A BILL TO BE ENTITLED
AN ACT establishing the north carolina self‑insurance security system and making conforming changes to the workers' compensation laws.
The General Assembly of North Carolina enacts:
SECTION 1.  G.S. 97‑130 reads as rewritten:
"§ 97‑130.  Definitions.
As used in this Article:
(1)	"Association" means the North Carolina Self‑Insurance Security Association established by G.S. 97‑131.
(1a)	"Association Aggregate Security System" means the security system established by the Association pursuant to G.S. 97‑133 whereby self‑insurers collectively secure their aggregate self‑insured workers' compensation liabilities through the North Carolina Self‑Insurance Security Association.
(2)	"Board" means the Board of Directors of the Association established by G.S. 97‑132.
(3)	"Commissioner" means the North Carolina Commissioner of Insurance.
(4)	"Covered claim" means an unpaid claim against an insolvent self‑insurer that relates to an injury that occurs while the self‑insurer is a member of the Association and that is compensable under this Chapter.
(5)	"Fund" means the North Carolina Self‑Insurance Security Fund established by G.S. 97‑133.
(6)	"Member self‑insurer" or "member" means a self‑insurer that retains liability pursuant to G.S. 97‑93 and G.S. 97‑94 and is licensed by the Commissioner to self‑insure pursuant to Article 5 of this Chapter.
(7)	"Plan" means the Plan of Operation authorized by G.S. 97‑134.
(8)	"Self‑insurer" means either: (i) an individual employer licensed to self‑insure pursuant to Article 5 of this Chapter or (ii) a group of two or more employers licensed to self‑insure pursuant to Article 47 of Chapter 58 of the General Statues.
(9)	"Servicing facility" means those persons that are delegated the authority to settle and compromise claims and expend Fund assets to pay claims pursuant to a delegation of authority from the Board."
SECTION 2.  G.S. 97‑131 reads as rewritten:
"§ 97‑131.  Creation.
(a)	There is created a nonprofit unincorporated legal entity to be known as the North Carolina Self‑Insurance Security Association. The Association is to provide mechanisms for the payment of covered claims against member self‑insurers, to avoid excessive delay in payment of covered claims, to avoid financial loss to claimants because of the insolvency of a member self‑insurer, to assist the Commissioner in the detection of self‑insurer insolvencies, to fund the Association Aggregate Security System, and to capitalize the Fund to insure the availability of financial resources to pay covered claims and to fund the activities of the Association.
(b)	All individual and group self‑insurers shall be and remain members of the Association as a condition of being licensed to self‑insure in this State. The Association shall perform its functions under a Plan of Operation established or amended, or both, by the Board and approved by the Commissioner, and shall exercise its powers through the Board.
(1)	A self‑insurer shall be deemed to be a member of the Association for purposes of another self‑insurer's insolvency, as defined in G.S. 97‑135, when:
a.	The self‑insurer is a member of the Association when an insolvency occurs, or
b.	The self‑insurer has been a member of the Association at some point in time during the 12‑month period immediately preceding the insolvency in question.
(2)	A self‑insurer shall be deemed to be a member of the Association for purposes of its own insolvency if it is a member when the compensable injury occurs.
(3)	In determining the membership of the Association for the purposes of subdivisions (1) and (2) of this subsection for any date after the effective date of this Article, no employer or group of employers claiming self‑insurer status may be deemed to be a member of the Association on any date after the effective date of this Article, unless that employer is on that date licensed as a self‑insurer by the Commissioner pursuant to Article 5 of this Chapter or a group of employers is at that time licensed as a group self‑insurer by the Commissioner pursuant to Article 47 of Chapter 58 of the General Statutes."
SECTION 3.  G.S. 97‑132 reads as rewritten:
"§ 97‑132.  Board of directors.
The Board shall consist of not less than nine directors serving terms as established in the Plan. The directors shall be selected by the members of the Association, subject to the approval of the Commissioner, and shall serve for three‑year terms and until a successor is elected and qualified. There is no limitation on the number of terms a director may serve. In approving selections to the Board, the Commissioner shall consider, among other things, whether individual and group self‑insurers are fairly represented. Directors may be reimbursed from the assets of the Association for expenses incurred by them as directors."
SECTION 4.  G.S. 97‑133 reads as rewritten:
"§ 97‑133.  Powers and duties of the Association.
(a)	The Association shall:
(1)	Repealed by Session Laws 1999‑219, s. 7.2, effective June 25, 1999.
(1a)	Administer a fund, to be known as the North Carolina Self‑Insurance Security Fund, which shall receive the assessments required by subdivision (2a) of this subsection and any other sums received by the Association. In its discretion, the Board may determine that the assets of the Fund should be segregated or that a separate accounting shall be made in order to identify that portion of the Fund which represents assessments paid by individual self‑insurers and that portion of the Fund which represents assessments paid by group self‑insurers. If the Board determines to segregate the Fund in this manner, the Association shall thereafter pay covered claims against individual member self‑insurers from that portion of the Fund that represents assessments against individual self‑insurers and shall thereafter pay covered claims against group member self‑insurers from that portion of the Fund that represents assessments against group self‑insurers. The costs of administering the Association shall be borne by the Fund. The Association is authorized to secure insurance, primary excess insurance, reinsurance, bonds, other insurance, financial guarantees and related financial instruments to effectuate the purposes of the Association. The Board will invest the Fund assets, and the earnings from investment of Fund assets shall be placed in or credited to the Fund.
					
(2a)	Establish, operate, and maintain the Association Aggregate Security System as defined in G.S. 97‑130 and G.S. 97‑165 as follows:
a.	The Association shall annually prepare and submit to the Commissioner a written plan to provide an Association Aggregate Security System through a combination of cash on deposit in the Fund, securities, surety bonds, irrevocable letters of credit, insurance, or other financial instruments or guarantees owned or entered into by the Association and acceptable to the Commissioner. The noncash elements of the composite security may be one‑year or multiple‑year instruments.
b.	Within 60 days following the submission of the plan pursuant to sub‑subdivision a. of this subdivision, the Commissioner shall either approve or disapprove the plan and shall notify the Association in writing. If the Commissioner does not approve or disapprove the plan within 60 days following submission, then the plan shall be deemed to be approved by the Commissioner.
c.	The Commissioner shall also determine the total undiscounted claims liability of each self‑insurer that will participate in the Association Aggregate Security System as well as the aggregate total undiscounted outstanding claims liabilities of all the self‑insurers that are to participate in the Association Aggregate Security System and shall notify the Guaranty Association of this determination.
d.	Upon approval by the Commissioner of the Association's plan for the Association Aggregate Security System, the Association shall assess the member self‑insurers that participate in the Association Aggregate Security System pursuant to subdivision (3a) of this subsection.
	
(3a)	Assess members of the Association as follows:
a.	Association Aggregate Security System assessments. – The Association shall assess each member participating in the Association Aggregate Security System a security system assessment. The amount of the security system assessment charged to each member participating in the Association Aggregate Security System shall be based on the Association's reasonable consideration of all of the following factors:
1.	The total amount of assessments necessary to provide aggregate security for all participating members.
2.	The member's total workers' compensation liabilities under the Act.
3.	The financial strength and creditworthiness of the member.
4.	Any other relevant factors.
b.	Special assessment. – In the event that there are covered claims against an insolvent member or members and the assets of the Fund are not sufficient to pay the obligations of the Association, then the Association may collect a special assessment from the members in an amount sufficient to pay the aggregate value of such covered claims. Each member's special assessment shall be determined by the Board and shall be based on the proportion of the member's total obligations under the Act to the aggregate total of all members' obligations under the Act.
c.	Initial assessments. – A self‑insurer that becomes a member and does not initially participate in the Association Aggregate Security System shall pay an initial assessment to the Association in an amount determined by the Board.
d.	Each member shall be notified of assessments no later than 30 days before the assessment is due.
e.	Delinquent assessments, except as otherwise provided, shall bear interest at a rate to be established by the Board.
(4)	Be obligated to pay covered claims.
(5)	After paying any covered claim, be subrogated to the rights of the injured employee and dependents and be entitled to enforce liability against the self‑insurer or any third party by any appropriate action brought in its own name or in the name of the injured employee and dependents.
(6)	Expend Fund assets in amounts necessary to pay all of the following:
a.	The obligations of the Association under this Article subsequent to an insolvency.
b.	The expenses of handling covered claims subsequent to an insolvency.
c.	The cost of examinations under G.S. 97‑137.
d.	The costs of implementing and operating the Association Aggregate Security System.
e.	Other expenses authorized by this Article.
(7)	Investigate claims brought against the Association and adjust, compromise, settle, and pay covered claims to the extent of the Association's obligation; and deny all other claims. The Association may review settlements to which the insolvent self‑insurer was a party to determine the extent to which such settlements may be properly contested.
(8)	Notify such persons as the Commissioner directs under G.S.  97‑136.
(9)	Handle claims through its directors, its employees, or through one or more self‑insurers or other persons designated as servicing facilities. Designation of a servicing facility is subject to the approval of the Commissioner, but designation of a member self‑insurer as a servicing facility may be declined by such self‑insurer.
(10)	Reimburse each servicing facility for obligations of the Association paid by the facility and for expenses incurred by the facility while handling claims on behalf of the Association.
(11)	Pay any other expenses of the Association authorized by this section.
	
(b)	The Association may:
(1)	Employ or retain such persons as are necessary to handle claims and perform other duties of the Association.
(2)	Borrow funds necessary to effect the purposes of this Article in accord with the Plan, including entering into standby lines of credit.
(3)	Sue or be sued.
(4)	Negotiate and become a party to such contracts as are necessary to carry out the purpose of this section.
(5)	Perform such other acts as are necessary or proper to effectuate the purpose of this section.
							"
SECTION 5.  G.S. 97‑134 reads as rewritten:
"§ 97‑134.  Plan of Operation.
The Plan is as follows:
(1)	The Association shall submit to the Commissioner a Plan and any amendments necessary or suitable to assure the fair, reasonable, and equitable administration of the Association. The Plan and any amendments become effective upon approval in writing by the Commissioner. If the Association at any time fails to submit a suitable Plan or suitable amendment to the Plan the Commissioner shall, after notice and hearing, adopt such reasonable rules as are necessary or advisable to effectuate this Article. Such rules shall continue in force until modified by the Commissioner or superseded by a Plan submitted by the Association and approved by the Commissioner.
(2)	All member self‑insurers shall comply with the Plan.
(3)	The Plan shall:
a.	Establish the procedures whereby all the powers and duties of the Association under G.S. 97‑133 will be performed.
b.	Establish procedures for investing and managing Fund assets.
c.	Adopt a reasonable mechanism and procedure to achieve equity in assessing members pursuant to G.S. 97‑133.
d.	Establish the amount and method of reimbursing members of the Board under G.S.  97‑132.
e.	Establish procedures by which claims may be filed with the Association and establish acceptable forms of proof of covered claims. 
f.	Establish regular places and times for meetings of the Board.
g.	Establish procedures for records to be kept of all financial transactions of the Association, its agents, and the Board.
h.	Provide that any member self‑insurer aggrieved by any final action or decision of the Association may appeal to the Commissioner within 30 days after the action or decision.
i.	Establish the procedures whereby selections for the Board shall be submitted to the Commissioner.
j.	Contain additional provisions necessary or proper for the execution of the powers and duties of the Association."
SECTION 6.  G.S. 97‑135 reads as rewritten:
"§ 97‑135.  Insolvency.
A member self‑insurer shall be insolvent for the purposes of this Article, other than the definition of insolvency adopted by the Board for the purposes of the Association Aggregate Security System, under any of the following circumstances:
(1)	Determination of insolvency by a court of competent jurisdiction.
(2)	Institution of bankruptcy proceedings by or regarding the member self‑insurer.
(3)	The Board determines that the self‑insurer's total liabilities exceed its total assets or the self‑insurer is unable or ceases to pay its debts as they fall due or in the ordinary course of business."
SECTION 7.  G.S. 97‑140 reads as rewritten:
"§ 97‑140.  Nonduplication of recovery.
Any person having a covered claim that may be recovered under more than one insurance or self‑insurance guaranty or security association or its equivalent shall seek recovery first from the association of the place or residence of the claimant. Any recovery under this Article shall be reduced by the amount of recovery from any other insurance guaranty or security association or its equivalent."
SECTION 8.  G.S. 97‑143 reads as rewritten:
"§ 97‑143.  Use of deposits made by insolvent member self‑insurers.
After the Commissioner has notified the Association, under G.S. 97‑136(a), that a member is insolvent, the Commissioner shall assign and deliver to the Association, and the Association is authorized to expend any deposit made by the insolvent member under G.S. 58‑47‑90 or G.S. 97‑185, to the extent the deposit is needed by the Association to pay covered claims against the insolvent member as required by this Article, and to the extent the deposit is needed to pay expenses of the Association relating to covered claims against the insolvent member. For insolvent members that participate in the Association Aggregate Security System, the Association is authorized to pursue recovery under every instrument, contract, and form of security comprising the composite security. The Association shall account to the Commissioner and the insolvent member or its successor for all deposits received from the Commissioner under this section."
SECTION 9.  G.S. 97‑165 is amended by adding a new subdivision to read:
"(1a)	"Association Aggregate Security System" means the security system established pursuant to G.S. 97‑133 whereby self‑insurers collectively secure their aggregate self‑insured workers' compensation liabilities under the Act through the North Carolina Self‑Insurance Security Association."
SECTION 10.  G.S. 97‑170 reads as rewritten:
"§ 97‑170.  License applications; required information.
(a)	No employer shall self‑insure its workers' compensation liabilities under the Act unless it is licensed by the Commissioner under this Article. This subsection does not apply to an employer authorized to self‑insure its workers' compensation liabilities under the Act prior to December 1, 1997, whose authority to self‑insure its workers' compensation liabilities under the Act has not terminated after that date.
(b)	An applicant for a license as a self‑insurer shall file with the Commissioner the information required by subsection (d) of this section on a form prescribed by the Commissioner at least 90 days before the proposed licensing date. No application is complete until the Commissioner has received all required information. A copy of the application must also be filed with the North Carolina Self‑Insurance Security Association at least 90 days before the proposed licensing date.
(c)	Only an applicant whose total fixed assets amount to five hundred thousand dollars ($500,000) or more may apply for a license. In judging the applicant's financial strength and liquidity relative to its ability to comply with the Act, the Commissioner shall consider all of the following relative to the applicant:
(1)	Organizational structure and management.
(2)	Financial strength.
(3)	Source and reliability of financial information.
(4)	Risks to be retained.
(5)	Workers' compensation loss history.
(6)	Number of employees.
(7)	Claims administration.
(8)	Excess insurance.
(9)	Access to excess insurance.
(d)	The license application shall comprise the following information:
(1)	Company name, organizational structure, location of principal office, contact person, organization date, type of operations within this State, management background, and addresses of all plants or offices in this State.
(2)	Certified audited GAAP financial statements prepared by a CPA for the two most recent years. The financial statement formulation shall facilitate application of ratio and trend analysis.
(3)	Evidence of the insurance required by G.S. 97‑190.
(4)	Repealed by Session Laws 1999‑132, s. 13.7, effective June 4, 1999.
(5)	For applicants with 20 or more full‑time employees, a certificate or other evidence of safety inspection, satisfactory to the Commissioner, that certifies that all safety requirements of the Department of Labor have been met.
(6)	Summary of workers' compensation benefits paid for the last three calendar years, as well as the total liability for all open claims within 30 days or some other period acceptable to the Commissioner not to exceed 90 days, before the filing of the application.
(7)	Summary, by risk classification, of annual payroll and number of employees within the State.
(8)	Book value of fixed assets located within the State.
(9)	Proof of compliance with the claims administration provisions of Article 47 of Chapter 58 of the General Statutes.
(10)	A letter of approval by the North Carolina Self‑Insurance Security Association under Article 4 of this Chapter upon the granting of a license to the applicant.
(e)	Every applicant shall execute and file with the Commissioner an agreement, as part of the application, in which the applicant agrees to participate in the Association Aggregate Security System, or if excluded from the Association Aggregate Security System, to deposit with the Commissioner pursuant to G.S. 97‑185, cash, acceptable securities, or a surety bond issued by a corporate surety that will guarantee the applicant's compliance with this Article and the Act."
SECTION 11.  G.S. 97‑185 reads as rewritten:
"§ 97‑185.  Deposits; surety bonds; letters of credit.
		
(a1)	All self‑insurers shall participate in the Association Aggregate Security System established pursuant to G.S. 97‑131 unless excluded by the Board of Directors of the North Carolina Self‑Insurance Security Association. The Board of Directors of the North Carolina Self‑Insurance Security Association shall notify the Commissioner of the self‑insurers that are excluded from participating in the Association Aggregate Security System. The Board of Directors of the North Carolina Self‑Insurance Security Association shall exclude all self‑insurers whose licenses have previously been revoked by the Commissioner. The Board of Directors of the North Carolina Self‑Insurance Security Association shall exclude self‑insurers with a debt rating as established by Standard & Poor's Rating Service or by Moody's Investor Service, below the minimum Standard & Poor's and Moody's ratings established in the written plan for the Association Aggregate Security System submitted by the Association and approved by the Commissioner pursuant to G.S. 97‑131. The Board of Directors of the North Carolina Self‑Insurance Security Association shall exclude all self‑insurers that have defaulted on the payment of its self‑insured workers' compensation liabilities from participation in the Association Aggregate Security System.
(b)	Repealed by Session Laws 2003‑115, s. 3, effective January 1, 2004.
	
(b2)	A self‑insurer that is excluded from participation in the Association Aggregate Security System, including self‑insurers that are granted a license to self‑insure after the North Carolina Self‑Insurance Security Association annually implements the Association Aggregate Security System, shall deposit with the Commissioner an amount not less than one hundred percent (100%) of the self‑insurer's total undiscounted outstanding claims liability per the most recent certification from a qualified actuary as required by G.S. 97‑180(b), but not less than five hundred thousand dollars ($500,000), or such greater amount as the Commissioner prescribes based on, but not limited to, the financial condition of the self‑insurer and the risk retained by the self‑insurer.
…"
SECTION 12.  G.S. 97‑195(a) reads as rewritten:
"(a)	The Commissioner summarily may revoke a license if there is satisfactory evidence for the revocation. In determining whether to revoke a license summarily, the Commissioner may consider any of the following:
(1)	Determination of insolvency by a court of competent jurisdiction.
(2)	Institution of bankruptcy proceedings.
(3)	If the self‑insurer is in a hazardous financial condition.
(4)	Failure to pay any North Carolina Self‑Insurance Security Association assessments made pursuant to G.S. 97‑133.
(5)	Failure to participate in the Association Aggregate Security System or, if excluded from participation in the Association Aggregate Security System, failure to provide and maintain the deposit required by G.S. 97‑185."
SECTION 13.  This act becomes effective January 1, 2006.