AN ACT Relating to industrial insurance; amending RCW 51.14.010, 51.14.020, 51.14.040, 51.14.077, and 51.14.080; and adding a new section to chapter 51.14 RCW.

BE IT ENACTED BY THE LEGISLATURE OF THE STATE OF WASHINGTON:

Sec. 1. Section 26, chapter 289, Laws of 1971 ex. sess. and RCW 51.14.010 are each amended to read as follows:

Every employer under this title shall secure the payment of compensation under this title by:

(1) Insuring and keeping insured the payment of such benefits with the state fund; or

(2) ((~~Qualifying~~)) Obtaining and maintaining certification as a self-insurer under this title.

Sec. 2. Section 27, chapter 289, Laws of 1971 ex. sess. as last amended by section 1, chapter 57, Laws of 1986 and RCW 51.14.020 are each amended to read as follows:

(1) An employer may qualify as a self-insurer by establishing to the director's satisfaction that he or she has sufficient financial ability to make certain the prompt payment of all compensation under this title and all assessments which may become due from such employer. The director shall establish such underwriting requirements as he or she considers necessary, including a minimum net worth, to be established by the director by administrative rule, but to be no less than five million dollars for certifications issued on or after July 1, 1990. The director also shall take into consideration the financial ability of the employer to pay compensation and assessments and his or her probable continuity of operation. Each application for certification as a self-insurer submitted by an employer shall be accompanied by payment of a fee of one hundred fifty dollars or such larger sum as the director shall find necessary for the administrative costs of evaluation of the applicant's qualifications. Any employer who has formerly been certified as a self-insurer and thereafter ceases to be so certified may not apply for certification within three years of ceasing to have been so certified.

(2) ((~~A self-insurer may~~)) Each individual self-insured employer, except school districts, cities, counties, and other units of local government shall be required by the director to supplement existing financial ability by depositing in an escrow account in a depository designated by the director, money and/or corporate or governmental securities approved by the director, or a surety bond written by any company admitted to transact surety business in this state filed with the department. The money, securities, or bond shall be in an amount reasonably sufficient in the director's discretion to insure payment of reasonably foreseeable ((compensation and assessments but not less than the employer's normal expected annual claim liabilities and in no event less than one hundred thousand dollars. In arriving at the amount of money, securities, or bond required under this subsection, the director shall take into consideration the financial ability of the employer to pay compensation and assessments and his or her probable continuity of operation)) liabilities resulting from injuries occurring before July 1, 1990, and diseases in which the last injurious exposure occurred prior to July 1, 1990. The money, securities, or bond so deposited shall be held by the director to secure the payment of compensation by the self-insurer and to secure payment of his or her assessments. The amount of security may be increased or decreased from time to time by the director. The income from any securities deposited may be distributed currently to the self-insurer.

(3) Securities or money deposited by an employer pursuant to subsection (2) of this section shall be returned to him or her upon his or her written request provided the employer files the bond required by such subsection or obtains additional surety from the surety bond program, as determined according to the provisions established by the surety bond commission.

(4) If the employer seeking to qualify as a self-insurer has previously insured with the state fund, the director shall require the employer to make up his or her proper share of any deficit or insufficiency in the state fund as a condition to certification as a self-insurer.

(5) A self-insurer may reinsure a portion of his or her liability under this title with any reinsurer authorized to transact such reinsurance in this state: PROVIDED, That the reinsurer may not participate in the administration of the responsibilities of the self-insurer under this title. Such reinsurance may not exceed eighty percent of the liabilities under this title.

(6) For purposes of the application of this section, the department may adopt separate rules establishing the security requirements applicable to units of local government. In setting such requirements, the department shall take into consideration the ability of the governmental unit to meet its self-insured obligations, such as but not limited to source of funds, permanency, and right of default.

Sec. 3. Section 29, chapter 289, Laws of 1971 ex. sess. and RCW 51.14.040 are each amended to read as follows:

(1) The surety ((~~on a~~)) bond commission may terminate the bond ((~~filed by~~)) issued by it to a self-insurer pursuant to this title ((~~may terminate its liability thereon~~)) for good cause by giving the director written notice stating when, not less than thirty days thereafter, such termination shall be effective.

(2) In case of such termination, the surety bond program shall remain liable, in accordance with the terms of the bond, with respect to future compensation for injuries and diseases to employees of the self-insurer occurring prior to the termination of the ((~~surety's~~)) surety bond program's liability.

(3) If the bond is terminated by the surety bond commission for any reason other than the employer's terminating his or her status as a self-insurer, the ((~~employer shall, prior to the date of termination of the surety's liability, otherwise comply with the requirements of this title~~)) director shall withdraw the employer's certification as a self-insurer.

(4) The surety on a bond filed prior to the creation of the surety bond program for self-insurers shall remain liable, in accordance with the terms of the bond, with respect to future compensation for injuries and diseases to employees of the self-insurer occurring prior to July 1, 1990, and otherwise prior to the termination of the surety's liability. The liability of a surety on any bond filed ((~~pursuant to this section~~)) prior to the creation of the surety bond program for self-insurers shall be released and extinguished and the bond returned to the employer or surety provided either such liability is secured by another bond filed, or money or securities deposited as required by this title.

Sec. 4. Section 6, chapter 57, Laws of 1986 and RCW 51.14.077 are each amended to read as follows:

(1) A self-insurers' insolvency trust is established to provide for the unsecured benefits paid to the injured workers of self-insured employers under this title for insolvent or defaulting self-insured employers and for the department's associated administrative costs, including attorneys' fees. The self-insurers' insolvency trust shall be funded by an insolvency assessment which shall be levied on a post-insolvency basis and after the defaulting self-insured employer's security deposit, assets, ((~~and~~)) reinsurance, if any, and all applicable surety bonds have been exhausted. Insolvency assessments shall be imposed on all self-insured employers, except school districts, cities, ((~~and~~)) counties and other units of local government. The manner of imposing and collecting assessments to the insolvency fund shall be set forth in rules adopted by the department to ensure that self-insured employers pay into the fund in proportion to their claim costs. The department's rules shall provide that self-insured employers who have surrendered their certification shall be assessed for a period of not more than three calendar years following the termination date of their certification.

(2) The director shall adopt rules to carry out the purposes of this section, including but not limited to:

(a) Governing the formation of the self-insurers' insolvency trust for the purpose of this chapter;

(b) Governing the organization and operation of the self-insurers' insolvency trust to assure compliance with the requirements of this chapter;

(c) Requiring adequate accountability of the collection and disbursement of funds in the self-insurers' insolvency trust; and

(d) Any other provisions necessary to carry out the requirements of this chapter.

Sec. 5. Section 32, chapter 289, Laws of 1971 ex. sess. as amended by section 7, chapter 57, Laws of 1986 and RCW 51.14.080 are each amended to read as follows:

If certification of a self-insurer is withdrawn by the director, the employer shall not be considered self-insured during any appeal and shall therefore obtain any necessary coverage through the state fund pending the resolution of said appeal. Certification ((~~of a self-insurer~~)) shall be withdrawn by the director upon one or more of the following grounds:

(1) The employer no longer meets the requirements, financial or otherwise, of a self-insurer; or

(2) The self-insurer's deposit is insufficient; or

(3) The self-insurer intentionally or repeatedly induces employees to fail to report injuries, induces claimants to treat injuries in the course of employment as off-the-job injuries, persuades claimants to accept less than the compensation due, or unreasonably makes it necessary for claimants to resort to proceedings against the employer to obtain compensation; or

(4) The self-insurer habitually fails to comply with rules and regulations of the director regarding reports or other requirements necessary to carry out the purposes of this title; or

(5) The self-insurer habitually engages in a practice of arbitrarily or unreasonably refusing employment to applicants for employment or discharging employees because of nondisabling bodily conditions; or

(6) The self-insurer fails to obtain and maintain a sufficient surety bond from the surety bond program for self-insurers, in which event certification shall be withdrawn effective the date that surety protection is no longer available; or

(7) The self-insurer fails to pay an insolvency assessment under the procedures established pursuant to RCW 51.14.077.

NEW SECTION. Sec. 6. A new section is added to chapter 51.14 RCW to read as follows:

(1) A surety bond commission is established. The commission will consist of five members appointed by the director, with one of the members representing labor and three representing self-insured employers. The fifth member shall be the director or the director's designee. Of the four remaining members originally appointed to the commission, two shall be appointed for an initial term of two years and two for an initial term of four years. Thereafter, labor and self-insured representatives to the commission shall serve four-year terms. In the event of a resignation prior to the end of a commission member's term, the director shall appoint a replacement to serve the remainder of the term. The department shall provide such office space, staff, and supplies as shall be necessary to the commission's operation.

(2) Every individual employer who is certified as a self-insured employer, except school districts, cities, counties, and other units of local government, shall obtain from the surety bond commission a surety bond issued pursuant to this section. The bond shall provide for the payment from the self-insured employers' surety bond fund, any unpaid assessments and any amounts paid in compensation or benefits to employees of insolvent or defaulting self-insured employers for injuries occurring on or after July 1, 1990, and diseases in which the last injurious exposure occurred on or after July 1, 1990. Such bonds shall be the sole method of guaranteeing such liabilities. At the discretion of the commission and pursuant to any rules adopted by the department, additional surety bonds may be purchased from the commission to cover potential liability for injuries and diseases occurring prior to July 1, 1990. The bond issued to each self-insured employer shall be for a face amount sufficient to cover the entire potential liability of that employer for the coverage period, as estimated by the director.

(3) The surety bond commission shall oversee a surety bond program for self-insured employers.

(a) Each self-insured employer who is issued a surety bond shall have an account balance within the surety bond fund, which shall be maintained at one percent of the face amount of the bond during the employer's first year of participation, two percent of the face amount of the bond during the employer's second year of participation, and three percent of the face amount of the bond thereafter.

(b) In arriving at the account balance, the self-insurer shall be credited with past contributions, including interest earned, after deducting a pro rata share of payments or accruals made by the fund in excess of the account balance of any defaulting self-insurer. Accruals shall include those payments projected to be made during the next year.

(c) In the event that a self-insurer's participation is discontinued, said self-insurer's account will be reconciled on an annual basis until complete release of the surety bond and the remaining balance is appropriate.

(d) At the discretion of the commission and pursuant to rules adopted by the department, a self-insured employer may be required to provide additional premiums or other security in order to obtain or maintain a surety bond under this section.

(4) The surety bond fund is created to provide security for benefits paid under this title to the injured workers, and their beneficiaries, of insolvent or defaulting self-insured employers and for the department's associated administrative costs, including attorneys' fees.

(a) The surety bond fund is established in the office of the state treasurer and shall be separate from other funds established and administered pursuant to this or any other title.

(b) The surety bond fund shall consist of premiums for bonds purchased by individual self-insured employers, except school districts, cities, counties, and other units of local government, as described in subsection (2) of this section.

(c) The surety bond fund shall be invested in common with the accident and medical aid funds, with all earnings attributable to the surety bond fund included in its balance.

(d) If the surety bond commission determines that reinsurance of the risks of the fund is appropriate, the commission may purchase such reinsurance, paying the cost from the fund.

(5) The surety bond program for self-insurers is not subject to chapter 19.72 RCW or to regulation by the state insurance commissioner.

(6) The director shall adopt any rules necessary to carry out the purposes of this section. For purposes of the application of this section, the department may adopt separate rules establishing the security requirements applicable to units of local government. In setting such requirements, the department shall take into consideration the ability of the governmental unit to meet its self-insured obligations, such as but not limited to source of funds, permanency, and right of default.

(7) Except for gross abuse of discretion, neither the surety bond commission, the department of labor and industries, the office of the state treasurer, the state investment board, nor the individual members or employees thereof shall incur any obligation or liability respecting the administration of this section.