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Bill To Exempt Executives & Professional Corporation Principals From Workers' Comp Sent To Governor

SACRAMENTO, CA, Sept. 14, 2017 -- The California Legislature has unanimously approved SB 189, a bill intended to “clean-up” problems caused by last year’s AB 2883, which changed the requirements for “owners” of businesses to exempt themselves from workers’ compensation requirements.

If signed into law by Governor Jerry Brown, SB 189 would take effect on July 1, 2018.  The bill would require business owners to sign an affidavit certifying their eligibility for exemption from comp requirements, and would also expand the number of individuals who would potentially qualify for exemption.

California law has long permitted business owners to exempt themselves from workers’ comp.  Last year, in response to concerns that some corporations were exploiting ambiguities to exempt large numbers of employees, AB 2883 made what were originally intended to be minor changes to establish minimum corporate ownership percentages, and establish comparable limits in partnerships and limited liability companies.  The bill also required any person seeking to exempt themselves to execute a written waiver of his or her rights, stating under penalty of perjury that they were qualified for the exemption.

Most laws apply only prospectively, which for insurance purposes means they apply only to policies newly issued or renewed after the effective date of the change in law.  But because of a drafting error in AB 2883, it applied to all workers’ comp policies in effect on 1/1/17—which has proven to be hugely problematic for employers, broker-agents and insurers.

For a variety of political, legal and practical reasons, it was never feasible to simply repeal AB 2883 retroactively.

Instead, SB 189 makes a number of changes in the ownership thresholds that will allow a larger segment of owners to be eligible to file an affidavit to be exempt. This is especially true of professional corporations, where no ownership threshold applies but there is a requirement that such corporations maintain health insurance on the owners.

In addition, the bill would require a signed affidavit of policyholders seeking exemption.

IIABCal Legislative Advocate John Norwood, who was a key contributor in industry efforts to solve problems caused by AB 2883, says SB 189 is far from perfect or even ideal, but believes it is a step in the right direction for broker-agents and their policyholders.

“There was no completely soft landing possible in cleaning up AB 2883,” he said, “but SB 189 should help employers going forward by expanding the individuals who qualify for an exemption, and we have greatly limited the duty broker-agents might otherwise have to assume to verify employers’ statements.  

"We added provisions to SB 189 that provide that if an owner signs an exemption affidavit there will be a conclusive presumption that he or she is not covered by workers' compensation insurance," he said.

"Additionally, we added language that states that an agent or broker is not required to investigate, verify or confirm the accuracy of the facts contained in the wavier to alleviate producers from having to track expiration dates of health insurance policies or confirm percentage of ownership. 

"As such, business owners should be advised to carefully consider their actions with considering filing a wavier affidavit as they will be subject to a conclusive presumption that they are not insured," he said. 

The bill—which was unanimously approved by the Assembly this week, and was previously also approved in the Senate with no votes in opposition—goes to Gov. Brown’s desk with a July 1, 2018 effective date. It will not apply to policies in force on that day, but only policies newly written or renewed after July 1, 2018. 

SB 189’s expanded exemptions will be a cost-saver for most clients, but will create additional transitional work for insurers and producers, Norwood said.

“The process to create or change legislation in Sacramento is not an easy one,” IIABCal President Dave Nelson said. “Negotiation and compromise permeate the landscape."  

“While the results of SB 189 may not be exactly what we want, being part of the conversations and negotiations regarding the impact the legislation has on agents, brokers and their clients is critical, whatever the final outcome.”

To view the official summary of the legislation, as well as the text of the bill, click here.

Comments

Jerry D. Dunn, ARM says: Thursday, January 18, 2018 3:37 PM
I have a conflict with Employers Ins. They sent AB2883 forms to a client in December whose policy renews in July without explanation of the law. They did not send them Return Receipt so they have no proof clients received them nor did they send emails to insured's letting them know they were received..

One of my clients said they did return the form to Employers, but had no record of where or when they sent it. Since Employers does not have it in their file, they are charging the owners; a small mom and pop auto repair business. The business is a corporation and the owners did sign an exclusion form when they originally started doing business with Employers in 2015.

My feeling is since the insured had an existing contract with Employers that excluded the officers, Employers should have sent a follow up message to the clients if they did not have them as well as sending an endorsement changing the existing policy. The policy is a legal contract and even though the law changed on 1/1/17, the insurance carrier still should have sent an endorsement. At least then, the insured would have known Employers never received the AB2883 form.

This probably happened to many insureds whose policies renewed mid-term. Any help you can provide to expose this flaw would be appreciated. (916) 704-9678

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