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CHAPTER 7-400 - AUTHORIZATION OF SELF-INSURERS

1. Purpose and Scope. This chapter contains guidelines and procedures for the application, authorization, and certification of employers to act as self-insurers under the LHWCA or any of its extensions. The functions described are performed by the Insurance Branch of the National Office, DLHWC.

2. General Policy. OWCP, in accordance with the Act, will authorize an employer to self-insure obligations when the company has established that it has:

a. Ample financial resources to meet all obligations in regard to its potential liability under the Act.

b. Obtained adequate excess or catastrophic loss insurance.

c. Made adequate arrangements to provide prompt authorization of and payment for all necessary medical care.

d. Made a security deposit in the name of the OWCP in the manner and amount prescribed by the OWCP.

e. Agreed to carry out all requirements of the Act and the regulations for administering the Act, under which authorization is sought.

3. First Inquiry. Upon receipt of an inquiry at the District Office regarding authorization for a specific employer to be a self-insurer under any of the Acts, the District Office shall immediately refer caller to the Insurance Branch of the National Office.

4. Application Procedure.

a. Application for Authority should be made on Form LS-271, Application for Self-Insurance (Exhibit __, PM 10-200). The self-insurance privileges granted under each Act are separate and distinct. A separate application is required under each Act, as well as a separate deposit of security.

b. Parent and Subsidiaries. If the applicant includes a parent company and subsidiaries, a separate application must be submitted for each incorporated entity. However, the parent company may deposit securities or file a single surety bond or letter of credit on behalf of itself and subsidiary companies.

c. Information and Material Which Must Be Submitted.

(1) Completed Form LS-271, Application for Self-Insurance. A separate application must be completed under each Act for which authorization is requested.

(2) Certified financial statements for the three most recent years.

(3) Loss information under the Act for the last five years showing the amount of paid and reserved losses. This should be in the form of a letter from the present insurance carrier(s) and should show the loss of information for each year.

(4) Information pertaining to specific excess insurance. The net retention and maximum limit should be given, and a specimen copy of the policy should be submitted.

(5) Statement showing amount of annual payroll under the Act by insurance classification.

(6) Statement pertaining to the proposed processing of claims. If claims are to be processed "in house", a statement should be submitted showing the qualifications of those individuals who will process claims. If a self-insured service organization is to be used, a profile of the organization should be submitted showing its experience in the administration of claims in general and specifically under the Longshore and Harbor Workers' Compensation Act or its extensions.

5. Examination of Application. The examiner reviews the documents submitted in support of the application. After determining that an application meets the requirements of the Office, conditioned on the filing of an indemnity bond with the Office or depositing negotiable securities with a Federal Reserve Bank or Branch thereof, the examiner recommends to the Director, DLHWC, an amount which the OWCP considers necessary and sufficient to secure the performance by the applicant of all obligations imposed upon him by the Act as an employer. Such amount shall not be less than $200,000 for any one employer. The following specific requirements are evaluated:

a. Security. In determining the amount of the security, the Insurance Branch will take into account the financial standing of the company, the nature of the work in which it is engaged, the degree of hazard of the work in which the employees are employed, the payroll exposure, the accident experience shown in the application, and any other pertinent data submitted, including provisions of excess insurance against catastrophic loss.

b. Bond. If the applicant elects to file an indemnity bond with the Office, Form LS-405, Indemnity Bond (Exhibit, PM 10-200), is forwarded to the applicant to be executed and returned in an amount fixed. The bond must be signed by the appropriate officer of the principal, and be duly attested; signed by the surety and duly attested; and the corporate seals of both principal and surety must be affixed to the bond. If the bond is executed by an attorney-in-fact, a written power of attorney must be attached to the bond. The surety company on a bond shall be approved by the United States Treasury Department under the laws of the United States and applicable rules and regulations governing bonding companies that write Federal bonds.

c. Negotiable Securities. If the applicant chooses to deposit negotiable securities in a Federal Reserve Bank, a letter is written to the Federal Reserve Bank designated by the OWCP, authorizing the bank to accept and hold such securities subject to the order of OWCP, in accordance with the regulations. The OWCP has the discretionary power, in the event of default of the self-insurer, to sell any or all of the securities as may be required to discharge the obligations of the self-insurer under the Act(s). The OWCP is furnished the original receipt from the Federal Reserve Bank which is kept in the self-insurer's file.

d. Letters of Credit. Letters of credit, issued by banks meeting DLHWC's requirement and which are based on the rating system published by Standard & Poor's, are acceptable.

e. Agreement and Undertaking. An applicant for the privilege of self-insurance shall, as a condition subsequent to receiving authorization to act as a self-insurer, execute and file with the OWCP an Agreement and Undertaking, Form OWCP 1.

6. Approval by the Director, OWCP, Is Required of an Employer to Act as a Self-Insurer. Upon favorable action on the application for self-insurance, the OWCP issues to the Self-Insurer Form LS-572, Decision Granting Authority to Act as Self-Insurer (Exhibit __, PM 10-200), signed by the Director.

7. Notification - Recording.

a. Notification. Memorandums are sent to DDs, furnishing the name and address of the employer, effective date of each new authorization, code authorization number, and indicating any limitations on the employer's self-insurance privilege.

b. Numbering and Indexing. A code authorization number is assigned to each self-insurer under each Act. Two 3x5 index cards are prepared for each self-insurer under each Act, indicating: the name of the company, the company's principal address, effective date of authorization, and code authorization number. The cards are filed alphabetically by name of self-insurers and by code authorization number assigned. A separate file is made up for each self-insurer under each Act for which authorization is granted. These records are maintained in the National Office.

8. Reauthorization of Self-Insurers.

a. A review of self-insurers is made annually and the OWCP may request that employers submit reports of all outstanding obligations on Form LS-274, Report of Injury Experience (Exhibit 36, PM 10-200).

b. Whenever, in the opinion of the OWCP, the principal sum of the indemnity bond or the amount of negotiable securities deposited by a self-insurer is insufficient to provide adequate security for the payment of anticipated compensation and medical expenses under the Act, the self-insurer shall upon demand by the OWCP, file such additional indemnity bond or deposit such additional amount of securities as may be required.

c. Each time there is any change in the deposit of securities or the amount of bond, an Agreement and Undertaking, Form OWCP 1, must be executed by the self-insurer.

d. All employers who file indemnity bonds are furnished Form LS-405, Indemnity Bond (Exhibit __, PM 10-200), each year, to be executed for the next authorization year beginning July 1 and ending June 30, with a request that the executed bond be mailed so that it will reach the NO’s Insurance Branch by June 1st before the beginning of the new year.

e. Letters are sent each year to self-insurers whose deposit of securities with a Federal Reserve Bank or Treasurer of the United States appears adequate, informing them that their self-insurance privilege will be continued for the next authorization year.

9. Changes or Terminations.

a. If the self-insurer enters a merger with a change of name, but without a change in corporate entity, a copy of the merger agreement and change of name shall be furnished the Office. The Agreement and Undertaking, Form OWCP-1 (Exhibit __, PM 10-200), must be executed in the new name.

b. If the company has secured its obligations by filing an indemnity bond with the Office, a properly executed rider may be attached to the current bond on file reflecting the new name of the company.

c. In the event of a merger, resulting in a change of corporate entity, the former company's self-insurance privilege is not transferred to the new company. A new application must be filed by the surviving company.

d. If the authorization of a self-insured employer who has filed an indemnity bond with the OWCP is terminated prior to the expiration date of the bond, the effect of such termination is to relieve the surety company of any further liability under the bond for liabilities arising from employment after the date of such termination. The bond, however, remains permanently on file with the OWCP.

10. Audits. A variety of audits are performed, involving either contractors, National Office staff, or district office personnel.

a. Form LS-513, Report of Payments. The reporting forms for compensation payments, on which the Special Fund assessment is based are selectively audited by a firm under contract with the DLHWC.

b. Form LS-274, Report of Self-Insurer's Outstanding Liabilities. This report is required annually from each self-insurer and from those insurance carriers required to post security. Up to five of these reports, generally involving the largest exposures, are audited annually by National Office staff, by reviewing case files in the district office and comparing reserve estimates with those of the self-insurer/carrier. Each district office also reviews up to five of these reports each year, as assigned by National Office. District Office reviews are limited to reports involving small exposures.