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Minnesota Legislature

Office of the Revisor of Statutes

79A.04 PRIVATE SELF-INSURING EMPLOYER; ANNUAL RENEWAL OR DEPOSIT
OF NEW SECURITY FOR PAYMENT OF COMPENSATION.
    Subdivision 1. Annual securing of liability. Each year every private self-insuring employer
shall secure incurred liabilities for the payment of compensation and the performance of its
obligations and the obligations of all self-insuring employers imposed under chapter 176 by
renewing the prior year's security deposit or by making a new deposit of security. If a new deposit
is made, it must be posted within 60 days of the filing of the self-insured employer's annual report
with the commissioner, but in no event later than July 1.
    Subd. 2. Minimum deposit. The minimum deposit is 110 percent of the private self-insurer's
estimated future liability. The deposit may be used to secure payment of all administrative and
legal costs, and unpaid assessments required by section 79A.12, subdivision 2, relating to or
arising from its or other employers' self-insuring. As used in this section, "private self-insurer"
includes both current and former members of the self-insurers' security fund; and "private
self-insurers' estimated future liability" means the private self-insurers' total of estimated future
liability as determined by an Associate or Fellow of the Casualty Actuarial Society every year for
group member private self-insurers and, for a nongroup member private self-insurer's authority to
self-insure, every year for the first five years. After the first five years, the nongroup member's
total shall be as determined by an Associate or Fellow of the Casualty Actuarial Society at least
every two years, and each such actuarial study shall include a projection of future losses during
the period until the next scheduled actuarial study, less payments anticipated to be made during
that time.
All data and information furnished by a private self-insurer to an Associate or Fellow of
the Casualty Actuarial Society for purposes of determining private self-insurers' estimated future
liability must be certified by an officer of the private self-insurer to be true and correct with
respect to payroll and paid losses, and must be certified, upon information and belief, to be
true and correct with respect to reserves. The certification must be made by sworn affidavit. In
addition to any other remedies provided by law, the certification of false data or information
pursuant to this subdivision may result in a fine imposed by the commissioner of commerce on
the private self-insurer up to the amount of $5,000, and termination of the private self-insurers'
authority to self-insure. The determination of private self-insurers' estimated future liability
by an Associate or Fellow of the Casualty Actuarial Society shall be conducted in accordance
with standards and principles for establishing loss and loss adjustment expense reserves by the
Actuarial Standards Board, an affiliate of the American Academy of Actuaries. The commissioner
may reject an actuarial report that does not meet the standards and principles of the Actuarial
Standards Board, and may further disqualify the actuary who prepared the report from submitting
any future actuarial reports pursuant to this chapter. Within 30 days after the actuary has been
served by the commissioner with a notice of disqualification, an actuary who is aggrieved by the
disqualification may request a hearing to be conducted in accordance with chapter 14. Based on
a review of the actuarial report, the commissioner of commerce may require an increase in the
minimum security deposit in an amount the commissioner considers sufficient.
In addition, the Minnesota self-insurers' security fund may, at its sole discretion and cost,
undertake an independent actuarial review or an actuarial study of a private self-insurer's
estimated future liability as defined in this subdivision. The review or study must be conducted
by an associate or fellow of the Casualty Actuarial Society. The actuary has the right to receive
and review data and information of the self-insurer necessary for the actuary to complete its
review or study. A copy of this report must be filed with the commissioner and a copy must be
furnished to the self-insurer.
Estimated future liability is determined by first taking the total amount of the self-insured's
future liability of workers' compensation claims and then deducting the total amount which is
estimated to be returned to the self-insurer from any specific excess insurance coverage, aggregate
excess insurance coverage, and any supplementary benefits or second injury benefits which are
estimated to be reimbursed by the special compensation fund. However, in the determination
of estimated future liability, the actuary for the self-insurer shall not take a credit for any
excess insurance or reinsurance which is provided by a captive insurance company which is
wholly owned by the self-insurer. Supplementary benefits or second injury benefits will not be
reimbursed by the special compensation fund unless the special compensation fund assessment
pursuant to section 176.129 is paid and the reports required thereunder are filed with the special
compensation fund. In the case of surety bonds, bonds shall secure administrative and legal costs
in addition to the liability for payment of compensation reflected on the face of the bond. In no
event shall the security be less than the last retention limit selected by the self-insurer with the
Workers' Compensation Reinsurance Association, provided that the commissioner may allow
former members to post less than the Workers' Compensation Reinsurance Association retention
level if that amount is adequate to secure payment of the self-insurers' estimated future liability,
as defined in this subdivision, including payment of claims, administrative and legal costs, and
unpaid assessments required by section 79A.12, subdivision 2. The posting or depositing of
security pursuant to this section shall release all previously posted or deposited security from any
obligations under the posting or depositing and any surety bond so released shall be returned to
the surety. Any other security shall be returned to the depositor or the person posting the bond.
As a condition for the granting or renewing of a certificate to self-insure, the commissioner
may require a private self-insurer to furnish any additional security the commissioner considers
sufficient to insure payment of all claims under chapter 176.
    Subd. 3. Type of acceptable security. The commissioner may only accept as security, and
the employer shall deposit as security, cash, approved government securities, surety bonds, or
irrevocable letters of credit in any combination. Interest or dividend income or other income
generated by the security shall be paid to the member or, at the member's direction, applied to the
member's security requirement. The current deposit shall include within its coverage all amounts
covered by terminated surety bonds. As used in this chapter, an irrevocable letter of credit shall be
accepted only if it is clean, irrevocable, and contains an evergreen clause.
(a) "Clean" means a letter of credit that is not conditioned on the delivery of any other
documents or materials.
(b) "Irrevocable" means a letter of credit that cannot be modified or revoked without the
consent of the beneficiary, once the beneficiary is established.
(c) "Evergreen clause" means one which specifically states that expiration of a letter of credit
will not take place without a 60-day notice by the insurer and one which allows the issuer to
conduct an annual review of the account party's financial condition. If prior notice of expiration is
not given by the issuer, the letter of credit is automatically extended for one year.
A clean irrevocable letter of credit shall be accepted only if it is in the form prescribed by
statute and is issued by a financial institution that is authorized to engage in banking in any of the
50 states or under the laws of the United States and whose business is substantially confined to
banking and supervised by the state commissioner of commerce or banking or similar official,
and which has a long-term debt rating by a recognized national rating agency of investment
grade or better. If no long-term debt rating is available, the financial institution must have the
equivalent investment grade financial characteristics.
    Subd. 4. Deposit of security. Surety bonds, irrevocable letters of credit, and documents
showing issuance of any irrevocable letter of credit shall be deposited with, and, except where
specified by statute, in a form approved by the commissioner.
    Subd. 5. Deposit with commissioner of finance. Securities shall be deposited on behalf of
the commissioner by the self-insured employer with the commissioner of finance or a financial
institution approved by the commissioner. Securities shall be accepted by the commissioner of
finance for deposit and shall be withdrawn only upon written order of the commissioner.
    Subd. 6. Cash deposits. Cash shall be deposited in a financial institution approved by
the commissioner and in the account assigned to the commissioner of finance. Cash shall be
withdrawn only upon written order of the commissioner.
    Subd. 7. Perfection of security. Upon the commissioner sending a request to renew, request
to post, or request to increase a security deposit, a perfected security interest is created in the
private self-insured's assets in favor of the commissioner to the extent of any then unsecured
portion of the self-insured's incurred liabilities. That perfected security interest is transferred to
any cash or securities thereafter posted by the private self-insured with the commissioner of
finance and is released only upon either of the following:
(1) the acceptance by the commissioner of a surety bond or irrevocable letter of credit for the
full amount of the incurred liabilities for the payment of compensation; or
(2) the return of cash or securities by the commissioner.
The private self-insured employer loses all right, title, and interest in and any right to control
all assets or obligations posted or left on deposit as security. In the event that a private self-insurer
is the subject of a voluntary or involuntary petition under the United States Bankruptcy Code,
title 11, or a court of competent jurisdiction has declared the private self-insurer to be bankrupt
or insolvent, or in the event of the issuance of a certificate of default by the commissioner,
the commissioner shall liquidate the deposit as provided in this chapter, and transfer it to the
self-insurer's security fund for application to the self-insured employer's incurred liability
and other current or future obligations of the self-insurers' security fund. In the event that a
private self-insurer is the subject of a voluntary or involuntary petition under the United States
Bankruptcy Code, title 11, or a court of competent jurisdiction has declared the private self-insurer
to be bankrupt or insolvent, or in the event of the issuance of a certificate of default by the
commissioner, all right, title, and interest in and any right to control all assets or obligations which
have been posted or deposited as security must be transferred to the self-insurers' security fund.
    Subd. 8.[Repealed, 1999 c 177 s 88]
    Subd. 9. Insolvency, bankruptcy, or default; utilization of security deposit. The
commissioner of labor and industry shall notify the commissioner and the security fund if the
commissioner of labor and industry has knowledge that any private self-insurer has failed to pay
workers' compensation benefits as required by chapter 176. The security deposit shall be used to
administer and pay the private self-insurers' workers' compensation or assessment obligations or
any other current or future obligations of the self-insurers' security fund if any of the following
occurs:
(1) the private self-insurer has failed to pay workers' compensation as required by chapter
176 and either:
(a) the commissioner determines that a private self-insurer is the subject of a voluntary or
involuntary petition under the United States Bankruptcy Code, title 11; or
(b) the commissioner determines that a court of competent jurisdiction has declared the
private self-insurer to be bankrupt or insolvent; or
(2) the commissioner issues a certificate of default against a private self-insurer for failure
to pay workers' compensation as required by chapter 176; or
(3) the commissioner issues a certificate of default against a private self-insurer for failure to
pay an assessment to the self-insurer's security fund when due.
    Subd. 10. Notice; obligation of fund. In the event of bankruptcy, insolvency, or certificate of
default, the commissioner shall immediately notify by certified mail the commissioner of finance,
the surety, the issuer of an irrevocable letter of credit, and any custodian of the security required
in this chapter. At the time of notification, the commissioner shall also call the security and
transfer and assign it to the self-insurers' security fund. The commissioner shall also immediately
notify by certified mail the self-insurers' security fund, and order the security fund to assume the
insolvent self-insurers' obligations for which it is liable under chapter 176. The security fund
shall commence payment of these obligations within 14 days of receipt of this notification and
order. Payments shall be made to claimants whose entitlement to benefits can be ascertained by
the security fund, with or without proceedings before the Department of Labor and Industry,
the Office of Administrative Hearings, the Workers' Compensation Court of Appeals, or the
Minnesota Supreme Court. Upon the assumption of obligations by the security fund pursuant to
the commissioner's notification and order, the security fund has the right to immediate possession
of any posted or deposited security and the custodian, surety, or issuer of any irrevocable letter
of credit or the commissioner, if in possession of it, shall turn over the security, proceeds of the
surety bond, or letter of credit to the security fund together with the interest that has accrued since
the date of the self-insured employer's insolvency. The security fund has the right to the immediate
possession of all relevant workers' compensation claim files and data of the self-insurer, and the
possessor of the files and data must turn the files and data, or complete copies of them, over to the
security fund within five days of the notification provided under this subdivision. If the possessor
of the files and data fails to timely turn over the files and data to the security fund, it is liable to
the security fund for a penalty of $500 per day for each day after the five-day period has expired.
The security fund is entitled to recover its reasonable attorney fees and costs in any action brought
to obtain possession of the workers' compensation claim files and data of the self-insurer, and for
any action to recover the penalties provided by this subdivision. The self-insurers' security fund
may administer payment of benefits or it may retain a third-party administrator to do so.
    Subd. 11. Priority. Notwithstanding anything in this chapter to the contrary, any cash,
securities, irrevocable letter of credit, specific excess or aggregate excess insurance proceeds, or
any other security deposited or posted in accordance with this section shall be used first, when
due, to pay workers' compensation claims. After that security has been exhausted, the payment of
workers' compensation claims from self-insurers' security fund members' assessments may be
made. Where the self-insurers' security fund member assessment account is used to pay workers'
compensation claims on an emergency or an interim basis, pending receipt by the self-insurers'
security fund of security which is due but not yet received, then the member assessment account
shall be reimbursed for payment from the security when it is received, and the priorities stated
above shall thereafter apply.
    Subd. 12. Duty to inform. The commissioner shall be provided with any relevant
information by the employer, any excess insurer, any third party administrator, or any issuer
of any irrevocable letter of credit, issuer of any surety bond, or custodian of any security
necessary for the commissioner to carry out the commissioner's obligations under this chapter.
The commissioner shall provide this information to the self-insurers' security fund if necessary for
the security fund to carry out its obligations under this chapter.
    Subd. 13. Discharge and release. The payment of benefits by the self-insurers' security
fund from security deposit proceeds shall release and discharge any custodian of the security
deposit, surety, any issuer of a letter of credit, and the self-insured employer from liability
to fulfill obligations to provide those same benefits as compensation, but does not release any
person or entity from any liability to the security fund for full reimbursement. Any decision or
determination made or any settlement approved by the commissioner or by an administrative law
judge under subdivision 15 shall conclusively be presumed valid and binding as to all known
claims arising out of the underlying dispute, unless an appeal is made pursuant to chapter 14. No
security shall be exchanged more often than once every 90 days.
    Subd. 14. Notice to security fund. The commissioner shall advise the self-insurers' security
fund promptly after the receipt of information indicating that a private self-insurer may be unable
to meet its compensation obligations. The commissioner shall advise the self-insurers' security
fund of all determinations and directives and orders made or issued pursuant to this section.
    Subd. 15. Dispute resolution; appeals. Disputes concerning the posting, renewal,
termination, exoneration, or return of all or any portion of the security deposit, or any liability
arising out of the posting or failure to post security, or adequacy of the security or reasonableness
of administrative costs, including legal fees, and arising between or among a surety, the issuer of
an agreement of assumption and guarantee of workers' compensation liabilities, the issuer of a
letter of credit, any custodian of the security deposit, a private self-insurer, or the self-insurers'
security fund shall be resolved by the commissioner. An appeal from the commissioner's written
decision, determination, or order may be instituted pursuant to the contested case procedures of
chapter 14. Payment of claims from the security deposit or by the self-insurers' security fund shall
not be stayed pending the resolution of the disputes unless and until the administrative law judge
issues a determination staying a payment of claims decision or determination of the commissioner
or the self-insurers' security fund.
    Subd. 16. Certificate to self-insure; revocation. If, following a private self-insurer's
bankruptcy, insolvency, or certificate of default, the commissioner calls its security and proceeds
in accordance with this section, the commissioner shall revoke the certificate to self-insure of
the private self-insurer as soon as practicable but no later than 30 days after its security has been
called. No insolvent self-insurer, as defined in section 79A.01, subdivision 4, shall be eligible to
receive another grant of authority to self-insure unless either: (1) the insolvent self-insurer's posted
security was sufficient to pay all direct and indirect administrative and professional expenses of
the security fund related to the insolvent self-insurer, and all losses, including estimated future
liability, allocated loss expense, and unallocated loss expense of the insolvent self-insurer; or (2)
the insolvent self-insurer pays the security fund an amount equal to all such losses and expenses
the security fund has paid or will be required to pay related to this insolvent self-insurer.
History: 1988 c 674 s 4; 1992 c 510 art 5 s 7; 1993 c 210 s 1; 1995 c 231 art 2 s 24,25;
2000 c 483 s 24-27; 2001 c 215 s 38; 2002 c 330 s 31; 2003 c 112 art 2 s 50; 2005 c 132 s
30,31; 2006 c 255 s 69