Tag Archives: california

Epic Policy Failure on Contractors

“The rest, in swarms, will overrun the boat deck

They’ll lose all sense of right and wrong

It will be every man for himself, all right!

The weak thrown in with the strong!”

Titanic, A New Musical (1997)

On April 30, 2018, the California Supreme Court issued its opinion in Dynamex Operations West, Inc. v. Superior Court (2018), 4 Cal. 5th 903. The court filled a void, in its view, of how to determine whether someone was an employee subject to wage orders of the Industrial Accident Commission.

Even before the ink fully dried on this monumental opinion, the California legislature sprang into action. Assembly Bill 5 (Gonzalez) was introduced on Dec. 3, 2018, to codify this new rule of law and to expand its “ABC test” to unemployment and workers’ compensation. From that effort then sprang a comical – or tragic, depending on your point of view – effort by a multitude of businesses to gain a reprieve from the ABC test, which was adopted by the court without legislative blessing, or even at the urging of the parties in the litigation, in an effort to curb the abuses of misclassification of workers as independent contractors.

AB 5 granted various forms of absolution to a multitude of businesses. Some achieved an appropriate complete exemption from the now-codified ABC test. Others are now compelled to go through various requirements to achieve dispensation, some requirements either being hopelessly ambiguous or impossible (or meaningless) to comply with. Still others were left outside the cathedral doors (also known as the Capitol in Sacramento) in hopes that their petitions for relief would be heard.

The ABC test as codified and amplified by AB 5, now Labor Code § 2750.3, is a complicated set of outright exemptions, quasi-exemptions and – as was seen with the case of various freelance artists and writers – exemptions that were illusory in the face of the reality of such work. The freelancers began an aggressive campaign last fall to get the law changed in 2020. In some respects, their efforts are succeeding.  

When the legislature returned in 2020, there were dozens of bills introduced to delay, modify or outright repeal AB 5. Most were by Republican authors, and most were never heard in policy committees: the Assembly Labor and Employment Committee or the Senate Labor, Public Employment and Retirement Committee. Today, changes to AB 5 will have to come from two bills by the same author, Assemblymember Lorena Gonzalez (D- Dan Diego), who is also the author of AB 5. The first bill is Assembly Bill 1850 (Gonzalez), the second Assembly Bill 2257 (Gonzalez). Both bills are moving in the legislative process. AB 2257 specifically deals with the issues raised by freelancers. According to the analysis in the Assembly Labor and Employment Committee, California Freelance Writers United supports the measure, as do many others in the art, music and content-creation industries who use freelance workers. And, per the analysis by the Assembly Labor and Employment Committee, Assemblymember Gonzalez intends to add an urgency clause to AB 2257, meaning that it would become effective on signature by the governor and not upon Jan. 1, 2021. And so, freelancers achieved their objective.

AB 1850 includes the same language as AB 2257, at least for the moment. It also contains much more. This includes rewriting and reorganizing Labor Code § 2750.3 and adding still more exemptions from the ABC test. 

As proposed in AB 1850, there are nearly 50 occupations or business relationships that are not subject to the ABC test in Labor Code § 2750.3. Some of these exemptions are based on occupations, some on occupations provided that certain criteria are met and some on business-to-business or referral agency relationships. Many of these exemptions will require a careful analysis by a business if they are to be sure of passing muster with the labor commissioner, the Employment Development Department (EDD) and workers’ compensation insurance company premium auditors. The exemptions, in one form or another, maintain the venerable multi-factor test in S. G. Borello & Sons, Inc. v. Department of Industrial Relations (1989) 48 Cal.3d 341 or, in the case of occupations where the legislature augmented this standard, what is now called “Borello +.”  

See also: How to Lead and Collaborate in Claims  

The business-to-business exemption remains inscrutable and should particularly cause persons involved in a franchise relationship great concern even as the applicability of Dynamex to franchises remains the subject of significant litigation. The problem remains that, while the relationship between a worker and a business service provider is governed by the ABC test, the statutory language in Labor Code § 2750.3 refers to the degree of control of the contracting business over the business service provider and not the employees of the business service provider. This seemingly obvious distinction was not clarified by the Sept. 13, 2019, letter from Assemblymember Gonzalez to the Assembly clerk trying to explain on the one hand whether a business service provider was an employee of the contracting business while also stating that nothing in AB 5 was intended to change the laws relating to joint employment.

The claimed abuses of application-based drivers and service providers have frequently been cited as the raison d’être for AB 5. There is a battle in the California courts over the classification status of workers in the digital marketplace. Most recently, on May 5, 2020, in People of the State of California v. Uber Technologies, San Francisco County Superior Court No. CGC20584402, California Attorney General Javier Becerra and several city attorneys stated:

“But rather than own up to their legal responsibilities, Uber and Lyft have worked relentlessly to find a work-around. They lobbied for an exemption to A.B. 5, but the legislature declined. They utilize driver contracts with mandatory arbitration and class action waiver provisions to stymie private enforcement of drivers’ rights. And now, even amid a once-in-a-century pandemic, they have gone to extraordinary lengths to convince the public that their unlawful misclassification scheme is in the public interest. Both companies have launched an aggressive public relations campaign in the hopes of enshrining their ability to mistreat their workers, all while peddling the lie that driver flexibility and worker protections are somehow legally incompatible.”

This lengthy polemic is another way of saying Uber and Lyft (among others) have gone and filed an initiative to deal with the classification issue. Well, shame on them.

On May 22, 2020, the initiative, “Protect App-Based Drivers and Services Act,” became eligible for placement on the November 2020 ballot. If it is not withdrawn by June 25, the voters of California will decide whether app-based workers, such as those for Uber or Lyft, are employees or independent contractors. The issue, as you might assume, is clearly more complicated than that, given the various requirements in the initiative necessary to qualify for an exemption to the ABC test.

See also: 4 Key Changes to WC From COVID-19  

It is safe to assume that the initiative polls very well with the public. It also is likely to pass.

So, by next year, the ABC test, “… whose objective is to create a simpler, clearer test for determining whether the worker is an employee or an independent contractor,” (Dynamex, 4 Cal. 5th 951, fn. 20) will have dozens of exemptions acquiesced to by the legislature and, likely, an exception that nearly overwhelms the rule should the initiative pass on app-based drivers and service providers. 

Why are we doing this? It is an epic public policy failure to suggest the only distinction between an entrepreneurial worker and an exploited one is whether 21 senators, 41 Assembly members and one governor in Sacramento decide to issue a pass. It may be too late to reset the dialogue in California on this issue, between court challenges and, potentially, a successful ballot measure. It is not too late elsewhere, including in Congress.

WC’s ‘Grand Bargain’ Hangs in the Balance

“Existential” is a word used far more often than it should be these days. Its importance has been diluted with its too easy and too frequent use as an adjective to assign far greater weight to events, people or things than are deserved. And yet, this is the adjective most often used when considering the COVID-19 pandemic and the response of governments in the U.S. to the many problems associated with it.

As stated by Joshua Raymond Muhumuza in his blog post, COVID-19 nudges us to rethink our approach to the existential threats of our time (April 28, 2020), Cornell University Alliance for Science:

“The world as we knew it ended a few months ago. What we have now is a seemingly alien muddle that we are all trying to make sense of. Aside from occasioning an unprecedented global public health crisis, COVID-19 is a not-so gentle nudge for humanity to rethink—and maybe reset— several things pertinent for our very existence.”

This is not an unreasonable characterization. The loss of life is tragic. The harm caused to families, whether directly through illness or loss of life, or due to the staggering effects on the American economy, deserves sympathy, compassion and remediation. The harm goes well beyond the physical effects of COVID-19.

But this commentary – repeated in one form or another in publications and broadcasts and across the Internet – is also lacking in context. This is not the first pandemic the world has ever faced. In fact, it is not even the first pandemic of this century, which began only 20 years ago. Under the microscope that exists today, the lack of preparation of both the public and private sectors is appalling, but also not unprecedented. In 2009, the California Nurses Association/National Nurses Organizing Committee (CNA/NNOC) and its 16,000 members were preparing for a one-day strike at 34 hospitals in California and Nevada in part due to lack of preparation, including access to adequate personal protective equipment (including N95 masks), for the H1N1 pandemic. The strike was averted. (See: here

Nurses figure prominently in the current pandemic crisis and the public policy debate regarding how the workers’ compensation system is to respond. This debate is the focus of legislative and regulatory action nationwide. In California, Assembly Bill 664 (Cooper), was amended on April 17 to define the term “injury,” for workers’ compensation purposes, to include being exposed to or contracting, on or after Jan. 1, 2020, a communicable disease, including COVID-19, for certain peace officers, firefighters and healthcare employees. The communicable disease must be the subject of a state or local declaration of a state of emergency issued on or after Jan. 1, 2020. The bill also creates a conclusive presumption that the injury arose out of and in the course of the employment and also exempts permanent disability resulting from such communicable diseases  from the apportionment provisions in Labor Code § 4663.

See also: COVID-19: Stark Choices Amid Structural Change  

Gov. Gavin Newsom declared a state of emergency due to COVID-19 on March 4. He subsequently issued a statewide stay-at-home order on March 19. London Breed, the mayor of San Francisco, declared the existence of a local emergency due to COVID-19 on Feb. 25. 

AB 664 also states, “It is the intent of the legislature in enacting this section to fully compensate the peace officers, firefighters and healthcare employees whose lives are placed at risk when they are exposed to or contract COVID-19 or other communicable diseases in the course of performing their duties.”

That last part, “…in the course of performing their duties,” would seem inconsistent with creating a conclusive presumption that would mean, in all cases, that being exposed to or contracting COVID-19 is a compensable injury regardless of whether the injury, as defined in the legislation, occurred arising out of and in the course of employment.

AB 664 is pending in the Senate Labor, Public Employment and Retirement Committee. No hearing has been set.

Also pending in this committee is Senate Bill 1159, written by Sen. Jerry Hill (D-San Mateo), chair of the Senate Labor, Public Employment and Retirement Committee, and Assemblymember Tom Daly (D-Anaheim), chair of the Assembly Insurance Committee. In the California legislature, the Insurance Committee has jurisdiction over workers’ compensation issues in the Assembly.  

SB 1159 is a work in progress. It seeks to create a “disputable” presumption of compensability for certain critical workers whose illness or death results from exposure to COVID-19 during a period in which the critical worker is in the service of an essential critical infrastructure employer. These and other terms will be made more specific during May. Unlike AB 664, SB 1159 has a sunset date, is specifically limited to injuries resulting from COVID-19 and is not retroactive.

The California debate, including whether Gov. Newsom will issue an executive order encompassing many of the issues framed in these two bills, focuses on five issues: (1) whether a presumption of compensability is conclusive, (2) which workers could claim the presumption, (3) whether the presumption is retroactive (and to when), (4) whether the presumption is limited to COVID-19 exposure and illness and (5) whether exposure alone, without contracting COVID-19, is a compensable injury.

How these issues are resolved will, dare I say, have an existential impact on the workers’ compensation system. A conclusive presumption inevitably means that workers’ compensation will provide healthcare and wage replacement benefits for illnesses not arising from an occupational injury. For the public and private sector classifications most often named to benefit from such a presumption, these benefits would be in place of benefits paid through ERISA plans, various state-mandated leave programs and other employee programs such as sick leave or personal or administrative time off. 

By allowing these changes retrospectively, California would also allow healthcare plans to recoup money paid out in benefits, and prospectively to deny any coverage for COVID-19 from an employee. In essence, workers’ compensation becomes the primary healthcare insurance for any worker subject to the conclusive presumption. It would also allow California’s Employment Development Department (EDD) to recoup money paid under that state’s disability insurance program (SDI) to disabled workers who contracted COVID-19 from community or travel sources. 

The proper role for workers’ compensation in this crisis is to ensure it does what it is intended to do and has done for over a century. Now is not the time to try to lessen the burden on other benefit systems by creating a legal fiction that all exposure to COVID-19 occurs at work for certain employees – even in those occupations that have a high risk for occupational exposure. 

See also: Impact of COVID-19 on Workers’ Comp  

With this observation, however, comes a solemn obligation. This potential existential  risk is more likely to become a reality each time an employer or an employer’s insurer or claims administrator denies a claim without proper investigation or justification. The national debate over presumptions over the past several years strongly suggests that not all actions taken by employers on claims are consistent with the underlying grand bargain of workers’ compensation.

As observed by the Colorado legislature when addressing the question of rebuttable cancer presumptions in 2017, “Nine years of experience has shown that the rebuttable presumption established by House Bill 07-1008 has produced no demonstrable benefit to firefighters but has led to significantly greater costs to employers of firefighters.”

During this critical time in our nation, it’s important for policymakers to understand that the various programs that make up America’s social welfare system should be providing for those who are ill with the benefits both law and contract oblige these programs to provide. The focus should be on the unacceptable gaps in this system and how to close them, not how to shift responsibility from one program to another with all the unintended problems that will cause. 

Keeping an Eye on Consumer Privacy

The pandemic has caused many predictions for 2020 to be spectacularly wrong. One exception is that data privacy and compliance will become even more important, specifically because of the introduction of the California Consumer Privacy Act (CCPA). 

For carriers that work with consumers in California, the legislation created a list of compliance considerations. Californians now have the right to know what information companies have, request that it not be sold and request that it be deleted unless it is in conflict with another law (very important to note that last piece for our highly regulated industry). Businesses must also provide a link that says, “Do Not Sell My Information,” which enables the consumers to make their opt-out request. 

Let’s take a look at three of the many concerns related to CCPA:

  • Data Breaches: Protecting a consumer’s private and sensitive information should be a top priority, as data breaches have become more common and have resulted in damaging headlines and expensive settlements. Given the nature of our industry and the amount of personal information exchanged, insurers are a prime target for cyber attacks, and we will certainly see them fall victim to data breaches.
  • Identify Theft: Insurers need to be certain that they are not responding to these consumer requests without reasonable verification that the consumer making the request is the actual consumer in question and not a bad actor trying to steal consumer information.  
  • Compliance: Carriers should consider hiring a compliance vendor or outside counsel well-informed on CCPA to make these situations more navigable. These partners act as a referee, offering valuable third-party input to verify that a safe and compliant process is in place. This partnership can provide a paper trail (if needed) to document that the required data usage and privacy notices were communicated to consumers. If trouble arises, it can be advantageous to have an independent third party defending you.

See also: CCPA: First of Many Painful Privacy Laws  

Working With Technology Partners

Since CCPA’s initial rollout on Jan. 1, insurance carriers that conduct business with Californians have been trying to reach full compliance before enforcement actions are scheduled to begin on July 1. For most, working with a technology partner, especially a data-as-a-service (DaaS) company, can be monumental in navigating the ins and outs of the new compliance standards. Here at Jornaya, we recently extended our compliance product suite to assist companies in meeting the requirements of the CCPA, as well as potential future state and federal regulations.

As CCPA goes into effect, plenty of other states are looking to it as a blueprint for creating their own data privacy laws. Nevada, New York, Texas and Washington are just a few states where legislators are starting to follow California’s lead by introducing privacy bills.

Creating Better Customer Experience

These laws are trying to provide transparency about what data is being collected on a consumer and how it is being collected and allowing the consumer to be in the driver’s seat as to how that data is going to be used. 

Privacy regulations, like the CCPA, are simply about doing the right thing for the consumer. And the consequences of not paying attention and not doing the right thing by consumers with regard to their privacy can be devastating, not only in terms of potential legal action but also in the loss of consumer trust and associated sales. 

Disclaimer: Any and all content provided (material, information, graphics, etc.), and any other versions and variations of the content (e.g. in .pdf via email or otherwise) is provided only for general information. It is not intended to serve as, or as a substitute for, legal or compliance recommendations; to advise or infer to be used in any particular way by you or your company, and not intended to be used as a basis for making business/commercial decisions.

Grasping the Perils of Extreme Weather

In 2018, extreme weather had a devastating impact on certain states – primarily driven by increasing severity, rather than frequency, of catastrophic events. LexisNexis Risk Solutions‘ recently released, fourth annual Home Trends Report highlights the impact that the 2018 extreme weather events had on insurance losses. A staggering 56% of all catastrophe claims come from just four states: California, Colorado, Florida and North Carolina.

States hit by Hurricanes Florence and Michael, the California wildfires and severe hail saw the most catastrophic losses. Claims in these states are also up to 56% from the 36% of claims these states accounted for in 2017. The latest Home Trends Report underscores the growing need for insurers to understand and respond to by-peril loss trends and the potential for climate change and extreme weather to drive these losses.

While fire losses have continued to increase since 2012, catastrophe claims accounted for nearly 40% of fire losses in 2018 – the highest in a decade and a significant jump from the previous high of 15%. As a result of hurricane devastation to North Carolina and Florida, 2018 was also the worst year on record for wind claim severity, up 15% from 2017. Hurricane devastation also led to a costlier September in North Carolina, with loss costs 17 times more than a typical September. While Colorado was unaffected by the hurricanes and wildfires, the state ranked the highest in loss cost overall for 2018, as well as the highest over the six-year period (2013-2018) that the study tracks. In terms of hail, Texas continued to top the nation for claims, representing 29% of total volume.

See also: The Future of Home Maintenance  

The report highlights some of the challenges that home insurance carriers face in managing by-peril risks, including increasing severity and unpredictability of weather-related patterns and their impact on catastrophic claims. The report also underscores how it is imperative that home insurance carriers collect, analyze and use aggregated by-peril data to help generate a deeper understanding of the risks associated with a particular location and of how to price future policies accordingly. For the long term, aggregated by-peril data can enable more accurate pricing, a healthier book of business.

If you are interested in learning more about the impact of extreme weather events on insurance losses, click here for the LexisNexis Home Trends Report.

Wildfire Season: ‘The New Abnormal’?

Each year, California burns. With another record wildfire season come and gone, each new season seems worse than the last. While mitigation against firestorms is tricky, evolving technologies like fire-fighting foam—used for pretreatment and suppression sprayed around a property or on combustible building materials—can help businesses avoid peril and keep doors open as long as possible.

In 2018, major fires stretched from the Oregon border in Northern California south to the Los Angeles suburbs – a distance of over 685 miles (1,100 km). The worst was the Camp Fire (so called because of its outbreak on Camp Creek Road in Butte County), which broke a 2017 record for the number of structures destroyed (15,573 – 472 of which were commercial) and killed over 80 people, according to CBS News. It became the deadliest wildfire in California’s history and the worst in a century in the U.S., according to the state of California.

Three fires alone – the Camp, Woolsey and Hill fires – caused total insured losses of $9.05 billion, which could balloon to over $13 billion when final tallies are in. CoreLogic, a third-party loss estimator, places total California wildfire losses for 2018 at between $15 billion and $19 billion.

Of the 20 largest wildfires in California history, 15 have occurred since 2000. While data shows the overall frequency of wildfires has remained relatively constant season-on-season, the size, volatility and impact of wildfire events has dramatically increased.

Is this a new normal? Can improved risk mitigation techniques help extinguish wildfires once and for all?

Reinsurance and risk modeling experts have begun using terms such as “mega-fires” and “the new abnormal” when mentioning recent wildfire trends and also identify several contributing trends to worsening conflagrations.

See also: Spreading Damage From Wildfires  

Some of these factor include an increase in property development in and adjacent to areas between unoccupied land and human development; an increase in fuel loads such as dead trees on the ground; an increase in weather volatility from year to year; longer dry seasons; intense seasonal winds that change fire behavior; and, multiple fires erupting at the same time and often in close proximity.

Foam “coverage” for fire-protection

Among fire mitigation solutions, one of the more novel has been the application of environmentally safe, biodegradable fire-fighting foam used for pretreatment and suppression around a property’s perimeter and buildings where the fire threat is imminent. One such solution, marketed by Consumer Fire Products, Inc. (CFPI), a professionally trained brigade of fire professionals dedicated to wildfire property protection, is applied manually from private fire trucks fashioned with state-of-the-art equipment. The brigades coordinate closely with local incident command centers and operate within active fire zones, at the behest of insurers and other interested parties.

Major insurers often work with companies like CFPI to evaluate exposed locations, assess fire threats and prioritize deployment of resources. Customers with significant exposure and within close proximity to the forecast fire path could be identified, allowing CFPI to patrol these locations and take precautionary measures such as clearing brush, relocating flammable materials away from combustible construction and, as a last resort when under imminent threat, spraying buildings and foliage with biodegradable, fire-fighting foam.

Although the ability to know exactly where to invest and deploy protective services real-time is challenging, the concerted monitoring of conditions with underwriters has enabled protection services, once deployed, to continue until conditions like wind speed, low humidity and underbrush dryness have diminished enough over a seven-day period to safely discontinue services.

Insurance support

Innovative approaches and services represent part of the new frontier in predictive and proactive mitigation responses. As such capabilities emerge, it is imperative that the insurance industry be at the center of any such dialogue.

After an event, insurers should ramp up communication efforts with customers – making immediate contact and maintaining it until adjusters can access affected areas to assess damages, advance funds and analyze and facilitate customer needs (e.g. finding temporary storage locations or modifying existing undamaged structures).

Besides property insurance, which covers existing structures, and time element coverages to protect against business interruption, some “inland marine” coverages can also help in the rebuilding phase (e.g. repairing a burned-out site that is damaged by ensuing mudslides), like builders’ risk, installation floaters, riggers liability and construction block.

Mudslide Mitigation

Heavy rains during the wet season in previously burned areas can often cause devastating mudslides, which can further exacerbate and even increase property loss. According to the State of California Department of Insurance, insured losses from the 2018 mudslides—which especially hit the Santa Barbara area hard—resulted in 358 commercial property claims, totaling $129.2 million. Taking all claims into account – commercial and personal property – the grand total was $589.5 million, according to CBS News. Damages from mudslides can be as costly as damages from fires.

Some tips to mitigate mudslide dangers include monitoring local warnings to know if you are in a mudslide-prone area; being aware of your surroundings and the possibility of mudslides; and, being mindful of the potential for large pieces of landscape, including trees, logs, boulders and other debris fields, as well as “floating” destroyed houses, buildings, vehicles, etc. to fall or move in your vicinity.

See also: How to Fight Growing Risk of Wildfire  

Insurers can now strengthen their clients’ defense and better preserve their property partnership with policyholders. They are looking into how this in-event mitigation service on a large scale can be tailored to meet the customers exposed to various natural perils. By doing this, top insurers are taking risk prevention and mitigation to the next level.