Home Page
postheader postheader postheader postheader postheader postheader

AB 2883 provides that all business workers’ comp insurance policies, including in-force policies, will be required to cover certain officers and directors of private corporations and working members of partnerships and limited liability companies that may have been previously excluded from coverage beginning on Jan. 1, 2017.

These provisions seem to have slipped by some insurer groups and others who watch for potentially bad legislation.

“AB 2883 is going to cause significant disruption for workers’ compensation insurers and employers,” Jones said in a statement. “We have issued a notice today to workers’ compensation insurers so that they know what the new law requires of them and we directed insurers to provide notice to employers so they are made aware of the new law. Unfortunately, AB 2883 did not include any language exempting in-force policies or delaying its effective date so as not to impact in-force policies.”

John Norwood, with lobbying firm Norwood & Associates, said not only does AB 2883 present implementation problems for insurers, it presents an errors and omissions issue for insurance agents and brokers, especially with those entities that today do not purchase a workers’ comp policy because only the owners are involved in the business.

“Literally everybody in the industry responsible for legislative issues missed the application issue relative to this bill, yours truly included in that list, and the same with all legislative and committee staff until after the governor signed the bill into law,” Norwood said. “There may be an opportunity to address the application issue early next legislative session but some coverage will be afforded to individuals with in-force policies if and until a fix-it bill can be passed through both houses of the Legislature and signed by the governor.

According to Jones, the Department of Industrial Relations, the American Insurers Association, and the Association of California Insurance Companies, all agree that this change in law applies to in-force policies.

The bill’s new language was added because some insureds were allegedly abusing the exemption process under current law by listing everyone in their organization as an officer or director to avoid purchasing workers’ comp, Norwood explained.

“AB 2883 revises the exemption language to permit only officers and directors that that own at least 15 percent of the issued and outstanding stock of the company or an individual who is a general partner or a partnership or a managing member of a limited liability company to be exempt if they execute a waiver under penalty of perjury that they meet one of these qualifications,” Norwood said. “As such, the bill now makes everyone in such organizations unless they are eligible and sign a waiver.”

Longo thinks the 15 percent-threshold will hurt some middle-market business, which is the brunt of his clientele.

“Oftentimes those are the ones hit the hardest,” Longo said.

These companies are often privately held, with one or two owners working in the business, and it’s not unheard of for the business owners to give long-time employees a small percentage in the company to keep them around and reward them for their loyalty.

Using a small meat packing company as a hypothetical example, Longo described a scenario that could significantly drive up costs.

The owners, for example, make the production manager a 5 percent owner, and he would no longer be required to be included in a workers’ comp policy.

The new law takes away that option for the production manager to exclude himself, and because he has less than 15 percent ownership, he cannot opt out.

This could prove costly, because a meat packing company would likely fall into a high class codes, Longo said.

“Say you pay him around $75,000 a year, now you have to pay $11,000 in premium,” he added.

The biggest issue with AB 2883 is that it applies to all workers’ comp insurance policies that will be in effect on or after Jan. 1, 2017, including those policies in force any time after the first of the year.

Katie Pettibone, AIA’s vice president for state affairs, said her group is working with CDI and DIR to help address this.

“Publicly the bill was supposed apply to new policies and renewals after the effective date of January 1, 2017, thus there was no opposition,” Pettibone said. “However, there was ambiguity in the drafting and it appears the bill is going to be broader than just policies written after Jan. 1 or renewals – it will be applicable to in-force policies. Stakeholders have been working with the California Department of Insurance and Department of Industrial Relations to help address this unintended effect.”

Norwood said existing provisions in policy forms from the National Council on Compensation Insurance and the State Compensation Insurance Fund apply changes in law to all policies in force on the day a bill takes effect, unless the bill itself limits application to policies new or renewed on or after the effective date of the bill.

“Generally speaking, bills that pass the legislature during the year become effective at the beginning of the next calendar year,” Norwood said.

So now, corporations, partnerships and LLCs that do not purchase workers’ comp – possibly because they consist of the owners of the organization and have no employees under current law – will be illegally uninsured on the first of the year unless the owners sign and file the appropriate waiver, according to Norwood.

by Don Jergler / Insurance Journal
Share |

No Comments

Post a Comment
Required (Not Displayed)

All comments are moderated and stripped of HTML.
Submission Validation
Change the CAPTCHA codeSpeak the CAPTCHA code
Enter the Validation Code from above.
NOTICE: This blog and website are made available by the publisher for educational and informational purposes only. It is not be used as a substitute for competent insurance, legal, or tax advice from a licensed professional in your state. By using this blog site you understand that there is no broker client relationship between you and the blog and website publisher.
Blog Archive
  • 2020
  • 2019
  • 2018
  • 2017
  • 2016
  • 2015

View Mobile Version


Mailing Address | 24307 Magic Mountain Pkwy. Suite 534 | Valencia, CA. 91355 | 213.605.1348


Powered by Insurance Website Builder