PRIOR PRINTER'S NOS. 1185, 1571 PRINTER'S NO. 2788
No. 1066 Session of 1981
INTRODUCED BY MACKOWSKI, PITTS, WILT, DAIKELER, ARMSTRONG,
MADIGAN, MERRY AND BOYES, MARCH 31, 1981
AS AMENDED ON THIRD CONSIDERATION, HOUSE OF REPRESENTATIVES,
JANUARY 26, 1982
AN ACT
1 Providing for group self-insurance funds for private employers
2 for workers' compensation liabilities; providing for the
3 establishment of employee protections through the use of
4 aggregate excess insurance and a guaranty fund and allowing
5 insurance carriers to provide aggregate excess insurance for
6 groups.
7 TABLE OF CONTENTS
8 Section 1. Short title.
9 Section 2. Definitions.
10 Section 3. Private employers.
11 Section 4. Filing requirements.
12 Section 5. Approval of applications.
13 Section 6. Disapproval of initial application.
14 Section 7. Annual assessment.
15 Section 8. Approval of additional fund members.
16 Section 9. Termination of fund members.
17 Section 10. Dividends.
18 Section 11. Supplemental assessments.
19 Section 12. Use of manual rates.
1 Section 13. Classifications.
2 Section 14. Investments.
3 Section 15. Excess insurance.
4 Section 16. Annual reports.
5 Section 17. Contribution to the special funds.
6 Section 18. Employee protection; the Group Self-insurance
7 Guaranty Fund.
8 Section 19. Rules and regulations.
9 Section 20. Legislative review of rules and regulations.
10 Section 21. Appeals.
11 Section 22. Repeals.
12 Section 23. Effective date.
13 The General Assembly of the Commonwealth of Pennsylvania
14 hereby enacts as follows:
15 Section 1. Short title.
16 This act shall be known and may be cited as the "Workers'
17 Compensation Group Self-insurance Fund Act."
18 Section 2. Definitions.
19 The following words and phrases when used in this act shall
20 have, unless the context clearly indicates otherwise, the
21 meanings given to them in this section:
22 "Department." The Department of Labor and Industry of the
23 Commonwealth of Pennsylvania unless otherwise indicated.
24 "Employer." Any private sector employer as defined by
25 section 103 of the act of June 2, 1915 (P.L.736, No.338), known
26 as "The Pennsylvania Workmen's Compensation Act," as amended who
27 has elected to cover all of his employees under the provision of
28 this act with the exception of the Commonwealth, all
29 governmental agencies created by the Commonwealth, school
30 districts and municipal corporations.
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1 "Employers' liability." The legal liability of an employer
2 to pay damages because of bodily injury by accident or disease,
3 including death, at any time resulting therefrom, sustained by
4 an employee arising out of and in the course of his employment
5 by the employer, which is not covered by a Workmen's
6 Compensation, Occupational Disease, or related Federal law.
7 "Excess insurance." Insurance, purchased from an insurance
8 company appropriately licensed in the Commonwealth of
9 Pennsylvania or qualified by the Insurance Commissioner of the
10 Commonwealth of Pennsylvania as a surplus lines insurer,
11 covering losses in excess of an amount established between the
12 group and the insurer up to the limits of coverage set forth in
13 the insurance contract on a specific per occurrence or per
14 accident or annual aggregate basis.
15 "Fund." A Group Self-insurance Fund organized by employers
16 to pool workers' compensation liabilities and approved by the
17 department on an annual basis under the authority of this act.
18 "Homogeneous fund." A fund in which two-thirds of the
19 aggregate modified manual premium has been assigned to the same
20 classification series for at least one year.
21 "Modified manual rate." The manual rate promulgated by the
22 Pennsylvania Compensation Rating Bureau or Coal Mine
23 Compensation Rating Bureau of Pennsylvania and approved by the
24 Insurance Commissioner pursuant to section 654 of the act of May
25 17, 1921 (P.L.682, No.284), known as "The Insurance Company Law
26 of 1921," for the employer classification adjusted by the
27 employer's experience modification calculated in accordance with
28 the approved formula of the Pennsylvania Compensation Rating
29 Bureau or Coal Mine Compensation Rating Bureau of Pennsylvania.
30 "Plan committee." A committee composed of representatives of
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1 each employer who is participating in a fund.
2 "Surplus." That amount of moneys found in the trust to be
3 excess of all fixed costs and incurred losses attributed to the
4 pool net any occurrence or aggregate excess insurance.
5 "Trust." A written contract signed by the members of the
6 fund which separates the legal and equitable rights to the
7 moneys held by an independent trustee as a fiduciary for the
8 benefit of employees of employers participating in the fund.
9 "Workers' Compensation Act." The act of June 2, 1915
10 (P.L.736, No.338), known as "The Pennsylvania Workmen's
11 Compensation Act," or the act of June 21, 1939 (P.L.566,
12 No.284), known as "The Pennsylvania Occupational Disease Act."
13 Section 3. Private employers.
14 (a) A professional, trade or business association of
15 employers, may be permitted by the department to act as a group
16 self-insurance fund if such association:
17 (1) includes five or more employers;
18 (2) has been in active existence for at least three
19 years prior to the filing of its application to become a
20 group self-insurer;
21 (3) consists of a membership supporting it by the
22 regular payment of dues;
23 (4) has been created in good faith for purposes other
24 than that of becoming a group self-insurer; and
25 (5) meets the other criteria established within this
26 act.
27 (b) Private employers shall be permitted to pool their
28 liabilities under the Workers' Compensation Act and their
29 employers' liability through participation in an approved fund
30 described in subsection (a). Members of a fund shall execute a
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1 trust agreement under which each agrees to jointly and severally
2 assume and discharge the liabilities of each and every party to
3 such agreement arising under their employers' liability, the
4 Workers' Compensation Act and under related Federal statutes
5 including, but not limited to, the Longshoremen's and Harbor
6 Workers' Compensation Act, 33 U.S.C. § 901 et seq., Federal Coal
7 Mine Health and Safety Act of 1969, 30 U.S.C. § 801 et seq., as
8 amended, Federal Employers' Liability Act, 45 U.S.C. § 51 et
9 seq., Defense Bases Act, 42 U.S.C. § 1651 et seq. and the Jones
10 Act, 46 U.S.C. § 688, of any and all employers party to such
11 agreement. Such trust agreements shall be subject to approval by
12 the department.
13 Section 4. Filing requirements.
14 (a) Any applicant for a permit to establish a fund shall
15 file with the department a statement certifying:
16 (1) the aggregate net worth of the participants
17 according to generally accepted accounting principles equals
18 or exceeds $1,000,000; and
19 (2) the aggregate of the latest year's payroll of the
20 prospective members of the fund multiplied by the current
21 approved manual rate promulgated by the Pennsylvania
22 Compensation Rating Bureau or Coal Mine Compensation Rating
23 Bureau of Pennsylvania, is equal to or greater than $500,000 <--
24 $350,000, SAID AMOUNT TO BE USED EXCLUSIVELY FOR THE PAYMENT <--
25 OF CLAIMS AND NOT SUBJECT TO CHARGES FOR EXPENSES FOR
26 ADMINISTRATION, EXCESS INSURANCE, CLAIMS HANDLING, OR ANY
27 FIXED COSTS OTHER THAN THOSE NECESSARY FOR THE PAYMENT OF
28 CLAIMS, as adjusted annually by the percentage increase in
29 the Statewide average weekly wage.
30 The department shall publish the revised aggregate figure in the
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1 Pennsylvania Bulletin, and such revised figure shall take effect
2 on January 1, of each year. In addition, the applicant shall
3 file with the department the proposed trust agreement, proposed
4 types and amounts of excess insurance and retention amounts, and
5 such other information required on the form which the department
6 shall provide under the authority of this section.
7 (b) Each application for a group self-insurance fund permit
8 shall be accompanied by a nonrefundable fee of $1,000, payable
9 to the department and deposited in the Workmen's Compensation
10 Administration Fund.
11 Section 5. Approval of applications.
12 (a) The department shall tentatively approve any application
13 for a permit for the formation of a fund which meets the
14 following criteria:
15 (1) Guarantees benefit levels equal to those guaranteed
16 by the Workers' Compensation Act or other applicable statutes
17 and demonstrates sufficient aggregate financial strength and
18 liquidity to assure that all obligations under the act will
19 be promptly met and proposes a plan for the prompt payment of
20 such benefits. Information documenting an individual member's
21 financial strength and liquidity shall be made available to
22 the department upon the department's written request.
23 (2) Provides for joint and several liability.
24 (3) Provides a confirmation for excess insurance and
25 retention amounts in such amount as the department deems
26 acceptable on a single accident (single occurrence) and
27 aggregate excess basis. The department may waive the
28 requirement for one type of excess insurance if convinced
29 that the fund's financial strength is sufficient to assure
30 payment of its obligations under the Workers' Compensation
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1 Act or this act.
2 (4) Contains a list of letters of intent from
3 prospective group fund members and evidence that such
4 prospective members:
5 (i) have never defaulted on claims as an individual
6 self-insured employer;
7 (ii) have not been cancelled for nonpayment of
8 workers' compensation premiums for a period of at least
9 two years prior to application; and
10 (iii) have not been found to have violated section
11 305 of the act of June 2, 1915 (P.L.736, No.338), known
12 as "The Pennsylvania Workmen's Compensation Act."
13 Any employer who is delinquent in premium payment or who has
14 been found to have violated said section 305 may be accepted by
15 a fund at such time as the employer has satisfied the debt or
16 judgment;
17 (5) Provides for assessment of modified manual rates
18 upon participating employers except as provided in section
19 12.
20 (6) Provides proof of competent personnel and ample
21 facilities within its own organization with respect to claims
22 administration, underwriting matters, loss prevention and
23 safety engineering or presents a contract with a reputable
24 service company to provide such assistance.
25 (7) Includes a payment plan for assessments.
26 (8) Provides all of the threshold information required
27 in section 5 completed to the satisfaction of the department.
28 Said approval or disapproval shall be given by the department
29 within 90 days of receipt of the completed application form:
30 Provided, however, That the application shall be deemed into
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1 effect if the department has not disapproved the application
2 within said 90-day period.
3 (b) Prior to the issuance of a permit, a trust agreement
4 made pursuant to the approved application shall be submitted to
5 the department. Within 30 days of receipt of the text of the
6 agreement and other materials associated therewith, the
7 department shall review the agreement, for technical sufficiency
8 and conflict or inconsistency with any provisions of this act
9 and operations being conducted thereunder: Provided, however,
10 That the agreement shall be deemed into effect if the department
11 has not disapproved the agreement within said 30-day period.
12 (c) The department shall issue to each original and renewal
13 applicant for group self-insurance which complies with
14 subsections (a) and (b), a permit for a group self-insurance
15 fund which shall be effective for a period of 12 calendar
16 months. Unless previously revoked, all permits issued under this
17 section shall expire and terminate on the last day of the annual
18 exemption period for which they were issued. Permits issued
19 under this act shall be renewed upon filing of a renewal
20 application, and the payment of a renewal fee of $100. Such
21 renewal application shall be submitted to the department at
22 least 60 days prior to the expiration of the permit. Any renewal
23 application shall be deemed approved unless the department
24 notifies the fund of its disapproval within 30 days of the
25 submission of the renewal application. The department may, from
26 time to time, require further statements of the financial
27 condition of such fund and, if at any time the ability of the
28 fund to assure payment of its obligations under the Workers'
29 Compensation Act or this act appears to be in jeopardy, shall
30 mandate an assessment or revoke its permit, in the latter case
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1 the members of the fund shall immediately obtain coverage
2 pursuant to the Workers' Compensation Act.
3 Section 6. Disapproval of initial application.
4 Should the department determine that the application for a
5 fund does not meet the criteria described in section 5(a) and
6 (b), the department shall issue to an applicant a final order
7 containing the specific reasons for rejection, and the
8 requirements to be met before approval may be granted. During
9 the pendency of such an appeal, a group of employers shall not
10 operate as a fund under the provisions of this act.
11 Section 7. Annual assessment.
12 (a) Members of said fund shall pay 25% of their annual
13 assessment into the fund on or before the inception of the fund.
14 The balance of the annual assessments shall be paid to the fund
15 on a monthly, quarterly or semiannual basis as required by the
16 fund's bylaws and approved by the department. Each member's
17 annual assessment to the fund shall equal such members annual
18 payroll times such members modified manual rate minus the
19 premium discount specified in Schedule Y and approved by the
20 Insurance Commissioner, pursuant to section 654 of the act of
21 May 17, 1921 (P.L.682, No.284), known as "The Insurance Company
22 Law of 1921," except as provided in section 12. Dividends may be
23 returned to members in accordance with section 10.
24 (b) Nothing contained in this section shall preclude the
25 assessment and payment of supplemental assessments as provided
26 in section 11.
27 Section 8. Approval of additional fund members.
28 After the final permit approval date of the fund, prospective
29 new members of the fund shall submit an application for
30 membership to the fund's plan committee or administrator on a
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1 form approved by the department. Such application shall include
2 an agreement of joint and several liability as required in
3 section 3. The administrator or plan committee may approve the
4 application for membership pursuant to the bylaws of the fund.
5 The application approved by the fund shall be filed with the
6 department. The fund shall retain the authority to reject any
7 applicant. A negative determination of the fund shall be deemed <--
8 final and binding, and nonappealable to any court in the
9 Commonwealth unless based upon constitutional grounds.
10 Section 9. Termination of fund members.
11 (a) Individual members may elect to terminate their
12 participation in a fund or be subject to cancellation by the
13 fund pursuant to the bylaws of the fund for nonpayment of
14 premium. A member of a fund must remain a member for the
15 duration of the annual approval period unless terminated for
16 nonpayment of premium with the proviso that any such employer
17 may resign from such fund by giving at least 90 days' written
18 notice of such intent prior to the filing of the renewal
19 application. Any withdrawing member of a fund or member
20 terminated for nonpayment of premium by a fund shall remain
21 fully obligated for claims incurred during the period of its
22 membership in accord with fund bylaws, including but not limited
23 to calls for supplemental assessments. Notice of termination of
24 any participant shall be filed with the fund. The fund shall
25 attach any such notices of termination to the renewal permit
26 application filed with the department.
27 (b) The fund shall notify the department immediately if
28 termination of a member causes the group to fail to meet the
29 requirements of section 5(a). Within 15 days of the notice of
30 withdrawal or decision to expel, the fund shall advise the
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1 department of its plan to bring the group into compliance with
2 section 5. If the group does not meet the requirement, the
3 department shall immediately review the financial stability of
4 the fund and shall have the authority to revoke its permit if
5 the ability of the fund to assure payment of benefits under the
6 Workers' Compensation Act, or this act is jeopardized.
7 Section 10. Dividends.
8 Any fund may return to its participants dividends if approved
9 by a member of the American Academy of Actuaries. Dividends
10 shall not be returned if the payment of such dividends would
11 impair the fund's ability to meet its obligations under the
12 Workers' Compensation Act or this act, nor shall dividends be
13 returned prior to the beginning of the 13th month following the
14 expiration of the preceding permit year. The initial dividend
15 payment for any permit year shall not exceed 30% of the surplus
16 available for the applicable permit year. The fund may, however,
17 seek annual approval for payment of dividends from the surplus
18 remaining from any permit year which has been completed for at
19 least 25 months or longer and may include such dividend payments
20 with initial dividend payments from the preceding permit year.
21 Section 11. Supplemental assessments.
22 Every fund approved by the department under this act shall
23 assess upon its members an additional payment whenever needed,
24 in order to supplement the reserves of its fund to assure
25 payment of benefits under the Workers' Compensation Act, or this
26 act.
27 Section 12. Use of manual rates.
28 The annual assessment of each fund member shall be based upon
29 the annual payroll of such member multiplied by the modified
30 manual rate for such member minus the premium discounts
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1 authorized by section 7(a) if the fund is composed of members of
2 a nonhomogeneous nature. In the event that a homogeneous fund is
3 formed, such fund may deviate from modified manual rates and
4 establish its own rates with the approval of a member of the
5 American Academy of Actuaries 13 months after the expiration of
6 the funds first permit year. Dividends may be returned to
7 participants in accordance with section 10.
8 Section 13. Classifications.
9 Each fund shall request classifications for its participants
10 from the Pennsylvania Compensation Rating Bureau or the Coal
11 Mine Compensation Rating Bureau of Pennsylvania and shall
12 utilize those classifications making assessments based upon
13 modified manual rates except as provided in section 12. The fund
14 shall pay the appropriate bureau a reasonable charge for this
15 service. The fund may appeal classifications as provided in the
16 applicable sections of the act of May 17, 1921 (P.L.682,
17 No.284), known as "The Insurance Company Law of 1921," for other
18 employers.
19 Section 14. Investments.
20 Each fund may invest any surplus moneys not needed for
21 current obligations in United States Government Obligations,
22 United States Treasury Notes, investment share accounts in any
23 savings and loan association whose deposits are insured by a
24 Federal agency and Certificates of Deposit issued by a duly
25 chartered commercial bank. Deposits in savings and loan
26 associations and commercial banks shall be limited to
27 institutions in the Commonwealth and shall not exceed the
28 Federally insured amount in any one account. Investments may
29 also be made in any permitted investments of capital or surplus
30 of stock casualty insurance companies set forth in section 602
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1 or 603 of the act of May 17, 1921 (P.L.682, No.284), known as
2 "The Insurance Company Law of 1921," as may be authorized by
3 regulation approved by the commissioner.
4 Section 15. Excess insurance.
5 (A) Funds approved under this act shall purchase excess <--
6 insurance by reason of any single accident or any single
7 occurrence as provided in section 653 of the act of May 17, 1921
8 (P.L.682, No.284), known as "The Insurance Company Law of 1921,"
9 and aggregate excess insurance. The department may in accordance
10 with section 5(a)(3) waive the requirement for either single
11 accident (single occurrence) or aggregate excess insurance, but
12 may not waive the requirement for both single accident (single
13 occurrence) and aggregate excess insurance.
14 (b) A policy of insurance by an insurance carrier may
15 include provisions for aggregate excess insurance in addition to
16 the single accident (single occurrence) excess insurance which
17 is authorized under said section 653.
18 Section 16. Annual reports.
19 An annual report shall be prepared by each fund, filed with
20 the department, and made available to each participating
21 employer. The information contained in the annual report shall
22 include for each member of the fund and the fund itself:
23 (1) Summary loss reports.
24 (2) An annual statement of the financial condition of
25 the fund prepared by a certified public accountant and
26 performed in accordance with generally accepted accounting
27 principles.
28 (3) Reports of outstanding liabilities showing the
29 number of claims, amounts paid to date and current reserves
30 as certified by a member of the American Academy of
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1 Actuaries.
2 (4) Such other information as required by regulation of
3 the department.
4 Section 17. Contribution to the special funds.
5 Each group self-insurance fund shall be assessed annually by
6 the Department of Labor and Industry in a like manner and amount
7 as other insurers or self-insurers are herein or hereinafter
8 assessed under the Workers' Compensation Act and shall pay such
9 assessment in accordance with the provisions of sections 306.2,
10 443 and 446 of the act of June 2, 1915 (P.L.736, No.338), known
11 as "The Pennsylvania Workmen's Compensation Act." All
12 contributions received in accordance with this section shall be
13 deposited into the appropriate fund as described in that act.
14 Section 18. Employee protection; the Group Self-insurance
15 Guaranty Fund.
16 (a) There shall be established a Group Self-insurance
17 Guaranty Fund within the department to provide benefits in the
18 event of the inability of a fund to pay its obligations to any
19 injured employee entitled to benefits under the Workers'
20 Compensation Act. Payments shall be made from this guaranty fund
21 after the applicable single accident (single occurrence) and
22 aggregate excess insurance and joint and several liability of
23 members of the fund have been exhausted. The department shall
24 have the right to institute and prosecute legal action against
25 each and every fund member, jointly and severally, on behalf of
26 the fund members' employees and their dependents to require the
27 payment of benefits and the performance of any other obligations
28 under the provisions of the Workers' Compensation Act.
29 (b) A valid claim for compensation or installments thereof,
30 heretofore or hereafter made pursuant to the Workers'
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1 Compensation Act, which has remained or shall remain due and
2 unpaid for 60 days by reason of the inability of a fund to pay
3 its obligations shall be paid by the Group Self-insurance
4 Guaranty Fund. Upon payment by the Group Self-insurance Guaranty
5 Fund of a valid claim for compensation the Group Self-insurance
6 Guaranty Fund shall be entitled to recover the sum of such
7 payments from the insolvent fund any or all of the members of
8 the fund or any applicable single accident or aggregate excess
9 insurance.
10 (c) Every fund shall pay annually a sum equal to .5% of its
11 annual and supplemental assessment payable to the guaranty fund.
12 When the aggregate amount of all such payments into the guaranty
13 fund, together with accumulated interest thereon, less all its
14 expenditures and known liabilities becomes equal to 5% of the
15 loss reserves of all funds for the payment of benefits under the
16 Workers' Compensation Act as of June 30 next proceeding, no
17 further contribution to said guaranty fund shall be required to
18 be made: Provided, however, That whenever thereafter the amount
19 of said guaranty fund shall be reduced below 5% of such loss
20 reserves as of said date, by reason of payments from and known
21 liabilities of said fund or by reason of an increase of the loss
22 reserves of all funds, then such contribution to said guaranty
23 fund shall be resumed from such date as the department shall
24 prescribe and shall continue until such guaranty fund, over and
25 above its known liabilities, shall be equal to 5% of such
26 reserves.
27 (d) This guaranty fund shall be administered insofar as
28 possible in the same manner as the fund established by the act
29 of July 1, 1937 (P.L.2532, No.470), known as the "Workmen's
30 Compensation Security Fund Act."
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1 Section 19. Rules and regulations.
2 The department is hereby authorized to issue in accordance
3 with the act of July 31, 1968 (P.L.769, No.240), referred to as
4 the Commonwealth Documents Law such rules and regulations which
5 are required for the administration of this act.
6 Section 20. Legislative review of rules and regulations.
7 (a) Whenever the department proposes rules or regulations or
8 amendments thereto pursuant to the authority provided in section
9 21 and before the department adopts finally any such rules or
10 regulations or amendments thereto pursuant to the Commonwealth
11 Documents Law, the department shall submit such rules or
12 regulations or amendments thereto to the General Assembly
13 pursuant to the provisions of this section.
14 (b) The department shall transmit such proposed rules or
15 regulations or amendments thereto to the Speaker of the House of
16 Representatives and to the President pro tempore of the Senate
17 who shall authorize and direct an appropriate committee to
18 review the proposals. Either committee may within 30 calendar
19 days or five legislative days, whichever is later, recommend
20 disapproval of the proposed rules or regulations or amendments
21 thereto to the General Assembly. Subsequent to a recommendation
22 for disapproval by either committee, the General Assembly may by
23 concurrent resolution, within 30 calendar days or five
24 legislative days, whichever is later, disapprove the proposed
25 rules, regulations or amendments thereto.
26 (c) Any rule or regulation or amendment thereto not
27 disapproved by the General Assembly within the allotted time may
28 be finally adopted by the department pursuant to the
29 Commonwealth Documents Law. Any rule or regulation or amendment
30 thereto which has not been submitted to the General Assembly
19810H1066B2788 - 16 -
1 pursuant to this section or which has been disapproved shall be
2 null and void and without effect.
3 Section 21. Appeals.
4 Any aggrieved party under this act shall have the right of
5 appeal to Commonwealth Court. Provided, however, That the <--
6 rejection of membership in a fund by the members of the fund as
7 provided in section 8 shall not be reviewable by the courts of
8 this Commonwealth unless based upon constitutional grounds.
9 Section 22. Repeals.
10 All acts and parts of acts are repealed insofar as they are
11 inconsistent herewith.
12 Section 23. Effective date.
13 This act shall take effect in 30 days.
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