DEF Construction's workers' compensation policy lapses on March 15th. They continue working until March 30th when coverage is restored. What is the potential penalty exposure?
Correct Answer
B) Civil penalty up to $5,000
Working without workers' compensation coverage subjects the contractor to civil penalties up to $5,000, even for brief lapses in coverage.
Why This Is the Correct Answer
B&P Code Section 7125.2 imposes a civil penalty of up to $5,000 for any period of operation without required workers' compensation coverage. The penalty applies per violation occurrence regardless of how short the lapse is — even a single day of uninsured work triggers this civil penalty.
Why the Other Options Are Wrong
Option A: Automatic license suspension
Automatic license suspension occurs only when CSLB receives official notice of a policy cancellation through the insurance carrier's required notification. It is not an immediate penalty imposed on the contractor for the lapse itself, and the primary enforcement mechanism for working during the lapse is the civil penalty.
Option C: Warning letter only
A warning letter is not a statutory remedy under B&P Code Section 7125.2. The code mandates specific financial penalties; there is no provision for merely issuing a warning when a contractor operates without coverage.
Option D: Criminal misdemeanor charges
Criminal misdemeanor charges are not the standard penalty for a lapse in workers' compensation coverage. Criminal exposure can arise under Labor Code Section 3700.5 for willful or repeat violations, but the primary and immediate exposure for a coverage gap is the civil penalty.
Memory Technique
Think '$5K gap penalty': every day the coverage GAP exists, up to $5,000 in civil penalties can accrue. Civil = Cash penalty, not Criminal charges.
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