Texas Labor Code -CHAPTER 407A. GROUP SELF-INSURANCE COVERAGE
Texas Workers Compensation Act
Title 5 - Texas Labor Code - Chapters 401-506
TABLE OF CONTENTS
LABOR CODE
CHAPTER 407A. GROUP SELF-INSURANCE COVERAGE
SUBCHAPTER A. GENERAL PROVISIONS
§ 407A.001. DEFINITIONS. (a) In this chapter:
(1) "Administrator" means an individual, partnership,
or corporation engaged by the board of trustees of a group to
implement the policies established by the board of trustees and to
provide day-to-day management of the group.
(2) "Commissioner" means the commissioner of
insurance.
(3) "Department" means the Texas Department of
Insurance.
(4) "Estimated premium subject to experience
modifier" means the premium derived from applying the filed rates
to estimated payrolls and before the adjustment of the premium by
experience modifiers, schedule rating plan factors, deductible
credits, minimum premiums, and premium discounts.
(5) "Group" means a workers' compensation
self-insurance group that holds a certificate of approval under
this chapter.
(6) "Modified schedule rating premium" means premium
derived from applying filed rates to estimated payrolls and then
adjusted by the experience modifier and any schedule rating plan
factors.
(7) "Same or similar" means, with regard to members of
a group, that:
(A) the governing classification code of the
members of the group is the same; or
(B) the members of the group are engaged in
similar operations.
(8) "Service company" means a person that provides
services to the group other than services provided by the
administrator, including:
(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.
(b) For purposes of this chapter, when used as a modifier of
"benefits," "liabilities," or "obligations," the term "workers'
compensation" includes both workers' compensation and employers'
liability.
Added by Acts 2003, 78th Leg., ch. 275, § 1, eff. Sept. 1, 2003.
§ 407A.002. APPLICATION OF CHAPTER; ESTABLISHMENT OF
PRIVATE GROUP. (a) An unincorporated association or business
trust composed of five or more private employers may establish a
workers' compensation self-insurance group under this chapter if
the employers:
(1) are engaged in the same or a similar type of
business;
(2) are members of a bona fide trade or professional
association that has been in existence in this state for purposes
other than insurance for at least five years before the
establishment of the group; and
(3) enter into agreements to pool their liabilities
for workers' compensation benefits and employers' liability in this
state.
(b) This chapter does not apply to public employees or
governmental entities.
Added by Acts 2003, 78th Leg., ch. 275, § 1, eff. Sept. 1, 2003.
§ 407A.003. MERGER OF GROUPS. (a) Subject to the
approval of the commissioner, a group may merge with another group
engaged in the same or a similar type of business if the resulting
group assumes in full all obligations of the merging groups.
(b) The commissioner may conduct a hearing on a proposed
merger and shall conduct a hearing if any party, including a member
of either group, requests a hearing.
Added by Acts 2003, 78th Leg., ch. 275, § 1, eff. Sept. 1, 2003.
§ 407A.004. GROUP NOT INSURER. A group issued a
certificate of approval by the commissioner under this chapter is
not:
(1) an insurer based on that certificate; and
(2) subject to the insurance laws and rules of this
state except as otherwise provided by this chapter.
Added by Acts 2003, 78th Leg., ch. 275, § 1, eff. Sept. 1, 2003.
§ 407A.005. CERTIFICATE OF APPROVAL REQUIRED. An
association of employers may not act as a workers' compensation
self-insurance group unless it has been issued a certificate of
approval by the commissioner under this chapter.
Added by Acts 2003, 78th Leg., ch. 275, § 1, eff. Sept. 1, 2003.
§ 407A.006. SERVICE OF PROCESS. (a) Each group shall be
deemed to have appointed the commissioner as its attorney to
receive service of legal process issued against the group in this
state.
(b) The appointment of the commissioner is irrevocable,
binds any successor in interest, and remains in effect as long as
any obligation or liability of the group for workers' compensation
benefits exists in this state.
Added by Acts 2003, 78th Leg., ch. 275, § 1, eff. Sept. 1, 2003.
§ 407A.007. HEARINGS. A hearing required under this
chapter shall be conducted by the State Office of Administrative
Hearings in the manner provided for a contested case under Chapter
2001, Government Code.
Added by Acts 2003, 78th Leg., ch. 275, § 1, eff. Sept. 1, 2003.
§ 407A.008. RULES. The commissioner shall adopt rules as
necessary to implement this chapter.
Added by Acts 2003, 78th Leg., ch. 275, § 1, eff. Sept. 1, 2003.
SUBCHAPTER B. APPLICATION REQUIREMENTS FOR CERTIFICATE OF APPROVAL
FOR SELF-INSURANCE GROUP
§ 407A.051. APPLICATION FOR INITIAL CERTIFICATE OF
APPROVAL; APPROVAL REQUIREMENTS. (a) An association of employers
that proposes to organize as a workers' compensation self-insurance
group shall file with the department an application for a
certificate of approval.
(b) The application must be in the form prescribed by the
commissioner and must include:
(1) the name of the group;
(2) the location of the group's principal office;
(3) the date of organization of the group;
(4) the name and address of each employer that is a
member of the group;
(5) the name, mailing address, and telephone number of
the trade or professional association to which each group member
belongs as required by Section 407A.002(a)(2);
(6) the governing classification code of the group or
a description of the operations of each member of the group showing
that the members of the group are engaged in similar operations;
and
(7) any other information reasonably required by the
commissioner.
(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 bond for the administrator in
the form prescribed by the commissioner;
(13) a $250,000 fidelity 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.
(d) Not later than the 30th day after the effective date of
the change, a group shall notify the commissioner of any change in:
(1) the information required to be filed under
Subsection (c); or
(2) the manner of the group's compliance with
Subsection (c).
(e) The commissioner shall evaluate the financial
information provided with the application as necessary to ensure
that:
(1) the funding is sufficient to cover expected losses
and expenses; and
(2) the funds necessary to pay workers' compensation
benefits will be available on a timely basis.
(f) Except as otherwise provided by this subsection, the
commissioner shall act on a complete application for a certificate
of approval not later than the 90th day after the date on which the
application is filed with the department. If, because of the number
of applications, the commissioner is unable to act on an
application in a timely manner, the commissioner may extend the
period for an additional 30 days.
(g) Fees collected under this section shall be deposited in
the department's operating account.
(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.
Added by Added by Acts 2003, 78th Leg., ch. 275, § 1, eff. Sept.
1, 2003. Amended by Acts 2005, 79th Leg., ch. 1055, § 2, eff.
Sept. 1, 2005.
§ 407A.052. ISSUANCE OF CERTIFICATE OF APPROVAL;
REFUSAL. (a) The commissioner shall issue a certificate of
approval to a proposed group on finding that the group has met the
requirements of this subchapter.
(b) If the commissioner determines that a proposed group has
not satisfied the requirements under this subchapter for a
certificate of approval, the commissioner shall issue an order
refusing the certificate. The order must set forth the reasons for
the refusal.
(c) On issuance of the certificate of approval, the group is
authorized to provide workers' compensation benefits.
Added by Acts 2003, 78th Leg., ch. 275, § 1, eff. Sept. 1, 2003.
§ 407A.053. FINANCIAL REQUIREMENTS. (a) To obtain a
certificate of approval, each group shall comply with the financial
requirements adopted under this section.
(b) The combined net worth of all employers who are members
of the group must be at least $2 million. A member of the group may
not be required to submit an audited financial statement to
establish the $2 million combined net worth, but the group must file
a report compiled by a certified public accountant and based on
financial statements or tax returns to support the existence of a
combined net worth of at least $2 million for the initial group. In
the case of a group composed of a trust existing on September 1,
2003, the trust may satisfy the financial requirements of this
section by showing that the trust has participant surplus,
including accrued participant dividends of at least $2 million, in
lieu of the requirement of the $2 million combined net worth of its
members. Discounted reserves may not be considered in determining
whether a trust existing on September 1, 2003, has a surplus of at
least $2 million.
(c) The group must post security in the form and amount
prescribed by the commissioner, equal to the greater of $300,000 or
25 percent of the group's total incurred liabilities for workers'
compensation. The security may be provided by a surety bond,
security deposit, or any combination of those securities. If a
surety bond is used to meet the security requirement, the surety
bond must 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, the following are acceptable
securities:
(1) a bond or other evidences of indebtedness issued,
assumed, or guaranteed by the United States of America or by an
agency or instrumentality of the United States of America;
(2) certificates of deposit in a federally insured
bank;
(3) shares or savings deposits in a federally insured
savings and loan association or credit union;
(4) a bond or security issued by a state and backed by
the full faith and credit of that state;
(5) public securities described by Subsection (f);
and
(6) commercial paper payable in United States currency
that is rated in one of the two highest credit rating categories by
each rating agency.
(d) Any securities posted must be deposited in the state
treasury and must be assigned to and made negotiable by the
commissioner of workers' compensation under a trust document
acceptable to the commissioner of insurance. Interest accruing on
a negotiable security deposited under this subsection shall be
collected and transmitted to the depositor if the depositor is not
in default.
(e) A bond or security deposit must be:
(1) made for the benefit of the state, to be used
solely to pay claims and associated expenses; and
(2) payable on the failure of the group to pay workers'
compensation benefits that it is legally obligated to pay.
(f) Public securities may be used as security under this
section if the public securities bear interest or are sold at a
discount and are issued by any corporation, denominated in United
States dollars.
Added by Acts 2003, 78th Leg., ch. 275, § 1, eff. Sept. 1, 2003.
Amended by Acts 2005, 79th Leg., ch. 265, § 3.071, eff. Sept. 1,
2005.
§ 407A.054. EXCESS INSURANCE REQUIREMENTS. (a) To obtain
an initial certificate of approval and to be eligible to renew its
certificate of approval, each group must comply with the excess
insurance requirements adopted under this section.
(b) Each group shall obtain specific excess insurance for
losses that exceed the group's retention in a form prescribed by the
commissioner. The commissioner may establish minimum requirements
for the amount of specific excess insurance based on differences
among groups in size, types of employment, years in existence, and
other relevant factors.
Added by Acts 2003, 78th Leg., ch. 275, § 1, eff. Sept. 1, 2003.
§ 407A.055. PREMIUM REQUIREMENTS. Each group must have
an estimated premium subject to experience modifier of at least
$250,000 during the group's first year of operation. Thereafter,
the annual standard premium must be at least $500,000.
Added by Acts 2003, 78th Leg., ch. 275, § 1, eff. Sept. 1, 2003.
§ 407A.056. INDEMNITY AGREEMENT REQUIREMENTS. (a) An
indemnity agreement filed under Section 407A.051 must jointly and
severally bind the group and each employer who is a member of the
group to meet the workers' compensation obligations of each member.
(b) The indemnity agreement must be in the form prescribed
by the commissioner and must include minimum uniform substantive
provisions as prescribed by the commissioner. Subject to the
commissioner's approval, a group may add other provisions necessary
because of that group's particular circumstances.
Added by Acts 2003, 78th Leg., ch. 275, § 1, eff. Sept. 1, 2003.
§ 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.
Added by Acts 2003, 78th Leg., ch. 275, § 1, eff. Sept. 1, 2003.
Amended by Acts 2005, 79th Leg., ch. 1055, § 3, eff. Sept. 1,
2005.
SUBCHAPTER C. TERMINATION OF CERTIFICATE OF APPROVAL
§ 407A.101. CERTIFICATE OF APPROVAL; TERMINATION. (a) A
certificate of approval remains in effect until terminated at the
request of the group or revoked by the commissioner.
(b) The commissioner may not grant the request of any group
to terminate its certificate of approval unless the 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. For purposes of
this subsection, those obligations include:
(1) known claims and expenses associated with those
claims; and
(2) incurred but not reported claims and expenses
associated with those claims.
Added by Acts 2003, 78th Leg., ch. 275, § 1, eff. Sept. 1, 2003.
SUBCHAPTER D. BOARD OF TRUSTEES
§ 407A.151. BOARD MEMBERSHIP. (a) Each group shall be
operated by a board of trustees composed of at least five persons
whom the members of the group elect for stated terms of office. The
trustees must be employees, officers, or directors of employers who
are members of the group. Each board member shall be a resident of
this state or an officer of a corporation authorized to do business
in this state.
(b) An administrator or service company of the group, or
owner, officer, employee of, or any other person affiliated with
the administrator or service company, may not serve on the board of
trustees.
Added by Acts 2003, 78th Leg., ch. 275, § 1, eff. Sept. 1, 2003.
§ 407A.152. BOARD GENERAL POWERS AND DUTIES. The board
of trustees shall:
(1) maintain minutes of its meetings and make the
minutes available to the commissioner;
(2) designate an administrator and delineate in the
written minutes of its meetings the areas of authority it delegates
to the administrator; and
(3) retain an independent certified public accountant
to audit the financial statements required by Section 407A.251.
Added by Acts 2003, 78th Leg., ch. 275, § 1, eff. Sept. 1, 2003.
§ 407A.153. PROHIBITED ACTIVITIES. The board of trustees
may not:
(1) extend credit to individual members for payment of
a premium, except under payment plans approved by the commissioner;
or
(2) without first advising the commissioner of the
nature and purpose of the loan and obtaining prior approval from the
commissioner, borrow any money from the group or in the name of the
group except in the ordinary course of business.
Added by Acts 2003, 78th Leg., ch. 275, § 1, eff. Sept. 1, 2003.
§ 407A.154. GROUP FUNDS. The board of trustees shall
maintain responsibility for all money collected or disbursed from
the group.
Added by Acts 2003, 78th Leg., ch. 275, § 1, eff. Sept. 1, 2003.
SUBCHAPTER E. GROUP MEMBERSHIP; TERMINATION; LIABILITY
§ 407A.201. ADMISSION OF EMPLOYER AS MEMBER. (a) An
employer who joins an approved workers' compensation
self-insurance group shall:
(1) submit an application for membership to the board
of trustees or its administrator; and
(2) enter into the indemnity agreement as required by
Section 407A.056.
(b) The board of trustees shall maintain as a permanent
record the employer's application for membership and the approval
of the application.
(c) The membership of an individual member of a group is
subject to cancellation by the group as provided by the bylaws of
the group. An individual member may also elect to terminate
participation in the group. The group shall notify the
commissioner and the commissioner of workers' compensation of the
cancellation or termination of a membership not later than the 10th
day after the date on which the cancellation or termination takes
effect and shall maintain coverage of each canceled or terminated
member until the 30th day after the date of the notice, at the
terminating member's expense, unless before that date the
commissioner of workers' compensation notifies the group that the
canceled or terminated member has:
(1) obtained workers' compensation insurance
coverage;
(2) become a certified self-insurer; or
(3) become a member of another group.
(d) The group shall pay each workers' compensation claim for
which a member of the group incurs liability during the period of
membership. A member who elects to terminate membership or whose
membership is canceled by the group remains jointly and severally
liable for the workers' compensation obligations of the group and
its members incurred during the canceled or terminated member's
period of membership.
(e) A member of a group is not relieved of workers'
compensation liabilities incurred during its period of membership
except through payment by the group or the member of required
workers' compensation benefits.
(f) The insolvency or bankruptcy of a member does not
relieve a group or any other member of the group of liability for
the payment of any workers' compensation benefits incurred during
the insolvent or bankrupt member's period of membership.
Added by Acts 2003, 78th Leg., ch. 275, § 1, eff. Sept. 1, 2003.
Amended by Acts 2005, 79th Leg., ch. 265, § 3.072, eff. Sept. 1,
2005.
SUBCHAPTER F. EXAMINATIONS, FINANCIAL STATEMENTS, AND OTHER
REPORTS
§ 407A.251. FINANCIAL STATEMENT. (a) Each group shall
submit to the commissioner financial statements 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.
(b) The financial statement must include a balance sheet,
income statement, and statement of cash flow and must be prepared on
the basis of accounting principles generally accepted in the United
States.
(c) Loss reserves may be discounted subject to generally
accepted accounting principles. The discounting must be documented
in the notes accompanying the financial statement. Notwithstanding
this subsection, dividends paid to members of the group must be
based on undiscounted loss reserves.
(d) The audited financial statements required by this
section must be accompanied by an actuarial opinion on the adequacy
of the group's loss reserves, including the reasonableness of any
reserve discount. The actuarial opinion must be given by a member
in good standing of the American Academy of Actuaries and the
Casualty Actuarial Society.
Added by Acts 2003, 78th Leg., ch. 275, § 1, eff. Sept. 1, 2003.
§ 407A.252. EXAMINATION. (a) The commissioner shall
examine the financial condition of each group to determine the
group's ability to meet the group's obligations under this
subtitle. An examination under this section is subject to Article
1.15, Insurance Code, except that, to the extent of a conflict
between this chapter and that article, this chapter prevails. The
commissioner may examine a group annually for the first three years
of the group's operation. Beginning with the fourth year of
operation, the commissioner may not examine a group more frequently
than once every three years unless the commissioner determines that
the group:
(1) is in an impaired financial condition; or
(2) otherwise may not be able to continue to meet the
group's obligations under this subtitle.
(b) The commissioner has full access to the records,
officers, agents, and employees of a group as necessary to complete
an examination under this section. The commissioner may recover
the expenses of the examination under Article 1.16, Insurance Code,
to the extent the maintenance tax under Section 407A.302 does not
cover those expenses.
Added by Acts 2003, 78th Leg., ch. 275, § 1, eff. Sept. 1, 2003.
SUBCHAPTER G. TAXES, FEES, AND ASSESSMENTS
§ 407A.301. MAINTENANCE TAX FOR DIVISION AND RESEARCH
FUNCTIONS OF DEPARTMENT . (a) Each group shall pay a
self-insurance group maintenance tax under this section for:
(1) the administration of the division of workers'
compensation of the department;
(2) the prosecution of workers' compensation insurance
fraud in this state;
(3) the research functions of the department under
Chapter 405; and
(4) the administration of the office of injured
employee counsel under Chapter 404.
(b) The tax liability of a group under Subsections (a)(1)
and (2) is based on gross premium for the group's retention
multiplied by the rate assessed insurance carriers under Sections
403.002 and 403.003.
(c) The tax liability of a group under Subsection (a)(3) is
based on gross premium for the group's retention multiplied by the
rate assessed insurance carriers under Section 405.003.
(d) The tax under this section does not apply to premium
collected by the group for excess insurance.
(e) The tax under this section shall be collected by the
comptroller as provided by Section 201.051 and Chapter 255,
Insurance Code.
Added by Added by Acts 2003, 78th Leg., ch. 275, § 1, eff. Sept.
1, 2003. Amended by Acts 2005, 79th Leg., ch. 265, § 3.073,
3.074, eff. Sept. 1, 2005; Acts 2005, 79th Leg., ch. 738, §
11.138, eff. Sept. 1, 2005.
§ 407A.302. MAINTENANCE TAX FOR DEPARTMENT. (a) Subject
to Subsection (b), each group shall pay the maintenance tax imposed
under Chapter 255, Insurance Code, for the administrative costs
incurred by the department in implementing this chapter.
(b) The tax liability of a group under this section is based
on gross premium for the group's retention and does not include
premium collected by the group for excess insurance.
(c) The maintenance tax assessed under this section is
subject to Chapter 255, Insurance Code, and shall be collected by
the comptroller in the manner provided by that chapter.
Added by Acts 2003, 78th Leg., ch. 275, § 1, eff. Sept. 1, 2003.
Amended by Acts 2005, 79th Leg., ch. 728, § 11.139, eff. Sept. 1,
2005.
§ 407A.303. COLLECTION AND PAYMENT OF TAXES. (a) The
group shall remit the taxes for deposit in the Texas Department of
Insurance operating account to the credit of the division.
(b) A group commits an administrative violation if the group
does not pay the taxes imposed under Sections 407A.301 and 407A.302
in a timely manner.
(c) If the certificate of approval of a group is terminated,
the commissioner or the commissioner of insurance shall immediately
notify the comptroller to collect taxes as directed under Sections
407A.301 and 407A.302.
Added by Acts 2003, 78th Leg., ch. 275, § 1, eff. Sept. 1, 2003.
Amended by Acts 2005, 79th Leg., ch. 265, § 3.075, eff. Sept. 1,
2005.
§ 407A.304. PREMIUM TAX. (a) Each group shall pay to the
comptroller a premium tax on gross premiums for the group's
retention. The premium tax assessed under this subsection does not
apply to premium collected for excess insurance.
(b) The rate for the premium tax under this section is the
rate assessed under Chapter 221, Insurance Code.
Added by Acts 2003, 78th Leg., ch. 275, § 1, eff. Sept. 1, 2003.
Amended by Acts 2005, 79th Leg., ch. 728, § 11.140, eff. Sept. 1,
2005.
SUBCHAPTER H. RATES; REFUNDS; PREMIUM PAYMENTS; RESERVES;
DEFICITS
§ 407A.351. RATES. (a) Except as provided by Subsection
(b), each group shall use the uniform classification system,
experience rating plan, and rate relativities of the department.
(b) A group may:
(1) use the relativities promulgated by the department
modified to produce rates in accordance with the group's historical
experience; or
(2) file its own rates with the department, including
any reasonable and supporting information required by the
commissioner.
(c) As approved by the commissioner, a group may use rating
debits or credits and optional rating plans.
(d) Rates of the group may not be excessive, inadequate, or
unfairly discriminatory.
Added by Acts 2003, 78th Leg., ch. 275, § 1, eff. Sept. 1, 2003.
§ 407A.352. AUDITS. Each member of a group shall be
audited annually by the administrator or by an auditor acceptable
to the commissioner to verify proper classifications, experience
rating, payroll, and rates. The group shall maintain a record of
the audit as part of the group's records that are available to the
commissioner during an examination conducted under Section
407A.252. The audit shall be performed at the expense of the group.
Added by Acts 2003, 78th Leg., ch. 275, § 1, eff. Sept. 1, 2003.
§ 407A.353. REFUNDS. (a) The board of trustees may
declare refundable any money for a fund year in excess of the amount
necessary to fund all obligations.
(b) The board of trustees shall give each member a written
description of the group's refund plan at the time of application
for membership.
Added by Acts 2003, 78th Leg., ch. 275, § 1, eff. Sept. 1, 2003.
§ 407A.354. PREMIUM PAYMENT PLAN; RESERVES. (a) Until
the assets of a group reach a level sufficient to cover the group's
liabilities, each group shall establish to the satisfaction of the
commissioner a premium payment plan.
(b) As long as the assets of the group remain sufficient to
cover the group's liabilities, the group may determine its own
premium plan if the premium plan is disclosed to each member at the
time of application and is filed with the commissioner.
(c) Each group shall establish and maintain actuarially
appropriate loss reserves, which must include reserves for:
(1) known claims and expenses associated with those
claims; and
(2) claims incurred but not reported and expenses
associated with those claims.
(d) Each group shall establish and maintain bad debt
reserves based on the historical experience of the group or of other
groups composed of similar employer members.
Added by Acts 2003, 78th Leg., ch. 275, § 1, eff. Sept. 1, 2003.
§ 407A.355. DEFICITS; INSOLVENCIES. (a) For purposes of
this section, "insolvent" means:
(1) the inability of a group to pay the group's
outstanding lawful obligations as they mature in the regular course
of business; or
(2) that the group's liabilities exceed the group's
assets, determined without reducing liabilities by any reserve
discount.
(b) 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 under this
chapter, the group shall make up the deficiency or levy an
assessment on its members for the amount needed to make up the
deficiency.
(c) In the event of a deficiency in any fund year, the
deficiency shall be made up immediately from:
(1) surplus from a fund year other than the current
fund year;
(2) administrative funds;
(3) assessments of the membership, if ordered by the
group; or
(4) any alternate method that the commissioner
approves or directs.
(d) The commissioner shall be notified before any transfer
of surplus funds from one fund year to another under Subsection (c).
(e) If the group fails to assess its members or to otherwise
make up a deficit, the commissioner shall order the group to do so.
If the commissioner determines that the group is in a hazardous
financial condition, the commissioner may take action as provided
by Article 21.28-A, Insurance Code, and may order the group to
rectify the condition through an alternate method under Subsection
(c)(4). The group is considered an insurer only for purposes of
Article 21.28-A, Insurance Code. Otherwise, to the extent of a
conflict between this chapter and that article, this chapter
prevails.
(f) If the group fails to make the required assessment of
its members after the commissioner's order under Subsection (e), or
if the deficiency is not fully made up, the group shall be deemed to
be insolvent.
(g) If a group is liquidated, the commissioner shall secure
release of the security deposit and levy an assessment on the
members of the group in an amount determined necessary by the
commissioner to discharge all liabilities of the group, including
the reasonable cost of liquidation.
Added by Acts 2003, 78th Leg., ch. 275, § 1, eff. Sept. 1, 2003.
SUBCHAPTER I. DISCIPLINARY ACTIONS; PENALTIES
§ 407A.401. PROHIBITED SOLICITATION. In connection with
the solicitation of membership in a group, a person may not make an
untrue statement of a material fact, or omit to state a material
fact necessary to make the statement made, in light of the
circumstances under which it is made, not misleading.
Added by Acts 2003, 78th Leg., ch. 275, § 1, eff. Sept. 1, 2003.
§ 407A.402. FINES. After notice and an opportunity for a
hearing, the commissioner may impose a fine on any person or group
found to be in violation of this chapter or a rule adopted under
this chapter. A fine assessed under this section may not exceed
$1,000 for each act or violation and may not exceed $10,000 in the
aggregate. The amount of any fine assessed under this section shall
be paid to the commissioner and deposited in the state treasury.
Added by Acts 2003, 78th Leg., ch. 275, § 1, eff. Sept. 1, 2003.
§ 407A.403. CEASE AND DESIST ORDERS. (a) After notice
and an 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 this chapter or a
rule adopted under this chapter.
(b) On a finding, after notice and opportunity for a
hearing, that a person or group has violated a cease and desist
order issued under this section, the commissioner may:
(1) impose a fine not to exceed $1,000 for each
violation of the order, not to exceed an aggregate fine of $100,000;
(2) revoke the group's certificate of approval or any
license held by the person issued under the Insurance Code; or
(3) impose the fine and revoke the certificate or
license.
Added by Acts 2003, 78th Leg., ch. 275, § 1, eff. Sept. 1, 2003.
§ 407A.404. REVOCATION OF CERTIFICATE OF APPROVAL. (a)
After notice and an opportunity for a hearing, the commissioner may
revoke a group's certificate of approval if the group:
(1) is found to be insolvent;
(2) fails to pay a tax, assessment, or special fund
contribution imposed on the group; or
(3) fails to comply in a timely manner with this
chapter, a rule adopted under this chapter, or an order of the
commissioner.
(b) In addition, the commissioner may revoke a group's
certificate of approval if, after notice and an opportunity for
hearing, the commissioner determines that:
(1) a certificate of approval 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
on proper demand any money that belongs to a member, an employee of
a member, or a person otherwise entitled to the money and that has
been entrusted to the group or its administrator in their fiduciary
capacities.
Added by Acts 2003, 78th Leg., ch. 275, § 1, eff. Sept. 1, 2003.
SUBCHAPTER J. TEXAS SELF-INSURANCE GROUP GUARANTY FUND
§ 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.
Added by Acts 2005, 79th Leg., ch. 1055, § 1, eff. Sept. 1, 2005.
§ 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.
Added by Acts 2005, 79th Leg., ch. 1055, § 1, eff. Sept. 1, 2005.
§ 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.
Added by Acts 2005, 79th Leg., ch. 1055, § 1, eff. Sept. 1, 2005.
§ 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.
Added by Acts 2005, 79th Leg., ch. 1055, § 1, eff. Sept. 1, 2005.
§ 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.
Added by Acts 2005, 79th Leg., ch. 1055, § 1, eff. Sept. 1, 2005.
§ 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.
Added by Acts 2005, 79th Leg., ch. 1055, § 1, eff. Sept. 1, 2005.
§ 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.
Added by Acts 2005, 79th Leg., ch. 1055, § 1, eff. Sept. 1, 2005.
§ 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.
Added by Acts 2005, 79th Leg., ch. 1055, § 1, eff. Sept. 1, 2005.
§ 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.
Added by Acts 2005, 79th Leg., ch. 1055, § 1, eff. Sept. 1, 2005.
§ 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.
Added by Acts 2005, 79th Leg., ch. 1055, § 1, eff. Sept. 1, 2005.
§ 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.
Added by Acts 2005, 79th Leg., ch. 1055, § 1, eff. Sept. 1, 2005.
§ 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).
Added by Acts 2005, 79th Leg., ch. 1055, § 1, eff. Sept. 1, 2005.
§ 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.
Added by Acts 2005, 79th Leg., ch. 1055, § 1, eff. Sept. 1, 2005.
§ 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.
Added by Acts 2005, 79th Leg., ch. 1055, § 1, eff. Sept. 1, 2005.
§ 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.
Added by Acts 2005, 79th Leg., ch. 1055, § 1, eff. Sept. 1, 2005.
