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Legislative Advocacy

No Soft Landing For Cleanup Bill

As reported last week, SB 189 is working its way through the final days of the legislature. Of course this is the bill to clean up AB 2883 from last year which changed the rules for those owners of businesses that wanted to exempt themselves from workers' compensation insurance.

Producers would prefer AB 2883 just be repealed retroactively. That's not going to happen. The principal change from last year, requirement of a signed affidavit, is a legitimate fraud fighter and there is no support to change that part of the statute.

SB 189, as reported here last week, 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 especially true of professional corporations, where no ownership threshold applies but there is a requirement that the PC maintain health insurance on the owners.

The major question now is the effective date of the bill and how it will or will not apply to in force policies. There is a split amongst insurers re the time insurers need to implement the SB 189 changes. Some prefer a January 1, 2017 effective date, while other support a July 1, 2017 effective date. The likelihood is that the lowest common denominator is the later date, July 2017.

Then there is the issue of whether the bill should apply to in force policies. The big problem with the bill last year, AB 2883, was that it applied to in force policies when that was not the intent of the sponsors or expected by anyone. However, in that circumstance, the change in law cost customers money due to added coverage for those previously exempt. SB 189, on the other hand, will save most clients money from its expanded exemptions. However, there appears to be little support to apply SB 189 to in force policies.

Whatever the final result relative of the application of the bill, SB 189 is going to require additional work from producers. For those businesses that have a renewal date before the effective date of the bill, it is possible that they may be best served by canceling their policy on July 1, and paying the short rate penalty to take advantage of the ability to increase the number of exemptions and save premium. Insurers will likely figure this out and take steps to respond to their insurers, whether or not the bill applies to in force policies. If the bill does apply to in force policies, producers would still have to collect new affidavits for those owners meeting the lower ownership threshold or where health insurance is required.

We have 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. Additionally we have 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 when considering filing a waiver affidavit as they will be subject to a conclusive presumption that they are not insured.

Bottom line is that there will be no soft landing in terms of cleaning up AB 2883.

John Norwood
IIABCal Lobbyist



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