Opinion ID: 2180088
Heading Depth: 1
Heading Rank: 2

Heading: Self-Insurance Groups and MMTA Group

Text: As noted, LE § 9-402(a) permits employers to comply with the requirement of providing workers' compensation to their covered employees by participating in a self-insurance group of private employers that meets the requirements of Title 25, Subtitle 3 of the Insurance Article. That authority is repeated in INS § 25-302. INS Title 25, subtitle 3 consists of §§ 25-301 through 25-308. Those sections place these self-insurance groups under the jurisdiction of, and subject to extensive regulation by, the Insurance Commissioner. Section 25-303 requires the Insurance Commissioner to adopt regulations to implement the subtitle, regulations that must include, among other things: (1) classifications of business and industries, based on the type of activity conducted ... within which employers may join together in self-insurance groups; (2) for each classification: (i) a minimum level of contribution of at least $250,000 in premiums collected from or pledged by the members of the group to a fund from which workers' compensation claims will be paid; (ii) a minimum level of excess insurance coverage that must be obtained by each self-insurance group;    (3) conditions under which contributions by members of a self-insurance group may be rebated or temporarily suspended; [and]    (5) a requirement that the governance of the group be under the control of its members. Section 25-304(a) requires approval by the Commissioner before a self-insurance group may operate, and that includes approval of the self-insurance agreement. Section 25-306 requires approval by the Commissioner of any termination of a self-insurance agreement as well as any merger between two or more such groups. Section 25-307 permits the Commissioner to require actuarial studies and audits to determine the financial solvency of each group, to assess the group up to $500 to defray the cost of such reports and audits, and to require from a self-insurance group an annual report that may include payroll audit reports, summary loss reports, and quarterly financial statements. Section 25-308 authorizes the Commissioner to impose on self-insurance groups a monetary penalty up to $10,000 for violations of the subtitle, to issue cease and desist orders to preclude those groups from engaging in practices that the Commissioner finds in violation of the subtitle, and to suspend or revoke the authority of the group to operate. Section 25-304(b) requires each self-insurance group to have combined assets of at least $1,000,000. Section 25-304(c) requires the group to pay all workers' compensation benefits for which each member incurs liability during the period of membership. It makes each member jointly and severally liable for the workers' compensation obligations of the group and its members that are incurred during its period of membership, and it provides that the joint and several liability continues even if an employer's membership is terminated or cancelled. In accord with these statutory provisions, the Insurance Commissioner has promulgated a set of regulations dealing with private self-insurance groups. They are found in COMAR 31.08.09. They prescribe the kinds of businesses that may form self-insurance groups (31.08.09.03); they specify the minimum annual premium that must be collected by the group from its members (31.08.09.04); they require each group to maintain excess insurance coverage of at least $1,000,000 per occurrence over a retention of $350,000 or less and set some requirements for excess insurance policies (31.08.09.06); and they provide detailed requirements for an application for certificate of authority to operate as a self-insurance group, including a schedule for the collection of premiums, procedures for handling disputes regarding premium payments by member, and [p]roof of payment to the group by each member of not less than 25 percent of that member's first year estimated annual net premium. (31.08.09.07). The regulations authorize the Commissioner to make an examination of the affairs, transactions, records, and assets of any group as often as the Commissioner deems necessary to determine the group's financial solvency. (31.08.09.11). They require each group to submit to the Commissioner an audited annual financial statement showing: (1) Actuarial appropriate reserves for: (a) Known claims and expenses associated with them, (b) Claims incurred but not reported and expenses associated with them, (c) Unearned premiums, and (d) Bad debts, which reserves shall be shown as liabilities; [and] (2) An actuarial opinion regarding reserves for: (a) Known claims and expenses associated with them, and (b) Claims incurred but not reported and expenses associated with them[.] (31.08.09.12). The MMTA Group was formed on July 1, 1993, with the execution of a Trust and Indemnity Agreement. The purpose of the Group, as stated in the Agreement, was to provide economical Workers' Compensation and Employers' Liability Insurance coverage for the Members of the Group, to reduce the amount and frequency of losses, and to do all necessary and proper things incident to the provision of Workers' Compensation and Employers' Liability Insurance in such manner as to be in the best interest of the Members of the Group. The Agreement created a trust, provided for its funding, operation, and governance, and set forth the obligations of the members of the group. The trust was to be funded by premiums paid by the members of the Group in amounts established by the Board of Trustees. §§ 3.04, 3.05. Those premiums were to be placed into two separate funds created by the Agreement: a Trustees' Fund, to deal with administrative costs, and a Claims Fund, for the purpose of paying claims and claim costs. § 5.02. The Group was required to defend, in the name and on behalf of its members, any claim, suit, or other proceeding instituted against the member on account of injuries or death covered by the Workers' Compensation Law or Employers' Liability, or otherwise asserting the member's liability under the Workers' Compensation Law. § 10.08. In the event of a deficit, the trustees were authorized to adopt a plan for elimination of the deficit, including an assessment on all members in the proportion which the contribution (annual premium) of each bears to the total contribution of all. § 5.05. In the event of insolvency of the Group, each member was jointly and severally liable for the liabilities and obligations of all members. § 3.05(a). The calculation of premiums was provided for in the By-Laws of the Group. The aggregate premium needed was to be determined by the Board of Trustees. The premium for each member was to be determined by the Administrator, appointed by the trustees, based on the member's loss experience for prior years. In accordance with statutory and regulatory requirements and with § 5.06 of the Agreement, the trustees were required to obtain excess insurance in an amount not less than $1,000,000 over a retention of $250,000. Both the Agreement and the By-Laws permitted the trustees to employ a Service Company to handle claims made against the members and perform other administrative services. Article X, § 2 of the By-Laws provided, among other things, that the Service Company was to handle all claims after notice of injury was given, to prepare all required Workers' Compensation forms, provide a defense if deemed appropriate, and negotiate with a member's injured employee or the employee's attorney.