SB 684 Heads to Gov. Brown

Friday, September 23, 2011 | 0

Today's workers' compensation defense post will examine the new law passed by the state Legislature, which strives to introduce both fairness and transparency to workers' comp arbitration.

For many years, one of the primary sources of contention between California employers and national insurance carriers has been the inclusion of arbitration clauses buried deep within work comp policies, mandating that any disputes between the two parties be resolved in another state and in accordance with that state's law.

To illustrate, California employers shopping for more favorable work comp policies may simply select the lowest quote. However, what they may not realize is that the insurance carrier included a policy provision requiring that all arbitration take place outside of California in order to lower the quote. This can present real legal drawbacks for employers in the event of a dispute, as they may find themselves subject to less favorable state laws.

In order to remedy this situation, California lawmakers have passed Senate Bill 684, which if enacted by Gov. Jerry Brown, would extend the following protections to California employers.

First, it would mandate that all insurance carriers submitting quotes must provide written, up-front notification informing California employers of their intention to utilize arbitration as the primary dispute resolution forum, as well as the employers' ability to negotiate these provisions.

Second, it would mandate that all California employers have the right to decide if they want to negotiate/resolve arbitration disputes in California and under California law.

If a California employer decides to accept the quote provided by the insurance carrier including the arbitration terms they will have to sign a disclosure indicating that they understand and accept the terms.

"This bill will create an important protection for California's employers by no longer allowing insurers to force businesses, small and large, to arbitrate out of state without their foreknowledge and consent," said Insurance Commissioner Dave Jones in a released statement. "SB 684 will ensure that both employers and insurers both freely and mutually agree to terms of the workers' compensation policy."

SB 684 was sponsored by the California Department of Insurance and drafted by Senate Majority Leader Ellen Corbett (D-San Leandro). If signed by the governor, SB 694 would cover work comp policies issued and renewed on or after July 1, 2012.

Zachary H. Sacks is a partner in the Sacks & Zolonz law firm in Los Angeles. This column was reprinted with his permission from the firm's blog.