CHAPTER 407A. GROUP SELF-INSURANCE COVERAGE

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LABOR CODE

TITLE 5. WORKERS' COMPENSATION

SUBTITLE A. TEXAS WORKERS' COMPENSATION ACT

CHAPTER 407A. GROUP SELF-INSURANCE COVERAGE

SUBCHAPTER A. GENERAL PROVISIONS

Sec. 407A.001. DEFINITIONS. (a) In this chapter:

(1) "Administrator" means an individual, partnership, or

corporation engaged by the board of trustees of a group to

implement the policies established by the board of trustees and

to provide day-to-day management of the group.

(2) "Commissioner" means the commissioner of insurance.

(3) "Department" means the Texas Department of Insurance.

(4) "Estimated premium subject to experience modifier" means the

premium derived from applying the filed rates to estimated

payrolls and before the adjustment of the premium by experience

modifiers, schedule rating plan factors, deductible credits,

minimum premiums, and premium discounts.

(5) "Group" means a workers' compensation self-insurance group

that holds a certificate of approval under this chapter.

(5-a) "Managing company" means an individual, partnership, or

corporation engaged by the board of trustees of a group to

implement the policies established by the board of trustees and

to provide day-to-day management of the group.

(6) "Modified schedule rating premium" means premium derived

from applying filed rates to estimated payrolls and then adjusted

by the experience modifier and any schedule rating plan factors.

(7) "Same or similar" means, with regard to members of a group,

that:

(A) the governing classification code of the members of the

group is the same; or

(B) the members of the group are engaged in similar operations.

(8) "Service company" means a person that provides services to

the group other than services provided by the managing company,

including:

(A) claims adjustment;

(B) safety engineering;

loss, and tax reports;

(D) preparation of other required self-insurance reports;

(E) development of members' assessments and fees; and

(F) administration of a claim fund.

(b) For purposes of this chapter, when used as a modifier of

"benefits," "liabilities," or "obligations," the term "workers'

compensation" includes both workers' compensation and employers'

liability.

Added by Acts 2003, 78th Leg., ch. 275, Sec. 1, eff. Sept. 1,

2003.

Amended by:

Acts 2007, 80th Leg., R.S., Ch.

1176, Sec. 3.04, eff. September 1, 2007.

Sec. 407A.002. APPLICATION OF CHAPTER; ESTABLISHMENT OF PRIVATE

GROUP. (a) An unincorporated association or business trust

composed of five or more private employers may establish a

workers' compensation self-insurance group under this chapter if

the employers:

(1) are engaged in the same or a similar type of business;

(2) are members of a bona fide trade or professional association

that has been in existence in this state for purposes other than

insurance for at least five years before the establishment of the

group; and

(3) enter into agreements to pool their liabilities for workers'

compensation benefits and employers' liability in this state.

(b) This chapter does not apply to public employees or

governmental entities.

Added by Acts 2003, 78th Leg., ch. 275, Sec. 1, eff. Sept. 1,

2003.

Sec. 407A.003. MERGER OF GROUPS. (a) Subject to the approval

of the commissioner, a group may merge with another group engaged

in the same or a similar type of business if the resulting group

assumes in full all obligations of the merging groups.

(b) The commissioner may conduct a hearing on a proposed merger

and shall conduct a hearing if any party, including a member of

either group, requests a hearing.

Added by Acts 2003, 78th Leg., ch. 275, Sec. 1, eff. Sept. 1,

2003.

Sec. 407A.004. GROUP NOT INSURER. A group issued a certificate

of approval by the commissioner under this chapter is not:

(1) an insurer based on that certificate; and

(2) subject to the insurance laws and rules of this state except

as otherwise provided by this chapter.

Added by Acts 2003, 78th Leg., ch. 275, Sec. 1, eff. Sept. 1,

2003.

Sec. 407A.005. CERTIFICATE OF APPROVAL REQUIRED. An association

of employers may not act as a workers' compensation

self-insurance group unless it has been issued a certificate of

approval by the commissioner under this chapter.

Added by Acts 2003, 78th Leg., ch. 275, Sec. 1, eff. Sept. 1,

2003.

Sec. 407A.006. SERVICE OF PROCESS. (a) Each group shall be

deemed to have appointed the commissioner as its attorney to

receive service of legal process issued against the group in this

state.

(b) The appointment of the commissioner is irrevocable, binds

any successor in interest, and remains in effect as long as any

obligation or liability of the group for workers' compensation

benefits exists in this state.

Added by Acts 2003, 78th Leg., ch. 275, Sec. 1, eff. Sept. 1,

2003.

Sec. 407A.007. HEARINGS. A hearing required under this chapter

shall be conducted by the State Office of Administrative Hearings

in the manner provided for a contested case under Chapter 2001,

Government Code.

Added by Acts 2003, 78th Leg., ch. 275, Sec. 1, eff. Sept. 1,

2003.

Sec. 407A.008. RULES. The commissioner shall adopt rules as

necessary to implement this chapter.

Added by Acts 2003, 78th Leg., ch. 275, Sec. 1, eff. Sept. 1,

2003.

Sec. 407A.009. CERTIFICATE OF AUTHORITY REQUIRED FOR CERTAIN

ADMINISTRATORS AND SERVICE COMPANIES. (a) An administrator or

service company under this chapter that performs the acts of an

administrator as defined in Chapter 4151, Insurance Code, must

hold a certificate of authority under that chapter.

(b) An entity is required to hold only one certificate of

authority under Chapter 4151, Insurance Code, if:

(1) the entity acts as an administrator and a service company as

defined in this chapter; and

(2) performs the acts of an administrator as that term is

defined in Chapter 4151, Insurance Code.

Sections 4151.002(18), (19), and (20), apply to an administrator

or service company under this section.

Added by Acts 2007, 80th Leg., R.S., Ch.

1176, Sec. 3.05, eff. September 1, 2007.

SUBCHAPTER B. APPLICATION REQUIREMENTS FOR CERTIFICATE OF

APPROVAL FOR SELF-INSURANCE GROUP

Sec. 407A.051. APPLICATION FOR INITIAL CERTIFICATE OF APPROVAL;

APPROVAL REQUIREMENTS. (a) An association of employers that

proposes to organize as a workers' compensation self-insurance

group shall file with the department an application for a

certificate of approval.

(b) The application must be in the form prescribed by the

commissioner and must include:

(1) the name of the group;

(2) the location of the group's principal office;

(3) the date of organization of the group;

(4) the name and address of each employer that is a member of

the group;

(5) the name, mailing address, and telephone number of the trade

or professional association to which each group member belongs as

required by Section 407A.002(a)(2);

(6) the governing classification code of the group or a

description of the operations of each member of the group showing

that the members of the group are engaged in similar operations;

and

(7) any other information reasonably required by the

commissioner.

(1) a nonrefundable $1,000 filing fee;

(2) proof of compliance with the financial requirements under

Section 407A.053;

(3) proof of compliance with the excess insurance requirements

under Section 407A.054;

(4) a copy of the articles of association or declaration of

trust of the group, if any;

(5) a copy of any agreements entered into with an administrator

or a service company;

(6) a copy of the bylaws of the proposed group;

(7) a copy of the agreement between the group and each employer

who is a member of the group that:

(A) secures the payment of workers' compensation benefits; and

(B) includes provisions for payment of assessments as provided

by Section 407A.355;

(8) designation of the initial board of trustees and

administrator of the group;

(9) the address in this state where the books and records of the

group will be maintained at all times;

(10) a pro forma financial statement, in a form acceptable to

the commissioner, that shows the financial ability of the group

to pay the workers' compensation obligations of the employers who

are members of the group;

(11) proof of one of the following:

(A) payment to the group, or a bona fide promise to pay on

approval of the group, by each employer who is a member of the

group of not less than 25 percent of that member's first year

estimated modified schedule rating premium on a date prescribed

by the commissioner, which shall be considered part of the first

year premium payment of each member; or

(B) if the group is formed from a trust existing on September 1,

2003, that the assets of the trust are sufficient to cover the

workers' compensation obligations of the trust;

(12) a $250,000 fidelity bond for the administrator in the form

prescribed by the commissioner;

(13) a $250,000 fidelity bond for the service company in the

form prescribed by the commissioner; and

(14) an indemnity agreement that meets the requirements of

Section 407A.056.

(d) Not later than the 30th day after the effective date of the

change, a group shall notify the commissioner of any change in:

(1) the information required to be filed under Subsection (c);

(2) the manner of the group's compliance with Subsection (c).

(e) The commissioner shall evaluate the financial information

provided with the application as necessary to ensure that:

(1) the funding is sufficient to cover expected losses and

expenses; and

(2) the funds necessary to pay workers' compensation benefits

will be available on a timely basis.

(f) Except as otherwise provided by this subsection, the

commissioner shall act on a complete application for a

certificate of approval not later than the 90th day after the

date on which the application is filed with the department. If,

because of the number of applications, the commissioner is unable

to act on an application in a timely manner, the commissioner may

extend the period for an additional 30 days.

(g) Fees collected under this section shall be deposited in the

department's operating account.

(h) In lieu of the bonds required under Subsections (c)(12) and

(c)(13), a security deposit of cash or securities acceptable to

the commissioner may be deposited with the commissioner to be

held in the state treasury.

Added by Added by Acts 2003, 78th Leg., ch. 275, Sec. 1, eff.

Sept. 1, 2003.

Amended by:

Acts 2005, 79th Leg., Ch.

1055, Sec. 2, eff. September 1, 2005.

Sec. 407A.052. ISSUANCE OF CERTIFICATE OF APPROVAL; REFUSAL.

(a) The commissioner shall issue a certificate of approval to a

proposed group on finding that the group has met the requirements

of this subchapter.

(b) If the commissioner determines that a proposed group has not

satisfied the requirements under this subchapter for a

certificate of approval, the commissioner shall issue an order

refusing the certificate. The order must set forth the reasons

for the refusal.

authorized to provide workers' compensation benefits.

Added by Acts 2003, 78th Leg., ch. 275, Sec. 1, eff. Sept. 1,

2003.

Sec. 407A.053. FINANCIAL REQUIREMENTS. (a) To obtain a

certificate of approval, each group shall comply with the

financial requirements adopted under this section.

(b) The combined net worth of all employers who are members of

the group must be at least $2 million. A member of the group may

not be required to submit an audited financial statement to

establish the $2 million combined net worth, but the group must

file a report compiled by a certified public accountant and based

on financial statements or tax returns to support the existence

of a combined net worth of at least $2 million for the initial

group. In the case of a group composed of a trust existing on

September 1, 2003, the trust may satisfy the financial

requirements of this section by showing that the trust has

participant surplus, including accrued participant dividends of

at least $2 million, in lieu of the requirement of the $2 million

combined net worth of its members. Discounted reserves may not be

considered in determining whether a trust existing on September

1, 2003, has a surplus of at least $2 million.

prescribed by the commissioner, equal to the greater of $300,000

or 25 percent of the group's total incurred liabilities for

workers' compensation. The security may be provided by a surety

bond, security deposit, or any combination of those securities.

If a surety bond is used to meet the security requirement, the

surety bond must be issued by a corporate surety company

authorized to transact business in this state. If a security

deposit is used to meet the security requirement, the following

are acceptable securities:

(1) a bond or other evidences of indebtedness issued, assumed,

or guaranteed by the United States of America or by an agency or

instrumentality of the United States of America;

(2) certificates of deposit in a federally insured bank;

(3) shares or savings deposits in a federally insured savings

and loan association or credit union;

(4) a bond or security issued by a state and backed by the full

faith and credit of that state;

(5) public securities described by Subsection (f); and

(6) commercial paper payable in United States currency that is

rated in one of the two highest credit rating categories by each

rating agency.

(d) Any securities posted must be deposited in the state

treasury and must be assigned to and made negotiable by the

commissioner of workers' compensation under a trust document

acceptable to the commissioner of insurance. Interest accruing

on a negotiable security deposited under this subsection shall be

collected and transmitted to the depositor if the depositor is

not in default.

(e) A bond or security deposit must be:

(1) made for the benefit of the state, to be used solely to pay

claims and associated expenses; and

(2) payable on the failure of the group to pay workers'

compensation benefits that it is legally obligated to pay.

(f) Public securities may be used as security under this section

if the public securities bear interest or are sold at a discount

and are issued by any corporation, denominated in United States

dollars.

Added by Acts 2003, 78th Leg., ch. 275, Sec. 1, eff. Sept. 1,

2003.

Amended by:

Acts 2005, 79th Leg., Ch.

265, Sec. 3.071, eff. September 1, 2005.

Sec. 407A.054. EXCESS INSURANCE REQUIREMENTS. (a) To obtain an

initial certificate of approval and to be eligible to renew its

certificate of approval, each group must comply with the excess

insurance requirements adopted under this section.

(b) Each group shall obtain specific excess insurance for losses

that exceed the group's retention in a form prescribed by the

commissioner. The commissioner may establish minimum requirements

for the amount of specific excess insurance based on differences

among groups in size, types of employment, years in existence,

and other relevant factors.

Added by Acts 2003, 78th Leg., ch. 275, Sec. 1, eff. Sept. 1,

2003.

Sec. 407A.055. PREMIUM REQUIREMENTS. Each group must have an

estimated premium subject to experience modifier of at least

$250,000 during the group's first year of operation. Thereafter,

the annual standard premium must be at least $500,000.

Added by Acts 2003, 78th Leg., ch. 275, Sec. 1, eff. Sept. 1,

2003.

Sec. 407A.056. INDEMNITY AGREEMENT REQUIREMENTS. (a) An

indemnity agreement filed under Section 407A.051 must jointly and

severally bind the group and each employer who is a member of the

group to meet the workers' compensation obligations of each

member.

(b) The indemnity agreement must be in the form prescribed by

the commissioner and must include minimum uniform substantive

provisions as prescribed by the commissioner. Subject to the

commissioner's approval, a group may add other provisions

necessary because of that group's particular circumstances.

Added by Acts 2003, 78th Leg., ch. 275, Sec. 1, eff. Sept. 1,

2003.

Sec. 407A.057. ADDITIONAL PERFORMANCE BOND REQUIREMENTS. (a)

In addition to the requirements under Section 407A.051, the

commissioner may require a service company providing claim

services to furnish a performance bond of $250,000 in the form

prescribed by the commissioner.

(b) In lieu of a performance bond under Subsection (a), a

security deposit of cash or securities acceptable to the

commissioner may be deposited with the commissioner to be held in

the state treasury.

Added by Acts 2003, 78th Leg., ch. 275, Sec. 1, eff. Sept. 1,

2003.

Amended by:

Acts 2005, 79th Leg., Ch.

1055, Sec. 3, eff. September 1, 2005.

SUBCHAPTER C. TERMINATION OF CERTIFICATE OF APPROVAL

Sec. 407A.101. CERTIFICATE OF APPROVAL; TERMINATION. (a) A

certificate of approval remains in effect until terminated at the

request of the group or revoked by the commissioner.

(b) The commissioner may not grant the request of any group to

terminate its certificate of approval unless the group has

insured or reinsured all incurred workers' compensation

obligations with an authorized insurer under an agreement filed

with and approved in writing by the commissioner. For purposes of

this subsection, those obligations include:

(1) known claims and expenses associated with those claims; and

(2) incurred but not reported claims and expenses associated

with those claims.

Added by Acts 2003, 78th Leg., ch. 275, Sec. 1, eff. Sept. 1,

2003.

SUBCHAPTER D. BOARD OF TRUSTEES

Sec. 407A.151. BOARD MEMBERSHIP. (a) Each group shall be

operated by a board of trustees composed of at least five persons

whom the members of the group elect for stated terms of office.

The trustees must be employees, officers, or directors of

employers who are members of the group. Each board member shall

be a resident of this state or an officer of a corporation

authorized to do business in this state.

(b) An administrator or service company of the group, or owner,

officer, employee of, or any other person affiliated with the

administrator or service company, may not serve on the board of

trustees.

Added by Acts 2003, 78th Leg., ch. 275, Sec. 1, eff. Sept. 1,

2003.

Sec. 407A.152. BOARD GENERAL POWERS AND DUTIES. The board of

trustees shall:

(1) maintain minutes of its meetings and make the minutes

available to the commissioner;

(2) designate an administrator and delineate in the written

minutes of its meetings the areas of authority it delegates to

the administrator; and

(3) retain an independent certified public accountant to audit

the financial statements required by Section 407A.251.

Added by Acts 2003, 78th Leg., ch. 275, Sec. 1, eff. Sept. 1,

2003.

Sec. 407A.153. PROHIBITED ACTIVITIES. The board of trustees may

not:

(1) extend credit to individual members for payment of a

premium, except under payment plans approved by the commissioner;

(2) without first advising the commissioner of the nature and

purpose of the loan and obtaining prior approval from the

commissioner, borrow any money from the group or in the name of

the group except in the ordinary course of business.

Added by Acts 2003, 78th Leg., ch. 275, Sec. 1, eff. Sept. 1,

2003.

Sec. 407A.154. GROUP FUNDS. The board of trustees shall

maintain responsibility for all money collected or disbursed from

the group.

Added by Acts 2003, 78th Leg., ch. 275, Sec. 1, eff. Sept. 1,

2003.

SUBCHAPTER E. GROUP MEMBERSHIP; TERMINATION; LIABILITY

Sec. 407A.201. ADMISSION OF EMPLOYER AS MEMBER. (a) An

employer who joins an approved workers' compensation

self-insurance group shall:

(1) submit an application for membership to the board of

trustees or its administrator; and

(2) enter into the indemnity agreement as required by Section

407A.056.

(b) The board of trustees shall maintain as a permanent record

the employer's application for membership and the approval of the

application.

to cancellation by the group as provided by the bylaws of the

group. An individual member may also elect to terminate

participation in the group. The group shall notify the

commissioner and the commissioner of workers' compensation of the

cancellation or termination of a membership not later than the

10th day after the date on which the cancellation or termination

takes effect and shall maintain coverage of each canceled or

terminated member until the 30th day after the date of the

notice, at the terminating member's expense, unless before that

date the commissioner of workers' compensation notifies the group

that the canceled or terminated member has:

(1) obtained workers' compensation insurance coverage;

(2) become a certified self-insurer; or

(3) become a member of another group.

(d) The group shall pay each workers' compensation claim for

which a member of the group incurs liability during the period of

membership. A member who elects to terminate membership or whose

membership is canceled by the group remains jointly and severally

liable for the workers' compensation obligations of the group and

its members incurred during the canceled or terminated member's

period of membership.

(e) A member of a group is not relieved of workers' compensation

liabilities incurred during its period of membership except

through payment by the group or the member of required workers'

compensation benefits.

(f) The insolvency or bankruptcy of a member does not relieve a

group or any other member of the group of liability for the

payment of any workers' compensation benefits incurred during the

insolvent or bankrupt member's period of membership.

Added by Acts 2003, 78th Leg., ch. 275, Sec. 1, eff. Sept. 1,

2003.

Amended by:

Acts 2005, 79th Leg., Ch.

265, Sec. 3.072, eff. September 1, 2005.

SUBCHAPTER F. EXAMINATIONS, FINANCIAL STATEMENTS, AND OTHER

REPORTS

Sec. 407A.251. FINANCIAL STATEMENT. (a) Each group shall

submit to the commissioner financial statements audited by an

independent certified public accountant on or before the last day

of the sixth month following the end of the group's fiscal year.

(b) The financial statement must include a balance sheet, income

statement, and statement of cash flow and must be prepared on the

basis of accounting principles generally accepted in the United

States.

accepted accounting principles. The discounting must be

documented in the notes accompanying the financial statement.

Notwithstanding this subsection, dividends paid to members of the

group must be based on undiscounted loss reserves.

(d) The audited financial statements required by this section

must be accompanied by an actuarial opinion on the adequacy of

the group's loss reserves, including the reasonableness of any

reserve discount. The actuarial opinion must be given by a member

in good standing of the American Academy of Actuaries and the

Casualty Actuarial Society.

Added by Acts 2003, 78th Leg., ch. 275, Sec. 1, eff. Sept. 1,

2003.

Sec. 407A.252. EXAMINATION. (a) The commissioner shall examine

the financial condition of each group to determine the group's

ability to meet the group's obligations under this subtitle. An

examination under this section is subject to Article 1.15,

Insurance Code, except that, to the extent of a conflict between

this chapter and that article, this chapter prevails. The

commissioner may examine a group annually for the first three

years of the group's operation. Beginning with the fourth year of

operation, the commissioner may not examine a group more

frequently than once every three years unless the commissioner

determines that the group:

(1) is in an impaired financial condition; or

(2) otherwise may not be able to continue to meet the group's

obligations under this subtitle.

(b) The commissioner has full access to the records, officers,

agents, and employees of a group as necessary to complete an

examination under this section. The commissioner may recover the

expenses of the examination under Article 1.16, Insurance Code,

to the extent the maintenance tax under Section 407A.302 does not

cover those expenses.

Added by Acts 2003, 78th Leg., ch. 275, Sec. 1, eff. Sept. 1,

2003.

SUBCHAPTER G. TAXES, FEES, AND ASSESSMENTS

Sec. 407A.301. MAINTENANCE TAX FOR DIVISION AND RESEARCH

FUNCTIONS OF DEPARTMENT. (a) Each group shall pay a

self-insurance group maintenance tax under this section for:

(1) the administration of the division of workers' compensation

of the department;

(2) the prosecution of workers' compensation insurance fraud in

this state;

(3) the research functions of the department under Chapter 405;

and

(4) the administration of the office of injured employee counsel

under Chapter 404.

(b) The tax liability of a group under Subsections (a)(1) and

(2) is based on gross premium for the group's retention

multiplied by the rate assessed insurance carriers under Sections

403.002 and 403.003.

based on gross premium for the group's retention multiplied by

the rate assessed insurance carriers under Section 405.003.

(d) The tax under this section does not apply to premium

collected by the group for excess insurance.

(e) The tax under this section shall be collected by the

comptroller as provided by Section 201.051 and Chapter 255,

Insurance Code.

Added by Acts 2003, 78th Leg., ch. 275, Sec. 1, eff. Sept. 1,

2003.

Amended by:

Acts 2005, 79th Leg., Ch.

265, Sec. 3.073, eff. September 1, 2005.

Acts 2005, 79th Leg., Ch.

265, Sec. 3.074, eff. September 1, 2005.

Acts 2005, 79th Leg., Ch.

728, Sec. 11.138, eff. September 1, 2005.

Sec. 407A.302. MAINTENANCE TAX FOR DEPARTMENT. (a) Subject to

Subsection (b), each group shall pay the maintenance tax imposed

under Chapter 255, Insurance Code, for the administrative costs

incurred by the department in implementing this chapter.

(b) The tax liability of a group under this section is based on

gross premium for the group's retention and does not include

premium collected by the group for excess insurance.

to Chapter 255, Insurance Code, and shall be collected by the

comptroller in the manner provided by that chapter.

Added by Acts 2003, 78th Leg., ch. 275, Sec. 1, eff. Sept. 1,

2003.

Amended by:

Acts 2005, 79th Leg., Ch.

728, Sec. 11.139, eff. September 1, 2005.

Sec. 407A.303. COLLECTION AND PAYMENT OF TAXES. (a) The group

shall remit the taxes for deposit in the Texas Department of

Insurance operating account to the credit of the division.

(b) A group commits an administrative violation if the group

does not pay the taxes imposed under Sections 407A.301 and

407A.302 in a timely manner.

commissioner or the commissioner of insurance shall immediately

notify the comptroller to collect taxes as directed under

Sections 407A.301 and 407A.302.

Added by Acts 2003, 78th Leg., ch. 275, Sec. 1, eff. Sept. 1,

2003.

Amended by:

Acts 2005, 79th Leg., Ch.

265, Sec. 3.075, eff. September 1, 2005.

Sec. 407A.304. PREMIUM TAX. (a) Each group shall pay to the

comptroller a premium tax on gross premiums for the group's

retention. The premium tax assessed under this subsection does

not apply to premium collected for excess insurance.

(b) The rate for the premium tax under this section is the rate

assessed under Chapter 221, Insurance Code.

Added by Acts 2003, 78th Leg., ch. 275, Sec. 1, eff. Sept. 1,

2003.

Amended by:

Acts 2005, 79th Leg., Ch.

728, Sec. 11.140, eff. September 1, 2005.

SUBCHAPTER H. RATES; REFUNDS; PREMIUM PAYMENTS; RESERVES;

DEFICITS

Sec. 407A.351. RATES. (a) Except as provided by Subsection

(b), each group shall use the uniform classification system,

experience rating plan, and rate relativities of the department.

(b) A group may:

(1) use the relativities promulgated by the department modified

to produce rates in accordance with the group's historical

experience; or

(2) file its own rates with the department, including any

reasonable and supporting information required by the

commissioner.

debits or credits and optional rating plans.

(d) Rates of the group may not be excessive, inadequate, or

unfairly discriminatory.

Added by Acts 2003, 78th Leg., ch. 275, Sec. 1, eff. Sept. 1,

2003.

Sec. 407A.352. AUDITS. Each member of a group shall be audited

annually by the administrator or by an auditor acceptable to the

commissioner to verify proper classifications, experience rating,

payroll, and rates. The group shall maintain a record of the

audit as part of the group's records that are available to the

commissioner during an examination conducted under Section

407A.252. The audit shall be performed at the expense of the

group.

Added by Acts 2003, 78th Leg., ch. 275, Sec. 1, eff. Sept. 1,

2003.

Sec. 407A.353. REFUNDS. (a) The board of trustees may declare

refundable any money for a fund year in excess of the amount

necessary to fund all obligations.

(b) The board of trustees shall give each member a written

description of the group's refund plan at the time of application

for membership.

Added by Acts 2003, 78th Leg., ch. 275, Sec. 1, eff. Sept. 1,

2003.

Sec. 407A.354. PREMIUM PAYMENT PLAN; RESERVES. (a) Until the

assets of a group reach a level sufficient to cover the group's

liabilities, each group shall establish to the satisfaction of

the commissioner a premium payment plan.

(b) As long as the assets of the group remain sufficient to

cover the group's liabilities, the group may determine its own

premium plan if the premium plan is disclosed to each member at

the time of application and is filed with the commissioner.

appropriate loss reserves, which must include reserves for:

(1) known claims and expenses associated with those claims; and

(2) claims incurred but not reported and expenses associated

with those claims.

(d) Each group shall establish and maintain bad debt reserves

based on the historical experience of the group or of other

groups composed of similar employer members.

Added by Acts 2003, 78th Leg., ch. 275, Sec. 1, eff. Sept. 1,

2003.

Sec. 407A.355. DEFICITS; INSOLVENCIES. (a) For purposes of

this section, "insolvent" means:

(1) the inability of a group to pay the group's outstanding

lawful obligations as they mature in the regular course of

business; or

(2) that the group's liabilities exceed the group's assets,

determined without reducing liabilities by any reserve discount.

(b) If the assets of a group are at any time insufficient to

enable the group to discharge its legal liabilities and other

obligations and to maintain the reserves required under this

chapter, the group shall make up the deficiency or levy an

assessment on its members for the amount needed to make up the

deficiency.

deficiency shall be made up immediately from:

(1) surplus from a fund year other than the current fund year;

(2) administrative funds;

(3) assessments of the membership, if ordered by the group; or

(4) any alternate method that the commissioner approves or

directs.

(d) The commissioner shall be notified before any transfer of

surplus funds from one fund year to another under Subsection (c).

(e) If the group fails to assess its members or to otherwise

make up a deficit, the commissioner shall order the group to do

so. If the commissioner determines that the group is in a

hazardous financial condition, the commissioner may take action

as provided by Article 21.28-A, Insurance Code, and may order the

group to rectify the condition through an alternate method under

Subsection (c)(4). The group is considered an insurer only for

purposes of Article 21.28-A, Insurance Code. Otherwise, to the

extent of a conflict between this chapter and that article, this

chapter prevails.

(f) If the group fails to make the required assessment of its

members after the commissioner's order under Subsection (e), or

if the deficiency is not fully made up, the group shall be deemed

to be insolvent.

(g) If a group is liquidated, the commissioner shall secure

release of the security deposit and levy an assessment on the

members of the group in an amount determined necessary by the

commissioner to discharge all liabilities of the group, including

the reasonable cost of liquidation.

Added by Acts 2003, 78th Leg., ch. 275, Sec. 1, eff. Sept. 1,

2003.

Text of section as repealed by Acts 2005, 79th Leg., R.S., Ch.

1055, Sec. 4 effective September 1, 2005

Sec. 407A.357. TEXAS GROUP SELF-INSURANCE GUARANTY ASSOCIATION;

ADVISORY COMMITTEE. (a) Subject to Subsection (d), the Texas

Group Self-Insurance Guaranty Association shall be established

not later than January 1, 2006, based on recommendations from the

guaranty association advisory committee established under

Subsection (b). The guaranty association shall provide for the

payment of workers' compensation insurance benefits and expenses

related to payment of those benefits for the injured employees of

an insolvent group.

Text of subsection as amended by Acts 2005, 79th Leg., R.S., Ch.

265, Sec. 3.076

(b) The guaranty association advisory committee is composed of

the following voting members:

(1) three members who represent different groups under this

chapter, subject to Subsection (c);

(2) one member designated by the commissioner of workers'

compensation;

(3) one member designated by the insurance commissioner; and

(4) the public counsel of the office of public insurance

counsel.

by July 1, 2004, the advisory committee shall include

representatives of any certified groups, and the commissioner

shall choose the remaining voting members under Subsection

(b)(1):

(1) from members of a bona fide trade association in this state

that is eligible for and has applied for a certificate of

approval; or

(2) if an association described by Subdivision (1) does not

exist as of July 1, 2004, from any association in this state

representing employers in the same or a similar business that has

been in existence for at least five years for purposes other than

obtaining insurance coverage.

(d) If the advisory committee under this section recommends that

a guaranty association not be created, the guaranty mechanism

under Section 407A.356 continues in effect.

Added by Acts 2003, 78th Leg., ch. 275, Sec. 1, eff. Sept. 1,

2003.

Amended by:

Acts 2005, 79th Leg., Ch.

265, Sec. 3.076, eff. September 1, 2005.

Acts 2005, 79th Leg., Ch.

1055, Sec. 4, eff. September 1, 2005.

SUBCHAPTER I. DISCIPLINARY ACTIONS; PENALTIES

Sec. 407A.401. PROHIBITED SOLICITATION. In connection with the

solicitation of membership in a group, a person may not make an

untrue statement of a material fact, or omit to state a material

fact necessary to make the statement made, in light of the

circumstances under which it is made, not misleading.

Added by Acts 2003, 78th Leg., ch. 275, Sec. 1, eff. Sept. 1,

2003.

Sec. 407A.402. FINES. After notice and an opportunity for a

hearing, the commissioner may impose a fine on any person or

group found to be in violation of this chapter or a rule adopted

under this chapter. A fine assessed under this section may not

exceed $1,000 for each act or violation and may not exceed

$10,000 in the aggregate. The amount of any fine assessed under

this section shall be paid to the commissioner and deposited in

the state treasury.

Added by Acts 2003, 78th Leg., ch. 275, Sec. 1, eff. Sept. 1,

2003.

Sec. 407A.403. CEASE AND DESIST ORDERS. (a) After notice and

an opportunity for a hearing, the commissioner may issue an order

requiring a person or group to cease and desist from engaging in

an act or practice found to be in violation of this chapter or a

rule adopted under this chapter.

(b) On a finding, after notice and opportunity for a hearing,

that a person or group has violated a cease and desist order

issued under this section, the commissioner may:

(1) impose a fine not to exceed $1,000 for each violation of the

order, not to exceed an aggregate fine of $100,000;

(2) revoke the group's certificate of approval or any license

held by the person issued under the Insurance Code; or

(3) impose the fine and revoke the certificate or license.

Added by Acts 2003, 78th Leg., ch. 275, Sec. 1, eff. Sept. 1,

2003.

Sec. 407A.404. REVOCATION OF CERTIFICATE OF APPROVAL. (a)

After notice and an opportunity for a hearing, the commissioner

may revoke a group's certificate of approval if the group:

(1) is found to be insolvent;

(2) fails to pay a tax, assessment, or special fund contribution

imposed on the group; or

(3) fails to comply in a timely manner with this chapter, a rule

adopted under this chapter, or an order of the commissioner.

(b) In addition, the commissioner may revoke a group's

certificate of approval if, after notice and an opportunity for

hearing, the commissioner determines that:

(1) a certificate of approval issued to the group was obtained

by fraud;

(2) there was a material misrepresentation in the application

for the certificate of approval; or

(3) the group or its administrator has misappropriated,

converted, illegally withheld, or refused to pay on proper demand

any money that belongs to a member, an employee of a member, or a

person otherwise entitled to the money and that has been

entrusted to the group or its administrator in their fiduciary

capacities.

Added by Acts 2003, 78th Leg., ch. 275, Sec. 1, eff. Sept. 1,

2003.

SUBCHAPTER J. TEXAS SELF-INSURANCE GROUP GUARANTY FUND

Sec. 407A.451. DEFINITIONS. In this subchapter:

(1) "Board" means the board of directors of the guaranty fund.

(2) "Guaranty fund" means the Texas self-insurance group

guaranty fund.

(3) "Trust fund" means the trust fund established under Section

407A.457.

Added by Acts 2005, 79th Leg., Ch.

1055, Sec. 1, eff. September 1, 2005.

Sec. 407A.452. GUARANTY FUND. (a) The Texas self-insurance

group guaranty fund is a nonprofit association established to

provide for the payment of workers' compensation insurance

benefits for injured employees covered by a group declared

insolvent under Section 407A.355.

(b) Each group that desires to be certified under this chapter

must participate as a member of the guaranty fund.

Added by Acts 2005, 79th Leg., Ch.

1055, Sec. 1, eff. September 1, 2005.

Sec. 407A.453. BOARD OF DIRECTORS. (a) The guaranty fund is

managed by a board of directors.

(b) The board is composed of the following voting members:

(1) three members elected as provided by Subsection (c), each of

whom represents a different group certified under this chapter;

(2) one member to represent wage earners designated by the

commission;

(3) one member designated by the commissioner; and

(4) the public counsel of the office of public insurance

counsel.

may participate equally in the election of the three members of

the board elected under Subsection (b)(1). A person elected

under Subsection (b)(1) must be approved by the commissioner

before the person may serve on the board.

(d) Notwithstanding Subsection (c), the commissioner shall

appoint the initial board members representing groups. A person

appointed as an initial board member under this subsection is

eligible to serve additional terms on election by the members of

the guaranty fund.

Added by Acts 2005, 79th Leg., Ch.

1055, Sec. 1, eff. September 1, 2005.

Sec. 407A.454. IMMUNITY. A board member or a member of the

staff of the board is not liable in a civil action for an act

performed in good faith in the execution of that person's powers

or duties.

Added by Acts 2005, 79th Leg., Ch.

1055, Sec. 1, eff. September 1, 2005.

Sec. 407A.455. BOARD GENERAL POWERS AND DUTIES. (a) The board

shall:

(1) create and maintain a trust fund for payment of the workers'

compensation liabilities of an insolvent group;

(2) hire staff as necessary;

(3) provide recommendations to the commissioner regarding rules

or guidelines applicable to groups;

(4) receive reports from the department on the financial

condition of groups, including examination and audit reports;

(5) engage consulting experts as necessary to review information

provided by or filed with the department to ensure financial

solvency of groups under this chapter;

(6) provide advisory recommendations to the commissioner as

necessary regarding an applicant's compliance with Subchapter B

relating to application requirements for certification; and

(7) take action, in response to a finding by the commissioner

that a group is insolvent, to use the trust fund's resources to

ensure the payment of the group's valid workers' compensation

claims and related administrative expenses.

(b) The board shall control all amounts in the trust fund,

including investment of those amounts.

received from the department in a financial report under

Subsection (a)(4), including an examination or audit report.

Information received from the department remains confidential and

not subject to disclosure under Chapter 552, Government Code.

(d) The board may make recommendations under Subsection (a)(6)

outside of regular board meetings.

Added by Acts 2005, 79th Leg., Ch.

1055, Sec. 1, eff. September 1, 2005.

Sec. 407A.456. PLAN OF OPERATION. (a) The board shall adopt a

plan of operation governing the board's activities and the

operation of the guaranty fund and the trust fund.

(b) The plan of operation adopted by the board is subject to

approval by the commissioner.

Added by Acts 2005, 79th Leg., Ch.

1055, Sec. 1, eff. September 1, 2005.

Sec. 407A.457. TRUST FUND; SCHEDULE. (a) Each group shall

contribute an amount, based on the total amount of income benefit

payments made in this state for the preceding reported calendar

year, to create, over a period of 10 years beginning January 1,

2006, a trust fund of at least $1 million for:

(1) the emergency payment of the compensation liabilities of an

insolvent group; and

(2) the administrative expenses of the guaranty fund.

(b) The board may adopt provisions in the plan of operation that

provide for the indexing of the amount of the trust fund to a

risk analysis.

schedule of assessments to meet the funding goal of the trust

fund.

(d) The board may:

(1) defer assessments if the fund equals or exceeds $2 million;

and

(2) allow the trust fund to accrete based on its investment

earnings.

(e) The contribution required for the first year after a group

is issued a certificate of approval under this chapter shall be

based on the group's estimated income benefit payments for the

group's first year of operation.

(f) Each group certified under this chapter shall make

contributions under this section to the trust fund, and the board

shall provide a mechanism in the plan of operation to ensure that

all groups contribute equitably to the trust fund.

(g) The board shall administer the trust fund in accordance with

the plan of operation adopted by the board and approved by the

commissioner.

Added by Acts 2005, 79th Leg., Ch.

1055, Sec. 1, eff. September 1, 2005.

Sec. 407A.458. EFFECT OF INSOLVENCY OF GROUP. (a) On

determining that a group has become insolvent, the commissioner

shall secure release of the surety bond or security deposit

required under Section 407A.053 and shall promptly estimate:

(1) the amount of additional funds needed to supplement the bond

or security deposit; and

(2) the assets of the insolvent group available to pay all

incurred compensation liabilities.

(b) If the bond or security deposit and the available assets of

the insolvent group are insufficient to cover all of the group's

incurred compensation liabilities, the commissioner shall direct

the insolvent group to immediately assess its members to cover

all incurred liabilities under a schedule approved by the

commissioner.

to cover the incurred liabilities, the commissioner shall

estimate the additional funds necessary to cover the incurred

liabilities for benefit compensation and related administration

expenses for the insolvent group. On receipt of the

commissioner's estimate, the board shall provide from the trust

fund the additional funds needed for benefit compensation and

related administrative expenses for the insolvent group.

(d) Disbursements from the trust fund under Subsection (c) shall

be replenished:

(1) if within the 10-year funding period of the trust fund, by

adjusting the next year's schedule of assessments from groups; or

(2) if beyond the initial 10-year funding period, by assessment

of all groups.

(e) If, after application of Subsections (b)-(d), the amount

available in the trust fund is still insufficient, the board

shall assess all groups for the remaining deficiency.

(f) The commissioner may exempt a group from assessment under

this section on a determination that the payment of the

assessment would render the group insolvent.

(g) The commissioner may, on a finding of insolvency, commence a

delinquency proceeding for the purpose of liquidating,

rehabilitating, reorganizing, or conserving a group. Such a

group shall be considered an insurer for purposes of Article

21.28, Insurance Code, and an insurance company for purposes of

11 U.S.C. Section 109. The conservator, receiver, or other

statutory successor of a group shall coordinate with the board in

the furtherance of the purposes of this subchapter.

Added by Acts 2005, 79th Leg., Ch.

1055, Sec. 1, eff. September 1, 2005.

Sec. 407A.459. COLLECTION OF ASSESSMENTS FROM GROUP MEMBERS;

CONTINUATION OF JOINT AND SEVERAL LIABILITY. (a) Each member of

an insolvent group shall pay the amount of its assessment under

this chapter to the commissioner not later than the 30th day

after the date on which the commissioner notifies the member of

the assessment. The commissioner shall collect assessments and

costs from the members of the insolvent group.

(b) The joint and several liability of the members of a group

under Section 407A.056 continues and is not terminated by payment

of benefits through the guaranty fund.

compensation liabilities on behalf of an insolvent group, the

guaranty fund may collect delinquent assessments and costs

through suit. Venue for a suit under this subsection is in

Travis County.

Added by Acts 2005, 79th Leg., Ch.

1055, Sec. 1, eff. September 1, 2005.

Sec. 407A.460. PAYMENT OF BENEFITS THROUGH GUARANTY FUND. (a)

If the commissioner determines that the payment of benefits and

claims administration shall be made through the guaranty fund,

the guaranty fund assumes the workers' compensation obligations

on behalf of the insolvent group and shall begin the payment of

the obligations for which it is liable not later than the 30th

day after the date of notification by the commissioner.

(b) The guaranty fund shall make payments to claimants whose

entitlement to benefits can be ascertained by the guaranty fund.

liable for the payment of any penalties assessed for any act or

omission on the part of any person other than the guaranty fund.

Added by Acts 2005, 79th Leg., Ch.

1055, Sec. 1, eff. September 1, 2005.

Sec. 407A.461. POSSESSION OF SECURITY BY GUARANTY FUND. On the

assumption of obligations on behalf of an insolvent group by the

guaranty fund under the commissioner's determination, the

guaranty fund is entitled to immediate possession of any assets

of the insolvent group and any security deposited or the proceeds

of any surety bond deposited by the insolvent group, along with

all interest on the security. All assessments from members of

the insolvent group shall be paid to the guaranty fund.

Added by Acts 2005, 79th Leg., Ch.

1055, Sec. 1, eff. September 1, 2005.

Sec. 407A.462. RELEASE OF CLAIM INFORMATION TO GUARANTY FUND.

If the guaranty fund has assumed compensation obligations on

behalf of an insolvent group, information on a workers'

compensation claim may be released to the guaranty fund as

provided by Section 402.084(a).

Added by Acts 2005, 79th Leg., Ch.

1055, Sec. 1, eff. September 1, 2005.

Sec. 407A.463. GUARANTY FUND AS PARTY IN INTEREST. (a) The

guaranty fund is a party in interest in a proceeding involving a

workers' compensation claim against an insolvent group whose

compensation obligations have been paid or assumed by the

guaranty fund.

(b) The guaranty fund has the same rights and defenses as the

insolvent group, including the right to:

(1) appear, defend, or appeal a claim;

(2) receive notice of, investigate, adjust, compromise, settle,

or pay a claim; and

(3) investigate, handle, or deny a claim.

Added by Acts 2005, 79th Leg., Ch.

1055, Sec. 1, eff. September 1, 2005.

Sec. 407A.464. PREFERENCES. (a) Benefit payments made by the

guaranty fund under this subchapter are entitled to the same

preference over other debts of the insolvent group as provided by

law to benefit payments owed by the insolvent group to the person

entitled to the benefits.

(b) The guaranty fund has the priority status provided by

Section 8, Article 21.28, Insurance Code.

Added by Acts 2005, 79th Leg., Ch.

1055, Sec. 1, eff. September 1, 2005.

Sec. 407A.465. SPECIAL FUND. Monies advanced by the association

under this chapter do not become assets of the insolvent group

but constitute a special fund advanced to the commissioner,

receiver, or other statutory successor only for the payment of

compensation liabilities, including the costs of claim

administration and legal costs.

Added by Acts 2005, 79th Leg., Ch.

1055, Sec. 1, eff. September 1, 2005.

State Codes and Statutes

State Codes and Statutes

State Codes and Statutes

State Codes and Statutes

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