N.J. Admin. Code § 11:15-7.6

Current through Register Vol. 57, No. 1, January 6, 2025

Section 11:15-7.6 - Bylaws and risk management program; contents

(a) The trustees shall prepare and, after the approval by resolution of the governing body of each participating member, shall adopt bylaws for the risk management group. The bylaws shall:

1. Set forth a statement of purposes of the group;

2. Set forth provisions for organization of the group, including governance by a board of trustees;

3. Provide for the delivery of a risk management program in conjunction with any joint liability fund or funds which the board of trustees shall establish;

4. Set forth procedures to enforce the collection of any contributions or payments in default;

5. Set forth membership standards as required in N.J.S.A. 18A:64-88;

6. Require that, for each joint liability fund, a contract or contracts of specific and aggregate excess insurance or reinsurance is maintained, if available, unless otherwise recommended by the trustees upon the advice and report of an independent actuary, or otherwise required pursuant to N.J.S.A. 18A:64-86 et seq. or this subchapter;

7. Set forth procedures for:

i. Withdrawal from the group and a fund by a member, including any requirement that a terminated or withdrawing member provide security in a form and amount acceptable to the Commissioner or trustees, as applicable, as a guarantee for the continued payment of the member's obligations pursuant to N.J.A.C. 11:15-7.1 0(c);

ii. Termination of the group or fund and disposition of assets; and

iii. Determining the obligations, if any, of a member in the event that the group is unable to pay indemnification obligations and expenses payable from a fund administered by it;

8. Require an annual certified audit and an actuarial opinion statement on loss reserves pursuant to the Loss Reserve Opinions rules, N.J.A.C. 11:1-21, to be prepared and filed with the Commissioner;

9. Require an annual, supplemental semi-annual, and quarterly financial reporting schedule, as applicable, to be filed pursuant to N.J.A.C. 11:15-7.2 4;

10. Require that any joint liability fund or funds be developed and operated in accordance with accepted and sound actuarial principles;

11. Provide that any expenditure of moneys in a fund be in furtherance of the purpose of the fund;

12. Provide for expulsion of a member;

13. Provide procedures governing trust fund accounts, including transfers, withdrawals and distribution surplus therefrom and supplemental assessments; and

14. Set forth other provisions as desired for operation and governance of the group.

(b) The bylaws of a risk management group shall provide for governance of the group by a board of trustees selected in accordance with the provisions of the bylaws. The bylaws shall provide for trustee powers and duties and shall include, but not be limited to, the following powers of the board of trustees:

1. To determine and establish contributions and apportionment thereof among members, rates, loss reserves, surplus, limits of coverage, limits of excess insurance or reinsurance, coverage documents, refunds and other financial and operating policies of the group or fund;

2. To invest moneys held in trust under any fund in investments which are approved for investment by regulation of the State Investment Council for surplus public moneys of the State;

3. To purchase, acquire, hold, lease, sell and convey real and personal property, all of which property shall be exempt from taxation under N.J.S.A. 54:4-1 et seq.;

4. To collect and disburse all money due to or payable by the fund, or authorize such collection and disbursement;

5. To enter into contracts with other persons or with public bodies of this State for any professional, administrative or other services as may be necessary to carry out the purposes of the group or any fund;

6. To purchase and serve as the master policyholders, if desired, for any insurance, including excess insurance or reinsurance;

7. To prepare, or cause to be prepared, a risk management program for the group;

8. As the need arises, from time to time, to amend the bylaws and risk management program of the fund pursuant to N.J.S.A. 18A:64-91 and this subchapter; and

9. To do all other things necessary and proper to carry out the purposes for which the fund is established.

(c) In addition, the bylaws shall be accompanied by the following items, information or documentation:

1. The group's name, location of its principal office, date of organization, and name and address of each initial member;

2. A specification of the insurance coverages to be provided by the group and the minimum participation required of any member;

3. A description of the responsibilities and obligations of the members, the terms and conditions of continued participation and discontinuance of participation in the group;

4. A pro forma financial statement, with underlying assumptions and methodology, on a form acceptable to the Commissioner showing the financial strength and liquidity of the group to assure that all obligations will be met promptly;

5. Where self-insured, a plan for specific and aggregate excess insurance or reinsurance, if provided or required, and for retention in accordance with sound actuarial principles and the risk management program;

6. Proof of competent personnel and ample facilities within the group's organization with respect to claims administration, underwriting matters, loss prevention and safety engineering or present a contract with a servicing organization(s) for the provision of such services;

7. The claims handling procedure to be utilized by the group which procedure shall provide for the prompt, fair and equitable settlement of claims;

8. The complaint handling procedure to be utilized by the group;

9. A sample copy of the resolution and written agreement adopted by each participating member as specified at N.J.A.C. 11:15-7.3. Within 30 days of approval by the Commissioner, the group shall send certified copies of the resolution and written agreement from each participant to the Commissioner;

10. A sample copy of its indemnity and trust agreement as defined in N.J.A.C. 11:15-7.2, and in a form satisfactory to the Commissioner.

i. The agreement shall create a trust and govern the operation thereof under which monies shall be held by the trustees as fiduciaries for the benefit of group claimants.

ii. Where a group shall provide for the retention on a self-insured basis of any or all of the risks or liabilities specified below, the agreement shall require and provide for the establishment of separate trust accounts from which monies shall be disbursed solely for the payment of claims, allocated claims expenses and excess insurance or reinsurance premiums for each risk or liability, and may provide for the establishment of contingency accounts, each by fund year, as follows:

(1) Workers' compensation and employers' liability;

(2) Liability, other than motor vehicle;

(3) Property damage, including automobile physical damage;

(4) Automobile liability;

(5) Expenses of defending any claim against the State college, trustee, officer, employee or servant in accordance with N.J.S.A. 18A:64-87d;

(6) General contingencies, if deemed appropriate by the fund, to replenish the administrative account established pursuant to N.J.A.C. 11:15-7.1 4 for that specific fund year; and

(7) Loss fund contingencies, if deemed appropriate by the group, to replenish a trust account established pursuant to (c)10ii(1) through (5) above for that specific fund year; and where the total amount of monies assessed and allocated to the accounts established pursuant to (c)10ii(1) through (5) and this sub-subparagraph are utilized to satisfy the amounts estimated by the group's actuary to be necessary to pay claims, allocated claims expenses and excess insurance or reinsurance premiums for each risk or liability set forth in (c)10ii(1) through (5) above for that fund year.

iii. A group shall not be otherwise required to establish separate trust accounts as required by (c)10ii above for each fund year, or for each risk or liability as specified in (c)10ii above, provided the group provides a plan in its bylaws which provides for the recording and accounting of all transactions by fund year for each risk or liability as specified in (c)10ii above, as applicable.

iv. Within 30 days of approval by the Commissioner, the group shall send certified copies of the indemnity and trust agreement from each participant to the Commissioner;

11. Procedures for the establishment, maintenance and administration of reserves for unearned assessments, loss reserves and loss expense reserves and for the determination and distribution of assessment and/or investment refunds, in accordance with sound actuarial principles, including the assumptions and methodology used; and

12. With respect to groups providing for self-insurance of workers' compensation liabilities, the group shall:

i. Guarantee benefit levels equal to those required by the workers' compensation law and other applicable statutes and provide a plan for the prompt payment of such benefits. Information documenting an individual member's financial strength and liquidity shall be made available to the Department upon the Department's written request and in a form specified by the Department;

ii. Provide a minimum contribution of at least $ 250,000 for the group's first year of operation and thereafter the minimum contribution shall be at least $ 500,000 for each subsequent year of operation unless otherwise approved by the Commissioner; and

iii. Unless otherwise approved by the Commissioner, provide for assessments based upon the Experience Rating Plan provided for in the New Jersey Workers' Compensation and Employers' Liability Insurance Manual on file with the Commissioner.

(d) The bylaws shall also be accompanied by the following information and documentation and any amendments thereto:

1. Designation of the trustees, administrator and custodian of the group's assets, as well as the chairman and secretary, if any;

2. Copies of the group's prospective and executed agreements or contracts and any renewal or new agreements or contracts with any administrator, servicing organization or custodian of the group's assets. Such agreements or contracts shall specify the duties of, and compensation to be paid to, each such entity. Copies of the above shall be accompanied by a list of all parties having or deriving any interest, right or benefit in the servicing organization or administrator;

i. To the extent the terms and conditions of any renewal agreement or contract and the parties thereto remain unchanged from the prior year, a copy of the renewal agreement or contract shall not be required. In lieu of filing a copy of the renewal agreement or contract, the group shall file a notice with the Department in the format of Exhibit A in the chapter Appendix incorporated herein by reference, that the agreement or contract and parties thereto remain unchanged from the prior year;

ii. Copies of any changes to the agreements or contracts shall be filed with the Department within 10 days after such changes are approved by the group;

3. A fidelity bond for all persons handling group assets in a form and amount acceptable to the Commissioner;

4. A surety bond for the claims administrator, or any other servicing organization deemed necessary by the Commissioner in a form and amount acceptable to the Commissioner, and a surety bond for any other servicing organization as deemed appropriate by the trustees in a form and amount acceptable to the trustees;

5. Evidence of errors and omissions insurance coverage for the servicing organization(s), administrator and producer, if employed by the fund, who negotiates excess insurance or reinsurance on behalf of the fund;

6. A designation and appointment of an agent in New Jersey to receive service of process on behalf of the fund as well as the address in this State where the books and records of the fund will be maintained at all times;

7. A list of the board of trustees and executive officers, updated annually;

8. Data forms, in the format set forth in Exhibit B in the chapter Appendix incorporated herein by reference, incorporating the appropriate and necessary professional qualifications for senior officers and directors of the administrator and servicing organizations providing services to the group updated and submitted to the Commissioner annually. An entity providing services to more than one group may submit one data form for all funds formed pursuant to this subchapter which the entity services;

i. To the extent the information contained in the data forms remains unchanged from the prior year, the group need not file updated forms, provided that the group files a notice with the Department, in the format of Exhibit C in the chapter Appendix incorporated herein by reference, that the same individuals are utilized and that the information in the data forms remains unchanged from the prior year;

9. Copies of each insurance policy or excess insurance contract purchased by the group, including a copy of the cover note or binder;

10. A description of any producer arrangement plan by which producers, who shall be licensed pursuant to N.J.S.A. 17:22A-1 et seq., represent members in their dealings with the group. The description shall include, but not be limited to, copies of all producer contracts, which shall include a description of the producer's obligations, responsibilities and compensation; the duration of such contracts; and an indication whether the contracts are subject to renewal. Copies of renewal contracts or a notice of renewal shall also be provided consistent with the requirements set forth in (d)2 above.

i. The compensation paid to producers shall be reasonable. The Commissioner may disapprove any arrangement if he or she determines that the terms of the arrangement are unreasonable;

11. A cash management plan, which shall include the designation of depository institution(s) for the holding of group monies and the group's investment policy; and

12. A copy of the application form to be utilized by the group for prospective new members applying for membership in the group.

(e) Each risk management group shall, concurrently with the filing of its bylaws as provided at (a) above, file its risk management program and any amendments thereto with the Department as specified in (f) below.

(f) The trustees shall prepare, or cause to be prepared, a risk management program for the risk management group. The program description shall include, but not be limited to:

1. The perils or liabilities to be insured against;

2. The limits of coverages, whether self-insurance, direct or excess insurance purchased from a commercial carrier, or reinsurance;

3. The amount of risk to be retained by the group;

4. The amount of unpaid claims to be established;

5. The proposed method of assessing contributions to be paid by each member of the group;

6. Procedures governing loss adjustment and legal fees;

7. Coverage to be purchased from a commercial insurer, if any;

8. Reinsurance to be purchased, if any, and the amount of premium therefor;

9. Procedures for the closure of fund years including the maintenance of all relevant accounting records;

10. The assumptions and methodology used for the calculation of appropriate reserves required to be established, maintained and administered in accordance with sound actuarial principles pursuant to (a)10 above; and

11. The maximum amount a certifying and approving officer may approve for payment pursuant to N.J.A.C. 11:15-7.2 2.

(g) The Commissioner may, at the time of filing of the bylaws and risk management program and whenever thereafter he or she deems it expedient, make or cause to be made, an examination of the assets and liabilities, financial condition, method of conducting business and all other affairs of any group. For the purpose of the examination, the Commissioner may retain attorneys, appraisers, independent actuaries, independent certified public accountants or other professionals or specialists as examiners, or may request the trustees to authorize and employ such person or persons to conduct the same or to assist therein as he or she deems advisable. The reasonable expenses of the examination shall be fixed and determined by the Commissioner, and such expenses shall be paid by the group examined to the appropriate entity or person upon presentation of a detailed account.

1. For purposes of completing an examination of any group pursuant to N.J.S.A. 18A:64-91c and this subchapter, the Commissioner may examine or investigate any person, or the business of any person, insofar as such examination or investigation is, in the sole discretion of the Commissioner, necessary or material to the examination of the fund.

2. Every group or person from whom information is sought, including its officers, directors and agents, shall provide the Commissioner or other person appointed as an examiner pursuant to this subsection, timely, convenient, and free access at all reasonable hours at its offices to all books, records, accounts, papers, documents and any or all computer or other recordings relating to the property, assets, business and affairs of the group being examined.

3. The administrator and servicing organization(s), and their officers, directors, employees and agents, or other person, shall facilitate the examination and aid in the examination so far as it is in their power to do so. The Commissioner may, in accordance with the procedures set forth in N.J.A.C. 11:15-7.8, suspend or terminate the authority of any group, if the group, by its administrator, servicing organizations, or officers, directors, employees, or agents thereof, refuses to submit to an examination or to comply with any reasonable request of the examiners.

N.J. Admin. Code § 11:15-7.6