BILL ANALYSIS
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|Hearing Date:June 28, 2010 |Bill No:AB |
| |2036 |
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SENATE COMMITTEE ON BUSINESS, PROFESSIONS
AND ECONOMIC DEVELOPMENT
Senator Gloria Negrete McLeod, Chair
Bill No: AB 2036Author:Bill Berryhill
As Amended:June 14, 2010 Fiscal: Yes
SUBJECT: Contractors
SUMMARY: Requires the surety of a contractor to notify the registrar
of the Contractors State License Board (CSLB) of any good faith
payment made from the contractor bond pursuant to a court order or
judgment within 30 days of making the payment. Requires the
contractors' license to be suspended by operation of law if proof of
payment of the amount owed to the surety has not been made by the
contractor within 90 days after a contractor is notified by the CSLB.
NOTE : This measure is a new bill and was amended on June 14 in Senate
Judiciary Committee and re-referred to BP&ED by Rules Committee. The
former language of this measure dealt with works of improvement.
Existing law:
1)Licenses and regulates more than 300,000 contractors under the
Contractors State License Law (Contractors Law) by the Contractors
State License Board (CSLB) within the Department of Consumer Affairs
(DCA). The CSLB is under the direction of the Registrar of
Contractors (Registrar).
2)Requires as a condition of licensure that a contractor shall hold and
maintain a license bond of $12,5000 to be executed by an admitted
surety in favor of the State of California and shall be for the
benefit of:
a) Any homeowner contracting for home improvement work on the
homeowner's personal family residence that is damaged as a result
of a violation of the Contractor Law by the licensee.
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b) Any person damaged as a result of a willful and deliberate
violation of the Contractor Law by the contractor, or by license
fraud in the execution or performance of a construction contract.
c) Any employee of the contractor damaged by the licensee's
failure to pay wages.
d) Any express trust fund damaged as a result of the contractor's
failure to pay fringe benefits for eligible employees.
3)Provides that any action other than one to recover employee fringe
benefits must be filed within two years after the expiration of the
license period during which the act or omission occurred, or within
two years of the date the license was inactivated, canceled, or
revoked by the CSLB, whichever occurs first.
4)Requires the surety of a contractor to notify the registrar of any
payment on any claim against the contractor's bond within 30 days of
making the payment.
5)With specified exceptions, provides that any judgment or admitted
claim against, or good faith payment from, a bond shall constitute
grounds for disciplinary action against a contractor by the
Contractors' State License Board.
This bill:
1)Requires the surety of a contractor to notify the contractor 30 days
prior to making a good faith payment from the contractor's bond
pursuant to a court order or judgment, and then requires the surety
to notify the registrar of contractors within 30 days of making the
payment. The notice shall provide specified information to the
registrar:
a) The name and license number of the contractor.
b) The surety bond number.
c) The amount of the court-ordered payment or judgment.
d) The name of the claimant or claimants who were party to the
court action and the statutory basis for each claimant's claim.
e) A copy of the court order or judgment.
f) The date notice was sent to the licensee that the surety
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intended to make payment pursuant to a court order or judgment.
g) A clear indication whether or not the licensee, within the
30-day notice period paragraph, contested the court-ordered
payment or judgment.
2)With respect to that payment, provides that the contractor's license
shall be suspended by operation of law if proof of payment of the
amount owed to the surety has not been made by the contractor within
90 days after the contractor is notified to that effect by the CSLB.
3)Requires a license suspension under these provisions to be disclosed
indefinitely.
FISCAL EFFECT: Unknown. This bill has been keyed "fiscal" by
Legislative Counsel.
COMMENTS:
1. Purpose. This bill is sponsored by American Contractors Indemnity
Company (Sponsor). According to the Author the intent of the bill
is:
"[T]o insure that a contractor, whom the court has ordered a
payment from the contractor's license bond issued by a surety
company due to unresolved claims against a licensee will have
his or her contractor's license suspended until the licensee
makes proper restitution by way of reimbursement, consistent
with other statutory requirements of reimbursement. The
proposed legislation would also ensure that the licensee does
not simply purchase another license bond during the interim
which allows the licensee to maintain his license in good
standing and likely harm other future consumers. If a surety
makes a direct payment to a claimant, there are similar
provisions for license suspension that are already part of the
existing statute (B&P Code 7071.11). This amendment would
simply clarify the situation where the surety makes the
payment pursuant to a court order or court judgment and pays
the funds into the Court for distribution to the claimants."
2. Background. A contractor's bond is a requirement for the CSLB to
issue an active license, reactivate a license, and for the
maintenance of an actively renewed license. The bond is filed for
the benefit of consumers who may be damaged as a result of
defective construction or other license law violations, and for the
benefit of employees who have not been paid wages that are due to
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them. Currently, more than 50 surety companies have active bonds
filed with CSLB.
A cash deposit may be filed in place of filing a required contractor's
bond. The cash deposit must be in the form of a cashier's check,
bank certified check, certificate of deposit, savings account
passbook, share account, investment certificate, or certificate for
funds and must be filed with the CSLB. A personal or business
check cannot be accepted. A cash deposit cannot be released until
three years after the expiration of the license period for which it
provides coverage, or three years after the date the license is
officially inactivated on the CSLB's records, whichever occurs
first. Cash deposits are held in case a claim is filed against the
deposit by a consumer. If the CSLB is notified of a complaint
relative to a claim against the cash deposit, the deposit will not
be released until the complaint has been adjudicated.
All actively renewed licenses are required to comply with the bond
requirements. A contractor's license will be placed under bond
suspension if any of the following occur:
(1) A surety company cancels the bond. (2) A judgment or payment of
claim reduces the amount of a required bond or cash deposit. (3) A
surety company is no longer authorized by the California Department
of Insurance to conduct business. (4) The responsible managing
officer (RMO) no longer owns at least 10% of the corporation. Any
work performed while the license is suspended is considered to be
unlicensed activity and disciplinary action can be taken against
contractor by the board.
3. Prior Related Legislation. SB 1432 , (Margett, Chapter 157,
Statutes of 2008) expanded and clarified the time period for
consumers to file a claim against a bond when the license of a
contractor was inactivated, cancelled, or revoked. Made changes to
the portion of the bond that is available in a small claims action
for a person (claimant) against the contractor bond from $4,000 to
$6,500, and clarified that a home or property owner no longer has
to provide that a license law violation by a contractor was willful
and deliberate when filing for a claim on the bond.
SB 1112 (BP&ED Committee, Chapter 280, Statutes of 2005) revised and
recast the Contractor's law to allow consumers to immediately
collect from the cash deposit upon receiving an award against those
funds.
SB 1914 (BP&ED Committee, Chapter 865, Statutes of 2004) increased the
bond requirement for a qualifying individual from $7,500 to
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$12,500, and established the aggregate surety on claims brought
against the bond at an amount of $7,500.
AB 264 (Correa, Chapter 311, Statutes of 2002) provided that, prior to
a settlement of a claim through a good faith payment by a surety, a
contractor shall have not less than 15 days to file a written
protest instructing the surety not to make the payment based on
certain specific grounds.
SB 914 (Sher, Chapter 795, Statutes of 1999) revised the contractor
license bond provisions relating to express trust funds to include
claims for all forms of compensation and not just fringe benefits.
4. Contractors State License Board Has Not Taken a Position on This
Measure. Because the June 14, 2010, amendments made this a new
bill, the CSLB has not been able to take a position on the bill.
5. Arguments in Support. In sponsoring the bill American Contractors
Indemnity Company , writes that there are already provisions within
the existing statute that allow for a license suspension when a
surety makes a direct payment to a claimant. The amendment would
clarify the situation, according to the Sponsor, when the surety
makes a payment under a court order or judgment and pays the funds
into the court for distribution to the claimants.
6. Good Faith Payment. As recently amended, this bill would require a
bond company to notify the contractor and the registrar when the
company makes a good faith payment from the contractor bond under a
court order or judgment. The license of the contractor would then
be suspended if the contractor has not paid the amount owed to the
bonding company within 90 days. Essentially, the provisions would
require the CSLB to suspend the contractor license for the
contractor's failure to reimburse the bonding company as soon as
(within 90 days) the bonding company has made a payment to a court
as a good faith payment. Such a good faith payment would
apparently be a preliminary step in a claim, when there has not yet
been a final decision by the court regarding any exact amounts that
must be paid and to whom they must be paid. This is essentially a
placeholder payment, and not a final payment of a claim. The final
payment of a claim would be made when there is a final decision by
the court and the court has determined what amounts must be paid
and to whom they must be paid.
The policy issue for the Committee to consider is whether it would be
appropriate for the CSLB to suspend a contractor's license for
failure to reimburse the surety when the court has not yet made a
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final decision as to what payments are required. The Author and
Sponsor should speak to this issue when the bill is heard in
Committee.
SUPPORT AND OPPOSITION:
Support: American Contractors Indemnity Company (Sponsor)
Opposition: None received as of June 23.
Consultant:G. V. Ayers