File No. 36685

This rule was published in the September 15, 2012, issue (Vol. 2012, No. 18) of the Utah State Bulletin.

Labor Commission, Industrial Accidents

Section R612-3-4

Qualifying Requirements

Notice of Proposed Rule


DAR File No.: 36685
Filed: 08/22/2012 02:07:37 PM


Purpose of the rule or reason for the change:

This rule amendment eliminates letters of credit as a method by which self-insured employers can secure their liability for payment of workers' compensation benefits.

Summary of the rule or change:

The amendment deletes references to letters of credit as an acceptable method for self-insured employers to guarantee their ability to pay workers' compensation benefits to employees who suffer work-related injuries. The amendment has no effect on the other types of security currently allowed by the rule.

State statutory or constitutional authorization for this rule:

  • Section 34A-2-201
  • Section 34A-1-104

Anticipated cost or savings to:

the state budget:

The proposed amendment will simplify the Industrial Accidents Division's administration of the workers' compensation self-insurance program, but will result in no appreciable costs or savings to that program. Because the State of Utah obtains it workers' compensation coverage from an insurance carrier, rather than through self-insurance, the proposed amendment will have no effect on the state's workers' compensation insurance costs.

local governments:

No self-insured local governments use letters of credit to secure payment of their workers' compensation liabilities. Consequently, eliminating letters of credit as one of the permitted forms of security will result in no cost or savings to local governments.

small businesses:

No small businesses use letters of credit to secure payment of their workers' compensation liabilities. Consequently, eliminating letters of credit as one of the permitted forms of security will result in no cost or savings to small businesses.

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

As with local governments and small businesses, no other persons use letters of credit to secure payment of their workers' compensation liabilities. Consequently, eliminating letters of credit as one of the permitted forms of security will result in no cost or savings to such other persons.

Compliance costs for affected persons:

Because letters of credit are not currently used in the self-insurance program, this amendment will impose no compliance costs on affected persons.

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

The Industrial Accidents Division's experience over the last several years has shown that self-insured employers do not choose to use letters of credit as a means of securing their liability for workers' compensation payments. Consequently, elimination of that disfavored form of security will have no fiscal impact on business.

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
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

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:


This rule may become effective on:


Authorized by:

Sherrie Hayashi, Commissioner


R612. Labor Commission, Industrial Accidents.

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

R612-3-4. 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[ or an irrevocable letter of credit shall be required of each self-insurer].

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. Irrevocable Letters of Credit (ILOC) (Form 304).

1. Information - Irrevocable Letter of Credit.

The division may accept an ILOC as an alternative security deposit to a surety bond. However, the division will retain discretion to determine if, in each particular case, an ILOC is an acceptable deposit, if the bank issuing is acceptable, and if the ILOC's format is satisfactory.

2. The ILOC must be issued by a Utah state chartered bank or a federally chartered bank with a Utah branch office from which funds will be immediately payable on demand. The bank used must be on the list of banks authorized to hold public funds by the Money Management Council of the State of Utah. The employer must furnish a memorandum of understanding with the Irrevocable Letter of Credit on a form provided by the division, which advises the following:

(a) The ILOC is being furnished to the division to provide for workers' disability compensation in lieu of a surety bond as one of the requirements for approval of a self-insurance program.

(b) The employer understands that the ILOC shall be deemed automatically extended without amendment for one year from the expiry date or any future expiry date, unless 60 days prior to any expiry date, the division is notified by registered mail that the ILOC shall not be renewed for any additional period. A policy of insurance or a surety bond of equal amount may be furnished as a substitute for an ILOC, however, the substitute must cover industrial injuries incurred during the period that the ILOC was effective. All policies of insurance and surety bonds furnished as substitutes for ILOC shall be subject to prior division approval.

(c) The employer shall affirm that the ILOC in the amount requested by the division is being offered with the understanding that if the division receives notice that the ILOC shall not be renewed, the division may, after 30 days from the receipt date of notice, call the proceeds of the ILOC and deposit those proceeds in the state treasury, and further, if in the judgment of the division, the ILOC is needed to cover any workers' disability compensation claims, that the proceeds of the ILOC shall be called immediately without waiting 30 days.

(d) In the event that the division draws upon the ILOC, the Employer must provide or make available all of its files and records associated with workers' compensation.

(e) If legal proceedings are initiated by any party with respect to payment of any ILOC, it is agreed that such proceedings shall be subject to Utah courts and law.

(f) The completed ILOC together with the memorandum of understanding must be furnished to and accepted by the division before an effective date will be granted for a self-insurance program.

3. The ILOC shall be issued with the language as required on the Industrial Accidents Division form 304.

4. Each self-insured entity shall sign a division prescribed Memorandum of Understanding (Form 305), which shall not become effective until certification is granted, when using an Irrevocable Letter of Credit as a form of security.

] [H]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.

[I]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.

[J]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.

[K]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.

[L]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.

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


KEY: self insurance plans, workers' compensation, benefits

Date of Enactment or Last Substantive Amendment: [1992]2012

Notice of Continuation: April 28, 2008

Authorizing, and Implemented or Interpreted Law: 34A-1-104; 34A-2-201


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For questions regarding the content or application of this rule, please contact Ron Dressler at the above address, by phone at 801-530-6841, by FAX at 801-530-6804, or by Internet E-mail at