DWC Proposes Rules for Withdrawal from Self-Insurance

The Division of Workers’ Compensation has proposed rules that allow a certified self-insurer to withdraw from the SI program by obtaining commercial insurance to cover its self-insured losses. The Commissioner of Workers’ Compensation must approve the proposed plan to insure or reinsure the covered losses.

The proposed new and amended rules would be located in Chapter 114 of the Texas Administrative Code. The proposed changes are intended to implement House Bill 1989 from the 2017 legislative session.

House Bill 1989 amended the Texas Labor Code to specify that an adequate program required to be established by a certified self-insurer withdrawing from self-insurance under the Workers’ Compensation Act to cover certain losses includes a program in which the self-insurer has insured or reinsured all workers’ compensation obligations incurred by the self-insurer with an authorized insurer under an agreement approved by the commissioner of workers’ compensation.

Under the Act, Certified Self-Insureds are considered workers’ compensation insurance carriers and are obligated to provide the same workers’ compensation benefits as those that insurance companies are required to provide. The division issues certificates of authority to self-insure to CSIs that are renewed annually. CSIs may withdraw from self-insurance pursuant to Labor Code §407.045(a) by establishing “an adequate program to pay all incurred losses” (Adequate Program) approved by the commissioner. Currently, a withdrawn CSI continues to be responsible for administration and payment of all claims incurred while they were an active CSI. Additionally, a withdrawn CSI remains a certified self-insurer as defined by §114.2(b)(3), as the definition includes private employers that have “currently or for a prior period” been granted a certificate of authority to self-insure. To date, the commissioner has only approved Adequate Programs requiring ongoing claims administration, and the division has retained the security deposit from withdrawn CSIs with ongoing claims administration.

HB 1989 added §407.045(a-1) that provides that an Adequate Program required for withdrawal from certified self-insurance includes “a program in which the certified self-insurer has insured or reinsured all workers’ compensation obligations incurred by the self-insurer with an authorized insurer under an agreement that is filed with and approved in writing by the commissioner.” The division anticipates that the Texas Department of Insurance (TDI) will file a separate manual rule amendment to allow for and define an endorsement to a standard workers’ compensation policy through which a CSI can insure or reinsure with an authorized insurer all workers’ compensation obligations incurred by the CSI prior to a proposed withdrawal date. The proposed amendment to §114.2(b)(3) and new §114.16 implement HB 1989 by amending the definition of certified self-insurer, describing the TDI endorsement to the standard workers’ compensation policy required to withdraw from self-insurance with an insuring agreement, and providing the standards required of an insurance carrier seeking to assume workers’ compensation liabilities from a CSI withdrawing with an insuring agreement. The proposed new section also includes an affirmation of the commissioner’s discretion to review previously approved CSI withdrawals and, notwithstanding 28 TAC §114.4, modify the security deposit obligations.

Under the new rules, the policy through which the claims of the withdrawing CSI are assumed may not be cancelled by either party. This is to ensure that the withdrawing CSI’s injured employees will not be left without workers’ compensation coverage and benefits.