Insurers Again Battled Many California Bills, but a Fight Last Year Was Biggest Recent Victory

The election is nearly here, and while it’s been quite a year all around, things could have been worse for the insurance industry.

When the year started, insurance industry lobbyists were facing a big battle, and not just COVID-19.

As 2020 unfolded, the industry was facing at least 20 bills related to insurance. And they weren’t all bills set up to help the insurance industry.

Thanks to some good communications with lawmakers and lobbying, five of them made it to the governor for signature, and one was vetoed.

“I think it’s really a complement to the industry and the lobbying effort of all the associations and the companies to get that kind of thing done,” said long time industry lobbyist John Norwood, of Norwood and Associates. “The 20 bills turned into five bills.”

The insurance industry has close to 40 government relations and lobbyists representing its interests in Sacramento.

Norwood described the mix of those lobbyists in the insurance industry as including: the life and health industry, workers’ compensation and commercial insurance, excess market and non-admitted insurers, personal lines insurance companies, and agents and broker organizations for these lines of insurance.

Various bills introduced were relative to wildfires in the last three years, more than 40 bills in total, and those included challenges relating to utility company liability for wildfire damages, and other bills both supported and opposed by the industry.

In 2020, COVID-19 legislation that came about in states relative to business interruption insurance and workers’ comp presumptions took off, and legal actions ensued.

A federal judge in October ruled that State Farm Fire and Casualty Co. do not have to return premiums to a small business customer because of the insured’s reduced business during the pandemic, and a judge in Durham County, N.C., handed down what may be the nation’s first dispositive ruling in favor of policyholders in a COVID-19 business-interruption lawsuit.

During the year, most industries spend time and effort fighting Legislation they think will harm them, while the insurance industry in California spends a lot of money and a great deal of effort to lobby the Legislature and administrative agencies.

These lobbyists also spend time dealing with changes in the law. One such effort was undertaken to change what some feel is a bad law is on the California ballot next week. Proposition 22, known as “Exempts App-Based Transportation and Delivery Companies from Providing Employee Benefits to Certain Drivers,” amends a law created by Assembly Bill 5, a 2019 statute that expands a landmark Supreme Court of California case, Dynamex Operations West, Inc. v. Superior Court.

That law threw a major wrench into the plans of operators in California’s gig economy, notably rideshare giants like Uber and Lyft, but requiring these companies to treat them like employees.

Back before this all happened, the insurance industry, which relies on contract workers, moved to carve out exemptions before AB 5 could be written into law, otherwise the insurance industry may be fretting over the results of Prop. 22 right now

That effort was spearheaded by Norwood.

At the time, the California Supreme Court decision in 2018 in Dynamex case had established the presumption in California Labor Law that those working for a hiring entity are presumed to be an employee for the purpose of wage, hour, and working conditions. That decision established the ABC Test as the only manner in which this presumption can be contested.

Under the ABC test, a worker is considered an employee and not an independent contractor, unless the hiring entity satisfies all three of the following conditions:

• The worker is free from the control and direction of the hiring entity in connection with the performance of the work, both under the contract for the performance of the work and in fact;
• The worker performs work that is outside the usual course of the hiring entity’s business; and
• The worker is customarily engaged in an independently established trade, occupation, or business of the same nature as that involved in the work performed.

The ABC Test would have affected agents and brokers for direct writers insurers who used contract services as their producers in the health, life, and property/casualty industry; exclusive agency companies like all of the large personal lines and life insurance companies; independent agency and brokerage companies and the excess and surplus lines marketplace.

A group of inspection companies came together and formed the Field Services Alliance of California, and retained Norwood and his firm to lobby to expand the insurance agent and broker exemption to include those providing underwriting inspections, premium audits, risk management, or loss control work for the insurance and financial service industries.

As Norwood explains, these are important services to property/casualty and workers’ comp insurers, and are generally performed by independent contractors due because the insured risks are located throughout the state, and no insurers dominate the market share in these lines of insurance.

At this point in the Dynamex debate, many other professional and service providers, particularly in the entertainment and media business, undertook similar efforts to carve out an exception to the ABC Test.

According to Norwood, more than 30 bills were introduced with various exemption provisions.

But instead of introducing a separate bill, Norwood decided to work with the author and sponsors of the 2020 version of AB 5, Assembly Bill 1850, to include exemptions for the insurance inspection companies.

AB 1850 eventually morphed into AB 2257, and the final version included the exclusions for the insurance inspection companies, and was signed by the governor.

“It’s given our industry back some of the ability to have independent contractors as agents and brokers as well as the field services people,” Norwood said.

Topics California Carriers Legislation Agencies Workers' Compensation Talent Market