GEC C.S.H.B. 2630 75(R)BILL ANALYSIS BUSINESS & INDUSTRY C.S.H.B. 2630 By: Brimer 4-16-97 Committee Report (Substituted) BACKGROUND Texas is one of only a small minority of states which do not permit a person to provide for workers' compensation coverage to a contractor and the contractor's employees, either directly or through agreement with the contractor, and to receive the same protection from liability as a direct employer which provides workers' compensation insurance coverage. This results in a large volume of litigation involving work-related injuries for which workers' compensation benefits have been paid. This system results in the discriminatory treatment of parties which contract with independent contractors and parties which perform the same work using direct employees. It also fuels substantial legal, transaction, and insurance costs, which causes a significant barrier to market entry, especially for small contractors. PURPOSE The purpose of this bill is two-fold: to make it easier for contractors to obtain insurance for job-site injuries and to permit a person to provide for workers' compensation coverage to a contractor and the contractor's workers, either directly or through agreement with the contractor to provide the insurance. In the event of a work-related injury, the workers' compensation coverage is the worker's exclusive remedy against the person providing for the insurance, except under limited circumstances. RULEMAKING AUTHORITY This bill grants additional rulemaking authority to the Commissioner of Insurance to implement Article 5.17, as added by this Act. SECTION BY SECTION ANALYSIS SECTION 1. Adds Article 5.17, Insurance Code. Article 5.17 (a) Defines "general contractor," "owners and contractors protective liability insurance," "project owner," and "subcontractor." Article 5.17 (b) prohibits a general liability or workers' compensation insurance policy issued to a subcontractor from, through endorsement or otherwise, providing coverage for a project owner or general contractor for liability for damages arising from or workers' compensation benefits for personal injury, death, or damage to the property of others arising from the project that is the subject of the contract if liability coverage providing substantially similar protection is available to the project owner or general contractor through an owners and contractors protective liability insurance policy. Article 5.17 (c) prohibits a general liability or workers' compensation insurance policy issued to a general contractor from, through endorsement or otherwise, providing coverage for a project owner or subcontractor for liability for damages arising from or workers' compensation benefits for personal injury, death, or damage to the property of others arising from the project that is the subject of the contract if liability coverage providing substantially similar protection is available to the project owner or subcontractor through an owners and contractors protective liability insurance policy Article 5.17 (d) authorizes the Commissioner of Insurance to adopt rules to implement this article. SECTION 2. Amends Chapter 406, Labor Code, by adding Subchapter I. Sec. 406.181: Defines "contractor," "employer," "principal," and "worker." Sec. 406.182: Authorizes a principal to elect to obtain workers' compensation coverage for a contractor or worker employed by a contractor. Requires the principal to make the election in a written agreement with the contractor or by a written notice filed with the commission. Allows the principal to enter into a written agreement with another to provide coverage. Allows the principal to deduct all or the part of the principal's cost of the coverage from the contract price, if the contractor agrees in writing. Requires the principal and contractor to give notice of the agreement to their workers' compensation carriers, of if they are self-insured, to the commission not later than 10 days after the agreement is executed. Sec. 406.183. Provides that if the principal elects to obtain coverage, the principal's insurance carrier is liable for workers' compensation benefits if the worker sustains a compensable injury. If the principal elects to obtain coverage by agreeing that another person will provide the coverage, the principal's insurance carrier is liable to the extent the other person's carrier fails to pay benefits to which the worker is entitled. Sec. 406.184. Provides that, except as provided by Section 408.001(b), Labor Code (liability for exemplary damages for death caused by the employer's intentional conduct or gross negligence), a recovery of workers' compensation benefits under this article is the exclusive remedy of the worker or the worker's legal beneficiary against a principal who elects to obtain workers' compensation coverage, and the principal's employee. Provides further that a recovery of workers' compensation benefits under this article is the exclusive remedy of the employee of a principal who elects to obtain workers' compensation coverage or employee's legal beneficiary against a contractor or the contractor's employee. SECTION 3. Amends Section 415.006(a), Labor Code, to provide that coverage obtained by agreement under this article is excepted the prohibition against an employer collecting from the employee a premium or other fee paid by the employer to obtain workers' compensation coverage. SECTION 4. Provides that Article 5.17 applies only to a policy delivered, issued for delivery, or renewed on or after January 1, 1998. Policies delivered, issued, or renewed before that date are governed by the law in effect immediately prior to the effective date. SECTION 5. Provides that Article 5.17-1 applies only to a cause of action that accrues on or after the effective date. SECTION 6. Effective date is September 1, 1997, except as provided by Sections 4 and 5. SECTION 7. Emergency clause. COMPARISON OF ORIGINAL TO SUBSTITUTE C.S.H.B. 2630 provides that if an owners and contractors protective liability insurance policy is furnished, a general liability or workers' compensation policy issued to a subcontractor may not provide liability coverage for a project owner or general contractor. The bill also provides that if an owners and contractors protective liability insurance policy is furnished, a general liability or workers' compensation policy issued to a general contractor may not provide liability coverage for a project owner or subcontractor. The bill further authorizes a principal to elect to provide workers' compensation coverage for a worker, either directly or through agreement with another person. If such coverage is provided, the workers' compensation benefits are the worker's exclusive remedy against the principal for the worker's work-related injury.