DAR File No. 37131

Labor Commission, Industrial Accidents

Rule R612-3

Workers' Compensation Rules - Self-Insurance

Notice of Proposed Rule

(Repeal)

DAR File No.: 37131
Filed: 12/28/2012 02:30:10 PM

RULE ANALYSIS

Purpose of the rule or reason for the change:

The Labor Commission proposes to repeal this and other Industrial Accident Division rules in order to consolidate, reorganize, and reenact the substance of those rules in a format that is more logical and user friendly.

Summary of the rule or change:

The existing Rule R612-3 will be repealed in its entirety. The substance of the existing rule will be reenacted in new Rules R612-100 and R612-400. (DAR NOTE: The proposed new Rule R612-100 is under DAR No. 37124, and the proposed new Rule R612-400 is under DAR No. 37127 in this issue, January 15, 2013, of the Bulletin.)

State statutory or constitutional authorization for this rule:

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

Anticipated cost or savings to:

the state budget:

Because the substantive provisions of the existing rule will be reenacted as a new rule, repeal of the existing rule will not result in costs of savings to the state budget.

local governments:

Because the substantive provisions of the existing rule will be reenacted as a new rule, repeal of the existing rule will not result in costs or savings to local government.

small businesses:

Because the substantive provisions of the existing rule will be reenacted as a new rule, repeal of the existing rule will not result in costs or savings to small businesses.

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

Because the substantive provisions of the existing rule will be reenacted as a new rule, repeal of the existing rule will not result in costs or savings to other affected persons.

Compliance costs for affected persons:

The repeal of existing Rule R612-3 and reenactment of its substantive provisions in Rules R612-100 and R612-400 will not change interested parties' rights or duties and will not impose any compliance costs on affected persons.

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

The repeal of existing Rule R612-3, coupled with reenactment of the rule's substantive provisions in the new Rules R612-100 and R612-400, is intended to make the rule easier to find and use by businesses and all other stakeholders in the workers' compensation system. The Commission does not anticipate that the improved organization of these rules will result in any fiscal impact on businesses.

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 rdressler@utah.gov

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:

02/14/2013

This rule may become effective on:

02/21/2013

Authorized by:

Sherrie Hayashi, Commissioner

R612. Labor Commission, Industrial Accidents.

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

R612-3-1. Definitions.

A. "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.

B. "Aggregate Excess Insurance" is defined as 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 the insurance company paying all amounts due thereafter up to a maximum total obligation.

C. "Specific Excess Insurance" is defined as the amount of insurance required to cover the workers' compensation benefits arising out of a specific occurrence (accident) or occupational disease under the Workers' Compensation Law 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 up to a maximum total obligation.

D. In addition to the foregoing definitions, all definitions in Rule R612-1 apply to this section.

 

R612-3-2. Authority.

This rule is enacted under the authority of Section 34A-1-104.

 

R612-3-3. 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.

 

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.

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.

 

R612-3-5. 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.

 

R612-3-6. 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.

 

R612-3-7. 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.

 

KEY: self insurance plans, workers' compensation, benefits

Date of Enactment or Last Substantive Amendment: October 22, 2012

Notice of Continuation: April 28, 2008

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