PROPOSED RULES
LABOR AND INDUSTRIES
Original Notice.
Preproposal statement of inquiry was filed as WSR 99-14-084.
Title of Rule: WAC 296-15-021 Individual firm self insurance application, 296-15-031 Employee stock ownership plan self insurance application, 296-15-041 Joint venture self insurance application, 296-15-051 Public entity self insurance application, 296-15-061 Employer group self insurance application, 296-15-121 Surety for a self insurance program, 296-15-151 Surety for a public entity's self insurance program, 296-15-161 Surety for a group self insurance program, 296-15-171 Surety for a self insured pension or fatality claim, 296-15-181 Funding the benefits of an insolvent self insurer, and 296-15-221 Surety for a self insured pension or fatality claim.
Purpose: The rules are rewritten per the Governor's Executive Order 97-02.
Statutory Authority for Adoption: RCW 51.14.077, 51.14.120(7), 51.14.150(4), 51.14.160, 51.44.040(3), 51.44.070, 51.44.150.
Statute Being Implemented: Title 51 RCW.
Summary: The rules clarify department procedures to implement the statutes which apply to self-insured employers.
Name of Agency Personnel Responsible for Drafting, Implementation and Enforcement: Joyce Walker, Program Manager, Olympia, (360) 902-6907.
Name of Proponent: Department of Labor and Industries, governmental.
Rule is not necessitated by federal law, federal or state court decision.
Explanation of Rule, its Purpose, and Anticipated Effects: These rules clarify department requirements and the process for applications for firms to self insure their workers' compensation programs, for the financial security required for their programs and for pension or fatality claims and reporting requirements. The proposed rules are more easily understandable, employers will need less explanation from the department, and the number of phone calls for explanations will be cut, allowing more time to address more urgent issues than procedures.
Proposal Changes the Following Existing Rules: The original rules are being repealed, new rules have been redrafted according to the governor's executive order.
No small business economic impact statement has been prepared under chapter 19.85 RCW. The department has considered whether these rules are subject to the Regulatory Fairness Act and has determined they are not because these rules do not impact any small businesses. In order to qualify to self insure, a firm must demonstrate the financial ability to make certain the prompt payment of all foreseeable compensation and assessments required under the law. As such, only large firms are certified. All self-insured employers have more than fifty employees (each).
RCW 34.05.328 applies to this rule adoption. These rules replace WAC 296-15-010, 296-15-020, 296-15-022, 296-15-023, 296-15-025, 296-15-026, 296-15-02601, 296-15-02602, 296-15-02603, 296-15-02604, 296-15-02605, 296-15-030, 296-15-045, 296-15-050, 296-15-060, 296-15-065, 296-15-080, 296-15-090, 296-15-110, 296-15-130, 296-15-135, 296-15-145, 296-15-150, 296-15-170, 296-15-210, 296-15-215, and 296-15-220 which are being repealed. These rules are the primary instruction to self-insured employers on the department procedures they need to follow to apply for and maintain their self-insurance programs.
Hearing Location: Department of Labor and Industries Auditorium, 7273 Linderson Way, Olympia, on October 11, 1999, at 10 a.m.
Assistance for Persons with Disabilities: Contact Nancy Mead by September 27, 1999, at (360) 902-6906.
Submit Written Comments to: Fax (360) 902-6900, by October 11, 1999.
Date of Intended Adoption: November 17, 1999.
August 27, 1999
Gary Moore
Director
OTS-3347.1
NEW SECTION
WAC 296-15-021
Individual firm self insurance application.
(1) What does "individual firm" mean when applying for certification to self insure workers' compensation benefits? When applying for certification to self insure workers' compensation benefits, an "individual firm" means a sole proprietor, partnership or corporation which is responsible for its own audited financial statements.
(2) What minimum requirements must an individual firm meet to apply for self insurance certification? The department will consider an individual firm's application for self insurance certification if it:
(a) Meets the department's net worth requirement;
(b) Has been in business for three years; and
(c) Has acceptable accident prevention programs in place for at least six months in Washington locations.
(3) How does an individual firm apply? The individual firm must submit Self Insurance Application SIF-1 L&I form F207-001-000 and three years of financial statements with the most recent year's financial statement audited by a certified independent public accountant.
(4) What happens after an individual firm submits its application to the department? After the department receives an application from an individual firm, the department will:
(a) Conduct an evaluation of the written accident prevention program in effect at a sample of the applicant's locations;
(b) Consider all matters related to the application; and
(c) Notify the individual firm whether certification is approved or denied thirty days before the requested certification date unless more time is needed.
(5) What if the application is denied? The application will be denied if the individual firm does not meet the department's financial and/or accident prevention program requirements. If the application is denied for:
(a) Financial reasons, the individual firm may reapply after its next independently audited financial statement is available. The department may require the applicant to provide additional information.
(b) Accident prevention program deficiencies, the individual firm may be required to wait six months before reapplying.
(c) Both financial reasons and accident prevention program deficiencies, the individual firm may reapply after its next independently audited financial statement is available. The department may also require the applicant to wait six months before reapplying.
(6) What if the application is approved?
(a) If the application is approved, the individual firm must do all of the following before certification will be granted:
(i) Provide written acknowledgment L&I form F207-144-000 of its responsibility to pay benefits on all claims incurred during its period of self insurance. This obligation will continue even if the individual firm voluntarily or involuntarily surrenders its self insurance certification.
(ii) Provide surety in the amount determined necessary by the department. Surety must be filed with the department on a form provided by the department. Initial surety will be the greatest of:
(A) The minimum surety. This amount is calculated annually by department actuaries and is equal to the projected average current cost of a permanent total disability claim, including time loss, pension reserve and other claim costs paid prior to pension.
(B) The estimated annual amount of accident fund and medical aid fund premiums the self insurer would have paid if still in the state fund.
(C) The estimated amount of developed incurred benefits based on the self insurer's past experience with state fund adjusted for changes in the benefit schedules and exposure.
(D) The estimated average annual incurred losses made by an independent qualified actuary and accepted by the department.
Surety will never be established at a level lower than the minimum surety amount. The department may increase the initial surety amount if other conditions are expected to alter the potential claim costs and/or the self insurer's ability to pay them. A decrease will not be considered during the first three years of certification.
(iii) Pay its share of any state fund deficit or insufficiency. See the Employer's Guide to Self Insurance L&I form F207-079-000 for how the deficit share is calculated.
(iv) Obtain the services of an individual or service organization with an individual qualified to administer a Washington workers' compensation program.
(A) A qualified claim administrator has satisfactorily demonstrated to the department:
(I) A thorough knowledge in Title 51 RCW and all workers' compensation rules; and
(II) An expertise in claim adjudication.
(B) The claim administrator must also have the authority to make prompt:
(I) Payment of all compensation and assessments when due; and
(II) Decisions regarding claim adjudication and awards.
(C) If a service organization will be used, submit a copy of the service contract.
(I) The contract copy may delete clause(s) relating to payment of services.
(II) However, if payment for services is based on the number of claims filed by the self insurer's workers, this must be explained in detail. The department may require an unaltered copy of the agreement for clarification.
(b) The self insured individual firm will be held accountable for:
(i) Its entire workers' compensation program, including all actions on its claims, regardless of whether it contracts with a service organization or administers its own program; and
(ii) Complying with and keeping informed of all changes to industrial insurance laws and rules.
(c) Certification of an individual self insurer will include all of its subsidiaries (fifty percent owned and/or financial interest controlled by) or divisions doing business in Washington. One certificate will be issued to an approved self insurer. The subsidiaries or divisions will be considered one self insurer for all industrial insurance purposes.
(d) The effective date of certification will be the first day of the quarter after the department receives the surety and required documentation. If the applicant fails to provide the required information before the approved certification date and later wishes to follow through, the department will require the individual firm to reapply.
(7) What if an individual firm is a subsidiary of a corporation?
(a) If an individual self insured firm has a parent (owner of fifty percent and/or having controlling financial interest), the parent must provide the department with its written guarantee L&I form F207-040-000 to assume responsibility for all workers' compensation liabilities of the subsidiary if the subsidiary defaults on its liabilities.
(b) If a parent fails to provide a guarantee, the department will require the subsidiary to provide surety at one hundred twenty-five percent of its actual requirement. The subsidiary must continue to provide surety at the higher level as long as it has no parental guarantee.
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(1) What does "employee stock ownership plan" (ESOP) mean when applying for certification to self insure workers' compensation benefits? When applying for certification to self insure workers' compensation benefits, an "employee stock ownership plan" (ESOP) means the employees of a self insured firm have purchased majority controlling financial interest in the firm. The new ESOP will be required to return to the state fund for workers' compensation coverage, and after one year in the state fund, the ESOP may apply to become self insured.
(2) What minimum requirements must an ESOP meet to apply for self insurance certification? The department will consider an ESOP's application for self insurance certification if it:
(a) Meets the department's net worth requirement;
(b) Has been in business for one year; and
(c) Has acceptable accident prevention programs in place for at least six months in Washington locations.
(3) How does an ESOP apply? The ESOP must submit Self Insurance Application SIF-1 L&I form F207-001-000 with the most recent year's financial statement audited by a certified independent public accountant.
(4) What happens after an ESOP submits its application to the department? After the department receives an application from an ESOP, the department will:
(a) Conduct an evaluation of the written accident prevention program in effect at a sample of the applicant's locations;
(b) Consider all matters related to the application; and
(c) Notify the ESOP whether certification is approved or denied thirty days before the requested certification date unless more time is needed.
(5) What if the application is denied? The application will be denied if the ESOP does not meet the department's financial and/or accident prevention program requirements. If the application is denied for:
(a) Financial reasons, the ESOP may reapply after its next independently audited financial statement is available. The department may require the applicant to provide additional information.
(b) Accident prevention program deficiencies, the ESOP may be required to wait six months before reapplying.
(c) Both financial reasons and accident prevention program deficiencies, the ESOP may reapply after its next independently audited financial statement is available. The department may also require the applicant to wait six months before reapplying.
(6) What if the application is approved?
(a) If the application is approved, the ESOP must do all of the following before certification will be granted:
(i) Provide written acknowledgment L&I form F207-144-000 of its responsibility to pay benefits on all claims incurred during its period of self insurance. This obligation will continue even if the ESOP voluntarily or involuntarily surrenders its self insurance certification.
(ii) Provide surety in the amount determined necessary by the department. Surety must be filed with the department on a form provided by the department. For the first three years of certification, an ESOP must provide surety equal to one hundred twenty-five percent of its actual requirement. Initial surety will be the greatest of:
(A) The minimum surety. This amount is calculated annually by department actuaries and is equal to the projected average current cost of a permanent total disability claim, including time loss, pension reserve and other claim costs paid prior to pension.
(B) The estimated annual amount of accident fund and medical aid fund premiums the self insurer would have paid if still in the state fund.
(C) The estimated amount of developed incurred benefits based on the self insurer's past experience with state fund adjusted for changes in the benefit schedules and exposure.
(D) The estimated average annual incurred losses made by an independent certified public accountant and accepted by the department.
Surety will never be established at a level lower than the minimum surety amount. The department may increase the initial surety amount if other conditions are expected to alter the potential claim costs and/or the self insurer's ability to pay them. A decrease will not be considered during the first three years of certification.
(iii) Pay its share of any state fund deficit or insufficiency. See the Employer's Guide to Self Insurance L&I form F207-079-000 for how the deficit share is calculated.
(iv) Obtain the services of an individual or service organization with an individual qualified to administer a Washington workers' compensation program.
(A) A qualified claim administrator has satisfactorily demonstrated to the department:
(I) A thorough knowledge in Title 51 RCW and all workers' compensation rules; and
(II) An expertise in claim adjudication.
(B) The claim administrator must also have the authority to make prompt:
(I) Payment of all compensation and assessments when due; and
(II) Decisions regarding claim adjudication and awards.
(C) If a service organization will be used, submit a copy of the service contract.
(I) The contract copy may delete clause(s) relating to payment of services.
(II) However, if payment for services is based on the number of claims filed by the self insurer's workers, this must be explained in detail. The department may require an unaltered copy of the agreement for clarification.
(b) The self insured ESOP will be held accountable for:
(i) Its entire workers' compensation program, including all actions on its claims, regardless of whether it contracts with a service organization or administers its own program; and
(ii) Complying with and keeping informed of all changes to industrial insurance laws and rules.
(c) Certification of an ESOP will include all of its subsidiaries (fifty percent owned and/or financial interest controlled by) or divisions doing business in Washington. One certificate will be issued to an approved self insurer, and the subsidiaries or divisions will be considered one self insurer for all industrial insurance purposes.
(d) The effective date of certification will be the first day of the quarter after the department receives the surety and required documentation. If the applicant fails to provide the required information before the approved certification date and later wishes to follow through, the department will require the ESOP to reapply.
(7) What if an individual firm is a subsidiary of a corporation?
(a) If an ESOP has a parent (owner of fifty percent and/or having controlling financial interest), the parent must provide the department with its written guarantee L&I form F207-040-000 to assume responsibility for all workers' compensation liabilities of the subsidiary if the subsidiary defaults on its liabilities.
(b) If a parent fails to provide a guarantee, the department will require the subsidiary to provide surety at one hundred twenty-five percent of its actual requirement. The subsidiary must continue to provide surety at the higher level as long as it has no parental guarantee.
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(1) What does "joint venture" mean when applying for certification to self insure workers' compensation benefits? When applying for certification to self insure workers' compensation benefits, a "joint venture" means two or more firms which have signed a contractual agreement to operate as a single unit for a specified period of time.
(2) What minimum requirements must a joint venture meet to apply for self insurance certification? The department will consider a joint venture's application for self insurance certification if the joint venture is sponsored by a current self insurer which has majority financial interest in the joint venture's assets and profits.
(3) How does a joint venture apply? The joint venture must submit Self Insurance Application SIF-1 L&I form F207-001-000 and:
(a) Three years of financial statements of all parties having at least twenty percent financial interest in the joint venture, with the most recent year's financial statement audited by a certified independent public accountant;
(b) A copy of the joint venture agreement describing the obligations of each party for the joint venture's industrial insurance program; and
(c) Each party's written acknowledgment of its joint and several liability for continuing compensation if any party defaults. This responsibility continues until the department provides a written release from this responsibility to the joint venture or remaining party to the joint venture.
(4) What happens after a joint venture submits its application to the department? After the department receives an application from a joint venture:
(a) The sponsoring self insurer has the responsibility to ensure the adequacy of the written accident prevention program in effect at the joint venture's locations;
(b) The department will consider all matters related to the application; and
(c) The department will notify the joint venture whether certification is approved or denied thirty days before the requested certification date unless more time is needed.
(5) What if the application is denied? The application will be denied if the joint venture does not meet the department's financial requirements. If the application is denied, the joint venture may reapply after the next independently audited financial statements of the original applicants are available. The department may require the joint venture to provide additional information.
(6) What if the application is approved?
(a) If the application is approved, the joint venture must do all of the following before certification will be granted:
(i) Provide surety in the amount determined necessary by the department. Surety must be filed with the department on a form provided by the department. Surety must name the joint venture and all parties as principal. Initial surety will be the greatest of:
(A) The minimum surety. This amount is calculated annually by department actuaries and is equal to the projected average current cost of a permanent total disability claim, including time loss, pension reserve and other claim costs paid prior to pension.
(B) The estimated annual amount of accident fund and medical aid fund premiums the self insurer would have paid if still in the state fund.
Surety will never be established at a level lower than the minimum surety amount.
(ii) Pay its share of any state fund deficit or insufficiency. See the Employer's Guide to Self Insurance L&I form F207-079-000 for how the deficit share is calculated.
(iii) Obtain the services of an individual or service organization with an individual qualified to administer a Washington workers' compensation program.
(A) A qualified claim administrator has satisfactorily demonstrated to the department:
(I) A thorough knowledge in Title 51 RCW and all workers' compensation rules; and
(II) An expertise in claim adjudication.
(B) The claim administrator must also have the authority to make prompt:
(I) Payment of all compensation and assessments when due; and
(II) Decisions regarding claim adjudication and awards.
(C) If a service organization will be used, submit a copy of the service contract.
(I) The contract copy may delete clause(s) relating to payment of services.
(II) However, if payment for services is based on the number of claims filed by the self insurer's workers, this must be explained in detail. The department may require an unaltered copy of the agreement for clarification.
(b) The self insured joint venture will be held accountable for:
(i) Its entire workers' compensation program, including all actions on its claims, regardless of whether it contracts with a service organization or administers its own program; and
(ii) Complying with and keeping informed of all changes to industrial insurance laws and rules.
(c) The effective date of certification will be the first day of the month after the department receives the surety and required documentation. If the applicant fails to provide the required information before the approved certification date and later wishes to follow through, the department will require the joint venture to reapply.
(7) What responsibility does the self insured sponsor have for the joint venture? The sponsor must provide written acknowledgment of its responsibility for the management of all claims and payment of all compensation incurred during the period of the joint venture's self insurance and after the joint venture has been dissolved. The acknowledgment must include the sponsor's responsibility for the continuation of benefits if any party to the joint venture or the joint venture defaults.
(8) When can a minority partner be released from its joint venture obligations? If the sponsor submits a written request, the department may release a minority party from its obligations under the joint venture after:
(a) The contract has been fulfilled; and
(b) A final settlement of the joint venture account has been made.
[]
(1) What does "public entity" mean when applying for certification to self insure workers' compensation benefits? When applying for certification to self insure workers' compensation benefits, "public entity" means an individual city, county, school district, port, public hospital district, public utility district, or other public corporation.
(2) What minimum requirements must a public entity meet to apply for self insurance certification? The department will consider a public entity's application for self insurance certification if it:
(a) Meets the department's net worth requirement;
(b) Has been in business for three years; and
(c) Has acceptable accident prevention programs in place for at least six months in Washington locations.
(3) How does a public entity apply? A public entity must submit Self Insurance Application SIF-1 L&I form F207-001-000 and three years of financial statements with the most recent year's financial statement audited by a certified independent public accountant or state auditor.
(4) What happens after a public entity submits its application to the department? After the department receives an application from a public entity, the department will:
(a) Conduct an evaluation of the written accident prevention program in effect at a sample of the applicant's locations;
(b) Consider all matters related to the application; and
(c) Notify the public entity whether certification is approved or denied thirty days before the requested certification date unless more time is needed.
(5) What if the application is denied? The application will be denied if the public entity does not meet the department's financial and/or accident prevention program requirements. If the application is denied for:
(a) Financial reasons, the public entity may reapply after its next independently audited financial statement is available. The department may require the applicant to provide additional information.
(b) Accident prevention program deficiencies, the public entity may be required to wait six months before reapplying.
(c) Both financial reasons and accident prevention program deficiencies, the public entity may reapply after its next independently audited financial statement is available. The applicant may also be required to wait six months before reapplying.
(6) What if the application is approved?
(a) If the application is approved, the public entity must do all of the following before certification will be granted:
(i) Provide written acknowledgment L&I form F207-144-000 of its responsibility to pay benefits on all claims incurred during its period of self insurance. This obligation will continue even if the public entity voluntarily or involuntarily surrenders its self insurance certification.
(ii) Provide surety in the amount determined necessary by the department.
(A) A public entity's surety must provide for sufficient revenues to satisfy the total estimated claim costs for the upcoming fiscal period. Surety must be filed with the department on a form provided by the department. The minimum surety level will be established by the department.
(B) Each public entity must also establish a cumulative reserve of at least twenty-five percent of its surety requirement. Use a surety type accepted by the department.
The department may increase the initial surety amount if other conditions are expected to alter the potential claim costs and/or the self insurer's ability to pay them. A decrease will not be considered during the first three years of certification.
(iii) Pay its share of any state fund deficit or insufficiency. See the Employer's Guide to Self Insurance L&I form F207-079-000 for how the deficit share is calculated.
(iv) Obtain the services of an individual or service organization with an individual qualified to administer a Washington workers' compensation program.
(A) A qualified claim administrator has satisfactorily demonstrated to the department:
(I) A thorough knowledge in Title 51 RCW and all workers' compensation rules; and
(II) An expertise in claim adjudication.
(B) The claim administrator must also have the authority to make prompt:
(I) Payment of all compensation and assessments when due; and
(II) Decisions regarding claim adjudication and awards.
(C) If a service organization will be used, submit a copy of the service contract.
(I) The contract copy may delete clause(s) relating to payment of services.
(II) However, if payment for services is based on the number of claims filed by the self insurer's workers, this must be explained in detail. The department may require an unaltered copy of the agreement for clarification.
(b) The self insured public entity will be held accountable for:
(i) Its entire workers' compensation program, including all actions on its claims, regardless of whether it contracts with a service organization or administers its own program; and
(ii) Complying with and keeping informed of all changes to industrial insurance laws and rules.
(c) Certification of a public entity will include all of its business operations in Washington. One certificate will be issued to an approved self insurer, and the public entity's business operations will be considered one self insurer for all industrial insurance purposes.
(d) The effective date of certification will be the first day of the quarter after the department receives the surety and required documentation. If the applicant fails to provide the required information before the approved certification date and later wishes to follow through, the department will require the public entity to reapply.
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(1) What does an "employer group" mean when applying for certification to self insure workers' compensation benefits? When applying for certification to self insure its workers' compensation benefits, an "employer group" means a group of employers qualified to self insure under Title 51 RCW.
(2) What minimum requirements must a group meet to apply for self insurance certification? The department will consider a group's application for self insurance certification if the qualified group of employers has acceptable accident prevention programs in place for at least six months in Washington locations.
(3) How does an employer group apply? The initial board of trustees of the proposed group submits a complete and accurate application, including:
(a) A copy of the group's bylaws.
(b) Individual applications and current audited financial statement of each member.
(c) A financial statement collectively showing the financial condition of members.
(d) Evidence of the fiscal agent's/administrator's fidelity bond with the trust fund. The bond must be sufficient to protect the trust fund against misappropriation or misuse of any money or securities. The bond is a condition for a group to become certified and for the continued operation of the trust fund.
(e) A listing of the estimated standard premium to be developed for each member individually and the estimated standard premium of the group as a whole.
(f) An indemnity agreement jointly and severally binding the group and each member to comply with the provisions of Title 51 RCW.
(g) A detailed budget of all projected administrative expenses for the first year of operation.
(4) What happens after the application is submitted to the department? After the application is submitted, the department will:
(a) Conduct an evaluation of proposed group members' written accident prevention programs in effect at a sample of the applicant's locations;
(b) Consider all matters related to the application; and
(c) Notify the group whether certification is approved or denied thirty days before the requested certification date if possible.
(5) What if the application is denied? The application will be denied if the group does not meet the department's financial and/or accident prevention program requirements. If the application is denied for:
(a) Financial reasons, the group may reapply after the next independently audited financial statements of the original applicants are available. The department may require additional information.
(b) Because of deficiencies in its accident prevention program, the applicant may be required to wait six months before reapplying.
(c) Both financial reasons and accident prevention program deficiencies, the group may reapply after the next independently audited financial statements of the original applicants are available. The department may also require the applicant to wait six months before reapplying.
(6) What if the application is approved?
(a) If the application is approved, the group must do all of the following before certification will be granted:
(i) Provide to the department:
(A) Written acknowledgment L&I form F207-144-000 of the group's responsibility for the payment of benefits on all claims incurred during its period of self insurance. This obligation will continue even if the group voluntarily or involuntarily surrenders its self insurance certification.
(B) Evidence of the administrator or fiscal agent's fidelity bond.
(C) Surety in the amount determined necessary by the department. Surety must be filed with the department on a form provided by the department. The group self insurer must maintain adequate financial reserves to cover the group's claims liabilities and administrative expenses, including the administrative assessment which would apply to claim costs if the group discontinued.
(I) For the first year of operation, adequate means the group self insurer has collected revenues from members which total one hundred twenty-five percent of the premiums which would have been paid into the state fund, and the group has submitted documentation of the collected revenues to the department.
(II) For subsequent years of operation, adequate means the group self insurer has collected revenues from its members which equal one hundred percent of the premiums which would have been paid into the state fund for each year of operation, and the group has submitted documentation of the collected revenues to the department.
(D) Evidence of:
(I) Excess workers' compensation coverage and reserves covering the difference between the aggregate retention level and claim expenditures; or
(II) Maintaining a contingency reserve to cover any adverse development of claim liability. The contingency reserve must equal the greater of fifteen percent of the claims liability or twenty-five percent of the premium amount.
The department may increase the initial surety amount if other conditions are expected to alter the potential claim costs and/or the group's ability to pay them. A decrease will not be considered during the first five years of certification.
(ii) Pay its share of any state fund deficit or insufficiency. See the Employer's Guide to Self Insurance L&I form F207-079-000 for how the deficit share is calculated.
(iii) Obtain the services of an individual or service organization with an individual qualified to administer a Washington workers' compensation program.
(A) A qualified claim administrator has satisfactorily demonstrated to the department:
(I) A thorough knowledge in Title 51 RCW and all workers' compensation rules; and
(II) An expertise in claim adjudication.
(B) The claim administrator must also have the authority to make prompt:
(I) Payment of all compensation and assessments when due; and
(II) Decisions regarding claim adjudication and awards.
(C) If a service organization will be used, submit a copy of the service contract.
(I) The contract copy may delete clause(s) relating to payment of services.
(II) However, if payment for services is based on the number of claims filed by the self insurer's workers, this must be explained in detail. The department may require an unaltered copy of the agreement for clarification.
(b) The group self insurer will be held accountable for:
(i) Its entire workers' compensation program, including all actions on its claims, regardless of whether it contracts with a service organization or administers its own program; and
(ii) Complying with and keeping informed of all changes to industrial insurance laws and rules.
(c) Certification will be effective the first day of the quarter after the department receives the surety and required documentation. If the applicant fails to provide the required information before the approved certification date and later wishes to follow through, the department will require the group to reapply.
(d) Certification of a group will include all of its members
doing business in Washington. One certificate will be issued to
an approved self insurer. All members of a group will be
considered as one self insurer for the purposes of Title 51 RCW.
(7) After becoming self insured, how will a group admit or terminate individual members?
(a) Prospective members must submit an application to the group's board of trustees or its administrator. Approved applications must be filed with the department. Membership will take effect the first day of the calendar quarter after sending the application to the department.
(b) A group may terminate individual members according to its bylaws, or members may choose to terminate membership. Termination will be effective at the end of the month after it was reported to the department.
(8) Who is on a group self insurer's board of trustees? Members of the group elect the board of trustees. Trustees serve stated terms of office and direct the administration of the trust fund.
(9) What are the responsibilities of a group self insurer's board of trustees?
(a) A group self insurer's board of trustees is responsible for all operations of the group's trust fund and is expected to ensure the fund's financial stability. The board's duties include:
(i) Approving new members' applications.
(ii) Designating a fiscal agent and/or administrator to administer the financial affairs of the trust fund in accordance with Title 51 RCW and workers' compensation rules, including those regarding investments of funds, budget and accounting procedures.
(iii) Setting the schedule of due dates and premium amounts.
(iv) Managing deposits to and disbursements from the trust fund.
(v) Auditing the accounts and records of the trust fund annually and whenever required by the department. Copies of audits are due in the department within six months after the close of the fund year.
(vi) Maintaining and providing at department request:
(A) Summary loss data; and
(B) Certified copies of the minutes of trustee meetings.
(b) If specifically defined in board meeting minutes, the
board may delegate authority for:
(i) Contracting with a service organization.
(ii) According to department requirements regarding investing surplus moneys, determining premiums and refunds.
(iii) Approving applications for membership.
(10) What are a group self insurer's trustees, fiscal agents or administrators specifically prohibited from?
(a) A group self insurer's trustee, fiscal agent or administrator CANNOT BE either:
(i) An owner or employee of a company under contract to the trust fund; or
(ii) An officer or employee of a service organization contracted to handle any business function of the group.
(b) A group self insurer's trustee, fiscal agent or administrator CANNOT do any of the following:
(i) Extend credit to members for premium payment.
(ii) Use money collected as premiums for any purpose unrelated to workers' compensation.
(iii) Borrow from or in the name of the fund without prior department approval. The group must advise the department of the purpose of the loan, and the department may decline to approve the loan.
(iv) During any coverage period, collect less than will be needed to cover claim and administrative costs, department assessments and a contingency reserve.
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(1) What is surety? Surety is the legal financial guarantee each self insurer must provide to the department for its self insured workers' compensation program. Failure to provide surety in the amount required by the department will result in the withdrawal of the self insurer's certification. If a self insurer defaults on (stops payment of) benefits and assessments, the department will use its surety to cover these costs.
(a) Surety must be provided on the department's form. The original will be kept by the department. Surety must cover all past, present and future self insurance liabilities.
(b) Surety may not be used by a self insurer to:
(i) Pay its workers' compensation benefits; or
(ii) Serve as collateral for any other banking transactions.
(c) Surety is not an asset of the self insurer and will not be released by the department if the self insurer files a petition for dissolution or relief under bankruptcy laws.
(d) The department will determine the amount of surety each self insurer must provide. The surety level may be increased or decreased to maintain its adequacy when necessary.
(2) What types of self insurance surety will the department accept? The department will accept the following types of surety:
(a) Cash, corporate or governmental securities deposited with a department approved escrow agent and administered by a written agreement L&I form F207-039-000 between the department, self insurer and escrow agent. Use L&I form F207-137-000 for any rider/amendment to the escrow account.
An escrow account may not be used by the self insurer to satisfy any other obligation to the bank which maintains the escrow account.
(b) A bond L&I form F207-068-000 written by a company
approved to transact surety business in Washington. Use L&I form
F207-134-000 for any rider/amendment to the bond.
(c) An irrevocable standby letter of credit (LOC) L&I form F207-112-000 if the self insurer has a net worth of at least 500 million dollars. Use L&I form F207-111-000 for any rider/amendment. LOCs are subject to acceptance by the department. Acceptance includes, but is not limited to, approval of the financial condition of the issuing or confirming bank.
(i) The issuing or confirming bank must have a location in Washington. The bank must provide the department with an audited financial statement or call report made to the banking regulatory agencies for the most recent fiscal year. An audited statement/call report is due at LOC issuance and annually while the LOC is in effect.
(ii) The self insurer must provide the department a memorandum of understanding L&I form F207-113-000 showing the self insurer's agreement with the following conditions:
(A) The department will automatically extend an LOC for an additional year unless notified otherwise by registered mail at least sixty days prior to expiration.
(B) If the department is notified an LOC will not be replaced, and the self insurer fails to provide acceptable replacement surety within thirty days of notice:
(I) The department will draw the full value of the LOC. All proceeds of the LOC will be deposited with the department;
(II) Accrued interest in excess of the surety requirement will be returned semiannually to the self insurer; and
(III) If acceptable replacement surety is later provided, the proceeds of the LOC and accrued interest will be returned to the self insurer.
(C) If the self insurer defaults on the payment of workers' compensation benefits and has failed to provide acceptable replacement surety for an expired LOC:
(I) The title to the proceeds will be transferred to the department; and
(II) The proceeds and accrued interest will be used to pay the self insurer's workers' compensation benefits.
(D) If the self insurer defaults on the payment of workers' compensation benefits and has an LOC in force:
(I) The department will draw the full value of the LOC. All proceeds of the LOC will be deposited with the department; and
(II) The proceeds and accrued interest will be used to pay the self insurer's workers' compensation benefits.
(iii) If the self insurer provides another acceptable type of surety in the amount required by the department, the department's interest in the LOC will be released.
(iv) All legal proceedings regarding a self insurer's LOC will be subject to Washington laws and courts.
(3) How often is each self insurer's surety requirement reviewed? Each self insurer's surety requirement is reviewed annually based on the self insurer's annual report.
(4) When could a self insurer's surety level change?
(a) Surety will be maintained at the current level unless the department's estimate or an independent qualified actuary's estimate of the self insurer's outstanding claim liabilities changes by more than twenty-five thousand dollars.
(b) Surety changes are due by July 1 of each year.
(5) How does the department determine the required surety level? The department analyzes each self insurer's loss history using incurred development, paid development or other department approved actuarial methods of loss development. The following factors also may influence the surety determination:
(a) Pension claims.
(b) Reinsurance.
(c) Inconsistency in reserving practices.
(d) Independent qualified actuarial estimate.
(e) Surety cap.
(6) What is considered reinsurance? For the purposes of Title 51 RCW, excess insurance and reinsurance mean the same thing.
(7) May a self insurer reinsure part of its liability?
(a) A self insurer may reinsure up to eighty percent of its liability under Title 51 RCW.
(b) The reinsuring company and its personnel are prohibited from participating in the administration of the responsibilities of the self insurer.
(c) Reinsurance policies issued after July 1, 1975, must include endorsements which state (a) and (b) of this subsection.
(d) The self insurer must:
(i) Notify the department of the name of the insurance carrier, the extent and coverage period of the policy; and
(ii) Submit copies of all reinsurance policies in force including all modifications and renewal provisions.
(e) The department may accept a certificate of insurance L&I form F207-095-000 in place of the policy if it certifies all coverage conditions and exceptions and that the reinsurance company and its personnel do not participate in the administration of the responsibilities of the self insurer under Title 51 RCW.
(8) What if a self insurer ends its self insured workers' compensation program? If a self insurer voluntarily surrenders certification or has its certificate involuntarily withdrawn by the department, the former self insurer must continue to do all of the following:
(a) Pay benefits on claims incurred during its period of self insurance. Claim reopenings and new claims filed for occupational diseases incurred during the period of self insurance remain the obligation of the former self insurer.
(b) File quarterly and annual reports as long as quarterly reporting is required. A former self insurer may ask the department to release it from quarterly reporting after it has had no claim activity with the exception of pension or death benefits for a full year.
(c) Provide surety at the department required level. The department may require an increase in surety based on annual reports as they continue to be filed. Surety will not be reduced from the last required level (while self insured) until three full calendar years after the certificate was terminated. A bond may be cancelled for future obligations but it continues to provide surety for claims occurring prior to its cancellation.
(d) Pay insolvency trust assessments for three years after surrender or withdrawal of certificate.
(e) Pay all expenses for a final audit of its self insurance program.
(9) When could the department consider releasing surety to a former self insurer or its successor?
(a) The department may consider release of surety to a former self insurer or its successor when all of the following have occurred:
(i) All claims against the self insurer are closed; and
(ii) The self insurer has been released from quarterly reporting for at least ten years.
(b) If the department releases surety, the former self insurer remains responsible for claim reopenings and new claims filed for occupational disease incurred during the period of self insurance.
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(1) How does the department determine the required surety level for a public entity? The required surety level for a public entity will be its estimated claim costs for all claims during the upcoming fiscal year. The minimum surety amount will be determined annually by the department.
(2) How does a public entity provide surety? By July 1 of each year, each public entity must submit its public entity surety certification. A public entity's surety certification must demonstrate that it has sufficient revenues in its next budget to meet its estimated claim costs for the next fiscal year by documenting:
(a) The estimated claim liabilities;
(b) Source of revenues, detailing accounts identified for self insurance obligations; and
(c) How the cumulative reserve (twenty-five percent of the required surety) is funded and show the account balance.
(3) What type of surety may a public entity use for its cumulative reserve? A public entity may provide surety for its cumulative reserve using any of the surety types listed in WAC 296-15-221.
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(1) How does the department determine the required surety level for a group self insurer? After the initial five years of certification, the department will annually calculate the surety requirement for a group self insurer by comparing its original liability estimate to its reserve fund. If the difference is:
(a) Less than fifteen percent, the department will accept the stated reserves of the group as the required surety level.
(b) Greater than fifteen percent, the department will establish the group's required surety level.
(2) What type of surety is acceptable for a group self insurer's reserve fund? A group self insurer's reserve fund must be cash.
(3) May a group self insurer pay expenses from its reserve fund? A group self insurer may pay only the following items from its cash reserve fund:
(a) Administrative expenses for operating the group self insurance program, including claims handling expenses, legal, investigative or administrative costs and department administrative assessments.
(b) Claim expenditures. Supplemental pension fund (SPRF) benefits may also be paid from the reserve fund if the group redeposits SPRF reimbursements into the reserve account. Interest earned by the reserve account must remain in the account while this method is in effect.
(c) Reinsurance premiums. All recoveries from these policies must be redeposited into the reserve fund. Within eighteen months of premium payment, the group must return the amount paid for premiums if reinsurance recoveries were not sufficient to return the account to its original amount.
(4) How can a group self insurer assess its members for reserve fund costs? A group self insurer may determine how it will assess members for required reserve fund costs The group's bylaws must describe the procedures it will use to collect these costs.
(5) Must a group self insurer purchase reinsurance? A group self insurer must obtain reinsurance for each year of operation to ensure adequate protection against catastrophic or unexpected loss.
(6) What if a group self insurer collects excess premiums during a fund year and has a surplus? A group self insurer may refund surplus money from a fund year if it retains sufficient money to fulfill all of its workers' compensation obligations. This includes maintaining the required reserve fund.
(7) What if a group self insurer collects insufficient premiums during a fund year and has a deficit? A group self insurer may cover a deficit by:
(a) After receiving department approval, using:
(i) Unencumbered surplus from a different fund year;
(ii) An alternative method; or
(b) Assessing the membership. The department may require the group to use this method.
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(1) When must a self insurer provide funding for a permanent total disability (pension) or fatality claim? Within sixty days of receipt of the order, the self insurer must fund the pension or fatality claim.
(2) What types of funding may a self insurer use for a pension or fatality claim? A self insurer may fund a pension or fatality claim with cash, a bond on L&I form F207-065-000, annuity on L&I form F207-129-000 or assignment of account on L&I form F207-058-000. If the pension benefit level increases, the self insurer must increase the surety level or provide additional surety to cover the deficiencies.
(3) What is an annuity? An annuity is a contract with an insurance company where the insurance company agrees to pay to the department a specific amount covering the lifetime of a claimant.
(4) What is an assignment of account? A self insurance assignment of account/certificate of deposit is a legal instrument executed by the self insurer and an approved commercial banking institution in Washington. The assignment of account must:
(a) Identify an existing account on deposit with the approved banking institution in the name of the self insurer. The existing assigned account must contain the amount determined necessary by the department to cover the pension benefits on the specific claim beyond all other assignments on that account. A separate assignment of account must be established for each pension.
(b) Bind the self insurer to maintain a balance in the assigned account at least equal to the current present cash value of the pension benefits on the claim and beyond all other assignments on the account for the life of the claim. Present cash values of the assigned account/certificate of deposit will be revised annually by the department. Quarterly pension payments made from the assigned account must not reduce the account balance below the present cash value of the pension beyond all other assignments on the same account.
(c) Authorize the department, if the self insurer defaults, to immediately withdraw up to the entire amount assigned to the pension claim from the assigned account/certificate of deposit. The department will take this action without notifying the defaulting self insurer.
(d) If the bank holding the assignment of account/certificate of deposit fails, the self insurer is responsible for the entire amount of the pension or fatality obligation. Within thirty days, the self insurer must:
(i) Establish a new assignment of account/certificate of deposit, bond; or
(ii) Deposit cash into the reserve fund.
(e) If the self insurer ends its self insurance status, the assignment of account/certificate of deposit will be placed with the department. The department will determine the required reserve for the pension or fatality claim, and any excess will be returned to the former self insurer.
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(1) What happens when a self insurer defaults on (stops paying) workers' compensation benefits and assessments? When a self insurer stops paying workers' compensation benefits or assessments, and the default is not due to a claims administration decision, the department will take over its surety and claims. The department will manage the claims and bill the surety each quarter to reimburse benefits paid.
(2) If a defaulting self insurer has multiple types of surety, who determines the order in which surety will be used? The department has the sole authority to determine the order in which surety types will be used.
(3) What happens if the defaulting self insurer's surety is exhausted? When surety is exhausted, the insolvency trust (all self insurers except school districts, cities and counties) will be assessed quarterly to cover the claim costs paid on behalf of the defaulted self insurer.
(4) Who is on the insolvency trust board? The insolvency trust board consists of the director or designee, three representatives of self insured employers and one representative of workers. Representatives are nominated by the self insured and labor communities and are appointed by the director for overlapping two year terms.
(5) What does the insolvency trust board do? The board advises the department on insolvency trust matters. The department makes all final decisions.
(6) What annual report is provided on the insolvency trust fund? The department provides a written status report on the insolvency trust fund as of the end of the previous calendar year annually to the workers' compensation advisory committee. The report is presented at the committee's first quarterly meeting no later than March 31.
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(1) What information must self insurers report to the department? Each self insurer must provide the department:
(a) The name, title, address and phone number of the single contact person who is the liaison with the department in all self insurance matters. This contact will be sent all department correspondence and is responsible for forwarding information to appropriate parties for timely action.
(b) A copy of its current policy of applying sick leave, health and welfare benefits or any other compensation in conjunction with or as a substitute for time loss benefits.
(2) When must self insurers notify the department of business status changes? Self insurers must notify the department in writing:
(a) Immediately, of any plans to:
(i) Cease business entirely or cease business in Washington; or
(ii) Dispose of controlling financial interest of the original self insurer. The self insurer must surrender its certificate for cancellation if requested by the department.
(b) Within thirty days, of any:
(i) Amendment(s) or modification(s) to the self insurer's articles, charter or agreement of incorporation, association, copartnership or sole proprietorship which will materially change the business identity or structure originally certified.
(A) The department may require additional documentation.
(B) If the self insurer becomes a subsidiary to another firm, the parent must provide the department with its written guarantee L&I form F207-040-001 to assume responsibility for all workers' compensation liabilities of the subsidiary if the subsidiary defaults on its liabilities. See WAC 296-15-021 for additional information.
(ii) Separation (for example, divestiture or spinoff) of any part of the original self insurer.
(A) The original self insurer remains responsible for claims liability of the separated part up to the date of separation unless the department approves an alternative.
(B) If the separating part wishes to continue self insurance, it must submit an application to the department at least thirty days before separation and requested certification.
(C) If certification cannot be granted before separation, industrial insurance coverage must be purchased from the state fund from the date of separation.
(iii) Relocating, adding or closing physical locations.
(3) When must self insurers notify the department of administrative changes? Self insurers must notify the department in writing within ten days, of any change to its:
(a) Single contact person who is the liaison with the department in all self insurance matters. Include the contact's title, address and phone number.
(b) Contract with a service organization/third party administrator independent of the self insurer which will participate in the self insurer's responsibilities. Submit a copy of the service contract. See WAC 296-15-021 for additional information.
(c) Administrator of its workers' compensation program.
(4) What reports must self insurers submit to the department? Each self insurer must submit:
(a) Complete and accurate quarterly reports summarizing worker hours and claim costs paid the previous quarter. Use a form substantially similar to the preprinted SIQTRR form sent by the department. Payment is due the 30th day after receiving the preprinted report from the department. This report is the basis for determining the administrative, second injury fund, supplemental pension, asbestosis and insolvency trust assessments.
(i) Administrative, second injury fund and insolvency trust assessments are based on a self insurer's total claim costs. Total claim costs during a quarter include, but are not limited to:
(A) Time loss compensation. Include the amount of time loss the worker would have been entitled to if kept on full salary.
(B) Permanent partial disability (PPD) awards.
(C) Medical bills.
(D) Prescriptions.
(E) Medical appliances.
(F) Independent medical examinations and/or consultations.
(G) Loss of earning power.
(H) Travel expenses for treatment or rehabilitation.
(I) Vocational rehabilitation expenses.
(J) Penalties paid to injured workers.
(K) Interest on board orders.
(ii) Supplemental pension (SPRF) and asbestosis fund assessments are based on a self insurer's worker hours. Worker hours must be reported as defined in chapter 296-17 WAC General reporting rules, classifications, audit and recordkeeping, rates and rating system for Washington workers' compensation insurance.
| Note: | Self insurers may request reimbursement quarterly from SPRF as authorized under Title 51 RCW. Use a form substantially similar to L&I form F207-011-000 or F207-011-222, if there is social security offset. |
(A) The administrative assessment rate is based on the actual costs of the previous fiscal year and the anticipated costs of the upcoming fiscal year. Employers certified after the fiscal year used for calculation will be assessed at a rate that does not include prior fiscal periods.
(B) Employers no longer self insured must pay an adjusted assessment rate until one year after all self insurance liabilities and responsibilities are terminated.
(C) The minimum quarterly assessment is twenty-five dollars.
(iv) The second injury fund rate will be based on anticipated second injury fund costs.
(A) Self insurers' contributions to the second injury fund will be recorded in the self insurers' account, separate from the state fund account.
(B) The self insurers' second injury fund must maintain a two hundred thousand dollars minimum balance.
(v) Insolvency trust members (all self insurers except school districts, cities and counties) are also assessed to cover claim payments made by the department on behalf of insolvent self insurers. School districts, cities and counties are exempt from and are not covered by this insolvency trust. Any interest earned on the assessment becomes part of the insolvency trust fund. The insolvency assessment rate is applied to a self insurer's total claim costs. Failure to pay an insolvency trust assessment is grounds for withdrawal of certification. Members who voluntarily surrender certification must continue to pay this assessment for three years after the date of surrender.
(b) Complete and accurate annual report of all claim costs paid for each year of liability with an estimate of future claim costs. Use a form substantially similar to SIF-7 L&I form F207-007-000. This report is due March 1, and is the basis for the department's annual determination of each self insurer's surety requirement.
(c) Fully audited financial statement within six months after the end of the self insurer's fiscal year. This report demonstrates the self insurer's continued ability to provide benefits and assessments as required. The department will consider a written request for filing time extension.
(i) This statement must be prepared by a certified public accountant.
(ii) A self insurer with a parental guarantee may submit the parent's fully audited financial statement if the parent's audited statement includes the financial condition of all subsidiaries, including the self insurer.
(iii) A political subdivision of the state may submit a state auditor's report if it includes the self insurer's audited financial statement. If the state auditor does not audit annually, political subdivisions must submit financial statements prepared internally for the years between reports by the state auditor.
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The following sections of the Washington Administrative Code are repealed:
| WAC 296-15-010 | Preamble and authority. |
| WAC 296-15-020 | Certification to self-insure. |
| WAC 296-15-022 | Corporate guarantee. |
| WAC 296-15-023 | Entities included in certification. |
| WAC 296-15-025 | Joint venture. |
| WAC 296-15-026 | Group self-insurance application. |
| WAC 296-15-02601 | Group self-insurers admission of new members, termination of individual members. |
| WAC 296-15-02602 | Group self-insurance reports. |
| WAC 296-15-02603 | Group self-insurance trustee responsibilities. |
| WAC 296-15-02604 | Group self-insurance funds--Surplus distribution--Deficit. |
| WAC 296-15-02605 | Reserves. |
| WAC 296-15-030 | Surety requirement. |
| WAC 296-15-045 | Payment of deficit. |
| WAC 296-15-050 | Reinsurance. |
| WAC 296-15-060 | Administrative cost assessment. |
| WAC 296-15-065 | Self-insurers' insolvency trust. |
| WAC 296-15-080 | Statement of financial condition. |
| WAC 296-15-090 | Application of supplemental moneys in payment of compensation. |
| WAC 296-15-110 | Contract with a service organization. |
| WAC 296-15-130 | Administration of self-insurance. |
| WAC 296-15-135 | Contact person. |
| WAC 296-15-145 | Expense of withdrawn certificate audit. |
| WAC 296-15-150 | Accident prevention program. |
| WAC 296-15-170 | Cessation of business--Change of status. |
| WAC 296-15-210 | Supplementation of temporary total disability compensation by self-insured employers. |
| WAC 296-15-215 | Cash, bond or assignment of account alternative for death or permanent total disability. |
| WAC 296-15-220 | Second injury fund. |