HOUSE BILL REPORT

ESB 5808

As Amended by the House

BYSenators Lee, Matson, McMullen, Warnke and Vognild

Authorizing the use of an irrevocable letter of credit by an employer choosing to self-insure under the industrial insurance act.

House Committe on Commerce & Labor

Majority Report:  Do pass with amendments.  (8)

      Signed by Representatives Vekich, Chair; Cole, Vice Chair; Patrick, Ranking Republican Member; Jones, R. King, Leonard, O'Brien and Prentice.

Minority Report:  Do not pass.  (3)

      Signed by Representatives Smith, Walker and Wolfe.

House Staff:Chris Cordes (786-7117)

AS PASSED HOUSE APRIL 14, 1989

BACKGROUND:

Qualified employers are allowed to self-insure their workers' compensation programs.  Self-insurers provide for administration of their injured workers' claims, under regulation by the Department of Labor and Industries.

To obtain certification as self-insurers, employers must establish to the Director of the Department of Labor and Industries' satisfaction that they have sufficient financial resources to meet all present and future obligations under the industrial insurance law. The department may also require self-insurers to supplement their financial ability to meet their industrial insurance obligations by depositing cash, securities, or a surety bond in an escrow account.

When a worker covered by industrial insurance is awarded a pension or dies as a result of an industrial injury, the department or self-insurer must make provision for pension payment.  The Department of Labor and Industries transfers an appropriate amount of funds to the reserve fund.  The self-insurer must pay cash into the reserve fund.  As an alternative to the cash payment, a self-insurer may file a bond or assign a savings account from a commercial bank to the department.  Under this alternative, the department pays benefits directly to the claimant or beneficiary and is reimbursed periodically by assessments against the self-insurer.

If a worker suffers a repeat injury (or illness) following an original injury, there may be a question whether the second occurrence is a new injury or merely an aggravation of the previous injury.  Identifying the responsible employer may depend on the determination.  The authority of the department to make the determination is unclear, especially if the determination raises a dispute over claim responsibility between self-insured employers and/or the department.

Injured worker claims files are confidential.  However, a representative of a worker may review the worker's file if specifically authorized by the worker.

An injured worker who has received temporary total disability payments under industrial insurance for 13 weeks or more may apply for a special base year computation when the worker files for unemployment compensation benefits in the future.  The special base year allows the worker to use the hours worked prior to his or her injury in determining eligibility for unemployment compensation. To be eligible for the special computation, the Employment Security Department must be notified in writing within 26 weeks after the week in which the worker's disability began.

Under the industrial insurance law, state agencies may participate in retrospective rating programs that pay premium refunds if the agency reduces its claim experience during the retrospective plan period.  State law does not clearly allow agencies to retain these premiums between fiscal periods.

SUMMARY:

Beginning January 1, 1990, qualified self- insurers may deposit an irrevocable letter of credit (as an alternative to money, securities, or a bond) to guarantee their future ability to meet industrial insurance obligations.  The issuer of the letter of credit must be a state or federally chartered bank authorized to do business in Washington.  To qualify for the letter of credit option, self-insurers must have a net worth of not less than $500 million and meet any criteria adopted by the Department of Labor and Industries.

The self-insurer alternative pension payment methods are expanded to include the purchase of annuities to secure pension obligations.  The department is required to adopt rules governing the annuity alternative.  The amount of the annuity may be adjusted periodically based upon redeterminations of the outstanding obligations by the department.

Under any of the alternative pension payment methods (bond, assigned account, or annuity), the self-insurer is responsible for making payments directly to the claimant instead of repaying payments made by the department.  The requirement is deleted that the self-insurer must deposit an amount equal to the first three months of payments with the department.

If a question arises whether to re-open an accepted claim or to allow a new injury claim, the department is responsible for making the order.  Pending the department's order, either the department or the self-insurer, as determined by the department, must pay industrial insurance benefits to the claimant.  Benefits must be paid at the lesser of the two applicable benefit amounts.  Benefits must be repaid by the entity finally determined to be responsible for the claim, or by the claimant if no entity is responsible for the claim.  The director may waive repayment by the claimant if recovery would be against equity and good conscience.  During any appeal of the department's determination, benefits would be continued.

Injured workers may review their claim files if the director determines, pursuant to criteria in department rules, that the review is in the claimant's interest. A self-insurer is required to provide a copy of the worker's claim file within 15 days of a request by the worker or worker's representative.  Self-insurers must notify the department within 10 days of any written protest by an injured worker to an appealable order.

The Department of Labor and Industries must give notice to the Employment Security Department when an injured worker has received temporary total disability payments for 13 consecutive weeks.

As an incentive for accident prevention, state agencies may carry industrial insurance premium refunds between fiscal periods without reversion or lapse of the funds.

Fiscal Note:      Not Requested.

House Committee ‑ Testified For:    (ENGROSSED SENATE BILL):  Ken Gibson, Washington Self-insurers Association.

House Committee - Testified Against:      (ENGROSSED SENATE BILL):  Basil Badley; Jody Moran, Department of Labor and Industries; and Jeff Johnson, Washington State Labor Council.

House Committee - Testimony For:    (ENGROSSED SENATE BILL):  The bill allows another option for self-insurers to secure their workers' compensation obligations at a time when security bonds are no longer readily available and are much more costly.

House Committee - Testimony Against:      (ENGROSSED SENATE BILL):  The letter of credit option needs changes that will add protections for the employees and the state fund if collection against the letter of credit is not possible.