The California Department of Insurance notified all workers’ compensation insurers writing policies in California of the changes to definitions of and procedures related to excluded employees due to the Legislature’s enactment of Assembly Bill 2883 (Assembly Insurance Committee).

Beginning January 1, 2017 all business workers’ compensation insurance policies, including in-force policies, will be required to cover, among others, certain officers and directors of private corporations and working members of partnerships and limited liability companies that may have been previously excluded from coverage.

According to the legislative analysis “current law has resulted in abuses”. One proponent of the new law provided an example where an insurer found a company trying to exclude the “vice-president of dishwashing.” In another example, a company provided coverage for all of their employees, but during the post audit conducted by the insurer, the company retroactively declared that several employees with a tiny ownership share were exempt under the corporate officer statute and demanded a premium refund. The proponents argue that AB 2883 addresses these issues by removing the uncertainty found in existing law by clearly defining what constitutes an eligible employee for a policy exclusion.

“The existing election process to opt out of coverage is not very clear. Beyond one limited statutory reference and very little regulatory guidance, insurers and LLCs are left to figure it out for themselves.The Association of California Insurance Companies (ACIC), one of the supporters of this bill, argues that this lack of clarity has led to abuses that have hurt injured workers and driven fraudulent activity.”

To resolve this abuse, the new law creates an explicit process through which an officer or member of a board of directors or working members of a partnership or LLC may elect to be excluded from a workers’ compensation policy. Specifically, AB 2283 would: permit an officer or member of the board of directors to opt out of a workers’ compensation policy if he or she owns at least 15 percent of the issued and outstanding stock of the corporation and executes a written waiver of his or her rights under this chapter stating under penalty of perjury that the person is a qualifying officer or director. Permit an individual who is a general partner of a partnership or a managing member of a limited liability company to opt out of a workers’ compensation policy if he or she executes a written waiver of his or her rights under this chapter stating under penalty of perjury that the person is a qualifying general partner or managing member.

The Commissioner met with the American Insurance Association (AIA) and Association of California Insurance Companies (ACIC), who supported AB 2883, and the Department of Industrial Relations (DIR) to discuss its implementation.

“AB 2883 is going to cause significant disruption for workers’ compensation insurers and employers. 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,” said Commissioner Dave Jones. “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. The DIR, AIA and ACIC agree that this change in law applies to in-force policies.”

Insurance companies are required to identify and provide notice to each employer that may have employees that were previously excluded from coverage and are affected by the new law. Insurers are also required to determine and report the premium and loss experience associated of those who have not chosen to opt of the coverage. Employers who believe they may be affected by this change in law are encouraged to contact their workers’ compensation insurer or their workers’ compensation agent or broker.