SACRAMENTO, CA, Oct. 20, 2016 —The California Department of Insurance issued a public notice this week confirming its agreement with industry experts that AB 2883—which affects how business owners exempt themselves from workers’ compensation requirements, and which owners are eligible for exemption—applies to all comp policies in force on next Jan. 1, and providing a new sample form for that exemption to be claimed.
The bill revises the California Labor Code to allow exemptions from w/c requirements for an officer or director only if he/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 if that person elected to be excluded by executing 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. When AB 2883 takes effect on Jan. 1, however, it will apply to all workers’ compensation policies—even those already in effect—because of a drafting error that no one caught before the bill was passed and signed into law.
In a meeting on Oct. 7 with leading workers’ compensation insurance stakeholders, including IIABCal representatives, California Insurance Commissioner Dave Jones and top deputies discussed both the problems caused by retroactive application of the bill, as well as possible solutions. The CDI notice, and the sample waiver form, are one result of that meeting.
Several, but not all, insurers have suggested they would be willing to effectively waive whatever additional premium AB 2883 would require, in cases where an opt-out waiver was not obtained, pay premium tax on the amount of the waived premium, and then write off those amounts as an underwriting loss. However, the Insurance Commissioner appears to have no legal authority to require, or even permit, insurers not to collect premium otherwise due.
The Commissioner’s lawyers have indicated they might simply state that enforcement of AB 2883—in what would presumably be a matter of a few weeks between its effective date on Jan. 1, and the implementation of a possible clean-up bill—would constitute “a low enforcement priority” of the Department, in an effort to signal its intention without overtly violating its own statutory obligations. However, some insurers have insisted CDI must order all insurers to collect the additional premium.
Download the explanatory memorandum IIABCal sent its members earlier this week.
Download the CDI bulletin, issued Oct. 17th, and the new sample waiver form.
Download the complete text of AB 2883.