Senate Bill No. 123

(By Senators Tomblin (Mr. President) and Sprouse
By Request of the Executive)
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[Introduced January 13, 2003; referred to the Committee on Economic Development; and then to the Committee on the Judiciary.]

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A BILL to amend and reenact section nine, article two, chapter twenty-three of the code of West Virginia, one thousand nine hundred thirty-one, as amended; to amend and reenact section one, article three of said chapter; and to further amend said chapter by adding thereto a new article, designated article four-d, all relating to workers' compensation generally; providing for the elimination of the second injury and second injury reserve fund for all new claims and/or for claims where eligibility for permanent total disability has not yet been determined as of the enactment of this legislation; providing for the administration of claims by employers authorized to self-insure their obligations; promulgation of rules by the commissioner; establishing special account known as workers' compensation deficit reduction account; transferring certain assets of the workers' compensation division to the workers' compensation deficit reduction account; transferring certain workers' compensation claim liabilities to the workers' compensation deficit reduction account; providing funding of payments for claim liabilities; providing for reduction of the fund deficit over an established period of time; transferring of interest earned to the workers' compensation deficit reduction account; authorizing the workers' compensation division to borrow from workers' compensation fund assets to meet immediate claim and operating expenses; requiring the workers' compensation division to provide the commissioner annually an estimate of the expected claim payments from the fund; and establishing an assessment process to ensure collection of sufficient income.

Be it enacted by the Legislature of West Virginia:
That section nine, article two, chapter twenty-three of the code of West Virginia, one thousand nine hundred thirty-one, as amended, be amended and reenacted; that section one, article three of said chapter be amended and reenacted; and that said chapter be further amended by adding thereto a new article, designated article four-d, all to read as follows:
ARTICLE 2. EMPLOYERS AND EMPLOYEES SUBJECT TO CHAPTER; EXTRATERRITORIAL COVERAGE.

§23-2-9. Election of employer to be self-insured and to provide own system of compensation; mandatory participation in second injury reserve; exceptions; catastrophe coverage; self administration; regulation of self-insurers.

(a) Notwithstanding any provisions of this chapter to the contrary, the following types of employers may apply for permission to self-insure their workers' compensation risk including their risk of catastrophic injuries. Except as provided for in subsection (e) of this section, no employer may self-insure its second injury risk;
(1) The types of employers are:
(A) Any employer who is of sufficient capability and financial responsibility to ensure the payment to injured employees and the dependents of fatally injured employees of benefits provided for in this chapter at least equal to value to the compensation provided for in this chapter; or
(B) Any employer of such capability and financial responsibility who maintains its own benefit fund or system of compensation to which its employees are not required or permitted to contribute and whose benefits are at least equal to value to those provided for in this chapter.
(2) In order to be approved for self-insurance status, the employer must:
(A) Have an effective health and safety program at its workplace; and
(B) Provide security or bond in an amount and/or form to be determined by the division with concurrence of the compensation programs performance council, and which shall balance the employers financial condition based upon an analysis of its audited financial statements and the full accrued value of future claim liability based upon generally accepted actuarial and accounting principles of the employer's existing and expected liability; and
(C) Security or bond which may be in such form as the commissioner and the compensation programs performance council created pursuant to section one, article three, chapter twenty-one-a of this code permits.
(3) Any employer whose record upon the books of the division shows a liability, as determined on an accrued basis against the workers' compensation fund incurred on account of injury to or death of any of the employer's employees, in excess of premiums paid by such employer, shall not be granted the right, individually and directly or from such benefit funds or system of compensation, to be self-insured until the employer has paid into the workers' compensation fund the amount of such excess of liability over premiums paid, including the employer's proper proportion of the liability incurred on account of catastrophes or second injuries as defined in section one, article three of this chapter and charged against such fund.
(4) Upon a finding that the employer has met all of the requirements of this section, the employer may be permitted self-insurance status. An annual review of each self-insurer's continuing ability to meets its obligations and the requirements of this section shall be made by the workers' compensation division. This review shall include a redetermination of the amount of security or bond which shall be provided by the employer. Failure to provide any new amount or form of security or bond may, in the division's discretion, cause the employer's self-insurance status to be terminated. The security or bond provided by employers prior to the second day of February, one thousand nine hundred ninety five, shall continue in full force and effect until the performance of the employer's annual review and the entry of any appropriate decision on the amount or form of the employer's security or bond.
(5) Whenever a self-insured employer shall furnish security or bond, including replacement and amended bonds and other securities, as security to ensure the employer's or guarantor's payment of all obligations under this chapter for which the security or bond was furnished, such security or bond shall be in the most current form or forms approved and authorized by the division for use by the employer or its guarantors, surety companies, banks, financial institutions or others in its behalf for such purpose.
(b) Each self-insured employer shall, on or before the last day of the first month of each quarter, file with the division a certified statement of the total gross wages and earnings of all of the employer's employees subject to this chapter for the preceding quarter. Each self-insured employer shall pay into the workers' compensation fund as portions of its self-insured premium tax:
(1) A sum sufficient to pay the employer's proper portion of the expense of the administration of this chapter;
(2) A sum sufficient to pay the employer's proper portion of the expense of claims for those employers who are in default in the payment of premium taxes or other obligations;
(3) A sum sufficient to pay the employer's fair portion of the expenses of the disabled workers' relief fund; and
(4) A sum sufficient to maintain as an advance deposit an amount equal to the previous quarter's payment of each of the foregoing three sums; and
(5) A sum sufficient to pay the employer's deficit amortization assessment.
(c) The required payments to the employer's injured employees or dependents of fatally injured employees as benefits provided for by this chapter including second injury benefits and catastrophe injury benefits, if applicable, shall constitute the remaining portion of the self-insurer's premium tax.
(1) If an employer defaults in the payment of any portion of its self-insured premium taxes, the division may, in an appropriate case, determine the full accrued value based upon generally accepted actuarial and accounting principles of the employer's liability including the costs of all awarded claims and of all incurred but not reported claims. The amount so determined may then, in an appropriate case, be assessed against the employer and the division may demand and collect the present value of such defaulted tax liability. Interest shall accrue upon the demanded amount as provided for in section thirteen of this article until the premium tax is fully paid. Payment of all amounts then due to the division and to the employer's employees is a sufficient basis for reinstating the employer to good standing with the fund.
(2) Such premium tax assessments are special revenue taxes under and according to the provisions of state workers' compensation law and are deemed to be tax claims, as priority claims or administrative expense claims according to those provisions under the law provided in the United States bankruptcy code. In addition, as the same was previously intended by the prior provisions of this section, this amendment and reenactment is for the purpose of clarification of the taxing authority of the workers' compensation division.
(d) Each self-insured employer shall elect whether or not to self-insure its catastrophic injury risk as defined in subsection (C), section one, article three of this chapter. Nothing in this chapter prohibits the self-insured employer from insuring its catastrophic risk through a policy of excess insurance obtained through a private insurance carrier.
(1) If the employer does not elect to self-insure its catastrophic risk, then the employer shall pay premium taxes for this coverage in the same manner as is provided for in section four of this article and in rules adopted to implement such section. Until such rules are adopted, the employer's premium taxes shall be determined in accordance with the provisions of chapter one hundred seventy-four, acts of the Legislature, one thousand nine hundred ninety one. If the employees of such an employer suffer injury or death from a catastrophe, then the payment of the resulting benefits shall be made from the catastrophe reserve of the surplus fund provided for in subsection (b), section one, article three of this chapter. Such an employer's catastrophic liability shall not be included in the liabilities upon which the employer's security or bond is determined in subsection (a) of this section.
(2) If an otherwise self-insured employer elects not to self insure its catastrophic risk, then the security or bond required in subsection (a) of this section shall include the liability for the catastrophic risk.
(e)(1) Any self-insured employer who was, prior to the second day of February, one thousand nine hundred ninety-five, permitted to self-insure its second injury risk as defined in subsection (d), section one, article three of this chapter, may elect to continue to self-insure its second injury risk for so long as it meets the requirements of this chapter. Any employer which was previously permitted to self-insure its second injury risk who then elects to terminate that self-insurance status shall not thereafter be permitted to self-insure its second injury risk.
(e) For those employers previously permitted to self-insure their second injury risks, the amount of the security or bond required in subsection (a) of this section shall include the liability for that risk. All self-insured second injury benefits provided for by this chapter which are awarded to the employer's employees which constitute second injury life awards shall then be paid by the employer and not the division.
(3)(A) For those employers which do not self-insure their second injury risk, the premium tax for second injury coverage shall be determined by the rules which implement section four of this article. Such rules may provide for merit rate adjustments of the amount of premium tax to be paid based upon the accrued costs to be determined under generally accepted accounting principles of second injury benefits paid and to be paid to the employer's employees. Until such rules are adopted, the employer's premium taxes shall be determined in accordance with the provisions of chapter one hundred seventy-four, acts of the Legislature, one thousand nine hundred ninety-one.
(B) In case there is a second injury to an employee of any employer making such second injury premium tax payments, the employer shall be liable to pay compensation or expenses arising from or necessitated by the second injury and such compensation and expenses shall be charged against the employer. After the completion of these payments, the employee shall be paid the remainder of the compensation and expenses that would be due for permanent total disability from the second injury reserve of the surplus fund. Such additional compensation and expenses shall not be charged against such employer.
(f) The division, with concurrence of the compensation programs performance council, may create, implement, establish and administer a perpetual self-insurance security risk pool of funds, sureties, securities, insurance provided by private insurance carriers or other states' programs, and other property, of both real and personal properties, to secure the payment of obligations of self-insured employers. If such pool is created, the division with concurrence of the compensation programs performance council shall adopt rules for the organizational plan, participation, contributions and other payments which may be required of self-insured employers under this section. The council in order to create and fund such a risk pool, may adopt a rule authorizing the division to assess each self-insured employer in proportion according to each employer's portion of the unsecured obligation and liability or to assess according to some other method provided for by rule which shall properly create and fund such risk pool to serve the needs of employees, employers, and the workers' compensation fund by providing adequate security. The council, in funding such security risk pool, may authorize the division to use any assessments, premium tax assessments and revenues and appropriations as may be made available to the division.
(g) Any self-insured employer which has had a period of inactivity due to the nonemployment of employees which results in its reporting of no wages on quarterly reports to the division for a period of four or more consecutive quarters shall have its status at the division inactivated and shall be required to apply for reactivation to status as a self-insured employer prior to its reemployment of employees. Despite such inactivation, the self-insured employer shall continue to make payments on all awards for which it is responsible. Upon application for reactivation of its status as an operating self-insured employer, the employer must document that it meets the eligibility requirements needed to maintain self-insured status under this section and any rules adopted to implement it. If the employer is unable to requalify and obtain approval for reactivation, the employer shall, effective with the date of employment of any employee, become a subscriber to the workers' compensation fund, but shall continue to be a self-insurer as to the prior period of active status and to furnish security or bond and meets its prior self-insurance obligations.
(h) In any case under the provisions of this section that shall require the payment of compensation or benefits by an employer in periodical payments and the nature of the case makes it possible to compute the present value of all future payments, then the division may, in its discretion, at any time compute and permit to be paid into the workers' compensation fund an amount equal to the present value of all unpaid future payments on the award or awards for which liability exists in trust. Thereafter, such employer shall be discharged from any further portion of premium tax liability upon such award or awards and payment of the award or awards shall be assumed by the division.
(i) Any employer subject to this chapter, who shall elect to carry the employer's own risk by being self-insured and who has complied with the requirements of this section and of any applicable rules, shall not be liable to respond in damages at common law or by statute for the injury or death of any employee, however occurring, after such election's approval and during the period that the employer is allowed to carry the employer's own risk.
(j) Notwithstanding any provisions in this chapter to the contrary, self-insured employers shall, effective the first day of July, two thousand three, administer their own claims. The commissioner shall, with concurrence of the compensation programs performance council, develop and publish such rules as necessary to regulate the performance of employers granted permission to self-insure their obligations under this chapter. Such rules shall be promulgated at least thirty days prior to the first day of July, two thousand three.
(k) An employer granted permission to self-insure under this chapter shall at all times be bound by and comply with all of the provisions of this chapter, and with such rules relating to the self-insurance claims administration as may be promulgated by the commissioner. Self-insured employers and/or their representatives shall be audited on a basis and a frequency to be determined by the commissioner, but in no instance less often than biannually. Repeated violations of the provisions of this chapter shall be cause for the termination of the authority for an employer to self-insure its obligations under this chapter.
ARTICLE 3. WORKERS' COMPENSATION FUND.
§23-3-1. Compensation fund; surplus fund; catastrophe and catastrophe payment defined; compensation by employers.

 (a) The commissioner shall establish a workers' compensation fund from the premiums and other funds paid thereto by employers, as herein provided, for the benefit of employees of employers who have paid the premiums applicable to such employers and have otherwise complied fully with the provisions of section five, article two of this chapter, and for the benefit, to the extent elsewhere in this chapter set out, of employees of employers who have elected, under section nine, article two of this chapter, to make payments into the surplus fund hereinafter provided for, and for the benefit of the dependents of all such employees, and for the payment of the administration expenses of this chapter.
(b) A portion of all premiums that shall be paid into the workers' compensation fund by subscribers not electing to carry their own risk under section nine, article two of this chapter, shall be set aside to create and maintain a surplus fund to cover the catastrophe hazard the second injury hazard, and all losses not otherwise specifically provided for in this chapter. The percentage to be set aside shall be determined pursuant to the rules adopted to implement section four, article two of this chapter and shall be in an amount sufficient to maintain a solvent surplus fund.
(c) A catastrophe is hereby defined as an accident in which three or more employees are killed or receive injuries, which, in the case of each individual, consist of: Loss of both eyes or the sight thereof; or loss of both hands or the use thereof; or loss of both feet or the use thereof; or loss of one hand and one foot or the use thereof. The aggregate of all medical and hospital bills and other costs, and all benefits payable on account of a catastrophe is hereby defined as "catastrophe payment". In case of a catastrophe to the employees of an employer who is an ordinary premium-paying subscriber to the fund, or to the employees of an employer who, having elected to carry the employer's own risk under section nine, article two of this chapter, has heretofore elected, or may hereafter elect, to pay into the catastrophe reserve of the surplus fund under the provisions of that section, then the catastrophe payment arising from such catastrophe shall not be charged against, or paid by, such employer but shall be paid from the catastrophe reserve of the surplus fund.
(d)(1) If For all new claims filed on or after the first day of July, two thousand three, and/or for claims where eligibility for permanent total disability has not yet been determined as of the first day of July, two thousand three, the following provisions relating to second injury are not applicable. For claims filed before the date specified above if, an employee who has a definitely ascertainable physical impairment, caused by a previous occupational injury, occupational pneumoconiosis or occupational disease, irrespective of its compensability, becomes permanently and totally disabled through the combined effect of such previous injury and a second injury received in the course of and as a result of his or her employment, the employer shall be chargeable only for the compensation for such second injury: Provided, That in addition to such compensation, and after the completion of the payments therefore, the employee shall be paid the remainder of the compensation that would be due for permanent total disability out of a special reserve of the surplus fund, known as the second injury reserve created in the manner hereinbefore set forth. The procedure by which the claimant's request for a permanent total disability award under this section is ruled upon shall require that the issue of the claimant's degree of permanent disability first be determined. Thereafter, by means of a separate order, a decision shall be made as to whether the award shall be a second injury award under this subsection or a permanent total disability award to be charged to the employer's account or to be paid directly by the employer if the employer has elected to be self-insured under the provisions of section nine, article two of this chapter.
(2) If an employee of an employer, where the employer has elected to carry his or her own risk under section nine, article two of this chapter, and is permitted not to make payments into the second injury reserve of surplus fund under the provisions of said section, has a definitely ascertainable physical impairment caused by a previous occupational injury, occupational pneumoconiosis or occupational disease, irrespective of its compensability, and becomes permanently and totally disabled from the combined effect of such previous injury and a second injury received in the course of and as a result of his or her employment, the employer shall, upon order of the division, compensate the said employee in the same manner as if the total permanent disability of the employee had resulted from a single injury while in the employ of such employer.
(e) Employers electing, as herein provided, to compensate individually and directly their injured employees and their fatally injured employees' dependents shall do so in the manner prescribed by the division, and shall make all reports and execute all blanks, forms and papers as directed by the division, and as provided in this chapter.
ARTICLE 4D. WORKERS' COMPENSATION DEFICIT REDUCTION ACCOUNT.
§23-4D-1. Purpose.
The purpose of this article is to establish a fund for the sole purpose of providing a method to account for and pay all liabilities related to claims that occurred before the first day of July, two thousand three, to provide a revenue source to pay such claim liabilities, and to provide for a reduction of unfunded liabilities over time.
§23-4D-2. Legislative findings.
(a) The Legislature hereby finds and declares that there is a deficit in the workers' compensation fund resulting from the failure of premiums charged employers to produce sufficient revenues to meet the obligation for claim payments and administrative costs of the division;
(b) The Legislature further finds that this deficit has come into existence over time without design and unexpectedly and that the magnitude of this deficit is so great that it imposes a threat to the long-term viability of the fund, while hampering economic development efforts in the state.
§23-4D-3. Creation of workers' compensation deficit reduction account; transfer of assets.

(a) There is hereby created a special account in the state treasury to be known as the workers' compensation deficit reduction account. All assets, less the premium deposits of regular subscribing employers, that exist as of the first day of July, two thousand three, in the workers' compensation fund and the catastrophe fund established under section one, article three of this chapter, and the disabled workers' relief fund established under section one, article four-a of this chapter, shall be transferred to the workers' compensation deficit reduction account. The moneys deposited in such account are to be invested and managed by the state investment management board.
(b) All liabilities related to unpaid claims for all years prior to the first day of July, two thousand three, shall be paid out of the workers' compensation deficit reduction account. The workers' compensation deficit reduction account shall exist solely for the purpose of receiving funds and making payments related to liabilities on claims that occurred prior to the first day of July, two thousand three. The assets contained in and assessment income received by the fund shall not be used for any other purposes: Provided, That the division shall be permitted to borrow from the workers' compensation deficit reduction account sufficient funds to meet the short term obligations on claims occurring on or after the first day of July, two thousand three: Provided, however, That the funds so borrowed will be paid into the workers' compensation deficit reduction account with interest accrued at the simple rate of six percent per annum by no later than the thirtieth day of June, two thousand four.
§23-4D-4. Payment of claim benefits.
As payments of any type become due on claims that occurred prior to the first day of July, two thousand three, the commissioner shall request payment of the same out of the workers' compensation deficit reduction account. Upon request of the commissioner, the investment management board shall provide the commissioner and the compensation programs performance council an accounting of the income, to include investment income.
§23-4D-5. Funding.
(a) Annually not later than the thirtieth day of April, the division shall provide the commissioner the anticipated claim payments for the fiscal year beginning on the first day of July of the same year on all claims occurring prior to first day of July, two thousand three. The commissioner and the compensation programs performance council shall develop a method and level of assessment to develop sufficient income to meet the anticipated claim payments for the following fiscal year. Included in the assessments shall be an additional sum sufficient to fund a reduction in the deficit to actuarially retire the deficit by the year two thousand twenty-five.
(b) In calculating rates for claims occurring on or after the first day of July, two thousand three, and each fiscal year thereafter, the division shall, using insurance industry accepted rate-making practices, provide to the commissioner and the compensation programs performance council for their approval rates by industry classification sufficient to cover all future costs of claims occurring for the subsequent fiscal year and the administration costs of the division. Until such time that the division accumulates a surplus over the projected unpaid liabilities of all claims occurring on or after the first day of July, two thousand three, equal to fifty percent of annual premium income, no credit for investment income shall enter into the rate-making process.


NOTE: The purpose of this bill is to eliminate second injury and the second injury reserve fund for all new claims and/or for claims where eligibility for permanent total disability has not yet been determined as of the enactment of this legislation. In addition, this bill grants self-insured employers the authority to make disability payments, and provides the commissioner with the authority to promulgate rules for such administration. Also, this bill segregates the workers' compensation claim liabilities on all claims that occurred prior to July 1, 2003. The exclusive purpose of the workers' compensation deficit reduction fund will be to account for and fund payments for claim liabilities in the fund, and to reduce the fund deficit over an established period of time.

Strike-throughs indicate language that would be stricken from the present law, and underlining indicates language that would be added.

§§23-4D is new; therefore, strike-throughs and underscoring have been omitted.