1.1                          A bill for an act 
  1.2             relating to insurance; regulating the Workers' 
  1.3             Compensation Reinsurance Association on the same basis 
  1.4             as other domestic insurance companies; amending 
  1.5             Minnesota Statutes 2002, sections 79.34, subdivisions 
  1.6             1, 2, 2a, 6; 79.35; 79.362; 79.37; 79.38, subdivision 
  1.7             3; 79.39; proposing coding for new law in Minnesota 
  1.8             Statutes, chapter 79. 
  1.9   BE IT ENACTED BY THE LEGISLATURE OF THE STATE OF MINNESOTA: 
  1.10     Section 1.  Minnesota Statutes 2002, section 79.34, 
  1.11  subdivision 1, is amended to read: 
  1.12     Subdivision 1.  [CONDITIONS REQUIRING MEMBERSHIP.] (a) The 
  1.13  nonprofit association known as the Workers' Compensation 
  1.14  Reinsurance Association may be incorporated under chapter 317A 
  1.15  with all the powers of a corporation formed under that chapter, 
  1.16  except that if the provisions of that chapter are inconsistent 
  1.17  with sections 79.34 to 79.40, sections 79.34 to 79.40 govern.  
  1.18     (b) Each insurer as defined by section 79.01, subdivision 
  1.19  2, shall, as a condition of its authority to transact workers' 
  1.20  compensation insurance in this state, be a member of the 
  1.21  reinsurance association and is bound by the plan of operation of 
  1.22  the reinsurance association; provided, that all affiliated 
  1.23  insurers within a holding company system as defined in chapter 
  1.24  60D are considered a single entity for purposes of the exercise 
  1.25  of all rights and duties of membership in the reinsurance 
  1.26  association.  
  1.27     (c) Each self-insurer approved under section 176.181 and 
  2.1   each political subdivision that self-insures shall, as a 
  2.2   condition of its authority to self-insure workers' compensation 
  2.3   liability in this state, be a member of the reinsurance 
  2.4   association and is bound by its plan of operation; provided that:
  2.5      (1) all affiliated companies within a holding company 
  2.6   system, as determined by the commissioner of ~~labor and industry~~ 
  2.7   commerce in a manner consistent with the standards and 
  2.8   definitions in chapter 60D, are considered a single entity for 
  2.9   purposes of the exercise of all rights and duties of membership 
  2.10  in the reinsurance association; and 
  2.11     (2) all group self-insurers granted authority to 
  2.12  self-insure pursuant to section 176.181 are considered single 
  2.13  entities for purposes of the exercise of all the rights and 
  2.14  duties of membership in the reinsurance association.  
  2.15     (d) As a condition of its authority to self-insure workers' 
  2.16  compensation liability, and for losses incurred after December 
  2.17  31, 1983, the state is a member of the reinsurance association 
  2.18  and is bound by its plan of operation.  The commissioner of 
  2.19  employee relations represents the state in the exercise of all 
  2.20  the rights and duties of membership in the reinsurance 
  2.21  association.  The amounts necessary to pay the state's premiums 
  2.22  required for coverage by the Workers' Compensation Reinsurance 
  2.23  Association are appropriated from the general fund to the 
  2.24  commissioner of employee relations.  The University of Minnesota 
  2.25  shall pay its portion of workers' compensation reinsurance 
  2.26  premiums directly to the Workers' Compensation Reinsurance 
  2.27  Association.  For the purposes of this section, "state" means 
  2.28  the administrative branch of state government, the legislative 
  2.29  branch, the judicial branch, the University of Minnesota, and 
  2.30  any other entity whose workers' compensation liability is paid 
  2.31  from the state revolving fund.  The commissioner of finance may 
  2.32  calculate, prorate, and charge a department or agency the 
  2.33  portion of premiums paid to the reinsurance association for 
  2.34  employees who are paid wholly or in part by federal funds, 
  2.35  dedicated funds, or special revenue funds.  
  2.36     (e) The reinsurance association is not a state agency.  
  3.1   Actions of the reinsurance association and its board of 
  3.2   directors and actions of the commissioner of ~~labor and industry~~ 
  3.3   commerce with respect to the reinsurance association are not 
  3.4   subject to chapters 13 and 15.  All property owned by the 
  3.5   association is exempt from taxation.  The reinsurance 
  3.6   association is not obligated to make any payments or pay any 
  3.7   assessments to any funds or pools established pursuant to this 
  3.8   chapter or chapter 176 or any other law. 
  3.9      Sec. 2.  Minnesota Statutes 2002, section 79.34, 
  3.10  subdivision 2, is amended to read: 
  3.11     Subd. 2.  [LOSSES; RETENTION LIMITS.] The reinsurance 
  3.12  association shall provide and each member shall accept 
  3.13  indemnification for 100 percent of the amount of ultimate loss 
  3.14  sustained in each loss occurrence relating to one or more claims 
  3.15  arising out of a single compensable event, including aggregate 
  3.16  losses related to a single event or occurrence which constitutes 
  3.17  a single loss occurrence, under chapter 176 on and after October 
  3.18  1, 1979, in excess of a low, a high, or a super retention limit, 
  3.19  at the option of the member.  In case of occupational disease 
  3.20  causing disablement on and after October 1, 1979, each person 
  3.21  suffering disablement due to occupational disease is considered 
  3.22  to be involved in a separate loss occurrence.  On January 1, 
  3.23  1995, the lower retention limit is $250,000, which shall also be 
  3.24  known as the 1995 base retention limit.  On each January 1 
  3.25  thereafter, the cumulative annual percentage changes in the 
  3.26  statewide average weekly wage after October 1, 1994, as 
  3.27  determined in accordance with section 176.011, subdivision 20, 
  3.28  shall first be multiplied by the 1995 base retention limit, the 
  3.29  result of which shall then be added to the 1995 base retention 
  3.30  limit.  The resulting figure shall be rounded to the nearest 
  3.31  $10,000, yielding the low retention limit for that year, 
  3.32  provided that the low retention limit shall not be reduced in 
  3.33  any year.  The high retention limit shall be two times the low 
  3.34  retention limit and shall be adjusted when the low retention 
  3.35  limit is adjusted.  The super retention limit shall be four 
  3.36  times the low retention limit and shall be adjusted when the low 
  4.1   retention limit is adjusted.  Ultimate loss as used in this 
  4.2   section means the actual loss amount which a member is obligated 
  4.3   to pay and which is paid by the member for workers' compensation 
  4.4   benefits payable under chapter 176 and shall not include claim 
  4.5   expenses, assessments, damages or penalties.  For losses 
  4.6   incurred on or after January 1, 1979, any amounts paid by a 
  4.7   member pursuant to sections 176.183, 176.221, 176.225, and 
  4.8   176.82 shall not be included in ultimate loss and shall not be 
  4.9   indemnified by the reinsurance association.  A loss is incurred 
  4.10  by the reinsurance association on the date on which the accident 
  4.11  or other compensable event giving rise to the loss occurs, and a 
  4.12  member is liable for a loss up to its retention limit in effect 
  4.13  at the time that the loss was incurred, except that members 
  4.14  which are determined by the reinsurance association to be 
  4.15  controlled by or under common control with another member, and 
  4.16  which are liable for claims from one or more employees entitled 
  4.17  to compensation for a single compensable event, including 
  4.18  aggregate losses relating to a single loss occurrence, may 
  4.19  aggregate their losses and obtain indemnification from the 
  4.20  reinsurance association for the aggregate losses in excess of 
  4.21  the highest retention limit selected by any of the members in 
  4.22  effect at the time the loss was incurred.  Each member is liable 
  4.23  for payment of its ultimate loss and shall be entitled to 
  4.24  indemnification from the reinsurance association for the 
  4.25  ultimate loss in excess of the member's retention limit in 
  4.26  effect at the time of the loss occurrence. 
  4.27     A member that chooses the high or super retention limit 
  4.28  shall retain the liability for all losses below the chosen 
  4.29  retention limit itself and shall not transfer the liability to 
  4.30  any other entity or reinsure or otherwise contract for 
  4.31  reimbursement or indemnification for losses below its retention 
  4.32  limit, except in the following cases:  (a) when the reinsurance 
  4.33  or contract is with another member which, directly or 
  4.34  indirectly, through one or more intermediaries, control or are 
  4.35  controlled by or are under common control with the member; (b) 
  4.36  when the reinsurance or contract provides for reimbursement or 
  5.1   indemnification of a member if and only if the total of all 
  5.2   claims which the member pays or incurs, but which are not 
  5.3   reimbursable or subject to indemnification by the reinsurance 
  5.4   association for a given period of time, exceeds a dollar value 
  5.5   or percentage of premium written or earned and stated in the 
  5.6   reinsurance agreement or contract; (c) when the reinsurance or 
  5.7   contract is a pooling arrangement with other insurers where 
  5.8   liability of the member to pay claims pursuant to chapter 176 is 
  5.9   incidental to participation in the pool and not as a result of 
  5.10  providing workers' compensation insurance to employers on a 
  5.11  direct basis under chapter 176; (d) when the reinsurance or 
  5.12  contract is limited to all the claims of a specific insured of a 
  5.13  member which are reimbursed or indemnified by a reinsurer which, 
  5.14  directly or indirectly, through one or more intermediaries, 
  5.15  controls or is controlled by or is under common control with the 
  5.16  insured of the member so long as any subsequent contract or 
  5.17  reinsurance of the reinsurer relating to the claims of the 
  5.18  insured of a member is not inconsistent with the bases of 
  5.19  exception provided under clauses (a), (b) and (c); or (e) when 
  5.20  the reinsurance or contract is limited to all claims of a 
  5.21  specific self-insurer member which are reimbursed or indemnified 
  5.22  by a reinsurer which, directly or indirectly, through one or 
  5.23  more intermediaries, controls or is controlled by or is under 
  5.24  common control with the self-insurer member so long as any 
  5.25  subsequent contract or reinsurance of the reinsurer relating to 
  5.26  the claims of the self-insurer member are not inconsistent with 
  5.27  the bases for exception provided under clauses (a), (b) and (c). 
  5.28     Whenever it appears to the commissioner of ~~labor and~~ 
  5.29  ~~industry~~ commerce that any member that chooses the high or super 
  5.30  retention limit has participated in the transfer of liability to 
  5.31  any other entity or reinsured or otherwise contracted for 
  5.32  reimbursement or indemnification of losses below its retention 
  5.33  limit in a manner inconsistent with the bases for exception 
  5.34  provided under clauses (a), (b), (c), (d), and (e), the 
  5.35  commissioner of commerce may, after giving notice and an 
  5.36  opportunity to be heard, order the member to pay to the state of 
  6.1   Minnesota an amount not to exceed twice the difference between 
  6.2   the reinsurance premium for the high or super retention limit, 
  6.3   as appropriate, and the low retention limit applicable to the 
  6.4   member for each year in which the prohibited reinsurance or 
  6.5   contract was in effect.  Any member subject to this penalty 
  6.6   provision shall continue to be bound by its selection of the 
  6.7   high or super retention limit for purposes of membership in the 
  6.8   reinsurance association.  
  6.9      Sec. 3.  Minnesota Statutes 2002, section 79.34, 
  6.10  subdivision 2a, is amended to read: 
  6.11     Subd. 2a.  [DEFICIENCY.] If the board determines that a 
  6.12  distribution of excess surplus resulted in inadequate funds 
  6.13  being available to pay claims that arose during the period upon 
  6.14  which that distribution was calculated, the board shall 
  6.15  determine the amount of the deficiency.  The deficiency shall be 
  6.16  made up by imposing an assessment rate against self-insured 
  6.17  members and policyholders of insurer members.  The board shall 
  6.18  notify the commissioner of commerce of the amount of the 
  6.19  deficiency and recommend an assessment rate.  The commissioner 
  6.20  of commerce shall order an assessment at a rate and for the time 
  6.21  period necessary to eliminate the deficiency.  The assessment 
  6.22  rate shall be applied to the exposure base of self-insured 
  6.23  employers and insured employers.  The assessment may not be 
  6.24  retroactive and applies only prospectively.  The assessment may 
  6.25  be spread over a period of time that will cause the least 
  6.26  financial hardship to employers.  All assessments under this 
  6.27  subdivision are payable to the association.  The commissioner of 
  6.28  commerce may issue orders necessary to administer this section.  
  6.29     Sec. 4.  Minnesota Statutes 2002, section 79.34, 
  6.30  subdivision 6, is amended to read: 
  6.31     Subd. 6.  [IDENTIFYING LOSSES IN REPORT.] The commissioner 
  6.32  of ~~labor and industry~~ commerce shall require each member to 
  6.33  identify the portion of all losses which exceed its retention 
  6.34  limit selected under this section in any report filed with the 
  6.35  Workers' Compensation Insurers Rating Association of Minnesota 
  6.36  or filed with the Department of ~~Labor and Industry~~ Commerce for 
  7.1   use in reviewing the workers' compensation schedule of rates.  
  7.2      Sec. 5.  Minnesota Statutes 2002, section 79.35, is amended 
  7.3   to read: 
  7.4      79.35 [DUTIES; RESPONSIBILITIES; POWERS.] 
  7.5      The reinsurance association shall do the following on 
  7.6   behalf of its members: 
  7.7      (a) Assume 100 percent of the liability as provided in 
  7.8   section 79.34; 
  7.9      (b) Establish procedures by which members shall promptly 
  7.10  report to the reinsurance association each claim which, on the 
  7.11  basis of the injury sustained, may reasonably be anticipated to 
  7.12  involve liability to the reinsurance association if the member 
  7.13  is held liable under chapter 176.  Solely for the purpose of 
  7.14  reporting claims, the member shall in all instances consider 
  7.15  itself legally liable for the injury.  The member shall advise 
  7.16  the reinsurance association of subsequent developments likely to 
  7.17  materially affect the interest of the reinsurance association in 
  7.18  the claim; 
  7.19     (c) Maintain relevant loss and expense data relative to all 
  7.20  liabilities of the reinsurance association and require each 
  7.21  member to furnish statistics in connection with liabilities of 
  7.22  the reinsurance association at the times and in the form and 
  7.23  detail as may be required by the plan of operation; 
  7.24     (d) Calculate and charge to members a total premium 
  7.25  sufficient to cover the expected liability which the reinsurance 
  7.26  association will incur, together with incurred or estimated to 
  7.27  be incurred operating and administrative expenses for the period 
  7.28  to which this premium applies and actual claim payments to be 
  7.29  made by members, during the period to which this premium 
  7.30  applies, for claims in excess of the prefunded limit in effect 
  7.31  at the time the loss was incurred.  Each member shall be charged 
  7.32  a premium established by the board as sufficient to cover the 
  7.33  reinsurance association's incurred liabilities and expenses 
  7.34  between the member's selected retention limit and the prefunded 
  7.35  limit.  The prefunded limit shall be 20 times the lower 
  7.36  retention limit established in section 79.34, subdivision 2.  
  8.1   Each member shall be charged a proportion of the total premium 
  8.2   calculated for its selected retention limit in an amount equal 
  8.3   to its proportion of the exposure base of all members during the 
  8.4   period to which the reinsurance association premium will apply.  
  8.5   The exposure base shall be determined by the board and is 
  8.6   subject to the approval of the commissioner of ~~labor and~~ 
  8.7   ~~industry~~ commerce.  In determining the exposure base, the board 
  8.8   shall consider, among other things, equity, administrative 
  8.9   convenience, records maintained by members, amenability to 
  8.10  audit, and degree of risk refinement.  Each member shall also be 
  8.11  charged a premium determined by the board to equitably 
  8.12  distribute excess or deficient premiums from previous periods 
  8.13  including any excess or deficient premiums resulting from a 
  8.14  retroactive change in the prefunded limit.  The premiums charged 
  8.15  to members shall not be unfairly discriminatory as defined in 
  8.16  section 79.074.  All premiums shall be approved by the 
  8.17  commissioner of ~~labor and industry~~ commerce; 
  8.18     (e) Require and accept the payment of premiums from members 
  8.19  of the reinsurance association; 
  8.20     (f) Receive and distribute all sums required by the 
  8.21  operation of the reinsurance association; 
  8.22     (g) Establish procedures for reviewing claims procedures 
  8.23  and practices of members of the reinsurance association.  If the 
  8.24  claims procedures or practices of a member are considered 
  8.25  inadequate to properly service the liabilities of the 
  8.26  reinsurance association, the reinsurance association may 
  8.27  undertake, or may contract with another person, including 
  8.28  another member, to adjust or assist in the adjustment of claims 
  8.29  which create a potential liability to the association.  The 
  8.30  reinsurance association may charge the cost of the adjustment 
  8.31  under this paragraph to the member, except that any penalties or 
  8.32  interest incurred under sections 176.183, 176.221, 176.225, and 
  8.33  176.82 as a result of actions by the reinsurance association 
  8.34  after it has undertaken adjustment of the claim shall not be 
  8.35  charged to the member but shall be included in the ultimate loss 
  8.36  and listed as a separate item; and 
  9.1      (h) Provide each member of the reinsurance association with 
  9.2   an annual report of the operations of the reinsurance 
  9.3   association in a form the board of directors may specify. 
  9.4      Sec. 6.  Minnesota Statutes 2002, section 79.362, is 
  9.5   amended to read: 
  9.6      79.362 [WORKERS' COMPENSATION REINSURANCE ASSOCIATION 
  9.7   EXCESS SURPLUS DISTRIBUTION.] 
  9.8      ~~An order of the commissioner of the Department of Labor and~~ 
  9.9   ~~Industry relating to the distribution of excess surplus of~~ The 
  9.10  Board of Directors of the Workers' Compensation Reinsurance 
  9.11  Association ~~shall~~ may propose a distribution of the 
  9.12  association's excess surplus.  The proposal must be reviewed by 
  9.13  the commissioner of commerce.  The commissioner of commerce 
  9.14  may ~~amend,~~ approve, ~~or~~ reject ~~an order or issue further orders~~, 
  9.15  or approve as amended, the proposal, in order to accomplish the 
  9.16  purposes of section 79.361 ~~and Laws 1993, chapter 361, section~~ 
  9.17  ~~2~~.  ~~The commissioner may not change the amount of the~~ 
  9.18  ~~distribution ordered by the commissioner of labor and industry~~ 
  9.19  ~~without agreement of the commissioner of labor and industry.~~  
  9.20     Sec. 7.  Minnesota Statutes 2002, section 79.37, is amended 
  9.21  to read: 
  9.22     79.37 [BOARD OF DIRECTORS.] 
  9.23     A board of directors of the reinsurance association is 
  9.24  created and is responsible for the operation of the reinsurance 
  9.25  association consistent with the plan of operation and sections 
  9.26  79.34 to 79.40.  The board consists of 13 directors.  Four 
  9.27  directors shall represent insurers, two directors shall 
  9.28  represent employers, two shall represent self-insurers; two 
  9.29  directors shall represent employees; the commissioner of finance 
  9.30  and the executive director of the state Board of Investment or 
  9.31  their designees shall serve as directors; and one director shall 
  9.32  represent the public.  Insurer members of the reinsurance 
  9.33  association shall elect the directors who represent insurers; 
  9.34  self-insurer members of the reinsurance association shall elect 
  9.35  the directors who represent self-insurers; and the commissioner 
  9.36  of ~~labor and industry~~ commerce shall appoint the remaining 
 10.1   directors for the terms authorized in the plan of operation.  
 10.2   Each director is entitled to one vote.  Terms of the directors 
 10.3   shall be staggered so that the terms of all the directors do not 
 10.4   expire at the same time and so that a director does not serve a 
 10.5   term of more than four years.  The board shall select a chair 
 10.6   and other officers it deems appropriate. 
 10.7      A majority of the directors currently holding office 
 10.8   constitutes a quorum.  Action may be taken by a majority vote of 
 10.9   the directors present. 
 10.10     The board shall take reasonable and prudent action 
 10.11  regarding the management of the reinsurance association 
 10.12  including but not limited to determining the entity who shall 
 10.13  manage the daily affairs of the reinsurance association.  The 
 10.14  board shall report to the ~~governor~~ commissioner of commerce of 
 10.15  its actions regarding the entity selected to manage the 
 10.16  reinsurance association and the reasons for the selection. 
 10.17     Sec. 8.  Minnesota Statutes 2002, section 79.38, 
 10.18  subdivision 3, is amended to read: 
 10.19     Subd. 3.  [AMENDMENTS.] (a) [PROCEDURE WITH MEMBERS' 
 10.20  RATIFICATION.] The plan of operation may be amended, in whole or 
 10.21  in part, as follows:  proposal of an amendment by a member of 
 10.22  the board and adoption by a majority vote of the board at a 
 10.23  meeting duly called for that purpose, ratification by a majority 
 10.24  vote of the members at any annual meeting or special meeting 
 10.25  duly called for that purpose, and approval of the commissioner 
 10.26  of ~~labor and industry~~ commerce, provided that an amendment shall 
 10.27  be deemed approved 30 days after the day following the date of 
 10.28  ratification by the members if not sooner disapproved by written 
 10.29  order of the commissioner.  
 10.30     (b) [EMERGENCY BOARD POWER TO AMEND WITH DELAYED MEMBERS' 
 10.31  RATIFICATION.] The board shall have emergency powers to amend 
 10.32  the plan at a meeting duly called for that purpose, without 
 10.33  ratification by the members; provided that a meeting of members 
 10.34  shall be scheduled to consider ratification of the amendment 
 10.35  within 90 days.  
 10.36     (c) [COMMISSIONER'S POWER TO AMEND.] If the board proposes 
 11.1   an amendment which the members decline to ratify, the 
 11.2   commissioner of ~~labor and industry~~ commerce is authorized, upon 
 11.3   request of the board, to amend the plan as proposed by the board 
 11.4   when the commissioner determines that failure to adopt the 
 11.5   proposed amendment may seriously impair the ability of the 
 11.6   reinsurance association to meet its financial obligations.  
 11.7      (d) [DELEGATION OF AUTHORITY TO RATIFY.] By a majority 
 11.8   vote, the members, voting in person, or by proxy if authorized 
 11.9   by the board, at a meeting duly called for that purpose, may 
 11.10  authorize the board to exercise the power of amendment of the 
 11.11  plan without ratification by the members.  When the members have 
 11.12  authorized the board to amend the plan without ratification by 
 11.13  the members, the board may, by a majority vote of the directors, 
 11.14  amend the plan, provided that notice of the meeting and of the 
 11.15  proposed amendment shall be given to each director and officer, 
 11.16  ~~including~~ and to the commissioner of ~~labor and~~ 
 11.17  ~~industry~~ commerce.  By a majority vote, the members, voting in 
 11.18  person, or by proxy if authorized by the board, at a meeting 
 11.19  duly called for that purpose, may prospectively revoke the 
 11.20  authority of the board to amend the plan without ratification by 
 11.21  the members.  
 11.22     Sec. 9.  Minnesota Statutes 2002, section 79.39, is amended 
 11.23  to read: 
 11.24     79.39 [APPLICABILITY OF CHAPTER 79.] 
 11.25     Subdivision 1.  [EXAMINATION BY COMMISSIONER.] The 
 11.26  reinsurance association is subject to all the provisions of this 
 11.27  chapter.  The commissioner of ~~labor and industry~~ commerce or an 
 11.28  authorized representative of the commissioner may visit the 
 11.29  reinsurance association at any time and examine, audit, or 
 11.30  evaluate the reinsurance association's operations, records and 
 11.31  practices.  For purposes of this section, "authorized 
 11.32  representative of the commissioner" includes employees of the 
 11.33  Department of ~~Labor and Industry~~ Commerce or other parties 
 11.34  retained by the commissioner.  
 11.35     Subd. 2.  [COSTS AND EXPENSES.] The commissioner of ~~labor~~ 
 11.36  ~~and industry~~ commerce may order, and the reinsurance association 
 12.1   shall pay, the costs and expenses of any examination, audit, or 
 12.2   evaluation conducted ~~pursuant to~~ under subdivision 1.  
 12.3      Sec. 10.  [79.391] [REGULATION AS INSURANCE COMPANY.] 
 12.4      The Workers' Compensation Reinsurance Association is 
 12.5   subject to all financial solvency and other provisions of 
 12.6   chapters 45, 60A, 60B, 60G, and 60L, on the same basis as other 
 12.7   domestic insurance companies that provide reinsurance coverage. 
 12.8      Sec. 11.  [EFFECT OF TRANSFER OF AGENCY RESPONSIBILITIES.] 
 12.9      Minnesota Statutes, section 15.039, applies to the transfer 
 12.10  of responsibilities from the commissioner of labor and industry 
 12.11  to the commissioner of commerce under this act. 
 12.12     Sec. 12.  [EFFECTIVE DATE.] 
 12.13     Sections 1 to 11 are effective January 1, 2005.