SENATE BILL REPORT

SB 6787

BYSenators Anderson, Matson and Patrick

Establishing the industrial insurance surety bond commission.

Senate Committee on Economic Development & Labor

Senate Hearing Date(s):January 30, 1990; February 2, 1990

Majority Report:     Do pass as amended.

     Signed by Senators Lee, Chairman; Anderson, Vice Chairman; McDonald, McMullen, Matson, Murray, Saling, Smitherman, Williams.

Senate Staff:David Cheal (786-7576)

                February 9, 1990

AS REPORTED BY COMMITTEE ON ECONOMIC DEVELOPMENT & LABOR, FEBRUARY 2, 1990

BACKGROUND:

Employers who insure their workers' compensation obligation as self-insurers are required to provide financial security for future benefit payment obligations.  Part of that security is in the form of a deposit in an escrow account of either cash, corporate or governmental securities, or a surety bond.  The market for this type of surety bond appears to be shrinking and the number of issuers is now very small.  Other methods of providing the necessary security have been explored, including supplying an irrevocable letter of credit.

SUMMARY:

A Surety Bond Commission is established consisting of four members.  One of the members shall be a representative from labor, three are representatives of self-insured employers, and the fifth being either the director of the Department of Labor and Industries or the director's designee.  All members are appointed by the director.  The Bond Commission is given the authority to issue bonds to employers who are certified as self-insurers.  The purpose of the bond is to guarantee payment from each employer's surety bond fund of any unpaid assessments, and amounts paid for benefits to employees of insolvent or defaulting self-insured employers, for injuries after July 1, 1990.  The face amount of the bond shall be sufficient to cover the entire potential liability of the employer for the coverage as estimated by the director. 

Bond premiums shall be 1 percent of the face amount of the bond during the first year of participation, 2 percent during the second year, and 3 percent thereafter.  At the discretion of the commission under rules adopted by the department, a self-insured employer may be required to provide additional premiums.

The surety bond fund is created in the Office of the Treasurer to provide security for benefits paid to workers of insolvent or defaulting self-insured employers.  This fund consists of premiums on bonds purchased by individual self-insured employers.

The commission is given the authority to purchase reinsurance to insure the risks of the fund.

The Bond Commission may terminate the bond of any self-insurer for good cause by giving at least 30 days notice.  Termination of the bond results in decertification of the self-insurer.

Sureties on bonds filed prior to the creation of the surety bond program remain liable under the terms of the bond for future compensation for injuries and diseases originating prior to July 1, 1990. 

Employers who are certified as self-insurers after July 1, 1990 are required to have a net worth of no less than $5 million.

SUMMARY OF PROPOSED COMMITTEE AMENDMENT:

The director is required to establish different underwriting requirements for employers that are units of local government, and they are excused from the $5 million net worth requirement.

Appropriation:  none

Revenue:   none

Fiscal Note:    requested

Senate Committee - Testified:   PRO:  Kathleen Collins, Association of Washington Cities; Clif Finch, AWB; Fred Culberson, WSIAl; Jody Moron, Department of Labor and Industries