Article 1. Insurance And Security of California Labor Code >> Division 4. >> Part 1. >> Chapter 4. >> Article 1.
Every employer except the state shall secure the payment of
compensation in one or more of the following ways:
(a) By being insured against liability to pay compensation by one
or more insurers duly authorized to write compensation insurance in
(b) By securing from the Director of Industrial Relations a
certificate of consent to self-insure either as an individual
employer, or as one employer in a group of employers, which may be
given upon furnishing proof satisfactory to the Director of
Industrial Relations of ability to self-insure and to pay any
compensation that may become due to his or her employees.
(c) For any county, city, city and county, municipal corporation,
public district, public agency, or any political subdivision of the
state, including each member of a pooling arrangement under a joint
exercise of powers agreement (but not the state itself), by securing
from the Director of Industrial Relations a certificate of consent to
self-insure against workers' compensation claims, which certificate
may be given upon furnishing proof satisfactory to the director of
ability to administer workers' compensation claims properly, and to
pay workers' compensation claims that may become due to its
employees. On or before March 31, 1979, a political subdivision of
the state which, on December 31, 1978, was uninsured for its
liability to pay compensation, shall file a properly completed and
executed application for a certificate of consent to self-insure
against workers' compensation claims. The certificate shall be issued
and be subject to the provisions of Section 3702.
For purposes of this section, "state" shall include the superior
courts of California.
As used in this article:
(a) "Director" means the Director of Industrial Relations.
(b) "Private self-insurer" means a private employer which has
secured the payment of compensation pursuant to Section 3701.
(c) "Trustees" means the Board of Trustees of the Self-Insurers'
(d) "Member" means a private self-insurer which participates in
the Self-Insurers' Security Fund.
(e) "Incurred liabilities for the payment of compensation" means
the sum of an estimate of future compensation, as compensation is
defined by Section 3207, plus an estimate of the amount necessary to
provide for the administration of claims, including legal costs.
(a) The failure to secure the payment of compensation as
required by this article by one who knew, or because of his or her
knowledge or experience should be reasonably expected to have known,
of the obligation to secure the payment of compensation, is a
misdemeanor punishable by imprisonment in the county jail for up to
one year, or by a fine of up to double the amount of premium, as
determined by the court, that would otherwise have been due to secure
the payment of compensation during the time compensation was not
secured, but not less than ten thousand dollars ($10,000), or by both
that imprisonment and fine.
(b) A second or subsequent conviction shall be punished by
imprisonment in the county jail for a period not to exceed one year,
by a fine of triple the amount of premium, or by both that
imprisonment and fine, as determined by the court, that would
otherwise have been due to secure the payment of compensation during
the time payment was not secured, but not less than fifty thousand
(c) Upon a first conviction of a person under this section, the
person may be charged the costs of investigation at the discretion of
the court. Upon a subsequent conviction, the person shall be charged
the costs of investigation in addition to any other penalties
pursuant to subdivision (b). The costs of investigation shall be paid
only after the payment of any benefits that may be owed to injured
workers, any reimbursement that may be owed to the director for
benefits provided to the injured worker pursuant to Section 3717, and
any other penalty assessments that may be owed.
(a) Each year every private self-insuring employer shall
secure incurred liabilities for the payment of compensation and the
performance of the obligations of employers imposed under this
chapter by renewing the prior year's security deposit or by making a
new deposit of security. If a new deposit is made, it shall be posted
within 60 days of the filing of the self-insured employer's annual
report with the director, but in no event later than May 1.
(b) The solvency risk and security deposit amount for each private
and group self-insurer shall be acceptable to the Self-Insurers'
(c) Unless otherwise permitted by regulation, the deposit shall be
an amount equal to the self-insurer's projected losses, net of
specific excess insurance coverage, if any, and inclusive of incurred
but not reported (IBNR) liabilities, allocated loss adjustment
expense, and unallocated loss adjustment expense, calculated as of
December 31 of each year. The calculation of projected losses and
expenses shall be reflected in a written actuarial report that
projects ultimate liabilities of the private self-insured employer at
the expected actuarial confidence level, to ensure that all claims
and associated costs are recognized. The written actuarial report
shall be prepared by an actuary meeting the qualifications prescribed
by the director in regulation.
(d) In determining the amount of the deposit required to secure
incurred liabilities for the payment of compensation and the
performance of obligations of a self-insured employer imposed under
this chapter, the director shall offset estimated future liabilities
for the same claims covered by a self-insured plan under the federal
Longshore and Harbor Workers' Compensation Act (33 U.S.C. Sec. 901 et
seq.), but in no event shall the offset exceed the estimated future
liabilities for the claims under this chapter.
(e) The director may only accept as security, and the employer
shall deposit as security, cash, securities, surety bonds, or
irrevocable letters of credit in any combination the director, in his
or her discretion, deems adequate security. The current deposit
shall include any amounts covered by terminated surety bonds or
excess insurance policies, as shall be set forth in regulations
adopted by the director pursuant to Section 3702.10.
(f) Surety bonds, irrevocable letters of credit, and documents
showing issuance of any irrevocable letter of credit shall be
deposited with, and be in a form approved by, the director, shall be
exonerated only according to its terms and, in no event, by the
posting of additional security.
(g) The director may accept as security a joint security deposit
that secures an employer's obligation under this chapter and that
also secures that employer's obligations under the federal Longshore
and Harbor Workers' Compensation Act.
(h) The liability of the Self-Insurers' Security Fund, with
respect to any claims brought under both this chapter and under the
federal Longshore and Harbor Workers' Compensation Act, to pay for
shortfalls in a security deposit shall be limited to the amount of
claim liability owing the employee under this chapter offset by the
amount of any claim liability owing under the federal Longshore and
Harbor Workers' Compensation Act, but in no event shall the liability
of the fund exceed the claim liability under this chapter. The
employee shall be entitled to pursue recovery under either or both
the state and federal programs.
(i) Securities shall be deposited on behalf of the director by the
self-insured employer with the Treasurer. Securities shall be
accepted by the Treasurer for deposit and shall be withdrawn only
upon written order of the director.
(j) Cash shall be deposited in a financial institution approved by
the director, and in the account assigned to the director. Cash
shall be withdrawn only upon written order of the director.
(k) Upon the sending by the director of a request to renew,
request to post, or request to increase or decrease a security
deposit, a perfected security interest is created in the private
self-insured's assets in favor of the director and the Self-Insurers'
Security Fund to the extent of any then unsecured portion of the
self-insured's incurred liabilities. That perfected security interest
is transferred to any cash or securities thereafter posted by the
private self-insured with the director and is released only upon
either of the following:
(1) The acceptance by the director of a surety bond or irrevocable
letter of credit for the full amount of the incurred liabilities for
the payment of compensation.
(2) The return of cash or securities by the director.
The private self-insured employer loses all right, title, and
interest in, and any right to control, all assets or obligations
posted or left on deposit as security. The director may liquidate the
deposit as provided in Section 3701.5 and apply it to the
self-insured employer's incurred liabilities either directly or
through the Self-Insurers' Security Fund.
The director shall return to a private self-insured
employer all individual security determined, with the consent of the
Self-Insurers' Security Fund, to be in excess of that needed to
ensure the administration of the employer's self insuring, including
legal fees, and the payment of any future claims. This section shall
not apply to any security posted as part of the composite deposit, or
to any security turned over to the Self-Insurers' Security Fund
following an order of default under Section 3701.5.
(a) If the director determines that a private self-insured
employer has failed to pay workers' compensation as required by this
division, the security deposit shall be utilized to administer and
pay the employer's compensation obligations.
(b) If the director determines the security deposit has not been
immediately made available for the payment of compensation, the
director shall determine the method of payment and claims
administration as appropriate, which may include, but is not limited
to, payment by a surety that issued the bond, or payment by an issuer
of an irrevocable letter of credit, and administration by a surety
or by an adjusting agency, or through the Self-Insurers' Security
Fund, or any combination thereof. If the director arranges for
administration and payment by any person other than the Self-Insurers'
Security Fund after a default is declared, the fund shall have no
responsibility for claims administration or payment of the claims.
(c) If the director determines the payment of benefits and claims
administration shall be made through the Self-Insurers' Security
Fund, the fund shall commence payment of the private self-insured
employer's obligations for which it is liable under Section 3743
within 30 days of notification. Payments shall be made to claimants
whose entitlement to benefits can be ascertained by the fund, with or
without proceedings before the appeals board. Upon the assumption of
obligations by the fund pursuant to the director's determination,
the fund shall have a right to immediate possession of any posted
security and the custodian, surety, or issuer of any irrevocable
letter of credit shall turn over the security to the fund together
with the interest that has accrued since the date of the self-insured
employer's default or insolvency.
(d) The payment of benefits by the Self-Insurers' Security Fund
from security deposit proceeds shall release and discharge any
custodian of the security deposit, surety, any issuer of a letter of
credit, and the self-insured employer, from liability to fulfill
obligations to provide those same benefits as compensation, but does
not release any person from any liability to the fund 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 his or
her 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. Any decision or
determination made, or any settlement approved, by the director or by
the appeals board under subdivision (f) shall conclusively be
presumed valid and binding as to any and all known claims arising out
of the underlying dispute, unless an appeal is made within the time
limit specified in Section 5950.
(e) The director shall advise the Self-Insurers' Security Fund
promptly after receipt of information indicating that a private
self-insured employer may be unable to meet its compensation
obligations. The director shall also advise the Self-Insurers'
Security Fund of all determinations and directives made or issued
pursuant to this section. All financial, actuarial, or claims
information received by the director from any self-insurer may be
shared by the director with the Self-Insurers' Security Fund.
(f) Disputes concerning the posting, renewal, termination,
exoneration, or return of all or any portion of the security deposit,
or any liability arising out of the posting or failure to post
security, or adequacy of the security or reasonableness of
administrative costs, including legal fees, and arising between or
among a surety, the issuer of an agreement of assumption and
guarantee of workers' compensation liabilities, the issuer of a
letter of credit, any custodian of the security deposit, a
self-insured employer, or the Self-Insurers' Security Fund shall be
resolved by the director. An appeal from the director's decision or
determination may be taken to the appropriate superior court by
petition for writ of mandate. Payment of claims from the security
deposit or by the Self-Insurers' Security Fund shall not be stayed
pending the resolution of the disputes unless and until the superior
court issues a determination staying a payment of claims decision or
determination of the director.
Where any employer requesting coverage under a new or
existing certificate of consent to self-insure has had a period of
unlawful uninsurance, either for an applicant in its entirety or for
a subsidiary or member of a joint powers authority legally
responsible for its own workers' compensation obligations, the
following special conditions shall apply before the director may
determine if the requesting employer can operate under a certificate
of consent to self-insure:
(a) The director may require a deposit of not less than 200
percent of the outstanding liabilities remaining unpaid at the time
of application, which had been incurred during the uninsurance
(b) At the discretion of the director, where a public or private
employer has been previously totally uninsured for workers'
compensation pursuant to Section 3700, the director may require an
additional deposit not to exceed 100 percent of the total outstanding
liabilities for the uninsured period, or the sum of two hundred
fifty thousand dollars ($250,000), whichever is greater.
(c) In addition to the deposits required by subdivisions (a) and
(b), a penalty shall be paid to the Uninsured Employers Fund of 10
percent per year of the remaining unpaid liabilities, for every year
liabilities remain outstanding. In addition, an additional
application fee, not to exceed one thousand dollars ($1,000), plus
assessments, pursuant to Section 3702.5 and subdivision (b) of
Section 3745, may be imposed by the director and the Self-Insurers'
Security Fund, respectively, against private self-insured employers.
(d) A certificate of consent to self-insure shall not be granted
to an applicant that has had a period of unlawful uninsurance without
the written approval of the Self-Insurers' Security Fund.
(e) An employer may retrospectively insure the outstanding
liabilities arising out of the uninsured period, either before or
after an application for self-insurance has been approved. Upon proof
of insurance acceptable to the director, no deposit shall be
required for the period of uninsurance.
The penalties to be paid to the Uninsured Employers Fund shall
consist of a one-time payment of 20 percent of the outstanding
liabilities for the period of uninsurance remaining unpaid at the
time of application, in lieu of any other penalty for being
unlawfully uninsured pursuant to this code.
(f) In the case of a subsidiary which meets all of the following
conditions, a certificate shall issue without penalty:
(1) The subsidiary has never had a certificate revoked for reasons
set forth in Section 3702.
(2) Employee injuries were reported to the Office of
Self-Insurance Plans in annual reports.
(3) The security deposit of the certificate holder was calculated
to include the entity's compensation liabilities.
(4) Application for a separate certificate or corrected
certificate is made within 90 days and completed within 180 days of
notice from the Office of Self-Insurance Plans. If the requirements
of this subdivision are not met, all penalties pursuant to
subdivision (b) of Section 3702.9 shall apply.
(g) The director may approve an application on the date the
application is substantially completed, subject to completion
requirements, and may make the certificate effective on an earlier
date, covering a period of uninsurance, if the employer complies with
the requirements of this section.
(h) Any decision by the director may be contested by an entity in
the manner provided in Section 3701.5.
(i) Nothing in this section shall abrogate the right of an
employee to bring an action against an uninsured employer pursuant to
(j) Nothing in this statute shall abrogate the right of a
self-insured employer to insure against known or unknown claims
arising out of the self-insurance period.
(a) As an alternative to each private self-insuring
employer securing its own incurred liabilities as provided in Section
3701, the director may provide by regulation for an alternative
security system whereby all private self-insureds designated for full
participation by the director shall collectively secure their
aggregate incurred liabilities through the Self-Insurers' Security
Fund. The regulations shall provide for the director to set a total
security requirement for these participating self-insured employers
based on a review of their annual reports and any other self-insurer
information as may be specified by the director. The Self-Insurers'
Security Fund shall propose to the director a combination of cash and
securities, surety bonds, irrevocable letters of credit, insurance,
or other financial instruments or guarantees satisfactory to the
director sufficient to meet the security requirement set by the
director. Upon approval by the director and posting by the
Self-Insurers' Security Fund on or before the date set by the
director, that combination shall be the composite deposit. The
noncash elements of the composite deposit may be one-year or
multiple-year instruments. If the Self-Insurers' Security Fund fails
to post the required composite deposit by the date set by the
director, then within 30 days after that date, each private
self-insuring employer shall secure its incurred liabilities in the
manner required by Section 3701. Self-insured employers not
designated for full participation by the director shall meet all
requirements as may be set by the director pursuant to subdivision
(b) In order to provide for the composite deposit approved by the
director, the Self-Insurers' Security Fund shall assess, in a manner
approved by the director, each fully participating private
self-insuring employer a deposit assessment payable within 30 days of
assessment. The amount of the deposit assessment charged each fully
participating self-insured employer shall be set by the Self-Insurers'
Security Fund, based on its reasonable consideration of all the
(1) The total amount needed to provide the composite deposit.
(2) The self-insuring employer's paid or incurred liabilities as
reflected in its annual report.
(3) The financial strength and creditworthiness of the
(4) Any other reasonable factors as may be authorized by
(5) In order to make a composite deposit proposal to the director
and set the deposit assessment to be charged each fully participating
self-insured, the Self-Insurers' Security Fund shall have access to
the annual reports and other information submitted by all
self-insuring employers to the director, under terms and conditions
as may be set by the director, to preserve the confidentiality of the
self-insured's financial information.
(c) Upon payment of the deposit assessment and except as provided
herein, the self-insuring employer loses all right, title, and
interest in the deposit assessment. To the extent that in any one
year the deposit assessment paid by self-insurers is not exhausted in
the purchase of securities, surety bonds, irrevocable letters of
credit, insurance, or other financial instruments to post with the
director as part of the composite deposit, the surplus shall remain
posted with the director, and the principal and interest earned on
that surplus shall remain as part of the composite deposit in
subsequent years. In the event that in any one year the Self-Insurers'
Security Fund fails to post the required composite deposit by the
date set the by the director, and the director requires each private
self-insuring employer to secure its incurred liabilities in the
manner required by Section 3701, then any deposit assessment paid in
that year shall be refunded to the self-insuring employer that paid
the deposit assessment.
(d) If any private self-insuring employer objects to the
calculation, posting, or any other aspect of its deposit assessment,
upon payment of the assessment in the time provided, the employer
shall have the right to appeal the assessment to the director, who
shall have exclusive jurisdiction over this dispute. If any private
self-insuring employer fails to pay the deposit assessment in the
time provided, the director shall order the self-insuring employer to
pay a penalty of not less than 10 percent of its deposit assessment,
plus interest on any unpaid amount at the prejudgment rate, and to
post a separate security deposit in the manner provided by Section
3701. The penalty and interest shall be paid directly to the
Self-Insurers' Security Fund. The director may also revoke the
certificate of consent to self-insure of any self-insuring employer
who fails to pay the deposit assessment in the time provided.
(e) Upon the posting by the Self-Insurers' Security Fund of the
composite deposit with the director, the deposit shall be held until
the director determines that a private self-insured employer has
failed to pay workers' compensation as required by this division, and
the director orders the Self-Insurers' Security Fund to commence
payment. Upon ordering the Self-Insurers' Security Fund to commence
payment, the director shall make available to the fund that portion
of the composite deposit necessary to pay the workers' compensation
benefits of the defaulting self-insuring employer. In the event
additional funds are needed in subsequent years to pay the workers'
compensation benefits of any self-insuring employer who defaulted in
earlier years, the director shall make available to the Self-Insurers'
Security Fund any portions of the composite deposit as may be needed
to pay those benefits. In making the deposit available to the
Self-Insurers' Security Fund, the director shall also allow any
amounts as may be reasonably necessary to pay for the administrative
and other activities of the fund.
(f) The cash portion of the composite deposit shall be segregated
from all other funds held by the director, and shall be invested by
the director for the sole benefit of the Self-Insurers' Security Fund
and the injured workers of private self-insured employers, and may
not be used for any other purpose by the state. Alternatively, the
director, in his discretion, may allow the Self-Insurers' Security
Fund to hold, invest, and draw upon the cash portion of the composite
deposit as prescribed by regulation.
(g) Notwithstanding any other provision of this section, the
director shall, by regulation, set minimum credit, financial, or
other conditions that a private self-insured must meet in order to be
a fully participating self-insurer in the alternative security
system. In the event any private self-insuring employer is unable to
meet the conditions set by the director, or upon application of the
Self-Insurers' Security Fund to exclude an employer for credit or
financial reasons, the director shall exclude the self-insuring
employer from full participation in the alternative security system.
In the event a self-insuring employer is excluded from full
participation, the nonfully participating private self-insuring
employer shall post a separate security deposit in the manner
provided by Section 3701 and pay a deposit assessment set by the
director. Alternatively, the director may order that the nonfully
participating private self-insuring employer post a separate security
deposit to secure a portion of its incurred liabilities and pay a
deposit assessment set by the director.
(h) An employer who self-insures through group self-insurance and
an employer whose certificate to self-insure has been revoked may
fully participate in the alternative security system if both the
director and the Self-Insurers' Security Fund approve the
participation of the self-insurer. If not approved for full
participation, or if an employer is issued a certificate to
self-insure after the composite deposit is posted, the employer shall
satisfy the requirements of subdivision (g) for nonfully
participating private self-insurers.
(i) At all times, a self-insured employer shall have secured its
incurred workers' compensation liabilities either in the manner
required by Section 3701 or through the alternative security system,
and there shall not be any lapse in the security.
(a) A certificate of consent to self-insure shall not be
issued after January 1, 2013, to any of the following:
(1) A professional employer organization.
(2) A leasing employer, as defined in Section 606.5 of the
Unemployment Insurance Code.
(3) A temporary services employer, as defined in Section 606.5 of
the Unemployment Insurance Code.
(4) Any employer, regardless of name or form of organization,
which the director determines to be in the business of providing
employees to other employers.
(b) A certificate of consent to self-insure that has been issued
to any employer described in subdivision (a) shall be revoked by the
director not later than January 1, 2015.
(a) A certificate of consent to self-insure may be revoked by
the director at any time for good cause after a hearing. Good cause
includes, among other things, a recommendation by the Self-Insurers'
Security Fund to revoke the certificate of consent, the impairment of
the solvency of the employer to the extent that there is a marked
reduction of the employer's financial strength, failure to maintain a
security deposit as required by Section 3701, failure to pay
assessments of the Self-Insurers' Security Fund, frequent or flagrant
violations of state safety and health orders, the failure or
inability of the employer to fulfill his or her obligations, or any
of the following practices by the employer or his or her agent in
charge of the administration of obligations under this division:
(1) Habitually and as a matter of practice and custom inducing
claimants for compensation to accept less than the compensation due
or making it necessary for them to resort to proceedings against the
employer to secure compensation due.
(2) Where liability for temporary disability indemnity is not in
dispute, intentionally failing to pay temporary disability indemnity
without good cause in order to influence the amount of permanent
disability benefits due.
(3) Intentionally refusing to comply with known and legally
indisputable compensation obligations.
(4) Discharging or administering his or her compensation
obligations in a dishonest manner.
(5) Discharging or administering his or her compensation
obligations in such a manner as to cause injury to the public or
those dealing with the employer.
(b) Where revocation is in part based upon the director's finding
of a marked reduction of the employer's financial strength or the
failure or inability of the employer to fulfill his or her
obligations, or a practice of discharging obligations in a dishonest
manner, it is a condition precedent to the employer's challenge or
appeal of the revocation that the employer have in effect insurance
against liability to pay compensation.
(c) The director may hold a hearing to determine whether good
cause exists to revoke an employer's certificate of consent to
self-insure if the employer is cited for a willful, or repeat serious
violation of the standard adopted pursuant to Section 6401.7 and the
citation has become final.
(a) No person, firm, or corporation, other than an insurer
admitted to transact workers' compensation insurance in this state,
shall contract to administer claims of self-insured employers as a
third-party administrator unless in possession of a certificate of
consent to administer self-insured employers' workers' compensation
(b) As a condition of receiving a certificate of consent, all
persons given discretion by a third-party administrator to deny,
accept, or negotiate a workers' compensation claim shall demonstrate
their competency to the director by written examination, or other
methods approved by the director.
(c) A separate certificate shall be required for each adjusting
location operated by a third-party administrator. A third-party
administrator holding a certificate of consent shall be subject to
regulation only under this division with respect to the adjustment,
administration, and management of workers' compensation claims for
any self-insured employer.
(d) A third-party administrator retained by a self-insured
employer to administer the employer's workers' compensation claims
shall estimate the total accrued liability of the employer for the
payment of compensation for the employer's annual report to the
director and shall make the estimate both in good faith and with the
exercise of a reasonable degree of care. The use of a third-party
administrator shall not, however, discharge or alter the employer's
responsibilities with respect to the report.
(a) All self-insured employers shall file a self-insurer's
annual report in a form prescribed by the director. Public
self-insured employers shall provide detailed information as the
director determines necessary to evaluate the costs of
administration, workers' compensation benefit expenditures, and
solvency and performance of the public self-insured employer workers'
compensation programs, on a schedule established by the director.
The director may grant deferrals to public self-insured employers
that are not yet capable of accurately reporting the information
required, giving priority to bringing larger programs into compliance
with the more detailed reporting.
(b) To enable the director to determine the amount of the security
deposit required by subdivision (c) of Section 3701, the annual
report of a self-insured employer who has self-insured both state and
federal workers' compensation liability shall also set forth (1) the
amount of all compensation liability incurred, paid-to-date, and
estimated future liability under both this chapter and under the
federal Longshore and Harbor Workers' Compensation Act (33 U.S.C.
Sec. 901 et seq.), and (2) the identity and the amount of the
security deposit securing the employer's liability under state and
federal self-insured programs.
(c) The director shall annually prepare an aggregated summary of
all self-insured employer liability to pay compensation reported on
the self-insurers' employers annual reports, including a separate
summary for public and private employer self-insurers. The summaries
shall be in the same format as the individual self-insured employers
are required to report that liability on the employer self-insurer's
annual report forms prescribed by the director. The aggregated
summaries shall be made available to the public on the self-insurance
section of the department's Internet Web site. Nothing in this
subdivision shall authorize the director to release or make available
information that is aggregated by industry or business type, that
identifies individual self-insured filers, or that includes any
individually identifiable claimant information.
(d) The director may release a copy, or make available an
electronic version, of the data contained in any public sector
employer self-insurer's annual reports received from an individual
public entity self-insurer or from a joint powers authority employer
and its membership. However, the release of any annual report
information by the director shall not include any portion of any
listing of open indemnity claims that contains individually
identifiable claimant information, or any portion of excess insurance
coverage information that contains any individually identifiable
Failure to submit reports or information as deemed
necessary by the director to implement the purposes of Section 3701,
3702, or 3702.2 may result in the assessment of a civil penalty as
set forth in subdivision (a) of Section 3702.9. Moneys collected
shall be used for the administration of self-insurance plans.
(a) (1) The cost of administration of the public
self-insured program by the Director of Industrial Relations shall be
borne by the Workers' Compensation Administration Revolving Fund.
(2) The cost of administration of the private self-insured program
by the Director of Industrial Relations shall be borne by the
private self-insurers through payment of certificate fees which shall
be established by the director in broad ranges based on the
comparative numbers of employees insured by the private self-insurers
and the number of adjusting locations. The director may assess other
fees as necessary to cover the costs of special audits or services
rendered to private self-insured employers. The director may assess a
civil penalty for late filing as set forth in subdivision (a) of
(b) All revenues from fees and penalties paid by private
self-insured employers shall be deposited into the Self-Insurance
Plans Fund, which is hereby created for the administration of the
private self-insurance program. Any unencumbered balance in
subdivision (a) of Item 8350-001-001 of the Budget Act of 1983 shall
be transferred to the Self-Insurance Plans Fund. The director shall
annually eliminate any unused surplus in the Self-Insurance Plans
Fund by reducing certificate fee assessments by an appropriate amount
in the subsequent year. Moneys paid into the Self-Insurance Plans
Fund for administration of the private self-insured program shall not
be used by any other department or agency or for any purpose other
than administration of the private self-insurance program. Detailed
accountability shall be maintained by the director for any security
deposit or other funds held in trust for the Self-Insurer's Security
Fund in the Self-Insurance Plans Fund.
Moneys held by the director shall be invested in the Surplus Money
Investment Fund. Interest shall be paid on all moneys transferred to
the General Fund in accordance with Section 16310 of the Government
Code. The Treasurer's and Controller's administrative costs may be
charged to the interest earnings upon approval of the director.
(a) The director shall establish an audit program
addressing the adequacy of estimates of future liability of claims
for all private self-insured employers, and shall ensure that all
private self-insured employers are audited within a three-year cycle
by the Office of Self Insurance Plans.
(b) Each public self-insurer shall advise its governing board
within 90 days after submission of the self-insurer's annual report
of the total liabilities reported and whether current funding of
those workers' compensation liabilities is in compliance with the
requirements of Government Accounting Standards Board Publication No.
(c) The director shall, upon a showing of good cause, order a
special audit of any public self-insured employer to determine the
adequacy of estimates of future liability of claims.
(d) For purposes of this section, "good cause" means that there
exists circumstances sufficient to raise concerns regarding the
adequacy of estimates of future liability of claims to justify a
A certificate of consent to administer claims of
self-insured employers may be revoked by the director at any time for
good cause after a hearing. Good cause includes, but is not limited
to, the violation of subsection (1), (2), (3), (4), or (5) of
subdivision (a) of Section 3702. In lieu of revocation of a
certificate of consent, the director may impose a fine of not less
than fifty dollars ($50) nor more than five hundred dollars ($500)
for each violation.
(a) Employers who have ceased to be self-insured employers
shall discharge their continuing obligations to secure the payment of
workers' compensation that accrued during the period of
self-insurance, for purposes of Sections 3700, 3700.5, 3706, and
3715, and shall comply with all of the following obligations of
current certificate holders:
(1) Filing annual reports as deemed necessary by the director to
carry out the requirements of this chapter.
(2) In the case of a private employer, depositing and maintaining
a security deposit for accrued liability for the payment of any
workers' compensation that may become due, pursuant to subdivision
(b) of Section 3700 and Section 3701, except as provided in
(3) Paying within 30 days all assessments of which notice is sent,
pursuant to subdivision (b) of Section 3745, within 36 months from
the last day the employer's certificate of self-insurance was in
effect. Assessments shall be based on the benefits paid by the
employer during the last full calendar year of self-insurance on
claims incurred during that year.
(b) In addition to proceedings to establish liabilities and
penalties otherwise provided, a failure to comply may be the subject
of a proceeding before the director. An appeal from the director's
determination shall be taken to the appropriate superior court by
petition for writ of mandate.
(c) Notwithstanding subdivision (a), any employer who is currently
self-insured or who has ceased to be self-insured may purchase a
special excess workers' compensation policy to discharge any or all
of the employer's continuing obligations as a self-insurer to pay
compensation or to secure the payment of compensation.
(1) The special excess workers' compensation insurance policy
shall be issued by an insurer authorized to transact workers'
compensation insurance in this state.
(2) Each carrier's special excess workers' compensation policy
shall be approved as to form and substance by the Insurance
Commissioner, and rates for special excess workers' compensation
insurance shall be subject to the filing requirements set forth in
Section 11735 of the Insurance Code.
(3) Each special excess workers' compensation insurance policy
shall be submitted by the employer to the director. The director
shall adopt and publish minimum insurer financial rating standards
for companies issuing special excess workers' compensation policies.
(4) Upon acceptance by the director, a special excess workers'
compensation policy shall provide coverage for all or any portion of
the purchasing employer's claims for compensation arising out of
injuries occurring during the period the employer was self-insured in
accordance with Sections 3755, 3756, and 3757 of the Labor Code and
Sections 11651 and 11654 of the Insurance Code. The director's
acceptance shall discharge the Self-Insurer's Security Fund, without
recourse or liability to the Self-Insurer's Security Fund, of any
continuing liability for the claims covered by the special excess
workers' compensation insurance policy.
(5) For public employers, no security deposit or financial
guarantee bond or other security shall be required. The director
shall set minimum financial rating standards for insurers issuing
special excess workers' compensation policies for public employers.
(d) (1) In order for the special excess workers' compensation
insurance policy to discharge the full obligations of a private
employer to maintain a security deposit with the director for the
payment of self-insured claims, applicable to the period to be
covered by the policy, the special excess policy shall provide
coverage for all claims for compensation arising out of that
liability. The employer shall maintain the required deposit for the
period covered by the policy with the director for a period of three
years after the issuance date of the special excess policy.
(2) If the special workers' compensation insurance policy does not
provide coverage for all of the continuing obligations for which the
private self-insured employer is liable, to the extent the employer'
s obligations are not covered by the policy a private employer shall
maintain the required deposit with the director. In addition, the
employer shall maintain with the director the required deposit for
the period covered by the policy for a period of three years after
the issuance date of the special excess policy.
(e) The director shall adopt regulations pursuant to Section
3702.10 that are reasonably necessary to implement this section in
order to reasonably protect injured workers, employers, the
Self-Insurers' Security Fund, and the California Insurance Guarantee
(f) The posting of a special excess workers' compensation
insurance policy with the director shall discharge the obligation of
the Self-Insurer's Security Fund pursuant to Section 3744 to pay
claims in the event of an insolvency of a private employer to the
extent of coverage of compensation liabilities under the special
excess workers' compensation insurance policy. The California
Insurance Guarantee Association and the Self-Insurers' Security Fund
shall be advised by the director whenever a special excess workers'
compensation insurance policy is posted.
(a) In addition to remedies and penalties otherwise
provided for a failure to secure the payment of compensation, the
director may, after a determination that an obligation created in
this article has been violated, also enter an order against any
self-insured employer, including employers who are no longer
self-insured, but who are required to comply with Section 3702.8,
directing compliance, restitution for any losses, and a civil penalty
in an amount not to exceed the following:
(1) For a failure to file a complete or timely annual report, an
amount up to 5 percent of the incurred liabilities in the last report
or one thousand five hundred dollars ($1,500), whichever is less,
for each 30 days or portion thereof during which there is a failure.
(2) For failure to deposit and maintain a security deposit, an
amount up to 10 percent of the increase not timely filed or five
thousand dollars ($5,000), whichever is less, for each 30 days or
portion thereof during which there is a failure.
(3) For a failure to timely or completely pay an assessment, an
amount up to the assessment or two thousand five hundred dollars
($2,500), whichever is less, for each 30 days or portion thereof
during which there is a failure.
(4) Where the failure was by an employer which knew or reasonably
should have known of the obligation, the director shall, in addition,
award reimbursement for all expenditures and costs by the fund or
any intervening party, including a reasonable attorney fee.
(5) Where the failure was malicious, fraudulent, in bad faith, or
a repeated violation, the director may award, as an additional civil
penalty, liquidated damages of up to double the amounts assessed
under paragraphs (1) to (4), inclusive, for deposit in the General
(b) An employer may deposit and maintain a security deposit or pay
an assessment, reserving its right to challenge the amount or
liability therefor at a hearing. If the director or the appeals board
or a court, upon appeal, concludes that the employer is not liable
or the amounts are excessive, then the director may waive, release,
compromise, refund, or otherwise remit amounts which had been paid or
deposited by an employer. The director may condition the waiver,
release, compromise, refund, or remittance upon the present and
continued future compliance with the obligations of subdivision (a)
of Section 3702.8 for a period up to two years.
(c) Notwithstanding subdivision (b), where a violation has
occurred, the director may waive, release, compromise, or otherwise
reduce any civil penalty otherwise due upon a showing that a
violation occurred through the employer's mistake, inadvertence,
surprise, or excusable neglect. Neglect is not excusable within the
meaning of this subdivision where the employer knew, or reasonably
should have known, of the obligations.
The director, in accordance with Chapter 3.5 (commencing
with Section 11340) of Part 1 of Division 3 of Title 2 of the
Government Code, may adopt, amend, and repeal rules and regulations
reasonably necessary to carry out the purposes of Section 129 and
Article 1 (commencing with Section 3700), Article 2 (commencing with
Section 3710), and Article 2.5 (commencing with Section 3740). This
authorization includes, but is not limited to, the adoption of
regulations to do all of the following:
(a) Specifying what constitutes ability to self-insure and to pay
any compensation which may become due under Section 3700.
(b) Specifying what constitutes a marked reduction of an employer'
s financial strength.
(c) Specifying what constitutes a failure or inability to fulfill
the employer's obligations under Section 3702.
(d) Interpreting and defining the terms used.
(e) Establishing procedures and standards for hearing and
determinations, and providing for those determinations to be appealed
to the appeals board.
(f) Specifying the standards, form, and content of agreements,
forms, and reports between parties who have obligations pursuant to
(g) Providing for the combinations and relative liabilities of
security deposits, assumptions, and guarantees used pursuant to this
(h) Disclosing otherwise confidential financial information
concerning self-insureds to courts or the Self-Insurers' Security
Fund and specifying appropriate safeguards for that information.
(i) Requiring an amount to be added to each security deposit to
secure the cost of administration of claims and to pay all legal
(j) Regulating the workers' compensation self-insurance
obligations of self-insurance groups and professional employer
organizations, leasing employers as defined in Section 606.5 of the
Unemployment Insurance Code, or temporary services employers, as
defined in Section 606.5 of the Unemployment Insurance Code, holding
certificates of consent to self-insure.
So long as the certificate has not been revoked, and the
self-insurer maintains on deposit the requisite bond or securities,
the self-insurer shall not be required or obliged to pay into the
State Compensation Insurance Fund any sums covering liability for
compensation excepting life pensions; and the self-insurer may fully
administer any compensation benefits assessed against the
The Self-Insurers' Security Fund or the surety making payment
of compensation hereunder shall have the same preference over the
other debts of the principal or his or her estate as is given by law
to the person directly entitled to the compensation.
If any employer fails to secure the payment of compensation,
any injured employee or his dependents may bring an action at law
against such employer for damages, as if this division did not apply.
The provisions of this article and Sections 4553, 4554, and
4555, and any other penalty provided by law for failure to secure
the payment of compensation for employees, shall not apply to
individual members of a board or governing body of a public agency or
to members of a private, nonprofit organization, if the agency or
organization performs officiating services relating to amateur
sporting events and such members are excluded from the definition of
"employee" pursuant to subdivision (j) of Section 3352.
The injured employee or his dependents may in such action
attach the property of the employer, at any time upon or after the
institution of such action, in an amount fixed by the court, to
secure the payment of any judgment which is ultimately obtained. The
provisions of the Code of Civil Procedure, not inconsistent with this
division, shall govern the issuance of, and proceedings upon such
In such action it is presumed that the injury to the employee
was a direct result and grew out of the negligence of the employer,
and the burden of proof is upon the employer, to rebut the
presumption of negligence. It is not a defense to the employer that
the employee was guilty of contributory negligence, or assumed the
risk of the hazard complained of, or that the injury was caused by
the negligence of a fellow servant. No contract or regulation shall
restore to the employer any of the foregoing defenses.
This section shall not apply to any employer of an employee, as
defined in subdivision (d) of Section 3351, with respect to such
employee, but shall apply to employers of employees described in
subdivision (b) of Section 3715, with respect to such employees.
If an employee brings such an action for damages, the
employee shall forthwith give a copy of the complaint to the
Uninsured Employers Fund of the action by personal service or
certified mail. Proof of such service shall be filed in such action.
If a civil action has been initiated against the employer pursuant to
Section 3717, the actions shall be consolidated.
If, as a result of such action for damages, a judgment is
obtained against the employer, any compensation awarded, paid, or
secured by the employer shall be credited against the judgment. The
court shall allow as a first lien against such judgment the amount of
compensation paid by the director from the Uninsured Employers Fund
pursuant to Section 3716.
Such judgment shall include a reasonable attorney's fee fixed by
the court. The director, as administrator of the Uninsured Employers
Fund, shall have a first lien against any proceeds of settlement in
such action, before or after judgment, in the amount of compensation
paid by the director from the Uninsured Employers Fund pursuant to
No satisfaction of a judgment in such action, in whole or in part,
shall be valid as against the director without giving the director
notice and a reasonable opportunity to perfect and satisfy his lien.
After the payment of attorney's fees fixed by the court,
the employer shall be relieved from the obligation to pay further
compensation to or on behalf of the employee under this division up
to the entire amount of the balance of the judgment, if satisfied, or
such portion as has been satisfied.
After the satisfaction by the employer of the attorney's fees
fixed by the court, the Uninsured Employers Fund shall be relieved
from the obligation to pay further compensation to or on behalf of
the employee pursuant to Section 3716, up to the entire amount of the
balance of the judgment, if satisfied, or such portion as has been
The appeals board shall allow as a credit to the employer and to
the Uninsured Employers Fund, to be applied against the liability for
compensation, the amount recovered by the employee in such action,
either by settlement or after the judgment, as has not been applied
to the expense of attorney's fees and costs.