BILL ANALYSIS �
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|SENATE RULES COMMITTEE | SB 684|
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UNFINISHED BUSINESS
Bill No: SB 684
Author: Corbett (D)
Amended: 8/22/11
Vote: 21
SENATE JUDICIARY COMMITTEE : 3-2, 4/5/11
AYES: Evans, Corbett, Leno
NOES: Harman, Blakeslee
SENATE APPROPRIATIONS COMMITTEE : Senate Rule 28.8
SENATE FLOOR : 23-13, 5/16/11
AYES: Alquist, Calderon, Corbett, De Le�n, DeSaulnier,
Evans, Hancock, Hernandez, Kehoe, Leno, Lieu, Liu,
Lowenthal, Negrete McLeod, Padilla, Pavley, Price, Rubio,
Simitian, Steinberg, Wolk, Wright, Yee
NOES: Anderson, Berryhill, Blakeslee, Cannella, Correa,
Dutton, Emmerson, Fuller, Gaines, Harman, Huff, La Malfa,
Runner
NO VOTE RECORDED: Strickland, Vargas, Walters, Wyland
ASSEMBLY FLOOR : 75-4, 8/31/11 - See last page for vote
SUBJECT : Workers compensation insurance: dispute
resolution:
arbitration clauses
SOURCE : Department of Insurance
DIGEST : This bill requires an insurer that intends to
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use a dispute resolution or arbitration agreement to
resolve disputes arising in California out of a workers'
compensation insurance policy or endorsement issued to a
California employer, as defined, to disclose to the
employer, contemporaneously with any written quote that
offers to provide insurance coverage, that choice of law
and choice of venue or forum may be a jurisdiction other
than California and that these terms are negotiable between
the insurer and the employer. This bill requires that the
employer sign the disclosure, as evidence of receipt, when
the employer accepts the offer of coverage. This bill
authorizes the dispute resolution or arbitration agreement
to be negotiated before any dispute arises. These
provisions will apply to workers' compensation policies
issued or renewed on or after July 1, 2012.
Assembly Amendments recast the bill to (1) provide
guidelines to be followed in dispute resolutions and
disclosure requirements, (2) authorize the dispute
resolution or arbitration agreement to be negotiated before
any dispute arises, and (3) add a July 1, 2012 effective
date.
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)
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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 an insurer that intends to use a dispute
resolution or arbitration agreement to resolve disputes
arising in California out of a workers' compensation
insurance policy or endorsement issued to a California
employer to disclose to the employer, contemporaneously
with any written quote that offers to provide insurance
coverage, that choice of law and choice of venue or forum
may be a jurisdiction other than California and that these
terms are negotiable between the insurer and the employer.
The disclosure must be signed by the employer as evidence
of receipt where the employer accepts the offer of coverage
from that insurer.
This bill provides that after compliance with the above
provision, a dispute resolution or arbitration agreement
may be negotiated by the insurer and the employer before
any dispute arises.
This bill provides that nothing in this bill is intended to
interfere with any authority granted to the Insurance
Commissioner under current law.
This bill provides that failure by the insurer to observe
the requirements of this bill will result in a default to
California as the choice of law and forum for resolution of
disputes arising in California.
This bill provides that for purposes of this bill, a
"California employer" means an employer whose principal
place of business is in California and whose California
payroll constitutes the majority of the employer's payroll
for purposes of determining premium under the policy.
This bill provides that this section shall apply to
workers' compensation policies issued or renewed on or
after July 1, 2012.
Prior legislation . This bill is substantially similar to
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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
down which is the most significant concern to California
employers."
FISCAL EFFECT : Appropriation: No Fiscal Com.: Yes
Local: No
SUPPORT : (Verified 8/31/11)
Department of Insurance (source)
AO Reed and Company
California Applicant Attorneys Association
Ceradyne, Inc.
Congress of California Seniors
Liberty Mutual Insurance Co.
Pacific Hospital of Long Beach
Roxborough, Pomerance, Nye and Adreani
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
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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
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."
ASSEMBLY FLOOR : 75-4, 8/31/11
AYES: Achadjian, Alejo, Allen, Ammiano, Atkins, Beall,
Bill Berryhill, Block, Blumenfield, Bonilla, Bradford,
Brownley, Buchanan, Butler, Charles Calderon, Campos,
Carter, Cedillo, Chesbro, Conway, Cook, Davis, Dickinson,
Eng, Feuer, Fletcher, Fong, Fuentes, Furutani, Beth
Gaines, Galgiani, Garrick, Gatto, Gordon, Hagman,
Halderman, Hall, Harkey, Hayashi, Roger Hern�ndez, Hill,
Huber, Hueso, Huffman, Jeffries, Jones, Lara, Bonnie
Lowenthal, Ma, Mansoor, Mendoza, Miller, Mitchell,
Monning, Morrell, Nestande, Nielsen, Norby, Olsen, Pan,
Perea, V. Manuel P�rez, Portantino, Silva, Skinner,
Smyth, Solorio, Swanson, Torres, Valadao, Wagner,
Wieckowski, Williams, Yamada, John A. P�rez
NOES: Donnelly, Grove, Knight, Logue
NO VOTE RECORDED: Gorell
RJG:mw 8/31/11 Senate Floor Analyses
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SUPPORT/OPPOSITION: SEE ABOVE
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