Balfour Beatty Construction, LLC was hired by a local school district to construct a two-story classroom building at an elementary school. In June 2017, Balfour Beatty hired ABI as a subcontractor to perform concrete, framing, and structural steel work on the project and agreed to pay ABI over $700,000 for its work.

When ABI began its work on the project in August 2017, it had a workers’ compensation insurance policy issued through State Compensation Insurance Fund. In December 2017, State Fund sent ABI a notice of cancellation, informing ABI that its 2017 2018 workers’ compensation policy would be canceled in January 2018 if ABI did not pay approximately $33,000 in outstanding premiums. ABI received the notice, but failed to pay, and its policy was canceled. ABI refused to pay outstanding insurance premiums charged on a prior policy, since ABI believed (correctly as it turns out) it was being overcharged

As a result of the policy cancellation, ABI’s contractor’s license was suspended by operation of law on January 25, 2018, due to ABI’s “failure . . . to . . . maintain workers’ compensation insurance coverage.” (Bus. & Prof. Code, §7125.2.) The Contractors’ State License Board gave ABI notice of the license suspension on January 29 and informed ABI that its contractor’s license would be suspended if ABI failed to submit a valid insurance certificate or exemption certificate within 45 days. (See § 7125.2, subd. (b) [requiring registrar to give notice of license suspension].) ABI did neither. In mid-March, the Board sent ABI a letter notifying ABI that its license had been retroactively suspended effective January 25 under section 7125.2.

Mr. Vo, ABI’s principal,filed an “Exemption from Workers Compensation” form with the Board in early April 2018, declaring under penalty of perjury that ABI does not need workers’ compensation insurance because it does “not employ anyone.” This was false. As Vo later admitted at trial, ABI had at least nine employees working on the project at the time. Vo nonetheless decided to falsely claim the exemption because ABI was heavily invested in the project and he did not want to lose money. Upon receipt of the exemption form, the Board reinstated ABI’s license effective April 5, 2018.

As for the construction project, Balfour Beatty refused to pay ABI for its work. Accordingly, in May 2019, ABI sued Balfour Beatty and several construction bonding surety companies for fraud, breach of contract, quantum meruit, recovery against bonds, and statutory penalties. Balfour Beatty cross-complained against ABI and Vo for fraud, express indemnity, and equitable indemnity. Balfour Beatty also asserted as its 31st affirmative defense that ABI “was not properly licensed at all times as required by Business and Professions Code section 7031,” and as a result “is barred from recovering payment for any labor, materials or equipment furnished to the project.”

Several years into that litigation, ABI settled its old premium dispute with its workers’ compensation insurer and had the canceled policy retroactively reinstated as part of the settlement. ABI then applied to the Contractors’ State License Board for retroactive reinstatement of its contractor’s license, asserting that ABI’s failure to file a certificate of workers’ compensation coverage had been “due to circumstances beyond [its] control,” in that the policy had been canceled “unbeknownst to” ABI. The Board accepted ABI’s representation and retroactively reinstated its contractor’s license under Bus. & Prof. Code, § 7125.1.

In November 2022, the trial court held a bench trial on the bifurcated issue of Defendants’ 31st affirmative defense – ABI’s failure to be duly licensed. During trial, State Fund’s underwriting manager admitted that State Fund had overcharged ABI for premiums, that State Fund generally does not cancel a policy for nonpayment of a bill until the dispute over the bill is resolved, that State Fund should not have canceled ABI’s 2017-2018 policy, and that ABI’s license suspension occurred because of the way State Fund handled the dispute.

The trial court found in favor of Defendants on the 31st affirmative defense, concluding ABI was “not ‘a duly licensed contractor at all times during the performance’ of the contract” and therefore “may not ‘bring or maintain’ this action ‘or recover’ compensation for its work.” Defendants filed a motion for attorney fees under Civil Code section 1717 and the subcontract’s prevailing party fee provision, and also filed motions to tax costs. After granting the motions in part, the trial court entered an amended judgment in favor of Defendants and against ABI, which included an award of over $270,000 in costs and over $1.55 million in attorney fees to Defendants.

The Court of Appeal affirmed in the published case of American Building Innovations v. Balfour Beatty Construction -G062471 (Sept 2024).

This appeal involves the interplay of several statutes and what circumstances are “beyond the control of the licensee” for purposes of retroactive license reinstatement. In this case ABI was fully aware it was unlicensed and uninsured, and nevertheless continued its work.

The Court of Appeal concluded section 7031 does indeed bar ABI’s current claims. A suspended contractor’s license can be retroactively reinstated under Bus. & Prof. Code, § 7125.1 only if “the failure to have a certificate on file was due to circumstances beyond the control of the licensee.” (Id., subd. (b).)

In this case, the lapse in coverage was not beyond ABI’s control. The record “demonstrates the policy cancellation occurred because ABI chose not to pay billed insurance premiums. ABI learned of the policy cancellation days after it took effect, yet ABI did not procure replacement coverage until years later when it settled the premium dispute with its insurer”.

“The insurer’s retroactive reinstatement of the policy following that settlement was essentially meaningless because it occurred long after the statute of limitations ran on any workers’ compensation claims, rendering the coverage illusory.”

“As the prevailing party in that action, Defendants are entitled to attorney fees; the fee award must therefore be affirmed.”