Source: http://www.tdi.texas.gov/rules/2004/0811bb-059.html
Timestamp: 2018-03-20 01:49:57
Document Index: 719569590

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0811BB-059
28 TAC §§5.6401-5.6411
The Commissioner of Insurance adopts new §§5.6401-5.6411 concerning the provision of workers' compensation insurance through a self-insurance group. Sections 5.6401, 5.6402, 5.6403, 5.6404, 5.6406, 5.6407 are adopted with changes to the proposed text as published in the March 26, 2004 issue of the Texas Register (29 TexReg 3164). Sections 5.6405, 5.6408, 5.6409, 5.6410, 5.6411 are adopted without changes to the proposed text and will not be republished.
The adopted sections are necessary to implement House Bill 2095, 78th Legislature, which added Chapter 407A to the Labor Code. The new chapter allows employers in the same or similar type of business who are members of a trade or professional association in Texas to join together and, with the approval of the Commissioner of Insurance, self-insure as a group for workers' compensation. The legislation is based on the National Association of Insurance Commissioners model act titled "Private Employer Workers' Compensation Group Self-Insurance Model Act." Many employers in Texas report that they cannot afford to provide workers' compensation coverage offered by insurance companies nor can they qualify as certified self-insurers. Because employers who are in the same or similar type of business are more familiar with their risks, group self-insurance provides a more targeted approach to loss prevention, rehabilitation, and other preventive and corrective measures to reduce injuries covered by workers' compensation and related costs. Group self-insurance is intended to provide an affordable option for small and mid-size employers to encourage the provision of workers' compensation coverage by these employers to their employees. Employees will enjoy the same benefits since all provisions of the Texas workers' compensation law will apply to a self-insurance group approved by the Commissioner of Insurance under Labor Code Chapter 407A.
The adopted sections are designed to implement House Bill 2095, 78th Legislature. They are not intended to impose additional burdens beyond the legislation which is codified as Labor Code Chapter 407A. The department has changed several of the proposed sections as published; however, none of the changes introduce new subject matter or affect additional persons than those subject to the proposal as originally published. Many of the changes were in response to comments, while some were made by the department to correct or clarify a section. In the first sentence of §5.6401 the department inserted "or professional" after "trade" to track the language used in Labor Code Chapter 407A. In response to a comment, the second sentence was changed to make it clear that it was the responsibility of the group to pay the workers' compensation obligations of the members. The last sentence in the section as proposed was changed in response to comments that Labor Code Chapter 407A did not require employers to be based in Texas and that it was confusing. The department added a new sentence at the end of the section to clarify the responsibilities of the department and the Texas Workers' Compensation Commission with regard to workers' compensation matters. In response to comments, the definition of "qualified claims service contractor" in §5.6402 was deleted. In response to comments, the word "all" in §5.6403(c )( 2) and (3) was deleted to avoid requiring the filing of unnecessary organizational documents. When an applicant files insufficient documents to establish to the department's satisfaction the requirements of the statute, the department will advise the applicant of the nature of the deficiency and the documents that are necessary to cure the deficiency. In §5.6403(c )( 5) "binder or commitment" were added in response to comments that it was impractical to provide a policy at the time the application was filed. In response to a comment, the department adde d a statement in §5.6403(c )( 6) that the administrator is required to have a $500,000 performance bond if it will act as the administrator and service company for an applicant. In §5.6403(c)(11) "qualified claims servicing company" was deleted from the requirements for the business plan in response to comments that the term was used for individual self- insureds but not self-insured groups. In response to comments, §5.6403(d )( 1), the requirement to provide proof of payment of premium, was changed to 10 days after an employer/member is issued coverage. Section 5.6403(e) and (f) were revised to provide that an applicant did not have to furnish fingerprints or complete biographical forms when the information was already on file with the department. In addition, the broad term "senior management" was changed to specific titles in response to comments that "senior management" could include persons not involved with a group. In response to a comment on §5.6404, "company" was changed to "group" and "hazardous" was inserted before "condition." In §5.6406 a commenter suggested that "employers liability" be changed to "employers liability insurance coverage" for clarity. The department made the changes in the indemnity agreement requirements pursuant to the comment. In §5.6406 a commenter stated that paragraph (5) could give the impression that the workers' compensation coverage provided by a group would not qualify an employer/member as a subscriber under the Texas workers' compensation laws. The department added language to avoid this impression. To be consistent with §5.6406, "employers liability" was changed to "employers liability insurance coverage" in §5.6407. Another commenter suggested that the acknowledgement required by §5.6407 could be placed on one sheet of paper if the font size was changed to 11 from 12. The department reduced the font size. The department also made minor changes to correct clerical or typographical errors.
Adopted §5.6401 describes the purpose and scope of the subchapter. Adopted §5.6402 sets forth the definition of terms used in the subchapter. Adopted §5.6403 incorporates the requirements of Labor Code Chapter 407A for obtaining a certificate of approval for a group, clarifies the information required to demonstrate that the members of the group are in a similar type of business, belong to a trade or professional association that meets the requirements of the statute, satisfy the financial requirements of the statute, and requires each trustee of the group to provide a biographical affidavit and a set of fingerprints. Adopted §5.6404 clarifies the giving of the notice required by Labor Code § 407A.051( d). Adopted §5.6405 clarifies the requirements for excess insurance under Labor Code §407A.054. Adopted §5.6406 prescribes provisions to be included in a group's indemnity agreement in accordance with Labor Code § 407A.056( b). Adopted §5.6407 prescribes the form of an acknowledgement of the provisions of the indemnity agreement required by Labor Code §407A.056. Adopted §5.6408 prescribes the form of the performance bonds required by Labor Code Chapter 407A in accordance with §407A.051(c )( 12) and (13). Adopted §5.6409 clarifies the limits on the location of the books and records. Adopted §5.6410 authorizes a group to invest its funds in the same manner as an insurer operating under Texas Insurance Code Chapter 2 for minimum capital and surplus and reserves. Adopted §5.6411 describes the requirement for contracts with a group.
§5.6401
Comment: A commenter recommended the section be changed to state that it is the responsibility of the group to pay the obligations of all members of the group, not that each member of the group is directly liable for obligations of other employers as stated in the rule.
Agency Response: The department agrees with the comment and changed the section to accurately state the liability. The department notes that the individual members of the group are responsible, jointly and severally, for providing the funds to pay the obligations of the group.
Comment: Commenters asked for clarification of the phrase "employers based in Texas " since it is not in the statute.
Agency Response: The sentence has been revised. The purpose of the sentence is to describe the requirement in § 407A.002( 2) that each member of the group belong to a trade or professional association that "...has been in existence in this state...." The department will make this determination on a case by case basis until specific standards can be developed.
§5.6402
Comment: Commenters recommended the term "qualified claims servicing contractor" be deleted because it is not used in Labor Code Chapter 407A or these sections.
Agency Response: The department agrees with the comments and deleted the term.
§5.6403(c )( 2) and (c)(3)
Comment: Commenters stated that the requirement for all organizational documents was too broad and would result in the filing of unnecessary documents. They suggested that the rule specify the required documents.
Agency Response: The department agrees with the comments on the scope of the requirement. The term "all" was deleted. The department did not attempt to specify the organizational documents since the terminology is not universal. The department expects applicants to file the organizational documents that meet the requirements of Labor Code Chapter 407A. If the department determines the documents are not adequate, it will notify the applicant and identify the deficiency.
§5.6403(c )( 5)
Comment: Commenters stated that the section's requirement that the policy be issued at the time of the application was not practical. They suggested changing it to require a commitment to issue the policy.
Agency Response: The department acknowledges that the requirement would result in unnecessary cost and changed the section to provide for a written commitment or binder instead of a policy.
§5.6403(c )( 6) and (c)(7)
Comment: A commenter asked if the administrator served as administrator and service company would the administrator have to provide a $500,000 bond.
Agency Response: The department will require $500,000 if the administrator performs both functions. A clarifying statement was added to remove the ambiguity.
§5.6403(c )( 11)
Comment: A comment said the references to qualified claims servicing contractor and risk manager are not used in the statute and should be eliminated.
Agency Response: The department agrees with the comment as to qualified claims servicing contractor and deleted that term, however, risk manager is used as a general term to refer to the person providing risk management services.
§5.6403(d )( 1)
Comment: Commenters said the requirement that all members pay 25% of the premium within 10 days of the approval of the group was confusing and could result in requiring payment of the amount months before the coverage takes effect.
Agency Response: Labor Code §407A.051(11) directs the Commissioner of Insurance to prescribe the date by which each employer that is member of a group must submit proof of payment of 25% of the premium. In response to comments, subsection (d )( 1) was revised to require payment to the group 10 days after the effective date of a member's coverage.
§5.6403 (e) and (f)
Comment: Commenters suggested the term "senior management officials" could include persons who are not involved with the activities of the group. They also recommended that a person who already has fingerprints and a completed biographical form on file with the department not be required to file that information again in connection with a application for a group.
Agency Response: The department agrees with the comments and changed the section accordingly.
§5.6404(c)
Comment: A commenter pointed out that the subsection should say "group" instead of "company."
Agency Response: The department agrees and changed "company" to "group."
Comment: A commenter recommended that the department further define the conditions in Labor Code § 407A.355( a)-(c).
Agency Response: The department disagrees. Labor Code §407A.355 (a)-(c) describe conditions that exist when a group is experiencing the inability to pay its obligations in the normal course of business. The department believes any group will be aware of these conditions, therefore, further definition of the conditions are unnecessary. The department inserted "hazardous" before "condition" to make it clear that these conditions are considered comparable to those applied to insurance companies in Insurance Code Article 1.32.
§5.6406
Comment: A commenter suggested using "employer's liability insurance coverage" instead of "employer's liability" to effectively communicate the protection being provided.
Agency Response: The department agrees with the comment and changed the terminology.
Comment: Commenters expressed concern that an employer would believe the coverage provided by the group would not meet the requirements of the workers' compensation system. They requested amplification that would remove this impression.
Agency Response: The department recognizes the concern of the commenters and added language explaining that the agreement between the member employer and the group provides the coverages that meet the requirements of the workers' compensation laws.
§5.6407
Comment: A commenter suggested deleting "(you)" from the form since the person signing may not be personally liable, for example, a corporate officer. Another commenter said the last paragraph about member liability and the initialing unnecessarily prejudices an employer against joining a group. The commenter also pointed out that the acknowledgement could be placed on one sheet of paper if the font size was reduced from 12 point type to 11 point type.
Agency Response: The department recognizes that "(you)" could be misleading and deleted it. The department disagrees that the paragraph about member liability prejudices an employer from joining a group. It is important that the employer be aware of the risks of joining a group and take action only after the employer is fully informed. The department reduced the font size so the acknowledgement could be placed on one page.
§5.6408
Comment: Commenters stated that there was a drafting error in the legislative process that changed fidelity to performance. They suggested the section be changed to permit fidelity bonds or other evidences of coverage against theft or other dishonesty.
Agency Response: The department could not confirm whether there was an error in the legislative process that changed fidelity to performance so the section is unchanged.
§5.6409
Comment: A commenter stated it was not clear what is included in "books and records" and requested clarification of the phrase.
Agency Response: The department intends the phrase "books and records" to be all inclusive. The purpose of the requirement is to facilitate the examination of a group. It is the same requirement imposed on insurance companies therefore the section is unchanged.
§5.6410
Comment: One commenter suggested the section be revised to clarify the investment authority of a group, include Insurance Code Article 2.10-1 and permit the Commissioner of Insurance to approve an investment plan in addition to that authorized in the section.
Agency Response: The purpose of the section is to provide a group with investment authority similar to an insurance company engaged in the writing of workers' compensation coverage. Instead of including Insurance Code Article 2.10-1, subsection (c) allows discretionary investment authority up to 5% of a group's assets to recognize special needs a group may have.
Comment: A commenter asked if the section was intended to allow a group to invest in anything allowed under Insurance Code Article 2.10 and §822.204 since those provisions referenced "minimum capital and surplus," which a group does not have.
Agency Response: The references to "minimum capital and surplus" in the Insurance Code provisions do not restrict a group's investment authority. A group may invest in any of the investments authorized under the referenced provisions of the Insurance Code.
NAMES OF THOSE COMMENTING FOR AND AGAINST THE SECTIONS.
For, with changes: Attenta , Brentwood Services Incorporated, First Cardinal, JI Specialty Services, Inc., Texas Construction Association and Texas Cotton Ginners Association.
STATUTORY AUTHORITY. The new sections are adopted under the Labor Code §407A and Insurance Code §36.001. Labor Code §407A.008 provides the Commissioner of Insurance may adopt rules as necessary to implement Labor Code Chapter 407A, group Self-Insurance Coverage. Insurance Code §36.001 provides that the Commissioner may adopt any rules necessary and appropriate to implement the powers and duties of the Texas Department of Insurance under the Insurance Code and other laws of this state.
§5.6401. Purpose and Scope. Labor Code Chapter 407A and §§5.6401-5.6411 of this title (relating to Group Self-insurance Coverage) permit employers in the same or similar type of business who belong to a trade or professional association in Texas to join together as a group to self-insure for workers' compensation coverage. Employers may join together in any manner they choose, such as a partnership, trust, or a corporate form, however, regardless of the form of association, each employer is jointly and severally liable for the workers' compensation obligations of the other employers in the group if the group defaults in the payment of those obligations. Groups which are issued a certificate of approval by the Commissioner of Insurance shall not be deemed to be insurers or insurance companies and shall not be subject to the provisions of the insurance laws or regulations except as provided by statute and this division; however, after a certificate of approval is issued, a group shall comply with all the provisions of the workers' compensation law, Labor Code Chapter 407A and these sections. The requirement that a trade or professional association has been in existence in this state is a substantive requirement. Labor Code Chapter 407A does not amend the provisions of the Texas Workers' Compensation Act that provide for the amount, type or procedures to deliver workers' compensation benefits or the Texas Workers' Compensation Commission's jurisdiction over the provisions of the workers' compensation law.
§5.6402 Definitions .
(1) Certified Public Accountant-An accountant or firm in good standing with the American Institute of Certified Public Accountants and the Texas State Board of Public Accountancy and who conforms to the Code of Professional Ethics of the American Institute of Certified Public Accountants.
(2) Actuary-A member in good standing of the Casualty Actuarial Society, or a member in good standing of the American Academy of Actuaries who has been approved as qualified for signing casualty loss reserves opinions by the Casualty Practice Council of the American Academy of Actuaries.
(1) A statement that demonstrates that the members of the group are in the same or similar type of business as required by Labor Code § 407A.002( a)(1).
(B) If the members of the proposed group have different governing classifications, the statement should demonstrate how the business pursuits of the members of the group are similar enough in operation in the Commissioner of Insurance's discretion to be grouped together.
(2) To aid the department in making the determination that the trade or professional association meets the requirements of Labor Code § 407A.002( a)(2) that the trade or professional association has been in existence in this state for purposes other than insurance for five years before the establishment of the group, provide copies of documents relating to the organization, governance and operation of the association and a narrative describing the activities of the association. Annual reports, conventions, seminars, dues requirements, newsletters and other evidence acceptable to the Commissioner of Insurance may be submitted to aid the department in making its determination.
(3) In addition to the copy of the bylaws of the group required by Labor Code §407A.051(c )( 6), submit copies of documents relating to the organization, governance and operation of the group.
(5) A written commitment, binder, or policy or contract of excess insurance that meets the requirements of §5.6405 of this title (relating to Excess Insurance).
(6) A performance bond for the administrator. If the administrator serves as the service company, the bond shall be in the amount of $500,000. The bond shall be in the form prescribed in §5.6408 of this title (relating to Performance Bonds).
(11) A business plan or plan of operation that describes the general business activities, safety program and organization. The plan must include the identity of the administrator, service companies, risk manager, accountant and actuary.
(1) proof that it has received payment or a promise to pay from each member of 25% of its first year estimated modified schedule rating premium. If the group approves a member's submission of a promise to pay the 25% of premium, the employer must submit payment of the amount promised no later than 10 days after the effective date of the member's coverage with the group, or
(2) a certification by a certified public accountant and an actuary that assets and reserves of the trust satisfy the requirement of the Labor Code §407A.051(c)(11)(B).
(e) Each member of the initial board of trustees, subsequent members of the board, and the chief executive officer, president, secretary, treasurer, chief financial officer and controller of the administrator and any service company shall provide the department a completed biographical affidavit adopted by reference under §7.507(b) of this title (relating to Forms Incorporated by Reference). A biographical affidavit is not required when a person has one on file with the department.
(f) Each member of the initial board of trustees, subsequent members of the board, and the chief executive officer, president, secretary, treasurer, chief financial officer and controller of the administrator and any service company shall provide the department a complete set of fingerprints in a manner acceptable to the department. A complete set of fingerprints is not required when a person has one on file with the department.
(c) A group shall notify the department within 10 days whenever the books and records of the group indicate any of the hazardous conditions in Labor Code § 407A.355( a)-(c) exist or in the opinion of the administrator are likely to occur.
§5.6406. Indemnity Agreement. The indemnity agreement required by Labor Code §407A.051(c )( 14) and §407A.056 must be executed by all employers in the group and shall contain the following provisions:
(1) THIS IS A LEGAL DOCUMENT THAT BINDS THE SIGNATORIES TO SPECIFIC DUTIES AND RESPONSIBILITIES REGARDING GROUP FINANCIAL ARRANGEMENTS FOR COVERING WORKERS' COMPENSATION INJURIES AND OCCUPATIONAL DISEASE AND EMPLOYERS LIABILITY INSURANCE COVERAGE IN THE STATE OF TEXAS .
(2) JOINT AND SEVERAL LIABILITY : This paragraph requires the Employer to join in paying workers' compensation losses of the group in the event the group's assets are not sufficient to cover the liabilities. The Employer will be jointly and severally obligated with each other member of the group to meet the workers' compensation and employer's liability insurance coverage obligations of the group and to make any and all payments to the group, which may be necessary to meet the group's obligations under applicable Texas law and regulations and also in accordance with the group's Bylaws; including agreeing that if the assets of the group are at any time insufficient to enable the group to discharge the group's legal liabilities and other obligations and maintain the reserves required of it under applicable Texas statutes and regulations, and the group is unable to otherwise make up the deficiency in accordance with Texas laws, regulations, and the group's Bylaws, then the Employer will be jointly and severally liable to pay an assessment by the group in an amount necessary to make up the deficiency.
(3) The Employer remains jointly and severally liable even if the Employer is cancelled by the group or elects to terminate membership in the group. The Employer will remain jointly and severally liable for the workers' compensation and employer's liability insurance coverage obligations for the group and its members that were incurred during the Employer's period of membership.
(5) The Employer is not buying a policy of insurance. The employer is entering into an agreement which is evidence that the employer is a subscriber to the Texas workers' compensation system.
(6) Because the sums required to fulfill workers' compensation and employer's liability insurance coverage obligation of the group cannot be known precisely in advance, the premium and other assessments, reserve requirements, and other financial requirements for the group's operation will initially be established by estimates.
(a) Each member shall execute the acknowledgement set forth in subsection (b) of this section. The acknowledgement shall be printed in black ink on an 8 1/2 inch by 11 inch sheet of white paper in at least 11 point type.
THE JOINT AND SEVERAL LIABILITY AGREEMENT FOR A WORKERS' COMPENSATION SELF-INSURANCE GROUP IS A LEGAL DOCUMENT THAT BINDS THE SIGNATORIES TO SPECIFIC DUTIES AND RESPONSIBILITIES REGARDING GROUP FINANCIAL ARRANGEMENTS FOR COVERING WORKERS' COMPENSATION INJURIES AND OCCUPATIONAL DISEASE AND EMPLOYERS LIABILITY INSURANCE COVERAGE IN THE STATE OF TEXAS.
In consideration of being made a member of the group and sharing in the benefits of the group's workers' compensation and employer's liability group self-insurance, the Employer and the group have executed an agreement. The agreement provides for JOINT AND SEVERAL LIABILITY : This agreement requires the Employer to join in paying workers' compensation AND EMPLOYERS' LIABILITY losses of the group in the event the group's assets are not sufficient to cover the liabilities.
The Employer will be jointly and severally obligated with each other member of the group to meet the workers' compensation and employer's liability insurance coverage obligations of the group and to make any and all payments to the group, which may be necessary to meet the group's obligations under applicable Texas law and regulations and also in accordance with the group's bylaws; including agreeing that if the assets of the group are at any time insufficient to enable the group to discharge the group's legal liabilities and other obligations and maintain the reserves required of it under applicable Texas statutes and regulations, and the group is unable to otherwise make up the deficiency in accordance with Texas laws, regulations, and the group's bylaws, then the Employer will be jointly and severally liable to pay an assessment by the group in an amount necessary to make up the deficiency.
The Employer remains jointly and severally liable even if the Employer is cancelled by the group or elects to terminate membership in the group. The Employer will remain jointly and severally liable for the workers' compensation and employer's liability insurance coverage obligations for the group and its members that were incurred during the Employer's period of membership.
The insolvency or bankruptcy of an employer will not relieve the group, the Employer, or any member from liability for the payment of any benefits incurred during the insolvency or bankrupt member's period of membership.
________ By initialing to the left, I certify that I have carefully read the foregoing and understand that THE EMPLOYER may be responsible for paying the liabilities of other group members if the group's assets are not sufficient to cover its liabilities, regardless of the claims of the Employer.
________ By initialing to the left, I certify that I have carefully read the foregoing and understand that THE EMPLOYER may be responsible for paying an assessment by the Commissioner of Insurance as a result of the insolvency of another group.
(a) Performance Bonds required of the administrator under Labor Code §407A.051(c )( 12) and the service company under Labor Code §407A.051(c)(13) shall be in substantially the form set forth in subsection (b) of this section.
(b) The board shall annually adopt a written investment plan consistent with the requirements for the investments authorized under Insurance Code Article 2.10 and §822.204 for minimum capital and surplus and reserves. The investment plan shall meet the requirements of Insurance Code Article 2.10(a).
(c) With the prior written approval of the Commissioner, a group may invest up to 5% of its assets in a manner other than that authorized under this section.
(2) a provision that requires subcontractors to comply with the applicable requirements of the Texas Insurance Code and rules adopted thereunder ;
(3) a provision that requires the subcontractor to be appropriately licensed to perform any function required by the Insurance Code to be licensed; and