Tenn. Comp. R. & Regs. 0780-01-54-.04

Current through June 26, 2024

Section 0780-01-54-.04 - APPLICATION FOR CERTIFICATE OF AUTHORITY

(1) To apply for a certificate of authority, a pool shall file with the Commissioner an application on a form adopted by the Commissioner, accompanied by a non-refundable filing fee as set under T.C.A. § 56-4-101(a)(1). A person in this state applying for a certificate of authority to act as a pool shall, under penalty of refusal, suspension or revocation of the certificate of authority, declare therein that the statements made in the application are true, correct and complete to the best of the person's knowledge and belief under penalty of perjury.

(2) An application for a certificate of authority shall include the following documentation, together with such other information or documentation as the Commissioner may require:

(a) Organizational documents and information.

1. The articles of incorporation, trust agreement, or any other similar document from which the pool is formed;

2. The by-laws of the pool;

3. The mailing addresses and physical location of all of the pool's offices in Tennessee, including the address where the books and records of the pool will be located;

4. The name, address, and telephone number of each member; and

5. Documentation evidencing designation of the board of trustees, administrator, and, if applicable, third party administrator.

(b) Written contracts.

1. All contracts between the pool and the pool's expected administrator;

2. All contracts between the pool and the pool's expected third party administrator;

3. Any and all royalty agreements or contracts;

4. Any and all service fee agreements or contracts; and

5. The errors and omissions insurance policies for the board of trustees issued to protect the pool from damages, if any.

(c) Operational documents.

1. Any operational and/or claims manual to be used by the pool;

2. Documentation establishing the rate at which insurance producers will be commissioned to solicit members to join the pool; and

3. Underwriting guidelines established by the board of trustees.

(d) Financial documents.

1. Documentation in a form acceptable to the Commissioner evidencing the financial ability of the pool to pay the obligations of the pool and to pay the workers' compensation obligations of its members, as provided in this Chapter; and

2. Documentation evidencing proof of payment to the pool by each member of the initial premium due for such member in an amount of at least twenty-five percent (25%) of the member's first year premium.

(e) Member documents.

1. Each member's application for membership into the pool;

2. Indemnity agreements between the pool and each member establishing each member's joint and several liability to the pool for all expenses, liabilities, and claims asserted against the pool by any person or entity;

3. Documentation evidencing the current experience modifier of each member, if the member's premium size makes it available;

4. Documentation evidencing loss run data for each member for the past four (4) years or loss run data for all prior years the member has been in business, whichever is less; and

5. A financial statement for the most recent fiscal year ended over ninety (90) days prior to the application and for each quarter ended more than thirty (30) days prior, if such quarterly statement is available. The pool may file the following types of financial statements in order to comply with this Rule:

(i) Audited financial statement prepared by a certified public accountant;

(ii) Compilation report prepared by a certified public accountant;

(iii) Tennessee Franchise and Excise Tax Return including Form 1120; or

(iv) Such other financial statements as the Commissioner may accept.

(f) Sponsoring association documents.

1. The articles of incorporation or other similar document from which the sponsoring association is formed;

2. The by-laws, constitution, and procedures of the sponsoring association;

3. Documentation evidencing the fact that the sponsoring association has members that support the association by regular payment of dues on an annual, semiannual, quarterly or monthly basis;

4. A certification signed by the president of the sponsoring association that the association was created in good faith for purposes other than that of creating a self-insurance pool; and

5. Documentation evidencing that the sponsoring association has reviewed the pool's application for a certificate of authority and believes and represents to the Commissioner that the statements made in the application and the documents accompanying the application comply with the sponsoring association's constitution, by-laws and procedures and applicable state statutes and regulations.

(3) To obtain and maintain its certificate of authority, a pool shall comply with the following requirements as well as any other requirements established by law or regulation:

(a) Each pool shall provide proof to the Commissioner that it is comprised of ten (10) or more employers of the same trade or professional association, and that the member employers are engaged in the same trade or profession as the other members.

1. The Commissioner may refuse to issue a certificate of authority to a pool upon finding that the different class codes which the pool would be self-insuring are of such diversity or type of risk that it would not be in the interest of the members, the members' employees, or the public to allow a pool to self-insure such diverse class codes.

2. The Commissioner may, after notice and hearing, revoke the certificate of authority upon finding that the pool is self-insuring class codes of such diversity and risk that it is not in the interest of the members, the members' employees, or the public to allow a pool to self-insure such diverse class codes. In lieu of revoking a pool's certificate of authority, the Commissioner may order a pool to refuse an application for membership, cancel, or non-renew a member upon making such findings.

3. Pools that possess a certificate of authority as of January 1, 2005, do not have to comply with Subparagraph (a) except to the extent they accept new members after such date.

(b) Upon request by the Commissioner, a pool shall provide proof of an ability to pay all claims, liabilities and legal obligations of the pool, including all open workers' compensation claims submitted by employees of the members of the pool. Such proof shall be established by the following documents:

1. The pool's annual audited financial reports. Such annual audited financial reports shall adhere to the requirements for financial reports provided in Chapter 0780-1-65;

2. A certification from a qualified actuary that the pool has adequately reserved for its losses, including those losses that have been incurred but not reported;

3. Each member's financial condition in the form of an annual audited financial statement, compilation report prepared by a certified public accountant, a Tennessee Franchise and Excise Tax Return including Form 1120, or such other financial statements as the Commissioner may accept; and

4. Such other documents the Commissioner finds relevant to determining whether the pool can pay all of its claims, liabilities and legal obligations of the pool.

(c) Each pool shall obtain both a specific and aggregate excess insurance policy in a form and amount acceptable to the Commissioner.

1. Each pool shall file with the Commissioner a certification from a qualified actuary that the amount of specific and aggregate excess insurance procured by the pool is actuarially sound. A pool may forego the purchase of aggregate excess coverage if it is not obtainable or if it provides no additional protection to the pool so long as this decision is certified by a qualified actuary.

2. The Commissioner may disallow the use of a specific and/or aggregate excess insurance policy upon determining it is not sufficient to meet the pool's responsibilities. In making this determination, the Commissioner may consider the pool's size, types of employments, years in existence and other relevant factors.

(d) Each pool shall enter into indemnity agreements with its members jointly and severally binding the pool and each member thereof to meet the financial obligations of the pool.

1. The indemnity agreement shall be on a form prescribed by the Commissioner and shall include minimum uniform substantive provisions prescribed by the Commissioner.

2. Subject to the Commissioner's prior written approval, a pool may add other provisions needed because of its particular circumstances.

3. The agreement shall be irrevocable for the period during and for which the member receives workers' compensation coverage through the pool, shall bind any successor in interest, and shall remain in effect as long as there is in this State any obligation or liability of the pool.

(e) The pool has deposited with the Commissioner, in a form approved by the Commissioner, one of the following types of security in the amount of one hundred thousand dollars ($100,000) to be used for the payment of claims in the event the pool becomes insolvent:

1. Negotiable securities;

2. Certificates of deposit;

3. Letters of credit; or

4. Surety bonds.

(f) Each pool shall have an estimated annual standard premium of at least one million dollars ($1,000,000) in order to obtain and maintain a certificate of authority.

(g) The Commissioner may require a pool to submit any documents necessary to verify the information contained in or documents submitted with the application.

(4) Before approving an application for a certificate of authority filed under this Rule, the Commissioner shall find that the person applying:

(a) Has not committed any act that is a ground for denial, suspension or revocation set forth in Rule 0780-01-54-.22;

(b) Has the financial ability to pay the obligations of the pool and to pay the workers' compensation obligations of its members;

(c) Has complied with all requirements for obtaining and maintaining a certificate of authority issued to a pool by the Commissioner; and

(d) Has paid the fees set forth in this Rule.

(5) In the event the Commissioner determines that an applicant does not qualify for a certificate of authority, the Commissioner shall notify the applicant in writing of the denial and the basis thereof.

Tenn. Comp. R. & Regs. 0780-01-54-.04

Original rule filed April 8, 1986; effective May 8, 1986. Repeal and new rule filed August 31, 2005; effective November 14, 2005. Amendment filed December 31, 2008; effective March 16, 2009.

Authority: T.C.A. §§ 50-6-405(c) and (h).