BILL ANALYSIS �
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|SENATE RULES COMMITTEE | SB 684|
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THIRD READING
Bill No: SB 684
Author: Corbett (D)
Amended: 3/25/11
Vote: 21
SENATE JUDICIARY COMMITTEE : 3-2, 4/5/11
AYES: Evans, Corbett, Leno
NOES: Harman, Blakeslee
SENATE APPROPRIATIONS COMMITTEE : Senate Rule 28.8
SUBJECT : Workers compensation insurance: dispute
resolution:
arbitration clauses
SOURCE : Department of Insurance
DIGEST : This bill (1) regulates agreements concerning
dispute resolution, other than settlement agreements
resolving particular disputes, made between an employer,
whose principal place of business is in California, and a
workers' compensation insurer by requiring choice of law
and forum selection provisions providing for California
law, (2) allows employers and workers' compensation
insurers to negotiate and expressly agree to another
state's choice of forum selection provisions prior to the
inception of the insurance policy, (3) in the event that a
dispute must be resolved by a California state agency,
exempts from enforcement any alternative dispute resolution
between the workers' compensation insurer and employer, (4)
CONTINUED
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requires dispute resolution agreements to be provided in
writing by the workers' compensation insurer to the
employer contemporaneously with any written insurance
quote, and (5) requires dispute resolution agreements to be
submitted to the rating organization as part of the policy
form or endorsement.
ANALYSIS : Existing law requires employers to maintain
workers' compensation insurance. (Labor Code Section 3700)
Existing law requires that a workers' compensation
insurance policy or endorsement proposed to be issued in
California must be filed with the insurance rating
organization; the policy cannot be issued until either 30
days from receipt of the policy or endorsement by the
ratings organization and no notice has been issued by the
insurance commissioner or upon written approval of the form
or endorsement issued by the Insurance Commissioner.
(Insurance Code Section 11658)
Existing law provides that a limited workers' compensation
policy may be issued insuring either in the whole or any
part of the liability of any employer for compensation, as
long as the policy is previously approved as to substance
and form by the Insurance Commissioner; subject to these
restrictions, the policy can restrict or limit the
insurance in any manner. (Insurance Code Section 11657)
Existing law provides that a limited insurance policy
cannot otherwise be limited unless an endorsement is
attached in a form prescribed by the Insurance Commissioner
or in accordance with rules adopted by the Insurance
Commissioner. (Insurance Code Section 11659)
This bill requires, as between an employer whose principal
place of business is in California and a worker's
compensation insurer, any agreement concerning dispute
resolution, other than settlement agreements, to conform to
the following:
Be filed with the insurance rating organization and
subject to approval by the Insurance Commissioner and be
disclosed in writing to the employer at the same time as
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the written insurance quote;
Contain a choice of law provision that identifies
California as the law to be used to resolve any disputes
that arise in California; and
Contain a forum selection clause identifying California
as the proper venue for any proceeding regarding a
dispute that arises in California.
This bill allows the employer and workers' compensation
insurance company to negotiate for another state's choice
of forum clauses prior to the inception of the policy.
This bill prohibits an alternative dispute resolution
agreement regarding the resolution of any dispute for which
authority to resolve the dispute has been granted to a
California state agency.
This bill declares dispute resolution agreements not in
conformity with the provisions of this bill to be void and
unenforceable.
Prior legislation . This bill is substantially similar to
AB 2490 (Jones) which passed the Senate (23-13) on August
30, 2010, but was vetoed by the Governor. In his veto
message, Governor Schwarzenegger stated:
"This bill is unnecessary because there is no evidence to
demonstrate that a problem exists. In my view, the bill
risks reducing the competitive market for workers'
compensation California now enjoys due to our reforms.
The broad language in the bill leaves open the potential
for costly regulatory interpretation that will impact the
cost of workers' compensation insurance. The high
deductible contract negotiations the bill seeks to impact
are conducted by sophisticated participants on both sides
of the table that are well versed in all aspects of
workers' compensation and other insurance products.
Therefore, I am not convinced the issue addressed by the
bill will result in keeping workers' compensation costs
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down which is the most significant concern to California
employers."
FISCAL EFFECT : Appropriation: No Fiscal Com.: Yes
Local: No
SUPPORT : (Verified 5/3/11)
Department of Insurance (source)
AO Reed and Company
California Applicant Attorneys Association
Ceradyne, Inc.
Pacific Hospital of Long Beach
Roxborough, Pomerance, Nye and Adreani
OPPOSITION : (Verified 5/3/11)
American Insurance Association
Association of California Insurance Companies
California Chamber of Commerce
Civil Justice Association of California
ARGUMENTS IN SUPPORT : According to the author's office,
"Despite the requirement that workers' compensation
policies be filed with the Insurance Commissioner, some
workers' compensation carriers issue unapproved side
agreements, separate from their policies which require
arbitration of disputes �to] occur in a state outside of
California. As a result, the laws of another state apply
in the arbitration proceedings involving a California
employer whose employee was injured in a work-related
incident in California.
"This can be a major hardship for California employers,
especially small businesses without the resources to
travel outside the state, or without offices located in
the state where the arbitration takes place. This
practice has become a major problem for businesses and a
financial burden."
The Department of Insurance, the bill's sponsor, writes:
"This bill should save businesses precious dollars as
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they will no longer be forced out of state to arbitrate
without their foreknowledge. Requiring insurers to
inform businesses and receive their consent to arbitrate
out of state should not result in any additional costs.
"This bill is designed to ensure that businesses are
protected as we face an uncertain economy. Insurance
practices that do not conform to state law must be
discouraged. This bill aims to address these issues."
ARGUMENTS IN OPPOSITION : The California Chamber of
Commerce states:
"As introduced, the bill was identical to the final
version of AB 2490 (Jones) from last year, which we
believe struck the appropriate balance between protecting
California employers from unfair contract terms and
preserving their right to freely negotiate the terms of
their contracts. The current version of SB 684, however,
eliminates the right of these parties to negotiate the
choice of law that will govern their contracts, and as
such, we believe it goes too far.
"SB 684 provides a number of protections for California
employers that make this latest amendment unnecessary.
First, it requires that agreements between a California
employer and its worker's compensation carrier must be
filed with the rating organization, such that the terms
will be reviewed for fairness by a third party. Second,
any terms related to arbitration or other means of
resolving disputes must be presented to an employer in
writing and contemporaneously with any written quote,
eliminating the scenario where an arbitration provision
is introduced unknowingly to an employer months after it
has begun working with the insurance carrier and has lost
much of its bargaining strength. Third, it establishes a
default, wherein the choice of law and choice of forum
that automatically apply will be California's, unless the
parties freely negotiate and expressly agree otherwise.
"Given these ample protections, it is unclear what
additional benefit employers will receive from the recent
amendment eliminating their right to negotiate a
different choice of law provision in exchange for some
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other benefit. Instead, it appears to only take away
their right to negotiate a term to a contract that they
have been made aware of in writing at the outset of the
negotiations, when they are free to walk away and seek a
better deal.
"The contracts governed by SB 684 do not directly involve
the rights of California employees, and as such, there is
no clear public policy basis for disallowing the
contracting parties to negotiate a choice of law
provision. Disputes involving California employees will
continue to be governed by California law, but there are
many legitimate reasons a California employer might agree
to a different choice of law besides
California's. We believe the parties to the contract,
and not the legislature, are in the best position to make
such a determination."
RJG:mw 5/3/11 Senate Floor Analyses
SUPPORT/OPPOSITION: SEE ABOVE
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