Newly adopted AB 2883 provides that all business workers’ comp insurance 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.

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.

And the Insurance Journal reports that 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 Insurance Commissioner 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.

Prior to the passage of the law, officers, directors and working partners were not required to be covered under the business’s workers’ comp policy unless they opted to be covered and were not listed on a limiting and restricting endorsement.

Going forward officers, directors and partners are required to be covered under the employer’s workers’ comp policy unless they meet a narrower definition of excluded employee. Under this narrower definition, officers, directors, and partners can only opt out of coverage by signing a waiver under penalty of perjury and filing the waiver with their employer’s insurer.

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, and they are required to report the premium and loss experience associated of those who have not chosen to opt of the coverage.

The Insurance Journal reports that Blake Longo, with Pasadena-based AJLongo Insurance Brokers, shot an email to his clients and business associates on Monday warning them of the changes. Longo said he’s already been talking to some of his clients about it. “They’re not happy about the change,” Longo said. “They don’t believe it adds any benefit to them and that it will certainly add extra costs.”

Longo said the changes will also make life tougher on brokers like him, because it will be brokers who businesses will first turn to if the new rules affect them.”You are delivering the bad news and you’re delivering the additional premium,” he said. “That does not bring smiles to people’s faces.”

According to Norwood, the bill was originally worded to be a bill authorizing a study on paperless systems for the approval of treatment requests in the workers’ comp system. However, that language was gutted and amended to address the issue of exemptions for officers and directors of corporations, partnerships and LLCs.

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.

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.”

The California Insurance Commissioner issued a decision regarding the WCIRB’s January 1, 2017 Regulatory Filing which was submitted to the California Department of Insurance (CDI) on June 28, 2016 and subject to a public comment period that ended on September 28, 2016. In the Decision, the Commissioner approved all of the WCIRB’s proposed changes effective January 1, 2017 to the California Workers’ Compensation Uniform Statistical Reporting Plan – 1995 (USRP), Miscellaneous Regulations for the Recording and Reporting of Data – 1995 (Miscellaneous Regulations), and California Workers’ Compensation Experience Rating Plan – 1995 (ERP) with one exception.

A number of clarifying changes to Classifications 5474(1)/5482(1), 5506, 6218(2)/6220(2), 5507 and 8227 were not approved due to a pending appeal before the CDI Administrative Hearing Bureau.

The proposed amendments would define first aid claims and require that they be included in insurer reporting. First aid claims have been a longstanding concern because some insurers do not report first aid claims as currently required under the USRP, which, according to the CDI, gives their policyholders an unfair advantage in the market.

The current regulations do not specifically mention first aid claims; thus, some insurers have interpreted the regulations to mean that they need not report medical payments for first aid claims. However, the USRP does not provide any exceptions that would enable insurers to refrain from reporting any medical loss, including first aid medical losses. The confusion may stem from the fact that first aid claims are treated differently than indemnity claims under the Labor Code in the workers’ compensation system. The proposed amendments clarify the existing obligations to report all claims and will enhance the WCIRB’s ability to properly account for first aid claims when determining appropriate statewide experience modifications.

The WCIRB’s planned study regarding whether to exempt a certain amount of medical loss from the reporting requirements may or may not come to fruition in 2019; thus, there is no basis to conclude that the market will benefit from delaying implementation. Also, the WCIRB’s inability to quantify the extent to which insurers underreport claims underscores the immediate need for the implementation of these amendments, which will clarify the regulations to all insurers and policyholders and foster the proper reporting of all claims, in furtherance of a fair and equitable system.

All the proposed amendments to the ERP including the WCIRB’s proposed 2017 rating values to be used in the computation of 2017 experience modifications in accordance with the variable split experience rating formula adopted by the Commissioner in 2015 to be effective January 1, 2017. The approved 2017 experience rating eligibility threshold is $10,100. (View the approved revised tables.)

The WCIRB is in the process of updating the USRP, Miscellaneous Regulations and ERP. Once complete, these documents will be posted to the Publications and Filings page of the WCIRB website. In the interim, the WCIRB has prepared the2017 Quick Reference Guide summarizing the approved changes to the Commissioner’s regulations.

The Decision pertains only to the WCIRB’s Regulatory Filing and does not include amendments to advisory pure premium rates. Changes to advisory pure premium rates were proposed in the WCIRB’s amended January 1, 2017 Pure Premium Rate Filing submitted on October 3, 2016.

A Los Angeles County Sheriff’s Deputy (identified as John Doe) and the Association for Los Angeles Deputy Sheriffs (ALADS) filed a complaint against the County of Los Angeles and other parties alleging that the defendants unlawfully accessed Doe’s medical information, and later discriminated and retaliated against him for asserting his right to keep that information confidential.

Doe has been a Sheriff’s Deputy since 1997. In 2009, he suffered a work-related injury to his back for which a physician prescribed narcotic pain medication. Doe became physically dependent on the medication. He received workers’ compensation benefits for both the back injury and his dependency. He entered a drug dependency treatment program. He completed the program successfully in June and was released to return to full time, unrestricted duty. From June 2011 until February 2012, Doe worked full time as a deputy sheriff. He had back surgery in February, then took a leave of absence until July 6, 2012.

In May 2012, while on leave, Doe filled several prescriptions he obtained from different physicians for pain medications. In August 2012, the County’s workers’ compensation administrator noticed that the number of prescriptions was “unusual” and informed the sheriff’s department about the prescriptions. When confronted Doe stated that he had decided to quit taking the medication and destroyed the remaining pills. The last time he took narcotic pain medication was in June 2012.

From August 6, 2012 until June 13, 2013, Doe worked full time without restrictions or problems. The sheriff’s department nevertheless placed him on a performance mentoring program. Doe was required to attend quarterly performance reviews and submit to drug tests. From August 2012 until June 2013, Doe provided the required information and passed all drug tests.

On December 6, 2012, someone in the sheriff’s department accessed Doe’s records within the County’s Prescription Medication Drug Database (PMDD) for the purpose of discovering the medications Doe had been prescribed. Employees of the County and the sheriff’s department reviewed the information. Doe had not authorized access or review, and did not learn of it until November 2013.

Later, five supervisors attempted to get Doe to authorize access to his prescription information, telling him that it would “save [his] job.” And three sheriff’s department officers asked him to voluntarily submit to a psychological fitness for duty evaluation. Doe declined both requests. Later he was “ordered to engage in a fitness for duty psychological re-evaluation.” The defendants were allegedly aware that Doe would be required to release this information as part of the fitness for duty evaluation.

Doe consented to the evaluation, but refused to authorize the release of his medical records. The psychologist was therefore unable to conduct the evaluation. The next day Doe was ordered to take a medical leave of absence. He complied, even though he was ready, willing, and able to perform his duties. He has been on leave of absence since that time.

Doe filed a civil complaint against the County alleged nine causes of action involving invasion of privacy and retaliation. The defendants filed a special motion to strike the complaint under Code of Civil Procedure section 425.16, commonly referred to as an anti-SLAPP motion. The trial court granted the motion, dismissed the case and awarded $10,230 in attorneys’ fees to the defendants. The Court of Appeal reversed in the unpublished case of Assn. for Los Angeles Deputy Sheriffs v. County of Los Angeles.

Resolving an anti-SLAPP motion involves a two-part inquiry. First, the defendants must make a prima facie showing that the challenged cause of action arises from activity protected by the anti-SLAPP statute. If the defendants satisfy their burden of showing that the cause of action arises from protected activity, the burden shifts to the plaintiffs to make a prima facie showing of facts demonstrating a probability of prevailing on their claim.

The Court of Appeal determined that the plaintiff’s causes of action do not arise from activity protected under the anti-SLAPP statute, the trial court erred in granting defendants’ special motion to strike the complaint and in awarding defendants’ their attorneys’ fees. The order granting the defendants’ special motion to strike the complaint and the award of attorneys’ fees were reversed and his case will proceed.

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.

The Oregon Department of Consumer and Business Services (DCBS) announced the results of its bi-annual nationwide study of the costs of workers’ compensation programs for 2016. The study findings are generally released in the fall of each even-numbered year, in summary form. A full report, including detailed data and notes on methodology, is released several months later. Oregon has been doing these studies in even-numbered years since 1986.

DCBS surveys insurance regulators and workers’ compensation rating bureaus in each of the 50 states plus Washington, D.C., for rate information, as of Jan. 1 of the study year.

The study is based on methods that put states’ workers’ compensation rates on a comparable basis, using a constant set of risk classifications for each state. This study used classification codes from the National Council on Compensation Insurance (NCCI). Of approximately 450 active classes in Oregon, 50 were selected based on relative importance as measured by share of losses in Oregon. To control for differences in industry distributions, each state’s rates were weighted by 2010-2012 Oregon payroll to obtain an average manual rate for that state. Listed in Table 1 of the study are Oregon’s rankings in the top 10 (by payroll) of the 50 classifications used.

According to the study, California once again is the worst state in the union in terms of costs. It ranks at 176% of the study median. It is a good distance away from the second highest state, New Jersey, which ranks 158% of the study median. Rounding off the worst five, third worst is New York at 154%, Connecticut is the fourth worst at at 149%, and fifth is Alaska also at 149%.

On the other end of the spectrum, North Dakota was the lowest cost at 48% of the study median, followed by Indiana at 57%, Arkansas at 58%, West Virginia at 66%, and Virginia at 67% of the study median.

Workers Compensation costs are not the only indicator of concern. California also has the distinction of being the absolute worst in other areas of importance to business.

Between 2008 and 2015 at least 9,000 companies have left California for a better business environment, according to the 378 page study by Spectrum Location Solutions titled, California’s Forty Year Legacy of Hostility to Business.

Joseph Vranich, president of site selection consultants Spectrum Location Solutions (VLS) in Irvine, places the blame on the Golden State’s “hostile” business environment.

The 2015 Chief Executive Magazine annual survey of business climates was completed by 511 CEOs across the U.S.  States were measured across three key categories to achieve their overall ranking: Taxes and regulations, quality of the workforce, and living environment, which includes such considerations as quality of education, cost of living, affordable housing, social amenities and crime rates.

For the 11th year in a row, Chief Executive Magazine found California to be the “worst state for business in 2015.” This placement is not “near the worst” but actually “THE WORST” ranked as 50 out of 50, the lowest rank possible for each of 11 years. CEO’s comments include: “California could hardly do more to discourage business if that was the goal.” “The state regulates and taxes companies unreasonably.” “California is getting worse, if that is even possible.”

Well, yes that is possible. Yet another national study continues to place California at the absolute bottom in the eyes of business officials.