By Crabb H.B. No. 2670
A BILL TO BE ENTITLED
1-1 AN ACT
1-2 relating to the provision of certain workers' compensation coverage
1-3 to certain local government employees.
1-4 BE IT ENACTED BY THE LEGISLATURE OF THE STATE OF TEXAS:
1-5 SECTION 1. Subtitle C, Title 5, Local Government Code, is
1-6 amended by adding Chapter 175 to read as follows:
1-7 CHAPTER 175. TEXAS POLITICAL
1-8 SUBDIVISIONS WORKERS' COMPENSATION
1-9 POOLING STANDARDS ACT
1-10 Sec. 175.001. SHORT TITLE. This Chapter may be cited as the
1-11 Texas Political Subdivisions Workers' Compensation Pooling
1-12 Standards Act.
1-13 Sec. 175.002. PURPOSE. The purpose of this Chapter is to:
1-14 (1) provide standards of operation for a joint
1-15 insurance fund, hereinafter referred to as "pool," established by
1-16 political subdivisions under Texas Labor Code Annotated, Section
1-17 504.016.
1-18 (2) foster and promote sound business practices for
1-19 such pools;
1-20 (3) recognize and protect the political subdivisions'
1-21 investment in such pools and preserve its economic security; and
1-22 (4) promote the efficiency and effectiveness of such
1-23 pools to the greatest extent possible.
2-1 Sec. 175.003. SUPERVISION AND ADMINISTRATION OF POOLS. (a)
2-2 A pool's board of trustees that has created a risk pool to provide
2-3 workers' compensation coverage may provide coverage for the pool's
2-4 staff, including persons with whom the pool has contracted to
2-5 perform staff functions.
2-6 (b) A group of political subdivisions that create a risk
2-7 pool shall provide for the selection of a board of trustees to
2-8 supervise the operation of the pool. A member or employee of the
2-9 board is not liable with respect to any claims for which coverage
2-10 is provided by the pool or brought against any member of the pool.
2-11 (c) No officer or employee of an entity that has a service
2-12 contract with a pool shall be a trustee of that pool.
2-13 (d) The process of selecting trustees shall be set forth in
2-14 the pool's governing documents.
2-15 (e) A pool may be administered by a staff employed by the
2-16 pool or by a third-party contractor.
2-17 (f) Before entering into a contract with a person to be a
2-18 third party contractor of the pool, the trustees shall require that
2-19 person to submit information necessary for the trustees to evaluate
2-20 the background, experience, and financial qualifications and
2-21 solvency of that person. The information submitted by a
2-22 prospective contractor, other than an insurance company, must
2-23 disclose:
2-24 (1) any ownership interest that the prospective
2-25 contractor has in an insurance company, or other provider of
3-1 services or coverages of the pool or the contractor; and
3-2 (2) any commission or other benefit that the
3-3 prospective contractor will receive for purchasing services or
3-4 coverage for the pool.
3-5 Sec. 175.004. GOVERNING DOCUMENTS. (a) A pool's governing
3-6 documents, and any revisions thereto, shall be filed with the
3-7 Secretary of State and shall be made available to all pool members.
3-8 The governing documents must be filed within 90 days of adoption by
3-9 the board of trustees. Amendments must be filed within 90 days
3-10 from the date of adoption by the board of trustees.
3-11 (b) A pool's governing documents shall include:
3-12 (1) membership eligibility criteria, including
3-13 withdrawal provisions, expulsion provisions, and member
3-14 obligations;
3-15 (2) provision for an annual budget;
3-16 (3) procedures through which the trustees are
3-17 selected;
3-18 (4) procedures for handling catastrophic losses;
3-19 (5) powers and duties of the board of trustees,
3-20 including claims settlements, claims reserves, maintenance of
3-21 minutes of meetings, and selection of service contractors;
3-22 (6) the pool's investment and cash management
3-23 policies;
3-24 (7) procedures for establishing contributions and
3-25 maintaining reserves;
4-1 (8) insolvency procedures; and
4-2 (9) dissolution procedures.
4-3 (c) If the Secretary of State determines that a pool has
4-4 failed to file the governing documents or amendments thereto, the
4-5 secretary shall immediately mail a notice to the pool and the
4-6 appropriate attorney for the state. If the pool files the
4-7 documents within ten days after the date the notice is mailed, the
4-8 secretary shall notify the appropriate attorney for the state. If
4-9 the pool fails to comply with the notification, the pool is civilly
4-10 liable to the state for the sum of $5,000.00.
4-11 Sec. 175.005. TRUSTEE TRAINING. (a) Trustees for a risk
4-12 pool must have at least 8 hours of combined professional
4-13 instruction in one or more of the following areas:
4-14 (1) laws governing the establishment and operation of
4-15 risk pools created by political subdivisions;
4-16 (2) principles of self-insurance and risk pooling,
4-17 including actuarial and underwriting principles and investment
4-18 principles;
4-19 (3) general fiduciary duties of trustees;
4-20 (4) principles of reading and understanding financial
4-21 statements; or
4-22 (5) other relevant topics.
4-23 (b) Not later than the 180th day after the date of selection
4-24 as trustee, or after the effective date of this chapter, whichever
4-25 is the later date, a trustee must complete the training required by
5-1 Subsection (a).
5-2 (c) Each year thereafter, each trustee must receive at least
5-3 eight hours of continuing training in areas related to pool
5-4 operation.
5-5 Sec. 175.006. FINANCIAL AUDIT AND ACTUARIAL EVALUATION. (a)
5-6 The trustees of the pool shall have the fiscal account and records
5-7 of the risk pool audited annually by a nationally recognized
5-8 independent auditor.
5-9 (b) The person who performs the audit must be a certified
5-10 public accountant.
5-11 (c) The independent audit shall:
5-12 (1) cover a pool's fiscal year;
5-13 (2) be in accordance with generally accepted
5-14 accounting practices (GAAP), and conform to accounting standards as
5-15 promulgated by the American Institute of Certified Public
5-16 Accountants including the pronouncements by the Financial
5-17 Accounting Standards Board (FASB) and the Governmental Accounting
5-18 Standards Board (GASB) or their successors;
5-19 (3) include a description of the excess insurance
5-20 and/or reinsurance structure including limits, sublimits, aggregate
5-21 limits, retentions and other special provisions;
5-22 (4) include a description of the excess insurers
5-23 and/or reinsurers, and all financial and solvency ratings of the
5-24 insurers and reinsurers.
5-25 (d) Annual audits shall be filed with the Secretary of State
6-1 and shall be distributed to all pool members.
6-2 (e) The trustees of the pool shall have an actuarial
6-3 evaluation performed annually of the claims reserves and
6-4 liabilities of the risk pool.
6-5 (f) The person who performs the actuarial evaluation must be
6-6 a Fellow of the Casualty Actuarial Society (F.C.A.S.).
6-7 (g) The actuarial review shall describe underwriting and
6-8 rating procedures, and shall include an examination of and
6-9 recommendations concerning the amount of reserves required to pay
6-10 all known and incurred but not reported claims and associated
6-11 expenses.
6-12 (h) The actuarial review shall be filed with the Secretary
6-13 of State and be available to all pool members.
6-14 (i) If the Secretary of State determines that a pool has
6-15 failed to file the audit and actuarial review required, the
6-16 secretary shall immediately mail a notice to the pool and the
6-17 appropriate attorney for the state. If the the pool files the
6-18 documents within ten days after the date the notice is mailed, the
6-19 secretary shall notify the appropriate attorney for the state. If
6-20 the pool fails to comply with the notification, the pool is civilly
6-21 liable to the state for the sum of $5,000.00.
6-22 Sec. 175.007. INVESTMENTS. (a) The trustees of a risk pool
6-23 shall invest the pool's money in accordance with the Public Funds
6-24 Investment Act of 1987 to the extent that law can be made
6-25 applicable.
7-1 (b) In addition to investments authorized under the Public
7-2 Funds Investment Act of 1987, the trustees of a pool may invest the
7-3 pool's money in any investment authorized by the Texas Trust Code.
7-4 (c) The trustees of a risk pool shall adopt a written
7-5 investment and cash management policy and shall review it annually.
7-6 Sec. 175.008. CLAIMS TRACKING AND REVIEWS. (a) A pool must
7-7 maintain a management information system with the capability of
7-8 tracking all claims and providing status reports to pool members.
7-9 (b) At least once every three years, a pool shall conduct a
7-10 review of claims processing.
7-11 (c) The review must be performed by qualified individuals
7-12 who are independent of the pool and any claims contractors.
7-13 Sec. 175.009. CONTRACTORS/THIRD-PARTY ADMINISTRATORS. (a)
7-14 Before entering into a third-party administrator contract with any
7-15 person or entity, a pool shall require that person or entity to
7-16 submit information necessary for the trustees to evaluate the
7-17 background, experience, qualifications, and solvency of that person
7-18 or entity.
7-19 (b) The information submitted by a prospective third-party
7-20 administrator must disclose:
7-21 (1) any ownership interest that the prospective
7-22 third-party administrator has in any insurance company or other
7-23 provider of services or coverages to the pool or to the prospective
7-24 third-party administrator; and
7-25 (2) any commission or other benefit that the
8-1 prospective third-party administrator will receive for purchasing
8-2 services or coverages for the pool.
8-3 (c) A contract between a pool and a third-party
8-4 administrator must include:
8-5 (1) a complete description of services to be provided;
8-6 (2) payment for services;
8-7 (3) the procedures for cancelling the contract;
8-8 (4) the method for indemnifying the pool in cases
8-9 involving third-party administrator's negligence;
8-10 (5) the authority of the pool to review and evaluate
8-11 the services provided by the third-party administrator; and
8-12 (6) a requirement that the third-party administrator
8-13 report periodically to the pool.
8-14 Sec. 175.010. INSOLVENCY. (a) For the purposes of this
8-15 chapter, "insolvency" shall mean the inability of a risk pool to
8-16 meet its obligations to pay current claims costs as they become due
8-17 in the usual course of business.
8-18 (b) The provisions of this Chapter shall have no impact on
8-19 the responsibility of an individual political subdivision for its
8-20 claims, losses, associated program expenses, and any other
8-21 obligations to the pool or its members.
8-22 (c) The trustees of the pool shall determine whether or not
8-23 the pool is insolvent in accordance with the definition of
8-24 insolvency found in Subsection (a). If it is determined by the
8-25 trustees that a risk pool is insolvent, the trustees shall declare
9-1 the pool insolvent and notify each member or participating
9-2 political subdivision of their determination. Such notification
9-3 shall inform each pool member of its responsibility to pay
9-4 outstanding current and future claims against the member.
9-5 Thereafter, each pool member shall fulfill that responsibility.
9-6 (d) If a pool is declared insolvent by the trustees, the
9-7 pool shall terminate its affairs in accordance with the insolvency
9-8 provision of its governing documents.
9-9 (e) The governing documents of a risk pool shall include a
9-10 provision for dealing with insolvency of the pool. The insolvency
9-11 provision shall provide general direction for cessation of
9-12 underwriting operations; termination of the affairs of the pool;
9-13 and the disposition of the pool's assets, debts, obligations,
9-14 losses, and other liabilities.
9-15 Sec. 175.011. EXCESS LOSS COVERAGE AND REINSURANCE. A risk
9-16 pool may purchase excess loss coverage or reinsurance, if available
9-17 at a reasonable cost to insure a pool against financial losses that
9-18 the pool determines might place the solvency of the pool in
9-19 financial jeopardy.
9-20 Sec. 175.012. APPLICATION OF CERTAIN LAWS. A risk pool
9-21 subject to this chapter is not insurance or an insurer under the
9-22 Insurance Code and other laws of this state, and the State Board of
9-23 Insurance does not have jurisdiction over a pool created under this
9-24 chapter. A pool or its agents may not represent to persons who
9-25 apply for coverage or who are covered by the pool that the coverage
10-1 is insurance, unless the coverage is by contract purchased from an
10-2 insurance company authorized to do business in Texas.
10-3 Sec. 175.013. SUBROGATION. The payor of workers'
10-4 compensation benefits, whether a political subdivision, group of
10-5 political subdivisions, or pool, shall be subrogated to the
10-6 employees' right of recovery for personal injuries caused by the
10-7 conduct of a third party as provided under Section 111.059 of the
10-8 Human Resources Code.
10-9 Sec. 175.014. MISCELLANEOUS PROVISIONS. Notwithstanding any
10-10 other provisions of law, files and records relating to individual
10-11 claims and reserves for such claims shall be confidential.
10-12 SECTION 2. The importance of this legislation and the
10-13 crowded condition of the calendars in both houses create an
10-14 emergency and an imperative public necessity that the
10-15 constitutional rule requiring bills to be read on three several
10-16 days in each house be suspended, and this rule is hereby suspended.
10-17 COMMITTEE AMENDMENT NO. 1
10-18 Amend H.B. 2670 as follows:
10-19 (1) On Page 9, line 20, delete the word "not"
10-20 (2) On Page 9, beginning on line 21 and continuing on line
10-21 22, delete the phrase "State Board of Insurance" and replace it
10-22 with "Texas Department of Insurance"
10-23 (3) On Page 9, line 22, delete the word "not"
10-24 (4) On Page 9, line 23, delete the phrase "may not" and
10-25 replace it with the word "shall"
11-1 (5) On Page 9, line 25, delete the "," and replace it with a
11-2 "."
11-3 (6) On Page 9, beginning on line 25 and continuing through
11-4 line 27, delete the phrase "unless the coverage is by contract
11-5 purchased from an insurance company authorized to do business in
11-6 Texas."
11-7 Brimer