California Work Comp Exclusion Rules – Senate Bill 189 Update

Posted on: May 1, 2018

Assembly Bill 2883 (AB2883) became effective January 1, 2017,  and changed the law regarding which corporate officers or members of boards of directors could be excluded from coverage under their workers’ compensation insurance policies. Under AB2883, an individual officer/director must own at least 15% of a corporation’s stock, be a general partner in a partnership or be a managing member of a Limited Liability Company (LLC) in order to be eligible for exclusion. However, the State Legislators concluded that the bill unintentionally disqualifies many owners from being able to elect exclusion from workers’ compensation coverage, so Senate Bill 189 (SB189) was introduced by the California Legislature to amend AB2883 and makes significant changes to the labor code as of July 1, 2018.

SB189 addresses the issue and broadens the criteria for owners in some entity types to be eligible for exclusion on new and renewal policies effective July 01, 2018 forward.  For partnerships and LLC’s, the general partner’s or managing member’s ownership interest may now be held in a revocable trust. And for corporations, the ownership threshold for waiving workers’ compensation coverage was amended from 15% to 10% and the shares may now be held in a revocable trust.  There are also new, specific, waiving provisions for professional corporations, cooperative corporations and closely-held family businesses.

CORPORATIONS (other than Professional or Cooperative) and TRUSTS    Labor Code 3352(16)

Officers or Directors who own a minimum of 10% of the stock may elect to be excluded and the shares may now be held in a revocable trust.    Or, Officers or Directors who are covered by health insurance and own at least 1% with a parent, grandparent, sibling, spouse or child owning at least 10% of the stock may elect to be excluded.   Also, Trustees of a Trust may elect exclusion from coverage.

COOPERATIVE CORPORATIONS  Labor Code 3352(18)

Officers or Directors covered by health insurance and a disability policy may elect exclusion from work comp coverage, regardless of their ownership percentage.

PROFESSIONAL CORPORATIONS   Labor Code 3352(18)

Owners covered by health insurance may elect exclusion from work comp coverage, regardless of their ownership percentage.   

PARTNERSHIPS AND LIMITED LIABILITY COMPANIES   Labor Code 3352(17)

General Partners or Managing Members of LLC’s may elect to be excluded from work comp coverage.   Their ownership interest may now be held in a revocable trust.

In all of the above situations, an individual Waiver of Coverage form must be signed stating, under penalty of perjury, that she/he is eligible to be excluded from coverage on their next workers’ compensation policy renewing on or after 7/1/18 and it must be returned prior to the policy renewal date.  Where policyholders previously signed and returned their  applicable Waiver of Coverage forms under AB2883 and no updated changes are necessary, no action is required.

Where owners are now eligible for exclusion under SB189 and would like to elect exclusion on their workers’ compensation policy incepting 7/1/18 and forward, the individual signed Waiver of Coverage forms must be returned to their insurance company prior to the policy renewal date.   The insurance carrier  may elect to backdate the acceptance of the waiver up to 15 days prior to receipt, but is under no legal obligation. If an eligible individual does not submit a Waiver of Coverage form, her/his payroll will be included for coverage.

You may receive a communication from your workers’ compensation insurance company regarding these changes However, if you don’t and have questions or need assistance with submitting Waiver of Coverage forms or understanding AB2883 and/or SB189, please contact your InterWest representative. Additional information can also be found at SB 189 Notice to Insurers, FAQs, and Sample Waivers.