Amends TCA Title 12; Title 48; Title 50 and Title 56.

ON MARCH 14, 2024, THE HOUSE ADOPTED AMENDMENTS #1 AND #2 AND PASSED HOUSE BILL 2306, AS AMENDED. AMENDMENT #1 rewrites the bill to, instead, establish the "Tennessee Self-Insurers' Guaranty Association Act" ("act") to govern the Tennessee self-insurers' guaranty association ("association"), with the purpose of providing a mechanism for the payment of self-insured workers' compensation claims to avoid excessive delay in payment and to avoid financial loss to claimants because of the insolvency of a self-insured employer, and to provide an association to assess the cost of the protection among self-insured employers doing business in this state. This amendment establishes that all member self-insurers are and must remain members of the association and participate as required in the plan of operation as a condition of their authority to self-insure in this state. This act does not apply to groups of self-insured employers that enter into agreements to pool their liabilities pursuant to state workers' compensation law. This amendment requires the association to perform its functions under a plan of operation established and approved by the commissioner of commerce and insurance ("commissioner"). The association must exercise its powers through a board of directors established by this act. For purposes of this amendment, a "member self-insurer" means a person holding (i) an active certificate of authority from the commissioner to self-insure its workers' compensation liabilities; or (ii) an inactive certificate of authority from the commissioner to self-insure its workers' compensation liabilities pursuant to state law and as further defined or limited in the plan of operation. However, the term does not include a self-insured group. BOARD OF DIRECTORS This amendment establishes that the board of directors of the association consists of five persons serving three-year terms, with each director having one vote. This amendment requires the commissioner to select the members of the board. The commissioner, or the commissioner's delegate, must serve on the board in a nonvoting capacity. At least three board members must be employed by a company holding an active certificate of authority to self-insure in this state. Vacancies on the board must be filled for the remaining period of the term in the same manner as initial appointments. In making selections to the board, this amendment requires the commissioner to consider, among other things, whether all member self-insurers are fairly represented. This amendment establishes that members of the board serve without compensation but may be reimbursed from the assets of the association for expenses incurred by them as members of the board of directors in accordance with the comprehensive travel regulations as promulgated by the department of finance and administration ("department") and approved by the attorney general. POWERS AND DUTIES OF THE ASSOCIATION This amendment requires the association to (i) adopt procedures to prevent dissemination of confidential information; (ii) maintain cash, readily marketable securities, or other assets, or a line of credit, approved by the commissioner, sufficient to immediately continue the payment of the compensation obligations of an insolvent self-insurer pending assessment of the member self-insurers; (iii) provide for a risk-based security program ("program") in its plan of operation; (iv) hold individual collateral for member self-insurers who do not participate in full in the program; (v) pay the legitimate claims of insolvent self-insurers; (vi) seek tax exempt status from the IRS; and not conduct any activities inconsistent with such status; (vii) establish procedures for the indemnification and defense of any directors and officers as against any claims made against a director or officer in the performance of the director's or officer's duties; and (viii) seek recoveries from insolvent self-insurers and third parties as appropriate. This amendment authorizes the association to do the following: (1) Appear in, defend, and appeal any action on a claim brought against the association; (2) Employ or retain such persons as are necessary to handle claims and perform other duties of the association; (3) Borrow funds necessary to affect the purposes of this act in accordance with the plan of operation. In the event of a member default resulting in liabilities payable by the association in excess of its capacity to pay from assessments, the association, in its sole discretion, may by resolution request the Tennessee local development authority to issue bonds or notes in such amounts pursuant to state law in such amounts as the association may determine necessary to provide funds for the payment of said liabilities. However, the amount of the bond issuance may be limited by state law with the Tennessee local development authority having the final authority to determine the total amount of the bond issuance including issuance costs. When the association and the Tennessee local development authority agree that bonds or notes will be issued, the association may annually assess member self-insurers for an amount necessary to secure and provide for the repayment of the indebtedness, including the principal, redemption premium, if any, and interest on, and related costs of issuance of such indebtedness, including bond investors insurance. Necessary assessments collected pursuant to this authority must be collected under the same procedures provided under this heading. Assessments collected under this heading may be assigned and pledged to or on behalf of the Tennessee local development authority for the benefit of the holders of such indebtedness, in order to provide for the payment of the principal of, redemption premium, if any, and interest on such indebtedness, the costs of issuance, and the funding of any reserves and any other payments under the documents under which the indebtedness was incurred. In addition to the assessments provided for under this heading, the association in its sole discretion may utilize assessments made under this heading to service such indebtedness, if necessary. The association is not obligated to pay liabilities solely from the proceeds of bonds or notes; however, if the association causes assessments to be made under this heading for such liabilities, and assigns and pledges such assessments to or on behalf of the Tennessee local development authority as issuer of such indebtedness for the benefit of the holders of bonds or notes, the association may administer such liabilities; (4) Sue or be sued, including the power and right to intervene as a party before any court that has jurisdiction over an insolvent self-insurer; (5) Negotiate and become a party to contracts as are necessary to carry out the purpose of this act; (6) Carry out the association's responsibilities directly or by contract, purchase services and insurance, and borrow funds as the association deems necessary for the protection of the members of the association and the members' employees; (7) Receive confidential information concerning the financial condition of self-insured employers whose liabilities to pay compensation may devolve upon the association; and (8) Perform other acts as are necessary to effectuate this act. This amendment establishes that with respect to any suit involving the association, the following apply: (1) Any action relating to or arising out of this act against the association must be brought in a court in this state. The court in which such action is brought has exclusive jurisdiction over any action relating to or arising out of this act against the association; and (2) Exclusive venue in any action brought against the association is in the circuit or chancery court in Davidson County; however, the association may waive such venue as to a specific action. DEFAULTS This amendment requires the commissioner to promptly notify the association in writing that a member self-insurer has failed to timely pay workers' compensation liabilities when due. The notification must be issued to the member self-insurer and the association. Upon receipt of such notice by the commissioner, the association must promptly take possession of all physical and electronic claims files of the member self-insurer. This provision does not require the commissioner or the association to proactively investigate a possible failure by a member self-insurer to pay workers' compensation liabilities. This amendment establishes that the association is not liable for the administration of any claims, nor the payment of any losses or allocated or unallocated loss adjustment expenses, including costs of claims administration and legal fees, related to an employer who defaulted prior to the effective date of this act, nor penalties assessed for an act or omission on the part of a person other than the association. This amendment requires the association to commence payment of the self-insured employer's claim obligations for which it is liable within 30 days of notification. Payments must be made to claimants whose entitlement to benefits can be ascertained by the association. The association is not liable for the payment or reimbursement of the allocated or unallocated loss adjustment expenses, including costs of claims administered and legal fees incurred by the member self-insurer prior to the association assuming administration of the claims. Upon the assumption of obligations by the association, the association has a right to immediate possession of any posted security and the custodian, surety, or issuer of any irrevocable letter of credit must turn over the security to the association, together with the interest that has accrued since the date of the employer's default or insolvency. This amendment establishes that the payment of benefits by the association from security deposit proceeds releases and discharges any custodian of the security deposit or surety, issuer of a letter of credit, and the employer from liability to fulfill obligations to provide those same benefits as compensation but does not release a person from any liability to the association for full reimbursement. Payment by a surety constitutes a full release of the surety's liability under the bond to the extent of that payment and entitles the surety to full reimbursement by the principal or the principal's estate. Full reimbursement includes necessary attorney fees and other costs and expenses, without prior claim or proceedings on the part of the injured employee or other beneficiaries. This amendment requires that the association be a party in interest in all proceedings involving compensation claims against an insolvent self-insurer whose compensation obligations have been paid or assumed by the association. The association has the same rights and defenses as the insolvent employer, including the right to (i) appear, defend, and appeal claims; and (ii) receive notice of, investigate, adjust, handle, compromise, settle, deny, and pay claims. This amendment requires the commissioner to promptly advise the association after receipt of information indicating that an employer may be unable to meet its workers' compensation obligations. INDEMNIFICATION AND RECOURSE This amendment authorizes the association to obtain reimbursement from an insolvent self-insurer up to the amount of the employer's workers' compensation obligations paid and assumed by the association, including reasonable administrative and legal costs. This right includes a right to claim for wages and other necessities of life advanced to claimants as subrogee of the claimants in any action to collect against the self-insured as debtor. This amendment authorizes the association to obtain from the security deposit of an insolvent self-insurer the amount of the employer's compensation obligations, including reasonable administrative and legal costs, paid or assumed by the association. This amendment requires the association to be a party in interest in any action to obtain the security deposit for the payment of compensation obligations of an insolvent self-insurer. This amendment establishes that the association has a cause of action against any person to recover compensation paid and liability assumed by the association, including any excess insurance carrier of the insolvent self-insurer, and any person whose negligence or breach of any obligation contributed to any underestimation of the insolvent self-insurer's total accrued liability as reported to the commissioner. This amendment authorizes the association to be a party in interest in any action brought by another person seeking damages resulting from the failure of an insolvent self-insurer to pay workers' compensation required by law. As used under this heading, an "insolvent self-insurer" means any member self-insurer as to whom the commissioner (i) determines has failed to pay workers' compensation benefits to its employees as required by law; and (ii) notifies the association regarding such failure. ASSESSMENTS No later than July 1, 2024, and annually thereafter, this amendment requires the association to assess each of its members a pro rata share of the funding necessary to carry out the purposes of this act. The association must take any action deemed appropriate to collect any delinquent assessments. Upon payment of the deposit assessment, the employer loses all right, title, and interest in the deposit assessment. SECURITY DEPOSITS This amendment requires the association to establish minimum security deposit amounts for each member self-insurer. All security deposits must be posted with the association. This amendment requires the association to return to a self-insured employer all individual security determined to be in excess of that needed to ensure the administration of the employer's self-insurance, including legal fees, and the payment of any future claims. However, this provision does not apply to the program, or to any security utilized by the association following default of a member self-insurer. This amendment authorizes the sharing of all financial, actuarial, or claims information received by the commissioner from an employer to be shared by the commissioner with the association, under terms and conditions as set by the commissioner to preserve the confidentiality of the financial, actuarial, or claims information. PLAN OF OPERATION No later than July 1, 2024, this amendment requires the association to submit to the commissioner a plan of operation and any amendments thereto necessary or suitable to assure the fair, reasonable, and equitable administration of the association. The plan of operation and any amendments become effective upon approval in writing by the commissioner, which the commissioner must provide no later than August 1, 2024. This amendment requires the plan of operation to do the following: (1) Establish the procedures whereby all the powers and duties of the association will be performed; (2) Establish procedures for handling assets of the association, for the orderly transition of security deposits held by the commissioner to the association, and for the orderly transition of member self-insurer reporting responsibilities from the commissioner to the association, including claims reporting, actuarial reporting, and financial reporting; (3) Establish the amount and method of reimbursing members of the board of directors; (4) Establish regular places and times for meetings of the board of directors; (5) Establish procedures for records to be kept of all financial transactions of the association, its agents, and the board of directors; (6) Provide that any member self-insurer aggrieved by any final action or decision of the association may appeal to the commissioner within 30 days after the action or decision; (7) Establish the procedures whereby recommendations for the board of directors will be submitted to the commissioner; (8) Establish a program for eligible members; (9) Establish procedures for the indemnification and defense of officers and directors of the association as against claims arising from the performance of the officers' and directors' duties; and (10) Contain additional provisions necessary or proper for the execution of the powers and duties of the association, including any amendments to the plan of operation. This amendment authorizes the plan of operation to provide that any or all powers of the association are delegated to a corporation, association other than the Tennessee self-insurers' guaranty association, or other organization that performs or will perform functions similar to those of the association, or its equivalent, in two or more states. Such a corporation, association other than the association, or organization must be paid for its performance of any other functions of the association. A delegation under this provision takes effect only with the approval of both the board of directors and the commissioner, and may be made only to a corporation, association other than the association, or organization that extends protection not substantially less favorable and effective than that provided by this act. This amendment requires all member self-insurers to comply with the plan of operation. REPORTS BY THE BOARD This amendment authorizes the board of directors to, upon majority vote, make reports to the commissioner upon any matter germane to the solvency or default of any member self-insurer. EXAMINATION OF THE ASSOCIATION - ANNUAL FINANCIAL REPORT This amendment establishes that the association is subject to examination and regulation by the commissioner. This amendment requires the board of directors to submit a financial report for the preceding calendar year no later than March 30 of each year. TAX AND FEE EXEMPTION This amendment establishes that the association is exempt from payment of all fees, except examination fees, and all taxes levied by this state or any of its subdivisions, except taxes levied on real or personal property. IMMUNITY This amendment establishes that a member self-insurer, the association, or agents, employees, or the board of directors of the association, or the commissioner or the commissioner's representative, is not liable, and a cause of action does not arise against such individuals or entities, for any action taken by the individuals or entities in the performance of the individuals' or entities' powers and duties under this act. RISK-BASED SECURITY PROGRAM As an alternative to each employer securing its own incurred liabilities, this amendment requires the association to provide in its plan of operation for a risk-based security program whereby all member self-insurers designated for participation by the association collectively secure their aggregate incurred liabilities through the association. The plan of operation must provide for the association to set a total security requirement for these participating employers based on a review of each participating employer's annual reports and any other self-insurer information as the association deems relevant. The association must propose to the commissioner an annual plan by June 1, which must set forth a combination of cash and securities, surety bonds, irrevocable letters of credit, insurance, or other financial instruments satisfactory to the commissioner. Upon approval of the plan by the commissioner, the combination comprises the program and satisfies the security deposit requirements for participating employers, in lieu of individual collateral. An employer's individual collateral must be returned to the employer upon payment of the assessment. If the commissioner does not approve the plan within 30 days of receipt, then the plan is deemed approved. This amendment requires a member self-insurer who is deemed eligible to participate to participate in the program, pay all assessments arising from the self-insurer's participation, and satisfy the self-insurer's security requirements as required by the association. To provide for the program, this amendment requires the association to assess each participating member self-insurer a deposit assessment payable within 30 days. The amount of the deposit assessment charged to each participating employer must be set by the association, based on the association's reasonable consideration of the following factors: (i) the amount needed to cover the association's operation costs; (ii) the employer's actuarially determined workers' compensation liabilities; (iii) the financial strength and creditworthiness of the self-insured; and (iv) any other reasonable factors as may be authorized by the plan of operation or the program plan. This amendment authorizes the commissioner and the bureau of workers' compensation to share with the association information held by them related to the member self-insurers, under terms and conditions as set by the commissioner, to preserve the confidentiality of the financial information. This amendment establishes that a member self-insurer does not have a right, title, or interest in the funds paid as assessments to the association, nor to any interest or earning thereon. To the extent that the total assessments paid by self-insured employers is not exhausted by the association, this amendment establishes that the surplus plus any interest earned thereon must remain with the association for its use in future years. Such funds must be used to pay self-insured workers' compensation liabilities and the costs and expenses of the association, and must not be used for any other purposes by this state. If an employer fails to pay the deposit assessment in the time provided, then this amendment authorizes the commissioner to order the employer to pay a