No Comp-Insurance, No Comp-ensation

A recent decision by the Fourth District in American Building Innovation LP v. Balfour Beatty Construction, LLC highlights the importance of hiring experienced legal counsel early. The court denied ABI, a contractor, the ability to recover on its contract. Even worse, the court awarded $1.55 million in attorneys’ fees to Balfour, ABI’s client. This happened because ABI failed to timely file a Certificate of Workers’ Compensation Insurance and did not qualify for retroactive reinstatement under the applicable rule.

Most contractors know they must maintain workers’ compensation insurance to keep their licenses active. If their insurance lapses, their license is automatically suspended.  Contractors can have their licenses reinstated retroactively to the date of their insurance renewal by filing a certificate of insurance within 90 days. Beyond 90 days, they must prove the lapse was due to circumstances beyond their control. This case examined what constitutes such circumstances.

ABI had insurance when it initially contracted with Balfour. But ABI’s carrier cancelled its insurance after ABI refused to pay premiums following an audit. ABI believed it was overcharged (which the carrier later admitted). However, instead of paying under protest, ABI stopped payments until the dispute was resolved. The court found this decision wrong.

ABI worked over 1,000 hours on the Balfour project without insurance. Balfour refused to pay for ABI’s work, leading ABI to sue to enforce the parties’ contract. During litigation, ABI settled with its insurer and had its policy retroactively reinstated. ABI then applied to the Contractors State License Board (CSLB) for retroactive license reinstatement, arguing that its failure to file an insurance certificate was “due to circumstances beyond the control of the licensee.” The CSLB approved this request.

Despite these retroactive reinstatements, Balfour argued in court that ABI was unlicensed when it performed the work at issue. After a bench trial, the court sided with Balfour. Under California Business and Professions Code § 7031, contractors must prove they were licensed at all times during work to recover payment under a contract. The court ruled that ABI’s license could not be retroactively reinstated because failing to obtain alternative insurance during the lapse was within ABI’s control.

ABI also argued that it substantially complied with licensing laws and blamed its insurer for canceling the policy during a billing dispute. The court rejected these claims, noting that ABI failed to act promptly and misrepresented facts to the CSLB. As a result, ABI lost its case and was ordered to pay Balfour’s legal fees—$1.55 million.

This case underscores how costly mistakes can be avoided with proper legal advice when issues arise. A new version of § 7125 will take effect on January 1, 2026. Contact Boutin Jones Inc. for guidance on how this change may impact your business or for representation in any other construction disputes.