CHAPTER 706
PRIVATE EMPLOYER WORKERS' COMPENSATION
GROUP SELF-INSURANCE

      Sec. 38a-1000. Applicability. The provisions of subsection (e) of section 31-288 and sections 31-289b, 31-316, 31-345 and 38a-1000 to 38a-1023, inclusive, shall apply to workers' compensation self-insurance groups here and after formed in accordance with said sections. Subsection (e) of section 31-288 and sections 31-289b, 31-316, 31-345 and 38a-1000 to 38a-1023, inclusive, shall not apply to public employees or governmental entities. Groups which are issued a certificate of approval by the commissioner shall be subject to the provisions of sections 38a-14 and 38a-17 but shall not be deemed to be insurers or insurance companies and shall not be subject to the provisions of this title and any regulations issued pursuant to this title except as otherwise provided.

      (P.A. 96-267, S. 1.)

      Sec. 38a-1001. Definitions. As used in subsection (e) of section 31-288 and sections 31-289b, 31-316, 31-345 and 38a-1000 to 38a-1023, inclusive:

      (1) "Administrator" means an individual, partnership or corporation engaged by a workers' compensation self-insurance group's board of trustees to carry out the policies established by the group's board of trustees and to provide day-to-day management of the group.

      (2) "Commissioner" means the Insurance Commissioner.

      (3) "Insolvent" or "insolvency" means the inability of a workers' compensation self-insurance group to pay its outstanding lawful obligations as they mature in the regular course of business, as may be shown either by an excess of its required reserves and other liabilities over its assets or by its not having sufficient assets to reinsure all of its outstanding liabilities after paying all accrued claims owed by it.

      (4) "Net premium" means premium derived from standard premium adjusted by any advance premium discounts.

      (5) "Service company" means a person or entity which provides services not provided by the administrator, including but not limited to: (A) Claims adjustment; (B) safety engineering; (C) compilation of statistics and the preparation of premium, loss and tax reports; (D) preparation of other required self-insurance reports; (E) development of members' assessments and fees; and (F) administration of a claim fund.

      (6) "Standard premium" means the premium derived from the manual rates adjusted by experience modification factors but before advance premium discounts.

      (7) "Workers' compensation", when used as a modifier of "benefits", "liabilities" or "obligations", includes both workers' compensation and employers' liability.

      (8) "Workers' compensation self-insurance group" or "group" means a not-for-profit association consisting of fifteen or more employers who are engaged in the same or similar type of business, who are members of the same bona fide trade or professional association which has been in existence for not less than five years, and who enter into agreements to pool their liabilities for workers' compensation benefits and employers' liability.

      (P.A. 96-267, S. 2.)

      Sec. 38a-1002. Approval of self-insurance group required. No person, association or other entity shall act as a workers' compensation self-insurance group unless it has received approval by the commissioner to transact such business.

      (P.A. 96-267, S. 3.)

      Sec. 38a-1003. Group certificate of approval. Application. Fees. (a) A proposed workers' compensation self-insurance group shall file with the commissioner its application for a certificate of approval accompanied by a nonrefundable filing fee in the amount of two hundred fifty dollars. Such application shall include the group's name, location of its principal office, date of organization, name and address of each member and such other information as the commissioner may reasonably require, together with the following:

      (1) Proof of compliance with the provisions of subsection (b) of this section;

      (2) A copy of the articles of association, if any;

      (3) A copy of agreements with the administrator and with any service company;

      (4) A copy of the bylaws of the proposed group;

      (5) A copy of the agreement between the group and each member securing the payment of workers' compensation benefits, which shall include a provision for payment of assessments as provided in section 38a-1018;

      (6) Designation of the initial board of trustees and administrator;

      (7) The address in this state where the books and records of the group shall be maintained at all times;

      (8) A pro forma financial statement on a form acceptable to the commissioner showing the financial ability of the group to pay the workers' compensation obligations of its members;

      (9) An actuarial feasibility study prepared (A) by an independent person with a designation of Fellow of the Casualty Actuarial Society (FCAS) or (B) by a member of the American Academy of Actuaries (MAAA) with experience in making Connecticut workers' compensation actuarial projections. Such study shall be based on a consolidated summary of the historical workers' compensation claims loss experience and the allocated loss expenses of the member applicants of the group over a period of the most recent completed three full policy years, as well as the current partially completed policy year to the most current quarter under the current policy; and

      (10) Proof of payment to the group by each member of not less than twenty-five per cent of that member's first year estimated annual net premium on a date prescribed by the commissioner. Each payment shall be considered to be part of the first year premium payment of each member, if the proposed group is granted a certificate of approval by the commissioner.

      (b) To obtain and to maintain its certificate of approval, a workers' compensation self-insurance group shall comply with the following requirements as well as any other requirements established under the provisions of chapter 568. Such group shall have:

      (1) A combined net worth of all members of a group of private employers of at least five million dollars. Such group shall maintain a minimum working capital of two hundred fifty thousand dollars. The minimum premium or portion thereof required in subdivision (1) of subsection (a) of section 38a-1017 shall be used to satisfy the working capital requirements of this section.

      (2) A security, in the amount of five hundred thousand dollars or more and such security shall be in the form of a surety bond, security deposit or financial security endorsement or any combination thereof. If a surety bond is used to meet the security requirement, it shall be issued by a corporate surety company authorized to transact business in this state. If a security deposit is used to meet the security requirement, such securities shall be limited to bonds or other evidence or indebtedness issued, assumed or guaranteed by the United States of America or by an agency or instrumentality thereof; certificates of deposit in a federally insured bank; shares or savings deposits in a federally insured savings and loan association or credit union; or any bond or security issued by a state of the United States of America and backed by the full faith and credit of the state. Any such securities shall be deposited with the State Treasurer and assigned to and made negotiable by the chairman of the Workers' Compensation Commission pursuant to a trust document acceptable to the commissioner. Interest accruing on a negotiable security so deposited shall be collected and transmitted to the depositor provided the depositor is not in default. A financial security endorsement, issued as part of an acceptable excess insurance contract, may be used to meet all or part of the security requirement. The bond, security deposit or financial security endorsement shall be: (A) For the benefit of the state solely to pay claims and associated expenses; and (B) payable upon the failure of the group to pay workers' compensation benefits that it is legally obligated to pay. The commissioner may establish and adjust from time to time, requirements for the amount of security based on differences among groups in their size, types of employment, years in existence and other relevant factors.

      (3) Specific and aggregate excess insurance in a form, in an amount, and by an insurance company acceptable to the commissioner. The commissioner may establish minimum requirements for the amount of specific and aggregate excess insurance based on differences among groups in their size, types of employment, years in existence and other relevant factors, and may permit a group to meet this requirement by placing in a designated depository securities of the type referred to in subdivision (2) of this subsection.

      (4) An estimated annual standard premium of at least one million dollars during a group's first year of operation and annually thereafter. No single member applicant shall have more than twenty per cent of the total combined standard premium of the group.

      (5) An indemnity agreement jointly and severally binding the group and each member thereof to meet the workers' compensation obligations of each member. The indemnity agreement shall be in a form prescribed by the commissioner and shall include minimum uniform substantive provisions prescribed by the commissioner. Subject to the commissioner's approval, a group may add other provisions as are necessary to perform its obligations.

      (6) A fidelity bond for the administrator in a form and amount prescribed by the commissioner.

      (7) A fidelity bond for the service company in a form and amount prescribed by the commissioner. The commissioner may also require the service company providing claim services to furnish a performance bond in a form and amount he prescribes.

      (c) A group shall notify the commissioner of any change in the information required to be filed under subsection (a) of this section or in the manner of its compliance with subsection (b) of this section no later than thirty days after the change.

      (d) The commissioner shall evaluate the information provided by the application required to be filed under subsection (a) of this section to assure that no breach in funding exists and that the funds necessary to pay workers' compensation benefits will be available.

      (e) The commissioner shall act upon a completed application for a certificate of approval within sixty days. If, because of the number of applications, the commissioner is unable to act upon an application within the initial sixty-day period, the commissioner shall have an additional sixty days to act.

      (f) The commissioner shall issue to the group a certificate of approval upon finding that the proposed group has met all requirements, or the commissioner shall issue an order refusing the certificate setting forth reasons for such refusal and his finding as to why the proposed group does not meet all of the requirements.

      (g) Each workers' compensation self-insurance group shall be deemed to have appointed the commissioner as its agent for receipt of service of legal process pursuant to section 38a-25. The appointment shall be irrevocable, shall bind any successor in interest and shall remain in effect as long as there is in this state any obligation or liability of the group for workers' compensation benefits.

      (P.A. 96-267, S. 4.)

      Sec. 38a-1004. Duration and termination of certificate of approval. (a) The certificate of approval issued by the commissioner to a workers' compensation self-insurance group shall authorize the group to provide workers' compensation benefits. The certificate of approval shall remain in effect until terminated at the request of the group or revoked by the commissioner, pursuant to the provisions of section 38a-1021, or any other provision of this title.

      (b) The commissioner shall not grant the request of any group to terminate its certificate of approval unless such group has insured or reinsured all incurred workers' compensation obligations with an authorized insurer under an agreement filed with and approved, in writing, by the commissioner. Such obligations shall include both known claims and expenses associated therewith and claims incurred but not reported and expenses associated therewith.

      (c) Subject to the approval of the commissioner, any group may merge with another group engaged in the same or similar type of business only if the resulting group assumes in full all obligations of the merging groups. The commissioner may hold a hearing on the merger and shall do so if any party, including any member of any of the merging groups, requests it.

      (P.A. 96-267, S. 5.)

      Sec. 38a-1005. Examination of group. Costs. The commissioner may examine the affairs, transactions, accounts, records, assets and liabilities of each group if said commissioner has reasonable cause to believe that such examination is necessary. The expense of such examinations shall be assessed against the group in the same manner that insurers are assessed for examinations.

      (P.A. 96-267, S. 6.)

      Sec. 38a-1006. Group board of trustees. Each group shall be operated by a board of trustees which shall consist of not less that five persons whom the members of a group elect for stated terms of office. At least two-thirds of the trustees shall be employees, officers or directors of members of the group. The group's service company or any owner, officer, employee of, or any other person affiliated with such service company shall not serve on the board of trustees of the group. All trustees shall be residents of this state or officers of corporations authorized to do business in this state. The board of trustees of each group shall ensure that all claims are paid promptly and take all necessary precautions to safeguard the assets of the group, including all of the following:

      (1) The board of trustees shall:

      (A) Maintain responsibility for all moneys collected or disbursed from the group and segregate all moneys into a claims fund account and an administrative fund account. At least seventy per cent of the net premium shall be placed into a designated depository for the sole purpose of paying claims, allocated claims expenses, reinsurance or excess insurance and special fund contributions, including second injury and other loss-related funds. This shall be called the "claims fund account". The remaining net premium shall be placed into a designated depository for the payment of taxes, general regulatory fees and assessments and administrative costs. This shall be called the "administrative fund account". The commissioner may approve an administrative fund account of more than thirty per cent and a claims fund account of less than seventy per cent only if the group shows to the commissioner's satisfaction that: (i) More than thirty per cent is needed for an effective safety and loss control program; or (ii) the group's aggregate excess insurance attaches at less than seventy per cent.

      (B) Maintain minutes of its meetings and make the minutes available to the commissioner.

      (C) Designate an administrator to carry out the policies established by the board of trustees and to provide day-to-day management of the group, and delineate in the written minutes of its meetings the areas of authority it delegates to the administrator.

      (D) Retain an independent certified public accountant to prepare the statement of financial condition required by subsection (a) of section 38a-1010.

      (2) The board of trustees shall not:

      (A) Extend credit to individual members for payment of a premium, except pursuant to payment plans approved by the commissioner.

      (B) Borrow any moneys from the group or in the name of the group except in the ordinary course of business without first advising the commissioner of the nature and purpose of the loan and obtaining prior approval from the commissioner.

      (P.A. 96-267, S. 7.)

      Sec. 38a-1007. Requirements for an employer to join group after its approval. Termination of membership. Insolvency or bankruptcy of member. (a) An employer joining a workers' compensation self-insurance group after the group has been issued a certificate of approval shall: (1) Submit an application for membership to the board of trustees or its administrator; and (2) enter into the indemnity agreement required by subparagraph (B) of subdivision (5) of subsection (b) of section 38a-1003. Membership takes effect no earlier than each member's date of approval. The application for membership and its approval shall be maintained as permanent records of the board of trustees.

      (b) Individual members of a group shall be subject to cancellation by the group pursuant to the bylaws of the group. In addition, individual members may elect to terminate their participation in the group. The group shall notify the Commissioner and chairman of the Workers' Compensation Commission of a termination or cancellation of a member within ten days and shall maintain coverage of each cancelled or terminated member for thirty days after notice, at the terminating member's expense, unless the group is notified sooner by the Workers' Compensation Commission that the cancelled or terminated member has procured workers' compensation insurance, has become an approved self-insurer or has become a member of another group.

      (c) The group shall pay all workers' compensation benefits for which each member incurs liability during its period of membership. A member who elects to terminate its membership or is cancelled by a group remains jointly and severely liable for workers' compensation obligations of the group and its members which were incurred during the cancelled or terminated member's period of membership.

      (d) A group member shall not be relieved of its workers' compensation liabilities incurred during its period of membership except through payment by the group or the member of required workers' compensation benefits.

      (e) The insolvency or bankruptcy of a member shall not relieve the group or any other member of liability for the payment of any workers' compensation benefits incurred during the insolvent or bankrupt member's period of membership.

      (P.A. 96-267, S. 8.)

      Sec. 38a-1008. Service company and administrator to be mutually disinterested. (a) No service company or its employees, officers or directors shall be an employee, officer or director of, or have either a direct or indirect financial interest in, an administrator. No administrator or its employees, officers or directors shall be an employee, officer or director of, or have either a direct or indirect financial interest in, a service company.

      (b) The service contract shall state that unless the commissioner permits otherwise the service company shall handle, to its conclusion, all claims and other obligations incurred during the contract period.

      (P.A. 96-267, S. 9.)

      Sec. 38a-1009. Nonemployee soliciting group membership must be licensed. Except for a salaried employee of a group, its administrator or its service company, any person soliciting membership for a workers' compensation self-insurance group shall be licensed pursuant to chapter 702.

      (P.A. 96-267, S. 10.)

      Sec. 38a-1010. Annual statement of financial condition required. Untrue statement prohibited. (a) Each group shall submit to the commissioner a statement of financial condition audited by an independent certified public accountant on or before the last day of the sixth month following the end of the group's fiscal year. The financial statement shall be in a form prescribed by the commissioner and shall include, but not be limited to, actuarially appropriate reserves for: (1) Known claims and any associated expenses; (2) claims incurred but not reported and any associated expenses; (3) unearned premiums; and (4) bad debts, which shall be shown as liabilities.

      (b) An actuarial opinion regarding reserves for: (1) Known claims and any associated expenses; and (2) claims incurred but not reported and any associated expenses shall be included in the audited financial statement. The actuarial opinion shall be prepared (i) by an independent person with a designation of Fellow of the Casualty Actuarial Society (FCAS), (ii) by a member of the American Academy of Actuaries (MAAA) with experience in preparing such opinions, or (iii) by any other qualified loss reserve specialist in accordance with the provisions of section 38a-14.

      (c) No person shall make any untrue statement of a material fact, or omit to state a material fact necessary in order to make the statement made, in light of the circumstances under which it is made, not misleading, in connection with the solicitation of membership in a group.

      (d) The commissioner may prescribe the format and frequency of other reports which may include, but shall not be limited to, payroll audit reports, summary loss reports and quarterly financial statements and make any regulations necessary to carry out the provisions of subsection (e) of section 31-288 and sections 31-289b, 31-316, 31-345 and 38a-1000 to 38a-1023, inclusive.

      (P.A. 96-267, S. 11.)

      Sec. 38a-1011. Taxes. Each workers' compensation self-insurance group, as defined in section 38a-1001, shall pay a tax to the Commissioner of Revenue Services for the calendar year commencing on January 1, 1997, and annually thereafter, at the rate of one and three-quarters per cent of the total net premium received on any new or renewal contract or policy by such group during each such calendar year, which shall be in addition to any other payment required under sections 31-345, 31-354 and 38a-48. The provisions of chapter 207 pertaining to the filing of returns, declarations, installment payments, assessments and collection of taxes, penalties, administrative hearings and appeals imposed on domestic insurance companies shall apply with respect to the charge imposed under this section.

      (P.A. 96-267, S. 12.)

      Sec. 38a-1012. Misrepresentation and omission in membership solicitation prohibited. No person shall make a material misrepresentation or omission of a material fact in connection with the solicitation of membership of a group.

      (P.A. 96-267, S. 13.)

      Sec. 38a-1013. Investments. Funds not needed for current obligations may be invested by the board of trustees in accordance with sections 38a-102 to 38a-102h, inclusive.

      (P.A. 96-267, S. 14.)

      Sec. 38a-1014. Classifications and rating. Premium contributions. Audits. Hearings. (a) Every workers' compensation self-insurance group shall adhere to the uniform classification system, uniform experience rating plan and manual rules filed with the commissioner.

      (b) Premium contributions to the group shall be determined by applying the manual rates and rules to the appropriate classification of each member which shall be adjusted by each member's experience credit or debit. Subject to approval by the commissioner, any premium contributions may also be reduced by an advance premium discount factor reflecting the groups expense levels and loss experience.

      (c) Notwithstanding the provisions of subsection (b) of this section, a group may apply to the commissioner for permission to utilize its own rates. Such rates shall be based on at least five years of experience of the members of the group.

      (d) Each group shall be audited at least annually by an auditor acceptable to the commissioner to verify proper classifications, experience rating, payroll and rates. A report of the audit shall be filed with the commissioner in a form acceptable to the commissioner. A group or any member thereof may request a hearing on any objections to the classifications. If the commissioner determines that as a result of an improper classification, a member's premium contribution is insufficient, he shall order the group to assess that member in an amount equal to the deficiency. If the commissioner determines that as a result of an improper classification a member's premium is excessive, he shall order the group to refund to the member the excess collected. Any audit shall be at the expense of the group.

      (P.A. 96-267, S. 15.)

      Sec. 38a-1015. Excess moneys refundable. Refund plan. Notice. (a) Any moneys for a fund year in excess of the amount necessary to fund all obligations for that fund year may be declared to be refundable by the board of trustees not less than twelve months after the end of the fund year.

      (b) Each member shall be given a written description of the refund plan at the time of application for membership. A refund for any fund year shall be paid only to those employers who remain participants in the group for the entire fund year. Payment of a refund based on a previous fund year shall not be contingent on continued membership in the group after that fund year.

      (P.A. 96-267, S. 16.)

      Sec. 38a-1016. Premium payment plan required. Loss reserves. Bad debt reserves. (a) Each group shall establish to the satisfaction of the commissioner a premium payment plan which shall include: (1) An initial payment by each member of at least twenty-five per cent of that member's annual premium before the start of the group's fund year; and (2) payment of the balance of each member's annual premium in monthly or quarterly installments.

      (b) Each group shall establish and maintain actuarially appropriate loss reserves which shall include reserves for: (1) Known claims and any associated expenses; and (2) Claims incurred but not reported and any associated expenses.

      (c) Each group shall establish and maintain bad debt reserves based on the historical experience of the group or other groups or such other data as the commissioner may determine.

      (P.A. 96-267, S. 17.)

      Sec. 38a-1017. Deficiencies. Insolvency. Liquidation and assessment. (a) If the assets of a group are at any time insufficient to enable the group to discharge its legal liabilities and other obligations and to maintain the reserves required of it under the provisions of subsection (e) of section 31-288 and sections 31-289b, 31-316, 31-345 and 38a-1000 to 38a-1023, inclusive, after consideration of present value of investment interest and income, it shall make up the deficiency or levy an assessment upon its members for the amount needed to make up the deficiency.

      (b) In the event of a deficiency as determined in subsection (a) of this section, in any fund year, the deficiency shall be made up from: (1) Surplus from a fund year other than the current fund year; (2) administrative funds; (3) assessment of the membership, if ordered by the group; or (4) such alternate method as the commissioner may approve or direct. The commissioner shall be notified prior to any transfer of surplus funds from one fund year to another.

      (c) If the group fails to assess its members or to otherwise make up such deficit within thirty days, the commissioner shall order it to do so.

      (d) If the group fails to make the required assessment of its members within thirty days after the commissioner so orders, or if the deficiency is not fully made up within sixty days after the date on which the assessment is made, or within such longer period of time as may be specified by the commissioner, the group shall be deemed to be insolvent.

      (e) The commissioner shall proceed against an insolvent group in the same manner as the commissioner would proceed against an insolvent domestic insurer in this state as prescribed in sections 38a-903 to 38a-961, inclusive. The commissioner shall have the same powers and limitations in such proceedings as are provided under the provisions of said sections 38a-903 to 38a-961, inclusive, except as provided in subsection (e) of section 31-288 and sections 31-289b, 31-316, 31-345 and 38a-1000 to 38a-1023, inclusive.

      (f) In the event of the liquidation of a group, the commissioner shall levy an assessment upon its members for such an amount as the commissioner determines to be necessary to discharge all liabilities of the group, including the reasonable cost of liquidation.

      (P.A. 96-267, S. 18.)

      Sec. 38a-1018. Penalties. After notice and opportunity for a hearing, the commissioner may impose a monetary penalty on any person or group found to be in violation of any provision of subsection (e) of section 31-288 or section 31-289b, 31-316, 31-345 or 38a-1000 to 38a-1023, inclusive, or of any rules or regulations adopted pursuant to said provisions. Such monetary penalty shall not exceed one thousand dollars for each act or violation and shall not exceed an aggregate of ten thousand dollars. The amount of any monetary penalty shall be paid to the commissioner for deposit in the General Fund.

      (P.A. 96-267, S. 19.)

      Sec. 38a-1019. Cease and desist orders. Violations. Penalties. License and certificate revocation. (a) After notice and opportunity for a hearing, the commissioner may issue an order requiring a person or group to cease and desist from engaging in an act or practice found to be in violation of any provision of subsection (e) of section 31-288 or section 31-289b, 31-316, 31-345 or 38a-1000 to 38a-1023, inclusive, or of any rules or regulations adopted pursuant to said sections.

      (b) Upon a finding, after notice and opportunity for a hearing, that any person or group has violated any cease and desist order, the commissioner may do either or both of the following: (1) Impose a monetary penalty of not more than ten thousand dollars for each and every act or violation of the order not to exceed an aggregate monetary penalty of one hundred thousand dollars; or (2) revoke the group's certificate of approval for the group or any insurance license held by the person.

      (P.A. 96-267, S. 20.)

      Sec. 38a-1020. Revocation of certificate of approval. (a) After notice and opportunity for a hearing, the commissioner may revoke a group's certificate of approval if it: (1) Is found to be insolvent; (2) fails to pay any premium tax, regulatory fee or assessment or special fund contribution imposed upon it; or (3) fails to comply with any of the provisions of subsection (e) of section 31-288, 31-289b, 31-316, 31-345 or 38a-1000 to 38a-1023, inclusive, with any rules adopted pursuant to said sections, or with any lawful order of the commissioner within the time prescribed.

      (b) In addition, the commissioner may revoke a group's certificate of approval if, after notice and opportunity for hearing, the commissioner finds that: (1) Any certificate of approval that was issued to the group was obtained by fraud; (2) there was a material misrepresentation in the application for the certificate of approval; or (3) the group or its administrator has misappropriated, converted, illegally withheld or refused to pay over upon proper demand any moneys that belong to a member, an employee of a member, or a person otherwise entitled thereto and that have been entrusted to the group or its administrator in its fiduciary capacities.

      (P.A. 96-267, S. 21.)

      Sec. 38a-1021. Additional provisions. The provisions of sections 38a-16, 38a-132, 38a-140 and 38a-815 to 38a-819, inclusive, shall be additional to any other powers to enforce any penalties, fines or forfeitures authorized by law.

      (P.A. 96-267, S. 22.)

      Sec. 38a-1022. Regulations. The commissioner shall adopt such reasonable regulations as he deems necessary to carry out the provisions of subsection (e) of section 31-288 and sections 31-289b, 31-316, 31-345 and 38a-1000 to 38a-1023, inclusive.

      (P.A. 96-267, S. 23.)

      Sec. 38a-1023. Severability. If any provision of subsection (e) of section 31-288 or section 31-289b, 31-316, 31-345 or 38a-1000 to 38a-1023, inclusive, or the application thereof to any person or circumstance is subsequently held to be invalid, such invalidity shall not affect other provisions or applications of said sections.

      (P.A. 96-267, S. 24.)

      Secs. 38a-1024 to 38a-1029. Reserved for future use.