BILL REQ. #:  S-0415.3 

Read first time 01/24/11.   Referred to Committee on Financial Institutions, Housing & Insurance.

     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.
     (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))) 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.
     (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.
     (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)) 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.
     (((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.