Regulations Implementing the Longshore and Harbor Workers'
Compensation Act and Related Statutes [03/15/2004]
Volume 69, Number 50, Page 12217-12231
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Part III
Department of Labor
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Employment Standards Administration
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20 CFR Parts 701 and 703
Regulations Implementing the Longshore and Harbor Workers' Compensation
Act and Related Statutes; Proposed Rule
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DEPARTMENT OF LABOR
Employment Standards Administration
20 CFR Parts 701 and 703
RIN 1215-AB38
Regulations Implementing the Longshore and Harbor Workers'
Compensation Act and Related Statutes
AGENCY: Employment Standards Administration, Labor.
ACTION: Notice of proposed rulemaking; request for comments.
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SUMMARY: The Department of Labor (DOL) proposes to revise the
regulations governing certain aspects of the administration of the
Longshore and Harbor Workers' Compensation Act and its extensions: The
Defense Base Act; the Outer Continental Shelf Lands Act; the
Nonappropriated Fund Instrumentalities Act; and the District of
Columbia Workmen's Compensation Act. The Office of Workers'
Compensation Programs (OWCP), an agency within the Employment Standards
Administration, administers the LHWCA and its extensions.
The proposed rule updates the existing regulations to reflect
amendments to the LHWCA and organizational changes that have taken
place within both the Employment Standards Administration and OWCP over
the last several years. The proposed rule also requires, as a condition
of being authorized to write LHWCA insurance, that a carrier establish
to OWCP that its potential LHWCA obligations are sufficiently secured.
A carrier's LHWCA obligations would be considered sufficiently secured
if funds will be available to cover all of its workers' compensation
claims in the event of the carrier's default or insolvency. As an
alternative, a carrier could fully secure its obligations by posting a
security deposit with the Secretary of Labor. Carriers would not,
however, be required to make this showing for States with guaranty
funds that fully and immediately cover LHWCA claims in the event of a
carrier's default or insolvency. In addition, the proposed rule
conforms, where appropriate, the rules governing OWCP's authorization
of employers as self-insurers to the provisions governing carrier
security deposits.
DATES: The Department invites written comments on the proposed rule and
the new information collection requirements that are subject to the
Paperwork Reduction Act of 1995 (44 U.S.C. 3501 et seq.) from
interested parties. Written comments must be received by May 14, 2004.
ADDRESSES: You may submit written comments, identified by RIN number
1215-AB38, on the proposed rules by any of the following methods:
Federal eRulemaking Portal: http://www.regulations.gov.
Follow the instructions for submitting comments.
E-mail: OWCP-LS-REG-1215-AB38@dol.gov. Include
RIN number 1215-AB38 in the subject line of the message. Your comment
must be in the body of the e-mail message; do not send attached files.
Fax: (202) 693-1380 (this is not a toll-free
number). Only comments of ten or fewer pages (including a fax cover
sheet and attachments, if any) will be accepted by fax.
Mail: Submit comments (preferably with three
copies) to Michael Niss, Director, Division of Longshore and Harbor
Workers' Compensation, Office of Workers' Compensation Programs,
Employment Standards Administration, U.S. Department of Labor, Room C-
4315, 200 Constitution Avenue, NW., Washington, DC 20210. Because of
security-related concerns, there may be a significant delay in the
receipt of submissions by U.S. mail. You must take this into
consideration when preparing to meet the deadline for submitting
comments.
Instructions: All submissions received must include the agency name
and Regulatory Information Number (RIN) 1215-AB38 for this rulemaking.
Comments on the proposed regulations will be available for public
inspection during normal business hours at the above address.
You may submit written comments on the new information collection
requirements by sending them to the Office of Information and
Regulatory Affairs, Office of Management and Budget, Attention: Desk
Officer for Employment Standards Administration, Washington, DC 20503.
FOR FURTHER INFORMATION CONTACT: Michael Niss, Director, Division of
Longshore and Harbor Workers' Compensation, Office of Workers'
Compensation Programs, Employment Standards Administration, U.S.
Department of Labor, Room C-4315, 200 Constitution Avenue, NW.,
Washington, DC 20210. Telephone: (202) 693-0038 (this is not a toll-
free number). TTY/TDD callers may dial toll free (877) 889-5627 for
further information.
SUPPLEMENTARY INFORMATION:
I. Background of This Rulemaking
Employers subject to the Longshore and Harbor Workers' Compensation
Act, as amended (LHWCA), 33 U.S.C. 901 et seq., are required by section
32 of the LHWCA to secure the payment of compensation under the Act by
either purchasing insurance from an insurance carrier authorized by the
Secretary of Labor to write LHWCA insurance, or by becoming authorized
self-insured employers. The Division of Longshore and Harbor Workers'
Compensation (DLHWC) within OWCP authorizes insurance carriers to write
LHWCA coverage and employers to self-insure. It also requires that some
authorized insurance carriers and all self-insured employers post
security deposits in an amount sufficient to secure their future claim
liabilities. Authorization to write insurance or to self-insure may be
suspended or revoked for good cause shown.
Prior to June 29, 1990, DLHWC did not require authorized insurance
carriers to post security deposits to guard against possible default or
insolvency. Since LHWCA obligations of insolvent authorized insurance
carriers accrue to, and are payable out of, the special fund in the
United States Treasury established pursuant to section 44 of the LHWCA,
the insolvency of a single carrier with a large amount of unsecured
LHWCA obligations can result in a substantial drain on the resources of
the fund. When this occurs, DLHWC, as guardian of the fund, must
replenish the resources of the fund by increasing the annual
assessments it collects from all authorized carriers and self-insured
employers pursuant to 20 CFR 702.146(c).
Following a number of insurance carrier insolvencies in the 1980's,
and to avoid further increases in annual assessments, DLHWC changed its
policy regarding authorized insurance carriers and announced the change
in a June 29, 1990, ``Industry Notice.'' From that date, DLHWC began
requiring authorized insurance carriers to post security deposits in an
amount sufficient to secure the payment of their LHWCA obligations in
States without guaranty or analogous funds and in States whose funds
did not fully secure such obligations. This requirement was waived for
insurance carriers with financial security ratings of ``A'' or higher
issued by the A.M. Best Company. DLHWC determined the required security
deposit amount after considering a number of factors, including the
insurance carrier's scale of projected coverage, its financial history,
its A.M. Best rating and its loss history.
Since that time, changing conditions have led DLHWC to reconsider
the manner and extent to which authorized insurance carriers must
secure their
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LHWCA obligations. These conditions include: (1) Changes in the A.M.
Best Company rating system; (2) the number of insurance carriers that
have become insolvent over the past three years; (3) the significant
increase in the number of insurance carriers that have been issued
financial security ratings of ``A-'' or lower for the first time (which
triggers the requirement to post security deposits under DLHWC's
current policy) due to adverse conditions in the insurance industry and
the general economic downturn; and (4) the industry-wide impact of
September 11, 2001, losses. In addition to developing several possible
solutions to this evolving problem internally, DLHWC also solicited
suggestions and advice from the insurance industry in a request for
information that was published in the Federal Register on February 22,
2002 (67 FR 8450).
DLHWC received 15 responses to this solicitation: eight from
authorized self-insured employers or groups of authorized self-insured
employers, five from authorized insurance carriers, and two from other
groups. None of the responses set forth any legal or policy objections
to requiring deposits from insurance carriers to fully secure their
LHWCA obligations. On the contrary, many of the responses from all
sources, including authorized insurance carriers, recommended requiring
all authorized carriers to fully secure (through the posting of
securities) their LHWCA obligations. The reasons offered for this
position included the recognition that it was in the financial self-
interest of carriers to insist on fully securing all LHWCA obligations
since this would obviate the need for DLHWC to collect annual
assessments from healthy carriers to pay for the insolvency of weaker
carriers. Other reasons were the inherent inability of any static
rating scheme to accurately predict the future financial stability of
an insurance carrier, and the potential for catastrophic losses due to
terrorism in the shipping and shipbuilding industries.
DLHWC recognizes that requiring all carriers to fully secure their
LHWCA obligations would place the risk of an insolvency on the failed
insurer rather than the surviving, healthy members of the insurance
industry (and self-insured employers) and also would ensure that
disabled workers will suffer no delay in obtaining their compensation
following an insolvency. But DLHWC believes that this approach might
force those insurance carriers who could not absorb the additional
costs of posting securities to leave the market and therefore create
instability that could lead to further problems. DLHWC also believes
that this approach would duplicate, at least to some extent, the
reserve requirements imposed by State insurance regulators.
DLHWC has considered two other approaches not suggested in the
responses to the request for information. The first approach would use
the existing special fund as an overall guaranty fund for all LHWCA
claims under the authority of 33 U.S.C. 918(b). Under this approach,
the special fund would make the compensation payments insured by an
insolvent carrier and recover these costs in current and subsequent
years by means of increased annual assessments and supplemental
assessments on the remaining authorized insurance carriers and self-
insured employers, and through its subrogated rights against the
insolvent carrier itself. Because DLHWC would not require any security
deposits from authorized carriers, it would be relatively easy to
administer. But this approach would likely create negative incentives
for prudent fiscal responsibility in the insurance industry.
The second alternative DLHWC considered, and the one adopted in the
proposed regulations, is to continue requiring authorized insurance
carriers to post security deposits, but only where there is no adequate
State guaranty fund and only in amounts that reflect the actual risk of
loss to the special fund. The proposed rule represents a measured
approach: It will end DLHWC's undue reliance on A.M. Best ratings yet
limit the number of carriers that must post deposits to those carriers
operating in States with inadequate guaranty funds. DLHWC believes that
this approach is the best way for it to address this situation and
still fulfill its fiduciary responsibility as the special fund's
guardian.
II. Summary of the Proposed Rule
The proposed regulations, which are more fully described below,
establish the processes by which OWCP will determine the extent of an
insurance carrier's LHWCA obligations, the amount of the deposit
necessary to secure those obligations in light of the guaranty or
analogous funds in the State or States in which the carrier writes
LHWCA insurance, the manner in which such deposits will be held, and
the circumstances under which they could be seized or otherwise used to
avoid draining the available resources of the special fund. The
proposed regulations also include those applicable to self-insured
employers; the proposed revisions update the regulations and align them
with the new carrier security deposit regulations. The proposed
regulations will appear in 20 CFR parts 701 and 703.
A. 20 CFR Part 701
The proposed regulations in this part have been updated to reflect
amendments to the LHWCA and organizational changes that have taken
place within both OWCP and the Employment Standards Administration over
the last several years. Other than these minor changes, the proposed
rule is substantially the same as current part 701, with the exception
of the sections describing the establishment of OWCP, the functions
assigned to OWCP by the Assistant Secretary of Labor for Employment
Standards, and OWCP's historical background at Sec. Sec. 701.201
through 701.203. In the proposed rule, Sec. 701.202 and Sec. 701.203
are reserved, and Sec. 701.201 refers the reader to the description of
these same matters that is set out in subchapter A of chapter I of
title 20 (20 CFR part 1).
B. 20 CFR Part 703
General Provisions
Except for the introductory statements in Sec. 703.1 and the list
of forms set out in Sec. 703.2, those two proposed regulations and
Sec. 703.3 are generally unchanged from their current version.
Insurance Carrier Security Deposit Requirements
20 CFR 703.201
This section contains general introductory material, including the
purpose of carrier security deposits.
20 CFR 703.202
In determining the required security deposit amount, DLHWC will
consider the extent to which State insurance guaranty funds secure the
carrier's LHWCA obligations in the event of default or insolvency.
Section 703.202 sets forth a non-exclusive list of factors DLHWC may
use to evaluate the coverage afforded by each State guaranty fund, if
any. In the event a State guaranty fund's coverage cannot be
determined, the regulation adopts a default rule providing that 33\1/3\
percent of a carrier's LHWCA obligations in that State will be deemed
unsecured. This section also notes that DLHWC will make its
determinations regarding each State's coverage available to the
regulated community and the public by posting them on its Web site.
20 CFR 703.203
An insurance carrier will be required to apply annually for a
determination of the extent of its unsecured LHWCA obligations, and the
amount of the
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deposit necessary to satisfy the regulations' security requirements.
Section 703.203 describes the application process. As proposed, the
carrier will submit yearly statements to the Branch of Financial
Management and Insurance (Branch) within DLHWC setting forth its LHWCA
obligations in each State where it does business. The carrier will also
suggest an amount for the security deposit needed to fully secure such
obligations. If the carrier chooses to base its suggested security
deposit on a determination of a gap in State coverage that differs from
that posted by DLHWC on its Web site, the carrier may submit evidence
and/or argument in support.
20 CFR 703.204
Section 703.204 provides that the Branch may consider several
different factors when it evaluates the carrier's suggested security
deposit amount. One significant factor will be the extent to which a
carrier's LHWCA obligations are secured by a State guaranty fund.
Because State guaranty fund coverage varies dramatically among States,
proposed Sec. 703.204(b) adopts a sliding scale: carriers who write
more than an insignificant amount of LHWCA insurance in States without
guaranty funds or funds that only partially secure LHWCA obligations
will be required to deposit an amount equal to 33\1/3\ percent of their
outstanding LHWCA obligations in each State up to an amount equal to
100 percent of those obligations. DLHWC intends to evaluate a carrier's
obligations on a state-by-state basis to determine the amount of its
unsecured obligations in each State and to set the required security
deposit in accordance with that evaluation. The carrier may challenge
the Branch's decision by requesting a hearing before the Director of
DLHWC. The Director will then issue the final agency decision on the
application.
20 CFR 703.205, 703.207, 703.208
Once a final decision on the carrier's application is reached,
section 703.205 requires the carrier to both execute an Agreement and
Undertaking and post the required security within 45 days of its
receipt of the decision. Neither of these requirements differs
substantially from the requirements under DLHWC's current policy. In
the Agreement and Undertaking, the carrier agrees to post the required
security deposit and authorizes the Branch to seize the deposit if: (1)
It defaults on any of its LHWCA obligations; (2) it fails to renew or
replace deposited letters of credit or matured negotiable securities;
(3) a State initiates insolvency proceedings against the carrier; or
(4) it violates any of the other terms of the Agreement and Undertaking
(Sec. 703.205(a)). This section also sets out the three ways a carrier
can satisfy the requirement for posting a security deposit: through the
use of approved indemnity bonds, letters of credit, or negotiable
securities (Sec. 703.205(b)). If the carrier chooses to deposit
negotiable securities, Sec. Sec. 703.207 and 703.208 detail the types
of securities that may be deposited, conditions of their deposit and
places for their deposit. Section 703.206 is reserved.
20 CFR 703.209, 703.210
Substitutions and/or withdrawals of the instruments representing a
carrier's security deposit, as well as changes in the amounts of such
deposits, are governed by Sec. Sec. 703.209 and 703.210. These
regulations conform to the Branch's current practice, with two
exceptions. The Department has made explicit in Sec. 703.209(b) that
``no withdrawals will be authorized unless there has been no claim
activity for a minimum of five years, and the Branch is reasonably
certain no further claims will arise.'' The Department has proposed
this provision to insure that funds are available to pay all claims
that are attributable to the carrier. The Department has also linked
DLHWC's demand for an additional security deposit under Sec.
703.210(a) with the procedures applicable to initial security deposit
determinations, including a hearing before the Longshore Director or
his representative upon the carrier's request. This provision ensures
that the carrier has the same rights regarding a determination
increasing the security deposit amount as when that amount was
initially set.
20 CFR 703.211
Paragraphs (a) and (b) of Sec. 703.211 together constitute one of
the major improvements to DLHWC's policy. Currently, DLHWC seizes a
carrier's security deposit when the carrier defaults on its LHWCA
obligations. But to protect the special fund and ensure funds are
available for compensation payments, DLHWC must take action on the
deposited security when a carrier fails to secure future payments even
though the carrier is meeting its current payment obligations.
Accordingly, proposed Sec. Sec. 703.211 (a) and (b) make explicit
DLHWC's authority to draw upon a letter of credit or seize a carrier's
deposit of negotiable securities at maturity when the carrier fails to
keep its LHWCA obligations secured by renewing or replacing the
deposited security, even if the carrier is not in default. Letters of
credit currently acceptable to DLHWC routinely spell out this
authority. While deposited negotiable securities do not contain similar
terms, they are nevertheless held subject to DLHWC's order (see
Sec. Sec. 703.208 and 703.209). A carrier who has deposited negotiable
securities with a Federal Reserve bank must withdraw (or roll over)
those securities upon maturity. A viable carrier usually rolls the
matured securities over or replaces them with new securities to
continue meeting the security deposit requirements. A financially
troubled carrier, however, may not be able to replace the matured
securities. Rather than allowing the securities to revert to the
carrier--assets that the carrier could deplete for purposes other than
payment of LHWCA benefits--DLHWC will seize the negotiable securities
at maturity and hold those funds as security for the carrier's future
LHWCA obligations, even if the carrier has not yet defaulted on its
obligations. Finally, proposed Sec. Sec. 703.211 (a) and (b) codify
DLHWC's authority to seize the deposited security when a State
initiates insolvency proceedings against a carrier. Like a carrier that
is unable to renew its posted security, an insolvent carrier may not be
able to meet its LHWCA obligations. Seizure of the security insures
continued payment of those obligations. When it determines that the
security is no longer necessary, DLHWC will return any negotiable
securities (and their proceeds) still in its possession to the carrier
(Sec. 703.211(c)).
20 CFR 703.212
This section provides for the submission of certain periodic and ad
hoc reports to the Branch so it can monitor the financial health of all
authorized insurance carriers and thereby assist DLHWC fulfill its
obligation as guardian of the special fund.
20 CFR 703.213
Should a carrier fail to meet its obligations under these security
deposit regulations, Sec. 703.213 clarifies that OWCP may revoke or
suspend its authorization to write LHWCA insurance.
Authorization of Self-Insurers
The proposed revisions to Sec. Sec. 703.301 through 703.312 are
designed to: Modernize their language and structure; reflect
organizational changes within OWCP; and conform them to both DLHWC's
current policies and the proposed carrier security deposit regulations.
As a result, most of the revisions are not intended to change the
[[Page 12221]]
substance of the current regulatory requirements. Several revisions,
however, are noteworthy. Throughout this part, the proposed regulations
add letters of credit as a method an employer may use to secure its
LHWCA obligations. This is in addition to indemnity bonds and deposits
of negotiable securities, the two methods set forth in the current
regulations. Proposed Sec. 703.303(b) clarifies that DLHWC's
authorization to self-insure, although effective immediately, will
later be deemed ineffective for all periods if the employer does not
timely complete and file with DLHWC an Agreement and Undertaking and
give security in the amount DLHWC requires. Proposed Sec. 703.303(d)
also affords employers the same hearing rights accorded carriers who
wish to challenge DLHWC's security deposit determination in proposed
Sec. 703.204(d). Finally, like the carrier security deposit
regulations, proposed Sec. Sec. 703.310 (a) and (b) codify DLHWC's
authority to draw upon a letter of credit or seize a self-insurer's
deposit of negotiable securities at maturity when the self-insurer
fails to keep its future LHWCA obligations secured by renewing or
replacing the deposited security, even if the self-insurer has not
defaulted on its current payment obligations.
III. Information Collection Requirements (Subject to the Paperwork
Reduction Act) Imposed Under the Proposed Rule
The new collections of information contained in this rulemaking
have been submitted to OMB for review in accordance with the Paperwork
Reduction Act of 1995, 44 U.S.C. 3501 et seq., and its implementing
regulations at 5 CFR part 1320. No person is required to respond to a
collection of information request unless the collection of information
displays a valid OMB control number.
The new information collection requirements are found in Sec. Sec.
703.2, 703.203, 703.204, 703.205, 703.209, 703.210, 703.212, 703.303
and 703.304. With the exception of Sec. Sec. 703.303 and 703.304,
these collections relate to information insurance carriers are required
to submit as part of the authorization process for writing LHWCA
insurance, and as part of the process by which the Branch of Financial
Management and Insurance within DLHWC decides both the extent of an
authorized insurance carrier's unsecured LHWCA obligations and the
amount of the required security deposit. To implement these new
collections, the Department is proposing to create two new forms (Form
LS-276 and LS-275 IC) described below. The information collections
established in Sec. Sec. 703.303 and 703.304 relate to the security a
self-insured employer deposits to secure its payment of compensation
under the LHWCA and its extensions. To implement these collections, the
Department is proposing one new form (Form LS-275 SI) described below.
The public is invited to submit comments on the new information
collection requirements. The Department is particularly interested in
comments that:
(1) Evaluate whether the proposed collections of information are
necessary for the proper performance of the functions of the agency,
including whether the information will have practical utility;
(2) Evaluate the accuracy of the agency's estimates of the burdens
of the collections of information, including the validity of the
methodology and assumptions used;
(3) Enhance the quality, utility and clarity of the information to
be collected; and
(4) Minimize the burden of the collections of information on those
who are to respond, including through the use of appropriate automated,
electronic, mechanical, or other technological collection techniques or
other forms of information technology, e.g., permitting electronic
submission of responses.
Send comments regarding these proposed collections of information
to the Office of Information and Regulatory Affairs, Office of
Management and Budget, Attention: Desk Officer for Employment Standards
Administration, Washington, DC 20503. Comments must be received by May
14, 2004.
This proposed rulemaking also restates, with no substantive
changes, the currently approved collections of information in
Sec. Sec. 703.302, 703.308, 703.309 and 703.311 (Forms LS-271 and LS-
274, OMB Control No. 1215-0160 (expires December 31, 2006)). These
collections relate to information that employers applying to be self-
insurers under the LHWCA and its extensions or who are currently
authorized self-insurers must submit; the rulemaking does not change
these collections in any manner.
A. Form LS-276, Application for Security Deposit Determination
Summary: As discussed above, the LHWCA gives the Secretary of Labor
authority to authorize insurance carriers to write insurance under the
Act and its extensions (33 U.S.C. 932). As a condition to
authorization, each carrier will be required to establish that its
LHWCA obligations are fully secured either through an applicable state
guaranty (or analogous) fund, a deposit of security with DLHWC in an
amount determined by DLHWC, or a combination of both. To meet these
requirements, each currently authorized carrier and any carrier seeking
such authorization will apply annually for a determination of the
amount of security it must deposit by completing Form LS-276. Form LS-
276 is structured to elicit information regarding a carrier's
outstanding LHWCA obligations on a state-by-state basis. DLHWC will use
the information collected on Form LS-276 to determine the required
security deposit amount for each carrier in light of any applicable
state guaranty fund coverage.
Respondents and frequency of response: Approximately 385 insurance
carriers annually will file Form LS-276.
Total annual burden estimates: The Department estimates that on
average, it will take an insurance carrier one hour to collect the
information, complete Form LS-276 and mail it. Thus, the total annual
hour burden is estimated to be 385 hours. There are no capital or
startup costs associated with this information collection. The
Department estimates respondents' total annual operating and
maintenance (printing and mailing) costs to be $163.80.
B. LS-275 IC, Agreement and Undertaking (Insurance Carrier); LS-275 SI,
Agreement and Undertaking (Self-Insured Employer)
Summary: After DLHWC determines the amount of the required security
deposit, an insurance carrier or self-insured employer will execute
Form LS-275 IC or LS-275 SI, respectively, to: (1) Report the security
it has deposited and grant the Department a security interest in the
collateral; (2) agree to abide by the Department's rules; and (3)
authorize the Department to bring suit on any deposited indemnity bond,
draw upon any deposited letters of credit, or to collect the interest
and principal or sell any deposited negotiable securities when it deems
it necessary to assure the carrier's or self-insurer's prompt and
continued payment of compensation and any other LHWCA obligations it
has. DLHWC will review the information collected to verify that the
carrier or self-insurer has deposited the correct amount of security.
DLHWC will also use this information if it takes action on the security
deposited when necessary to insure that the carrier or self-insurer
meets its LHWCA obligations.
Respondents and proposed frequency of response: The Department
estimates
[[Page 12222]]
that approximately 343 (or 50%) of all authorized insurance carriers
and self-insurers annually will complete and file Form LS-275 IC or LS-
275 SI.
Total annual burden estimates: The Department estimates that on
average, it will take a respondent 15 minutes to locate the
information, complete form LS-275 IC or LS-275 SI and mail it. Thus,
the total annual hour burden is estimated to be 85.75 hours. There are
no capital or startup costs associated with this information
collection. The Department estimates respondents' total annual
operating and maintenance (printing and mailing) costs to be $145.60.
Copies of the complete information collection request, including
the OMB 83-I form and supporting statement, may be obtained from the
Department of Labor by contacting Linda Myer at 202-693-0289 (this is
not a toll free number).
IV. Statutory Authority
Section 39 of the LHWCA (33 U.S.C. 939) authorizes the Secretary of
Labor to prescribe rules and regulations necessary for the
administration and enforcement of the Act and its extensions, and
section 32 of the LHWCA (33 U.S.C. 932) requires that all insurance
carriers writing coverage under the LHWCA and all employers seeking to
self-insure its liabilities be authorized by the Secretary.
V. Executive Order 12866 (Regulatory Planning and Review)
This proposed rule has been drafted and reviewed in accordance with
Executive Order 12866, section 1(b), entitled ``The Principles of
Regulation.'' The Department has determined that this proposed rule is
not a ``significant regulatory action'' under Executive Order 12866,
section 3(f). Accordingly, it does not require an assessment of
potential costs and benefits under section 6(a)(3) of that order.
VI. Small Business Regulatory Enforcement Fairness Act of 1996
As required by Congress under the Small Business Regulatory
Enforcement Fairness Act of 1996, enacted as Title II of Public Law
104-121, 110 Stat. 847, 857 (March 29, 1996), the Department will
report promulgation of this proposed rule to both Houses of the
Congress and to the Comptroller General prior to its effective date as
a final rule. The report will state that the Department has concluded
that the rule is not a ``major rule'' as defined under 5 U.S.C. 804(2).
VII. Unfunded Mandates Reform Act of 1995
Title II of the Unfunded Mandates Reform Act of 1995 (2 U.S.C. 1531
et seq.) directs agencies to assess the effects of Federal regulatory
actions on State, local, and tribal governments, and the private
sector, ``other than to the extent that such regulations incorporate
requirements specifically set forth in law.'' For purposes of the
Unfunded Mandates Reform Act, this rule does not include any Federal
mandate that may result in increased expenditures by State, local, and
tribal governments, or increased expenditures by the private sector of
more than $100,000,000.
VIII. Regulatory Flexibility Act and Executive Order 13272 (Proper
Consideration of Small Entities in Agency Rulemaking)
The Regulatory Flexibility Act of 1980 (RFA), as amended (5 U.S.C.
601 et seq.), requires an agency to prepare regulatory flexibility
analyses when it proposes regulations that will have ``a significant
economic impact on a substantial number of small entities,'' or to
certify that the proposed regulations will have no such impact, and to
make the analyses or certification available for public comment.
If promulgated as a final rule, the proposed carrier security
deposit regulations would apply to the approximately 385 insurance
carriers currently authorized by DLHWC to write LHWCA insurance, as
well as to any other carriers seeking such authorization in the future.
To evaluate the proposed rule's potential impact on small entities,
the Department evaluated insurance carriers currently authorized to
write Longshore insurance. While carriers enter and leave the market
over time and their individual liability fluctuates, over at least the
past two years the number and nature of the authorized carrier pool and
the total benefit payments made by insurance carriers have remained
relatively constant. Moreover, many of these carriers already comply
with the security deposit requirements that the proposed regulations
would impose on all carriers. Finally, because authorized carriers must
file annual reports detailing LHWCA payments they have made for the
prior calendar year, the Department possesses concrete information
supplied by these carriers on which to base its analysis. Thus, the
Department believes that the recent past experience of authorized
carriers forms a valid basis for judging the potential impact of the
proposed rule.
The Department first determined the number of small entities in the
authorized carrier group. The Department divided the authorized carrier
group into two segments based on their classifications under the North
American Industry Classification System for 2002 (NAICS 2002). It then
applied the Small Business Administration's (SBA) size standards for
each of these segments.\1\
---------------------------------------------------------------------------
\1\ The Department was unable to determine the number of
employees and/or total revenues for seven authorized carriers and,
thus, unable to determine whether they meet the SBA's size standards
for small entities. These entities include two non-U.S. public
companies.
---------------------------------------------------------------------------
The first segment is direct property and casualty insurers (code
524126). For these insurers, the SBA size standard is 1,500 employees,
regardless of a firm's annual revenues. Entities with fewer employees
are considered ``small'' for RFA purposes. Applying this size standard,
the Department estimates that one direct property and casualty insurer
authorized to write Longshore insurance is ``small.''
The second segment is all other insurers (including direct life
insurance carriers, code 524113; direct health and medical insurance
carriers, code 524114; direct title insurance carriers, code 524127;
all other direct insurance carriers, code 524128; and reinsurance
carriers, code 524130). The SBA's size standard for the rest of the
insurance carrier industry is annual revenues of $6,000,000. Entities
with revenues falling below this amount are considered ``small'' for
RFA purposes. Applying this size standard, the Department estimates
that three of the authorized carriers falling into the remaining
categories are ``small.'' Thus, of the 385 carriers authorized to write
Longshore insurance, the Department estimates that approximately 4, or
a total of 1.05%, are small entities under the SBA's size standards.\2\
---------------------------------------------------------------------------
\2\ Two of these four carriers are not-for-profit; thus, they
potentially meet the ``small organization'' definition in RFA
section 601(4). To determine whether these carriers should be
considered small, the Department applied the SBA size standards for
a ``small business.'' Both carriers meet those standards. Thus, the
Department has classified both as ``small organizations.'' Because
these carriers serve the same function and would be governed by the
same security deposit requirements as for-profit carriers, the
Department has chosen to include them with the ``small business''
carriers in evaluating the proposed rule's potential impact.
---------------------------------------------------------------------------
The Department then evaluated the potential impact the proposed
regulations would have had on these four individual insurance carriers
had they been in place for calendar years 2001 and 2002. Two of these
carriers currently have no security deposited and, for calendar years
2001 and 2002,
[[Page 12223]]
paid no Longshore benefits. Under the proposed rule, these carriers
would not have had to post a security deposit because the rule ties the
security deposit amount to a carrier's current liabilities. Thus, for
these two small carriers, the rule would have imposed no additional
cost.
The third carrier's premium revenues (apart from other income) for
calendar year 2002 totaled $3,262,000. During calendar years 2001 and
2002, which are representative of average years for this carrier, the
carrier paid a total of $47,000 in Longshore benefits. In 1992, this
carrier posted $400,000 in negotiable securities to secure its
liabilities. Under the proposed rules, this carrier would not have been
required to post security because it is in a State whose guaranty fund
fully secures Longshore Act obligations. Thus, its security deposit
would have been reduced. Even assuming this or a similar carrier were
required to post $400,000 under the proposed rules because it was not
in such a State, it could have met its security obligation by a method
requiring a small initial cash outlay, such as by purchasing an
indemnity bond. The Department estimates a $400,000 bond would cost
approximately $6,000-$8000 at typical current rates; that cost amounts
to only 0.18% to 0.24% of the carrier's 2002 revenues. Many carriers
choose to deposit negotiable securities to secure their obligations, as
this one did. Although in this case the deposit of $400,000 in
negotiable securities amounted to approximately 12% of the carrier's
2002 revenues, the carrier continued to own the securities (subject to
DLHWC's security interest) and received the income generated by them.
Moreover, because carriers may freely choose whether to deposit
negotiable securities or purchase an indemnity bond, the appropriate
cost measure for this analysis is the cost of the indemnity bond.
The fourth carrier is a direct property and casualty insurer that
is classified as ``small'' because it employs fewer than 1,500 people.
Its high premium revenues, however, render its security deposit
obligations under both DLHWC's current policy and the proposed
regulations insignificant. For calendar year 2002, this carrier's
premium revenues (apart from other income) totaled approximately
$300,000,000. It pays, on average, $2,000,000 per year in Longshore
benefits and currently has posted $3,125,000 in negotiable securities
to secure its LHWCA obligations. Assuming the same deposit would be
required under the proposed rule, the cost to the carrier would be
approximately 1.04% of its annual revenues, a percentage the Department
does not deem significant especially because the carrier would continue
to receive any income from the negotiable securities posted.
Thus, the Department believes that the proposed rule will have no
significant economic impact on any currently authorized small carriers.
For reasons similar to those explained above, the Department further
believes that the proposed rule will have no significant economic
impact on possible small carrier entrants.
Small carriers who would not be required to post security deposits
with DLHWC under its current policy (such as carriers doing business in
States with guaranty funds that fully secure their liability) will for
the same reason likely not be required to post security deposits,
including the minimum security provided for in proposed Sec.
703.204(c), under the proposed policy. Other small carriers will only
have to post security deposits in the amount of their own current
obligations, making posting more affordable for firms with low
liabilities and thus making entry easier for small firms that would
like to enter this market. Indeed, the proposed rules will not require
the posting of any security by carriers with no outstanding
obligations, so such carriers would no longer have to post the minimum
$200,000 deposit that DLHWC currently requires of all carriers who do
not have an A or better rating from the A.M. Best Company.
The proposed regulations will also result in a financial benefit to
some small carriers in another way. Once all carriers have fully
secured their liabilities, as the proposed rule requires, special fund
assessments for those small carriers who must pay them are expected to
decrease. The special fund's costs, which are calculated and assessed
against authorized Longshore insurance carriers and self-insured
employers each year, are primarily incurred for benefit payments in two
circumstances: (1) When a carrier (and the employer it insured) or a
self-insurer are insolvent; and (2) when a carrier or employer is
entitled to relief under 33 U.S.C. 908(f) (second-injury fund). Because
the requirement that liabilities be fully secured should decrease the
fund's costs for benefits paid on behalf of insolvent carriers, the
special fund assessments levied against small carriers are expected to
decrease commensurately.
Although not dispositive, the Department has also noted that no
carriers--small or otherwise--left the authorized carrier ranks when
DLHWC first instituted its security deposit requirements in 1990.
Moreover, no one who responded to DLHWC's Request For Information
published in the Federal Register on February 22, 2002, expressed
concern over any impact that OWCP's current security deposit
requirements or those it might adopt would have on small entities.
Thus, whether viewed as four small entities out of 385, 11 small
entities (four plus the seven carriers the Department was unable to
classify) out of 385, or no entities within the four identified as
small, the Department concludes that the proposed carrier security
deposit rules will not have a significant economic impact on a
substantial number of small entities.
The Department also believes that the proposed revisions to the
self-insurer authorization regulations will not have a significant
economic impact on a substantial number of small entities. These
revisions do not change the financial or record-keeping requirements
currently imposed on self-insurers. As explained above, the revisions
are principally designed to modernize the rules' language and
structure, reflect organizational changes within OWCP, and conform the
rules to DLHWC's current policies and practices. For instance, the
proposed revisions codify DLHWC's longstanding policy of allowing self-
insurers to use letters of credit from approved financial institutions
to secure their LHWCA obligations. DLHWC will continue to require self-
insured employers to deposit security in the same amounts and form as
under the current regulations. Thus, the proposed revisions to the
self-insurer regulations will not have a significant economic impact on
any entities, including those that might be classified as small under
the SBA's size standards.
The Assistant Secretary of Labor for Employment Standards hereby
certifies that this rule will not have a significant economic impact on
a substantial number of small entities. As a result, no regulatory
impact analysis is required. The factual basis for this certification
is set out above. The Department invites comments from members of the
public who believe the proposed regulations will have a significant
economic impact on a substantial number of small insurance carriers or
employers seeking authority to self-insure. The Assistant Secretary has
also provided the Chief Counsel for Advocacy with a copy of this
certification, together with the factual basis for the certification.
[[Page 12224]]
IX. Executive Order 12988 (Civil Justice)
This proposed rule has been drafted and reviewed in accordance with
Executive Order 12988 and will not unduly burden the Federal court
system if promulgated as a final rule. The LHWCA does not provide any
specific procedures for insurance carriers to follow in order to seek
review of DLHWC decisions regarding the extent of their LHWCA
obligations and the amount of any required security deposit. Nor does
the statute set out procedures for employers denied authorization to
self-insure or who disagree with the security deposit amount set by
DLHWC. A very small number of these carriers and employers annually
(three or less) will likely seek review of adverse decisions in the
United States district courts pursuant to the Administrative Procedure
Act. This rule should minimize the burden placed upon the courts by
litigation seeking to challenge these decisions by giving carriers and
employers an opportunity to seek administrative review of adverse
decisions and by providing a clear legal standard for such decisions.
The rule has also been reviewed carefully to eliminate drafting errors
and ambiguities.
X. Executive Order 13132 (Federalism)
The Department has reviewed this proposed rule in accordance with
Executive Order 13132 regarding federalism, and has determined that it
does not have ``federalism implications.'' The proposed rule will not
``have substantial direct effects on the States, on the relationship
between the national government and the States, or on the distribution
of power and responsibilities among the various levels of government,''
if promulgated as a final rule.
XI. Executive Order 13045 (Protection of Children From Environmental,
Health Risks and Safety Risks)
In accordance with Executive Order 13045, the Department has
evaluated the environmental health and safety effects this proposed
rule would have on children. The Department has determined that if
promulgated as a final rule, the proposed rule would have no effect on
children.
XII. Executive Order 13211 (Actions Concerning Regulations That
Significantly Affect Energy Supply, Distribution, or Use)
In accordance with Executive Order 13211, the Department has
evaluated the effects of this proposed rule on energy supply,
distribution or use, and has determined that this rule, if promulgated
as a final rule, would likely not have a significant adverse effect on
them.
XIII. Congressional Review Act
This proposed rule is not a ``major rule'' as defined in the
Congressional Review Act (5 U.S.C. 801 et seq.). If promulgated as a
final rule, this rule will not result in an annual effect on the
economy of $100,000,000 or more; a major increase in costs or prices
for consumers, individual industries, Federal, State, or local
government agencies, or geographic regions; or significant adverse
effects on competition, employment, investment, productivity,
innovation, or on the ability of United States-based enterprises to
compete with foreign-based enterprises in domestic and export markets.
XIV. Catalog of Federal Domestic Assistance Number
This program is not listed in the Catalog of Federal Domestic
Assistance.
List of Subjects
20 CFR Part 701
Longshore and harbor workers, Organization and functions
(government agencies), Workers' compensation.
20 CFR Part 703
Bonds, Insurance companies, Longshore and harbor workers, Reporting
and recordkeeping requirements, Securities, Workers' compensation.
For the reasons set forth in the preamble, title 20, chapter VI,
subchapter A of the Code of Federal Regulations is proposed to be
amended as follows:
PART 701--GENERAL PROVISIONS, DEFINITIONS AND USE OF TERMS
1. The authority citation for part 701 is revised to read as
follows:
Authority: 5 U.S.C. 301 and 8171 et seq.; 33 U.S.C. 939; 36 D.C.
Code 501 et seq.; 42 U.S.C. 1651 et seq.; 43 U.S.C. 1331;
Reorganization Plan No. 6 of 1950, 15 FR 3174, 3 CFR, 1949-1953
Comp., p. 1004, 64 Stat. 1263.
2. Revise Sec. 701.101 to read as follows:
Sec. 701.101 Scope of this subchapter and subchapter B.
(a) This subchapter contains the regulations governing the
administration of the Longshore and Harbor Workers' Compensation Act,
as amended (LHWCA), 33 U.S.C. 901 et seq., except activities, pursuant
to 33 U.S.C. 941, assigned to the Assistant Secretary of Labor for
Occupational Safety and Health. It also contains the regulations
governing the administration of the direct extensions of the LHWCA: the
Defense Base Act (DBA), 42 U.S.C. 1651 et seq.; the Outer Continental
Shelf Lands Act (OCSLA), 43 U.S.C. 1331; and the Nonappropriated Fund
Instrumentalities Act (NFIA), 5 U.S.C. 8171 et seq.
(b) The regulations in this subchapter also apply to claims filed
under the District of Columbia Workmen's Compensation Act (DCCA), 36
D.C. Code 501 et seq. That law applies to all claims for injuries or
deaths based on employment events that occurred prior to July 26, 1982,
the effective date of the District of Columbia Workers' Compensation
Act, as amended (D.C. Code 32-1501 et seq.).
(c) The regulations governing the administration of the Black Lung
Benefits Program are in subchapter B of this chapter.
3. Revise Sec. 701.102 to read as follows:
Sec. 701.102 Organization of this subchapter.
Part 701 provides a general description of the regulations in this
subchapter; sets forth information regarding the persons and agencies
within the Department of Labor authorized by the Secretary of Labor to
administer the Longshore and Harbor Workers' Compensation Act, its
extensions and the regulations in this subchapter; and defines and
clarifies use of specific terms in the several parts of this
subchapter. Part 702 of this subchapter contains the general
administrative regulations governing claims filed under the LHWCA. Part
703 of this subchapter contains the regulations governing insurance
carrier authorizations, insurance carrier security deposits, self-
insurer authorizations, and certificates of compliance with the
insurance regulations, as required by sections 32 and 37 of the LHWCA
(33 U.S.C. 932, 937). Because the extensions of the LHWCA (see Sec.
701.101) incorporate by reference nearly all the provisions of the
LHWCA, the regulations in parts 701, 702 and 703 also apply to the
administration of the extensions (DBA, DCCA, OCSLA, and NFIA), unless
otherwise noted. Part 704 of this subchapter contains the exceptions to
the general applicability of parts 702 and 703 for the DBA, the DCCA,
the OCSLA, and the NFIA.
4. Revise Sec. 701.201 to read as follows:
[[Page 12225]]
Sec. 701.201 Office of Workers' Compensation Programs.
The Office of Workers' Compensation Programs (OWCP) is responsible
for administering the LHWCA and its extensions (see 20 CFR 1.2(e)). The
regulations in subchapter A of chapter I of this title (20 CFR part 1)
describe OWCP's establishment within the Employment Standards
Administration, the functions assigned to it by the Assistant Secretary
of Labor for Employment Standards, and how those functions were
performed before OWCP's establishment.
Sec. 701.202 [Reserved]
Sec. 701.203 [Reserved]
5. Remove and reserve Sec. Sec. 701.202 and 701.203.
6. Amend Sec. 701.301 by revising paragraphs (a)(1), (a)(5),
(a)(6), (a)(7), (a)(8), (a)(9), (a)(10), (a)(12)(i)(B), (a)(12)(ii)(A)
and (a)(12)(iii)(E) to read as follows:
Sec. 701.301 Definitions and use of terms.
(a) * * *
(1) Act or LHWCA means the Longshore and Harbor Workers'
Compensation Act, as amended (33 U.S.C. 901 et seq.), and includes the
provisions of any statutory extension of such Act (see Sec. 701.101(a)
and (b)) pursuant to which compensation on account of an injury is
sought.
* * * * *
(5) Office of Workers' Compensation Programs or OWCP or the Office
means the Office of Workers' Compensation Programs within the
Employment Standards Administration, referred to in Sec. 701.201 and
described more fully in part 1 of this title. The term Office of
Workmen's Compensation Programs shall have the same meaning as Office
of Workers' Compensation Programs (see 20 CFR 1.6(b)).
(6) Director means the Director of OWCP, or his or her authorized
representative.
(7) District Director means a person appointed as provided in
sections 39 and 40 of the LHWCA or his or her designee, authorized to
perform functions with respect to the processing and determination of
claims for compensation under the LHWCA and its extensions as provided
therein and under this subchapter. The term District Director is
substituted for the term Deputy Commissioner used in the statute. This
substitution is for administrative purposes only and in no way affects
the power or authority of the position as established in the statute.
Any action taken by a person under the authority of a district director
will be considered the action of a deputy commissioner.
(8) Administrative Law Judge means a person appointed as provided
in 5 U.S.C. 3105 and subpart B of 5 CFR part 930, who is qualified to
preside at hearings under 5 U.S.C. 557 and is empowered by the
Secretary to conduct formal hearings whenever necessary in respect of
any claim for compensation arising under the LHWCA and its extensions.
(9) Chief Administrative Law Judge means the Chief Judge of the
Office of Administrative Law Judges, United States Department of Labor,
whose office is at the location set forth in 29 CFR 18.3(a).
(10) Board or Benefits Review Board means the Benefits Review Board
established by section 21 of the LHWCA (33 U.S.C. 921) as amended and
constituted and functioning pursuant to the provisions of chapter VII
of this title and Secretary of Labor's Order No. 38-72 (38 FR 90),
whose office is at the location set forth in 20 CFR 802.204.
* * * * *
(12) (i) * * *
(B) Any harbor worker, including a ship repairer, shipbuilder and
shipbreaker; and
* * * * *
(ii) * * *
(A) A master or member of a crew of any vessel; or
* * * * *
(iii) * * *
(E) Aquaculture workers, meaning those employed by commercial
enterprises involved in the controlled cultivation and harvest of
aquatic plants and animals, including the cleaning, processing or
canning of fish and fish products, the cultivation and harvesting of
shellfish, and the controlled growing and harvesting of other aquatic
species; or
* * * * *
PART 703--INSURANCE REGULATIONS
7. The authority citation for part 703 is revised to read as
follows:
Authority: 5 U.S.C. 301 and 8171 et seq.; 31 U.S.C. 9701; 33
U.S.C. 932 and 939; 36 D.C. Code 501 et seq.; 42 U.S.C. 1651 et
seq.; 43 U.S.C. 1331; Reorganization Plan No. 6 of 1950, 15 FR 3174,
3 CFR, 1949-1953 Comp., p. 1004, 64 Stat. 1263; Secretary's Order 4-
2001, 66 FR 29656.
8. Amend part 703 by designating Sec. Sec. 703.1 through 703.3 as
``Subpart A--Generals,'' by designating the center heading
``Authorization of Insurance Carriers'' as ``Subpart B--Authorization
of Insurance Carriers'' and revising subpart A to read as follows:
Subpart A--General
Sec.
703.1 Scope of part.
703.2 Forms.
703.3 Failure to secure coverage; penalties.
Subpart B--Authorization of Insurance Carriers
* * * * *
Subpart A--General
Sec. 703.1 Scope of part.
Part 703 governs insurance carrier authorizations, insurance
carrier security deposits, self-insurer authorizations, and
certificates of compliance with the insurance regulations. These
provisions are required by the LHWCA and apply to the extensions of the
LHWCA except as otherwise provided in part 704 of this subchapter.
Sec. 703.2 Forms.
(a) Any information required by the regulations in this part to be
submitted to OWCP must be submitted on forms the Director authorizes
from time to time for such purpose. Persons submitting forms may not
modify the forms or use substitute forms without OWCP's approval.
------------------------------------------------------------------------
Form No. Title
------------------------------------------------------------------------
(1) LS-271................................ Application for Self-
Insurance.
(2) LS-274................................ Report of Injury Experience.
(3) LS-275 SI............................. Self-Insurer's Agreement and
Undertaking.
(4) LS-275 IC............................. Insurance Carrier's
Agreement and Undertaking.
(5) LS-276................................ Application for Security
Deposit Determination.
(6) LS-405................................ Indemnity Bond.
(7) LS-570................................ Card Report of Insurance.
------------------------------------------------------------------------
(b) Copies of the forms listed in this section are available for
public inspection at the Office of Workers' Compensation Programs,
Employment Standards Administration, U.S. Department of Labor,
Washington, D.C. 20210. They may also be obtained from OWCP district
offices and on the Internet at http://www.dol.gov/esa/owcp/dlhwc/lsforms.htm
.
Sec. 703.3 Failure to secure coverage; penalties.
(a) Each employer must secure the payment of compensation under the
Act either through an authorized insurance carrier or by becoming an
authorized self-insurer under section 32(a)(1) or (2) of the Act (33
U.S.C. 932(a)(1) or (2)).
[[Page 12226]]
An employer who fails to comply with these provisions is subject, upon
conviction, to a fine of not more than $10,000, or by imprisonment for
not more than one year, or both. Where the employer is a corporation,
the president, secretary and treasurer each will also be subject to
this fine and/or imprisonment, in addition to the fine against the
corporation, and each is severally personally liable, jointly with the
corporation, for all compensation or other benefits payable under the
Act while the corporation fails to secure the payment of compensation.
(b) Any employer who willingly and knowingly transfers, sells,
encumbers, assigns or in any manner disposes of, conceals, secretes, or
destroys any property belonging to the employer after an employee
sustains an injury covered by the Act, with the intent to avoid payment
of compensation under the Act to that employee or his/her dependents,
shall be guilty of a misdemeanor and punished, upon conviction, by a
fine of not more than $10,000 and/or imprisonment for one year. Where
the employer is a corporation, the president, secretary and treasurer
are also severally liable to imprisonment and, along with the
corporation, jointly liable for the fine.
9. Amend Part 703 by adding subpart designations to the
undesignated center headings ``Authorization of Self-Insurers'' and
``Issuance of Certificates of Compliance,'' adding Subpart C, and
revising subpart D to read as follows:
Subpart C--Insurance Carrier Security Deposit Requirements
Sec.
703.201 Deposits of security by insurance carriers.
703.202 Identification of significant gaps in State guaranty fund
coverage for LHWCA obligations.
703.203 Application for security deposit determination; information
to be submitted; other requirements.
703.204 Decision on insurance carrier's application; minimum amount
of deposit.
703.205 Filing of Agreement and Undertaking; deposit of security.
703.206 [Reserved]
703.207 Kinds of negotiable securities that may be deposited;
conditions of deposit; acceptance of deposits.
703.208 Deposits of negotiable securities with Federal Reserve banks
or the Treasurer of the United States; interest thereon.
703.209 Substitution and withdrawal of indemnity bond, letters of
credit or negotiable securities.
703.210 Increase or reduction in security deposit amount.
703.211 Authority to seize security deposit; use and/or return of
proceeds.
703.212 Required reports; examination of insurance carrier accounts.
703.213 Failure to comply.
Subpart D--Authorization of Self-Insurers
703.301 Employers who may be authorized as self-insurers.
703.302 Application for authority to become a self-insurer; how
filed; information to be submitted; other requirements.
703.303 Decision on employer's application.
703.304 Filing of Agreement and Undertaking; deposit of security.
703.305 [Reserved]
703.306 Kinds of negotiable securities that may be deposited;
conditions of deposit; acceptance of deposits.
703.307 Deposits of negotiable securities with Federal Reserve banks
or the Treasurer of the United States; interest thereon.
703.308 Substitution and withdrawal of indemnity bond, letters of
credit or negotiable securities.
703.309 Increase or reduction in the amount of indemnity bond,
letters of credit or negotiable securities.
703.310 Authority to seize security deposit; use and/or return of
proceeds
703.311 Required reports; examination of self-insurer accounts.
703.312 Period of authorization as self-insurer.
703.313 Revocation of authorization to self-insure.
Subpart E--Issuance of Certificates of Compliance
* * * * *
Subpart C--Insurance Carrier Security Deposit Requirements
Sec. 703.201 Deposits of security by insurance carriers.
The regulations in this subpart require certain insurance carriers
to deposit security in the form of indemnity bonds, letters of credit
or negotiable securities (chosen at the option of the carrier) of a
kind and in an amount determined by the Office, and prescribe the
conditions under which deposits must be made. Security deposits secure
the payment of benefits when an insurance carrier defaults on any of
its obligations under the LHWCA, regardless of the date such
obligations arose. They also secure the payment of benefits when a
carrier with LHWCA obligations becomes insolvent in States with no
insurance guaranty funds, or with guaranty funds that do not fully
secure such obligations. Any gap in State guaranty fund coverage will
have a direct effect on the amount of security the Office will require
a carrier to post. The terms ``obligations under the Act'' and ``LHWCA
obligations'' include a carrier's obligations arising under the
Longshore and Harbor Workers' Compensation Act and any of its
extensions.
Sec. 703.202 Identification of significant gaps in State guaranty
fund coverage for LHWCA obligations.
(a) In determining the amount of a carrier's required security
deposit, the Office will consider the extent to which a State guaranty
fund secures the insurance carrier's LHWCA obligations in that State.
When evaluating State guaranty funds, the Office may consider a number
of factors including, but not limited to--
(1) Limits on weekly benefit amounts;
(2) Limits on aggregate maximum benefit amounts;
(3) Time limits on coverage;
(4) Ocean marine exclusions;
(5) Employer size and viability provisions; and
(6) Financial strength of the State guaranty fund itself.
(b) OWCP will identify States without guaranty funds and States
with guaranty funds that do not fully and immediately secure LHWCA
obligations and will post its findings on the Internet at http://www.dol.gov/esa/owcp/dlhwc/lstable.htm.
These findings will indicate
the extent of any partial or total gap in coverage provided by a State
guaranty fund, and they will be open for inspection and comment by all
interested parties. If the extent of coverage a particular State
guaranty fund provides either cannot be determined or is ambiguous,
OWCP will deem one third (33\1/3\ percent) of a carrier s LHWCA
obligations in that State to be unsecured. OWCP will revise its
findings from time to time, in response to substantiated public
comments it receives or for any other reasons it considers relevant.
Sec. 703.203 Application for security deposit determination;
information to be submitted; other requirements.
(a) Each insurance carrier authorized by OWCP to write insurance
under the LHWCA or any of its extensions, and each insurance carrier
seeking initial authorization to write such insurance, must apply
annually, on a schedule set by OWCP, for a determination of the extent
of its unsecured obligations and the security deposit required. The
application must be addressed to the Branch of Financial Management and
Insurance (Branch) within OWCP's Division of Longshore and Harbor
Workers' Compensation, and be made on a form provided by OWCP. The
application must contain--
(1) A statement of the carrier's outstanding liabilities under the
LHWCA or any of its extensions for its
[[Page 12227]]
LHWCA obligations for each State in which the obligations arise;
(2) A statement:
(i) Of the deposit amount it believes will fully secure its
obligations; or
(ii) That it has sufficient assets or other means to fully secure
its obligations; and
(3) Any other information the Branch requests to enable it to give
the application adequate consideration including, but not limited to,
the reports set forth at Sec. 703.212.
(b) If the carrier disagrees with any of OWCP's findings regarding
State guaranty funds made under Sec. 703.202(b) as they exist when it
submits its application, the carrier may submit a statement of its
unsecured obligations based on a different conclusion regarding the
extent of coverage afforded by one or more State guaranty funds. The
carrier must submit evidence and/or argument with its application
sufficient to establish that such conclusion is correct.
(c) The carrier must sign and swear to the application. If the
carrier is not an individual, the carrier's duly authorized officer
must sign and swear to the application and list his or her official
designation. If the carrier is a corporation, the officer must also
affix the corporate seal.
(d) At any time after filing an application, the carrier must
inform the Branch immediately of any material changes that may have
rendered its application incomplete, inaccurate or misleading.
(e) By filing an application, the carrier consents to be bound by
and to comply with the regulations and requirements in this part.
Sec. 703.204 Decision on insurance carrier's application; minimum
amount of deposit.
(a) The Branch will issue a decision on the application determining
the extent of an insurance carrier's unsecured LHWCA obligations and
fixing the amount of security the carrier must deposit to fully secure
payment of its unsecured obligations. The Branch will transmit its
decision to the applicant in a way it considers appropriate.
(b) The Branch may reject the deposit amount suggested by the
insurance carrier in its application and make its own determination of
this amount. When evaluating the suggested amount, the Branch may
consider a number of factors including, but not limited to, the--
(1) Financial strength of the carrier;
(2) Financial strength of the carrier's insureds;
(3) Carrier's reinsurance protection;
(4) Carrier's surplus and its recent settlements;
(5) Amount of the carrier's business that is written through the
National Reinsurance Pool operated by the National Council on
Compensation Insurance or other assigned risk pool providing full
protection for LHWCA obligations;
(6) Carrier's deductibles secured by letters of credit;
(7) Carrier's reduced exposure;
(8) Carrier's increases in capitalization;
(9) Extent to which State guaranty funds secure the carrier's LHWCA
obligations in the event the carrier defaults on its obligations or
becomes insolvent; and
(10) Carrier's expansion of business into additional States with
guaranty funds that will not fully secure its LHWCA obligations.
(c) The Branch will require all carriers that write LHWCA insurance
in one or more of the States identified by OWCP under Sec. 703.202(b)
to deposit security for its unsecured LHWCA obligations in each State
identified. For carriers that write only an insignificant or incidental
amount of LHWCA insurance, the Branch will require a deposit in an
amount determined by the Branch from time to time. For all other
carriers, the Branch will require a minimum deposit of one third (33\1/
3\ percent) of a carrier's outstanding LHWCA obligations in each State,
but may require a deposit up to an amount equal to the carrier's total
outstanding LHWCA obligations (100 percent) in each State.
(d) If a carrier believes that a lesser deposit would fully secure
its LHWCA obligations, the carrier may request a hearing before the
Director of the Division of Longshore and Harbor Workers' Compensation
(Longshore Director) or the Longshore Director's representative.
Requests for hearing must be in writing and sent to the Branch within
10 days of the date of the Branch's decision. The carrier may submit
new evidence and/or argument in support of its challenge to the
Branch's decision and must provide any additional documentation OWCP
requests. The Longshore Director or his representative will notify the
carrier of the hearing date within 10 days of receiving the request.
The Longshore Director or his representative will issue the final
agency decision on the application within 60 days of the hearing date,
or, where evidence is submitted after the hearing, within 60 days of
the receipt of such evidence, but no later than 180 days after
receiving the carrier's request for a hearing.
Sec. 703.205 Filing of Agreement and Undertaking; deposit of
security.
Within 45 days of the date on which the insurance carrier receives
the Branch's decision (or, if the carrier requests a hearing, a period
set by the Longshore Director or the Longshore Director's
representative) determining the extent of its unsecured LHWCA
obligations and fixing the required security deposit amount (see Sec.
703.203), the carrier must:
(a) Execute and file with the Branch an Agreement and Undertaking,
in a form prescribed and provided by OWCP, in which the carrier shall
agree to--
(1) Deposit with the Branch indemnity bonds or letters of credit in
the amount fixed by the Office, or deposit negotiable securities under
Sec. Sec. 703.207 and 703.208 in that amount;
(2) Authorize the Branch, at its discretion, to bring suit under
any deposited indemnity bond or to draw upon any deposited letters of
credit, as appropriate under the terms of the security instrument, or
to collect the interest and principal as they become due on any
deposited negotiable securities and to sell or otherwise liquidate such
negotiable securities or any part thereof when--
(i) The carrier defaults on any of its LHWCA obligations;
(ii) The carrier fails to renew any deposited letter of credit or
substitute acceptable securities in its place;
(iii) The carrier fails to renew any deposited negotiable
securities at maturity or substitute acceptable securities in their
place;
(iv) State insolvency proceedings are initiated against the
carrier; or
(v) The carrier fails to comply with any of the terms of the
Agreement and Undertaking; and
(3) Authorize the Branch, at its discretion, to pay such ongoing
claims of the carrier as it may find to be due and payable from the
proceeds of the deposited security;
(b) Give security in the amount fixed in the Office's decision:
(1) In the form of an indemnity bond with sureties satisfactory to
the Branch and in such form, and containing such provisions, as the
Branch may prescribe: Provided, That only surety companies approved by
the United States Treasury Department under the laws of the United
States and the rules and regulations governing bonding companies may
act as sureties on such indemnity bonds (see Department of Treasury's
Circular-570), and that a surety company that is a corporate subsidiary
of an insurance carrier may
[[Page 12228]]
not act as surety on such carrier's indemnity bond;
(2) In the form of letters of credit issued by a financial
institution satisfactory to the Branch and upon which the Branch may
draw; or
(3) By a deposit of negotiable securities with a Federal Reserve
Bank or the Treasurer of the United States in compliance with
Sec. Sec. 703.207 and 703.208.
Sec. 703.206 [Reserved]
Sec. 703.207 Kinds of negotiable securities that may be deposited;
conditions of deposit; acceptance of deposits.
An insurance carrier electing to deposit negotiable securities to
secure its obligations under the Act in the amount fixed by the Office
under the regulations in this part shall deposit any negotiable
securities acceptable as security for the deposit of public monies of
the United States under regulations issued by the Secretary of the
Treasury. (See 31 CFR part 225.) The approval, valuation, acceptance,
and custody of such securities is hereby committed to the several
Federal Reserve Banks and the Treasurer of the United States.
Sec. 703.208 Deposits of negotiable securities with Federal Reserve
banks or the Treasurer of the United States; interest thereon.
Deposits of negotiable securities provided for by the regulations
in this part must be made with any Federal Reserve bank or any branch
of a Federal Reserve bank designated by the Branch, or the Treasurer of
the United States, and must be held subject to the order of the Branch.
The Branch may, however, authorize the insurance carrier to collect
interest on the securities deposited by it.
Sec. 703.209 Substitution and withdrawal of indemnity bond, letters
of credit or negotiable securities.
(a) No substitution or withdrawal of an indemnity bond, letters of
credit or negotiable securities deposited by an insurance carrier under
the regulations in this part shall be made except when authorized by
the Branch. A carrier that has ceased to write insurance under the Act
may apply to the Branch for withdrawal of its security deposit. The
carrier must file with its application a sworn statement setting
forth--
(1) A list of all cases in each State in which the carrier is
paying compensation, together with the names of the employees and other
beneficiaries, a description of causes of injury or death, and a
statement of the amount of compensation paid;
(2) A similar list of all pending cases in which the carrier has
not yet paid compensation; and
(3) A similar list of all cases in which injury or death has
occurred within one year before such application or in which the last
payment of compensation was made within one year before such
application.
(b) The Branch may authorize withdrawal of previously-deposited
indemnity bonds, letters of credit and negotiable securities that, in
the opinion of the Branch, are not necessary to provide adequate
security for the payment of the carrier's outstanding and potential
LHWCA liabilities. No withdrawals will be authorized unless there has
been no claim activity involving the carrier for a minimum of five
years, and the Branch is reasonably certain that no further claims will
arise.
Sec. 703.210 Increase or reduction in security deposit amount.
(a) Whenever the Office considers the security deposited by an
insurance carrier insufficient to fully secure the carrier's LHWCA
obligations, the carrier must, upon demand by the Branch, deposit
additional security in accordance with the regulations in this part in
an amount fixed by the Branch. The Branch will issue its decision
requiring additional security in accordance with Sec. 703.204, and the
procedures set forth at Sec. Sec. 703.204(d) and 703.205 for
requesting a hearing and complying with the Office's decision will
apply as appropriate.
(b) The Branch may reduce the required security at any time on its
own initiative, or upon application of a carrier, when in the Branch's
opinion the facts warrant a reduction. A carrier seeking a reduction
must furnish any information the Office requests regarding its
outstanding LHWCA obligations for any State in which it does business,
its obligations not secured by a State guaranty fund in each of these
States, and any other evidence as the Branch considers necessary.
Sec. 703.211 Authority to seize security deposit; use and/or return
of proceeds.
(a) The Office may take any of the actions set forth in paragraph
(b) of this section when an insurance carrier--
(1) Defaults on any of its LHWCA obligations;
(2) Fails to renew any deposited letter of credit or substitute
acceptable securities in its place;
(3) Fails to renew any deposited negotiable securities at maturity
or substitute acceptable securities in their place;
(4) Has State insolvency proceedings initiated against it; or
(5) Fails to comply with any of the terms of the Agreement and
Undertaking.
(b) When any of the conditions set forth in paragraph (a) of this
section occur, the Office may, within its discretion and as appropriate
to the security instrument--
(1) Bring suit under any indemnity bond;
(2) Draw upon any letters of credit;
(3) Seize any negotiable securities, collect the interest and
principal as they may become due, and sell or otherwise liquidate the
negotiable securities or any part thereof.
(c) When the Office, within its discretion, determines that it no
longer needs to collect the interest and principal of any negotiable
securities seized pursuant to paragraphs (a) and (b) of this section,
or to retain the proceeds of their sale, it must return any of the
carrier's negotiable securities still in its possession and any
remaining proceeds of their sale.
Sec. 703.212 Required reports; examination of insurance carrier
accounts.
(a) Upon the Office's request, each insurance carrier must submit
the following reports:
(1) A certified financial statement of the carrier's assets and
liabilities, or a balance sheet.
(2) A sworn statement showing the extent of the carrier's unsecured
LHWCA obligations for each State in which it is authorized to write
insurance under the LHWCA or any of its extensions.
(3) A sworn statement reporting the carrier's open cases as of the
date of such report, listing by State all death and injury cases,
together with a report of the status of all outstanding claims.
(b) Whenever it considers necessary, the Office may inspect or
examine a carrier's books of account, records, and other papers to
verify any financial statement or other information the carrier
furnished to the Office in any statement or report required by this
section, or any other section of the regulations in this part. The
carrier must permit the Office or its duly authorized representative to
make the inspection or examination. Alternatively, the Office may
accept an adequate independent audit by a certified public accountant.
Sec. 703.213 Failure to comply.
The Office may suspend or revoke a carrier's certificate of
authority to write LHWCA insurance under Sec. 703.106 when the carrier
fails to comply with any of the requirements of this part.
[[Page 12229]]
Subpart D--Authorization of Self-Insurers
Sec. 703.301 Employers who may be authorized as self-insurers.
The regulations in this subpart set forth procedures for
authorizing employers to self-insure the payment of compensation under
the Longshore and Harbor Workers' Compensation Act, or its extensions.
The Office may authorize any employer to self-insure who, pursuant to
the regulations in this part, furnishes to the Office satisfactory
proof of its ability to pay compensation directly, and who agrees to
immediately cancel any existing insurance policy when OWCP approves the
employer's application to be self-insured. The regulations require
self-insurers to deposit security in the form of an indemnity bond,
letters of credit or negotiable securities (at the option of the
employer) of a kind and in an amount determined by the Office, and
prescribe the conditions under which such deposits shall be made. The
term ``self-insurer'' as used in this part means any employer securing
the payment of compensation under the LHWCA or its extensions in
accordance with the provisions of 33 U.S.C. 932(a)(2) and this part.
Sec. 703.302 Application for authority to become a self-insurer; how
filed; information to be submitted; other requirements.
(a) Any employer may apply to become an authorized self insurer.
The application must be addressed to the Branch of Financial Management
and Insurance (Branch) within OWCP's Division of Longshore and Harbor
Workers' Compensation, and be made on a form provided by OWCP. The
application must contain--
(1) A statement of the employer's total payroll for the 12 months
before the application date;
(2) A statement of the average number of employees engaged in
employment within the purview of the LHWCA or any of its extensions for
the 12 months before the application date;
(3) A statement of the number of injuries to such employees
resulting in disability of more than 7 days' duration, or in death,
during each of the 5 years before the application date;
(4) A certified financial report for each of the three years before
the application date;
(5) A description of the facilities maintained or the arrangements
made for the medical and hospital care of injured employees;
(6) A statement describing the provisions and maximum amount of any
excess or catastrophic insurance; and
(7) Any other information the Branch requests to enable it to give
the application adequate consideration including, but not limited to,
the reports set forth at Sec. 703.310.
(b) The employer must sign and swear to the application. If the
employer is not an individual, the employer's duly authorized officer
must sign and swear to the application and list his or her official
designation. If the employer is a corporation, the officer must also
affix the corporate seal.
(c) At any time after filing an application, the employer must
inform the Branch immediately of any material changes that may have
rendered its application incomplete, inaccurate or misleading.
(d) By filing an application, the employer consents to be bound by
and to comply with the regulations and requirements in this part.
Sec. 703.303 Decision on employer's application.
(a) The Branch will issue a decision granting or denying the
employer's application to be an authorized self-insurer. If the Branch
grants the application, the decision will fix the amount of security
the employer must deposit. The Branch will transmit its decision to the
employer in a way it considers appropriate.
(b) The employer is authorized to self-insure beginning with the
date of the Branch's decision. Each grant of authority to self-insure
is conditioned, however, upon the employer's execution and filing of an
Agreement and Undertaking and deposit of the security fixed in the
decision in the form and within the time limits required by Sec.
703.304. In the event the employer fails to comply with the
requirements set forth in Sec. 703.304, its authorization to self-
insure will be considered never to have been effective, and the
employer will be subject to appropriate penalties for failure to secure
its LHWCA obligations.
(c) The Branch will require security in the amount it considers
necessary to fully secure the employer's LHWCA obligations. When fixing
the amount of security, the Branch may consider a number of factors
including, but not limited to, the--
(1) Employer's overall financial standing;
(2) Nature of the employer's work;
(3) Hazard of the work in which the employees are employed;
(4) Employer's payroll amount for employees engaged in employment
within the purview of the Act; and
(5) Employer's accident record as shown in the application and the
Office's records.
(d) If an employer believes that the Branch incorrectly denied its
application to self-insure, or that a lesser security deposit would
fully secure its LHWCA obligations, the employer may request a hearing
before the Director of the Division of Longshore and Harbor Workers'
Compensation (Longshore Director) or the Longshore Director's
representative. Requests for hearing must be in writing and sent to the
Branch within ten days of the date of the Branch's decision. The
employer may submit new evidence and/or argument in support of its
challenge to the Branch's decision and must provide any additional
documentation OWCP requests. The Longshore Director or his
representative will notify the employer of the hearing date within 10
days of receiving the request. The Longshore Director or his
representative will issue the final agency decision on the application
within 60 days of the hearing date, or, where evidence is submitted
after the hearing, within 60 days of the receipt of such evidence, but
no later than 180 days after receiving the employer's request for a
hearing.
Sec. 703.304 Filing of Agreement and Undertaking; deposit of
security.
Within 45 days of the date on which the employer receives the
Branch's decision (or, if the employer requests a hearing, a period set
by the Longshore Director or the Longshore Director's representative)
granting its application to self-insure and fixing the required
security deposit amount (see Sec. 703.303), the employer must:
(a) Execute and file with the Branch an Agreement and Undertaking,
in a form prescribed and provided by OWCP in which the employer shall
agree to:
(1) Pay when due, as required by the provisions of the Act, all
compensation payable on account of injury or death of any of its
employees injured within the purview of the Act;
(2) Furnish medical, surgical, hospital, and other attendance,
treatment and care as required by the Act;
(3) Deposit with the Branch indemnity bonds or letters of credit in
the amount fixed by the Office, or deposit negotiable securities under
Sec. Sec. 703.306 and 703.307 in that amount;
(4) Authorize the Branch, at its discretion, to bring suit under
any deposited indemnity bond or to draw upon any deposited letters of
credit, as appropriate under the terms of the security instrument, or
to collect the
[[Page 12230]]
interest and principal as they become due on any deposited negotiable
securities and to seize and sell or otherwise liquidate such negotiable
securities or any part thereof when the employer:
(i) Defaults on any of its LHWCA obligations;
(ii) Fails to renew any deposited letter of credit or substitute
acceptable securities in its place;
(iii) Fails to renew any deposited negotiable securities at
maturity or substitute acceptable securities in their place; or
(iv) Fails to comply with any of the terms of the Agreement and
Undertaking;
(5) Authorize the Branch, at its discretion, to pay such
compensation, medical, and other expenses and any accrued penalties
imposed by law as it may find to be due and payable from the proceeds
of the deposited security; and
(6) Obtain and maintain, if required by the Office, excess or
catastrophic insurance in amounts to be determined by the Office.
(b) Give security in the amount fixed in the Office's decision:
(1) In the form of an indemnity bond with sureties satisfactory to
the Office, and in such form and containing such provisions as the
Office may prescribe: Provided, That only surety companies approved by
the United States Treasury Department under the laws of the United
States and the rules and regulations governing bonding companies may
act as sureties on such indemnity bonds (see Department of Treasury's
Circular--570);
(2) In the form of letters of credit issued by a financial
institution satisfactory to the Branch and upon which the Branch may
draw; or,
(3) By a deposit of negotiable securities with a Federal Reserve
Bank or the Treasurer of the United States in compliance with
Sec. Sec. 703.306 and 703.307.
Sec. 703.305 [Reserved]
Sec. 703.306 Kinds of negotiable securities that may be deposited;
conditions of deposit; acceptance of deposits.
A self-insurer or a self-insurer applicant electing to deposit
negotiable securities to secure its obligations under the Act in the
amount fixed by the Office under the regulations in this part shall
deposit any negotiable securities acceptable as security for the
deposit of public monies of the United States under regulations issued
by the Secretary of the Treasury. (See 31 CFR part 225.) The approval,
valuation, acceptance, and custody of such securities is hereby
committed to the several Federal Reserve Banks and the Treasurer of the
United States.
Sec. 703.307 Deposits of negotiable securities with Federal Reserve
banks or the Treasurer of the United States; interest thereon.
Deposits of negotiable securities provided for by the regulations
in this part shall be made with any Federal Reserve bank or any branch
of a Federal Reserve bank designated by the Office, or the Treasurer of
the United States, and shall be held subject to the order of the
Office. The Office may, however, authorize the self-insurer to collect
interest on the securities deposited by it.
Sec. 703.308 Substitution and withdrawal of indemnity bond, letters
of credit or negotiable securities.
(a) No substitution or withdrawal of an indemnity bond, letters of
credit or negotiable securities deposited by a self-insurer under the
regulations in this part shall be made except when authorized by the
Office. A self-insurer discontinuing business, discontinuing operations
within the purview of the Act, or securing the payment of compensation
by commercial insurance under the provisions of the Act may apply to
the Office for the withdrawal of the security it provided under the
regulations in this part. The self-insurer must file with its
application a sworn statement setting forth--
(1) A list of all cases in each compensation district in which the
self-insurer is paying compensation, together with the names of the
employees and other beneficiaries, a description of causes of injury or
death, and a statement of the amount of compensation paid;
(2) A similar list of all pending cases in which the self-insurer
has not yet paid compensation; and
(3) A similar list of all cases in which injury or death has
occurred within one year before such application or in which the last
payment of compensation was made within one year before such
application.
(b) The Office may authorize withdrawal of previously-deposited
indemnity bonds, letters of credit and negotiable securities that, in
the opinion of the Office, are not necessary to provide adequate
security for the payment of the self-insurer's outstanding and
potential LHWCA obligations. No withdrawals will be authorized unless
there has been no claim activity involving the self-insurer for a
minimum of five years, and the Office is reasonably certain no further
claims will arise.
Sec. 703.309 Increase or reduction in the amount of indemnity bond,
letters of credit or negotiable securities.
(a) Whenever the Office considers the principal sum of the
indemnity bond or letters of credit filed or the amount of the
negotiable securities deposited by a self-insurer insufficient to fully
secure the self-insurer's LHWCA obligations, the self-insurer must,
upon demand by the Office, deposit additional security in accordance
with the regulations in this part in an amount fixed by the Branch. The
Branch will issue its decision requiring additional security in
accordance with Sec. 703.303, and the procedures set forth at
Sec. Sec. 703.303(d) and 703.304 for requesting a hearing and
complying with the Office's decision will apply as appropriate.
(b) The Office may reduce the required security at any time on its
own initiative, or upon application of a self-insurer, when in the
Office's opinion the facts warrant a reduction. A self-insurer seeking
a reduction must furnish any information the Office requests regarding
its current affairs, the nature and hazard of the work of its
employees, the amount of its payroll for employees engaged in maritime
employment within the purview of the Act, its financial condition, its
accident experience, a record of compensation payments it has made, and
any other evidence the Branch considers necessary.
Sec. 703.310 Authority to seize security deposit; use and/or return
of proceeds.
(a) The Office may take any of the actions set forth in paragraph
(b) of this section when a self-insurer--
(1) Defaults on any of its LHWCA obligations;
(2) Fails to renew any deposited letter of credit or substitute
acceptable securities in its place;
(3) Fails to renew any deposited negotiable securities at maturity
or substitute acceptable securities in their place; or
(4) Fails to comply with any of the terms of the Agreement and
Undertaking.
(b) When any of the conditions set forth in paragraph (a) of this
section occur, the Office may, within its discretion and as appropriate
to the security instrument--
(1) Bring suit under any indemnity bond;
(2) Draw upon any letters of credit;
(3) Seize any negotiable securities, collect the interest and
principal as they may become due, and sell or otherwise liquidate the
negotiable securities or any part thereof.
(c) When the Office, within its discretion, determines that it no
longer
[[Page 12231]]
needs to collect the interest and principal of any negotiable
securities seized pursuant to paragraphs (a) and (b) of this section,
or to retain the proceeds of their sale, it must return any of the
employer's negotiable securities still in its possession and any
remaining proceeds of their sale.
Sec. 703.311 Required reports; examination of self-insurer accounts.
(a) Upon the Office's request, each self-insurer must submit the
following reports:
(1) A certified financial statement of the self-insurer's assets
and liabilities, or a balance sheet.
(2) A sworn statement showing by classifications the payroll of
employees of the self-insurer who are engaged in employment within the
purview of the LHWCA or any of its extensions.
(3) A sworn statement covering the six-month period preceding the
date of such report, listing by compensation districts all death and
injury cases which have occurred during such period, together with a
report of the status of all outstanding claims showing the particulars
of each case.
(b) Whenever it considers necessary, the Office may inspect or
examine a self-insurer's books of account, records, and other papers to
verify any financial statement or other information the self-insurer
furnished to the Office in any report required by this section, or any
other section of the regulations in this part. The self-insurer must
permit the Office or its duly authorized representative to make the
inspection or examination. Alternatively, the Office may accept an
adequate report of a certified public accountant.
Sec. 703.312 Period of authorization as self-insurer.
(a) Self-insurance authorizations will remain in effect for so long
as the self-insurer complies with the requirements of the Act, the
regulations in this part, and OWCP.
(b) A self-insurer who has secured its liability by depositing an
indemnity bond with the Office will, on or about May 10 of each year,
receive from the Office a form for executing a bond that will continue
its self-insurance authorization. The submission of such bond, duly
executed in the amount indicated by the Office, will be deemed a
condition of the continuing authorization.
Sec. 703.313 Revocation of authorization to self-insure.
The Office may for good cause shown suspend or revoke the
authorization of any self-insurer. Failure by a self-insurer to comply
with any provision or requirement of law or of the regulations in this
part, or with any lawful order or communication of the Office, or the
failure or insolvency of the surety on its indemnity bond, or
impairment of financial responsibility of such self-insurer, shall be
deemed good cause for suspension or revocation.
Signed in Washington, DC, this 5th day of March, 2004.
Victoria Lipnic,
Assistant Secretary for Employment Standards.
[FR Doc. 04-5631 Filed 3-12-04; 8:45 am
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