Amended in Senate April 29, 2013

Amended in Senate April 4, 2013

Senate Bill No. 487

Introduced by Senator Calderon

February 21, 2013

An act to amend Sections 3700.1, 3701, 3701.3, 3701.5, 3701.7, 3701.8, 3702, 3702.5, 3702.8, 3702.10, 3741, 3742, 3744, 3745, and 3746 of, to amend, renumber, and add Section 3740 to, to amend, repeal, and add Section 3743 to, and to add Sections 3701.85 and 3742.5 to, the Labor Code, relating to workers’ compensation insurance.

LEGISLATIVE COUNSEL’S DIGEST

SB 487, as amended, Calderon. Workers’ compensation insurance: Self-Insured Group Security Fund.

Existing law generally requires an employer to compensate, without regard to negligence, an employee for an injury sustained by the employee if the injury arose out of, and in the course of, employment, as specified.

Existing law requires each employer, except as specified, to secure the payment of compensation by either being insured against liability to pay compensation, or by securing from the Director of Industrial Relations a certificate of consent to self-insure, either as an individual employer, or as one employer in a group of employers. Existing law establishes the Self-Insurers’ Security Fund, governed by an 8-member board of trustees and administered by the Director of Industrial Relations, to provide for the continuation of workers’ compensation benefits delayed as a result of the failure of a private, self-insured employer to meet its compensation obligations when the employer’s security deposit is either inadequate or not immediately accessible for the payment of benefits. Existing law requires every private, self-insuring employer to secure incurred liabilities for the payment of workers’ compensation by making a deposit based on estimated future liability for compensation. Existing law authorizes an alternative security system established by regulations adopted by the director whereby private insurers can collectively secure their aggregate liabilities, as specified.

This bill would distinguish between individual self-insured employers and groups of self-insured employers by creating a separate Self-Insured Group Security Fund for group self-insured employers that is similar to the existing Self-Insurers’ Security Fund structure, which would continue, but only for individual self-insured employers. The bill would authorize a similar alternative security system to be established by regulations adopted by the director whereby group self-insured employers may collectively secure their aggregate liabilities, as specified. The bill would establish the Self-Insured Group Security Fund as a nonprofit mutual benefit corporation, governed by a 7-member board of trustees, and provide similar powers and authority as is provided to the existing Self-Insurers’ Security Fund. The bill would make additional conforming changes. The bill would state the intent of the Legislature in this regard.

Vote: majority. Appropriation: no. Fiscal committee: yes. State-mandated local program: no.

The people of the State of California do enact as follows:

SECTION 1.  

Section 3700.1 of the Labor Code is amended to
read:

3700.1.  

As used in this article:

(a) “Director” means the Director of Industrial Relations.

(b) “Fund” means the Self-Insurers’ Security Fund established
pursuant to Section 3742.

(c) “Fund member” means a stand-alone self-insured employer
which participates in the Self-Insurers’ Security Fund.

(d) “Fund trustees” means the Board of Trustees of the
Self-Insurers’ Security Fund.

(e) “Incurred liabilities for the payment of compensation” means
the sum of an estimate of future compensation, as compensation
is defined by Section 3207, plus an estimate of the amount
necessary to provide for the administration of claims, including
legal costs.

(f) “Insolvent self-insurer” means a stand-alone self-insured
employer whose certificate of consent to self-insure has been
revoked by the director or whose security deposit has been used
by the director pursuant to Section 3701.5.

(g) “Insolvent SIG” means a SIG whose certificate of consent
to self-insure has been revoked by the director, which has failed
to pay compensation, or whose security deposit has been used by
the director pursuant to Section 3701.5.

(h) “Private self-insurer” and “private self-insured employer”
mean any employer that has been issued a certificate of consent
to self-insure by the director, whether as a stand-alone self-insured
employer or as a member of a SIG which has secured the payment
of compensation pursuant to subdivision (b) of Section 3700.

(i) “SIG” means a nonprofit mutual benefit corporation to which
a group of private self-insured employers have transferred primary
liability for their workers’ compensation obligations and has
secured the payment of compensation pursuant to subdivision (b)
of Section 3700.

(j) “SIG Fund” means the Self-Insured Group Security Fund
established pursuant to Section 3742.5.

(k) “SIG Fund Member” means a SIG which participates in the
SIG Fund.

(l) “SIG Fund Trustees” means the Board of Trustees of the
SIG Fund.

(m) “Stand-alone self-insured employer” and “stand-alone
self-insured” mean a private employer that retains primary liability
for its own worker’s compensation obligations, whether alone or
in connection with guarantors, and has secured the payment of
compensation pursuant to subdivision (b) of Section 3700.

SEC. 2.  

Section 3701 of the Labor Code is amended to read:

3701.  

(a) Each year every private self-insuring employer shall
secure incurred liabilities for the payment of compensation and
the performance of the obligations of employers imposed under
this chapter by renewing the prior year’s security deposit or by
making a new deposit of security. If a new deposit is made, it shall
be posted within 60 days of the filing of the self-insured employer’s
annual report with the director, but in no event later than May 1.

(b) The solvency risk and security deposit amount for each
stand-alone self-insured employer shall be acceptable to the
Self-Insurers’ Security Fund.

(c) Unless otherwise permitted by regulation, the deposit shall
be an amount equal to the self-insurer’s projected losses, net of
specific excess insurance coverage, if any, and inclusive of incurred
but not reported (IBNR) liabilities, allocated loss adjustment
expense, and unallocated loss adjustment expense, calculated as
of December 31 of each year. The calculation of projected losses
and expenses shall be reflected in a written actuarial report that
projects ultimate liabilities of the private self-insured employer at
the expected actuarial confidence level, to ensure that all claims
and associated costs are recognized. The written actuarial report
shall be prepared by an actuary meeting the qualifications
prescribed by the director in regulation.

(d) In determining the amount of the deposit required to secure
incurred liabilities for the payment of compensation and the
performance of obligations of a self-insured employer imposed
under this chapter, the director shall offset estimated future
liabilities for the same claims covered by a self-insured plan under
the federal Longshore and Harbor Workers’ Compensation Act
(33 U.S.C. Sec. 901 et seq.), but in no event shall the offset exceed
the estimated future liabilities for the claims under this chapter.

(e) The director may only accept as security, and the employer
shall deposit as security, cash, securities, surety bonds, or
irrevocable letters of credit in any combination the director, in his
or her discretion, deems adequate security. The current deposit
shall include any amounts covered by terminated surety bonds or
excess insurance policies, as shall be set forth in regulations
adopted by the director pursuant to Section 3702.10.

(f) Surety bonds, irrevocable letters of credit, and documents
showing issuance of any irrevocable letter of credit shall be
deposited with, and be in a form approved by, the director, shall
be exonerated only according to its terms and, in no event, by the
posting of additional security.

(g) The director may accept as security a joint security deposit
that secures an employer’s obligation under this chapter and that
also secures that employer’s obligations under the federal
Longshore and Harbor Workers’ Compensation Act.

(h) The liability of the Self-Insurers’ Security Fund and the SIG
Fund, with respect to any claims brought under both this chapter
and under the federal Longshore and Harbor Workers’
Compensation Act, to pay for shortfalls in a security deposit shall
be limited to the amount of claim liability owing the employee
under this chapter offset by the amount of any claim liability owing
under the federal Longshore and Harbor Workers’ Compensation
Act, but in no event shall the liability of the fund exceed the claim
liability under this chapter. The employee shall be entitled to pursue
recovery under either or both the state and federal programs.

(i) Securities shall be deposited on behalf of the director by the
self-insured employer with the Treasurer. Securities shall be
accepted by the Treasurer for deposit and shall be withdrawn only
upon written order of the director.

(j) Cash shall be deposited in a financial institution approved
by the director, and in the account assigned to the director. Cash
shall be withdrawn only upon written order of the director.

(k) Upon the sending by the director of a request to renew,
request to post, or request to increase or decrease a security deposit,
a perfected security interest is created in the private self-insured’s
assets in favor of the director and, in the case of a stand-alone
self-insured employer the Self-Insurers’ Security Fund, or in the
case of a SIG the SIG Fund, to the extent of any then unsecured
portion of the self-insured’s incurred liabilities. That perfected
security interest is transferred to any cash or securities thereafter
posted by the private self-insured with the director and is released
only upon either of the following:

(1) The acceptance by the director of a surety bond or
irrevocable letter of credit for the full amount of the incurred
liabilities for the payment of compensation.

(2) The return of cash or securities by the director.

(l) The private self-insured employer loses all right, title, and
interest in, and any right to control, all assets or obligations posted
or left on deposit as security. The director may liquidate the deposit
as provided in Section 3701.5 and apply it to the self-insured
employer’s incurred liabilities either directly or through the
Self-Insurers’ Security Fund or through the SIG Fund.

(m) The solvency risk and security deposit amount for each SIG
shall be acceptable to the SIG Fund.

SEC. 3.  

Section 3701.3 of the Labor Code is amended to read:

3701.3.  

The director shall return to a private self-insured
employer all individual security determined, with the consent of
the Self-Insurers’ Security Fund (SISF) in the case of a stand-alone
self-insured employer or the consent of the SIG Fund in the case
of a SIG, to be in excess of that needed to assure the administration
of the employer’s self insuring, including legal fees, and the
payment of any future claims. This section shall not apply to any
security posted as part of the SISF alternate composite deposit,
the SIG alternate composite deposit, or to any security turned over
to the Self-Insurers’ Security Fund or the SIG Fund following an
order of default under Section 3701.5.

SEC. 4.  

Section 3701.5 of the Labor Code is amended to read:

3701.5.  

(a) If the director determines that a private self-insured
employer has failed to pay workers’ compensation as required by
this division, the security deposit shall be utilized to administer
and pay the employer’s compensation obligations.

(b) If the director determines the security deposit has not been
immediately made available for the payment of compensation, the
director shall determine the method of payment and claims
administration as appropriate, which may include, but is not limited
to, payment by a surety that issued the bond, or payment by an
issuer of an irrevocable letter of credit, and administration by a
surety or by an adjusting agency, through the Self-Insurers’
Security Fund, or the SIG Fund, or any combination thereof. If the
director arranges for administration and payment by any person
other than the Self-Insurers’ Security Fund or the SIG Fund after
a default is declared, the fund and the SIG Fund shall have no
responsibility for claims administration or payment of the claims.

(c) (1) If the director determines the payment of benefits and
claims administration shall be made through either the
Self-Insurers’ Security Fund or the SIG Fund, the fund shall
commence payment of the private self-insured employer’s
obligations for which it is liable under Section 3743 within 30 days
of notification. Payments shall be made to claimants whose
entitlement to benefits can be ascertained by the fund or the SIG
Fund, with or without proceedings before the appeals board. Upon
the assumption of obligations by the fund or the SIG Fund pursuant
to the director’s determination, the fund or the SIG Fund shall have
a right to immediate possession of any posted security and the
custodian, surety, or issuer of any irrevocable letter of credit shall
turn over the security to the fund or the SIG Fund together with
the interest that has accrued since the date of the self-insured
employer’s default or insolvency.

(2) The director shall promptly audit a self-insured employer
upon making a determination under subdivision (a) or (b). The
employer, any excess insurer, and any adjusting agency shall
provide any relevant information in their possession. If the audit
results in a preliminary estimate that liabilities exceed the amount
of the security deposit, the director shall direct the custodian of
the security deposit to liquidate it and provide all proceeds to the
Self-Insurers’ Security Fund in the case of a stand-alone self-insurer
or the SIG Fund in the case of a SIG. If the preliminary estimate
is that liabilities are less than the security deposit, the director shall
ensure the administration and payment of compensation pursuant
to subdivision (b).

(d) The payment of benefits by the Self-Insurers’ Security Fund
or the SIG Fund from security deposit proceeds shall release and
discharge any custodian of the security deposit, surety, any issuer
of a letter of credit, and the self-insured employer, from liability
to fulfill obligations to provide those same benefits as
compensation, but does not release any person from any liability
to the fund for full reimbursement. Payment by a surety constitutes
a full release of the surety’s liability under the bond to the extent
of that payment, and entitles the surety to full reimbursement by
the principal or his or her estate. Full reimbursement includes
necessary attorney fees and other costs and expenses, without prior
claim or proceedings on the part of the injured employee or other
beneficiaries. Any decision or determination made, or any
settlement approved, by the director or by the appeals board under
subdivision (f) shall conclusively be presumed valid and binding
as to any and all known claims arising out of the underlying
dispute, unless an appeal is made within the time limit specified
in Section 5950.

(e) The director shall advise the Self-Insurers’ Security Fund
or the SIG Fund promptly after receipt of information indicating
that a private self-insured employer may be unable to meet its
compensation obligations. The director shall also advise the
Self-Insurers’ Security Fund or the SIG Fund of all determinations
and directives made or issued pursuant to this section. All financial,
actuarial, or claims information received by the director from any
self-insurer may be shared by the director with the Self-Insurers’
Security Fund and the SIG Fund.

(f) Disputes concerning the posting, renewal, termination,
exoneration, or return of all or any portion of the security deposit,
or any liability arising out of the posting or failure to post security,
or adequacy of the security or reasonableness of administrative
costs, including legal fees, and arising between or among a surety,
the issuer of an agreement of assumption and guarantee of workers’
compensation liabilities, the issuer of a letter of credit, any
custodian of the security deposit, a self-insured employer, the
Self-Insurers’ Security Fund, or the SIG Fund shall be resolved
by the director. An appeal from the director’s decision or
determination may be taken to the appropriate superior court by
petition for writ of mandate. Payment of claims from the security
deposit or by the Self-Insurers’ Security Fund shall not be stayed
pending the resolution of the disputes unless and until the superior
court issues a determination staying a payment of claims decision
or determination of the director.

SEC. 5.  

Section 3701.7 of the Labor Code is amended to read:

3701.7.  

Where any employer requesting coverage under a new
or existing certificate of consent to self-insure has had a period of
unlawful uninsurance, either for an applicant in its entirety or for
a subsidiary or member of a joint powers authority legally
responsible for its own workers’ compensation obligations, the
following special conditions shall apply before the director may
determine if the requesting employer can operate under a certificate
of consent to self-insure:

(a) The director may require a deposit of not less than 200
percent of the outstanding liabilities remaining unpaid at the time
of application, which had been incurred during the uninsurance
period.

(b) At the discretion of the director, where a public or private
employer has been previously totally uninsured for workers’
compensation pursuant to Section 3700, the director may require
an additional deposit not to exceed 100 percent of the total
outstanding liabilities for the uninsured period, or the sum of two
hundred fifty thousand dollars ($250,000), whichever is greater.

(c) In addition to the deposits required by subdivisions (a) and
(b), a penalty shall be paid to the Uninsured Employers Fund of
10 percent per year of the remaining unpaid liabilities, for every
year liabilities remain outstanding. In addition, an additional
application fee, not to exceed one thousand dollars ($1,000), plus
assessments, pursuant to Section 3702.5 and subdivision (b) of
Section 3745, may be imposed by the director and the
Self-Insurers’ Security Fund against a stand-alone self-insured
employer, or the director and the SIG Fund against a SIG.

(d) A certificate of consent to self-insure shall not be granted
to an applicant that has had a period of unlawful uninsurance
without the written approval of the Self-Insurers’ Security Fund
in the case of a self-insured stand-alone employer or the SIG Fund
in the case of a SIG.

(e) An employer may retrospectively insure the outstanding
liabilities arising out of the uninsured period, either before or after
an application for self-insurance has been approved. Upon proof
of insurance acceptable to the director, no deposit shall be required
for the period of uninsurance.

The penalties to be paid to the Uninsured Employers Fund shall
consist of a one-time payment of 20 percent of the outstanding
liabilities for the period of uninsurance remaining unpaid at the
time of application, in lieu of any other penalty for being
unlawfully uninsured pursuant to this code.

(f) In the case of a subsidiary which meets all of the following
conditions, a certificate shall issue without penalty:

(1) The subsidiary has never had a certificate revoked for reasons
set forth in Section 3702.

(2) Employee injuries were reported to the Office of
Self-Insurance Plans in annual reports.

(3) The security deposit of the certificate holder was calculated
to include the entity’s compensation liabilities.

(4) Application for a separate certificate or corrected certificate
is made within 90 days and completed within 180 days of notice
from the Office of Self-Insurance Plans. If the requirements of this
subdivision are not met, all penalties pursuant to subdivision (b)
of Section 3702.9 shall apply.

(g) The director may approve an application on the date the
application is substantially completed, subject to completion
requirements, and may make the certificate effective on an earlier
date, covering a period of uninsurance, if the employer complies
with the requirements of this section.

(h) Any decision by the director may be contested by an entity
in the manner provided in Section 3701.5.

(i) Nothing in this section shall abrogate the right of an employee
to bring an action against an uninsured employer pursuant to
Section 3706.

(j) Nothing in this statute shall abrogate the right of a
self-insured employer to insure against known or unknown claims
arising out of the self-insurance period.

SEC. 6.  

Section 3701.8 of the Labor Code is amended to read:

3701.8.  

(a) As an alternative to each private self-insuring
employer securing its own incurred liabilities as provided in
Section 3701, the director may provide by regulation for an
alternative security system whereby all stand-alone self-insured
employers designated for full participation by the director shall
collectively secure their aggregate incurred liabilities through the
Self-Insurers’ Security Fund, which shall be known as the SISF
Alternate Composite Deposit Program. The regulations shall
provide for the director to set a total security requirement for these
participating stand-alone self-insured employers in the SISF
Alternate Composite Deposit Program based on a review of their
annual reports and any other self-insurer information as may be
specified by the director. The Self-Insurers’ Security Fund shall
propose to the director a combination of cash and securities, surety
bonds, irrevocable letters of credit, insurance, or other financial
instruments or guarantees satisfactory to the director sufficient to
meet the security requirement set by the director. Upon approval
by the director and posting by the Self-Insurers’ Security Fund on
or before the date set by the director, that combination shall be the
SISF alternate composite deposit. The noncash elements of the
SISF Alternate Composite Deposit Program may be one-year or
multiple-year instruments. If the Self-Insurers’ Security Fund fails
to post the required composite deposit by the date set by the
director, then within 30 days after that date, each private
stand-alone self-insuring employer shall secure its incurred
liabilities in the manner required by Section 3701. Self-insured
employers not designated for full participation by the director shall
meet all requirements as may be set by the director pursuant to
subdivision (g).

(b) In order to provide for the SISF alternate composite deposit
approved by the director, the Self-Insurers’ Security Fund shall
assess, in a manner approved by the director, each fully
participating private stand-alone self-insuring employer a deposit
assessment payable within 30 days of assessment. The amount of
the deposit assessment charged each fully participating stand-alone
self-insured employer shall be set by the Self-Insurers’ Security
Fund, based on its reasonable consideration of all the following
factors:

(1) The total amount needed to provide the SISF alternate
composite deposit.

(2) The stand-alone self-insuring employer’s paid or incurred
liabilities as reflected in its annual report.

(3) The financial strength and creditworthiness of the stand-alone
self-insured.

(4) Any other reasonable factors as may be authorized by
regulation.

(5) In order to make a SISF alternate composite deposit proposal
to the director and set the deposit assessment to be charged each
fully participating stand-alone self-insured, the Self-Insurers’
Security Fund shall have access to the annual reports and other
information submitted by all stand-alone self-insuring employers
to the director, under terms and conditions as may be set by the
director, to preserve the confidentiality of the stand-alone
self-insured’s financial information.

(c) Upon payment of the deposit assessment and except as
provided herein, the stand-alone self-insuring employer loses all
right, title, and interest in the deposit assessment. To the extent
that in any one year the deposit assessment paid by stand-alone
self-insurers is not exhausted in the purchase of securities, surety
bonds, irrevocable letters of credit, insurance, or other financial
instruments to post with the director as part of the SISF alternate
composite deposit, the surplus shall remain posted with the director,
and the principal and interest earned on that surplus shall remain
as part of the SISF alternate composite deposit in subsequent years.
In the event that in any one year the Self-Insurers’ Security Fund
fails to post the required SISF alternate composite deposit by the
date set the by the director, and the director requires each private
SISF alternate self-insuring employer to secure its incurred
liabilities in the manner required by Section 3701, then any deposit
assessment paid in that year shall be refunded to the stand-alone
self-insuring employer that paid the deposit assessment.

(d) If any private stand-alone self-insuring employer objects to
the calculation, posting, or any other aspect of its deposit
assessment, upon payment of the assessment in the time provided,
the employer shall have the right to appeal the assessment to the
director, who shall have exclusive jurisdiction over this dispute.
If any private stand-alone self-insuring employer fails to pay the
deposit assessment in the time provided, the director shall order
the stand-alone self-insuring employer to pay a penalty of not less
than 10 percent of its deposit assessment, plus interest on any
unpaid amount at the prejudgment rate, and to post a separate
security deposit in the manner provided by Section 3701. The
penalty and interest shall be paid directly to the Self-Insurers’
Security Fund. The director may also revoke the certificate of
consent to self-insure of any stand-alone self-insuring employer
who fails to pay the deposit assessment in the time provided.

(e) Upon the posting by the Self-Insurers’ Security Fund of the
SISF alternate composite deposit with the director, the deposit
shall be held until the director determines that a private stand-alone
self-insured employer has failed to pay workers’ compensation as
required by this division, and the director orders the Self-Insurers’
Security Fund to commence payment. Upon ordering the
Self-Insurers’ Security Fund to commence payment, the director
shall make available to the fund that portion of the SISF alternate
composite deposit necessary to pay the workers’ compensation
benefits of the defaulting stand-alone self-insuring employer. In
the event additional funds are needed in subsequent years to pay
the workers’ compensation benefits of any self-insuring employer
who defaulted in earlier years, the director shall make available
to the Self-Insurers’ Security Fund any portions of the SISF
alternate composite deposit as may be needed to pay those benefits.
In making the deposit available to the Self-Insurers’ Security Fund,
the director shall also allow any amounts as may be reasonably
necessary to pay for the administrative and other activities of the
fund.

(f) The cash portion of the SISF alternate composite deposit
shall be segregated from all other funds held by the director, and
shall be invested by the director for the sole benefit of the
Self-Insurers’ Security Fund and the injured workers of private
self-insured employers, and may not be used for any other purpose
by the state. Alternatively, the director, in his discretion, may allow
the Self-Insurers’ Security Fund to hold, invest, and draw upon
the cash portion of the SISF alternate composite deposit as
prescribed by regulation.

(g) Notwithstanding any other provision of this section, the
director shall, by regulation, set minimum credit, financial, or other
conditions that a stand-alone self-insured must meet in order to be
a fully participating stand-alone self-insurer in the SISF Alternate
Composite Deposit Program. In the event any stand-alone
self-insuring employer is unable to meet the conditions set by the
director, or upon application of the Self-Insurers’ Security Fund
to exclude an employer for credit or financial reasons, the director
shall exclude the stand-alone self-insuring employer from full
participation in the SISF Alternate Composite Deposit Program.
In the event a stand-alone self-insuring employer is excluded from
full participation, the nonfully participating stand-alone
self-insuring employer shall post a separate security deposit in the
manner provided by Section 3701 and pay a deposit assessment
set by the director. Alternatively, the director may order that the
nonfully participating stand-alone self-insuring employer post a
separate security deposit to secure a portion of its incurred
liabilities and pay a deposit assessment set by the director.

(h) An employer whose certificate to self-insure has been
revoked may fully participate in the alternative security system if
both the director and the Self-Insurers’ Security Fund approve the
participation of the self-insurer. If not approved for full
participation, or if an employer is issued a certificate to self-insure
after the composite deposit is posted, the employer shall satisfy
the requirements of subdivision (g) for nonfully participating
private self-insurers.

(i) At all times, a self-insured employer shall have secured its
incurred workers’ compensation liabilities either in the manner
required by Section 3701 or through the SISF Alternate Composite
Deposit Program or the SIG Alternate Composite Deposit Program,
and there shall not be any lapse in the security.

SEC. 7.  

Section 3701.85 is added to the Labor Code, to read:

3701.85.  

(a) As an alternative to each private SIG securing its
own incurred liabilities as provided in Section 3701, the director
may provide by regulation for an alternative security system
whereby all private SIGs designated for full participation by the
director shall collectively secure their aggregate incurred liabilities
through the Self-Insured Group Security Fund, which shall be
known as the “SIG Alternate Composite Deposit Program.” The
regulations shall provide for the director to set a total security
requirement for these participating SIGs in the SIG Alternate
Composite Deposit Program based on a review of their annual
reports and any other self-insurer information as may be specified
by the director. begin delete The Self-Insured Group Security Fund shall
propose to the director a combination of cash and securities, surety
bonds, irrevocable letters of credit, insurance, or other financial
instruments or guarantees satisfactory to the director sufficient to
meet the security requirement set by the director. Upon end delete begin insert Unless
otherwise permitted by regulation, the deposit shall be an amount
equal to the self-insurer’s project losses, net of specific excess
insurance coverage, if any, and inclusive of incurred but not
reported (IBNR) liabilities, allocated loss adjustment expense, and
unallocated loss adjustment expense, calculated as of December
31 of each year. The calculation of projected losses and expenses
shall be reflected in a written actuarial report that projects ultimate
liabilities of the private self-insured employer at the expected
actuarial confidence level, to ensure that all claims and associated
costs are recognized. The written actuarial report shall be prepared
by an actuary meeting the qualifications prescribed by the director
in regulation. end insert

begin insert (b) end insert begin insert   end insert begin insert The director may only accept as security, and the employer
shall deposit as security, cash, securities, surety bonds, or
irrevocable letters of credit in any combination the director, in his
or her discretion, deems adequate security. The current deposit
shall include any amounts covered by terminated surety bonds or
excess insurance policies, as shall be set forth in regulations by
the director pursuant to Section 3702.10. Upon end insert approvalby the
director and posting by the Self-Insured Group Security Fund on
or before the date set by the director, that combination shall be the
SIG Alternate Composite Deposit. The noncash elements of the
SIG Alternate Composite Deposit Program may be one-year or
multiple-year instruments. If the Self-Insured Group Security Fund
fails to post the required composite deposit by the date set by the
director, then within 30 days after that date, each private SIG shall
secure its incurred liabilities in the manner required by Section
3701. Self-insured SIGs not designated for full participation by
the director shall meet all requirements as may be set by the
director pursuant to subdivision begin delete (g) end delete begin insert (h) end insert .

begin delete

(b)

end delete

begin insert (c) end insert  In order to provide for the SIG alternate composite deposit
approved by the director, the Self-Insured Group Security Fund
shall assess, in a manner approved by the director, each fully
participating private SIG a deposit assessment payable within 30
days of assessment. The amount of the deposit assessment charged
each fully participating SIG shall be set by the Self-Insured Group
Security Fund based on its reasonable consideration of all the
following factors:

(1) The total amount needed to provide the SIG alternate
composite deposit.

(2) The SIG’s paid or incurred liabilities as reflected in its annual
report.

(3) The financial strength and creditworthiness of the SIG.

(4) Any other reasonable factors as may be authorized by
regulation.

(5) In order to make a SIG alternate composite deposit proposal
to the director and set the deposit assessment to be charged each
fully participating SIG, the Self-Insured Group Security Fund shall
have access to the annual reports and other information submitted
by all SIGs to the director, under terms and conditions as may be
set by the director, to preserve the confidentiality of the SIG’s
financial information.

begin delete

(c)

end delete

begin insert (d) end insert  Upon payment of the deposit assessment and except as
provided herein, the SIG loses all right, title, and interest in the
deposit assessment. To the extent that in any one year the deposit
assessment paid by SIGs is not exhausted in the purchase of
securities, surety bonds, irrevocable letters of credit, insurance, or
other financial instruments to post with the director as part of the
SIG alternate composite deposit, the surplus shall remain posted
with the director, and the principal and interest earned on that
surplus shall remain as part of the SIG alternate composite deposit
in subsequent years. In the event that in any one year the
Self-Insured Group Security Fund fails to post the required SIG
alternate composite deposit by the date set the by the director, and
the director requires each private SIG to secure its incurred
liabilities in the manner required by Section 3701, then any deposit
assessment paid in that year shall be refunded to the SIG that paid
the deposit assessment.

begin delete

(d)

end delete

begin insert (e) end insert  If any private SIG objects to the calculation, posting, or any
other aspect of its deposit assessment, upon payment of the
assessment in the time provided, the employer shall have the right
to appeal the assessment to the director, who shall have exclusive
jurisdiction over this dispute. If any private SIG fails to pay the
deposit assessment in the time provided, the director shall order
the SIG to pay a penalty of not less than 10 percent of its deposit
assessment, plus interest on any unpaid amount at the prejudgment
rate, and to post a separate security deposit in the manner provided
by Section 3701. The penalty and interest shall be paid directly to
the Self-Insured Group Security Fund. The director may also
revoke the certificate of consent to self-insure of any SIG who
fails to pay the deposit assessment in the time provided.

begin delete

(e)

end delete

begin insert (f) end insert  Upon the posting by the Self-Insured Group Security Fund
of the SIG alternate composite deposit with the director, the deposit
shall be held until the director determines that a private SIG has
failed to pay workers’ compensation as required by this division,
and the director orders the Self-Insured Group Security Fund to
commence payment. Upon ordering the Self-Insured Group
Security Fund to commence payment, the director shall make
available to the fund that portion of the SIG alternate composite
deposit necessary to pay the workers’ compensation benefits of
the defaulting SIG. In the event additional funds are needed in
subsequent years to pay the workers’ compensation benefits of
any self-insuring employer who defaulted in earlier years, the
director shall make available to the Self-Insured Group Security
Fund any portions of the SIG alternate composite deposit as may
be needed to pay those benefits. In making the deposit available
to the Self-Insured Group Security Fund, the director shall also
allow any amounts as may be reasonably necessary to pay for the
administrative and other activities of the fund.

begin delete

(f)

end delete

begin insert (g) end insert  The cash portion of the SIG alternate composite deposit
shall be segregated from all other funds held by the director, and
shall be invested by the director for the sole benefit of the
Self-Insured Group Security Fund and the injured workers of
self-insured employers, and may not be used for any other purpose
by the state. Alternatively, the director, in his discretion, may allow
the Self-Insured Group Security Fund to hold, invest, and draw
upon the cash portion of the SIG alternate composite deposit as
prescribed by regulation.

begin delete

(g)

end delete

begin insert (h) end insert  Notwithstanding any other provision of this section, the
director shall, by regulation, set minimum credit, financial, or other
conditions that a private SIG must meet in order to be a fully
participating SIG in the SIG Alternate Composite Deposit Program.
In the event any private SIG is unable to meet the conditions set
by the director, or upon application of the Self-Insured Group
Security Fund to exclude an employer for credit or financial
reasons, the director shall exclude the SIG from full participation
in the SIG Alternate Composite Deposit Program. In the event a
SIG is excluded from full participation, the nonfully participating
private SIG shall post a separate security deposit in the manner
provided by Section 3701 and pay a deposit assessment set by the
director. Alternatively, the director may order that the nonfully
participating private SIG post a separate security deposit to secure
a portion of its incurred liabilities and pay a deposit assessment
set by the director.

begin delete

(h)

end delete

begin insert (i) end insert  An employer whose certificate to self-insure has been
revoked may fully participate in the alternative security system if
both the director and the Self-Insured Group Security Fund approve
the participation of the self-insurer. If not approved for full
participation, or if an employer is issued a certificate to self-insure
after the composite deposit is posted, the employer shall satisfy
the requirements of subdivision begin delete (g) end delete begin insert (h) end insert for nonfully participating
private self-insurers.

begin delete

(i)

end delete

begin insert (j) end insert  At all times, a self-insured employer shall have secured its
incurred workers’ compensation liabilities either in the manner
required by Section 3701, through the SISF Alternate Composite
Deposit Program or through the SIG Alternate Composite Deposit
Program, and there shall not be any lapse in the security.

SEC. 8.  

Section 3702 of the Labor Code is amended to read:

3702.  

(a) A certificate of consent to self-insure may be revoked
by the director at any time for good cause after a hearing. Good
cause includes, among other things, a recommendation by the
Self-Insurers’ Security Fund to revoke the certificate of consent,
a recommendation by the SIG Fund to revoke the certificate of
consent, the impairment of the solvency of the employer to the
extent that there is a marked reduction of the employer’s financial
strength, failure to maintain a security deposit as required by
Section 3701, failure to pay assessments of the Self-Insurers’
Security Fund or the SIG Fund, frequent or flagrant violations of
state safety and health orders, the failure or inability of the
employer to fulfill his or her obligations, or any of the following
practices by the employer or his or her agent in charge of the
administration of obligations under this division:

(1) Habitually and as a matter of practice and custom inducing
claimants for compensation to accept less than the compensation
due or making it necessary for them to resort to proceedings against
the employer to secure compensation due.

(2) Where liability for temporary disability indemnity is not in
dispute, intentionally failing to pay temporary disability indemnity
without good cause in order to influence the amount of permanent
disability benefits due.

(3) Intentionally refusing to comply with known and legally
indisputable compensation obligations.

(4) Discharging or administering his or her compensation
obligations in a dishonest manner.

(5) Discharging or administering his or her compensation
obligations in such a manner as to cause injury to the public or
those dealing with the employer.

(b) Where revocation is in part based upon the director’s finding
of a marked reduction of the employer’s financial strength or the
failure or inability of the employer to fulfill his or her obligations,
or a practice of discharging obligations in a dishonest manner, it
is a condition precedent to the employer’s challenge or appeal of
the revocation that the employer have in effect insurance against
liability to pay compensation.

(c) The director may hold a hearing to determine whether good
cause exists to revoke an employer’s certificate of consent to
self-insure if the employer is cited for a willful, or repeat serious
violation of the standard adopted pursuant to Section 6401.7 and
the citation has become final.

SEC. 9.  

Section 3702.5 of the Labor Code is amended to read:

3702.5.  

(a) (1) The cost of administration of the public
self-insured program by the Director of Industrial Relations shall
be borne by the Workers’ Compensation Administration Revolving
Fund.

(2) The cost of administration of the private self-insured program
by the Director of Industrial Relations shall be borne by the private
self-insurers through payment of certificate fees which shall be
established by the director in broad ranges based on the
comparative numbers of employees insured by the private
self-insurers and the number of adjusting locations. The director
may assess other fees as necessary to cover the costs of special
audits or services rendered to private self-insured employers. The
director may assess a civil penalty for late filing as set forth in
subdivision (a) of Section 3702.9.

(b) All revenues from fees and penalties paid by private
self-insured employers shall be deposited into the Self-Insurance
Plans Fund, which is hereby created for the administration of the
private self-insurance program. Any unencumbered balance in
subdivision (a) of Item 8350-001-001 of the Budget Act of 1983
shall be transferred to the Self-Insurance Plans Fund. The director
shall annually eliminate any unused surplus in the Self-Insurance
Plans Fund by reducing certificate fee assessments by an
appropriate amount in the subsequent year. Moneys paid into the
Self-Insurance Plans Fund for administration of the private
self-insured program shall not be used by any other department or
agency or for any purpose other than administration of the private
self-insurance program. Detailed accountability shall be maintained
by the director for any security deposit or other funds held in trust
for the Self-Insurer’s Security Fund and the SIG Fund in the
Self-Insurance Plans Fund.

(c) Moneys held by the director shall be invested in the Surplus
Money Investment Fund. Interest shall be paid on all moneys
transferred to the General Fund in accordance with Section 16310
of the Government Code. The Treasurer’s and Controller’s
administrative costs may be charged to the interest earnings upon
approval of the director.

SEC. 10.  

Section 3702.8 of the Labor Code is amended to read:

3702.8.  

(a) Employers who have ceased to be self-insured
employers shall discharge their continuing obligations to secure
the payment of workers’ compensation that accrued during the
period of self-insurance, for purposes of Sections 3700, 3700.5,
3706, and 3715, and shall comply with all of the following
obligations of current certificate holders:

(1) Filing annual reports as deemed necessary by the director
to carry out the requirements of this chapter.

(2) In the case of a private employer, depositing and maintaining
a security deposit for accrued liability for the payment of any
workers’ compensation that may become due, pursuant to
subdivision (b) of Section 3700 and Section 3701, except as
provided in subdivision (c).

(3) Paying within 30 days all assessments of which notice is
sent, pursuant to subdivision (b) of Section 3745, within 36 months
from the last day the employer’s certificate of self-insurance was
in effect. Assessments shall be based on the benefits paid by the
employer during the last full calendar year of self-insurance on
claims incurred during that year.

(b) In addition to proceedings to establish liabilities and penalties
otherwise provided, a failure to comply may be the subject of a
proceeding before the director. An appeal from the director’s
determination shall be taken to the appropriate superior court by
petition for writ of mandate.

(c) Notwithstanding subdivision (a), any employer who is
currently self-insured or who has ceased to be self-insured may
purchase a special excess workers’ compensation policy to
discharge any or all of the employer’s continuing obligations as a
self-insurer to pay compensation or to secure the payment of
compensation.

(1) The special excess workers’ compensation insurance policy
shall be issued by an insurer authorized to transact workers’
compensation insurance in this state.

(2) Each carrier’s special excess workers’ compensation policy
shall be approved as to form and substance by the Insurance
Commissioner, and rates for special excess workers’ compensation
insurance shall be subject to the filing requirements set forth in
Section 11735 of the Insurance Code.

(3) Each special excess workers’ compensation insurance policy
shall be submitted by the employer to the director. The director
shall adopt and publish minimum insurer financial rating standards
for companies issuing special excess workers’ compensation
policies.

(4) Upon acceptance by the director, a special excess workers’
compensation policy shall provide coverage for all or any portion
of the purchasing employer’s claims for compensation arising out
of injuries occurring during the period the employer was
self-insured in accordance with Sections 3755, 3756, and 3757 of
the Labor Code and Sections 11651 and 11654 of the Insurance
Code. The director’s acceptance shall discharge the Self-Insurer’s
Security Fund in the case of a stand-alone self-insurer, or the SIG
Fund in the case of a SIG, without recourse or liability to the
Self-Insurer’s Security Fund or the SIG Fund, of any continuing
liability for the claims covered by the special excess workers’
compensation insurance policy.

(5) For public employers, no security deposit or financial
guarantee bond or other security shall be required. The director
shall set minimum financial rating standards for insurers issuing
special excess workers’ compensation policies for public
employers.

(d) (1) In order for the special excess workers’ compensation
insurance policy to discharge the full obligations of a private
employer to maintain a security deposit with the director for the
payment of self-insured claims, applicable to the period to be
covered by the policy, the special excess policy shall provide
coverage for all claims for compensation arising out of that
liability. The employer shall maintain the required deposit for the
period covered by the policy with the director for a period of three
years after the issuance date of the special excess policy.

(2) If the special workers’ compensation insurance policy does
not provide coverage for all of the continuing obligations for which
the private self-insured employer is liable, to the extent the
employer’s obligations are not covered by the policy a private
employer shall maintain the required deposit with the director. In
addition, the employer shall maintain with the director the required
deposit for the period covered by the policy for a period of three
years after the issuance date of the special excess policy.

(e) The director shall adopt regulations pursuant to Section
3702.10 that are reasonably necessary to implement this section
in order to reasonably protect injured workers, employers, the
Self-Insurers’ Security Fund, the SIG Fund, and the California
Insurance Guarantee Association.

(f) The posting of a special excess workers’ compensation
insurance policy with the director shall discharge the obligation
of the Self-Insurer’s Security Fund pursuant to Section 3744 to
pay claims in the event of an insolvency of a private employer to
the extent of coverage of compensation liabilities under the special
excess workers’ compensation insurance policy. The California
Insurance Guarantee Association, the Self-Insurers’ Security Fund,
or the SIG Fund, as appropriate, shall be advised by the director
whenever a special excess workers’ compensation insurance policy
is posted.

SEC. 11.  

Section 3702.10 of the Labor Code is amended to
read:

3702.10.  

The director, in accordance with Chapter 3.5
(commencing with Section 11340) of Part 1 of Division 3 of Title
2 of the Government Code, may adopt, amend, and repeal rules
and regulations reasonably necessary to carry out the purposes of
Section 129 and Article 1 (commencing with Section 3700), Article
2 (commencing with Section 3710), and Article 2.5 (commencing
with Section 3740). This authorization includes, but is not limited
to, the adoption of regulations to do all of the following:

(a) Specifying what constitutes ability to self-insure and to pay
any compensation which may become due under Section 3700.

(b) Specifying what constitutes a marked reduction of an
employer’s financial strength.

(c) Specifying what constitutes a failure or inability to fulfill
the employer’s obligations under Section 3702.

(d) Interpreting and defining the terms used.

(e) Establishing procedures and standards for hearing and
determinations, and providing for those determinations to be
appealed to the appeals board.

(f) Specifying the standards, form, and content of agreements,
forms, and reports between parties who have obligations pursuant
to this chapter.

(g) Providing for the combinations and relative liabilities of
security deposits, assumptions, and guarantees used pursuant to
this chapter.

(h) Disclosing otherwise confidential financial information
concerning self-insureds to the court, the Self-Insurers’ Security
Fund, or the SIG Fund, and specifying appropriate safeguards for
that information.

(i) Requiring an amount to be added to each security deposit to
secure the cost of administration of claims and to pay all legal
costs.

(j) Regulating the workers’ compensation self-insurance
obligations of self-insurance groups and professional employer
organizations, leasing employers as defined in Section 606.5 of
the Unemployment Insurance Code, or temporary services
employers, as defined in Section 606.5 of the Unemployment
Insurance Code, holding certificates of consent to self-insure.

SEC. 12.  

Section 3740 of the Labor Code is amended and
renumbered to read:

3740.5.  

It is the intent of the Legislature in enacting this article
and Article 1 (commencing with Section 3700) to provide for the
continuation of workers’ compensation benefits delayed due to
the failure of a private stand-alone self-insured employer or a SIG
to meet its compensation obligations when the employers’ security
deposit is either inadequate or not immediately accessible for the
payment of benefits. With respect to the continued liability of a
surety for claims that arose under a bond after termination of that
bond and to a surety’s liability for the cost of administration of
claims, it is the intent of the Legislature to clarify existing law.
The Legislature finds and declares that the establishment of two
security funds, the Self-Insurers’ Security Fund for stand-alone
self-insured employers and the Self-Insured Group Security Fund
for groups of self-insured employers is a necessary component of
a complete system of workers’ compensation, required by Section
4 of Article XIV of the California Constitution, to have adequate
provisions for the comfort, health and safety, and general welfare
of any and all workers and their dependents to the extent of
relieving the consequences of any industrial injury or death, and
full provision for securing the payment of compensation.

SEC. 13.  

Section 3740 is added to the Labor Code, to read:

3740.  

The Legislature finds and declares as follows:

(a) A Self-Insured Group is a nonprofit mutual benefit
corporation whose members have transferred their primary
workers’ compensation liabilities to the SIG.

(b) Group self-insurance is different from stand-alone
self-insurance because group self-insurance involves the transfer
of the primary risk of an occurrence from one entity to another.

(c) Members of SIG are jointly and severally liable for the
amounts required to pay the workers’ compensation liabilities of
all the members of the group, and they may be assessed to cover
any shortfall in the group even if their own experience is loss free,
a scenario sometimes called “last man standing.”

(d) SIGs have the potential to serve the interests of California
employers and employees by promptly providing workers’
compensation benefits to injured workers at reasonable cost while
enabling and encouraging employers to improve safety and provide
the earliest appropriate return to work for injured employees.

(e) Smaller employers may generally receive the benefits of
self-insurance only through membership in a SIG because SIG
members do not have to prove their capacity to individually pay
their liabilities.

(f) SIGs have become an integral part of California’s workers’
compensation system, providing coverage for more than 4,500
employers, 350,000 employees, and $4.8 billion in payroll.

(g) The expansion and increased availability of group
self-insurance will further stabilize and facilitate the funding of
workers’ compensation benefits.

(h) SIGs involve a lower risk of default than individual
self-insurance because there is recourse to the members of the SIG
for the recovery of assessments to pay unfunded workers’
compensation liabilities.

(i) A separate security fund will allow different risk pools for
SIGs and stand-alone self-insured employers.

(j) Providing a separate security fund for SIGs will facilitate
the development of distinct techniques for assessing and responding
to the risks that SIGs bring to their security fund.

(k) The pooling of risk among SIGs in a separate security fund
will have the salutary effect of promoting higher standards for
SIGs because each SIG will have a stronger interest in assuring
the financial integrity of all SIGs.

SEC. 14.  

Section 3741 of the Labor Code is amended to read:

3741.  

As used in this article:

(a) “Director” means the Director of Industrial Relations.

(b) “Fund” means the Self-Insurers’ Security Fund established
pursuant to Section 3742.

(c) “Fund member” means a stand-alone self-insured employer
which participates in the Self-Insurers’ Security Fund.

(d) “Fund trustees” means the Board of Trustees of the
Self-Insurers’ Security Fund.

(e) “Insolvent SIG” means a SIG whose certificate of consent
to self-insure has been revoked by the director, or who has failed
to pay compensation, or whose security deposit has been called
by the director pursuant to Section 3701.5.

(f) “Insolvent self-insurer” means a stand-alone self-insurer
whose certificate of consent to self-insure has been revoked by the
director, or who has failed to pay compensation, or whose security
deposit has been called by the director pursuant to Section 3701.5.

(g) “Private self-insurer” and “private self-insured employer”
mean any employer that has been issued a certificate of consent
to self-insure by the director, whether as a stand-alone self-insured
employer or as a member of a SIG and has secured the payment
of compensation pursuant to subdivision (b) of Section 3700.

(h) “SIG” means a nonprofit mutual benefit corporation to which
a group of private self-insured employers have transferred primary
liability for their workers’ compensation obligations and have
secured the payment of compensation pursuant to subdivision (b)
of Section 3700.

(i) “SIG Fund” means the Self-Insured Group Security Fund
established pursuant to Section 3742.5.

(j) “SIG Fund member” means a SIG which participates in the
SIG Fund.

(k) “SIG Fund trustees” means the Board of Trustees of the SIG
Fund.

(l) “Stand-alone self-insured employer” and “stand-alone
self-insured” mean a private employer that retains primary liability
for its own worker’s compensation obligations, whether alone or
in connection with guarantors, and has secured the payment of
compensation pursuant to subdivision (b) of Section 3700.

SEC. 15.  

Section 3742 of the Labor Code is amended to read:

3742.  

(a) The Self-Insurers’ Security Fund shall be established
as a Nonprofit Mutual Benefit Corporation pursuant to Part 3
(commencing with Section 7110) of Division 2 of Title 1 of the
Corporations Code and this article. If any provision of the
Nonprofit Mutual Benefit Corporation Law conflicts with any
provision of this article, the provisions of this article shall apply.
Each stand-alone self-insured employer shall participate as a
member in the fund, unless its liabilities have been turned over to
the fund pursuant to Section 3701.5, at which time its membership
in the fund is relinquished.

(b) The fund shall be governed by a board of trustees with no
more than eight members, as established by the bylaws of the
Self-Insurers’ Security Fund. The director shall hold ex officio
status, with full powers equal to those of a trustee, except that the
director shall not have a vote. The director, or a delegate authorized
in writing to act as the director’s representative on the board of
trustees, shall carry out exclusively the responsibilities set forth
in Division 1 (commencing with Section 50) through Division 4
(commencing with Section 3200) and shall not have the obligations
of a trustee under the Nonprofit Mutual Benefit Corporation Law.
The fund shall adopt bylaws to segregate the director from all
matters that may involve fund litigation against the department or
fund participation in legal proceedings before the director.
Although not voting, the director or a delegate authorized in writing
to represent the director, shall be counted toward a quorum of
trustees. The remaining trustees shall be representatives of private
self-insurers. The self-insurer trustees shall be elected by the
members of the fund, each member having one vote. Trustees shall
be elected to four-year terms, and shall serve until their successors
are elected and assume office pursuant to the bylaws of the fund.

(c) The fund shall establish bylaws as are necessary to effectuate
the purposes of this article and to carry out the responsibilities of
the fund, including, but not limited to, any obligations imposed
by the director pursuant to Section 3701.8. The fund may carry
out its responsibilities directly or by contract, and may purchase
services and insurance and borrow funds as it deems necessary for
the protection of the members and their employees. The fund may
receive confidential information concerning the financial condition
of self-insured employers whose liabilities to pay compensation
may devolve upon it and shall adopt bylaws to prevent
dissemination of that information.

(d) The director may also require fund members to subscribe
to financial instruments or guarantees to be posted with the director
in order to satisfy the security requirements set by the director
pursuant to Section 3701.8.

SEC. 16.  

Section 3742.5 is added to the Labor Code, to read:

3742.5.  

(a) The Self-Insured Group Security Fund shall be
established as a Nonprofit Mutual Benefit Corporation pursuant
to Part 3 (commencing with Section 7110) of Division 2 of Title
1 of the Corporations Code and this article. If any provision of the
Nonprofit Mutual Benefit Corporation Law conflicts with any
provision of this article, the provisions of this article shall apply.
Each SIG shall participate as a member in the SIG Fund as a
condition of maintaining its certificate of consent to self-insure.

(b) The SIG Fund shall be governed by a seven-member board
of trustees and shall include the director ex officio, with full powers
equal to those of a trustee, except that the director shall not have
a vote. The director, or a delegate authorized in writing to act as
the director’s representative on the board of trustees, shall carry
out exclusively the responsibilities set forth in Division 1
(commencing with Section 50) through Division 4 (commencing
with Section 3200), inclusive, and shall not have the obligations
of a trustee under the Nonprofit Mutual Benefit Corporation Law.
The SIG Fund shall adopt bylaws to segregate the director from
all matters that may involve SIG Fund litigation against the
department or SIG Fund participation in legal proceedings before
the director. Although not voting, the director or a delegate
authorized in writing to represent the director, shall be counted
toward a quorum of trustees. Three of the remaining six trustees
shall be representatives selected from individual SIG boards of
trustees and three shall be representatives of SIG administrators.
The six trustees shall be elected by the SIG Fund members, each
SIG Fund member having one vote. The three SIG Fund trustees
selected from the SIG boards and initially elected by the members
shall serve two-year terms, and the three SIG administrator SIG
Fund trustees shall serve four-year terms. Thereafter, SIG Fund
trustees selected from SIG boards shall be elected to two-year
terms, and the SIG Fund trustees selected from the SIG
administrators shall be elected to four-year terms and shall serve
until their successors are elected and assume office pursuant to the
bylaws of the SIG Fund.

(c) The SIG Fund shall establish bylaws as are necessary to
effectuate the purposes of this article and to carry out the
responsibilities of the SIG Fund, including, but not limited to, any
obligations imposed by the director pursuant to Section 3701.8.
The SIG Fund may carry out its responsibilities directly or by
contract, and may purchase services and insurance and borrow
funds as it deems necessary for the protection of the SIG Fund
members and their employees. The SIG Fund may receive
confidential information concerning the financial condition of
self-insured employers whose liabilities to pay compensation may
devolve upon it and shall adopt bylaws to prevent dissemination
of that information.

(d) The director may also require SIG Fund members to
subscribe to financial instruments or guarantees to be posted with
the director in order to satisfy the security requirements set by the
director pursuant to Section 3701.8.

SEC. 17.  

Section 3743 of the Labor Code is amended to read:

3743.  

(a) Upon order of the director pursuant to Section
3701.5, the fund shall assume the workers’ compensation
obligations of an insolvent self-insurer.

(b) Notwithstanding subdivision (a), the fund shall not be liable
for the payment of any penalties assessed for any act or omission
on the part of any person other than the fund, including, but not
limited to, the penalties provided in Section 132a, 3706, 4553,
4554, 4556, 4557, 4558, 4601.5, 5814, or 5814.1.

(c) The fund shall be a party in interest in all proceedings
involving compensation claims against an insolvent self-insurer
whose compensation obligations have been paid or assumed by
the fund. The fund shall have the same rights and defenses as the
insolvent self-insurer, including, but not limited to, all of the
following:

(1) To appear, defend, and appeal claims.

(2) To receive notice of, investigate, adjust, compromise, settle,
and pay claims.

(3) To investigate, handle, and deny claims.

(d) This section shall remain in effect only until July 1, 2014,
and as of that date is repealed, unless a later enacted statute, that
is enacted before July 1, 2014, deletes or extends that date.

SEC. 18.  

Section 3743 is added to the Labor Code, to read:

3743.  

(a) Upon order of the director pursuant to Section
3701.5, the fund shall assume the workers’ compensation
obligations of an insolvent stand-alone self-insurer.

(b) Upon order of the director pursuant to Section 3701.5, the
SIG Fund shall assume the workers’ compensation obligations of
an insolvent SIG.

(c) Notwithstanding subdivision (a), neither the fund nor the
SIG Fund shall be liable for the payment of any penalties assessed
for any act or omission on the part of any person other than the
fund or the SIG Fund, respectively, including, but not limited to,
the penalties provided in Section 132a, 3706, 4553, 4554, 4556,
4557, 4558, 4601.5, 5814, or 5814.1.

(d) The fund shall be a party in interest in all proceedings
involving compensation claims against an insolvent stand-alone
self-insurer whose compensation obligations have been paid or
assumed by the fund. The fund shall have the same rights and
defenses as the insolvent self-insurer, including, but not limited
to, all of the following:

(1) To appear, defend, and appeal claims.

(2) To receive notice of, investigate, adjust, compromise, settle,
and pay claims.

(3) To investigate, handle, and deny claims.

(e) The SIG Fund shall be a party in interest in all proceedings
involving compensation claims against an insolvent self-insured
group whose compensation obligations have been paid or assumed
by the SIG Fund. The SIG Fund shall have the same rights and
defenses as the insolvent self-insurer, including, but not limited
to, all of the following:

(1) To appear, defend, and appeal claims.

(2) To receive notice of, investigate, adjust, compromise, settle,
and pay claims.

(3) To investigate, handle, and deny claims.

(f)  The Self-Insurer’s Security Fund shall retain the workers’
compensation obligations for every self-insured employer and SIG
that either became insolvent, or was issued a notice of intent to
revoke its certificate of consent to self-insure by the director, before
July 1, 2014.

(g) This section shall become operative on July 1, 2014.

SEC. 19.  

Section 3744 of the Labor Code is amended to read:

3744.  

(a) (1) The fund shall have the right and obligation to
obtain reimbursement from an insolvent stand-alone self-insurer
up to the amount of the self-insurer’s workers’ compensation
obligations paid and assumed by the fund, including reasonable
administrative and legal costs. This right includes, but is not limited
to, a right to claim for wages and other necessities of life advanced
to claimants as subrogee of the claimants in any action to collect
against the self-insured as debtor. For purposes of this section,
“insolvent stand-alone self-insurer” includes the entity to which
the certificate of consent to self-insure was issued, any guarantor
of the entity’s liabilities under the certificate, any member of a
self-insurance group to which the certificate was issued, and any
employer who obtained employees from a self-insured employer
under subdivision (d) of Section 3602.

(2) The Legislature finds and declares that the amendments
made to this subdivision by the act adding this paragraph are
declaratory of existing law.

(b) The SIG Fund shall have the right and obligation to obtain
reimbursement from every member of the insolvent SIG, jointly
and severally, up to the amount of the self-insurer’s workers’
compensation obligations paid and assumed by the SIG Fund,
including reasonable administrative and legal costs. This right
includes, but is not limited to, a right to claim for wages and other
necessities of life advanced to claimants as subrogee of the
claimants in any action to collect against the self-insured as debtor.

(c) The fund shall have the right and obligation to obtain from
the security deposit of an insolvent stand-alone self-insurer the
amount of the self-insurer’s compensation obligations, including
reasonable administrative and legal costs, paid or assumed by the
fund. Reimbursement of administrative costs, including legal costs,
shall be subject to approval by a majority vote of the fund’s
trustees. The fund shall be a party in interest in any action to obtain
the security deposit for the payment of compensation obligations
of an insolvent stand-alone self-insurer.

(d) The SIG Fund shall have the right and obligation to obtain
from the security deposit of an insolvent SIG the amount of the
SIG’s compensation obligations, including reasonable
administrative and legal costs, paid or assumed by the SIG Fund.
Reimbursement of administrative costs, including legal costs, shall
be subject to approval by a majority vote of the SIG Fund’s
trustees. The SIG Fund shall be a party in interest in any action to
obtain the security deposit for the payment of compensation
obligations of an insolvent self-insurer.

(e) The fund shall have the right to bring an action against any
person to recover compensation paid and liability assumed by the
fund, including, but not limited to, any excess insurance carrier of
the self-insured employer, and any person whose negligence or
breach of any obligation contributed to any underestimation of the
stand-alone self-insured employer’s total accrued liability as
reported to the director.

(f) The SIG Fund shall have the right to bring an action against
any person to recover compensation paid and liability assumed by
the SIG Fund, including, but not limited to, any excess insurance
carrier of the self-insured employer, and any person whose
negligence or breach of any obligation contributed to any
underestimation of the SIG’s total accrued liability as reported to
the director.

(g) The fund may be a party in interest in any action brought
by any other person seeking damages resulting from the failure of
an insolvent stand-alone self-insurer to pay workers’ compensation
required pursuant to this division.

(h) The SIG Fund may be a party in interest in any action
brought by any other person seeking damages resulting from the
failure of an insolvent SIG to pay workers’ compensation required
pursuant to this division.

(i) At the election of the Self-Insurers’ Security Fund, venue
shall be in the Superior Court for the State of California, County
of Sacramento, for any action under this section. All actions in
which the Self-Insurers’ Security Fund and two or more members
or former members of one self-insurance group are parties shall
be consolidated if requested by the Self-Insurers’ Security Fund.

(j) At the election of the SIG Security Fund, venue shall be in
the Superior Court for the State of California, County of
Sacramento, for any action under this section. All actions in which
the SIG Security Fund and two or more members or former
members of one self-insurance group are parties shall be
consolidated if requested by the SIG Security Fund.

SEC. 20.  

Section 3745 of the Labor Code is amended to read:

3745.  

(a) The fund and the SIG Fund shall each maintain cash,
readily marketable securities, or other assets, or a line of credit,
approved by the director, sufficient to immediately continue the
payment of the compensation obligations of an insolvent
stand-alone self-insurer or insolvent SIG pending assessment of
the members. The director may establish the minimum amount to
be maintained by, or immediately available to, the fund for this
purpose.

(b) The fund may assess each of its members a pro rata share
of the funding necessary to carry out the purposes of this article.
Funds obtained by assessments pursuant to this subdivision may
only be used for the purposes of this article.

(c) The SIG Fund may assess each of its members a pro rata
share of the funding necessary to carry out its obligations and the
purposes of this article. However, no member shall be assessed at
one time in excess of 1.5 percent of the benefits paid by the
member for claims incurred during the previous calendar year as
a self-insurer, and total annual assessments in any calendar year
shall not exceed 2 percent of the benefits paid for claims incurred
during the previous calendar year. Funds obtained by assessments
pursuant to this subdivision may only be used for the purposes of
this article.

(d) The fund trustees shall certify to the director the collection
and receipt of all moneys from assessments, noting any
delinquencies. The fund trustees shall take any action deemed
appropriate to collect any delinquent assessments.

(e) The SIG Fund trustees shall certify to the director the
collection and receipt of all moneys from assessments, noting any
delinquencies. The SIG Fund trustees shall take any action deemed
appropriate to collect any delinquent assessments.

(f) All initial assessments payable to the SIG Fund shall be due
and payable by May 1, 2014.

SEC. 21.  

Section 3746 of the Labor Code is amended to read:

3746.  

(a) The fund shall annually contract for an independent
certified audit of the financial activities of the fund. An annual
report on the financial status of the fund as of June 30 shall be
submitted to the director and to each member, or at the election of
the fund, posted on the fund’s Internet Web site.

(b) The SIG Fund trustees shall annually contract for an
independent certified audit of the financial activities of the SIG
Fund. An annual report on the financial status of the SIG Fund as
of June 30 shall be submitted to the director and to each SIG Fund
member.