BILL ANALYSIS �
AB 878
Page 1
Date of Hearing: May 3, 2011
ASSEMBLY COMMITTEE ON BUSINESS, PROFESSIONS AND CONSUMER
PROTECTION
Mary Hayashi, Chair
AB 878 (Bill Berryhill) - As Amended: April 25, 2011
SUBJECT : Contractors: workers' compensation insurance.
SUMMARY : Requires a workers' compensation insurer to report to
the Contractors' State License Board (CSLB) a licensed
contractor whose insurance policy it cancels, as specified.
Specifically, this bill :
1)Requires a workers' compensation insurer to report to CSLB a
licensed contractor whose workers' compensation insurance
policy it cancels for:
a) Any of the following reasons:
i) Failure to pay a workers' compensation premium when
due;
ii) Failure to report payroll or submit a payroll audit;
iii) Material misrepresentation by a policyholder or its
agent; or,
iv) Failure to cooperate with the insurer in a claim
investigation.
b) When all of the following conditions are met:
i) The insurer has completed a premium audit or
investigation;
ii) The insured contractor makes a material
misrepresentation that results in financial harm to the
insurer; and,
iii) No reimbursement has been paid by the insurer to the
insured.
2)Provides that willful or deliberate disregard and violation of
AB 878
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workers' compensation insurance laws constitutes a cause for
disciplinary action.
EXISTING LAW :
1)Provides for the licensing and regulation of insurance brokers
and agents by the Department of Insurance (DOI).
2)Establishes the Division of Workers' Compensation under the
Department of Industrial Relations to monitor the
administration of workers' compensation claims and provide
administrative and judicial services to resolve claim
disputes.
3)Provides for the licensing and regulation of contractors by
CSLB.
4)Requires employers to carry workers' compensation insurance
and post notices on workers' compensation coverage at the work
site.
5)Imposes civil penalties against employers for failure to carry
workers' compensation insurance, including fines,
imprisonment, and stop work notices.
6)Requires a licensed contractor's workers' compensation
insurer, including the State Compensation Insurance Fund
(SCIF), to report to CSLB the name, license number, policy
number, dates that coverage is scheduled to commence and
lapse, and cancellation date if applicable.
7)Requires contractors to include their license numbers in all
construction contracts, subcontracts, bids, and
advertisements.
8)Requires the automatic suspension of a contractors' license by
operation of law if the licensee fails to obtain or maintain
workers' compensation insurance.
9)Authorizes CSLB to take disciplinary action against a
contractor who fails to provide workers' compensation
insurance.
FISCAL EFFECT : Unknown
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COMMENTS :
Purpose of this bill . According to the author's office, "The
proposed legislation is intended to reduce premium insurance
fraud and address construction employers engaged in fraudulent
activity but not at the level that warrants felony prosecution.
CSLB understands that insurance carriers routinely perform
audits that determine fraudulent activity. Again, the most
egregious offenders are subject to felony prosecution however,
many violators are addressed by cancellation of the insurance
policy and are not subject to disciplinary action."
Background . California law requires all employers to carry
workers' compensation insurance, even if they have only one
employee or a temporary employee. This allows employees to
receive covered medical treatment for on-the-job injuries or
illnesses. Workers' compensation insurance provides six basic
benefits: medical care, temporary disability benefits,
permanent disability benefits, supplemental job displacement
benefits, vocational rehabilitation, and death benefits.
Insurance carriers charge employers premiums to provide workers'
compensation insurance that factor in the company's industry
classification, history of work-related injuries, and payroll
history. SCIF is the largest provider of workers' compensation
insurance in California.
Contractors must submit proof to CSLB of their workers'
compensation insurance coverage in the form of a Certificate of
Workers' Compensation Insurance or Certification of
Self-Insurance, along with their license number and additional
specified information.
Workers' compensation fraud occurs when the employer
misrepresents the number of employees that need to be insured,
or does not fully provide coverage for employees. The author's
office claims that SCIF indicated that CSLB can receive
approximately 600 referrals of licensed contractors engaging in
fraudulent workers' compensation activity, if referrals are
restricted to completed audits that will not be referred for
criminal prosecution, failure to reimburse the insurer, or
policy cancellation.
In 2009, CSLB received 38 complaints against licensees related
to workers' compensation violations.
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Support . According to the sponsor, the Contractors' State
License Board, "This bill is intended to help address the issue
of premium fraud, which occurs when an employer has a workers'
compensation policy and intentionally misrepresents to their
insurance company the number of employees, nature of work
performed by employees, or amount of payroll. DOI excels at
investigating various felony provisions of the Penal and
Insurance Codes; however, local prosecutors focus their limited
resources on the most egregious offenders. Moreover,
investigation of felony premium insurance fraud is labor
intensive, difficult to prosecute and, due to prison
overcrowding, not a top priority for incarceration. By
requiring insurers to report this information, CSLB will be able
to take disciplinary action against those licensees."
Previous Legislation . AB 2305 (Knight), Chapter 423, Statutes
of 2010, extended the sunset date, from January 1, 2011 to
January 1, 2013, on existing law requiring a roofing contractor
to obtain and maintain workers' compensation insurance, even if
he or she has no employees. This bill also extended the
parallel sunset date requiring DOI to report on this effect and
required automatic license suspension for licensees without
proof of insurance, as specified.
AB 2390 (Buchanan) of 2010 would have required contractors to
include the license number and proof of current valid workers'
compensation insurance of their subcontractors in a public works
bid. This bill was held on the Senate Floor.
SB 1254 (Leno), Chapter 643, Statutes of 2010, authorized CSLB
to issue a stop order to any licensed or unlicensed contractor
who has failed to secure workers' compensation insurance
coverage for his or her employees.
REGISTERED SUPPORT / OPPOSITION :
Support
Contractors' State License Board (sponsor)
California Landscape Contractors Association
Opposition
None on file.
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Analysis Prepared by : Joanna Gin / B.,P. & C.P. / (916)
319-3301