torre, De Leon, DeVore,
Duvall, Emmerson, Eng, Evans, Feuer, Fletcher, Fong,
Fuller, Furutani, Galgiani, Gilmore, Hagman, Hall,
Harkey, Hayashi, Hernandez, Hill, Huber, Huffman,
Jeffries, Jones, Knight, Krekorian, Lieu, Logue, Bonnie
Lowenthal, Ma, Mendoza, Miller, Monning, Nava, Nestande,
Niello, Nielsen, John A. Perez, V. Manuel Perez,
Portantino, Price, Ruskin, Salas, Silva, Skinner,
Solorio, Audra Strickland, Swanson, Torlakson, Torres,
Torrico, Tran, Villines, Yamada
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NO VOTE RECORDED: Ammiano, Fuentes, Gaines, Garrick,
Saldana, Smyth, Bass
JJA:mw 6/28/09 Senate Floor Analyses
SUPPORT/OPPOSITION: SEE ABOVE
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