1.1                          A bill for an act 
  1.2             relating to workers' compensation; regulating the 
  1.3             creation and operation of mutual employer 
  1.4             self-insurance groups; proposing coding for new law as 
  1.5             Minnesota Statutes, chapter 79B. 
  1.6   BE IT ENACTED BY THE LEGISLATURE OF THE STATE OF MINNESOTA: 
  1.7      Section 1.  [79B.01] [DEFINITIONS.] 
  1.8      Subdivision 1.  [SCOPE.] For the purposes of this chapter, 
  1.9   the terms defined in this section have the meanings given them. 
  1.10     Subd. 2.  [ACCOUNTANT.] "Accountant" means a certified 
  1.11  public accountant who is not an employee of any member of the 
  1.12  mutual self-insurance group and is not affiliated with any 
  1.13  individual or organization providing services other than 
  1.14  accounting services to the group. 
  1.15     Subd. 3.  [ACTUARY.] "Actuary" means an individual who has 
  1.16  attained the status of associate or fellow of the casualty 
  1.17  actuarial society who is not an employee of any member of the 
  1.18  mutual self-insurance group and is not affiliated with any 
  1.19  individual or organization providing services other than 
  1.20  actuarial services to the group. 
  1.21     Subd. 4.  [CERTIFICATE OF DEFAULT.] "Certificate of default"
  1.22  means a notice issued by the commissioner of commerce based upon 
  1.23  information received from the commissioner of labor and 
  1.24  industry, that a mutual self-insurance group has failed to pay 
  1.25  compensation as required by chapter 176. 
  2.1      Subd. 5.  [COMMISSIONER.] "Commissioner" means the 
  2.2   commissioner of commerce except where specifically stated 
  2.3   otherwise. 
  2.4      Subd. 6.  [COMMON CLAIMS FUND.] "Common claims fund" means 
  2.5   the cash, cash equivalents, or investment accounts maintained by 
  2.6   the mutual self-insurance group to pay its workers' compensation 
  2.7   liabilities. 
  2.8      Subd. 7.  [DEFICIT.] "Deficit" as regards the mutual group 
  2.9   self-insurance fund means the excess of the amount necessary to 
  2.10  fulfill all obligations under chapter 176, for all fund years 
  2.11  that the group has been in operation over all assets of the 
  2.12  group.  For purposes of this definition, provision must be made 
  2.13  for the estimated liability for future special compensation fund 
  2.14  assessments on claims incurred prior to the determination of the 
  2.15  deficit.  No discounting of any liabilities of the mutual 
  2.16  self-insurance group shall be permitted in the determination of 
  2.17  the deficit of the group. 
  2.18     Subd. 8.  [DIRECTORS.] "Directors" means the board of 
  2.19  directors of a mutual self-insurance group. 
  2.20     Subd. 9.  [FISCAL AGENT.] "Fiscal agent" means an 
  2.21  individual or organization appointed and under the direction of 
  2.22  the board of directors to maintain and administer the mutual 
  2.23  self-insurance groups' common claims fund. 
  2.24     Subd. 10.  [FUND YEAR.] "Fund year" for mutual 
  2.25  self-insurance groups means that period of time for purposes of 
  2.26  determining any deficit or surplus.  A separate fund year shall 
  2.27  be designated for each calendar year in which the mutual 
  2.28  self-insurance group operates.  Premiums earned during the fund 
  2.29  year and any claim arising within the accident year upon which 
  2.30  the fund year is based shall be included in that fund year. 
  2.31     Subd. 11.  [INCURRED LIABILITIES FOR THE PAYMENT OF 
  2.32  COMPENSATION.] "Incurred liabilities for the payment of 
  2.33  compensation" means the sum of both of the following: 
  2.34     (1) an estimate of future workers' compensation benefits, 
  2.35  including medical and indemnity; and 
  2.36     (2) an amount determined by the commissioner to be 
  3.1   reasonably adequate to assure the administration of claims, 
  3.2   including legal costs, but not to exceed ten percent of future 
  3.3   workers' compensation benefits. 
  3.4      Subd. 12.  [INSOLVENT MUTUAL SELF-INSURER.] "Insolvent 
  3.5   mutual self-insurer" means a mutual self-insurance group that:  
  3.6   (1) failed to pay compensation as a result of a declaration of 
  3.7   bankruptcy or insolvency by a court of competent jurisdiction 
  3.8   and whose security deposit has been called by the commissioner 
  3.9   under chapter 176; or (2) failed to pay compensation and has 
  3.10  been issued a certificate of default by the commissioner and 
  3.11  whose security deposit has been called by the commissioner 
  3.12  pursuant to chapter 176.  
  3.13     Subd. 13.  [MEMBER.] "Member" means an employer that 
  3.14  participates in a mutual self-insurance group. 
  3.15     Subd. 14.  [MUTUAL SELF-INSURANCE GROUP.] "Mutual 
  3.16  self-insurance group" means a group of employers that are 
  3.17  self-insured for workers' compensation under chapter 176 and 
  3.18  elects to operate under this chapter rather than chapter 79A. 
  3.19     Subd. 15.  [MUTUAL SELF-INSURANCE GROUP SECURITY 
  3.20  FUND.] "Mutual self-insurance group security fund" means the 
  3.21  mutual self-insurance group security fund established pursuant 
  3.22  to this chapter. 
  3.23     Subd. 16.  [SERVICE COMPANY.] "Service company" means a 
  3.24  vendor of risk management services or a licensed third-party 
  3.25  administrator pursuant to section 60A.23, subdivision 8. 
  3.26     Subd. 17.  [SPECIAL COMPENSATION FUND ASSESSMENT.] "Special 
  3.27  compensation fund assessment" are those sums payable as set 
  3.28  forth in section 176.129, subdivisions 3 and 4a. 
  3.29     Subd. 18.  [SURPLUS.] "Surplus" as regards the mutual 
  3.30  self-insurance group fund means the excess of all group assets 
  3.31  over the amount necessary to fulfill all obligations under 
  3.32  chapter 176, for all fund years that the group has been in 
  3.33  operation.  For purposes of this definition, provision must be 
  3.34  made for the estimated liability for future special compensation 
  3.35  fund assessments on claims incurred prior to the determination 
  3.36  of surplus.  No discounting of any liabilities of the mutual 
  4.1   self-insurance group shall be permitted in the determination of 
  4.2   the surplus of the group. 
  4.3      Subd. 19.  [TRUSTEES.] "Trustees" means the board of 
  4.4   trustees of the mutual self-insurance group security fund. 
  4.5      Subd. 20.  [WORKERS' COMPENSATION REINSURANCE ASSOCIATION; 
  4.6   WCRA.] "Workers' compensation reinsurance association" or "WCRA" 
  4.7   means that association governed by sections 79.34 to 79.40. 
  4.8      Sec. 2.  [79B.02] [ELIGIBILITY REQUIREMENTS FOR MUTUAL 
  4.9   SELF-INSURANCE GROUPS.] 
  4.10     Subdivision 1.  [GROUP ELIGIBILITY.] A mutual 
  4.11  self-insurance group shall consist of employers in the same 
  4.12  industry, trade, civic, cooperative, or professional group or 
  4.13  employers having any other reasonable basis to self-insure. 
  4.14     Subd. 2.  [MEMBERSHIP ELIGIBILITY.] A mutual self-insurance 
  4.15  group may only admit employers who meet the eligibility 
  4.16  requirements established by the group including financial 
  4.17  criteria, underwriting guidelines, risk profile, and any other 
  4.18  requirements stated in the mutual self-insurance group's bylaws 
  4.19  or plan of operation. 
  4.20     Sec. 3.  [79B.03] [MUTUAL SELF-INSURANCE GROUP 
  4.21  APPLICATION.] 
  4.22     Subdivision 1.  [PROCEDURE.] (a) Groups proposing to become 
  4.23  licensed as mutual self-insurance groups must complete and 
  4.24  submit an application on a form or forms prescribed by the 
  4.25  commissioner and pay a $2,500 nonrefundable application fee.  
  4.26     (b) The commissioner shall grant or deny the group's 
  4.27  application to self-insure within 60 days after a complete 
  4.28  application has been filed, provided that the time may be 
  4.29  extended for an additional 30 days upon 15 days' prior notice to 
  4.30  the applicant. 
  4.31     Subd. 2.  [REQUIRED DOCUMENTS.] All applications must be 
  4.32  accompanied by the following: 
  4.33     (a) A detailed business plan including the risk profile of 
  4.34  the proposed membership, underwriting guidelines, marketing 
  4.35  plan, minimum financial criteria for each member, and financial 
  4.36  projections for the first year of operation.  The marketing plan 
  5.1   shall include an analysis outlining how the mutual 
  5.2   self-insurance group will attain an annual premium volume of at 
  5.3   least $1,000,000 within the first three years of operation.  
  5.4   Financial projections shall include balance sheet, income 
  5.5   statement, statement of cash flows, and any other such items as 
  5.6   the commissioner may require. 
  5.7      (b) A rating plan indicating the method in which premiums 
  5.8   are to be charged to members including manual rates to be used 
  5.9   for each relevant payroll classification code.  The rating plan 
  5.10  shall be reviewed by an actuary and shall include an analysis of 
  5.11  the actuarial soundness of the plan and the effect of the plan 
  5.12  on fund solvency and liquidity.  Premium volume discounts and a 
  5.13  schedule rating plan will be permitted if they can be shown to 
  5.14  be actuarially sound and a description of how they will be used 
  5.15  is included with the application.  In developing its rating 
  5.16  plan, the mutual self-insurance group shall base its plan on the 
  5.17  Minnesota workers' compensation insurers association's manual of 
  5.18  rules, rates, and classifications approved for use in Minnesota 
  5.19  by the commissioner. 
  5.20     (c) A schedule indicating actual or anticipated operational 
  5.21  expenses of the mutual self-insurance group.  No authority to 
  5.22  self-insure will be granted unless at least 65 percent of total 
  5.23  revenues from all sources for any year of the mutual 
  5.24  self-insurance group's operation are available for the payment 
  5.25  of its claim and assessment obligations.  For purposes of this 
  5.26  calculation, claim and assessment obligations include the cost 
  5.27  of allocated loss expenses as well as special compensation fund 
  5.28  and mutual self-insurance group security fund assessments but 
  5.29  exclude the cost of unallocated loss expenses. 
  5.30     (d) An indemnity agreement from each member who will 
  5.31  participate in the mutual self-insurance group, signed by an 
  5.32  officer of each member, providing for joint and several 
  5.33  liability for all claims and expenses of all of the members of 
  5.34  the mutual self-insurance group arising in any fund year in 
  5.35  which the member was a participant on a form as specified in 
  5.36  section 79B.11. 
  6.1      (e) A copy of the mutual self-insurance group bylaws as 
  6.2   specified in section 79B.04, subdivision 2. 
  6.3      (f) A confirmation from the accountant of the mutual 
  6.4   self-insurance group indicating that the combined net worth of 
  6.5   all of the initial members is an amount at least equal to ten 
  6.6   times the group's retention level with the workers' compensation 
  6.7   reinsurance association. 
  6.8      Subd. 3.  [APPROVAL.] The commissioner shall approve an 
  6.9   application for self-insurance upon a determination that all of 
  6.10  the following conditions are met: 
  6.11     (1) a completed application and all required documents have 
  6.12  been submitted to the commissioner; 
  6.13     (2) the financial ability of mutual self-insurance group is 
  6.14  sufficient to fulfill all obligations that may arise under this 
  6.15  chapter or chapter 176; 
  6.16     (3) the annual premium of the mutual self-insurance group 
  6.17  to be charged to initial members is at least $500,000 and the 
  6.18  group's annual premium should grow to at least $1,000,000 within 
  6.19  three years; 
  6.20     (4) no individual member's premium comprises more than 20 
  6.21  percent of the entire mutual self-insurance group's annual 
  6.22  premium; 
  6.23     (5) the mutual self-insurance group has contracted with a 
  6.24  service company to administer its program; and 
  6.25     (6) the required securities or surety bond shall be on 
  6.26  deposit prior to the effective date of coverage for the mutual 
  6.27  self-insurance group. 
  6.28     Sec. 4.  [79B.04] [MUTUAL SELF-INSURANCE GROUP OPERATING 
  6.29  REQUIREMENTS.] 
  6.30     Subdivision 1.  [BOARD OF DIRECTORS.] (a) A mutual 
  6.31  self-insurance group shall elect a board of directors who shall 
  6.32  have complete authority over and control of the assets of the 
  6.33  mutual self-insurance group.  The board of directors will also 
  6.34  be responsible for all of the operations of the mutual 
  6.35  self-insurance group. 
  6.36     (b) The composition of the board of directors shall be 
  7.1   owners, officers, directors, partners, or employees of members 
  7.2   of the mutual self-insurance group. 
  7.3      (c) The directors shall approve applications for membership 
  7.4   in the mutual self-insurance group. 
  7.5      Subd. 2.  [BYLAWS.] (a) The directors of each mutual 
  7.6   self-insurance group shall cause to be adopted a set of bylaws 
  7.7   that shall govern the operation of the group.  These bylaws must 
  7.8   specifically state the mutual self-insurance group's intention 
  7.9   to operate under the provisions of this statute rather than the 
  7.10  provisions of chapter 79A.  All bylaws or amendments to the 
  7.11  bylaws are subject to prior approval by the commissioner. 
  7.12     (b) These bylaws shall contain the following subjects: 
  7.13     (1) qualifications for mutual self-insurance group 
  7.14  membership, including underwriting considerations; 
  7.15     (2) the method for selecting the board of directors 
  7.16  including the directors' terms of office and the positions of 
  7.17  chairperson, secretary, and treasurer; 
  7.18     (3) the procedure for amending the bylaws; 
  7.19     (4) investment of all assets of the fund; 
  7.20     (5) frequency and extent of loss control or safety 
  7.21  engineering services provided to members; 
  7.22     (6) a schedule for payment and collection of premiums; 
  7.23     (7) expulsion procedures, including expulsion for 
  7.24  nonpayment of premiums and expulsion for excessive losses; 
  7.25     (8) delineation of authority granted to the fiscal agent; 
  7.26     (9) delineation of authority granted to the service 
  7.27  company; 
  7.28     (10) basis for determining premium contributions by 
  7.29  members, including any experience rating program, schedule 
  7.30  rating plan, or premium discount plan; 
  7.31     (11) procedures for resolving disputes between members of 
  7.32  the group, which shall not include submitting them to the 
  7.33  commissioner; and 
  7.34     (12) basis for determining distribution of any surplus to 
  7.35  the members or assessing the membership to make up any deficit. 
  7.36     (c) All mutual self-insurance groups shall file copies of 
  8.1   its current bylaws with the commissioner.  Any changes in the 
  8.2   bylaws shall be filed with the commissioner at least 30 days 
  8.3   prior to their taking effect.  The commissioner reserves the 
  8.4   right to order the mutual self-insurance group to rescind, 
  8.5   revoke, or amend any bylaw. 
  8.6      Subd. 3.  [ANNUAL REVIEW.] The directors shall review at 
  8.7   least annually the following items for the purpose of 
  8.8   determining whether these areas of concern are being adequately 
  8.9   provided for: 
  8.10     (1) service company performance; 
  8.11     (2) loss control and safety engineering; 
  8.12     (3) investment policies; 
  8.13     (4) collection of delinquent debts; 
  8.14     (5) expulsion procedures; 
  8.15     (6) initial member review; 
  8.16     (7) fiscal agent performance; and 
  8.17     (8) claims handling and reporting. 
  8.18     Subd. 4.  [FINANCIAL STANDARDS.] Mutual self-insurance 
  8.19  groups shall have and maintain: 
  8.20     (1) combined net worth of all of the members in an amount 
  8.21  at least equal to ten times the group's selected retention level 
  8.22  of the workers' compensation reinsurance association; 
  8.23     (2) sufficient assets, net worth, and liquidity in the 
  8.24  group's common claims fund to promptly and completely meet all 
  8.25  obligations of its members under this chapter or chapter 176. 
  8.26     Subd. 5.  [RATES.] (a) The mutual self-insurance group 
  8.27  shall not vary its rating practices from the rating plan most 
  8.28  recently approved for use by the commissioner.  The group shall 
  8.29  be permitted to replace its rating plan with another upon 
  8.30  approval by the commissioner.  The group shall be allowed to 
  8.31  change its rating plan no more than once per year. 
  8.32     (b) A rating plan must indicate the method in which 
  8.33  premiums are to be charged to members including manual rates to 
  8.34  be used for each relevant payroll classification code.  The 
  8.35  rating plan shall be reviewed by an actuary and shall include an 
  8.36  analysis of the actuarial soundness of the plan and the effect 
  9.1   of the plan on fund solvency and liquidity.  Premium volume 
  9.2   discounts and a schedule rating plan will be permitted if they 
  9.3   can be shown to be actuarially sound and a description of how 
  9.4   they will be used is included with the application. 
  9.5      (c) In developing its rating plan, the mutual 
  9.6   self-insurance group shall base its plan on the Minnesota 
  9.7   workers' compensation insurers association's manual of rules, 
  9.8   rates, and classifications approved for use in Minnesota by the 
  9.9   commissioner. 
  9.10     Subd. 6.  [NEW MEMBERSHIP.] (a) The mutual self-insurance 
  9.11  group shall file with the commissioner the name of any new 
  9.12  employer that has been accepted in the group prior to the 
  9.13  initiation date of membership along with the member's signed 
  9.14  indemnity agreement and evidence the member has deposited 
  9.15  sufficient premiums with the group as required by the mutual 
  9.16  self-insurance group's bylaws or plan of operation.  The 
  9.17  security deposit of the group will be increased to an amount 
  9.18  equal to 50 percent of the new member's premium. 
  9.19     (b) An employer must belong to the mutual self-insurance 
  9.20  group for at least one year.  If a member voluntarily terminates 
  9.21  its membership in a group during the second or third year of 
  9.22  membership, the mutual self-insurance group shall assess the 
  9.23  member at least the following penalties:  25 percent of the 
  9.24  premium due from that member for that year if termination occurs 
  9.25  within the second year of membership, and 15 percent of the 
  9.26  premium due from that member for that year if termination occurs 
  9.27  within the third year.  No penalty shall be required if an 
  9.28  employer's withdrawal is due to merger, dissolution, sale of the 
  9.29  company, or change in the type of business.  Following the 
  9.30  completion of three consecutive years of membership in the 
  9.31  group, withdrawal from the group shall be allowed without 
  9.32  penalty, provided that 30 days' advance written notice is given 
  9.33  to the board of directors of the group, and the group's plan of 
  9.34  operation or bylaws allow such withdrawal without a penalty.  
  9.35  Any penalty assessed pursuant to this subdivision shall be paid 
  9.36  to the common claims fund. 
 10.1      Subd. 7.  [WITHDRAWAL OR EXPULSION.] Upon receipt of any 
 10.2   notice of a member to withdraw or a decision by the board of 
 10.3   directors to expel a member, the mutual self-insurance group 
 10.4   shall give immediate notice to the commissioner.  If the 
 10.5   combined net worth or financial condition of the mutual 
 10.6   self-insurance group members, excluding the terminating or 
 10.7   expelled member, fails to meet the requirements specified in 
 10.8   subdivision 4, the group shall so notify the commissioner within 
 10.9   15 days. 
 10.10     Subd. 8.  [MUTUAL SELF-INSURANCE GROUP COMMON CLAIMS 
 10.11  FUND.] (a) Each mutual self-insurance group shall establish a 
 10.12  common claims fund. 
 10.13     (b) Each mutual self-insurance group shall, not less than 
 10.14  ten days prior to the proposed effective date of the group, 
 10.15  collect cash premiums from each member equal to not less than 20 
 10.16  percent of the member's annual workers' compensation premium to 
 10.17  be paid into a common claims fund, maintained by the group in a 
 10.18  designated depository.  The remaining balance of the member's 
 10.19  premium shall be paid to the group in a reasonable manner over 
 10.20  the remainder of the year.  Payments in subsequent years shall 
 10.21  be made according to the schedule in the business plan, 
 10.22  classifications, and rates approved for use by the commissioner. 
 10.23     (c) Each mutual self-insurance group shall initiate 
 10.24  proceedings against a member when that member becomes more than 
 10.25  15 days delinquent in any payment of premium to the fund. 
 10.26     (d) There shall be no commingling of any assets of the 
 10.27  common claims fund with the assets of any individual member or 
 10.28  with any other account of the service company or fiscal agent 
 10.29  unrelated to the payment of workers' compensation liabilities 
 10.30  incurred by the group. 
 10.31     Subd. 9.  [FISCAL AGENT.] (a) The mutual self-insurance 
 10.32  group shall designate a fiscal agent to administer the financial 
 10.33  affairs of the fund.  The fiscal agent shall furnish a fidelity 
 10.34  bond issued by a licensed and admitted insurer, with the mutual 
 10.35  self-insurance group as obligee, in an amount sufficient to 
 10.36  protect the fund against the misappropriation or misuse of any 
 11.1   money or securities.  Such fiscal agent shall not be an owner, 
 11.2   officer, or employee of either the service company or an 
 11.3   affiliate of the service company. 
 11.4      (b) All funds shall remain in the control of the mutual 
 11.5   self-insurance group or its fiscal agent.  One or more revolving 
 11.6   funds for payment of compensation benefits due may be 
 11.7   established for the use by the service company.  The service 
 11.8   company shall furnish a fidelity bond issued by a licensed and 
 11.9   admitted insurer, covering its employees, with the mutual 
 11.10  self-insurance group as obligee, in an amount sufficient to 
 11.11  protect all money placed in such revolving fund.  Should the 
 11.12  fidelity bond of the fiscal agent also cover the money in the 
 11.13  revolving fund, the service company shall not be required to 
 11.14  furnish a fidelity bond.  
 11.15     (c) No director, fiscal agent, or service company of the 
 11.16  mutual self-insurance group shall utilize any of the money 
 11.17  collected as premiums for any purpose unrelated to the operation 
 11.18  of the mutual self-insurance group.  No director, fiscal agent, 
 11.19  or service company of the mutual self-insurance group shall 
 11.20  borrow any money from the mutual self-insurance group's fund. 
 11.21     Subd. 10.  [JOINT AND SEVERAL LIABILITY.] Each member of a 
 11.22  mutual self-insurance group shall be jointly and severally 
 11.23  liable for the obligations incurred by any member of the same 
 11.24  group under chapter 176 for any fund year in which the member 
 11.25  was a participant of the mutual self-insurance group. 
 11.26     Subd. 11.  [ANNUAL AUDIT.] The accounts and records of the 
 11.27  common claims fund shall be audited annually.  Audits shall be 
 11.28  made by an accountant, based on generally accepted accounting 
 11.29  principles and generally accepted auditing standards, and 
 11.30  supported by actuarial review and opinion of future contingent 
 11.31  liabilities.  The accountant shall determine the amount of 
 11.32  deficit or surplus of the common claims fund.  All audits 
 11.33  required by this section shall be filed with the commissioner 
 11.34  120 days after the close of the fiscal year of the mutual 
 11.35  self-insurance group.  The commissioner may require a special 
 11.36  audit to be made at other times if the financial stability of 
 12.1   the fund or the adequacy of its reserves is in question. 
 12.2      Subd. 12.  [INVESTMENTS.] (a) Any securities purchased by 
 12.3   the common claims fund shall be in such denominations and with 
 12.4   dates of maturity to ensure securities may be redeemable at 
 12.5   sufficient time and in sufficient amounts to meet the fund's 
 12.6   current and long-term liabilities. 
 12.7      (b) Cash assets of the common claims fund may be invested 
 12.8   in the following securities: 
 12.9      (1) direct obligations of the United States government, 
 12.10  except mortgage-backed securities of the Government National 
 12.11  Mortgage Association; 
 12.12     (2) bonds, notes, debentures, and other instruments which 
 12.13  are obligations of agencies and instrumentalities of the United 
 12.14  States including, but not limited to, the federal National 
 12.15  Mortgage Association, the federal Home Loan Mortgage 
 12.16  Corporation, the federal Home Loan Bank, the Student Loan 
 12.17  Marketing Association, and the Farm Credit System, and their 
 12.18  successors, but not including collateralized mortgage 
 12.19  obligations or mortgage pass-through instruments; 
 12.20     (3) bonds or securities that are issued by the state of 
 12.21  Minnesota and that are secured by the full faith and credit of 
 12.22  the state; 
 12.23     (4) certificates of deposit which are insured by the 
 12.24  federal Deposit Insurance Corporation and are issued by a 
 12.25  Minnesota depository institution; 
 12.26     (5) obligations of, or instruments unconditionally 
 12.27  guaranteed by, Minnesota depository institutions whose long-term 
 12.28  debt rating is at least AA-, or Aa3, or their equivalent by at 
 12.29  least two nationally recognized rating agencies. 
 12.30     Subd. 13.  [ADMINISTRATION.] (a) The mutual self-insurance 
 12.31  group shall be required to secure administrative services from a 
 12.32  service company which maintains an office in the state of 
 12.33  Minnesota.  Services provided by the service company must at a 
 12.34  minimum include claim handling, safety and loss control, and 
 12.35  preparation of all required regulatory reports. 
 12.36     (b) The service company management must demonstrate it has 
 13.1   experience with self-insured group administration and employs or 
 13.2   has under contract claim adjustors with at least three years of 
 13.3   Minnesota specific workers' compensation claim handling 
 13.4   experience. 
 13.5      (c) The service company retained by a mutual self-insurance 
 13.6   group to administer workers' compensation claims shall estimate 
 13.7   the total accrued liability of the group for the payment of 
 13.8   compensation for the mutual group's annual report to the 
 13.9   commissioner and shall make the estimate both in good faith and 
 13.10  with the exercise of a reasonable degree of care. 
 13.11     Subd. 14.  [MARKETING AND COMMUNICATIONS.] A mutual 
 13.12  self-insurance group's applications, coverage documents, 
 13.13  quotations, and all marketing materials must prominently display 
 13.14  information indicating that the mutual self-insurance group is a 
 13.15  self-insured program, that members are jointly and severally 
 13.16  liable for the obligations of the mutual self-insurance group, 
 13.17  and that members will be assessed for any deficits created by 
 13.18  the mutual self-insurance group. 
 13.19     Subd. 15.  [REINSURANCE.] (a) A mutual self-insurance group 
 13.20  shall be required to purchase specific excess coverage with the 
 13.21  workers' compensation reinsurance association at the lower 
 13.22  retention level for its first three years of operation.  After 
 13.23  that time it may select the higher retention level with prior 
 13.24  notice given to and approval of the commissioner. 
 13.25     (b) The commissioner may require a mutual self-insurance 
 13.26  group to purchase aggregate excess coverage.  Any reinsurance or 
 13.27  excess coverage purchased other than that of the workers' 
 13.28  compensation reinsurance association must be secured with an 
 13.29  insurance company or reinsurer licensed to underwrite such 
 13.30  coverage in Minnesota and maintains at least an "A" rating with 
 13.31  the A.M. Best rating organization. 
 13.32     Subd. 16.  [DISBURSEMENT OF FUND SURPLUS.] (a) One hundred 
 13.33  percent of any surplus money for a fund year in excess of 125 
 13.34  percent of the amount necessary to fulfill all obligations under 
 13.35  the workers' compensation act, chapter 176, for that fund year 
 13.36  may be declared refundable to a member at any time.  The date 
 14.1   shall be no earlier than 18 months following the end of such 
 14.2   fund year.  The first disbursement of fund surplus may not be 
 14.3   made prior to the completion of an operational audit by the 
 14.4   commissioner.  There can be no more than one refund made in any 
 14.5   12-month period.  When all the claims of any one fund year have 
 14.6   been fully paid, as certified by an actuary, all surplus money 
 14.7   from that fund year may be declared refundable. 
 14.8      (b) The mutual self-insurance group shall give notice to 
 14.9   the commissioner of any refund.  Said notice shall be 
 14.10  accompanied by a statement from the mutual self-insurer's 
 14.11  certified public accountant certifying that the proposed refund 
 14.12  is in compliance with paragraph (a). 
 14.13     Subd. 17.  [SATISFACTION OF FUND DEFICIT.] In the event of 
 14.14  a deficit in any fund year, such deficit shall be paid up 
 14.15  immediately, either from surplus from a fund year other than the 
 14.16  current fund year, or by assessment of the membership.  The 
 14.17  commissioner shall be notified within ten days of any transfer 
 14.18  of surplus funds.  The commissioner, upon finding that a deficit 
 14.19  in a fund year has not been satisfied by a transfer of surplus 
 14.20  from another fund year, shall order an assessment to be levied 
 14.21  on a proportionate basis against the members of the mutual 
 14.22  self-insurance group during that fund year sufficient to make up 
 14.23  any deficit. 
 14.24     Sec. 5.  [79B.05] [MUTUAL SELF-INSURANCE GROUP REPORTING 
 14.25  REQUIREMENTS.] 
 14.26     Subdivision 1.  [REQUIRED REPORTS.] Each mutual 
 14.27  self-insurance group shall submit to the commissioner: 
 14.28     (a) An annual report showing the incurred losses, paid and 
 14.29  unpaid, specifying indemnity and medical losses by 
 14.30  classification, payroll by classification, and current estimated 
 14.31  undiscounted outstanding liability for workers' compensation on 
 14.32  a calendar year basis, in a manner and on forms available from 
 14.33  the commissioner.  In addition each group will submit a 
 14.34  quarterly interim loss report showing incurred losses for all 
 14.35  its membership. 
 14.36     (b) Each mutual self-insurance group will submit on a 
 15.1   quarterly basis a schedule showing all the members who 
 15.2   participate in the group, their date of inception, and date of 
 15.3   withdrawal, if applicable. 
 15.4      (c) Each mutual self-insurance group will submit, in a 
 15.5   manner and on forms available from the commissioner, a report 
 15.6   specifying the audited premium of the most recent fiscal year.  
 15.7   The report must be accompanied by an expense schedule showing 
 15.8   the mutual self-insurance group's operational costs for the same 
 15.9   fiscal year including service company charges, accounting and 
 15.10  actuarial fees, fund administration charges, reinsurance 
 15.11  premiums, royalties, commissions, and any other costs associated 
 15.12  with the administration of the group program. 
 15.13     (d) An officer of the mutual self-insurance group shall, 
 15.14  under oath, attest to the accuracy of each report submitted 
 15.15  under paragraphs (a), (b), and (c).  Upon sufficient cause, the 
 15.16  commissioner shall require the mutual self-insurance group to 
 15.17  submit a certified audit of payroll and claim records conducted 
 15.18  by an independent auditor approved by the commissioner, based on 
 15.19  generally accepted accounting principles and generally accepted 
 15.20  auditing standards, and supported by an actuarial review and 
 15.21  opinion of the future contingent liabilities.  The basis for 
 15.22  sufficient cause shall include the following factors: 
 15.23     (1) where the losses reported appear significantly 
 15.24  different from similar types of groups; 
 15.25     (2) where major changes in the reports exist from year to 
 15.26  year, which are not solely attributable to economic factors; or 
 15.27     (3) where the commissioner has reason to believe that the 
 15.28  losses and payroll in the report do not accurately reflect the 
 15.29  losses and payroll of the mutual self-insurance group.  
 15.30  If any discrepancy is found, the commissioner shall require 
 15.31  changes in the mutual self-insurance group's business plan or 
 15.32  service company record keeping practices. 
 15.33     (e) Each mutual self-insurance group will submit a copy of 
 15.34  the group's annual federal and state income tax returns or 
 15.35  provide proof that it has received an exemption from such 
 15.36  filings. 
 16.1      (f) With the annual loss report each mutual self-insurance 
 16.2   group shall report to the commissioner any worker's compensation 
 16.3   claim from the previous year where the full, undiscounted value 
 16.4   is estimated to exceed $50,000, in a manner and on forms 
 16.5   prescribed by the commissioner. 
 16.6      (g) Each member of the mutual self-insurance group shall, 
 16.7   within four months after the end of each calendar year, submit 
 16.8   to the group its most recent annual financial statement, 
 16.9   compiled by an independent public accountant, together with 
 16.10  other financial information the group may require. 
 16.11     (h) The mutual self-insurance group shall submit an annual 
 16.12  certified financial audit report of the mutual self-insurance 
 16.13  group fund. 
 16.14     Subd. 2.  [OPERATIONAL AUDIT.] (a) The commissioner, prior 
 16.15  to authorizing surplus distribution of a mutual group's first 
 16.16  fund year or no later than after the third anniversary of the 
 16.17  group's authority to self-insure, shall conduct an operational 
 16.18  audit of the mutual self-insurance group's claim handling and 
 16.19  reserve practices as well as its underwriting procedures to 
 16.20  determine if they adhere to the group's business plan.  The 
 16.21  commissioner may select outside consultants to assist in 
 16.22  conducting the audit.  After completion of the audit, the 
 16.23  commissioner shall either renew or revoke the mutual 
 16.24  self-insurance group's authority to self-insure.  The 
 16.25  commissioner may also order any changes deemed necessary in the 
 16.26  claims handling, reserving practices, or underwriting procedures 
 16.27  of the group. 
 16.28     (b) The cost of the operational audit shall be borne by the 
 16.29  mutual self-insurance group. 
 16.30     Subd. 3.  [UNIT STATISTICAL REPORT.] Each mutual 
 16.31  self-insurance group will annually file a unit statistical 
 16.32  report to the Minnesota workers' compensation insurers 
 16.33  association. 
 16.34     Sec. 6.  [79B.06] [MUTUAL SELF-INSURANCE GROUP SECURITY 
 16.35  DEPOSIT.] 
 16.36     Subdivision 1.  [ANNUAL SECURING OF LIABILITY.] Each year 
 17.1   every mutual self-insurance group shall secure future incurred 
 17.2   liabilities for the payment of compensation and the performance 
 17.3   of the obligations of its membership imposed under chapter 176.  
 17.4   A new deposit must be posted within 30 days of the filing of the 
 17.5   mutual self-insurance group's annual actuarial report with the 
 17.6   commissioner. 
 17.7      Subd. 2.  [MINIMUM DEPOSIT.] The minimum deposit is 110 
 17.8   percent of the mutual self-insurance group's future incurred 
 17.9   liabilities for the payment of compensation as determined by an 
 17.10  actuary.  Each actuarial study shall include a projection of 
 17.11  future losses during a one-year period until the next scheduled 
 17.12  actuarial study, less payments anticipated to be made during 
 17.13  that time.  Deduction should be made for the total amount which 
 17.14  is estimated to be returned to the mutual self-insurance group 
 17.15  from any specific excess insurance coverage, aggregate excess 
 17.16  insurance coverage, and any supplementary benefits which are 
 17.17  estimated to be reimbursed by the special compensation fund.  
 17.18  Supplementary benefits will not be reimbursed by the special 
 17.19  compensation fund unless the special compensation fund 
 17.20  assessment pursuant to section 176.129 is paid and the required 
 17.21  reports are filed with the special compensation fund.  In the 
 17.22  case of surety bonds, bonds shall secure administrative and 
 17.23  legal costs in addition to the liability for payment of 
 17.24  compensation reflected on the face of the bond.  In no event 
 17.25  shall the security be less than the group's selected retention 
 17.26  limit of the workers' compensation reinsurance association.  The 
 17.27  posting or depositing of security under this section shall 
 17.28  release all previously posted or deposited security from any 
 17.29  obligations under the posting or depositing and any surety bond 
 17.30  so released shall be returned to the surety.  Any other security 
 17.31  shall be returned to the depositor or the person posting the 
 17.32  bond. 
 17.33     Subd. 3.  [TYPE OF ACCEPTABLE SECURITY.] The commissioner 
 17.34  may only accept as security, and the mutual self-insurance group 
 17.35  shall deposit as security, cash, approved government securities 
 17.36  as set forth in section 176.181, subdivision 2, surety bonds or 
 18.1   irrevocable letters of credit in any combination.  Interest or 
 18.2   dividend income or other income generated by the security shall 
 18.3   be paid to the group or, at the group's direction, applied to 
 18.4   the group's security requirement.  The current deposit shall 
 18.5   include within its coverage all amounts covered by terminated 
 18.6   surety bonds.  As used in this section, an irrevocable letter of 
 18.7   credit shall be accepted only if it is clean, irrevocable, and 
 18.8   contains an evergreen clause. 
 18.9      (a) "Clean" means a letter of credit that is not 
 18.10  conditioned on the delivery of any other documents or materials. 
 18.11     (b) "Irrevocable" means a letter of credit that cannot be 
 18.12  modified or revoked without the consent of the beneficiary, once 
 18.13  the beneficiary is established. 
 18.14     (c) "Evergreen clause" means one which specifically states 
 18.15  that expiration of a letter of credit will not take place 
 18.16  without a 60-day notice by the issuer and one which allows the 
 18.17  issuer to conduct an annual review of the account party's 
 18.18  financial condition.  If prior notice of expiration is not given 
 18.19  by the issuer, the letter of credit is automatically extended 
 18.20  for one year. 
 18.21     A clean irrevocable letter of credit shall be accepted only 
 18.22  if it is in the form prescribed by statute and is issued by a 
 18.23  financial institution that is authorized to engage in banking in 
 18.24  any of the 50 states or under the laws of the United States and 
 18.25  whose business is substantially confined to banking and 
 18.26  supervised by the state commissioner of commerce or banking of 
 18.27  similar official, and which has a long-term debt rating by a 
 18.28  recognized national rating agency of investment grade or 
 18.29  better.  If no long-term debt rating is available, the financial 
 18.30  institution must have the equivalent investment grade financial 
 18.31  characteristics. 
 18.32     Subd. 4.  [CUSTODIAL ACCOUNTS.] (a) All surety bonds, 
 18.33  irrevocable letters of credit, and documents showing issuance of 
 18.34  any irrevocable letter of credit shall be deposited with, and, 
 18.35  except where specified by statute, in a form approved by the 
 18.36  commissioner.  All securities shall be deposited with the state 
 19.1   treasurer or in a custodial account with a depository 
 19.2   institution acceptable to the commissioner.  The commissioner 
 19.3   and the state treasurer may sell or collect, in the case of 
 19.4   default of the mutual self-insurance group, the amounts that 
 19.5   yield sufficient funds to pay workers' compensation due under 
 19.6   chapter 176. 
 19.7      (b) All securities in physical form on deposit with the 
 19.8   state treasurer and surety bonds on deposit shall remain in the 
 19.9   custody of the state treasurer or the commissioner for a period 
 19.10  of time dictated by the applicable statute of limitations 
 19.11  provided in chapter 176.  All original instruments and contracts 
 19.12  creating and governing custodial accounts shall remain with the 
 19.13  state treasurer or the commissioner for a period of time 
 19.14  dictated by the applicable statute of limitations provided in 
 19.15  chapter 176. 
 19.16     (c) Securities in physical form deposited with the state 
 19.17  treasurer must bear the following assignment, which shall be 
 19.18  signed by an officer of the mutual self-insurance group, 
 19.19  "assigned to the state of Minnesota for the benefit of injured 
 19.20  employees of the self-insured employer under the Minnesota 
 19.21  workers' compensation act."  Any securities held in a custodial 
 19.22  account, whether in physical form, book entry, or other form, 
 19.23  need not bear the assignment language.  The instrument or 
 19.24  contract creating and governing any custodial account must 
 19.25  contain the following assignment language.  "This account is 
 19.26  assigned to the state treasurer by the mutual self-insurance 
 19.27  group to pay compensation and perform the obligations of 
 19.28  employers imposed under Minnesota Statutes, chapter 176.  A 
 19.29  depositor or other party has no right, title, or interest in the 
 19.30  security deposited in the account until released by the state." 
 19.31     (d) Upon the commissioner sending a request to renew, 
 19.32  request to post, or request to increase a security deposit, a 
 19.33  perfected security interest is created in the mutual 
 19.34  self-insurance group's assets in favor of the commissioner to 
 19.35  the extent of any then unsecured portion of the mutual 
 19.36  self-insurance group's incurred liabilities.  The perfected 
 20.1   security interest is transferred to any cash or securities 
 20.2   thereafter posted by the mutual self-insurance group with the 
 20.3   state treasurer and is released only upon either of the 
 20.4   following: 
 20.5      (1) the acceptance by the commissioner of a surety bond or 
 20.6   irrevocable letter of credit for the full amount of the incurred 
 20.7   liabilities for the payment of compensation; or 
 20.8      (2) the return of cash or securities by the commissioner.  
 20.9   The mutual self-insurance group loses all right, title, and 
 20.10  interest in and any right to control all assets or obligations 
 20.11  posted or left on deposit as security.  In the event of a 
 20.12  declaration of bankruptcy or insolvency by a court of competent 
 20.13  jurisdiction, or in the event of the issuance of a certificate 
 20.14  of default by the commissioner, the commissioner shall liquidate 
 20.15  the deposit as provided in this chapter, and transferred to the 
 20.16  mutual self-insurance group security fund for application to the 
 20.17  mutual self-insurance group's incurred liability. 
 20.18     (e) No securities in physical form on deposit with the 
 20.19  state treasurer or the commissioner or custodial accounts 
 20.20  assigned to the state shall be released or exchanged without an 
 20.21  order from the commissioner.  No security can be exchanged more 
 20.22  than once every 90 days. 
 20.23     (f) Any securities deposited with the state treasurer or 
 20.24  with a custodial account assigned to the state treasurer or 
 20.25  letters of credit or surety bonds held by the commissioner may 
 20.26  be exchanged or replaced by the depositor with any other 
 20.27  acceptable securities or letters of credit or surety bond of 
 20.28  like amount so long as the market value of the securities or 
 20.29  amount of the surety bonds or letter of credit equals or exceeds 
 20.30  the amount of the deposit required.  If securities are replaced 
 20.31  by surety bond, the mutual self-insurance group must maintain 
 20.32  securities on deposit in an amount sufficient to meet all 
 20.33  outstanding workers' compensation liability arising during the 
 20.34  period covered by the deposit of the replaced securities. 
 20.35     (g) The commissioner shall return on an annual basis to the 
 20.36  mutual self-insurance group all amounts of security determined 
 21.1   by the commissioner to be in excess of the statutory 
 21.2   requirements for the group to self-insure, including that 
 21.3   necessary for administrative costs, legal fees, and the payment 
 21.4   of any future workers' compensation claims. 
 21.5      Sec. 7.  [79B.07] [DEFAULT OF A MUTUAL SELF-INSURANCE 
 21.6   GROUP.] 
 21.7      Subdivision 1.  [NOTICE OF INSOLVENCY, BANKRUPTCY, OR 
 21.8   DEFAULT.] The commissioner of labor and industry shall notify 
 21.9   the commissioner and the mutual self-insurance group security 
 21.10  fund if the commissioner of labor and industry has knowledge 
 21.11  that any mutual self-insurance group has failed to pay workers' 
 21.12  compensation benefits as required by chapter 176.  If the 
 21.13  commissioner determines that a court of competent jurisdiction 
 21.14  has declared the mutual self-insurance group to be bankrupt or 
 21.15  insolvent and the mutual self-insurance group has failed to pay 
 21.16  workers' compensation as required by chapter 176 or if the 
 21.17  commissioner issues a certificate of default against a mutual 
 21.18  self-insurance group for failure to pay workers' compensation as 
 21.19  required by chapter 176, then the security deposit posted by the 
 21.20  mutual self-insurance group shall be utilized to administer and 
 21.21  pay the mutual self-insurance group's workers' compensation 
 21.22  obligation. 
 21.23     Subd. 2.  [REVOCATION OF CERTIFICATE TO SELF-INSURE.] (a) 
 21.24  The commissioner shall revoke the mutual self-insurance group's 
 21.25  certificate to self-insure once notified of the mutual 
 21.26  self-insurance group's bankruptcy, insolvency, or upon issuance 
 21.27  of a certificate of default.  The revocation shall be completed 
 21.28  as soon as practicable, but no later than 30 days after the 
 21.29  mutual self-insurance group's security has been called. 
 21.30     (b) The commissioner shall also revoke a mutual 
 21.31  self-insurance group's authority to self-insure on the following 
 21.32  grounds: 
 21.33     (1) failure to comply with any lawful order of the 
 21.34  commissioner; 
 21.35     (2) failure to comply with any provision of chapter 176; 
 21.36     (3) a deterioration of the mutual self-insurance group's 
 22.1   financial condition affecting its ability to pay obligations in 
 22.2   chapter 176; 
 22.3      (4) committing an unfair or deceptive act or practice as 
 22.4   defined in section 72A.20; or 
 22.5      (5) failure to abide by the plan of operation of the 
 22.6   workers' compensation reinsurance association. 
 22.7      Subd. 3.  [NOTICE BY THE COMMISSIONER.] In the event of 
 22.8   bankruptcy, insolvency, or certificate of default, the 
 22.9   commissioner shall immediately notify by certified mail the 
 22.10  state treasurer, the surety, the issuer of an irrevocable letter 
 22.11  of credit, and any custodian of the security.  At the time of 
 22.12  notification, the commissioner shall also call the security and 
 22.13  transfer and assign it to the mutual self-insurance group 
 22.14  security fund.  The commissioner shall also notify by certified 
 22.15  mail the mutual self-insurance group's security fund and order 
 22.16  the security fund to assume the insolvent mutual self-insurance 
 22.17  group's obligations for which it is liable under chapter 176. 
 22.18     Sec. 8.  [79B.08] [MUTUAL SELF-INSURANCE GROUP SECURITY 
 22.19  FUND.] 
 22.20     Subdivision 1.  [CREATION.] The mutual self-insurance group 
 22.21  security fund is established as a nonprofit corporation pursuant 
 22.22  to the Minnesota nonprofit corporation act, sections 317A.001 to 
 22.23  317A.909.  If any provision of the Minnesota nonprofit 
 22.24  corporation act conflicts with any provision of this chapter, 
 22.25  the provisions of this chapter apply.  Each self-insurance group 
 22.26  that elects to be subject to the terms of this statute rather 
 22.27  than chapter 79A shall participate in the mutual self-insurance 
 22.28  group security fund.  This participation shall be a condition of 
 22.29  maintaining its certificate to self-insure. 
 22.30     Subd. 2.  [BOARD OF TRUSTEES.] The security fund shall be 
 22.31  governed by a board consisting of a minimum of three and maximum 
 22.32  of five trustees.  The trustees shall be representatives of 
 22.33  mutual self-insurance groups who shall be elected by the 
 22.34  participants of the security fund, each group having one vote.  
 22.35  The trustees initially elected by the participants shall serve 
 22.36  staggered terms of either two or three years.  Thereafter, 
 23.1   trustees shall be elected to three-year terms and shall serve 
 23.2   until their successors are elected and assume office pursuant to 
 23.3   the bylaws of the security fund.  Two additional trustees shall 
 23.4   be appointed by the commissioner.  These trustees shall serve 
 23.5   four-year terms.  One of these trustees shall serve a two-year 
 23.6   term.  Thereafter, the trustees shall be appointed to four-year 
 23.7   terms, and shall serve until their successors are appointed and 
 23.8   assume office according to the bylaws of the security fund.  In 
 23.9   addition to the trustees elected by the participants or 
 23.10  appointed by the commissioner, the commissioner of labor and 
 23.11  industry or the commissioner's designee shall be an ex officio, 
 23.12  nonvoting member of the board of trustees.  A member of the 
 23.13  board of trustees may designate another person to act in the 
 23.14  member's place as though the member were acting and the 
 23.15  designee's actions shall be deemed those of the member. 
 23.16     Subd. 3.  [BYLAWS.] The security fund shall establish 
 23.17  bylaws and a plan of operation, subject to the prior approval of 
 23.18  the commissioner, necessary to the purposes of this chapter and 
 23.19  to carry out the responsibilities of the security fund.  The 
 23.20  security fund may carry out its responsibilities directly or by 
 23.21  contract, and may purchase services and insurance and borrow 
 23.22  funds it deems necessary for the protection of the mutual 
 23.23  self-insurance group participants and their employees. 
 23.24     Subd. 4.  [CONFIDENTIAL INFORMATION.] The security fund may 
 23.25  receive private data concerning the financial condition of 
 23.26  mutual self-insurance groups whose liabilities to pay 
 23.27  compensation have become its responsibility and shall adopt 
 23.28  bylaws to prevent dissemination of that information. 
 23.29     Subd. 5.  [EMPLOYEES.] Security fund employees are not 
 23.30  state employees and are not subject to any state civil service 
 23.31  regulations. 
 23.32     Subd. 6.  [ASSUMPTION OF OBLIGATIONS.] Upon order of the 
 23.33  commissioner under section 79B.07, subdivision 3, the security 
 23.34  fund shall assume the workers' compensation obligations of an 
 23.35  insolvent mutual self-insurance group.  The commissioner shall 
 23.36  further order the mutual self-insurance group security fund to 
 24.1   commence payment of these obligations within 14 days of the 
 24.2   receipt of this notification and order. 
 24.3      Subd. 7.  [ACT OR OMISSIONS; PENALTIES.] Notwithstanding 
 24.4   subdivision 6, the security fund shall not be liable for the 
 24.5   payment of any penalties assessed for any act or omission on the 
 24.6   part of any person other than the security fund or its appointed 
 24.7   administrator, including, but not limited to, the penalties 
 24.8   provided in chapter 176 unless the security fund or its 
 24.9   appointed administrator would be subject to penalties under 
 24.10  chapter 176 as the result of the actions of the security fund or 
 24.11  its administrator. 
 24.12     Subd. 8.  [PARTY IN INTEREST.] The security fund shall be a 
 24.13  party in interest in all proceedings involving compensation 
 24.14  claims against an insolvent mutual self-insurance group whose 
 24.15  compensation obligations have been paid or assumed by the 
 24.16  security fund.  The security fund shall have the same rights and 
 24.17  defenses as the insolvent mutual self-insurance group, 
 24.18  including, but not limited to, all of the following: 
 24.19     (1) to appear, defend, and appeal claims; 
 24.20     (2) to receive notice of, investigate, adjust, compromise, 
 24.21  settle, and pay claims; and 
 24.22     (3) to investigate, handle, and deny claims. 
 24.23     Subd. 9.  [PAYMENTS TO SECURITY FUND.] Notwithstanding 
 24.24  anything in this chapter or chapter 176 to the contrary, in the 
 24.25  event that the mutual self-insurance group security fund assumes 
 24.26  the obligations of any bankrupt or insolvent mutual 
 24.27  self-insurance group pursuant to this section, then the proceeds 
 24.28  of any surety bond, workers' compensation reinsurance 
 24.29  association, specific excess insurance or aggregate excess 
 24.30  insurance policy, and any special compensation fund payment or 
 24.31  supplementary benefit reimbursements shall be paid to the mutual 
 24.32  self-insurance group security fund instead of the bankrupt or 
 24.33  insolvent mutual self-insurance group or its successor in 
 24.34  interest.  No special compensation fund reimbursements shall be 
 24.35  made to the security fund unless the special compensation fund 
 24.36  assessments under section 176.129 are paid and the required 
 25.1   reports are made to the special compensation fund. 
 25.2      Subd. 10.  [INSOLVENT MUTUAL SELF-INSURANCE GROUP.] The 
 25.3   security fund shall have the right and obligation to obtain 
 25.4   reimbursement from an insolvent mutual self-insurance group up 
 25.5   to the amount of the mutual self-insurance group's workers' 
 25.6   compensation obligations paid and assumed by the security fund, 
 25.7   including reasonable administrative and legal costs.  This right 
 25.8   includes, but is not limited to, a right to claim for wages and 
 25.9   other necessities of life advanced to claimants as subrogee of 
 25.10  the claimants in any action to collect against the mutual 
 25.11  self-insurance group as debtor. 
 25.12     Subd. 11.  [SECURITY DEPOSITS.] The security fund shall 
 25.13  have the right and obligation to obtain from the security 
 25.14  deposit of an insolvent mutual self-insurance group the amount 
 25.15  of the mutual self-insurance group's compensation obligations, 
 25.16  including reasonable administrative and legal costs, paid or 
 25.17  assumed by the security fund.  Reimbursement of administrative 
 25.18  costs, including legal costs, shall be subject to approval by a 
 25.19  majority of the security fund's voting trustees.  The security 
 25.20  fund shall be a party in interest in any action to obtain the 
 25.21  security deposit for the payment of compensation obligations of 
 25.22  an insolvent mutual self-insurance group. 
 25.23     Subd. 12.  [LEGAL ACTIONS.] The security fund shall have 
 25.24  the right to bring an action against any person or entity to 
 25.25  recover compensation paid and liability assumed by the security 
 25.26  fund, including, but not limited to, any excess insurance 
 25.27  carrier of the insolvent mutual self-insurance group and any 
 25.28  person or entity whose negligence or breach of an obligation 
 25.29  contributed to any underestimation of the mutual self-insurance 
 25.30  group's accrued liability as reported to the commissioner. 
 25.31     Subd. 13.  [PARTY IN INTEREST.] The security fund may be a 
 25.32  party in interest in any action brought by any other person 
 25.33  seeking damages resulting from the failure of an insolvent 
 25.34  mutual self-insurance group to pay workers' compensation 
 25.35  required under this subdivision. 
 25.36     Subd. 14.  [ASSETS MAINTAINED.] The security fund shall 
 26.1   maintain cash, readily marketable securities, or other assets, 
 26.2   or a line of credit, approved by the commissioner, sufficient to 
 26.3   immediately continue the payment of the compensation obligations 
 26.4   of an insolvent mutual self-insurance group pending receipt of 
 26.5   the security deposit, surety bond proceeds, irrevocable letter 
 26.6   of credit, or, if necessary, assessment of the participants.  
 26.7   The commissioner may establish the minimum amount to be 
 26.8   maintained by, or immediately available to, the security fund 
 26.9   for this purpose. 
 26.10     Subd. 15.  [ASSESSMENT.] The security fund may assess each 
 26.11  of its participants a pro rata share of the funding necessary to 
 26.12  carry out its obligation and the purposes of this chapter.  
 26.13  Total annual assessments in any calendar year shall be a 
 26.14  percentage of the workers' compensation benefits paid under 
 26.15  sections 176.101 and 176.111 during the previous calendar year.  
 26.16  The annual assessment calculation shall not include 
 26.17  supplementary benefits paid which will be reimbursed by the 
 26.18  special compensation fund.  Funds obtained by assessments under 
 26.19  this subdivision may only be used for the purposes of this 
 26.20  chapter.  The trustees shall certify to the commissioner the 
 26.21  collection and receipt of all money from assessments, noting any 
 26.22  delinquencies.  The trustees shall take any action deemed 
 26.23  appropriate to collect any delinquent assessments. 
 26.24     Subd. 16.  [AUDIT OF FUND.] The trustees shall annually 
 26.25  contract for an independent certified audit of the financial 
 26.26  activities of the fund.  An annual report on the financial 
 26.27  status of the mutual self-insurance group security fund shall be 
 26.28  submitted to the commissioner and to each group participant. 
 26.29     Sec. 9.  [79B.09] [LETTER OF CREDIT FORM.] 
 26.30     The form for the letter of credit under this chapter shall 
 26.31  be: 
 26.32  Effective Date 
 26.33  State of Minnesota (Beneficiary) 
 26.34  (Address) 
 26.35  Dear Sirs: 
 26.36  By order of ....... (Self-Insurer) we are instructed to open a 
 27.1   clean irrevocable Letter of Credit in your favor for United 
 27.2   States $.......(Amount). 
 27.3   We undertake that drawings under this Letter of Credit will be 
 27.4   honored upon presentation of your draft drawn on ....... 
 27.5   (issuing bank), at ....... (address) prior to expiration date. 
 27.6   The Letter of Credit expires on ....... but will automatically 
 27.7   extend for an additional one year if you have not received by 
 27.8   registered mail notification of intention not to renew 60 days 
 27.9   prior to the original expiration date and each subsequent 
 27.10  expiration date. 
 27.11     Except as expressly stated herein, this undertaking is not 
 27.12  subject to any condition or qualification.  The obligation of 
 27.13  ....... (issuing bank) under this Letter of Credit shall be the 
 27.14  individual obligation of ....... (issuing bank), in no way 
 27.15  contingent upon reimbursement with respect thereto. 
 27.16  Very truly yours, 
 27.17  ..............(signature) 
 27.18     Sec. 10.  [79B.10] [SURETY BOND FORM.] 
 27.19     The form for the surety bond under this chapter shall be: 
 27.20            STATE OF MINNESOTA
 27.21            COMMISSIONER
 27.22            SURETY BOND OF SELF-INSURER OF WORKERS' COMPENSATION
 27.23  IN THE MATTER OF THE CERTIFICATE OF  )
 27.24                                       )    SURETY BOND
 27.25                                       )    NO.............
 27.26                                       )    PREMIUM
 27.27                                       )
 27.28  Employer, Certificate No:......... 
 27.29  KNOW ALL PERSONS BY THESE PRESENTS: 
 27.30     That ............................. 
 27.31             (Mutual Self-Insurance Group.)
 27.32  Whose address is ............................... 
 27.33  as Principal, and .................... 
 27.34                   (Surety)
 27.35  a corporation organized under the laws of 
 27.36  ......................... and authorized to transact a general 
 28.1   surety business in the State of Minnesota, as Surety, are held 
 28.2   and firmly bound to the State of Minnesota in the penal sum of 
 28.3   ............. dollars ($........) for which payment we bind 
 28.4   ourselves, our heirs, executors, administrators, successors, and 
 28.5   assigns, jointly and severally, firmly by these presents. 
 28.6      WHEREAS, in accordance with Minnesota Statutes, chapter 
 28.7   176, the principal elected to self-insure, and made application 
 28.8   for, or received from the commissioner of commerce of the state 
 28.9   of Minnesota, a certificate to self-insure, upon furnishing of 
 28.10  proof satisfactory to the commissioner of commerce of ability to 
 28.11  self-insure and to compensate any or all employees of said 
 28.12  principal for injury or disability, and their dependents for 
 28.13  death incurred or sustained by said employees pursuant to the 
 28.14  terms, provisions, and limitations of said statute; 
 28.15     NOW THEREFORE, the conditions of this bond or obligation 
 28.16  are such that if principal shall pay and furnish compensation, 
 28.17  pursuant to the terms, provisions, and limitations of said 
 28.18  statute to its employees for injury or disability, and to the 
 28.19  dependents of its employees, then this bond or obligation shall 
 28.20  be null and void; otherwise to remain in full force and effect. 
 28.21     FURTHERMORE, it is understood and agreed that: 
 28.22     1.  This bond may be amended, by agreement between the 
 28.23  parties hereto and the commissioner of commerce as to the 
 28.24  identity of the principal herein named; and, by agreement of the 
 28.25  parties hereto, as to the premium or rate of premium.  Such 
 28.26  amendment must be by endorsement upon, or rider to, this bond, 
 28.27  executed by the surety and delivered to or filed with the 
 28.28  commissioner. 
 28.29     2.  The surety does, by these presents, undertake and agree 
 28.30  that the obligation of this bond shall cover and extend to all 
 28.31  past, present, existing, and potential liability of said 
 28.32  principal, as a self-insurer, to the extent of the penal sum 
 28.33  herein named without regard to specific injuries, date or dates 
 28.34  of injuries, happenings or events. 
 28.35     3.  The penal sum of this bond may be increased or 
 28.36  decreased, by agreement between the parties hereto and the 
 29.1   commissioner of commerce, without impairing the obligation 
 29.2   incurred under this bond for the overall coverage of the said 
 29.3   principal, for all past, present, existing, and potential 
 29.4   liability, as a self-insurer, without regard to specific 
 29.5   injuries, date or dates of injuries, happenings or events, to 
 29.6   the extent, in the aggregate, of the penal sum as increased or 
 29.7   decreased.  Such amendment must be by endorsement. 
 29.8      4.  The aggregate liability of the surety hereunder on all 
 29.9   claims whatsoever shall not exceed the penal sum of this bond in 
 29.10  any event. 
 29.11     5.  This bond shall be continuous in form and shall remain 
 29.12  in full force and effect unless terminated as follows: 
 29.13     (a) The obligation of this bond shall terminate upon 
 29.14  written notice of cancellation from the surety, given by 
 29.15  registered or certified mail to the commissioner of commerce, 
 29.16  state of Minnesota, save and except as to all past, present, 
 29.17  existing, and potential liability of the principal incurred, 
 29.18  including obligations resulting from claims which are incurred 
 29.19  but not yet reported, as a self-insurer prior to effective date 
 29.20  of termination.  This termination is effective 60 days after 
 29.21  receipt of notice of cancellation by the commissioner of 
 29.22  commerce, state of Minnesota. 
 29.23     (b) This bond shall also terminate upon the revocation of 
 29.24  the certificate to self-insure, save and except as to all past, 
 29.25  present, existing, and potential liability of the principal 
 29.26  incurred, including obligations resulting from claims which are 
 29.27  incurred, but not yet reported, as a self-insurer prior to 
 29.28  effective date of termination.  The principal and the surety, 
 29.29  herein named, shall be immediately notified in writing by said 
 29.30  commissioner, in the event of such revocation. 
 29.31     6.  Where the principal posts with the commissioner of 
 29.32  commerce, state of Minnesota, or the state treasurer, state of 
 29.33  Minnesota, a replacement security deposit, in the form of a 
 29.34  surety bond, irrevocable letter of credit, cash, securities, or 
 29.35  any combination thereof, in the full amount as may be required 
 29.36  by the commissioner of commerce, state of Minnesota, to secure 
 30.1   all incurred liabilities for the payment of compensation of said 
 30.2   principal under Minnesota Statutes, chapter 176, the surety is 
 30.3   released from obligations under the surety bond upon the date of 
 30.4   acceptance by the commissioner of commerce, state of Minnesota, 
 30.5   of said replacement security deposit.  
 30.6      7.  If the said principal shall suspend payment of workers' 
 30.7   compensation benefits or shall become insolvent or a receiver 
 30.8   shall be appointed for its business, or the commissioner of 
 30.9   commerce, state of Minnesota, issues a certificate of default, 
 30.10  the undersigned surety will become liable for the workers' 
 30.11  compensation obligations of the principal on the date benefits 
 30.12  are suspended.  The surety shall begin payments within 14 days 
 30.13  under paragraph 8, or 30 days under paragraph 10, after receipt 
 30.14  of written notification by certified mail from the commissioner 
 30.15  of commerce, state of Minnesota, to begin payments under the 
 30.16  terms of this bond. 
 30.17     8.  If the surety exercises its option to administer 
 30.18  claims, it shall pay benefits due to the principal's injured 
 30.19  workers within 14 days of the receipt of the notification by the 
 30.20  commissioner of commerce, state of Minnesota, pursuant to 
 30.21  paragraph 7, without a formal award of a compensation judge, the 
 30.22  commissioner of labor and industry, any intermediate appellate 
 30.23  court, or the Minnesota supreme court and such payment will be a 
 30.24  charge against the penal sum of the bond.  Administrative and 
 30.25  legal costs incurred by the surety in discharging its 
 30.26  obligations and payment of the principal's obligations for 
 30.27  administration and legal expenses under Minnesota Statutes, 
 30.28  chapters 79B and 176 shall also be a charge against the penal 
 30.29  sum of the bond; however, the total amount of this surety bond 
 30.30  set aside for the payment of said administrative and legal 
 30.31  expenses shall be limited to a maximum ten percent of the total 
 30.32  penal sum of the bond unless otherwise authorized by the 
 30.33  security fund. 
 30.34     9.  If any part or provision of this bond shall be declared 
 30.35  unenforceable or held to be invalid by a court of proper 
 30.36  jurisdiction, such determination shall not affect the validity 
 31.1   or enforceability of the other provisions or parts of this bond. 
 31.2      10.  If the surety does not give notice to the security 
 31.3   fund and the commissioner of commerce, state of Minnesota, 
 31.4   within two business days of receipt of written notification from 
 31.5   the commissioner of commerce, state of Minnesota, pursuant to 
 31.6   paragraph 7, to exercise its option to administer claims 
 31.7   pursuant to paragraph 8, then the self-insurer's security fund 
 31.8   will assume the payments of the workers' compensation 
 31.9   obligations of the principal pursuant to Minnesota Statutes, 
 31.10  chapter 176.  The surety shall pay, within 30 days of the 
 31.11  receipt of the notification by the commissioner of commerce, 
 31.12  state of Minnesota, pursuant to paragraph 7, to the 
 31.13  self-insurer's security fund as an initial deposit an amount 
 31.14  equal to ten percent of the penal sum of the bond, and shall 
 31.15  thereafter, upon notification from the security fund that the 
 31.16  balance of the initial deposit had fallen to one percent of the 
 31.17  penal sum of the bond, remit to the security fund an amount 
 31.18  equal to the payments made by the security fund in the three 
 31.19  calendar months immediately preceding said notification.  All 
 31.20  such payments will be a charge against the penal sum of the bond.
 31.21     11.  Disputes concerning the posting, renewal, termination, 
 31.22  exoneration, or return of all or any portion of the principal's 
 31.23  security deposit or any liability arising out of the posting or 
 31.24  failure to post security, or the adequacy of the security or the 
 31.25  reasonableness of administrative costs, including legal costs, 
 31.26  arising between or among a surety, the issuer of an agreement of 
 31.27  assumption and guarantee of workers' compensation liabilities, 
 31.28  the issuer of a Letter of Credit, any custodian of the security 
 31.29  deposit, the principal, or the self-insurer's security fund 
 31.30  shall be resolved by the commissioner of commerce under 
 31.31  Minnesota Statutes, chapters 79B and 176. 
 31.32     12.  Written notification to the surety required by this 
 31.33  bond shall be sent to: 
 31.34                            .........................
 31.35                            Name of Surety
 31.36                            .........................
 32.1                             To the attention of Person or Position
 32.2                             .........................
 32.3                             Address
 32.4                             .........................
 32.5                             City, State, Zip
 32.6      Written notification to the principal required by this bond 
 32.7   shall be sent to: 
 32.8                             .........................
 32.9                             Name of Principal
 32.10                            .........................
 32.11                            To the attention of Person or Position
 32.12                            .........................
 32.13                            Address
 32.14                            .........................
 32.15                            City, State, Zip
 32.16     13.  This bond is executed by the surety to comply with 
 32.17  Minnesota Statutes, chapter 176, and said bond shall be subject 
 32.18  to all terms and provisions thereof. 
 32.19                            .........................
 32.20                            Name of Surety
 32.21                            .........................
 32.22                            Address
 32.23                            .........................
 32.24                            City, State, Zip
 32.25     THIS bond is executed under an unrevoked appointment or 
 32.26  power of attorney. 
 32.27     I certify (or declare) under penalty of perjury under the 
 32.28  laws of the state of Minnesota that the foregoing is true and 
 32.29  correct. 
 32.30  Date:..........           .........................
 32.31                            Signature of Attorney-In-Fact
 32.32                            ..........................
 32.33                            Printed or Typed Name of
 32.34                            Attorney-In-Fact
 32.35     A copy of the transcript or record of the unrevoked 
 32.36  appointment, power of attorney, bylaws, or other instrument, 
 33.1   duly certified by the proper authority and attested by the seal 
 33.2   of the insurer entitling or authorizing the person who executed 
 33.3   the bond to do so for and in behalf of the insurer, must be 
 33.4   filed in the office of the commissioner of commerce or must be 
 33.5   included with this bond for such filing. 
 33.6      Sec. 11.  [79B.11] [INDEMNITY AGREEMENT FORM.] 
 33.7                        INDEMNITY AGREEMENT
 33.8      1.  Whereas, (name of company) has agreed to be and has 
 33.9   been accepted as a member of (name of mutual self-insurance 
 33.10  group). 
 33.11     2.  Whereas, (name of company) has agreed to be bound by 
 33.12  all of the provisions of the Minnesota workers' compensation act 
 33.13  and all rules promulgated thereunder. 
 33.14     3.  Whereas, that (name of company) has agreed to be bound 
 33.15  by bylaws or plan of operation and all amendments thereto of 
 33.16  (name of mutual self-insurance group). 
 33.17     4.  Whereas, that (name of company) has agreed to be 
 33.18  jointly and severally liable for all claims and expenses of all 
 33.19  the members of (name of mutual self-insurance group) arising in 
 33.20  any fund year in which (name of company) is a member of the 
 33.21  group.  Provided that is (name of company) is not a member for 
 33.22  the full year, it shall be only liable for a pro rata share of 
 33.23  that liability. 
 33.24     IN WITNESS WHEREOF, the (name of company) and (name of 
 33.25  mutual self-insurance group) have caused this indemnity 
 33.26  agreement to be executed by its authorized agreement to be 
 33.27  executed by its authorized officers: 
 33.28  Mutual Self-Insurance Group Name          Company Name
 33.30  By: ............................          By: ...................
 33.31  date: ..........................          date: .................
 33.32     Sec. 12.  [79B.12] [OPEN MEETING; ADMINISTRATIVE PROCEDURE 
 33.33  ACT.] 
 33.34     The mutual self-insurance group security fund and its board 
 33.35  of trustees shall not be subject to: 
 33.36     (1) the open meeting law; 
 34.1      (2) the open appointments law; 
 34.2      (3) the data privacy law; and 
 34.3      (4) except where specifically set forth, the administrative 
 34.4   procedure act. 
 34.5      Sec. 13.  [79B.13] [RULES.] 
 34.6      The commissioner may adopt, amend, and repeal rules 
 34.7   reasonably necessary to carry out the purposes of this chapter.  
 34.8   This authorization includes, but is not limited to, the adoption 
 34.9   of rules to do all of the following: 
 34.10     (1) except as otherwise specifically provided by statute, 
 34.11  specifying what constitutes ability to self-insure and to pay 
 34.12  any compensation which may become due under chapter 176; 
 34.13     (2) specifying what constitutes a failure or inability to 
 34.14  fulfill an insolvent mutual self-insurance group's obligations 
 34.15  under this chapter; 
 34.16     (3) interpreting and defining the terms used in this 
 34.17  chapter; 
 34.18     (4) establishing procedures and standards for hearing and 
 34.19  determinations and providing for those determinations to be 
 34.20  appealed; 
 34.21     (5) except where otherwise specifically provided by 
 34.22  statute, specifying the standards, forms, and content of 
 34.23  agreements, forms, and reports between parties who have 
 34.24  obligations pursuant to this chapter; 
 34.25     (6) providing for the combinations and relative liabilities 
 34.26  of security deposits, assumptions, and guarantees used under 
 34.27  this chapter; and 
 34.28     (7) disclosing otherwise private data concerning mutual 
 34.29  self-insurers to courts or mutual self-insurance group security 
 34.30  fund and specifying appropriate safeguards for that information. 
 34.31     Sec. 14.  [79B.14] [GOVERNING LAW.] 
 34.32     If there is any inconsistency among any rule or statute and 
 34.33  law, chapter 79B shall govern.