Article 2.5. Self-insurers’ Security Fund of California Labor Code >> Division 4. >> Part 1. >> Chapter 4. >> Article 2.5.
It is the intent of the Legislature in enacting this article
and Article 1 (commencing with Section 3700) to provide for the
continuation of workers' compensation benefits delayed due to the
failure of a private self-insured employer to meet its compensation
obligations when the employers' security deposit is either inadequate
or not immediately accessible for the payment of benefits. With
respect to the continued liability of a surety for claims that arose
under a bond after termination of that bond and to a surety's
liability for the cost of administration of claims, it is the intent
of the Legislature to clarify existing law. The Legislature finds and
declares that the establishment of the Self-Insurers' Security Fund
is a necessary component of a complete system of workers'
compensation, required by Section 4 of Article XIV of the California
Constitution, to have adequate provisions for the comfort, health and
safety, and general welfare of any and all workers and their
dependents to the extent of relieving the consequences of any
industrial injury or death, and full provision for securing the
payment of compensation.
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 subdivision (b) of
(c) "Insolvent self-insurer" means a private self-insurer who has
failed to pay compensation and whose security deposit has been called
by the director pursuant to Section 3701.5.
(d) "Fund" means the Self-Insurers' Security Fund established
pursuant to Section 3742.
(e) "Trustees" means the Board of Trustees of the Self-Insurers'
(f) "Member" means a private self-insurer which participates in
the Self-Insurers' Security Fund.
(a) The Self-Insurers' Security Fund shall be established as
a Nonprofit Mutual Benefit Corporation pursuant to Part 3 (commencing
with Section 7110) of Division 2 of Title 1 of the Corporations Code
and this article. If any provision of the Nonprofit Mutual Benefit
Corporation Law conflicts with any provision of this article, the
provisions of this article shall apply. Each private self-insurer
shall participate as a member in the fund, unless its liabilities
have been turned over to the fund pursuant to Section 3701.5, at
which time its membership in the fund is relinquished.
(b) The fund shall be governed by a board of trustees with no more
than eight members, as established by the bylaws of the
Self-Insurers' Security Fund. The director shall hold ex officio
status, with full powers equal to those of a trustee, except that the
director shall not have a vote. The director, or a delegate
authorized in writing to act as the director's representative on the
board of trustees, shall carry out exclusively the responsibilities
set forth in Division 1 (commencing with Section 50) through Division
4 (commencing with Section 3200) and shall not have the obligations
of a trustee under the Nonprofit Mutual Benefit Corporation Law. The
fund shall adopt bylaws to segregate the director from all matters
that may involve fund litigation against the department or fund
participation in legal proceedings before the director. Although not
voting, the director or a delegate authorized in writing to represent
the director, shall be counted toward a quorum of trustees. The
remaining trustees shall be representatives of private self-insurers.
The self-insurer trustees shall be elected by the members of the
fund, each member having one vote. Trustees shall be elected to
four-year terms, and shall serve until their successors are elected
and assume office pursuant to the bylaws of the fund.
(c) The fund shall establish bylaws as are necessary to effectuate
the purposes of this article and to carry out the responsibilities
of the fund, including, but not limited to, any obligations imposed
by the director pursuant to Section 3701.8. The fund may carry out
its responsibilities directly or by contract, and may purchase
services and insurance and borrow funds as it deems necessary for the
protection of the members and their employees. The fund may receive
confidential information concerning the financial condition of
self-insured employers whose liabilities to pay compensation may
devolve upon it and shall adopt bylaws to prevent dissemination of
(d) The director may also require fund members to subscribe to
financial instruments or guarantees to be posted with the director in
order to satisfy the security requirements set by the director
pursuant to Section 3701.8.
(a) Upon order of the director pursuant to Section 3701.5,
the fund shall assume the workers' compensation obligations of an
(b) Notwithstanding subdivision (a), the fund shall not be liable
for the payment of any penalties assessed for any act or omission on
the part of any person other than the fund, including, but not
limited to, the penalties provided in Section 132a, 3706, 4553, 4554,
4556, 4557, 4558, 4601.5, 5814, or 5814.1.
(c) The fund shall 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 fund. The
fund shall have the same rights and defenses as the insolvent
self-insurer, including, but not limited to, all of the following:
(1) To appear, defend, and appeal claims.
(2) To receive notice of, investigate, adjust, compromise, settle,
and pay claims.
(3) To investigate, handle, and deny claims.
(a) (1) The fund shall have the right and obligation to
obtain reimbursement from an insolvent self-insurer up to the amount
of the self-insurer's workers' compensation obligations paid and
assumed by the fund, including reasonable administrative and legal
costs. This right includes, but is not limited to, 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. For purposes of this section, "insolvent
self-insurer" includes the entity to which the certificate of consent
to self-insure was issued, any guarantor of the entity's liabilities
under the certificate, any member of a self-insurance group to which
the certificate was issued, and any employer who obtained employees
from a self-insured employer under subdivision (d) of Section 3602.
(2) The Legislature finds and declares that the amendments made to
this subdivision by the act adding this paragraph are declaratory of
(b) The fund shall have the right and obligation to obtain from
the security deposit of an insolvent self-insurer the amount of the
self-insurer's compensation obligations, including reasonable
administrative and legal costs, paid or assumed by the fund.
Reimbursement of administrative costs, including legal costs, shall
be subject to approval by a majority vote of the fund's trustees. The
fund shall be a party in interest in any action to obtain the
security deposit for the payment of compensation obligations of an
(c) The fund shall have the right to bring an action against any
person to recover compensation paid and liability assumed by the
fund, including, but not limited to, any excess insurance carrier of
the self-insured employer, and any person whose negligence or breach
of any obligation contributed to any underestimation of the
self-insured employer's total accrued liability as reported to the
(d) The fund may be a party in interest in any action brought by
any other person seeking damages resulting from the failure of an
insolvent self-insurer to pay workers' compensation required pursuant
to this division.
(e) At the election of the Self-Insurers' Security Fund, venue
shall be in the Superior Court for the State of California, County of
Sacramento, for any action under this section. All actions in which
the Self-Insurers' Security Fund and two or more members or former
members of one self-insurance group are parties shall be consolidated
if requested by the Self-Insurers' Security Fund.
(a) The fund shall maintain cash, readily marketable
securities, or other assets, or a line of credit, approved by the
director, sufficient to immediately continue the payment of the
compensation obligations of an insolvent self-insurer pending
assessment of the members. The director may establish the minimum
amount to be maintained by, or immediately available to, the fund for
(b) The fund may assess each of its members a pro rata share of
the funding necessary to carry out the purposes of this article.
(c) The trustees shall certify to the director the collection and
receipt of all moneys from assessments, noting any delinquencies. The
trustees shall take any action deemed appropriate to collect any
The fund shall annually contract for an independent certified
audit of the financial activities of the fund. An annual report on
the financial status of the fund as of June 30 shall be submitted to
the director and to each member, or at the election of the fund,
posted on the fund's Internet Web site.
This article shall be known and may be referred to as the
"Young-La Follette Self-Insurers' Security Act."