California Allows Contractors Formed As LLCs To Access Surplus Lines Carriers


On August 16, 2013, California Governor Jerry Brown signed AB1236, a bill that allows contractors organized as limited liability companies to obtain liability insurance from non-admitted surplus lines carriers.  California Business & Professions Code § 7071.19 requires that limited liability companies carry liability insurance.  AB1236, sponsored by the Association of California Insurance Companies, amends Section 7071.19 to allow such insurance to be acquired from surplus lines carriers.

California has been amending its statutes to allow various forms of businesses to form as limited liability companies.  As of a 2010 statute, contractors may now obtain LLC status, but a licensed contractor must maintain liability insurance at specified dollar levels issued by a state licensed insurer.  Since January 1, 2011, hundreds of California contractors have been licensed as LLCs; however, over 68,000 other licensed contractors have general liability coverage obtained from surplus lines carriers that are not regulated by the California Department of Insurance.

Effective January 1, 2014, a contractor licensed as an LLC may obtain its liability policy from an eligible surplus line insurer, which is an insurer that has met certain standards including reserve requirements.  The requirements for a non-admitted insurer are found at California Insurance Code § 1765.1.  It is believed that AB1236 will increase access to insurance for contractor LLCs, have a positive effect on premium pricing, and increase the viability of LLC status for contractors.

A copy of the bill can be found here.



DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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