BILL REQ. #: H-0597.3
| State of Washington | 62nd Legislature | 2011 Regular Session |
Read first time 01/28/11. Referred to Committee on Business & Financial Services.
AN ACT Relating to additional requirements for the oversight of regulated self-insurance programs by the state risk manager; amending RCW 48.62.011, 48.62.031, 48.62.061, 48.62.071, 48.62.091, 48.62.121, 48.62.161, and 48.62.171; and adding new sections to chapter 48.62 RCW.
BE IT ENACTED BY THE LEGISLATURE OF THE STATE OF WASHINGTON:
Sec. 1 RCW 48.62.011 and 1991 sp.s. c 30 s 1 are each amended to
read as follows:
This chapter is intended to provide the exclusive source of local
government entity authority to individually or jointly self-insure
risks, jointly purchase insurance or reinsurance, and to contract for
risk management, claims, and administrative services. This chapter
((shall)) must be liberally construed to grant local government
entities maximum flexibility in self-insuring to the extent the self-insurance programs are operated in a safe and sound manner. In
addition, this chapter is intended to provide the state risk manager
with regulatory authority over joint local government property and
liability self-insurance programs and local government self-insured
employee health and welfare benefit programs. This chapter is intended
to require prior approval by the state risk manager for the
establishment of every individual local government self-insured
employee health and welfare benefit program and for the establishment
and continuation of every joint local government self-insurance program
through an annual operating certificate. In addition, this chapter is
intended to require every local government entity that establishes a
self-insurance program not subject to prior approval to notify the
state of the existence of the program and to comply with the regulatory
and statutory standards governing the management and operation of the
programs as provided in this chapter. This chapter is not intended to
authorize or regulate self-insurance of unemployment compensation under
chapter 50.44 RCW, or industrial insurance under chapter 51.14 RCW.
Sec. 2 RCW 48.62.031 and 2005 c 147 s 1 are each amended to read
as follows:
(1) The governing body of a local government entity may
individually self-insure, may join or form a self-insurance program
together with other entities, and may jointly purchase insurance or
reinsurance with other entities for property and liability risks, and
health and welfare benefits only as permitted under this chapter. In
addition, the entity or entities may contract for or hire personnel to
provide risk management, claims, and administrative services in
accordance with this chapter.
(2) The agreement to form a joint self-insurance program ((shall))
must be made under chapter 39.34 RCW and may create a separate legal or
administrative entity with powers delegated thereto. Such entity may
include or create a nonprofit corporation organized under chapter 24.03
or 24.06 RCW or a partnership organized under chapter 25.04 RCW.
(3) Every individual and joint self-insurance program is subject to
audit by the state auditor.
(4) If provided for in the agreement or contract established under
chapter 39.34 RCW, a joint self-insurance program may, in conformance
with this chapter:
(a) Contract or otherwise provide for risk management and loss
control services;
(b) Contract or otherwise provide legal counsel for the defense of
claims and other legal services;
(c) Consult with the state insurance commissioner and the state
risk manager;
(d) Jointly purchase insurance and reinsurance coverage in such
form and amount as the program's participants agree by contract;
(e) Obligate the program's participants to pledge revenues or
contribute money to secure the obligations or pay the expenses of the
program, including the establishment of a reserve or fund for coverage;
and
(f) Possess any other powers and perform all other functions
reasonably necessary to carry out the purposes of this chapter.
(5) A local government entity that has decided to assume a risk of
loss must have available for inspection by the state auditor and the
state risk manager a written report indicating the class of risk or
risks the governing body of the entity has decided to assume.
(6) Every joint self-insurance program governed by this chapter
((shall)) must appoint the state risk manager as its attorney-in-fact
to receive service of, and upon whom ((shall)) must be served, all
legal process issued against it in this state upon causes of action
arising in this state.
(a) Service upon the state risk manager as attorney ((shall))
constitutes service upon the program. Service upon joint insurance
programs ((subject to chapter 30, Laws of 1991 1st sp. sess.)) can be
had only by service upon the state risk manager. At the time of
service, the plaintiff ((shall)) must pay to the state risk manager a
fee to be set by the state risk manager, taxable as costs in the
action.
(b) With the initial ((filing for approval)) application or renewal
of an operating certificate with the state risk manager, each joint
self-insurance program ((shall)) must designate by name and address the
person to whom the state risk manager ((shall)) must forward legal
process so served upon him or her. The joint self-insurance program
may change such person by filing a new designation.
(c) The appointment of the state risk manager as ((attorney shall
be)) attorney-in-fact is irrevocable, ((shall)) binds any successor in
interest or to the assets or liabilities of the joint self-insurance
program, and ((shall)) remains in effect as long as there is in force
in this state any contract made by the joint self-insurance program or
liabilities or duties arising therefrom.
(d) The state risk manager ((shall)) must keep a record of the day
and hour of service upon him or her of all legal process. A copy of
the process, by registered mail with return receipt requested,
((shall)) must be sent by the state risk manager, to the person
designated for the purpose by the joint self-insurance program in its
most recent such designation filed with the state risk manager. No
proceedings ((shall)) may be had against the joint self-insurance
program, and the program ((shall)) is not ((be)) required to appear,
plead, or answer, until the expiration of forty days after the date of
service upon the state risk manager.
Sec. 3 RCW 48.62.061 and 2010 1st sp.s. c 7 s 55 are each amended
to read as follows:
The state risk manager ((shall)) must adopt rules governing the
management and operation of both individual and joint local government
self-insurance programs covering property or liability risks. The
state risk manager ((shall)) must also adopt rules governing the
management and operation of both individual and joint local government
self-insured health and welfare benefits programs. All rules ((shall))
must be appropriate for the type of program and class of risk covered.
The state risk manager's rules ((shall)) must include:
(1) Standards for the management, operation, and solvency of self-insurance programs, including the necessity and frequency of actuarial
analyses and claims audits;
(2) Standards for claims management procedures; ((and))
(3) Standards for contracts between self-insurance programs and
private businesses including standards for contracts between third-party administrators and programs; and
(4) Standards for qualifications and the selection of trustees to
terminate the operations of any joint self-insurance program.
Sec. 4 RCW 48.62.071 and 1991 sp.s. c 30 s 7 are each amended to
read as follows:
((Before the establishment of a)) Every joint self-insurance
program covering property or liability risks by local government
entities((, or an individual or)) and every joint local government
self-insured health and welfare benefits program((, the entity or
entities)) must obtain ((the approval of)) an operating certificate
from the state risk manager in accordance with this act. State risk
manager approval is not required for the establishment of an individual
local government self-insurance program covering property or liability
risks. Prior approval is required, but an operating certificate is not
required, for an individual local government self-insurance program
covering health and welfare benefits. The entity or entities proposing
creation of a self-insurance program requiring prior approval ((shall))
must submit a plan of management and operation to the state risk
manager and the state auditor that provides at least the following
information:
(1) The risk or risks to be covered, including any coverage
definitions, terms, conditions, and limitations or in the case of
health and welfare benefits programs, the benefits to be provided,
including any benefit definitions, terms, conditions, and limitations;
(2) The amount and method of financing the benefits or covered
risks, including the initial capital and proposed rates and projected
premiums;
(3) The proposed claim reserving practices;
(4) The proposed purchase and maintenance of insurance or
reinsurance in excess of the amounts retained by the self-insurance
program;
(5) In the case of a joint program, the legal form of the program,
including but not limited to any bylaws, charter, or trust agreement;
(6) In the case of a joint program, the agreements with members of
the program defining the responsibilities and benefits of each member
and management;
(7) The proposed accounting, depositing, and investment practices
of the program;
(8) The proposed time when actuarial analysis will be first
conducted and the frequency of future actuarial analysis;
(9) A designation of the individual upon whom service of process
((shall)) must be executed on behalf of the program. In the case of a
joint program, a designation of the individual to whom service of
process ((shall)) must be forwarded by the state risk manager on behalf
of the program;
(10) All contracts between the program and private persons
providing risk management, claims, or other administrative services;
(11) A professional analysis of the feasibility of creation and
maintenance of the program; and
(12) Any other information required by ((rule of)) the state risk
manager that is necessary to determine the probable financial and
management success of the program or that is necessary to determine
compliance with this chapter.
Sec. 5 RCW 48.62.091 and 1991 sp.s. c 30 s 9 are each amended to
read as follows:
(1) ((Within one hundred twenty days of receipt of a plan of
management and operation, the state risk manager shall either approve
or disapprove the formation of the self-insurance program after
reviewing the plan to determine whether the proposed program complies
with this chapter and all rules adopted in accordance with this
chapter.)) Whenever the state risk manager determines that a joint self-insurance program covering property or liability risks or an individual
or joint self-insured health and welfare benefits program is in
violation of this chapter or is operating in an unsafe financial
condition, the state risk manager may issue and serve upon the program
an order to cease and desist from the violation or practice that
resulted in an unsafe financial condition or may deny or revoke an
operating certificate.
(2) If the state risk manager denies a request for approval, the
state risk manager shall specify in detail the reasons for denial and
the manner in which the program fails to meet the requirements of this
chapter or any rules adopted in accordance with this chapter.
(3)
(a) The state risk manager ((shall)) must deliver the order to the
appropriate entity or entities directly or mail it to the appropriate
entity or entities by registered mail with return receipt requested.
(b) If the program violates the order or has not taken steps to
comply with the order after the expiration of twenty days after the
cease and desist order has been received by the program, the program is
deemed to be operating in violation of this chapter, and the state risk
manager ((shall)) must notify the state auditor ((and the attorney
general of the violation.)) The state risk manager may bring
an action to enjoin the unsafe practices or acts that violate this
chapter or engage in other actions that are necessary to terminate the
self-insurance program.
(c) After hearing or with the consent of a program governed by this
chapter and in addition to or in lieu of a continuation of the cease
and desist order, the risk manager may levy a fine upon the program in
an amount not less than three hundred dollars and not more than ten
thousand dollars. The order levying such fine shall specify the period
within which the fine shall be fully paid. The period within which
such fines shall be paid shall not be less than fifteen nor more than
thirty days from the date of such order. Upon failure to pay any such
fine when due the risk manager shall request the attorney general to
bring a civil action on the risk manager's behalf to collect the fine.
The risk manager shall pay any fine so collected to the state treasurer
for the account of the general fund
(((4))) (2) Each self-insurance program approved by the state risk
manager ((shall)) must obtain an annual audited financial statement
opinion within six months of the program's fiscal year end. Every
self-insurance program approved by the state risk manager must annually
file a report with the state risk manager and state auditor providing:
(a) Details of any changes in the articles of incorporation,
bylaws, or interlocal agreement;
(b) Copies of all the insurance coverage documents;
(c) A description of the program structure, including participants'
retention, program retention, and excess insurance limits and
attachment point;
(d) An actuarial analysis, if required;
(e) A list of contractors and service providers;
(f) The financial and loss experience of the program; and
(g) Such other information as required by rule of the state risk
manager.
(((5))) (3) The annual report required in subsection (2) of this
section is not required of joint self-insurance programs that have an
operating certificate.
(4) No self-insurance program requiring the state risk manager's
approval may engage in an act or practice that in any respect
significantly differs from the management and operation plan that
formed the basis for the state risk manager's approval of the program
unless the program first notifies the state risk manager in writing and
obtains the state risk manager's approval. The state risk manager
((shall)) must approve or disapprove the proposed change within sixty
days of receipt of the notice. If the state risk manager denies a
requested change, the risk manager ((shall)) must specify in detail the
reasons for denial and the manner in which the program would fail to
meet the requirements of this chapter or any rules adopted in
accordance with this chapter.
Sec. 6 RCW 48.62.121 and 2009 c 162 s 29 are each amended to read
as follows:
(1) No employee or official of a local government entity may
directly or indirectly receive anything of value for services rendered
in connection with the operation and management of a self-insurance
program other than the salary and benefits provided by his or her
employer or the reimbursement of expenses reasonably incurred in
furtherance of the operation or management of the program. No employee
or official of a local government entity may accept or solicit anything
of value for personal benefit or for the benefit of others under
circumstances in which it can be reasonably inferred that the
employee's or official's independence ((of)) or judgment is impaired
with respect to the management and operation of the program.
(2)(a) No local government entity may participate in a joint self-insurance program in which local government entities do not retain
complete governing control. This prohibition does not apply to:
(i) Local government contribution to a self-insured employee health
and welfare benefits plan otherwise authorized and governed by state
statute;
(ii) Local government participation in a multistate joint program
where control is shared with local government entities from other
states; or
(iii) Local government contribution to a self-insured employee
health and welfare benefit trust in which the local government shares
governing control with their employees.
(b) If a local government self-insured health and welfare benefit
program, established by the local government as a trust, shares
governing control of the trust with its employees:
(i) The local government must maintain at least a fifty percent
voting control of the trust;
(ii) No more than one voting, nonemployee, union representative
selected by employees may serve as a trustee; and
(iii) The trust agreement must contain provisions for resolution of
any deadlock in the administration of the trust.
(3) Moneys made available and moneys expended by school districts
and educational service districts for self-insurance under this chapter
are subject to such rules of the superintendent of public instruction
as the superintendent may adopt governing budgeting and accounting.
However, the superintendent ((shall)) must ensure that the rules are
consistent with those adopted by the state risk manager for the
management and operation of self-insurance programs.
(4) RCW 48.30.140, 48.30.150, 48.30.155, and 48.30.157 apply to the
use of insurance producers and surplus line brokers by local government
self-insurance programs.
(5) Every individual and joint local government self-insured health
and welfare benefits program that provides comprehensive coverage for
health care services ((shall)) must include mandated benefits that the
state health care authority is required to provide under RCW 41.05.170
and 41.05.180. The state risk manager may adopt rules identifying the
mandated benefits.
(6) An employee health and welfare benefit program established as
a trust ((shall)) must contain a provision that trust funds be expended
only for purposes of the trust consistent with statutes and rules
governing the local government or governments creating the trust.
NEW SECTION. Sec. 7 A new section is added to chapter 48.62 RCW
to read as follows:
(1) Any entity or entities proposing the creation of a joint self-insurance program must apply to the state risk manager for an initial
operating certificate.
(2) Any joint self-insurance program currently in operation must
apply for an initial operating certificate no later than four months
before the expiration of the program's fiscal year 2013 to continue
operations.
(3) An operating certificate is subject to an annual renewal based
on the joint self-insurance program's fiscal year end. Operating
certificates continue in force until revoked or not renewed.
(4) The state risk manager must issue a written decision on an
application for an initial operating certificate to create a joint
self-insurance program within one hundred twenty days following
submission of the application.
(5) The state risk manager must issue a written decision on an
application for an initial operating certificate from a joint self-insurance program currently in operation or an application for renewal
within sixty days following submission of the application.
(6) Decisions may be appealed under section 17 of this act.
NEW SECTION. Sec. 8 A new section is added to chapter 48.62 RCW
to read as follows:
Applications to create or to renew a joint self-insurance program
must contain the following information:
(1) Articles of incorporation, bylaws, or interlocal agreement;
(2) Copies of all the insurance coverage documents;
(3) A description of the program structure, including participants'
retention, program retention, and excess insurance limits and
attachment point;
(4) An actuarial analysis;
(5) A list of contractors and service providers; and
(6) Such other information as required by rule of the state risk
manager.
NEW SECTION. Sec. 9 A new section is added to chapter 48.62 RCW
to read as follows:
(1) If the state risk manager finds that a joint self-insurance
program has met the requirements of this chapter and rules adopted by
the state risk manager, he or she must issue to it an operating
certificate.
(2) The state risk manager may deny, refuse to renew, or revoke a
joint self-insurance program's operating certificate if the program:
(a) Fails to submit an application with all required information;
(b) Fails to meet the requirements of this chapter and rules
adopted by the state risk manager;
(c) Is operating in an unsafe financial condition;
(d) Fails to comply with any proper order of the state risk manager
or operating certificate condition;
(e) Is not current with paying its assessments and other fees due
to the state risk manager, including those charged for reviews and
investigations.
NEW SECTION. Sec. 10 A new section is added to chapter 48.62 RCW
to read as follows:
(1) In lieu of denial, the state risk manager may issue a
conditional operating certificate to joint self-insurance programs.
Conditions imposed by the state risk manager, after consultation with
financial auditors, must include those actions that the state risk
manager, in his or her sole discretion, determines are reasonably
necessary to ensure compliance with the requirements of this chapter or
rules adopted by the state risk manager.
(2) A conditional operating certificate will be of limited
duration, not to exceed one year, and no conditional operating
certificate may be issued consecutively.
NEW SECTION. Sec. 11 A new section is added to chapter 48.62 RCW
to read as follows:
The state risk manager must give a joint self-insurance program
written notice of his or her intent to revoke an operating certificate
not less than thirty days before the revocation is to become effective.
The state risk manager must specify in detail the reasons for the
revocation. Decisions under this section may be appealed under section
17 of this act.
NEW SECTION. Sec. 12 A new section is added to chapter 48.62 RCW
to read as follows:
If an operating certificate is not renewed or revoked, the state
risk manager must take all necessary action to terminate the operation
of the joint self-insurance program. The state risk manager may
appoint a trustee to act on his or her behalf. All costs for the
termination of the program, including trustee costs, must be paid by
the program. The state risk manager or trustee must immediately take
charge of the local government self-insurance program and all of its
property, books, records, and effects. The state risk manager or
trustee may hire financial experts, hire and fire employees, terminate
contracts, act on behalf of the board and the members to wind down the
program, provide insurance options for the members to cover outstanding
claims and lawsuits, and determine the amount of reassessments to all
members to cover the final costs of the program upon termination of the
joint self-insurance program. The trustee may pursue all other actions
necessary to terminate the program as the state risk manager reviews
and approves.
NEW SECTION. Sec. 13 A new section is added to chapter 48.62 RCW
to read as follows:
In addition to the powers otherwise granted in this chapter, the
state risk manager has the power to:
(1) Commence and prosecute actions and proceedings, to enjoin
violations of this chapter, and to collect sums due to the state of
Washington;
(2) Contact insurers or reinsurers to verify insurance coverage or
receivables owed to the joint self-insurance program;
(3) Contact members to verify receivables or reassessments that are
included in the books and records of the joint self-insurance program
owed by any member; and
(4) Delegate in writing any power or duty vested in the state risk
manager to his or her employees as deemed necessary for efficient
administration of this chapter and rules adopted by the state risk
manager.
NEW SECTION. Sec. 14 A new section is added to chapter 48.62 RCW
to read as follows:
The state risk manager must review the management, operations,
transactions, accounts, records, documents, and assets of any
authorized joint local government self-insured property and liability
program and any individual and joint local government self-insurance
health and welfare program as often as he or she deems advisable, but
not less frequently than every three years. The state risk manager
must conduct or contract for such review or investigation.
(1) The state risk manager may review or investigate any third-party administrator of a program insofar as that review or
investigation is necessary or material to the review or investigation
of the program.
(2) The program, its officers, employees, and representatives must
produce and timely make freely accessible to the state risk manager's
employee, representative, and agent the accounts, records, documents,
and files in his or her possession or control relating to the subject
of the review or investigation, and must otherwise facilitate the
review or investigation. The program's failure to timely produce such
accounts, records, documents, and files within thirty days of a written
request, may result in the denial or revocation of an operating
certificate or an order to cease and desist.
Sec. 15 RCW 48.62.161 and 2010 1st sp.s. c 7 s 56 are each
amended to read as follows:
(1) The state risk manager ((shall)) must establish and charge an
investigation fee in an amount necessary to cover the costs for the
initial review and approval of a self-insurance program. The fee must
accompany the initial submission of the plan of operation and
management.
(2) The costs of subsequent reviews and investigations ((shall))
must be charged to the self-insurance program being reviewed or
investigated in accordance with the actual time and expenses incurred
in the review or investigation.
(3) The state risk manager may calculate, levy, and collect from
each joint property and liability self-insurance program and each
individual and joint health and welfare benefit program regulated by
this chapter a start-up assessment to pay initial expenses and
operating costs of the risk manager's office in administering this
chapter. Any program failing to remit its assessment when due is
subject to ((denial of permission to operate)) revocation or nonrenewal
of its operating certificate or to a cease and desist order until the
assessment is paid.
Sec. 16 RCW 48.62.171 and 1991 sp.s. c 30 s 17 are each amended
to read as follows:
(1) Any person who files reports or furnishes other information
required under Title 48 RCW, required by the risk manager or the state
auditor under authority granted by Title 48 RCW, or which is useful to
the state risk manager or the state auditor in the administration of
Title 48 RCW, ((shall be)) is immune from liability in any civil action
or suit arising from the filing of any such report or furnishing such
information to the state risk manager or to the state auditor, unless
actual malice, fraud, or bad faith is shown.
(2) The state risk manager and the state auditor, and the agents
and employees of each, are immune from liability in any civil action or
suit arising from the publication of any report or bulletins or arising
from dissemination of information related to the official activities of
the state risk manager((, the advisory boards,)) or the state auditor,
unless actual malice, fraud, or bad faith is shown.
(3) No cause of action may arise nor may any liability be imposed
against the state risk manager, his or her employees, authorized
representatives, or trustee appointed by the state risk manager, for
statements made or conduct performed in good faith while carrying out
this chapter.
(4) The immunity granted by this section is in addition to any
common law or statutory privilege or immunity enjoyed by such person,
and nothing in this section is intended to abrogate or modify in any
way such common law or statutory privilege or immunity.
NEW SECTION. Sec. 17 A new section is added to chapter 48.62 RCW
to read as follows:
(1) The director of the office of financial management or
director's appointed designee may hold a hearing for any purpose within
the scope of this chapter as he or she may deem necessary. The
director must hold a hearing:
(a) If required by any provision of this chapter; or
(b) Upon written demand for a hearing made by any person aggrieved
by any act or failure of the state risk manager to act under any
provision of this chapter.
(2) Any such demand for a hearing must specify in what respects
such person is so aggrieved and the grounds to be relied upon as basis
for the relief to be demanded at the hearing.
(3) Unless a person aggrieved by a written order of the state risk
manager demands a hearing thereon within ninety days after receiving
notice of such order, the right to such hearing is conclusively deemed
to have been waived.
(4) If a hearing is demanded for action taken under RCW 48.62.031,
48.62.061, 48.62.071, 48.62.091, 48.62.121, 48.62.161, 48.62.171, or
sections 7 through 14 of this act, the director must hold the hearing
demanded within thirty days after receipt of the demand, unless
postponed by mutual consent.
(5) The director, director's delegate, or an administrative law
judge appointed under chapter 34.12 RCW may conduct hearings,
administer oaths or affirmations, or upon the director's or delegate's
or administrative law judge's motion or upon request of any party may
subpoena witnesses, compel attendance, take depositions, take evidence,
or require the production of any matter which is relevant to the
investigation or proceeding, including but not limited to the
existence, description, nature, custody, condition, or location of any
books, documents, or other tangible things, or the identity or location
of persons having knowledge or relevant facts, or any other matter
reasonably calculated to lead to the discovery of material evidence.
(6) Upon failure to obey a subpoena or to answer questions
propounded by the administrative law judge, director, or director's
designee and upon reasonable notice to all persons affected thereby,
the director may apply to the superior court for an order compelling
compliance.
(7) Except as otherwise provided in this chapter, all proceedings
under this chapter must be in accordance with the administrative
procedure act, chapter 34.05 RCW.