SACRAMENTO, CA, Sept. 22, 2016 — A bill signed into law that will go into effect Jan. 1, may create a near impossible task for California independent agents with large books of Workers’ comp business.

AB 2883 was designed to target situations where some businesses have been claiming excessive number of employees as officers in order to get around insuring them for workers’ comp.  

The bill would revise allowable exemptions from the definition of an employee to only apply to an officer or member of the board of directors, if he or she:

• Owns at least 15% of the issued and outstanding stock of the corporation,
• Or an individual who is a general partner of a partnership or a managing member of a limited liability company, and that person elects to be excluded by executing a written waiver of his or her rights under the laws governing workers’ compensation, stating under penalty of perjury that he or she is a qualifying officer or director, or a qualifying general partner or managing member, as applicable.

“The problem stems from the fact that it now appears that this bill applies to all workers’ comp insurance policies that are in effect on or after Jan. 1, 2017, not just workers’ comp policies that are issued or renewed on or after Jan. 1, 2017, which would normally be the case,” IIABCal Lobbyist John Norwood said.

“Unless stated otherwise, bills passed during the legislative session become effective on the first day of the following year and are not retroactive. In most cases workers’ compensation bills generally state that they only apply to policies on or after the effective date of the bill,” he said.

“However, in this case, no such language was included,” Norwood said. “And, what makes this different than other legislation, is that there are provisions contained in standard form WC policies (NCCI) and in the SCIF form that define the Workers’ Compensation Law applicable under the policy to be the WC laws of the State of California which include any amendments to the law which are in effect during the policy period.

“Both policy forms also include the Statutory Provision that states that terms of this insurance that conflict with the workers’ compensation insurance law in effect during the policy period are changed to conform to that law. 

“The facts of this case now turn something that should have been manageable for insurers, agents and brokers into something more akin to a nightmare,” he said. “In order for a business to retain an existing exemption, insurers and producers will have to obtain a signed waiver under penalty of perjury before Jan. 1, 2017 from all accounts that will be in effect on or after Jan. 1, 2017, even if the policy is in mid-term.”

Norwood said that IIABCal and other insurance industry organizations are doing additional research on the bill to determine whether a more limited application cannot be supported.

 Source: Independent Insurance Agents and Brokers of California