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H.B. No. 1353
AN ACT
relating to creation and operation of a guaranty fund for certain
groups certified to self insure for workers' compensation insurance
coverage and to service companies that administer the guaranty
fund.
BE IT ENACTED BY THE LEGISLATURE OF THE STATE OF TEXAS:
SECTION 1. Chapter 407A, Labor Code, is amended by adding
Subchapter J to read as follows:
SUBCHAPTER J. TEXAS SELF-INSURANCE GROUP GUARANTY FUND
Sec. 407A.451. DEFINITIONS. In this subchapter:
(1) "Board" means the board of directors of the
guaranty fund.
(2) "Guaranty fund" means the Texas self-insurance
group guaranty fund.
(3) "Trust fund" means the trust fund established
under Section 407A.457.
Sec. 407A.452. GUARANTY FUND. (a) The Texas self-insurance
group guaranty fund is a nonprofit association established to
provide for the payment of workers' compensation insurance benefits
for injured employees covered by a group declared insolvent under
Section 407A.355.
(b) Each group that desires to be certified under this
chapter must participate as a member of the guaranty fund.
Sec. 407A.453. BOARD OF DIRECTORS. (a) The guaranty fund is
managed by a board of directors.
(b) The board is composed of the following voting members:
(1) three members elected as provided by Subsection
(c), each of whom represents a different group certified under this
chapter;
(2) one member to represent wage earners designated by
the commission;
(3) one member designated by the commissioner; and
(4) the public counsel of the office of public
insurance counsel.
(c) Representatives of each group certified under this
chapter may participate equally in the election of the three
members of the board elected under Subsection (b)(1). A person
elected under Subsection (b)(1) must be approved by the
commissioner before the person may serve on the board.
(d) Notwithstanding Subsection (c), the commissioner shall
appoint the initial board members representing groups. A person
appointed as an initial board member under this subsection is
eligible to serve additional terms on election by the members of the
guaranty fund.
Sec. 407A.454. IMMUNITY. A board member or a member of the
staff of the board is not liable in a civil action for an act
performed in good faith in the execution of that person's powers or
duties.
Sec. 407A.455. BOARD GENERAL POWERS AND DUTIES. (a) The
board shall:
(1) create and maintain a trust fund for payment of the
workers' compensation liabilities of an insolvent group;
(2) hire staff as necessary;
(3) provide recommendations to the commissioner
regarding rules or guidelines applicable to groups;
(4) receive reports from the department on the
financial condition of groups, including examination and audit
reports;
(5) engage consulting experts as necessary to review
information provided by or filed with the department to ensure
financial solvency of groups under this chapter;
(6) provide advisory recommendations to the
commissioner as necessary regarding an applicant's compliance with
Subchapter B relating to application requirements for
certification; and
(7) take action, in response to a finding by the
commissioner that a group is insolvent, to use the trust fund's
resources to ensure the payment of the group's valid workers'
compensation claims and related administrative expenses.
(b) The board shall control all amounts in the trust fund,
including investment of those amounts.
(c) The guaranty fund may not disclose confidential
information received from the department in a financial report
under Subsection (a)(4), including an examination or audit report.
Information received from the department remains confidential and
not subject to disclosure under Chapter 552, Government Code.
(d) The board may make recommendations under Subsection
(a)(6) outside of regular board meetings.
Sec. 407A.456. PLAN OF OPERATION. (a) The board shall adopt
a plan of operation governing the board's activities and the
operation of the guaranty fund and the trust fund.
(b) The plan of operation adopted by the board is subject to
approval by the commissioner.
Sec. 407A.457. TRUST FUND; SCHEDULE. (a) Each group shall
contribute an amount, based on the total amount of income benefit
payments made in this state for the preceding reported calendar
year, to create, over a period of 10 years beginning January 1,
2006, a trust fund of at least $1 million for:
(1) the emergency payment of the compensation
liabilities of an insolvent group; and
(2) the administrative expenses of the guaranty fund.
(b) The board may adopt provisions in the plan of operation
that provide for the indexing of the amount of the trust fund to a
risk analysis.
(c) At least annually, the board shall adopt a year-by-year
schedule of assessments to meet the funding goal of the trust fund.
(d) The board may:
(1) defer assessments if the fund equals or exceeds $2
million; and
(2) allow the trust fund to accrete based on its
investment earnings.
(e) The contribution required for the first year after a
group is issued a certificate of approval under this chapter shall
be based on the group's estimated income benefit payments for the
group's first year of operation.
(f) Each group certified under this chapter shall make
contributions under this section to the trust fund, and the board
shall provide a mechanism in the plan of operation to ensure that
all groups contribute equitably to the trust fund.
(g) The board shall administer the trust fund in accordance
with the plan of operation adopted by the board and approved by the
commissioner.
Sec. 407A.458. EFFECT OF INSOLVENCY OF GROUP. (a) On
determining that a group has become insolvent, the commissioner
shall secure release of the surety bond or security deposit
required under Section 407A.053 and shall promptly estimate:
(1) the amount of additional funds needed to
supplement the bond or security deposit; and
(2) the assets of the insolvent group available to pay
all incurred compensation liabilities.
(b) If the bond or security deposit and the available assets
of the insolvent group are insufficient to cover all of the group's
incurred compensation liabilities, the commissioner shall direct
the insolvent group to immediately assess its members to cover all
incurred liabilities under a schedule approved by the commissioner.
(c) If the assessments under Subsection (b) will be
insufficient to cover the incurred liabilities, the commissioner
shall estimate the additional funds necessary to cover the incurred
liabilities for benefit compensation and related administration
expenses for the insolvent group. On receipt of the commissioner's
estimate, the board shall provide from the trust fund the
additional funds needed for benefit compensation and related
administrative expenses for the insolvent group.
(d) Disbursements from the trust fund under Subsection (c)
shall be replenished:
(1) if within the 10-year funding period of the trust
fund, by adjusting the next year's schedule of assessments from
groups; or
(2) if beyond the initial 10-year funding period, by
assessment of all groups.
(e) If, after application of Subsections (b)-(d), the
amount available in the trust fund is still insufficient, the board
shall assess all groups for the remaining deficiency.
(f) The commissioner may exempt a group from assessment
under this section on a determination that the payment of the
assessment would render the group insolvent.
(g) The commissioner may, on a finding of insolvency,
commence a delinquency proceeding for the purpose of liquidating,
rehabilitating, reorganizing, or conserving a group. Such a group
shall be considered an insurer for purposes of Article 21.28,
Insurance Code, and an insurance company for purposes of 11 U.S.C.
Section 109. The conservator, receiver, or other statutory
successor of a group shall coordinate with the board in the
furtherance of the purposes of this subchapter.
Sec. 407A.459. COLLECTION OF ASSESSMENTS FROM GROUP
MEMBERS; CONTINUATION OF JOINT AND SEVERAL LIABILITY. (a) Each
member of an insolvent group shall pay the amount of its assessment
under this chapter to the commissioner not later than the 30th day
after the date on which the commissioner notifies the member of the
assessment. The commissioner shall collect assessments and costs
from the members of the insolvent group.
(b) The joint and several liability of the members of a
group under Section 407A.056 continues and is not terminated by
payment of benefits through the guaranty fund.
(c) If the guaranty fund assumes payment of benefits for
compensation liabilities on behalf of an insolvent group, the
guaranty fund may collect delinquent assessments and costs through
suit. Venue for a suit under this subsection is in Travis County.
Sec. 407A.460. PAYMENT OF BENEFITS THROUGH GUARANTY FUND.
(a) If the commissioner determines that the payment of benefits and
claims administration shall be made through the guaranty fund, the
guaranty fund assumes the workers' compensation obligations on
behalf of the insolvent group and shall begin the payment of the
obligations for which it is liable not later than the 30th day after
the date of notification by the commissioner.
(b) The guaranty fund shall make payments to claimants whose
entitlement to benefits can be ascertained by the guaranty fund.
(c) Notwithstanding Subsection (a), the guaranty fund is
not liable for the payment of any penalties assessed for any act or
omission on the part of any person other than the guaranty fund.
Sec. 407A.461. POSSESSION OF SECURITY BY GUARANTY FUND. On
the assumption of obligations on behalf of an insolvent group by the
guaranty fund under the commissioner's determination, the guaranty
fund is entitled to immediate possession of any assets of the
insolvent group and any security deposited or the proceeds of any
surety bond deposited by the insolvent group, along with all
interest on the security. All assessments from members of the
insolvent group shall be paid to the guaranty fund.
Sec. 407A.462. RELEASE OF CLAIM INFORMATION TO GUARANTY
FUND. If the guaranty fund has assumed compensation obligations on
behalf of an insolvent group, information on a workers'
compensation claim may be released to the guaranty fund as provided
by Section 402.084(a).
Sec. 407A.463. GUARANTY FUND AS PARTY IN INTEREST. (a) The
guaranty fund is a party in interest in a proceeding involving a
workers' compensation claim against an insolvent group whose
compensation obligations have been paid or assumed by the guaranty
fund.
(b) The guaranty fund has the same rights and defenses as
the insolvent group, including the right to:
(1) appear, defend, or appeal a claim;
(2) receive notice of, investigate, adjust,
compromise, settle, or pay a claim; and
(3) investigate, handle, or deny a claim.
Sec. 407A.464. PREFERENCES. (a) Benefit payments made by
the guaranty fund under this subchapter are entitled to the same
preference over other debts of the insolvent group as provided by
law to benefit payments owed by the insolvent group to the person
entitled to the benefits.
(b) The guaranty fund has the priority status provided by
Section 8, Article 21.28, Insurance Code.
Sec. 407A.465. SPECIAL FUND. Monies advanced by the
association under this chapter do not become assets of the
insolvent group but constitute a special fund advanced to the
commissioner, receiver, or other statutory successor only for the
payment of compensation liabilities, including the costs of claim
administration and legal costs.
SECTION 2. Section 407A.051, Labor Code, is amended by
amending Subsection (c) and by adding Subsection (h) to read as
follows:
(c) The application must be accompanied by:
(1) a nonrefundable $1,000 filing fee;
(2) proof of compliance with the financial
requirements under Section 407A.053;
(3) proof of compliance with the excess insurance
requirements under Section 407A.054;
(4) a copy of the articles of association or
declaration of trust of the group, if any;
(5) a copy of any agreements entered into with an
administrator or a service company;
(6) a copy of the bylaws of the proposed group;
(7) a copy of the agreement between the group and each
employer who is a member of the group that:
(A) secures the payment of workers' compensation
benefits; and
(B) includes provisions for payment of
assessments as provided by Section 407A.355;
(8) designation of the initial board of trustees and
administrator of the group;
(9) the address in this state where the books and
records of the group will be maintained at all times;
(10) a pro forma financial statement, in a form
acceptable to the commissioner, that shows the financial ability of
the group to pay the workers' compensation obligations of the
employers who are members of the group;
(11) proof of one of the following:
(A) payment to the group, or a bona fide promise
to pay on approval of the group, by each employer who is a member of
the group of not less than 25 percent of that member's first year
estimated modified schedule rating premium on a date prescribed by
the commissioner, which shall be considered part of the first year
premium payment of each member; or
(B) if the group is formed from a trust existing
on September 1, 2003, that the assets of the trust are sufficient to
cover the workers' compensation obligations of the trust;
(12) a $250,000 fidelity [performance] bond for the
administrator in the form prescribed by the commissioner;
(13) a $250,000 fidelity [performance] bond for the
service company in the form prescribed by the commissioner; and
(14) an indemnity agreement that meets the
requirements of Section 407A.056.
(h) In lieu of the bonds required under Subsections (c)(12)
and (c)(13), a security deposit of cash or securities acceptable to
the commissioner may be deposited with the commissioner to be held
in the state treasury.
SECTION 3. Section 407A.057, Labor Code, is amended to read
as follows:
Sec. 407A.057. ADDITIONAL PERFORMANCE BOND REQUIREMENTS.
(a) In addition to the requirements under Section 407A.051, the
commissioner may require a service company providing claim services
to furnish a performance bond of $250,000 in the form prescribed by
the commissioner.
(b) In lieu of a performance bond under Subsection (a), a
security deposit of cash or securities acceptable to the
commissioner may be deposited with the commissioner to be held in
the state treasury.
SECTION 4. Sections 407A.356 and 407A.357, Labor Code, are
repealed.
SECTION 5. This Act takes effect September 1, 2005.
______________________________ ______________________________
President of the Senate Speaker of the House
I certify that H.B. No. 1353 was passed by the House on May 9,
2005, by a non-record vote; and that the House concurred in Senate
amendments to H.B. No. 1353 on May 27, 2005, by a non-record vote.
______________________________
Chief Clerk of the House
I certify that H.B. No. 1353 was passed by the Senate, with
amendments, on May 25, 2005, by the following vote: Yeas 31, Nays
0.
______________________________
Secretary of the Senate
APPROVED: __________________
Date
__________________
Governor