§ 401 Scope.
This chapter shall apply to workers' compensation self-insurance groups of public and private employers. Groups which are issued a certificate of authority by the Commissioner shall be subject to this chapter and Chapters 1, 3, 7, 11, 13, 17, 21, 23, 25, 26, 27 and 59 of this title and subchapters IV and V of Chapter 23 of Title 19, as well as any regulations promulgated under those chapters, except as otherwise provided herein.
§ 402 Definitions.
For purposes of this chapter:
(1) "Administrator" means an individual, partnership or corporation engaged by a workers' compensation self-insurance group's board of trustees to carry out the policies established by the group's board of trustees and to provide day-to-day management of the group.
(2) "Commissioner" means the Commissioner of Insurance.
(3) "Insolvent" or "insolvency" means the same as "impairment" or "insolvency" as those terms are defined in § 5901(1) of this title as if the group were a reciprocal insurer.
(4) "Net premium" means premium derived from standard premium adjusted by any advance premium discounts.
(5) "Public employer" means a county, incorporated municipality, school district, parking authority or other instrumentality or political subdivision of the State itself.
(6) "Service company" means a person or entity which provides services not provided by the administrator, including but not limited to:
a. Claims adjustment;
b. Safety engineering;
c. Compilation of statistics and the preparation of premium, loss, and tax reports;
d. Preparation of other required self-insurance reports;
e. Development of members' assessments and fees; and
f. Administration of a claim fund.
(7) "Standard premium" means the premium derived from the filed rates adjusted by experience modification factors but before advance premium discounts.
(8) "Workers' compensation" when used as a modifier of "benefits," "liabilities," or "obligations," means both workers' compensation and employers' liability.
(9) "Workers' compensation self-insurance group" or "group" means a not-for-profit unincorporated association consisting of 5 or more private or public employers who are engaged in the same or similar type of business, who are members of the same bona fide trade or professional association which has been in existence for not less than 5 years and who enter into agreements to pool their liabilities for workers' compensation benefits and employers' liability in this State.
§ 403 Authority to act as a workers' compensation self-insurance group.
No person, association or other entity shall act as a workers' compensation self-insurance group unless it has been issued a certificate of authority by the Commissioner.
§ 404 Qualifications for initial approval and continued authority to act as a workers' compensation self-insurance group.
(a) A proposed workers' compensation self-insurance group shall file with the Commissioner its application for a certificate of approval accompanied by a nonrefundable filing fee in accordance with § 701 of this title. The application shall include the group's name, location of its principal office, date or organization, name and address of each member and such other information as the Commissioner may reasonably require, together with the following:
(1) Proof of compliance with subsection (b) of this section;
(2) A copy of the articles of association, if any;
(3) A copy of agreements with the administrator and with any service company;
(4) A copy of the by-laws of the proposed group;
(5) A copy of the agreement between the group and each member securing the payment of workers' compensation benefits, which shall include provision for payment of assessments as provided for in § 419 of this title;
(6) Designation of the initial board of trustees and administrator;
(7) The address in this State where the books and records of the group will be maintained at all times;
(8) A pro forma financial statement, on a form acceptable to the Commissioner, showing the financial ability of the group to pay the workers' compensation obligations of its members; and
(9) Proof of payment to the group by each member of not less than 25% of that member's first-year estimated annual net premium on a date prescribed by the Commissioner. Each payment shall be considered to be part of the first-year premium payment of each member if the proposed group is granted a certificate of approval.
(b) To obtain and to maintain its certificate of authority, a workers' compensation self-insurance group shall comply with the following requirements as well as any other requirements established by law or regulation:
(1) A combined net worth of all members of a group of private employers of at least $1,000,000. Specific and aggregate excess insurance in a form, in an amount and by an insurance company acceptable to the Commissioner for a group of public employers.
(2) Security in a form and amount prescribed by the Commissioner which shall be provided by a surety bond, security deposit or financial security endorsement, or any combination thereof. If a surety bond is used to meet the security requirement, it shall be issued by a corporate surety company authorized to transact business in this State. If a security deposit is used to meet the security requirement, securities shall be limited to bonds or other evidences of indebtedness issued, assumed or guaranteed by the United States of America or by an agency or instrumentality thereof; certificates of deposit in a federally insured bank; shares or savings deposits in a federally insured savings and loan association or credit union; or any bond or security issued by a state of the United States of America and backed by the full faith and credit of the state. Any such securities shall be deposited in accordance with § 1504 of this title and assigned to and made negotiable by the Chairperson of the Industrial Accident Board and the Commissioner pursuant to a trust document acceptable to the Commissioner. Interest accruing on a negotiable security so deposited shall be collected and transmitted to the depositor, provided the depositor is not in default. A financial security endorsement, issued as part of an acceptable excess insurance contract, may be used to meet all or part of the security requirement. The bond, security deposit or financial security endorsement shall be:
a. For the benefit of the State solely to pay claims and associated expenses; and
b. Payable upon the failure of the group to pay workers' compensation benefits that it is legally obligated to pay.
The Commissioner may establish and adjust, from time to time, requirements for the amount of security based on differences among groups in their size, types of employment, years in existence and other relevant factors.
(3) Specific and aggregate excess insurance in a form, in an amount and by an insurance company acceptable to the Commissioner. The Commissioner may establish minimum requirements for the amount of specific and aggregate excess insurance based on differences among groups in their size, types of employment, years in existence and other relevant factors, and may permit a group to meet this requirement by placing in a designated depository securities of the type referred to in paragraph (b)(2) of this section.
(4) An estimated annual standard premium of at least $250,000 during a group's first year of operation.
(5) An indemnity agreement jointly and severally binding the group and each member thereof to meet the workers' compensation obligations of each member. The indemnity agreement shall be in a form prescribed by the Commissioner and shall include minimum uniform substantive provisions prescribed by the Commissioner. Subject to the Commissioner's approval, a group may add other provisions needed because of its particular circumstances.
(6) A fidelity bond for the administrator in a form and amount prescribed by the Commissioner.
(7) A fidelity bond for the service company in a form and amount prescribed by the Commissioner. The Commissioner may also require the service company providing claim services to furnish a performance bond in a form and amount prescribed by the Commissioner.
(c) A group shall notify the Commissioner of any change in the information required to be filed under subsection (a) of this section or in the manner of its compliance with subsection (b) of this section no later than 30 days after the change.
(d) The Commissioner shall evaluate the information provided by the application required to be filed under subsection (a) of this section to assure that no gaps in funding exist and that funds necessary to pay workers' compensation benefits will be available on a timely basis.
(e) The Commissioner shall act upon a completed application for a certificate of approval within 60 days. If, because of the number of applications, the Commissioner is unable to act upon an application within this period, the Commissioner shall have an additional 60 days to act.
(f) The Commissioner shall issue to the group a certificate of approval upon finding that the proposed group has met all requirements or the Commissioner shall issue an order refusing the certification, setting forth reasons for refusal upon finding that the proposed group does not meet all requirements.
(g) Each workers' compensation self-insurance group shall be deemed to have appointed the Commissioner as its attorney to receive service of legal process issued against it in this State. The appointment shall be irrevocable, shall bind any successor in interest and shall remain in effect as long as there is in this State any obligation or liability of the group for workers' compensation benefits.
§ 405 Certificate of authority; termination.
(a) The certificate of authority issued by the Commissioner to a workers' compensation self-insurance group authorizes the group to provide workers' compensation benefits and employer's liability coverage. The certificate of authority remains in effect until terminated at the request of the group or revoked by the Commissioner, pursuant to § 423 of this title.
(b) The Commissioner shall not grant the request of any group to terminate its certificate of authority unless the group has insured or reinsured all incurred workers' compensation obligations with an authorized insurer under an agreement filed with and approved in writing by the Commissioner. Such obligations shall include both known claims and expenses associated therewith and claims incurred but not reported and expenses associated therewith.
Subject to the approval of the Commissioner, a group may merge with another group engaged in the same or similar type of business only if the resulting group assumes in full all obligations of the merging groups. The Commissioner may hold a hearing on the merger and shall do so if any party, including a member of either group, so requests.
§ 406 Examinations.
The Commissioner, pursuant to Chapter 5 of this title, may examine the affairs, transactions, accounts, records and assets and liabilities of each group as often as the Commissioner deems advisable. The expense of such examinations shall be assessed against the group in the same manner that insurers are assessed for examinations.
§ 407 Board of trustees; membership, powers, duties and prohibitions.
Each group shall be operated by a board of trustees which shall consist of not less than 5 persons whom the members of a group elect for stated terms of office. At least 2/3 of the trustees shall be employees, officers or directors of members of the group. The group's administrator, service company or any owner, officer, employee of or any other person affiliated with such administrator or service company shall not serve on the board of trustees of the group. All trustees shall be residents of this State or officers of corporations authorized to do business in this State. The board of trustees of each group shall ensure that all claims are paid promptly and take all necessary precautions to safeguard the assets of the group, including all of the following:
(1) The board of trustees shall:
a. Maintain responsibility for all moneys collected or disbursed from the group and segregate all moneys into a claims fund account and an administrative fund account. At least 70% of the net premium shall be placed into a designated depository for the sole purpose of paying claims, allocated claims expenses, reinsurance or excess insurance and special fund contributions, including second injury and other loss-related funds. This shall be called the "claims fund account." The remaining net premium shall be placed into a designated depository for the payment of taxes, general regulatory fees and assessments and administrative costs. This shall be called the "administrative fund account." The Commissioner may approve an administrative fund account of more than 30% and a claims fund account of less than 70% only if the group shows to the Commissioner's satisfaction that:
1. More than 30% is needed for an effective safety and loss control program; or
2. The group's aggregate excess insurance attaches at less than 70%.
b. Maintain minutes of its meetings and make the minutes available to the Commissioner.
c. Designate an administrator to carry out the policies established by the board of trustees and to provide day-to-day management of the group and delineate in the written minutes of its meetings the areas of authority it delegates to the administrator.
d. Retain an independent certified public accountant to prepare the statement of financial condition required by § 411(a) of this title.
(2) The board of trustees shall not:
a. Extend credit to individual members for payment of a premium, except pursuant to payment plans approved by the Commissioner.
b. Borrow any moneys from the group or in the name of the group except in the ordinary course of business, without first advising the Commissioner of the nature and purpose of the loan and obtaining prior approval from the Commissioner.
§ 408 Group membership; termination; liability.
(a) An employer joining a workers' compensation self-insurance group after the group has been issued a certificate of authority shall:
(1) Submit an application for membership to the board of trustees or its administrator; and
(2) Enter into the indemnity agreement required by § 404(b)(5) of this title. Membership takes effect no earlier than each member's date of approval.
The application for membership and its approval shall be maintained as permanent records of the board of trustees.
(b) Individual members of a group shall be subject to cancellation by the group pursuant to the by-laws of the group. In addition, individual members may elect to terminate their participation in the group. The group shall notify the Commissioner and the workers' compensation agency of the termination or cancellation of a member within 10 days and shall maintain coverage of each canceled or terminated member for 30 days after notice, at the terminating member's expense, unless the group is notified sooner by the workers' compensation agency that the canceled or terminated member has procured workers' compensation insurance, has become an approved self-insurer or has become a member of another group.
(c) The group shall pay all workers' compensation benefits for which each member incurs liability during its period of membership. A member who elects to terminate its membership or is canceled by a group remains jointly and severally liable for workers' compensation obligations of the group and its members which were incurred during the canceled or terminated member's period of membership.
(d) A group member is not relieved of its workers' compensation liabilities incurred during its period of membership except through payment by the group or the member of required workers' compensation benefits.
(e) The insolvency or bankruptcy of a member does not relieve the group or any other member of liability for the payment of any workers' compensation benefits incurred during the insolvent or bankrupt member's period of membership.
§ 409 Service companies.
(a) No service company or its employees, officers or directors shall be an employee, officer or director of, or have either a direct or indirect financial interest in, an administrator. No administrator or its employees, officer or directors shall be an employee, officer or director of, or have either a direct or indirect financial interest in, a service company.
(b) The service contract shall state that, unless the Commissioner permits otherwise, the service company shall handle, to their conclusion, all claims and other obligations incurred during the contract period.
§ 410 Licensing of agent.
Except for a salaried employee of a group, its administrator or its service company, any person soliciting membership for a workers' compensation self-insurance group must be licensed as provided in Chapter 17 of this title.
§ 411 Financial statements and other reports.
(a) Each group shall submit to the Commissioner a statement of financial condition audited by an independent certified public accountant on or before the last day of the sixth month following the end of the group's fiscal year. The financial statement shall be on a form prescribed by the Commissioner and shall include, but not be limited to, actuarially appropriate reserves for:
(1) Known claims and expenses associated therewith;
(2) Claims incurred but not reported and expenses associated therewith;
(3) Unearned premiums; and
(4) Bad debts,
which reserves shall be shown as liabilities.
(b) An actuarial opinion regarding reserves for:
(1) Known claims and expenses associated therewith; and
(2) Claims incurred but not reported and expenses associated therewith shall be included in the audited financial statement.
The actuarial opinion shall be given by a member of the American Academy of Actuaries or other qualified loss reserve specialist as defined in the annual statement adopted by the National Association of Insurance Commissioners.
(c) No person shall make any untrue statement of a material fact, or omit to state a material fact necessary in order to make the statement made, in light of the circumstances under which it is made, not misleading, in connection with the solicitation of membership in a group.
(d) The Commissioner may prescribe the format and frequency of other reports which may include, but shall not be limited to, payroll audit reports, summary loss reports and quarterly financial statements.
§ 412 Taxes.
Groups shall be subject to subchapter V of Chapter 23 of Title 19 for the payment of premium tax.
§ 413 Fees and assessments.
Groups shall be subject to subchapter V of Chapter 23 of Title 19 for the payment of fees and assessments.
§ 414 Misrepresentation prohibited.
No person shall make a material misrepresentation or omission of a material fact in connection with the solicitation of membership of a group nor violate any provision of Chapters 17 and 23 of this title or any regulations thereunder.
§ 415 Investments.
Funds not needed for current obligations may be invested by the board of trustees in accordance with Chapters 11 and 13 of this title.
§ 416 Rates and reporting of rates.
(a) Every workers' compensation self-insurance group shall file and adhere to rates, rules and classifications pursuant to Chapter 26 of this title.
(b) Premium contributions to the group shall be determined by applying the rates and rules to the appropriate classification of each member which may be adjusted by each member's experience credit or debit. Subject to approval by the Commissioner, premium contributions may also be reduced by an advance premium discount reflecting the group's expense levels and loss experience.
(c) A group may contract with an advisory organization approved by the Commissioner for assistance in developing appropriate rates.
(d) Each group shall be audited at least annually by an auditor acceptable to the Commissioner to verify proper classifications, experience rating, payroll and rates. A report of the audit shall be filed with the Commissioner in a form acceptable to the Commissioner. A group or any member thereof may request a hearing on any objections to the classifications. If the Commissioner determines that, as a result of an improper classification, a member's premium contribution is insufficient, the commissioner shall order the group to assess that member an amount equal to the deficiency. If the Commissioner determines that, as a result of an improper classification, a member's premium is excessive, the commissioner shall order the group to refund to the member the excess collected. The audit shall be at the expense of the group.
§ 417 Refunds.
(a) Any moneys for a fund year in excess of the amount necessary to fund all obligations for that fund year may be declared to be refundable by the board of trustees not less than 12 months after the end of the fund year with the Commissioner's approval.
(b) Each member shall be given a written description of the refund plan at the time of application for membership. A refund for any fund year shall be paid only to those employers who remain participants in the group for the entire fund year. Payment of a refund based on a previous fund year shall not be contingent on continued membership in the group after that fund year.
§ 418 Premium payment; reserves.
(a) Each group shall establish to the satisfaction of the Commissioner a premium payment plan which shall include:
(1) An initial payment by each member of at least 25% of that member's annual premium before the start of the group's fund year; and
(2) Payment of the balance of each member's annual premium in monthly or quarterly installments.
(b) Each group shall establish and maintain actuarially appropriate loss reserves which shall include reserves for:
(1) Known claims and expenses associated therewith; and
(2) Claims incurred but not reported and expenses associated therewith.
(c) Each group shall establish and maintain bad debt reserves based on the historical experience of the group or other groups.
§ 419 Deficits and insolvencies.
(a) If the assets of a group are at any time insufficient to enable the group to discharge its legal liabilities and other obligations and to maintain the reserves required of it under this chapter, it shall forthwith make up the deficiency or levy an assessment upon its members for the amount needed to make up the deficiency.
(b) In the event of a deficiency in any fund year, the deficiency shall be made up immediately, either from:
(1) Surplus from a fund year other than the current fund year;
(2) Administrative funds;
(3) Assessment of the membership, if ordered by the group; or
(4) Such alternate method as the Commissioner may approve or direct.
The Commissioner shall be notified prior to any transfer of surplus funds from 1 fund year to another.
(c) If the group fails to assess its members or to otherwise make up such deficit within 30 days, the Commissioner may order it to do so.
(d) If the group fails to make the required assessment of its members within 30 days after the Commissioner orders it do so, or if the deficiency is not fully made up within 60 days after the date on which the assessment is made or within such longer period of time as may be specified by the Commissioner, the group shall be deemed to be insolvent or impaired.
(e) Notwithstanding subsections (a) through (d) of this section, the Commissioner may at any time proceed against an insolvent group in the same manner as the Commissioner would proceed against an insolvent or impaired domestic insurer in this State as prescribed in Chapter 59 of this title. The Commissioner shall have the same powers and limitations in such proceedings as are provided under those laws.
(f) In the event of delinquency proceedings against a group, the Commissioner may levy an assessment upon its members for such an amount as the Commissioner determines to be necessary to discharge all liabilities of the group, including the reasonable cost of liquidation or rehabilitation.
§ 420 Guaranty mechanism.
In the event of a liquidation pursuant to § 419 of this title, after exhausting the security required pursuant to § 404(b)(2) of this title, the Commissioner may levy an assessment against all groups to assure prompt payment of benefits. The assessment on each group shall be based on the proportion that the premium of each group bears to the total premium of all groups. The Commissioner may exempt a group from assessment upon finding that the payment of the assessment would render the group insolvent. The assessment shall not relieve any member of an insolvent group of its joint and several liability. After an assessment is made, the Commissioner shall take action to enforce the joint and several liability provisions of the insolvent group's indemnity agreement, and shall recoup:
(1) All costs incurred by the Commissioner in enforcing such joint and several liability provisions;
(2) Amounts that the Commissioner assessed any other groups pursuant to this section; and
(3) Any obligations included within § 419(f) of this title.
§ 421 Monetary penalties.
After notice and opportunity for a hearing, the Commissioner may impose a monetary penalty on any person or group found to be in violation of any provision of this chapter or title or of any rules or regulations pursuant to § 329 of this title and Chapter 101 of Title 29. The amount of any monetary penalty shall be paid to the Commissioner for the use of the State.
§ 422 Cease and desist orders.
(a) After notice and opportunity for a hearing, unless there are exigent circumstances, the Commissioner may issue an order requiring a person or group to cease and desist from engaging in an act or practice found to be in violation of any provision of this chapter or title or of any rules or regulations promulgated thereunder. Unless there are exigent circumstances, a minimum of 10 days' notice will be provided prior to a hearing. If exigent circumstances are present, the person or group will be offered a hearing within 10 days after the issuance of the order.
(b) Upon a finding, after notice and opportunity for a hearing, that any person or group has violated any cease and desist order, the Commissioner may do any or all of the following:
(1) Impose a monetary penalty of not more than $15,000, in the case of an individual, or not more than $50,000, in the case of a group or corporation, for each and every act or violation of the order; or
(2) Revoke or suspend the group's certificate of authority or any insurance license held by the person; or
(3) Place the group or person under supervision; or
(4) Permanently enjoin the conduct or enter any remedial order.
§ 423 Revocation of certificate of authority.
(a) After notice and opportunity for a hearing, the Commissioner may revoke or suspend a group's certificate of authority if it:
(1) Is found to be insolvent or impaired;
(2) Fails to pay any premium tax, regulatory fee or assessment or special fund contribution imposed upon it; or
(3) Fails to comply with any of the provisions of this chapter and title or with any rules promulgated thereunder or with any lawful order of the Commissioner within the time prescribed.
(b) In addition, the Commissioner may revoke or suspend a group's certificate of authority if, after notice and opportunity for hearing, the Commissioner finds that:
(1) Any certificate of authority that was issued to the group was obtained by fraud;
(2) There was a material misrepresentation in the application for the certificate of authority; or
(3) The group or its administrator has misappropriated, converted, illegally withheld or refused to pay over upon proper demand any moneys that belong to a member, an employee of a member or a person otherwise entitled thereto and that have been entrusted to the group or its administrator in its fiduciary capacities.
§ 424 Notice and hearings.
All notices and hearings shall be as provided in Chapter 3 of this title and Chapter 101 of Title 29.
§ 425 Rules and regulations.
The Commissioner shall have power to make rules and regulations in order to implement this chapter.