2005 -- S 1143 SUBSTITUTE A

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LC03339/SUB A

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STATE OF RHODE ISLAND

IN GENERAL ASSEMBLY

JANUARY SESSION, A.D. 2005

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A N A C T

RELATING TO INSURANCE -- WORKERS' COMPENSATION INSURANCE FUND

     Introduced By: Senators Badeau, Ruggerio, Paiva-Weed, McCaffrey, and DaPonte

     Date Introduced: June 01, 2005

     Referred To: Senate Labor

It is enacted by the General Assembly as follows:

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     SECTION 1. Chapter 410 of the 2003 Public Laws entitled "An Act Relating to

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Insurance -- Workers' Compensation Fund" is hereby amended to read as follows:

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SECTION 1. Title. -- Workers’ Compensation Insurance Fund.

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     SECTION 2. Definitions. – When used in this act, the following words have the

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following meanings:

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     (1) “Board” means the board of directors of the state compensation insurance fund;

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     (2) “Fund” means the state compensation insurance fund known as The Beacon Mutual

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     Insurance Company;

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     (3) “Chief executive officer” means the chief executive officer of the state compensation

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insurance fund;

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     (4) “Personal injury” or “injury” has the meaning given to it in chapter 29 of title 28.

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      SECTION 3. Creation of fund. – (a) The purpose of the fund is to ensure that all

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     employers in the state of Rhode Island have the opportunity to obtain workers’ compensation

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     insurance at the lowest possible price. It is also the policy and purpose of this act to establish and

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     maintain that the fund shall be the workers’ compensation insurance carrier of last resort. The

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     fund is created as a nonprofit independent public corporation for the purpose of insuring

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     employers against liability for personal injuries for which their employees may be entitled to

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     benefits under chapter 33 of title 28 or under 33 U.S.C. Section 901 et seq., and other employer’s

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     liabilities incidental to those provisions.

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     (b) The fund shall be organized and, except as provided in subsection (c) of this section,

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subsection (c) of section 11, or in this act, operated as a domestic mutual insurance company.

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     (c) The fund shall be deemed to have met the requirements of sections 27-1-37 and 27-8-

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5 when the director of the department of labor and training has appropriated to the fund any

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     portion of the amount provided for in section 18 and all policies issued by the fund shall be

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     without the contingent mutual liability of the policyholders for assessment.

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           (d) The fund shall be deemed for all purposes to be an insurance company organized in

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     accordance with section 7-1-5 and chapter 1.1 of title 7. Without limiting the foregoing, section 7-

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     1.1-4.1 relating to, among other things, indemnification of officers, directors, and employees, and

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     section 7-1.1-33(b) – (e) relating to directors shall apply to the fund.

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     (e) The fund may amend its charter pursuant to section 7-1.1-53.1, subject to the prior

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     approval of all amendments by the director of the department of business regulation.

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     (f) The general assembly declares that a stable market for workers’ compensation

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     insurance for all employers seeking coverage is necessary to the economic welfare of Rhode

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     Island; that a stable and competitive insurance market will benefit all employers, all employees

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     and their families, and all insurance companies doing business in Rhode Island; that without this

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     insurance at a competitive rate, the orderly growth and economic development of the state would

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     be severely impeded; and that the provision of competitive insurance coverage by the fund for

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     employers in Rhode Island and the capitalization of the fund through capital assessments as

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     provided in this act is for the benefit of the public and in furtherance of a public purpose.

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           SECTION 4. Board of directors. – The board of directors shall be comprised of seven

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     (7) members elected or appointed as provided in this section and the director of the department of

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     labor and training and the chief executive officer of the fund who shall be ex officio members.

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     Each director shall hold office until a successor is appointed and qualified. Except for ex officio

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     members, each director shall be a policyholder or an officer or employee of a policyholder. The

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     governor shall appoint four (4) directors and three (3) directors shall be elected by the fund’s

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     policyholders. In addition to the director of the department of labor and training, no more than

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     one (1) member of the board may be an elected or appointed official of state or municipal

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     government. At least three (3) members of the board shall be policyholders of an officer or

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     employee of a policyholder which is a for profit entity. No member other than the chief executive

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     officer may represent or be an employee of an insurance company. The terms of board members,

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     except for ex officio members, shall be four (4) years in accordance with the provisions for the

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     election and classification of directors as may be established in the fund’s bylaws. Any vacancy

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     occurring during the term of any director shall be filled as provided in the fund’s bylaws in the

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     same manner as the member’s predecessor. The board shall annually elect a chairperson from

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     among its members, and any other officers it deems necessary for the performance of its duties.

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           SECTION 5. Fund management. – The management and control of the fund is vested

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     solely in the board.

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     SECTION 6. Power and duties of the board. – The board is vested with full power,

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     authority, and jurisdiction over the fund. The board may perform all acts necessary or convenient

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     in the exercise of any power, authority, or jurisdiction over the fund, either in the administration

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     of the fund or in connection with the insurance business to be carried on by it under the

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provisions of this act, as fully and completely as the governing body of all other domestic

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insurance carriers to fulfill the objectives and intent of this act. The board’s authority to invest

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funds is subject to the limitations imposed on domestic insurance companies in chapter 11.1 of

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title 27.

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     SECTION 7. Chief executive officer. – Subject to the authority of the board, the chief

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     executive officer appointed by the board pursuant to section 12 shall administer the fund.

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     SECTION 8. Personal liability excluded. – The members of the board and officers or

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     employees of the fund are not liable personally, either jointly or severally, for any debt or

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obligation created or incurred by the fund.

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           SECTION 9. Insurance of workers’compensation liability. – The fund may insure an

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     employer against any workers’ compensation claim, claims under 33 U.S.C. Section 901 et seq.,

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     and other employer’s liabilities incidental to those provisions arising out of and in the course of

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     employment, including the provision of excess workers’ compensation insurance coverage, as

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     fully as any other insurer.

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     SECTION 10. General powers and limitations. – For the purposes of exercising the

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     specific powers granted in this act and effectuating the other purposes of this act, the fund may:

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     (1) Sue and be sued;

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     (2) Have a seal and alter it at will;

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           (3) Make, amend, and repeal bylaws and rules relating to the conduct of the business of

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     the fund;

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     (4) Enter into contracts relating to the administration of the fund;

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          (5) Rent, lease, buy, or sell property, real and personal, in its own name and may

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     construct or repair buildings necessary to provide space for its operations;

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         (6) Declare dividends to its policyholders when there is an excess of assets over

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     liabilities, and minimum surplus requirements;

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     (7) Pay medical expenses, rehabilitation expenses, compensation due claimants of insured

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employers, pay salaries, and pay administrative and other expenses of the fund;

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     (8) Hire personnel and set salaries and compensation; and

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     (9) Perform all other functions and exercise all other powers of a domestic mutual

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     insurance company that are necessary, appropriate, or convenient to administer the fund and to its

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     members; provided, that the fund shall not be a member of the National Council on

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Compensation Insurance (NCCI).

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      SECTION 1. The Beacon Mutual Insurance Company is established as a mutual

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insurance company for the purpose of transacting the following kinds of insurance:

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     (a) Workers' compensation and employer liability insurance and related coverages;

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     (b) To accept and cede the reinsurance of the kind or kinds of insurance business in

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which the corporation is authorized to engage by the terms of this act or otherwise to the extent

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permitted by law;

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     (c) to engage in any and all kings of business to the extent that are necessarily or properly

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incidental to the kind or kinds of insurance business in which the corporation is authorized to

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engage hereunder or otherwise to the extent permitted by law;

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     (d) To exercise all of the rights and privileges of a domestic mutual insurance company

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pursuant to Chapter 1 of Title 27 of the Rhode Island general laws and the Rhode Island Business

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Corporation Act, as amended.

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     The corporation shall be for all purposes a mutual insurance company and, without

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limiting or enlarging the effect of this general grant of authority, the corporation shall have all of

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the general powers set forth in section 7-1.2-302, and all acts and amendments thereof, and all of

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the powers and privileges and be subject to all the duties and obligations set forth therein so far as

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the same are not inconsistent with the powers and privileges granted herein.

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      SECTION 2. The management of the business and affairs of the corporation shall be

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vested in the board of directors, all of whom shall be elected from time to time by the

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policyholders, upon the expiration of the terms of the elected or appointed members of the board

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of directors having terms of office as of the effective date of this act. The number of members of

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the board of directors shall be determined in accordance with by-laws to be adopted by the board

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of directors. The board of directors of the corporation may elect such officers as are provided for

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in the by-laws of the corporation and the board of directors may also appoint such committees as

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they deem fit from their own number and may delegate to such committees such of the powers of

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the board of directors and such other powers as they deem expedient.

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           SECTION 11 3. Insurance coverage program Additional obligations as insurance

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carrier of last resort; Denial, cancellation and non-renewal; Rate regulation. – (a) Provision

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of workers’ compensation coverage. Subject to the limitations set forth in this act, the fund shall

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(a) Additional obligations. In addition to, and not in derogation of, its purposes to transact and

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provide workers' compensation and employer liability insurance and related coverage, the

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corporation shall also be the workers' compensation insurance carrier of last resort obligated to

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provide workers' compensation and employers liability insurance against liabilities arising under

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title 28 for any employer with employees in Rhode Island that tenders the necessary premium.

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     (b) Applications; provisions of coverage.

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           (1) Policy applications. -- Applicants may apply for coverage by the fund in good faith,

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     either directly or through an insurance producer licensed by the state of Rhode Island to procure

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     workers’ compensation insurance according to rules adopted by the board under section 16.

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      (2) Denial, cancellation, and nonrenewal (b) Denial, cancellation, and nonrenewal of

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coverage for all employees. – The Notwithstanding the provisions of the foregoing subsection (a),

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the nonpayment of premium for current or prior policies issued by the fund corporation to the

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applicant, or to another entity for which the fund deems the applicant to be a successor in interest,

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may be a basis for the fund to deny, not renew or terminate coverage. The failure or refusal by an

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applicant or insured policyholder to fully and accurately disclose to the fund corporation

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information concerning the applicant’s or insured’s policyholder's ownership, management,

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change of ownership, prior ownership, operations, or payroll, including allocation of payroll

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among state and federal compensation programs, classification of payroll, and any other

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information determined by the fund corporation to be important in determining proper rates

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appropriate premiums shall be sufficient grounds for the fund corporation to deny an application

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or to not renew or cancel an existing policy or to assess a premium surcharge against the insured

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policyholder pursuant to subsection (d) (c). The failure or refusal by any insured policyholder or

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applicant to comply with the fund’s corporation's safety requirements or to permit premises

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inspections to the sole satisfaction of the fund corporation shall be sufficient grounds for having

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its workers’ compensation insurance coverage surcharged, not renewed, or cancelled, or an

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application for the coverage denied in the sole discretion of the corporation.

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           (3) Appeal to director. – Any determination of the fund corporation with respect to the

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denial, cancellation, or nonrenewal of any workers’ compensation insurance policy against

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liabilities arising under title 28, with the exception of cancellation for nonpayment of premium,

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may be appealed to the director of the department of business regulation, in writing, within thirty

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(30) days of notice of this action. If the director determines that the fund corporation has

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unreasonably denied, cancelled, or failed to renew any workers’ compensation insurance policy,

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the fund corporation shall in good faith reconsider issuing, reinstating, or renewing the workers’

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compensation insurance policy. If the fund corporation has not issued, reinstated, or renewed the

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workers’ compensation insurance policy within thirty (30) days of a determination of the director,

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the applicant or insured policyholder may appeal the denial, cancellation, or failure to renew by

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the fund corporation to the superior court for Providence County.

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           (c) Exemptions. Rate regulation.

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           (1) Except as provided in subsection (d), the fund The corporation shall be subject to rate

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regulation under chapter 7.1 of title 27. , subject to the following:

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     (1) The corporation shall not be required to adhere to the uniform classification system

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and uniform experience rating plan required under section 27-7.1-9.1 in effect from and after the

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approval of the corporation's own classifications, manuals, minimum premiums, class rates, rating

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schedules, and rating rules and every modification thereof, which shall be filed by the corporation

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not later than September 30, 2005, and from time to time thereafter, for approval by the director

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of the department of business regulation, which approval shall be deemed to be effective ninety

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(90) days thereafter unless found by the director to be inadequate or unfairly discriminatory by

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written order of disapproval specifying the reasons the filing fails to meet the standard established

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hereunder. If the filing is disapproved by the director, the corporation may request a hearing on

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disapproval within ten (10) days of the date of the order of disapproval and the director shall

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schedule a hearing within thirty (30) days of the receipt of the request.

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     (2)(i) Notwithstanding any law to the contrary, the corporation may file rates with the

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director of the department of business regulation and shall use the rates thirty (30) days after the

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filing. The information furnished in support of the filing may include:

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     (1) the use of Rhode Island data only;

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     (2) the experience or judgment of the corporation;

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     (3) its interpretation of any statistical data it relies upon;

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     (4) the experience of other insurers or rating organizations;

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     (5) any other relevant factors, including past and prospective loss experience within the

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state, a reasonable margin for profits and contingencies, dividend savings or unabsorbed premium

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deposits allowed or returned by the corporation to policyholders past and prospective expenses

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specifically applicable to this state, provisions for special assessments and all other relevant

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factors within this state and only to the extent applicable or desirable, from outside of Rhode

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Island. Notwithstanding the foregoing, the corporation shall not file and use any rates which

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would increase rates in excess of an average of ten percent (10%) annually of its rates then in

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effect without prior approval of the director of the department of business regulation.

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     (ii) Notwithstanding the foregoing, if the director finds that a rate of filing made pursuant

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to section 4(c)(2) hereof of the corporation is excessive, inadequate or unfairly discriminatory by

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written order of disapproval specifying the reasons the rate or filing fails to meet the standards

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established hereunder, and stating when within a reasonable period thereafter, the rate shall no

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longer be used or the filing shall be deemed no longer effective, the rate or filing shall be deemed

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disapproved. If the rate or filing is disapproved by the director, the corporation may request a

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hearing on the disapproval within ten (10) days of the date of the order of disapproval and the

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director shall schedule a hearing within thirty (30) days of the receipt of the request. An order of

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disapproval shall not affect any contract or policy made or issued prior to the expiration of the

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period set forth in the order. If, however, the director finds that an unfair discrimination exists in

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the application of a rate or filing to an individual risk, the director may, after a hearing held on

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like notice to the corporation issue an order that the discrimination be removed with respect to

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such individual risk.

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     (iii) The corporation may continue to provide workers' compensation insurance coverage

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at the rates filed or adopted by the corporation in effect as of the effective date of this act until the

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effectiveness of any revised rates filed or adopted by the corporation and approved pursuant to

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this subsection (c).

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     (3) Notwithstanding any law to the contrary, the corporation and any workers'

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compensation insurance policyholder may mutually consent to modify the rates for the

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policyholder's workers' compensation insurance policy, provided the corporation files notice of

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the modification if the modification is in excess of the rate determined in accordance with the

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provisions of this chapter with the director of the department of business regulation.

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     (4) Notwithstanding any law to the contrary, the corporation may establish and apply a

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premium surcharge of up to three (3) times its applicable premium rate for policyholders who

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present higher than normal risks within a class. The surcharge may be payable, at the option of

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the corporation, upon assessment from time to time, over the policy year, or upon renewal. Any

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premium surcharge assessed by the corporation may be appealed to the director of the department

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of business regulation within twenty (20) days of notice of the surcharge, and the director may

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modify or rescind the surcharge if the director determines that the surcharge is unjust,

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unreasonable, inadequate, excessive or unfairly discriminatory. The corporation may also

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establish and apply discounts to the policyholders who present lower than normal risks within a

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class.

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           (2) Notwithstanding the provisions of this section, if, at any time, the director finds that a

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     rate or filing of the fund is unjust, unreasonable, inadequate, excessive, or unfairly discriminatory,

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     he or she shall, after a hearing held upon not less than ten (10) days written notice, specifying the

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     matters to be considered at that hearing, issue an order specifying in what respects he or she finds

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     that the rate or filing is unjust, unreasonable, inadequate, excessive, or unfairly discriminatory

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     and stating when within a reasonable period after this the rate shall no longer be used or the filing

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     shall be deemed no longer effective. That order shall not affect any contract or policy made or

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     issued prior to the expiration of the period set forth in the order. If the director finds that an unfair

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     discrimination exists in the application of a rate or filing to an individual applicant or insured, the

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     director may, after a hearing held on similar notice to the fund, issue an order that the

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     discrimination be removed.

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           (d) Rate regulation.

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           (1) When a filing is not accompanied by the information upon which the fund supports

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     that filing, and the director does not have sufficient information to determine whether the filing

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     meets the requirements of applicable law, the director may require the fund to furnish the

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     information upon which it supports the filing. The information furnished in support of a filing

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     may include:

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      (i) the experience or judgment of the fund,

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      (ii) its interpretation of any statistical

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     data it relies upon,

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     (iii) the experience of other insurers or rating organizations, or

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     (iv) any other relevant factors.

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           (2) Notwithstanding any law to the contrary, the fund and any workers’ compensation

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     insurance policyholder may mutually consent to modify the rates for that policyholder’s workers’

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     compensation insurance policy, provided the fund files notice of the modification with the

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director of the department of business regulation.

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           (3) Notwithstanding any law to the contrary, the fund may establish and apply a premium

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     surcharge protocol. The protocol shall provide for higher premium and surcharge payments by

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     insured who present higher than normal risks within a class, including the ability of the fund to

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     assess from time to time a premium surcharge of up to three (3) times its applicable premium rate,

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     as it deems appropriate to further the public purposes set forth in this act. The surcharge may be

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     payable, at the option of the fund, upon assessment, over the policy year, or upon renewal. Any

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     premium surcharge assessed by the fund may be appealed to the director of the department of

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     business regulation within twenty (20) days of notice of the surcharge, and the director may

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     modify or rescind the surcharge if the director determines that the surcharge is unjust,

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unreasonable, inadequate, excessive or unfairly discriminatory.

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           (4) Notwithstanding any other provisions of law, immediately upon May 18, 1992, the

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     fund may issue workers’ compensation insurance policies at an initial rate not in excess of the

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     rates then in effect for residual market workers’ compensation insurance coverage offered by any

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     other insurers within the state of Rhode Island, subject to the discretion of the fund to apply

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     discounts and surcharge multipliers of up to three (3) times the premiums that would otherwise be

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     applicable under the rates, with the premium surcharge to be payable as provided in subdivision

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     (d)(3). The fund may continue to issue workers’ compensation insurance coverage at the initial

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     rates until the effectiveness of any revised rates filed pursuant to subdivision (d)(1).

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     (5) The corporation shall not be a member of the national council on compensation

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insurance but shall provide its workers' compensation experience data to the national council on

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compensation insurance or other approved advisory organization as required by section 27-7.1-

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9.1 so long as such advisory organization shall not charge the corporation for providing such

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information and notwithstanding any law to the contrary, shall not be required to pay any costs

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associated with any filing made by the national council of compensation insurance or such other

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approved advisory organization unless the corporation shall adopt the same.

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           SECTION 12. Chief executive officer. – Appointment and qualifications. – The board

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     shall appoint a chief executive officer of the fund who shall be in charge of the day to day

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     operations of the fund. The chief executive officer shall have proven successful experience as an

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     executive at the general management level. The chief executive officer shall receive

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     compensation as set by the board and shall serve at the pleasure of the board.

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           SECTION 13. Chief executive officer’s powers. – Subject to the authority of the board

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     and the provisions of this act, the chief executive officer shall perform the duties of chief

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     executive officer as provided in the fund’s bylaws or that have been determined by resolution of

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     the board of directors. Without limitation on this provision, the chief executive officer or

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     qualified officers or employees of the fund designated by the chief executive officer shall:

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           (1) Make safety inspections of risks and furnish advisory services to employers on safety

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     and health measures;

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           (2) Act for the fund in collecting and disbursing money necessary to administer the fund

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     and conduct the business of the fund; and

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           (3) Cause an abstract summary of any audit or survey conducted. The chief executive

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     officer may perform all other acts necessary to exercise the powers, authorities and jurisdictions

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     of the fund, either in the administration of the fund or in connection with the insurance business

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     to be carried on by the fund under this act, including the establishment of premium rates. Subject

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     to the approval of the board, the chief executive officer may delegate any duties, on behalf of the

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     fund, to qualified officers and employees of the fund, and may contract with the qualified

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     independent contractors to perform those duties for the fund.

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           SECTION 14 4. Property of fund Not a state agency. – The obligation of the

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corporation to insure any employer with employees in Rhode Island that tenders the necessary

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premium shall not cause the state to be liable for any obligation, expense, liability or debt of the

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corporation, any claim or right to the assets or property of the corporation; alter the legal status of

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the corporation as a domestic mutual insurance company; or remove from the board of directors

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any managerial, financial or operational control of the corporation. The corporation shall not be

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considered a state agency for any purpose. All premiums and other money paid to the fund

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corporation, all property and securities acquired through the use of money belonging to the fund,

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all capital assessment amounts received pursuant to section 19, and corporation all interest and

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dividends earned upon money belonging to the fund corporation and all deposits deposited or

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invested by the fund corporation are the sole property of the fund corporation and shall be used

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exclusively for the operation operations and obligations of the fund corporation. The money of

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the fund corporation is not state money. The property of the fund corporation is not state property.

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The employees of the fund corporation shall not be considered state employees for any purpose.

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           SECTION 15. Not a state agency. – The fund shall not be considered a state agency for

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     any purpose.

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           SECTION 16. Private independent insurance producers. – Private independent

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     insurance producers licensed to sell workers’ compensation insurance in this state may sell

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     insurance coverage for the fund according to rules adopted by the board. The board shall by rule

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     also establish a schedule of commissions for voluntary risk and residual risk coverage that the

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     fund will pay for the services of an insurance producer.

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           SECTION 17. Annual report. – The board shall submit an annual report to the governor

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     and legislature indicating the business done by the fund during the previous year and containing a

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     statement of the resources and liabilities of the fund.

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           SECTION 18. Funding. – The director of the department of labor and training is

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     mandated and directed to appropriate an amount not to exceed five million dollars ($5,000,000) to

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     the state compensation insurance fund to be repaid pursuant to a term and at a rate to be

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     negotiated and determined by the director of the department of labor and training and the board of

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     directors of the state compensation insurance fund. The rate shall not exceed three percent (3%)

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     over the federal discount rate and will be adjusted annually on October first of each year. The

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     payment schedule shall be no less than ten (10) years or more than fifteen (15) years. Payment

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     shall not commence until October 1, 1992. The terms of the agreement must be approved by the

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     state auditor general. Any scheduled payment may be deferred at the time the payment is due, if

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     in the opinion of the board, the director of labor and training, and the state auditor general there

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     is, or the scheduled payment would cause there to be if made, insufficient surplus to support the

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     risk insured by the fund.

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           SECTION 19 5. Workers’ compensation capital assessment. – (a) In order to establish

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     the capital reserves and surplus to allow the fund corporation to effect the assumption of residual

11-6

risk market in fulfillment of the public purposes as set forth in this act, a workers’ compensation

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capital assessment shall be assessed and collected by the director of the department of labor and

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training against each insurance company deemed by the director of the department of business

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regulation to have been licensed as of January 1, 1991, to write workers’ compensation insurance

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in Rhode Island. The assessment shall be payable quarterly and due within fifteen (15) days

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following the close of each calendar quarter or, at the discretion of the director of the department

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of labor and training, on an annual basis on or before July first of each year. The director of the

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department of labor and training shall have the power to institute suit to collect any assessment

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under this section to the same extent as provided in section 28-37-28.

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           (b) The director of the department of labor and training shall collect all of the capital

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     assessment amounts in a separate restricted purpose account and shall promptly transfer all the

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     amounts to the fund corporation upon receipt and the amounts shall become the property of the

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fund corporation pursuant to section 14 4 for capital reserve and surplus purposes in recognition

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of the fund’s corporation's role as carrier of last resort. During the transition period, the

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assessment for this party shall equal three percent (3%) of gross premiums received from

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workers’ compensation insurance or employer’s liability insurance written or renewed on risks

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within the state or subject to the jurisdiction of the state, or any other level of gross premiums that

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the director of the department of business regulation deems appropriate to ensure both the

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solvency of the fund corporation and the fund’s corporation's ability to establish a surplus

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reasonably adequate to allow it to complete the assumption of the residual risk market in

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furtherance of the public purposes stated in this act. For the purpose of this act, “gross premiums”

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shall be calculated for insurance companies in the same manner as provided in section 28-37-14

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for the applicable period. From and after the transition period, the director of the department of

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business regulation shall periodically determine the rate of the assessment at levels adequate to

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allow the fund corporation to service the residual risk market. and satisfy the reserve and surplus

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requirements of section 20. Notwithstanding the foregoing, from and after: (i) the use by the

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corporation of rates filed by the corporation with the director of the department of business

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regulation as provided in section 4 hereof; (ii) the corporation obtains a financial strength rating

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from A.M. Best Company; and (iii) the corporation participates in and is subject to the insurers'

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insolvency fund established under section 27-34-6, the workers' compensation capital assessment

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authority of the director of the department of labor and training shall terminate.

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           (c) Each insurance company may pass through the entire capital assessment amount to

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     each of its policyholders on a pro rata basis.

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           (d) In the event that any insurance company deemed by the director of the department of

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     business regulation to have been licensed on January 1, 1991, to write workers’ compensation

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     insurance discontinues the issuance of workers’ compensation insurance policies in Rhode Island

12-8

     prior to December 31, 1994, that company shall be and remain obligated to pay the capital

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     assessment surcharge through December 31, 1994, calculated on the basis of the average

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     voluntary and residual risk gross premiums received or the average voluntary and residual risk

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     gross losses paid in the thirty-six (36) month period prior to its departure from the Rhode Island

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     market.

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           (e) (d) The fund corporation shall pay an annual fee to the director of the department of

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labor and training in the amount of two-tenths of one percent (.2%) of the earned premiums of the

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fund corporation for the prior year in recognition of the continuing obligations of the department

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of labor and training under subsections (a) and (b) of this section until the authority to assess by

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the director of the department of labor and training shall terminate.

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           SECTION 20 6. Reserves – Premium to surplus ratio – Insolvency fund Insolvency

12-19

fund. – (a) The fund shall maintain a ratio of premiums on policies written to surplus of not more

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than three (3) to one (1), or any greater or lesser ratio that the director of the department of

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business regulation deems appropriate. In determining the ratio, the director may at all times

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consider the net present value of future capital assessment amounts as current surplus. To

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facilitate the ongoing oversight of the fund, the fund shall submit to the department of business

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regulation quarterly and annual statements in the format and scope specified in section 27-12-2.

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           (b) The fund corporation shall not participate in, or be subject to, the insurers’ insolvency

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fund established under section 27-34-6.

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           SECTION 7. Liquidation. -- (c) In the event of the liquidation of the fund corporation

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pursuant to the Insurers’ Rehabilitation and Liquidation Act, chapter 14.3 of title 27, the fund’s

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corporation's policyholders, in their capacity as owners of the fund, shall have no distributive

12-30

claims under section 27-14.3-46(8) to the liquidation estate of the fund corporation and, upon

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satisfaction of any other class 1 through class 7 claims under section 27-14.3-46, the insurance

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commissioner, as receiver, shall distribute the residual, if any, of the fund’s corporation's

12-33

liquidation estate to the director of the department of labor and training; provided, that in no event

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shall these provisions affect the validity or priority of: (1) any claims arising from and within the

13-1

coverage of any policies of the fund corporation; or .

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      (2) claims of the director of the department of labor and training to repayment of the term

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note of the fund issued pursuant to section 18.

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      SECTION 8. The duration of the corporation shall be perpetual.

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      SECTION 9. The corporation shall pay assessments in the same manner as any insurance

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carrier authorized to issue workers compensation insurance in Rhode Island.

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      SECTION 10. The corporation may issue non-assessable policies.

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      SECTION 11. (a) The corporation shall be subject to the provisions of Chapter 17 of

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Title 44 of the Rhode Island general laws and shall file returns and pay taxes in accordance

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therewith, provided, however, that the corporation shall be taxed on gross premiums on contracts

13-11

of insurance written by the corporation after July 1, 2005.

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      (b) The corporation shall be subject to the provisions of Chapter 26 of Title 44 of the

13-13

Rhode Island general laws except that the "safe harbor" provisions contained in section 44-26-

13-14

2.1(j) shall not apply to tax year 2006, and estimated tax payments for tax year 2006 shall be due

13-15

on March 15, 2006 and June 15, 2006 in accordance with the other provisions of Chapter 26 of

13-16

Title 44, and such estimated payments shall together be equal to at least two percent (2%) of the

13-17

gross premiums on contracts of insurance written by the corporation in calendar year 2005.

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           SECTION 21. Payment assessments and fees. – (a) Except as provided in this act, the

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     fund shall pay assessments in the same manner as an insurance carrier authorized to issue

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     workers’ compensation insurance in Rhode Island.

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           (b) In light of the express purpose of the fund to serve as the insurance carrier of last

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     resort, the fund shall be exempt from any taxes due pursuant to chapter 17 of title 44. In no event

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     shall any amounts received by the fund relating to the workers’ compensation capital assessment

13-24

     be subject to any form of state taxation or assessment.

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          SECTION 22. The general assembly hereby declares that it is the intent of the general

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     assembly that this act shall be made and included as part of the public laws and shall not be

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     codified as part of the general laws.

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           SECTION 23. The general assembly further declares that the placement of this act in the

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     public laws shall not impair the continuing existence of the state compensation insurance fund nor

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     impair the obligation of any contract or agreement or any rights of the state compensation

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     insurance fund heretofore existing, it being expressly recognized and intended that there shall be

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     full continuity between chapter 27-7.2 of the general laws and the passage of this act.

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           SECTION 24. Chapter 27-7.2 of the General Laws entitled "Workers' Compensation

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     Insurance Fund" is hereby repealed in its entirety.

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         SECTION 2. This act shall take effect upon passage.

14-2

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LC03339/SUB A

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EXPLANATION

BY THE LEGISLATIVE COUNCIL

OF

A N A C T

RELATING TO INSURANCE -- WORKERS' COMPENSATION INSURANCE FUND

***

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     This act would establish the Beacon Mutual Insurance Company as a domestic mutual

15-2

insurance company.

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     This act would take effect upon passage.

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LC03339/SUB

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