AN ACT Relating to the risk management liability account and the risk management property account; amending RCW 4.92.005, 4.92.110, 4.92.130, 10.01.150, 28B.10.842, 43.19.19361, 43.19.19362, 43.19.19363, 43.19.19366, and 43.84.092; adding new sections to chapter 4.92 RCW; adding new sections to chapter 43.19 RCW; creating new sections; repealing RCW 4.92.140, 4.92.160, and 4.92.170; and making an appropriation.

BE IT ENACTED BY THE LEGISLATURE OF THE STATE OF WASHINGTON: @bcPart I

RIsk management liability account@ec

NEW SECTION. Sec. 101. In recent years the state of Washington has experienced significant increases in liability claims and costs. The legislature finds that there have not been adequate funding mechanisms available for the state to manage these claims and losses. Therefore, it is beneficial for the state to establish an actuarially sound funding source that can provide funds for the payment of these claims and losses.

The legislature also finds that it can reduce the amount and severity of the claims and losses by restructuring its risk management program to provide for the handling of claims by a central office and by implementing a prudent safety and loss control program to reduce tort claim losses.

Sec. 102. Section 6, chapter 217, Laws of 1985 and RCW 4.92.005 are each amended to read as follows:

For the purposes of ((~~RCW 4.92.060, 4.92.070, 4.92.130, 4.92.140, and 4.92.150~~)) this chapter, volunteer is defined in RCW 51.12.035.

Sec. 103. Section 4, chapter 159, Laws of 1963 as last amended by section 8, chapter 126, Laws of 1986 and RCW 4.92.110 are each amended to read as follows:

No action shall be commenced against the state for damages arising out of tortious conduct until ((a)) six months have elapsed after the claim ((~~has first been~~)) is presented to and filed with the risk management office. The ((~~requirements of this section shall not affect the~~)) applicable period of limitations within which an action must be commenced((~~, but such period shall begin and shall continue to run as if no claim were required~~)) shall be tolled during the six-month period.

Sec. 104. Section 7, chapter 159, Laws of 1963 as last amended by section 3, chapter 217, Laws of 1985 and RCW 4.92.130 are each amended to read as follows:

(1) A ((~~tort claims revolving~~)) liability account in the risk management fund in the custody of the treasurer is hereby created to be used solely and exclusively for the ((payment of claims against the state arising out of tortious conduct and against its officers, employees, and volunteers for whom the defense of the claim was authorized under RCW 4.92.070. No money shall be paid from the tort claims revolving fund unless all proceeds available to the claimant from any valid and collectible liability insurance shall have been exhausted and unless:

~~(1) The claim shall have been reduced to final judgment in a court of competent jurisdiction; or~~

~~(2) The claim has been approved for payment in accordance with RCW 4.92.140 as herein or hereafter amended~~)) following purposes:

(a) Payment of liability settlements and judgments against the state for the tortious conduct of its officers, employees, and volunteers;

(b) Payment for the costs relating to the administration of the risk management program and all other investigative, settlement, administrative, and legal costs relating to liability settlements and judgments against the state; and

(c) Purchase of liability insurance, including catastrophic insurance, subject to conditions and limitations determined by the risk manager and the risk management policy board.

(2) Earnings on the account's assets shall be credited to the account, notwithstanding RCW 43.84.090.

(3) Reserves shall be established for recognizing financial liabilities and monitoring effectiveness.

NEW SECTION. Sec. 105. A new section is added tochapter 4.92 RCW to read as follows:

(1) The liability account shall be financed through annual premiums assessed to state agencies, based on sound actuarial principles. Premiums shall be assessed to state agencies on an annual basis consistent with their loss history and liability exposure and shall be for liability coverage in excess of budgeted retention levels.

(2) Premium levels shall be determined by the risk manager, with the advice of the risk management policy board. An actuarial study shall be developed by or for the risk manager to assist in determining the appropriate level of funding for the account.

(3) Disbursements from the liability account shall be made by the risk manager, upon written request to the state treasurer. No appropriation is required for disbursements from the account.

(4) The director of financial management may direct agencies to transfer moneys from other funds and accounts to the liability account if premiums are delinquent.

NEW SECTION. Sec. 106. A new section is added tochapter 4.92 RCW to read as follows:

(1) All liability claims arising out of tortious conduct or under or pursuant to 42 U.S.C. Sec. 1981 for which the state of Washington or any of its officers, employees, or volunteers would be liable shall be filed with the risk manager.

(2) The risk manager shall complete the initial investigation of a claim to determine its value. If the claim is ten thousand dollars or less, the risk manager shall negotiate, compromise, and settle the claim on behalf of and with the assistance of the state agency, and conduct any activities related to property loss, vehicle claims, salvage and subrogation. Upon request, the attorney general's office shall provide necessary legal assistance.

(3) If a claim is in excess of ten thousand dollars, the risk manager shall forward the claim to the attorney general's office, together with all supporting investigative reports and recommendations for handling the claims. The risk manager shall establish procedures to monitor claims sent to the attorney general's office. The attorney general's office, with the approval of the risk manager, may compromise, negotiate, or settle the claim on behalf of the state agency, and conduct any related activities to the claim.

(4) The risk manager shall establish procedures for handling and settling claims, which shall include the use of claims adjusters.

(5) The costs of negotiating, compromising, and settling claims shall be considered a part of the administrative cost of the liability account and shall be reflected in the premiums paid by state agencies.

(6) The risk manager may delegate or contract for the administration and settlement of claims.

(7) A centralized claims tracking system shall be established to provide agencies with accurate and timely feedback on the status of liability claims.

NEW SECTION. Sec. 107. A new section is added to chapter 4.92 RCW to read as follows:

(1) The risk manager shall establish a coordinated safety and loss control program to reduce liability exposure, safeguard state assets, and reduce costs associated with state liability claims.

(2) State agencies shall place a priority emphasis on preventive safety measures and provide education and training in safety and loss control programs.

(3) The risk manager shall systematically identify state-wide risk exposure and assist state agencies in establishing appropriate management controls to eliminate, reduce, assume, or transfer the risk.

(4) The risk manager shall develop and maintain centralized loss history information for the purpose of identifying and managing risk exposure.

(5) The risk manager shall provide direct assistance to smaller state agencies in technical aspects of proper safety and loss control procedures.

(6) The risk manager shall conduct periodic audits of state agencies as appropriate to ensure compliance with safety policies and procedures.

NEW SECTION. Sec. 108. A new section is added to chapter 4.92 RCW to read as follows:

The risk management office may authorize agencies to purchase insurance to protect and hold personally harmless any officer or employee of the state, or any classes of such officers or employees or for other persons performing services for the state, whether by contract or otherwise, from any action, claim, or proceeding for damages arising out of the performance of duties for, employment with, or the performance of services on behalf of the state and to hold the officer or employee harmless from any expenses connected with the defense, settlement, or monetary judgment from such actions.

NEW SECTION. Sec. 109. A new section is added to chapter 4.92 RCW to read as follows:

On or before December 31 of each year, the risk manager shall submit a report to the legislature on the financial status of the liability account in the risk management fund.

The report shall include information on all payments made therefrom and all premium assessments and other reimbursements made thereto, the identity of agencies and departments of state government whose operations and activities give rise to liability, and the amount of the outstanding liabilities of the account and an estimate of future payments.

NEW SECTION. Sec. 110. A new section is added to chapter 4.92 RCW to read as follows:

(1) There is established a risk management policy board which shall consist of the head of the following agencies or his or her designee: The department of general administration, department of transportation, department of social and health services, office of financial management, department of labor and industries, attorney general's office, and the insurance commissioner's office. In addition, the governor shall appoint two representatives of the private sector and one representative of state institutions of higher education, who shall serve at the pleasure of the governor. The appointee from the department of general administration shall serve as chairman. Members of the board shall serve without additional compensation, but shall be reimbursed for travel expenses pursuant to RCW 43.03.050 and 43.03.060. Board members from the private sector shall be reimbursed from appropriated funds allocated to the office of risk management. All other board members shall be reimbursed from funds appropriated for their respective agencies. The board shall meet upon call of the chairman and shall adopt rules for the conduct of its business.

(2) The risk management policy board shall advise and give assistance to the director of general administration and the risk manager regarding the implementation of the risk management program, including:

(a) Establishing premium and allocation formulas to administer the risk management liability and property accounts in the risk management fund;

(b) Determining appropriate programs and coverages for self-insurance versus insurance; and

Sec. 111. Section 1, chapter 144, Laws of 1975 1st ex. sess. and RCW 10.01.150 are each amended to read as follows:

Whenever a state officer or employee is charged with a criminal offense arising out of the performance of an official act which was fully in conformity with established written rules, policies, and guidelines of the state or state agency, the employing agency may request the attorney general to defend the officer or employee. If the agency finds, and the attorney general concurs, that the officer's or employee's conduct was fully in accordance with established written rules, policies, and guidelines of the state or a state agency and the act performed was within the scope of employment, then the request shall be granted and the costs of defense shall be paid by the requesting agency: PROVIDED, HOWEVER, If the agency head is the person charged, then approval must be obtained from both the attorney general and the state auditor. If the court finds that the officer or employee was performing an official act, or was within the scope of employment, and that his actions were in conformity with the established rules, regulations, policies, and guidelines of the state and the state agency, the cost of any monetary fine assessed shall be paid from the ((~~tort claims revolving~~)) liability account in the risk management fund.

Sec. 112. Section 2, chapter 23, Laws of 1972 ex. sess. as amended by section 4, chapter 40, Laws of 1975 and RCW 28B.10.842 are each amended to read as follows:

Whenever any action, claim, or proceeding is instituted against any regent, trustee, officer, employee, or agent of an institution of higher education or member of the governing body, officer, employee, or agent of an educational board arising out of the performance or failure of performance of duties for, or employment with such institution or educational board, the board of regents or board of trustees of the institution or governing body of the educational board may grant a request by such person that the attorney general be authorized to defend said claim, suit, or proceeding, and the costs of defense of such action shall be paid from the appropriation made for the support of the institution or educational board to which said person is attached. If a majority of the members of a board of regents or trustees or educational board is or would be personally affected by such findings and determination, or is otherwise unable to reach any decision on the matter, the attorney general is authorized to grant a request. When a request for defense has been authorized, then any obligation for payment arising from such action, claim, or proceedings shall be paid from the ((~~tort claims revolving~~)) liability account in the risk management fund, notwithstanding the nature of the claim, pursuant to the provisions of ((~~RCW 4.92.130 through 4.92.170, as now or hereafter amended~~)) chapter 4.92 RCW: PROVIDED, That this section shall not apply unless the authorizing body has made a finding and determination by resolution that such regent, trustee, member of the educational board, officer, employee, or agent was acting in good faith.

Sec. 113. Section 1, chapter 270, Laws of 1977 ex. sess. as amended by section 2, chapter 188, Laws of 1985 and RCW 43.19.19361 are each amended to read as follows:

It is the policy of the state for the management of risks to which it is exposed to apply the following principles consistently in a state program of risk management:

(1) To identify those liability and property risks which may have a significant economic impact on the state;

(2) To evaluate risk in terms of the state's ability to fund potential loss rather than the ability of an individual agency to fund potential loss;

(3) To eliminate or improve conditions and practices which contribute to loss whenever practical;

(4) To assume risks to the maximum extent practical;

(5) To provide flexibility within the state program to meet the unique requirements of any state agency for insurance coverage or service;

(6) To purchase commercial insurance:

(a) When the size and nature of the potential loss make it in the best interest of the state to purchase commercial insurance; or

(b) When the fiduciary of encumbered property insists on commercial insurance; or

(d) When services provided by an insurance company are considered necessary; or

(e) When services or coverages provided by an insurance company are cost-effective; or

(f) When otherwise required by statute; and

(7) To develop plans for the management and protection of the revenues and assets of the state.

In pursuance of these policies, no agency of the state may enter into any contract or agreement after the effective date of this 1988 section whereby the agency agrees to indemnify any person or party unless the contract or agreement has been reviewed and approved by the risk management office.

Sec. 114. Section 2, chapter 270, Laws of 1977 ex. sess. as last amended by section 25, chapter 505, Laws of 1987 and RCW 43.19.19362 are each amended to read as follows:

There is hereby created a risk management office within the department of general administration. The director of general administration shall implement the risk management policy in RCW 43.19.19361 through the risk management office. The director of general administration shall appoint a risk manager to supervise the risk management office. The risk management office shall make recommendations when appropriate to state agencies on the application of prudent safety, security, loss prevention, and loss minimization methods so as to reduce or avoid risk or loss. The director of general administration shall submit a risk management report biennially to the governor, with copies to the chairs of the standing committees having jurisdiction on judiciary and insurance and the ways and means and state governmental operations committees in the senate and the house of representatives, including one copy to the staff of each of the committees. The management report shall describe the plans, policies, and operation of the risk management office and shall at least include the following:

(1) Success in implementing stated goals and objectives for the risk management office;

(2) Improving loss control and prevention practices;

(3) Self-insuring risks of loss to state-owned property except where bond indentures or other special considerations require the purchase of insurance;

(4) Consolidating insurance coverages for properties requiring insurance by bond indenture;

(5) Establishing an emergency fund to provide assistance to state agencies in the event of serious property loss;

(6) Self-insuring liability risks to public and professional third parties;

(7) Funding of the ((~~tort claims revolving~~)) liability account in the risk management fund on an actuarial basis;

(8) A program of excess liability coverage above a selected self-insurance limit;

(9) Identification of cost savings and cost avoidances achieved during the preceding two years; and

(10) Appropriate recommendations for new or amended legislation.

Sec. 115. Section 3, chapter 270, Laws of 1977 ex. sess. and RCW 43.19.19363 are each amended to read as follows:

As used in RCW 43.19.19361 and 43.19.19362:

(1) "State agency" includes any state office, agency, commission, department, or institution, including colleges, universities, and community colleges, financed in whole or part from funds appropriated by the legislature; and

(2) "Risk management" means the total effort and continuous step by step process of risk identification, measurement, minimization, assumption, transfer, and loss adjustment which is aimed at protecting assets and revenues against accidental loss and claims for tortious conduct.

Sec. 116. Section 1, chapter 112, Laws of 1981 as amended by section 4, chapter 188, Laws of 1985 and RCW 43.19.19366 are each amended to read as follows:

The risk management office shall cease to exist on June 30, ((~~1989~~)) 1995, unless extended by law for an additional fixed period of time.

Sec. 117. Section 51, chapter 57, Laws of 1985 and RCW 43.84.092 are each amended to read as follows:

Except as provided in RCW 43.84.090, all earnings of investments of surplus balances in the state treasury shall be deposited to the treasury income account, which account is hereby established in the state treasury.

On or before July 20 of each year, the state treasurer shall distribute all earnings credited to the treasury income account as of June 30 to the funds for the fiscal year in which it was earned. Except as otherwise provided by statute, the state treasurer shall credit the various accounts and funds in the state treasury their proportionate share of earnings based upon each fund's average daily balance for the period: PROVIDED, That earnings on the balances of the forest reserve fund, the federal forest revolving fund, the liquor excise tax fund, the treasury income account, the suspense account, the undistributed receipts account, the state payroll revolving account, the agency vendor payment revolving fund, the local leasehold excise tax account, and the local sales and use tax account shall be credited to the state treasurer's service fund: PROVIDED FURTHER, That earnings on the balances of the ((~~tort claims revolving fund, the~~)) agency payroll revolving fund, the special fund salary and insurance contribution increase revolving fund and special fund semimonthly payroll revolving fund shall be credited to the state general fund.

NEW SECTION. Sec. 118. Moneys in the tort claims revolving fund on the effective date of this act shall be deposited in the liability account in the risk management fund.

NEW SECTION. Sec. 119. The following acts or parts of acts are each repealed:

(1) Section 8, chapter 159, Laws of 1963, section 4, chapter 126, Laws of 1975 1st ex. sess., section 1, chapter 144, Laws of 1979 ex. sess, section 8, chapter 188, Laws of 1985, section 4, chapter 217, Laws of 1985 and RCW 4.92.140;

(2) Section 10, chapter 159, Laws of 1963, section 2, chapter 140, Laws of 1969, section 6, chapter 126, Laws of 1975 1st ex. sess., section 5, chapter 151, Laws of 1979, section 3, chapter 144, Laws of 1979 ex. sess., section 9, chapter 126, Laws of 1986 and RCW 4.92.160; and

(3) Section 11, chapter 159, Laws of 1963, section 3, chapter 140, Laws of 1969, section 7, chapter 126, Laws of 1975 1st ex. sess., section 3, chapter 75, Laws of 1977, section 2, chapter 228, Laws of 1977 ex. sess., section 6, chapter 151, Laws of 1979, section 10, chapter 126, Laws of 1986 and RCW 4.92.170. @bcPart II

Risk management property account@ec

NEW SECTION. Sec. 201. In recent years the state of Washington has experienced significant damage to some of its buildings and other physical properties. The legislature finds that an adequate funding mechanism is not available to enable the state to respond in a timely and effective manner to major property losses, and to place these properties back in an operational status that will minimize interruption of vital public services and avoid further mitigative losses.

The legislature also finds that it is in the best interest of the state to self-insure its buildings and personal properties and to purchase primary or excess insurance only in those circumstances where frequency is low and the maximum probable loss is very high.

NEW SECTION. Sec. 202. (1) A property account in the risk management fund is hereby created in the custody of the treasurer to be used solely and exclusively for:

(a) Payment to state agencies for loss or damage to real and personal property;

(b) Payment to state agencies for loss of income to revenue-producing facilities or increased costs associated with providing continued services during the interruption;

(c) Purchase of property insurance, including excess or catastrophic insurance, subject to conditions and limitations determined by the risk manager and risk management policy board; and associated risk management costs when appropriate;

(d) Loss control and risk management services as required by the risk manager; and

(e) Payment for the costs of the administration of the property insurance program and all other investigative, settlement, administrative, and legal costs relating to the account and the property insurance program.

(2) Earnings accrued to the property account shall be credited to the account, notwithstanding RCW 43.84.090.

(3) Disbursements from the property account shall be made by the risk manager, upon written request to the state treasurer. No appropriation is required for disbursements from the account.

NEW SECTION. Sec. 203. (1) The property account shall be financed through a combination of direct appropriations and insurance premiums assessed to state agencies, based on the relative loss experience and risk exposure of state assets under their jurisdiction.

(2) Premium levels shall be determined by the risk manager, with the advice of the risk management policy board. Each agency shall remit the amount of the premium assessment to the account.

(3) All moneys received from premiums, assessments, and charges under this section shall be deposited in the property account.

(4) The director of financial management may direct agencies to transfer moneys from other funds and accounts to the property account, in the event that premiums are delinquent.

NEW SECTION. Sec. 204. (1) All claims for property loss shall be submitted for payment to the risk manager. The risk manager shall determine the value of the loss and remit the appropriate amount to the state agency, as determined by rule adopted by the risk manager with the advice of the risk management policy board. No payment under this subsection may be made in excess of five hundred thousand dollars without prior notification to the ways and means committees of the senate and house of representatives.

(2) State agencies are responsible for properly inventorying properties, both real and personal, under their jurisdiction to determine the appropriate value of any losses or damages.

(3) Qualified claims adjusters and other specialized personnel shall be used for the purpose of investigating, evaluating, and valuing property claims, when appropriate.

(4) The risk manager shall adopt rules governing the administration of the property self-insurance account.

(5) Reserves shall be established for recognizing financial liabilities.

(6) A centralized tracking system shall be established to provide agencies with accurate and timely information on the status of property claims and premium assessments.

NEW SECTION. Sec. 205. On or before December 31 of each year, the risk manager shall submit a report to the legislature on the financial status of the property account in the risk management fund.

NEW SECTION. Sec. 206. Sections 202 through 205 of this act are each added to chapter 43.19 RCW.

NEW SECTION. Sec. 207. There is appropriated from the general fund to the property account in the risk management fund the sum of three million dollars for the purpose of this act.