Fairness is Relative. Workers Compensation and the Dreaded Section 7031 | California Construction Law Blog

By Garret Murai, July 21, 2025

I’ve lost my share of cases over the years. Winning of course, feels great, and losing doesn’t. But losing teaches lessons that winning rarely can.

At the most practical level, it forces you to take into consideration things that you could have done better or differently. More philosophically, it reminds you that no matter how much we think we’re in control, we often have less control than we think. Witnesses will surprise you or come across differently than what you expected. Documents will contain something you overlooked or thought was less important than what it turns out to be. And despite what you might tell yourself, you will never truly know what is going on in the mind of the trier of fact.

As to this last point, it’s not that people do crazy things. Rather, it’s that what you think is crazy might be less crazy than you think. Case in point: American Building Innovation LP v. Balfour Beatty Construction, LLC, 104 Cal.App.5th 954 (2024).

The American Building Innovation Case

Subcontractor American Building Innovation LP (“ABI”) was hired by general contractor Balfour Beatty Construction, LLC to perform concrete, framing and structural steel work on a school district project.

ABI worked on the project from August 2017 through May 2018. At the time ABI began work on the project in August 2017, it was covered by a workers’ compensation insurance policy issued by State Compensation Insurance Fund (“SCIF”). However, in December 2017, SCIF sent ABI a notice of cancellation notifying ABI that its insurance policy would be cancelled in January 2018 if ABI did not pay approximately $33,000 in outstanding premiums for a policy issued in 2015.

Although ABI received SCIF’s notice of cancellation, ABI refused to make payment because of ongoing disputes regarding the premiums owed for the policy issued in 2015, and SCIF cancelled ABI’s 2017 on January 25, 2018. As required under statute, SCIF notified the Contractors State License Board (“CSLB”) of the policy cancellation, and SCIF suspended ABI’s contractor’s license by operation of law on January 25, 2018.

Business and Professions Code section 7125 requires contractors to maintain workers’ compensation insurance unless exempted. Business and Professions Code section 7125.2 provides in turn that a contractor’s failure to maintain workers’ compensation insurance when required results in the automatic suspension of its contractor’s license by law. Finally, Business and Professions Code section 7031 provides that a contractor who is unlicensed or who performs work under a suspended license is not entitled to bring or maintain action to collect for compensation for work performed and is subject to an action by the property owner for all monies paid. In short, it’s a road not be avoided.

There is, however, a narrow off-ramp. Business and Professions Code section 7125.2 provides that a contractor whose license is suspended because of its failure to maintain workers’ compensation when required can have its license retroactively reinstated if the contractor obtains and submits a certificate of workers’ compensation insurance within 90 days of the certificate’s effective date. If, however, a certificate is submitted more than 90 days after its effective date, the contractor’s license will only be retroactively reinstated if the contractor shows “that the failure to have a certificate on file was due to circumstances beyond the control of the licensee.”

So back to ABI. After learning that it’s license had been suspended, ABI filed an “Exemption for Workers Compensation” form with the CSLB in which ABI’s principal Tin Vo declared under penalty of perjury that ABI had no employees and therefore did not need workers’ compensation insurance. This was a lie. At the time, ABI had at least nine (9) employees working on the school district project. Nevertheless, upon receipt of the exemption form, the CSLB reinstated ABI’s license effective April 5, 2018.

In the meantime, ABI continued to fight with SCIF over alleged policy premiums owed for the 2015-2016 policy. Ultimately, SCIF filed suit against ABI in late 2018. In early 2019, SCIF issued a final audit statement asserting that ABI owed approximately $23,000 in policy premiums for the 2015-2016 policy. Notably, this was $10,000 less than what SCIF had originally asserted. ABI, however, continued to fight payment.

At the same time all of this was going on, payment issues arose on the school district project, and Balfour Beaty refused to pay ABI. When it rains it pours. In May 2019, ABI sued Balfour Beatty and its bonding companies for fraud, breach of contract, quantum merit, recovery against bonds, and statutory penalties. In response, Balfour Beatty cross-complained against ABI for fraud, express indemnity, and equitable indemnity. Balfour Beatty also alleged in its 31st affirmative defense that ABI “was not properly licensed at all times as required by Business and Professions Code section 7031.”

Balfour Beatty later filed a motion for summary judgment based on its 31st affirmative defense. In November 2020, days before the hearing on that motion, ABI settled its dispute with State Fund. As part of the settlement, ABI paid State Fund premiums in excess of $93,000 on its 2015-2016 and 2016-2017 policies. In return, SCIF withdrew its policy cancellation and reinstated ABI’s 2017-2018 policy, and filed two certificates of workers’ compensation insurance with the CSLB verifying that ABI had insurance in place for the 2017-2018 and 2018-2019 policy years.

Thereafter, ABI. applied to the CLSB for reinstatement of its license from suspended to active. As part of its applications, Vo filed a form under penalty of perjury stating that ABI’s lack of workers’ compensation insurance “was beyond my control because unbeknownst to me and [ABI], [SCIF] improperly submitted a cancellation notice to the [CSLB] for ABI’s February 21, 2017 to February 21, 2018 policy.” The CSLB accepted the application and reinstated ABI’s license retroactively to remove the January 2018 suspension.

In November 2022, the trial court held a bench trial on Balfour Beatty’s 31st affirmative defense. During trial, SCIF’s underwriting manager admitted that SCIF had overcharged ABI for premiums, that SCIF does not cancel a policy for nonpayment of bill unless the dispute over the bill is resolved, that State Fund should not have cancelled ABI’s 2017-2018 policy, and that ABI’s license suspension occurred because of the way SCIF handled the dispute. In short, SCIF admitted that it was wrong and that ABI’s license should never have been suspended.

But that’s not the way the trial court saw it. Rather, the trial court issued a statement of decision in favor of Balfour Beatty finding that ABI was “not a duly licensed contractor at all times during the performance of the contract” and, therefore, could not bring it action against Balfour Beatty for non-payment. Balfour Beatty later filed a motion for attorneys’ fees seeking $270,000 in costs and over $1.55 million in attorney’s fees.

ABI appealed.

The Appeal

On appeal, the 4th District Court of Appeal noted that, due to the retroactive reinstatements, ABI’s license showed no suspension of its license while performing work on the project. However, noted the Court, ABI’s verified license certificate “creates only a rebuttable presumption of licensure” under Buzgheia v. Leasco Sierra Grove, 60 Cal.App.4th 374, 391-392 (1997), and a party may attack that presumption “by going behind the face of the license” and providing it is in fact a “sham.”

“In this case,” held the Court of Appeal, “we find ABI was not entitled to retroactive reinstatement of its license under [Business and Professions Code] section 7125.2”:

Because ABI applied for retroactive reinstatement of its license more than 90 days (in this case, nearly three years) after the effective date of the certificate of insurance, the Board could only reinstate the suspended license if “the failure to have a certificate on file was due to circumstances beyond the control of [ABI].” Here, neither the policy cancellation nor the continued failure to have insurance on file were outside ABI’s control.

The Court of Appeal provided three reasons why ABI’s failure to have workers’ compensation insurance was not due to circumstances beyond its control:

1. Contrary to Vo’s statement made to the CSLB under penalty of perjury that SCIF’s cancellation of ABI’s 2017-2018 policy was “unbeknownst” to ABI, ABI had received notice from SCIF in December 2017 that ABI’s 2017-2018 policy would be cancelled if ABI did not pay outstanding premiums for a policy issued in 2015. “Yet,” explained the Court, “ABI made no effort to have the policy reinstated or to obtain insurance elsewhere, despite having the wherewithal to do so.”
2. After its 2017-2018 policy was cancelled by SCIF, ABI failed to obtain workers compensation insurance from a different carrier. Rather, explained the Court, “it falsely represented to the [CSLB], under penalty of perjury, that ABI was exempt from workers’ compensation insurance requirements because it had no employees” and in doing so “ABI compromised the safety and security of its workers.” “It was not until over two years later, when faced with Defendants’ motion for summary judgment, that ABI agreed to pay the 2015-2016 policy premium so that its 2017-2018 policy would be retroactively reinstated.”

Further, explained the Court, ABI’s argument that SCIF eventually admitted it had overcharged ABI,  that it should never have cancelled its policy, and that ABI’s license should not have been suspended “falls flat factually”:

First, State Fund’s late 2017 demands for payment were apparently not unfounded, as ABI paid State Fund over $93,000 in premiums as part of the November 2020 settlement. Second, the fact that State Fund overstated the amount of premiums due in late 2017 does not exonerate ABI from failing to obtain insurance elsewhere after its policy was canceled. Rather than doing so, ABI elected to continue its work on the project, knowing it was uninsured and unlicensed.

The Court of Appeal also rejected ABI’s argument that it had substantially complied with the licensing laws, stating, “[w]e decline to find ABI acted in good faith, given its repeated false declarations to the Board. It also failed to act promptly, given that it waited nearly three years to settle its policy premium dispute with [SCIF]?

Conclusion

So, what do you think? And I would note, this was a unanimous decision by the 4th District Court of Appeal. There was no dissent. Should ABI have been barred from recovering compensation for work performed, and be hit with $1.55 million in attorneys’ fees and $270,000 in costs on top of it all, because ABI’s workers’ compensation carrier got it wrong and ABI decided to fight them? I would also note that, according to the CSLB’s website, ABI is no longer in business. Likely, I would guess, because of this lawsuit.

Or, was the Court of Appeals right to focus on the fact that ABI should have secured workers’ compensation insurance from another carrier and that it’s failure to do so put its workers at risk although there was no evidence of any workers’ compensation claims, and that ABI misrepresented to the CSLB that it was unaware of SCIF’s cancellation of its workers’ compensation insurance and that it was entitled to an exemption by falsely claiming that it had no employees?

Fairness, like beauty, is often in the eye of the beholder. And, to mix metaphors, unless you’re the one calling balls and strikes, it’s important to remember that you’re just sitting in the stands and that the umpire always has the final say.