DAR File No. 38808

Labor Commission, Industrial Accidents

Section R612-400-3

Workers' Compensation Rules Self-Insurance

Notice of Proposed Rule

(Amendment)

DAR File No.: 38808
Filed: 08/22/2014 08:47:42 AM

RULE ANALYSIS

Purpose of the rule or reason for the change:

Section 34A-2-201.5 of the Utah Workers' Compensation Act allows an employer or public agency insurance mutual to apply to the Industrial Accidents Division for authorization to self-insure the employer or insurance mutual's workers' compensation obligations. The Labor Commission has previously promulgated Section R612-400-3 to address issues related to such self-insurance. The Commission now proposes to amend Section R612-400-3 in order to simplify, update, and clarify the rule's content. The proposed rule will also set forth the appeal rights that are available to applicants for authorization to self-insure.

Summary of the rule or change:

As amended, Section R612-400-3 provides a clear statement of its purpose, scope and authority. The section then establishes definitions of several terms, notably the term "acceptable credit rating agency", and also consolidates within the rule other existing definitions that were found elsewhere in Division rules. The section's substantive provisions are also reorganized for clarity and to conform to the Division's existing practice in consideration of applications to self-insure. In particular, the section is subdivided into subsections that correlate with the various steps and requirements of the self-insurance process. Finally, the section adds a requirement that applicants for authorization to self-insure must designate an agent for service of notices and orders, and sets forth the process by which an applicant can challenge a Division denial or revocation of self-insured status.

State statutory or constitutional authorization for this rule:

• Subsection 59-9-101(2)

Anticipated cost or savings to:

the state budget:

The proposed changes to Section R612-400-3, which simplify and clarify the existing workers' compensation rules for self-insurance, will not result in any additional administrative or enforcement costs to the Labor Commission, nor will the changes have any effect to the state's workers' compensation coverage expenses as an employer.

local governments:

The Commission notes that several local government entities self-insure their workers' compensation obligations, either individually or as members of public agency insurance mutuals. The proposed changes to Section R612-400-3, which simplify and clarify the existing workers' compensation rules for self-insurance, will not result in any additional workers' compensation expense, either for self-insured local governments or for those local governments who purchase workers' compensation insurance.

small businesses:

Small businesses typically do not self-insure their workers' compensation obligations. Therefore, the proposed changes to Section R612-400-3 are not expected to result in any additional workers' compensation expense for small businesses.

persons other than small businesses, businesses, or local governmental entities:

The proposed changes to Section R612-400-3 will have no impact on employees of self-insured businesses. Such employees will continue to receive the same workers' compensation coverage as all other Utah workers. Likewise, the proposed changes are not expected to have any financial impact on any other persons or businesses.

Compliance costs for affected persons:

The simplification and clarification of Section R612-400-3 should ease compliance by employers and public agency insurance mutuals that choose to self-insure, thereby tending to reduce their compliance costs.

Comments by the department head on the fiscal impact the rule may have on businesses:

The proposed changes to Section R612-400-3 are part of the Industrial Accidents Division's comprehensive review of all its workers' compensation rules. The proposed changes to Section R612-400-3 do not impose any additional requirements or burdens on self-insureds but, rather, simplify and clarify existing requirements. At the same time, the proposed rule maintains prudent oversight over the self-insurance process in order to ensure that self-insureds are able to meet their workers' compensation obligations, thereby avoiding situations in which a self-insured's failure would require other employers to assume its obligations.

Sherrie Hayashi, Commissioner

The full text of this rule may be inspected, during regular business hours, at the Division of Administrative Rules, or at:

Labor Commission
Industrial Accidents
HEBER M WELLS BLDG
160 E 300 S
SALT LAKE CITY, UT 84111-2316

Direct questions regarding this rule to:

• Ron Dressler at the above address, by phone at 801-530-6841, by FAX at 801-530-6804, or by Internet E-mail at [email protected]

Interested persons may present their views on this rule by submitting written comments to the address above no later than 5:00 p.m. on:

10/15/2014

This rule may become effective on:

10/22/2014

Authorized by:

Sherrie Hayashi, Commissioner

R612. Labor Commission, Industrial Accidents.

R612-400. Workers' Compensation Insurance, Self-Insurance and Waivers.

[R612-400-3. Workers' Compensation Rules-Self Insurance.

3.1. Application.

A. An employer seeking authorization to become self-insured under the provision of Section 34A-2-201 of the Utah Workers' Compensation Act must apply to the division through the use of a form entitled "Application for Self Insurance."

B. The division will require annual renewals for continuing self-insurance. Renewal, through the use of a form entitled "Renewal Application for Self-Insurance", will require an update of the initial information. Renewal information must be submitted at least 60 days before the self-insurance anniversary date. Failure to file a renewal application on time may result in an interruption or cancellation of self-insurance privileges.

C. The initial and all renewal applications must be completed and signed by the employer's duly authorized representative.

3.2. Qualifying Requirements.

A. To qualify, an employer must be in business for a period of not less than five years and shall demonstrate sufficient financial strength and liquidity of the business to assure that all obligations will be promptly met. An employer in business less than five years will be considered only if a pre-existing parent corporation (in business more than five years) guarantees the liability. In cases of merger or name identification change, the history of the pre-existing entity will be considered for the five year requirement. Upon applying for self-insurance privileges, the applicant must forward a current, certified financial statement or other proof of financial ability to pay direct compensation and other expenses as provided by Section 34A-2-201. Mergers occurring after an entity is self-insured will require a new application by the merged entity. However, entities whose financial information can be obtained from Dunn and Bradstreet will not be required to file financial statements unless clarification or supplemental statements are deemed appropriate or necessary.

B. Specific or aggregate excess insurance with policy limits and retention amounts acceptable are required as a condition of approval and continuation of self-insurance privileges.

C. Excess Insurance policies shall include a bankruptcy and insolvency endorsement (Form 303) for each self-insured entity. The endorsement adds the Uninsured Employer's Fund to the excess insurance policy and specifies the conditions of the Utah bankruptcy and insolvency endorsement for individual self-insureds.

D. A minimum $100,000 surety bond.

E. No corporate surety shall be eligible to write self-insurers' surety bonds or excess insurance unless authorized to transact such business in this state.

F. Surety bonds must be issued on a prescribed form entitled "Self-Insurance Aggregate Surety Bond" and shall be exchanged or replaced with another surety bond only if a 60 day notice of termination of liability is given by the bonding company. The replacement bond must be issued on a form as prescribed by the Commission. No replacements will be authorized by the Commission unless the new surety accepts the liability of the previous surety(ies) or a guarantee is filed by both (all) sureties acknowledging their respective liabilities and periods of time covering such liabilities.

G. All subsidiary companies must have the parent company guarantee liability for payment of benefits (unless such requirement is waived by the division). The form and substance of such guarantees are to be approved by the division.

H. The division may utilize services such as Dunn and Bradstreet credit ratings for the purpose of evaluating a company's financial ability to pay.

I. Entities that fall within the top two composite credit appraisal ratings by Dunn and Bradstreet (or information from an equivalent service) and their top two ratings on estimated financial strength may qualify for self-insurance in Utah with the minimum requirements as set forth in Rule R612-3-4C. Companies with a 5A or 4A estimated financial strength rating and falling within the fair composite credit appraisal of Dunn and Bradstreet may qualify for self-insurance with higher security requirements as determined by the division. The provisions herein are to be construed as optional, with the division having the option.

J. Self-insured entities, or their parent company if such is a guarantor, that fall below either the 5A or 4A estimated financial strength rating or the top three composite credit appraisal ratings of Dunn and Bradstreet will not be allowed to self-insure. A company already self-insured that falls in the aforementioned disqualifying categories will not be allowed to continue self-insurance privileges. However, at the discretion of the division continuation of self-insurance will be considered if the following steps are taken:

1. An independent actuarial study satisfactory to the division and the employer is made of the reserve requirements of the self-insured entity, said study to be at the employer's expense. Selection of the actuary will be mutually agreed upon by the division and the employer. However, should the parties fail to agree, the division will make the final selection.

2. Satisfactory security is obtained for the reserves plus the aggregate excess retention amount.

3. Any company whose self-insurance privileges are revoked under the provisions of these rules will be required to obtain security for their reserve requirements under the foregoing two step process regardless of whether or not self-insurance privileges are continued.

4. Companies whose privileges are to be revoked will be allowed 60 days from notice to comply with steps 1 through 3 above.

5. Quarterly financial reviews will be taken of entities which retain their self-insurance privileges by following 1, 2, and 3 above.

K. Security requirements for all entities requiring security will be determined by a review of past incurred losses and application of exposure, loss, and contingency factors. The minimum acceptable bond amount is $100,000.

L. Public and eleemosynary entities are classified as special categories requiring separate consideration for self-insurance privileges and security requirements.

3.3. Administration of the Self-Insurance Program.

A. A self-insurer must procure the services of an insurance carrier or adjusting company to administer the self-insurance program with regard to claims, setting up of reserves, and safety programs; or

B. The self-insurer must show proof of sufficient and competent staff to administer the self-insurance program and provide safety engineering. The division reserves the right to train and test adjustors and administrators of self-insurance programs.

C. Whether a self-insurer hires their own adjustor or contracts with an insurance carrier or service organization, the following conditions must be met:

1. A knowledgeable contact concerning claims will be located in the state of Utah.

2. The self-insurer will maintain a toll free number or accept during office hours a reasonable number of collect calls from injured employees if either employees of the company or the division offices are in a different city than that of the adjustor.

D. The self-insurer will comply with all rules of the Commission and with the Workers' Compensation Act.

3.4. Notice of Certification for Self-Insurance or Denial and Renewal.

Upon meeting the requirements set forth in these rules, an employer shall receive a formal certificate approving self-insured status. The privilege may be renewed from year to year with renewal procedure as required by these rules. An employer whose original or renewal application for self-insurance has been denied or revoked, or who takes exception to insurance or reserve requirements, may request a review or reconsideration by the Commission. The request must be made within 20 days of the notice of Commission action issued to the employer. A request for review will not automatically extend the authorization to self-insure. However, the Commission may extend the privilege pending review. Without such an extension, the privilege is revoked on the anniversary date.

3.5. Revocation of Right to Self-Insure.

The right to self-insure may be revoked by the division for failure to comply with the rules contained herein.]

R612-400-3. Self Insurance of Workers' Compensation Obligations.

A. Purpose, Authority and Scope. 34A-2-201.5 of the Utah Workers' Compensation Act allows an employer or public agency insurance mutual to request authorization from the Division to self-insure workers' compensation obligations. Pursuant to the authority granted by Section 34A-2-201.5, this rule establishes procedures for applying for authorization to self-insure; it also establishes standards for Division decisions to grant, deny, or revoke such authorization and addresses the process for appealing Division decisions.

B. Definitions. In addition to the definitions found in Subsection 34A-2-201.5(1) and Section R612-100-2, the following definitions apply to this rule:

1. "Acceptable Credit Rating Agency" means Dun and Bradstreet or another similarly reputable credit rating agency acceptable to the Division.

2. "Aggregate Excess Insurance" is the amount of insurance required to cover the total accumulated workers' compensation benefits for all claims payable for a given period of time with the employer retaining an obligation for a designated amount as a deductible and insurance company paying all amounts due thereafter up to a maximum total obligation.

3. "Applicant" means an employer or public agency insurance mutual seeking initial authorization or renewal authorization to self-insure workers' compensation obligations.

4. "Reserve" is defined as the amount necessary to satisfy all debts, past, present, and future, incurred by reason of industrial accidents or occupational diseases, the origins of which commenced prior to the date of reserve determination.

5. "Self-Insured" means an employer or public agency insurance mutual that is authorized by the Division to self-insure workers' compensation obligations.

6. "Specific Excess Insurance" is defined as the amount of insurance required to satisfy workers' compensation obligations related to a workplace accident or disease with the employer retaining an obligation for a designated amount as a deductible and the insurance company assuming the obligation for all amounts due thereafter.

C. Application Process. An Applicant must complete the following process to receive Division authorization to self-insure.

1. The Applicant shall complete Division Form 109, "Application for Self Insurance" and submit the form to the Division, together with payment of the applicable fee as established by the Commission pursuant to Section 63J-1-504.

2. The Applicant shall demonstrate that it has been in business continuously for five years immediately preceding its application.

a. If the Applicant is a wholly-owned subsidiary of another company, it may satisfy this requirement by demonstrating that the parent company has been in business continuously for five years immediately preceding the application, provided that the parent company guarantees the Applicant's workers' compensation obligations. Unless this guarantee requirement is waived by the Division, the form and substance of any such guarantee is subject to Division approval.

b. If the Applicant has changed its business name, the applicant may satisfy this requirement by demonstrating that it has been in business under a combination of its current name and previous name continuously for five years immediately preceding the application.

c. If the Applicant has been formed by merger of two or more companies, the applicant may satisfy this requirement by demonstrating that it and at least one of its predecessor companies, when considered jointly, have been in business continuously for five years immediately preceding the application.

3. The Applicant shall demonstrate sufficient financial strength and liquidity to pay its workers' compensation obligations promptly and in full. The Applicant shall submit to the Division:

a. A current, certified financial statement or other proof acceptable to the Division of the Applicant's financial ability to pay direct compensation and other related expenses;

b. Proof that the Applicant is covered by specific aggregate excess insurance issued by a company authorized to transact such business in Utah and with policy limits and retention amounts acceptable to the Division. The insurance company shall execute Division Form 303, "Utah Bankruptcy and Insolvency Endorsement" for each covered self-insured entity and shall name the Uninsured Employers' Fund as an additional insured.

c. A surety bond issued by a corporate surety authorized to transact such business in this state or other acceptable security as approved by the Division. If a surety bond is submitted, it shall be issued on Division Form 213E, "Self-Insurance Aggregate Surety Bond" in an amount established by the Division based on its review of the applicant's past incurred losses, exposure, and contingency factors. The minimum bond shall be $100,000.

i. With Division approval, a surety bond provided under this subsection may be replaced with another surety bond, provided that a 60-day notice of termination of liability is given to the Division by the original surety, the replacement bond is issued on the prescribed form, and the new surety accepts the liability of the previous surety or a guarantee is filed by all sureties acknowledging their respective liabilities and periods of time covering such liabilities.

ii. The Division may waive surety bond requirements for a public entity.

4. The Division shall confirm through Dun and Bradstreet or other acceptable credit rating agency that the Applicant is within the agency's two highest composite credit appraisal ratings and two highest ratings of estimated financial strength.

a. An Applicant that is within the agency's two highest composite credit appraisal ratings but has received only a "fair" or equivalent composite credit rating may be granted authorization to self-insure by satisfying any additional security requirements required by the Division.

b. The Division may waive credit rating requirements for a public entity, provided that the public entity files financial statements or such other supplemental information as the Division finds necessary.

5. The Applicant shall demonstrate its ability to properly administer a self-insurance program.

a. The Applicant shall either procure the services of an insurance carrier or adjusting company to administer claims and establish reserves or demonstrate that the Applicant has sufficient competent staff to perform such tasks.

b. The Applicant or its adjusting company shall maintain within Utah a knowledgeable contact concerning claims and shall maintain a toll free number or accept a reasonable number of collect calls from injured employees.

c. The Applicant shall register with the Division a designated agent in Utah who is authorized to receive on behalf of the Applicant all notices or orders provided for under the Utah Workers' Compensation Act or the Utah Occupational Disease Act.

d. At its discretion, the Division may train and test adjustors and administrators of self-insurance programs.

6. A subsidiary company may rely upon its parent company to satisfy any of the requirements of subsection C of this rule, provided that the parent company guarantees all the subsidiary company's workers' compensation liabilities. The form and substance of such guarantees must be approved by the Division.

D. Division Action to Grant or Deny Authorization to Self-Insure.

1. If the Division determines that the Applicant has satisfactorily completed the application process required by subsection C, the Division shall issue written authorization for the applicant to self-insure. Such authorization shall be effective for one year from issuance and may be renewed annually as set forth in subsection E of this rule.

2. If the Division determines that the Applicant has not satisfied the requirement of subsection C, the Division will issue a written notice denying the Applicant's request to self-insure. The notice of denial shall state the basis for denial, advise the Applicant of any actions necessary to correct deficiencies in its application, and set forth the Applicant's right to appeal the denial.

E. Renewal of Authorization to Self-Insure.

1. Annual Renewal Application. To request annual renewal of authority to self-insure, a self-insured shall complete and submit Division Form 223E, "Renewal Application for Self Insurance" together with payment of the applicable fee as established by the Commission pursuant to Section 63J-1-504.

a. The completed "Renewal Application" and applicable fee must be submitted at least 60 days before the expiration of the previous self-insurance authorization. Late filing of a renewal application may result in suspension or cancellation of self-insurance privileges.

b. Renewal applicants must satisfy all requirements set forth in subsection C of this rule, except that renewal applicants whose financial information cannot be obtained from Dun and Bradstreet will be required to file financial statements or such other supplemental information as the Division finds necessary.

2. If the Division determines that the renewal applicant qualifies for renewal of authorization to self-insure, the Division shall issue a written renewal. Such renewal shall be effective for one year from issuance.

3. If the Division determines that the renewal applicant has not satisfied the requirements of this rule, the Division will issue a written denial of the request to renew, stating the specific basis for denial, advising the applicant of any actions necessary to correct deficiencies in its renewal application, and the applicant's right to appeal the denial.

F. Revocation of Authority to Self-Insure.

1. In cases where a self-insured entity merges with another entity, the existing authorization to self-insure will be revoked and the newly formed entity must apply for authority to self-insure in its own right.

2. If the Division receives complaints regarding a self-insured's practices or ability to satisfy its obligations, has other reason to believe that a self-insured no longer meets the standards for self-insurance set forth in this rule, or has failed to meet other requirements imposed by law upon self-insureds, the Division shall provide written notice to the self-insured and provide the self-insured a reasonable opportunity to respond.

a. If, after reviewing the self-insured's response, the Division remains of the opinion that the self-insured no longer meets the standards for self-insurance, the Division shall commence informal adjudicative proceedings to revoke the self-insured's authority to self-insure.

b. At the conclusion of such proceedings, the Division shall issue either:

i. written confirmation of the self-insured's continuing authority to self-insure; or

ii. written revocation of authority to self-insure, stating the specific basis for revocation, the self-insured's appeal rights, and the self-insured's right to continue its self insured status by providing additional security pursuant to subsection F of this rule.

c. Within 60 days of notice of revocation, a self-insured whose self-insurance privileges are revoked shall obtain security for their reserve requirements under the two step process set forth in subsection G.1 and 2 of this rule.

G. Continuation of Self-Insurance Authorization by Providing Additional Security.

1. A self-insured that falls below the standards required by subsection C.4 of this rule may, at the discretion of the Division, be allowed to continue self-insurance privileges if the following steps are taken:

a. An independent actuarial study, at the self-insured's expense and satisfactory to the Division, establishes the self-insured's reserve requirements.

b. The self-insured provides acceptable security to the Division for such reserve requirements.

2. Self-insured which retain their self-insurance authorization by complying with the requirements of subsection F.1 and 2 are subject to quarterly financial reviews by the Division

H. Appeals.

An entity dissatisfied with a Division decision to deny or revoke self-insured status may contest the decision by filing an Application For Hearing with the Commission's Adjudication Division pursuant to 34A-302(1) of the Utah Labor Commission Act and complying with the rules and procedures of the Adjudication Division.

 

KEY: workers' compensation, insurance, rates, waivers

Date of Enactment or Last Substantive Amendment: [December 23, 2013]2014

Authorizing, and Implemented or Interpreted Law: 59-9-101(2)