BILL ANALYSIS
AB 2490
Page 1
Date of Hearing: April 21, 2010
ASSEMBLY COMMITTEE ON INSURANCE
Jose Solorio, Chair
AB 2490 (Jones) - As Amended: April 6, 2010
SUBJECT : Workers' compensation: arbitration clauses
SUMMARY : Requires dispute resolution clauses entered into
between an employer and a workers' compensation insurer to
specify that California law applies and the venue is to be in
California. Specifically, this bill :
1)Provides that any agreement between an employer and a workers'
compensation insurer concerning dispute resolution, including
an arbitration clause, shall
a) Contain a choice of law provision that selects
California law as the law to be applied to any dispute;
b) Contain a forum selection clause that identifies
California as the proper venue for any proceedings arising
out of a dispute; and
c) Be submitted to the Insurance Commissioner (IC) as part
of the policy form filing that is required of workers'
compensation insurers for workers' compensation policies.
2)Specifies that a failure to comply with the above requirements
renders the dispute resolution agreement void and
unenforceable.
3)Contains Legislative findings and declarations to the effect
that requiring California employers to be subject to the law
of other states, and to conduct dispute resolution proceedings
in other states, is a burden on these employers.
EXISTING LAW :
1)Provides for a comprehensive system of workers' compensation
benefits to be paid to employees who are injured on the job.
2)Requires every employer in the state to obtain a policy of
workers' compensation insurance from an insurer licensed to
transact this insurance in the state, or obtain a certificate
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of self-insurance from the Department of Industrial Relations.
3)Authorizes employers to purchase "high-deductible" workers'
compensation insurance policies, subject to certain
conditions, whereby the employer is effectively self-insured
below the deductible, but the insurer is ultimately
responsible to guarantee payment of benefits.
4)Requires workers' compensation insurers to file their policy
forms with the IC for approval, but does not specifically
require side agreements such as dispute resolution agreements
to be part of that filing.
FISCAL EFFECT : Undetermined impact on the Department of
Insurance to review and approve the newly mandated elements of a
workers' compensation insurance policy filing.
COMMENTS :
1)Purpose . According to the author, as evidenced by an
unpublished Court of Appeal decision ( Ceradyne, Inc. v.
Argonaut Insurance Company, 4th Dist., Div. 3, case No.
G039873 ), the courts have held that arbitration clauses
relating to workers' compensation insurance policies that have
not been submitted to the IC for approval are unenforceable.
However, the author argues that it is expensive and unfair to
California employers to force them to litigate this issue.
Instead, the rules should be clear that these agreements ought
to be part of the policy form filed with the IC, and that
California law and California venue ought to be the rule for
resolving disputes that arise in California concerning
California employers.
2)Drafting issues . In informal discussions with some insurers,
drafting concerns were raised. It was noted that the bill's
broad language "concerning resolution of disputes" could
require settlement documents resolving a dispute prepared
between an insurer and employer to be filed with the IC. An
additional drafting concern is that the language does not
strictly limit its application to disputes arising in
California. Typically, these agreements are associated with
large employers, and often involve multi-state operations, and
the language might be read to suggest that California venue
and law would apply whenever the policy covers California
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risks, even if the particular matter at issue arose elsewhere.
3)Support . Pacific Hospital of Long Beach writes in support
because, with respect to its workers' compensation policies,
it was not aware of arbitration clauses until after disputes
arose. In Pacific Hospital's matters, it was advised that
side agreements required reliance on New York law to resolve a
purely California dispute.
Roxborough, Pomerance, Nye, & Adriani, and employer's rights law
firm that handles many cases like Ceradyne and the Pacific
Hospital situation, writes that the late delivery of these
side agreements is increasingly common. In litigating the
cases, they win some and lose some, but always at great
expense to the employer.
4)Opposition . The American Insurance Association (AIA) writes
in opposition to the bill that these agreements are typically
between insurers and large (sophisticated) employers, and the
bill impedes the right to freely contract for provisions that
are beneficial to both sides. AIA argues that there are valid
business reasons why an employer might want broader freedom to
negotiate the issues covered by the bill than is allowed. In
this regard, it points out that the current workers'
compensation insurance market is competitive, and if an
employer does not like the conditions being offered by an
insurer, it has market alternatives. With respect to the case
cited by the author, AIA suggests that it was an unusual
situation where the employer was unaware of the "agreement"
until a substantial period of time after the policy was
purchased.
In addition, AIA argues that these side agreements are not
standard form contracts like the insurance policy itself.
They are agreements negotiated between two sophisticated
parties, and the form changes from party to party, making it
impractical to have been previously filed by the insurer when
each agreement is reached with an employer.
REGISTERED SUPPORT / OPPOSITION :
Support
Pacific Hospital of Long Beach
Nick Roxborough, Esq., Roxborough, Pomerance, Nye, & Adriani,
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counsel for Ceradyne
Opposition
American Insurance Association
Analysis Prepared by : Mark Rakich / INS. / (916) 319-2086