BILL ANALYSIS �
Senate Committee on Labor and Industrial Relations
Ted W. Lieu, Chair
Date of Hearing: June 29, 2011 2011-2012 Regular
Session
Consultant: Gideon L. Baum Fiscal:Yes
Urgency: No
Bill No: AB 878
Author: Berryhill
Version: As Amended June 14, 2011
SUBJECT
Contractors: workers' compensation insurance.
KEY ISSUE
Should the Legislature require workers' compensation insurers to
notify the Contractors State Licensing Board if a licensee is
found to have misled the insurer on his or her workers'
compensation coverage?
PURPOSE
To better ensure licensee compliance with workers' compensation
coverage and create disincentives to engage in workers'
compensation fraud.
ANALYSIS
Existing law establishes a workers' compensation system that
provides benefits to an employee who suffers from an injury or
illness that arises out of and in the course of employment,
irrespective of fault. This system requires all employers to
secure payment of benefits by either securing the consent of the
Department of Industrial Relations to self-insure or by securing
insurance against liability from an insurance company duly
authorized by the state.
Existing law requires all contractors with employees to file
with the Contractors State Licensing Board (CSLB) a valid
Certificate of Workers' Compensation Insurance or Certification
of Self-Insurance prior to the issuance, reinstatement,
reactivation, renewal, or continued maintenance of a license.
Contractors without employees are exempted from this
requirement, unless they are licensed for roofing work.
(Business and Professions Code �7125)
Existing law requires that the must report to the CSLB the
following information for any policy on file:
a) Name;
b) License number;
c) Policy number;
d) Dates that coverage is scheduled to commence and lapse,
and
e) Cancellation date, if applicable.
(Business and Professions Code �7125(d))
Existing law requires that the failure of a contractor to obtain
or maintain workers' compensation insurance coverage must result
in the automatic suspension of the license either when the
workers' compensation coverage lapses or the date the licensee
was required to obtain coverage, whichever is earlier.
(Business and Professions Code �7125.2)
Existing law establishes a cause for disciplinary action by the
Contractors State Licensing Board (CSLB) for a contractor who:
a) Files a false certification of exemption from the
workers' compensation requirement.
b) Employs a person after the filing of an exemption
certificate without first filing a Certificate of Workers'
Compensation Insurance or Certification of Self-Insurance.
c) Employs a person subject to coverage under the workers'
compensation laws without maintaining coverage for that
person.
(Business and Professions Code � 7125.4)
This bill would require that workers' compensation insurers
Hearing Date: June 29, 2011 AB 878
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Senate Committee on Labor and Industrial Relations
report to the CSLB a contractor whose workers' compensation
insurance policy is canceled by the insurer if all of the
following conditions are met:
a) The insurer has completed a premium audit or
investigation.
b) A material misrepresentation has been made by the
policyholder that results in financial harm to the insurer.
c) No reimbursement has been paid by the insured to the
insurer.
This bill would also require that the information provided above
must be confidential and exempt from the California Public
Records Act.
This bill establishes willful or deliberate disregard and
violation of workers' compensation insurance laws as a cause for
disciplinary action.
This bill makes legislative findings and declarations on the
regarding the confidentiality of the information specified as
exempt from disclosure under the California Public Record Act.
COMMENTS
1. Need for this bill?
As was discussed above, licensed contractor with employees
must carry workers' compensation insurance and file proof of
coverage with the Contractors State Licensing Board (CSLB).
This proof can be in either of two forms: A Certificate of
Workers' Compensation Insurance issued and filed by an insurer
licensed to write workers' compensation insurance in
California; or, a Certification of Self-Insurance issued and
filed by the Director of Industrial Relations.
Hearing Date: June 29, 2011 AB 878
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Senate Committee on Labor and Industrial Relations
If a licensee fails to carry workers compensation or to meet
the exemption requirements, the license is automatically
suspended and reinstatement can be made at any time by showing
proof of compliance. However, even with this requirement, the
underground economy continues to be a challenge for
California, endangering the ability of law-abiding licensees
to make a living.
According to the Author, the CSLB relates that the Special
Investigation Unit staff with SCIF and private carrier, First
Comp Insurance, indicates that the CSLB can expect to receive
referrals for 2% of the 10% of insured licensed contractors
engaged in fraudulent activity, approximately 600 annually, if
referrals are restricted to:
a) Completed audits that are not subject to referral
for criminal prosecution.
b) Failure to reimburse the insurance company.
c) Cancellation of the policy.
By requiring an insurer to notify the CSLB in the instances
noted above, AB 868 seeks to combat the underground economy in
California by preventing contractors from continuing to
operate without appropriate workers' compensation coverage.
2. Proponent Arguments :
In sponsoring the bill, the CSLB indicates that the 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.
The CSLB states: "The California Department of Insurance
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
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Senate Committee on Labor and Industrial Relations
intensive, difficult to prosecute and, due to prison
overcrowding, not a top priority for incarceration. By
requiring insurers to report this information, the CSLB will
be able to take disciplinary action against those licensees.
This will help reduce premium insurance fraud and address
construction employers engaged in fraudulent activity but not
at the level that warrants felony prosecution."
3. Prior Legislation :
SB 1254 (Leno), Chapter 643, Statutes of 2010, authorizes the
CSLB to issue a stop work order when a licensed or unlicensed
contractor fails to provide adequate workers compensation
coverage for its employees.
AB 2305 (Knight), Chapter 423, Statutes of 2010, extends a
sunset date, from January 1, 2011, to January 1, 2016, on the
law requiring a C-39 roofing contractor to obtain and maintain
workers' compensation insurance, even if the contractor has no
employees, and extends a parallel sunset date requiring the
Department of Insurance to report on this effect.
SB 313 (DeSaulnier), Chapter 640, Statutes of 2009,
restructures the laws governing penalties to be assessed on
employers who do not provide workers' compensation benefits,
and increases the per-employee penalty for the lack of workers
compensation coverage from $1000 to $1500.
SUPPORT
Contractors State License Board (CSLB) (Sponsor)
California Chapter of the American Fence Association
California Fence Contractors' Association
California Spa & Pool Industry Education Council
Engineering Contractors' Association
Flasher Barricade Association
Marin Builders Association
OPPOSITION
Hearing Date: June 29, 2011 AB 878
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Senate Committee on Labor and Industrial Relations
None on file.
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Senate Committee on Labor and Industrial Relations