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First Substitute H.B. 72

Representative Gordon E. Snow proposes the following substitute bill:


             1     
WORKERS' COMPENSATION FOR THE STATE

             2     
2006 GENERAL SESSION

             3     
STATE OF UTAH

             4     
Chief Sponsor: Gordon E. Snow

             5     
Senate Sponsor: Thomas V. Hatch

             6     
             7      LONG TITLE
             8      General Description:
             9          This bill amends the Insurance Code, the Utah Labor Code, and the Utah
             10      Administrative Services Code to address workers' compensation coverage for the state.
             11      Highlighted Provisions:
             12          This bill:
             13          .    addresses the makeup of the Workers' Compensation Fund's board of directors;
             14          .    beginning July 1, 2007, deletes the requirement that state entities pay the Workers'
             15      Compensation Fund for workers' compensation coverage;
             16          .    beginning July 1, 2007, establishes requirements for the state to secure the payment
             17      of workers' compensation benefits for its employees;
             18          .    addresses the application to the state of certain statutes applicable to self-insured
             19      employers; and
             20          .    makes conforming amendments and technical changes.
             21      Monies Appropriated in this Bill:
             22          None
             23      Other Special Clauses:
             24          None
             25      Utah Code Sections Affected:


             26      AMENDS:
             27          31A-33-106, as last amended by Chapters 176 and 186, Laws of Utah 2002
             28          34A-2-202, as last amended by Chapter 289, Laws of Utah 2005
             29          34A-2-203, as last amended by Chapter 222, Laws of Utah 2000
             30          63A-4-101, as last amended by Chapter 135, Laws of Utah 1997
             31     
             32      Be it enacted by the Legislature of the state of Utah:
             33          Section 1. Section 31A-33-106 is amended to read:
             34           31A-33-106. Board of directors -- Status of the fund in relationship to the state.
             35          (1) There is created a board of directors of the Workers' Compensation Fund.
             36          (2) The board shall consist of seven directors.
             37          (3) [One] Subject to Subsection (8), one director:
             38          (a) (i) shall be the executive director of the Department of Administrative Services or
             39      the executive director's designee; and
             40          [(b)] (ii) acts as the representative of the state as a policyholder of the Workers'
             41      Compensation Fund[.]; or
             42          (b) is a public director appointed in accordance with Subsection (8)(b).
             43          (4) One director shall be the chief executive officer of the fund.
             44          (5) (a) In accordance with a plan that meets the requirements of this section , the
             45      governor, with the consent of the Senate, shall appoint five public directors as follows:
             46          (i) three directors who are owners, officers, or employees of policyholders other than
             47      the state, each of whom is an owner, officer, or employee of a policyholder that has been
             48      insured by the Workers' Compensation Fund for at least one year before the appointment of the
             49      director representing the policyholder; and
             50          (ii) two directors from the public in general.
             51          (b) The plan described in Subsection (5)(a) shall comply with Section 31A-5-409 to the
             52      extent that Section 31A-5-409 does not conflict with this section.
             53          (6) No two directors may represent the same policyholder.
             54          (7) At least four directors appointed by the governor shall have had previous
             55      experience in:
             56          (a) the actuarial profession;


             57          (b) accounting;
             58          (c) investments;
             59          (d) risk management;
             60          (e) occupational safety;
             61          (f) casualty insurance; or
             62          (g) the legal profession.
             63          (8) (a) Any director who represents a policyholder that fails to maintain workers'
             64      compensation insurance through the Workers' Compensation Fund shall immediately resign
             65      from the board, including the executive director of the Department of Administrative Services
             66      or the executive director's designee if no state entity is insured by the Workers' Compensation
             67      Fund pursuant to Section 34A-2-203 .
             68          (b) (i) If no state entity is insured by the Workers' Compensation Fund pursuant to
             69      Section 34A-2-203 , the governor with the consent of the Senate, shall appoint a public director
             70      to replace the executive director of the Department of Administrative Services or the executive
             71      director's designee.
             72          (ii) The public director appointed under this Subsection (8)(b) shall:
             73          (A) be an owner, officer, or employee of a policyholder that has been insured by the
             74      Workers' Compensation Fund for at least one year before the appointment of the director
             75      representing the policyholder;
             76          (B) have previous experience described in Subsection (7); or
             77          (C) be the director of the Governor's Office of Economic Development.
             78          (c) Once the executive director of the Department of Administrative Services or the
             79      executive director's designee is not a member of the board under Subsection (3), the state shall
             80      have a member on the board to represent the state as a policyholder only if the member is
             81      appointed in accordance with Subsection (5) or (8)(b).
             82          (9) A person may not be a director if that person:
             83          (a) has any interest as a stockholder, employee, attorney, or contractor of a competing
             84      insurance carrier providing workers' compensation insurance in Utah;
             85          (b) fails to meet or comply with the conflict of interest policies established by the
             86      board; or
             87          (c) is not bondable.


             88          (10) After notice and a hearing, the governor may remove any director for cause which
             89      includes:
             90          (a) neglect of duty; or
             91          (b) malfeasance.
             92          (11) (a) Except as required by Subsection (11)(b), the term of office of the directors
             93      appointed by the governor shall be four years, beginning July 1 of the year of appointment.
             94          (b) Notwithstanding the requirements of Subsection (11)(a), the governor shall, at the
             95      time of appointment or reappointment, adjust the length of terms to ensure that the terms of
             96      directors are staggered so that approximately half of the board is appointed every two years.
             97          (12) Each director shall hold office until the director's successor is appointed and
             98      qualified.
             99          (13) When a vacancy occurs in the membership of the board for any reason, the
             100      replacement shall be appointed for the unexpired term.
             101          (14) The board shall annually elect a chair and other officers as needed from its
             102      membership.
             103          (15) (a) The board shall meet at least quarterly at a time and place designated by the
             104      chair.
             105          (b) The chair:
             106          (i) may call board meetings more frequently than quarterly; and
             107          (ii) shall call additional board meetings if requested to do so by a majority of the board.
             108          (16) Four directors are a quorum for the purpose of transacting all business of the
             109      board.
             110          (17) Each decision of the board requires the affirmative vote of at least four directors
             111      for approval.
             112          (18) (a) Directors shall receive no compensation or benefits for their services, but may
             113      receive per diem and expenses incurred in the performance of the director's official duties at the
             114      rates established by the Division of Finance under Sections 63A-3-106 and 63A-3-107 .
             115          (b) Directors may decline to receive per diem and expenses for their service.
             116          (c) The fund shall pay the per diem allowance and expenses from the Injury Fund upon
             117      vouchers drawn in the same manner as the Workers' Compensation Fund pays its normal
             118      operating expenses.


             119          (d) [The executive director of the Department of Administrative Services, or the
             120      executive director's designee, and the chief executive officer of the Workers' Compensation
             121      Fund] The following shall serve on the board without a per diem allowance[.]:
             122          (i) the executive director of the Department of Administrative Services, or the
             123      executive director's designee;
             124          (ii) the chief executive officer of the Workers' Compensation Fund; and
             125          (iii) the director of the Governor's Office of Economic Development if appointed under
             126      Subsection (8).
             127          (19) The requirement that the governor, with the consent of the Senate, appoint the
             128      directors of the Workers' Compensation Fund specified in Subsection (5) or (8), does not:
             129          (a) remove from the board of directors the managerial, financial, or operational control
             130      of the Workers' Compensation Fund;
             131          (b) give to the state or the governor managerial, financial, or operational control of the
             132      Workers' Compensation Fund;
             133          (c) consistent with Section 31A-33-105 , cause the state to be liable for any:
             134          (i) obligation of the Workers' Compensation Fund; or
             135          (ii) expense, liability, or debt described in Section 31A-33-105 ;
             136          (d) alter the legal status of the Workers' Compensation Fund as:
             137          (i) a nonprofit, self-supporting, quasi-public corporation; and
             138          (ii) an insurer:
             139          (A) regulated under this title;
             140          (B) that is structured to operate in perpetuity; and
             141          (C) domiciled in the state; or
             142          (e) alter the requirement that the Workers' Compensation Fund provide workers'
             143      compensation:
             144          (i) for the purposes set forth in Section 31A-33-102 ;
             145          (ii) consistent with Section 34A-2-201 ; and
             146          (iii) as provided in Section 31A-22-1001 .
             147          Section 2. Section 34A-2-202 is amended to read:
             148           34A-2-202. Assessment on self-insured employers including the state, counties,
             149      cities, towns, or school districts paying compensation direct.


             150          (1) (a) (i) A self-insured employer, including a county, city, town, or school district,
             151      [who by authority of the division under Sections 34A-2-201 and 34A-2-201.5 is authorized to
             152      pay compensation direct] shall pay annually, on or before March 31, an assessment in
             153      accordance with this section and rules made by the commission under this section.
             154          (ii) For purposes of this section, "self-insured employer" is as defined in Section
             155      34A-2-201.5 , except it includes the state if the state self-insures under Section 34A-2-203 .
             156          (b) The assessment required by Subsection (1)(a) is:
             157          (i) to be collected by the State Tax Commission;
             158          (ii) paid by the State Tax Commission into the state treasury as provided in Subsection
             159      59-9-101 (2); and
             160          (iii) subject to the offset provided in Section 34A-2-202.5 .
             161          (c) The assessment under Subsection (1)(a) shall be based on a total calculated
             162      premium multiplied by the premium assessment rate established pursuant to Subsection
             163      59-9-101 (2).
             164          (d) The total calculated premium, for purposes of calculating the assessment under
             165      Subsection (1)(a), shall be calculated by:
             166          (i) multiplying the total of the standard premium for each class code calculated in
             167      Subsection (1)(e) by the self-insured employer's experience modification factor; and
             168          (ii) multiplying the total under Subsection (1)(d)(i) by a safety factor determined under
             169      Subsection (1)(g).
             170          (e) A standard premium shall be calculated by:
             171          (i) multiplying the prospective loss cost for the year being considered, as filed with the
             172      insurance department pursuant to Section 31A-19a-406 , for each applicable class code by 1.10
             173      to determine the manual rate for each class code; and
             174          (ii) multiplying the manual rate for each class code under Subsection (1)(e)(i) by each
             175      $100 of the self-insured employer's covered payroll for each class code.
             176          (f) (i) Each self-insured employer paying compensation direct shall annually obtain the
             177      experience modification factor required in Subsection (1)(d)(i) by using:
             178          (A) the rate service organization designated by the insurance commissioner in Section
             179      31A-19a-404 ; or
             180          (B) for a self-insured employer that is a public agency insurance mutual, an actuary


             181      approved by the commission.
             182          (ii) If a self-insured employer's experience modification factor under Subsection
             183      (1)(f)(i) is less than 0.50, the self-insured employer shall use an experience modification factor
             184      of 0.50 in determining the total calculated premium.
             185          (g) To provide incentive for improved safety, the safety factor required in Subsection
             186      (1)(d)(ii) shall be determined based on the self-insured employer's experience modification
             187      factor as follows:
             188                  EXPERIENCE
             189              MODIFICATION FACTOR            SAFETY FACTOR
             190          Less than or equal to 0.90                    0.56
             191          Greater than 0.90 but less than or equal to 1.00        0.78
             192          Greater than 1.00 but less than or equal to 1.10        1.00
             193          Greater than 1.10 but less than or equal to 1.20        1.22
             194          Greater than 1.20                        1.44
             195          (h) (i) A premium or premium assessment modification other than a premium or
             196      premium assessment modification under this section may not be allowed.
             197          (ii) If a self-insured employer paying compensation direct fails to obtain an experience
             198      modification factor as required in Subsection (1)(f)(i) within the reasonable time period
             199      established by rule by the State Tax Commission, the State Tax Commission shall use an
             200      experience modification factor of 2.00 and a safety factor of 2.00 to calculate the total
             201      calculated premium for purposes of determining the assessment.
             202          (iii) Prior to calculating the total calculated premium under Subsection (1)(h)(ii), the
             203      State Tax Commission shall provide the self-insured employer with written notice that failure
             204      to obtain an experience modification factor within a reasonable time period, as established by
             205      rule by the State Tax Commission:
             206          (A) shall result in the State Tax Commission using an experience modification factor
             207      of 2.00 and a safety factor of 2.00 in calculating the total calculated premium for purposes of
             208      determining the assessment; and
             209          (B) may result in the division revoking the self-insured employer's right to pay
             210      compensation direct.
             211          (i) The division may immediately revoke a self-insured employer's certificate issued


             212      under Sections 34A-2-201 and 34A-2-201.5 that permits the self-insured employer to pay
             213      compensation direct if the State Tax Commission assigns an experience modification factor
             214      and a safety factor under Subsection (1)(h) because the self-insured employer failed to obtain
             215      an experience modification factor.
             216          (2) Notwithstanding the annual payment requirement in Subsection (1)(a), a
             217      self-insured employer whose total assessment obligation under Subsection (1)(a) for the
             218      preceding year was $10,000 or more shall pay the assessment in quarterly installments in the
             219      same manner provided in Section 59-9-104 and subject to the same penalty provided in Section
             220      59-9-104 for not paying or underpaying an installment.
             221          (3) (a) The State Tax Commission shall have access to all the records of the division
             222      for the purpose of auditing and collecting any amounts described in this section.
             223          (b) Time periods for the State Tax Commission to allow a refund or make an
             224      assessment shall be determined in accordance with Section 59-9-106 .
             225          (4) (a) A review of appropriate use of job class assignment and calculation
             226      methodology may be conducted as directed by the division at any reasonable time as a
             227      condition of the self-insured employer's certification of paying compensation direct.
             228          (b) The State Tax Commission shall make any records necessary for the review
             229      available to the commission.
             230          (c) The commission shall make the results of any review available to the State Tax
             231      Commission.
             232          Section 3. Section 34A-2-203 is amended to read:
             233           34A-2-203. Payment of premiums by state department, commission, board, or
             234      other agency.
             235          [Each] (1) Until June 30, 2007, a department, commission, board, or other agency of
             236      the state shall pay the insurance premium on its employees direct to the Workers'
             237      Compensation Fund.
             238          (2) Beginning July 1, 2007, the state shall secure the payment of workers'
             239      compensation benefits for its employees:
             240          (a) by:
             241          (i) insuring, and keeping insured, the payment of this compensation with the Workers'
             242      Compensation Fund;


             243          (ii) insuring, and keeping insured, the payment of this compensation with any stock
             244      corporation or mutual association authorized to transact the business of workers' compensation
             245      insurance in this state; or
             246          (iii) paying direct compensation as a self-insured employer in the amount, in the
             247      manner, and when due as provided for in this chapter or Chapter 3, Utah Occupational Disease
             248      Act;
             249          (b) in accordance with Title 63A, Chapter 4, Risk Management; and
             250          (c) subject to Subsection (3).
             251          (3) (a) If the state determines to secure the payment of workers' compensation benefits
             252      for its employees by paying direct compensation as a self-insured employer in the amount, in
             253      the manner, and due as provided for in this chapter or Chapter 3, Utah Occupational Disease
             254      Act, the state is:
             255          (i) exempt from Section 34A-2-202.5 and Subsection 34A-2-704 (14); and
             256          (ii) required to pay a premium assessment as provided in Section 34A-2-202 .
             257          (b) If the state chooses to pay workers' compensation benefits for its employees
             258      through insuring under Subsection (2)(a)(i) or (ii), the state shall obtain that insurance in
             259      accordance with Title 63, Chapter 56, Utah Procurement Code.
             260          Section 4. Section 63A-4-101 is amended to read:
             261           63A-4-101. Risk manager -- Appointment -- Duties.
             262          (1) The executive director shall appoint a risk manager, who shall be qualified by
             263      education and experience in the management of general property and casualty insurance.
             264          (2) The risk manager shall:
             265          (a) acquire and administer the following purchased by the state:
             266          (i) all property, casualty insurance[,]; and
             267          (ii) subject to Section 34A-2-203 , workers' compensation insurance [purchased by the
             268      state];
             269          (b) recommend that the executive director make rules:
             270          (i) prescribing reasonable and objective underwriting and risk control standards for
             271      state agencies;
             272          (ii) prescribing the risks to be covered by the Risk Management Fund and the extent to
             273      which these risks will be covered;


             274          (iii) prescribing the properties, risks, deductibles, and amount limits eligible for
             275      payment out of the fund;
             276          (iv) prescribing procedures for making claims and proof of loss; and
             277          (v) establishing procedures for the resolution of disputes relating to coverage or claims,
             278      which may include binding arbitration;
             279          (c) implement a risk management and loss prevention program for state agencies for
             280      the purpose of reducing risks, accidents, and losses to assist state officers and employees in
             281      fulfilling their responsibilities for risk control and safety;
             282          (d) coordinate and cooperate with any state agency having responsibility to manage and
             283      protect state properties, including:
             284          (i) the state fire marshal[,];
             285          (ii) the director of the Division of Facilities Construction and Management[,];
             286          (iii) the Department of Public Safety[,]; and
             287          (iv) institutions of higher education;
             288          (e) maintain records necessary to fulfill the requirements of this section;
             289          (f) manage the fund in accordance with economically and actuarially sound principles
             290      to produce adequate reserves for the payment of contingencies, including unpaid and
             291      unreported claims, and may purchase any insurance or reinsurance considered necessary to
             292      accomplish this objective; and
             293          (g) inform the agency's governing body and the governor when any agency fails or
             294      refuses to comply with reasonable risk control recommendations made by the risk manager.
             295          (3) Before the effective date of any rule, the risk manager shall provide a copy of the
             296      rule to each agency affected by it.


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