UNOFFICIAL COPY AS OF 4/14/2016 1998 REG. SESS. 98 RS HB 742/GA
AN ACT relating to workers' compensation.
Be it enacted by the General Assembly of the Commonwealth of Kentucky:
Section 1. KRS 342.803 is amended to read as follows:
(1) The Kentucky Employers' Mutual Insurance Authority is created as a nonprofit, independent, self-supporting de jure municipal corporation and political subdivision of the Commonwealth which shall be a public body corporate and politic to insure employers in the Commonwealth for workers' compensation, employers' liability insurance and coverage required by the Federal Coal Mine Health & Safety Act, the Jones Act, and the Longshore and Harbor Workers Act incidental to and written in conjunction with workers' compensation. The General Assembly hereby recognizes that the operation of a competitive state fund is a unique activity for state government and that a corporate structure will best enable the authority to be managed in an entrepreneurial and business-like manner. The authority shall function in a manner similar to a governing board for a domestic mutual insurance company and shall be subject to the provisions of KRS Chapter 304 applicable to domestic mutual insurance companies, unless otherwise provided or exempted in KRS 342.801 to 342.843.
(2) Except for initial funding for start-up, the authority shall be entirely self-supporting.
(3) The authority or its liabilities shall not be deemed to constitute a debt or a liability of the Commonwealth or a pledge of the faith and credit of the Commonwealth.
(4) The authority shall provide coverage and issue policies as an insurer in the voluntary market and as an insurer of last resort.
Section 2. KRS 342.807 is amended to read as follows:
(1) The authority shall be governed by a board of directors. The board shall exercise complete jurisdiction over the authority.
(2) The board shall consist of the:
(a) Secretary of the Finance and Administration Cabinet;
(d) Seven (7) at-large[voting] members[ and four (4) ex-officio nonvoting members who shall serve in an advisory capacity.
(3) On or before sixty (60) days after April 4, 1994, the board shall be] appointed by the Governor, subject to confirmation by the Senate.[ The members of the board shall have the following qualifications:
(a) One (1) member shall have proven or demonstrated knowledge and experience in insurance underwriting principles, preferably in the area of workers' compensation;
(b) One (1) member shall have proven or demonstrated knowledge and experience in workplace safety in the majority of all categories or classifications of employment and industry in the Commonwealth;
(c) One (1) member shall be a nonmanagement employee of a prospective employer policyholder;
(d) Two (2) members shall represent employers with fewer than fifty (50) employees; and
(e) Two (2) members shall represent employers with more than fifty (50) employees.]
(3)[(4)] Any vacancy which occurs prior to the expiration of a term shall be filled by the Governor in the same manner as the initial appointment was made, and the new appointee shall serve only the remainder of the unexpired term.
(4)[(5)] No person shall serve on the board who:
(a) Fails to meet or comply with the conflict of interest policies established by the board and KRS 304.24-270;
(5)[(6)] In making the appointments to the board, subject to Senate confirmation, the Governor shall ensure adequate representation from the major sectors of the economy and workforce in the Commonwealth.
Section 3. KRS 342.809 is amended to read as follows:
(1) The board shall elect a chair and other officers it deems necessary from its members. The Governor shall make the initial appointments to the board as follows: three (3) members shall be appointed to terms that expire December 31, 1995, and four (4) members shall be appointed to terms that expire December 31, 1997. Subsequent members shall serve terms of four (4) years and shall serve until their successors are appointed and qualified.
(2) Senate confirmation of the Governor's appointees is required in accordance with the provisions of KRS 11.160. If a member is not confirmed by the Senate, the Governor, within thirty (30) days of the rejection, shall make another appointment. That member shall serve the remainder of the term in question and shall also be subject to confirmation should the term extend until the next regular session, or a special session which includes this subject on the call, whichever occurs earlier.
(3) Six (6)[Four (4) voting] members shall constitute a quorum. The board shall meet at least monthly[quarterly].
(4) Each[ voting] member, except the secretaries of the cabinets and the commissioner of personnel, shall be compensated five thousand dollars ($5,000) annually, except the chair, who shall be paid seven thousand five hundred dollars ($7,500). In addition, the[ voting] members of the board, except the secretaries of the cabinets and the commissioner of personnel, shall be reimbursed for necessary travel and lodging expenses in accordance with administrative regulations promulgated by the Cabinet for Finance and Administration for state employees.
(5)[ The ex officio nonvoting members of the board shall be: the secretary of the Finance and Administration Cabinet, the commissioner of the Department of Personnel, and the commissioner of the Department of Insurance.
(6)] A[ voting] board member, except the secretaries of the cabinets and the commissioner of personnel, may be removed for cause by the board. Cause shall include, but not be limited to, incompetence or misconduct defined in policies or bylaws adopted[formulated]by the board[ and adopted by the policyholders].
Section 4. KRS 342.811 is amended to read as follows:
The board of directors of the authority shall function in a manner similar to the governing body of a mutual insurance company established pursuant to KRS Chapter 304, with all of the general corporate powers incidental thereto. The powers and duties of the board shall include, but not be limited to, the power to:
(1) Sue[ or be sued];
(2) Hire a manager to administer the authority in accordance with the policies and procedures of the board;
(3) Hire an internal auditor who shall serve at the pleasure of and report directly to the board on the internal operations of the authority;
(4)[(3)] Adopt a corporate seal;
(5)[(4)] Develop and file with the Legislative Research Commission bylaws for the operation of the authority;
(6)[(5)] Develop bylaws to establish the contingent liability of the policyholders for assessment purposes required in KRS 342.823;
(7)[(6)] Examine and adopt an annual operating budget for the authority;
(8)[(7)] Serve as investment trustees and fiduciaries of the authority in accordance with the provisions of KRS Chapter 386;
(9)[(8)] Incur debt in its own name and enter into financing agreements with the Commonwealth, its own agencies, or with a commercial bank, excluding the authority to issue bonds;
(10)[(9)] Develop[ broad] policy for the[ long-term] operation of the authority consistent with its mission and fiduciary responsibility;
(11)[(10)] Adopt a procurement policy consistent with the provisions of KRS Chapter 45A, including competitive bidding procedures;
(12)[(11)] Develop and publish an annual report to policyholders, the Governor, the General Assembly, and interested parties that describes the financial condition of the authority, including a statement of expenses, income, and actuarial soundness;
(13)[(12)] Pursuant to KRS Chapter 304, determine and establish an actuarially-sound price for insurance offered by the authority, including any dividends or deviations;
(14)[(13)] Pursuant to KRS 342.823, assess policyholders;[ and]
(15)[(14)]Employ a qualified firm to conduct an internal review and management or performance audit of the internal operations of the authority as needed or determined by the board, Attorney General, or Auditor of Public Accounts;
(16) Approve a personnel policy subject to the provisions of Section 5 of this Act;
(17) Approve all contracts entered into by the authority, in accordance with the bylaws and procurement policy of the board;
(19) Perform all other acts necessary or convenient in the exercise of any power, authority, or jurisdiction over the authority, either in the administration or in connection with the business of the authority to fulfill the purpose of KRS 342.801 to 342.843.
Section 5. KRS 342.813 is amended to read as follows:
(1) Following a nationwide search, the board shall hire a manager, subject to Senate confirmation in accordance with KRS 11.160 who shall serve at the pleasure of the board. The manager shall be compensated at a level determined by the board[, and may be removed by the board in the same manner prescribed in KRS 342.809 for the removal of a member of the board].
(2) The manager shall have proven successful experience for a period of at least five (5) years as an executive at the general management level in insurance operations or in the management of a state fund for workers' compensation.
(3) The manager shall conduct the day-to-day operations of the authority for the purpose of carrying out the policies and procedures of the board. The[ specific] duties of the manager[ shall] include, but are not[ be] limited to:
(a) Administering all operations of the authority in accordance with the direction of the board;
(b) Recommending to the board an annual administrative budget covering the operations of the authority and, upon approval, submitting the administrative budget, financial status, and actuarial condition of the authority to the Governor and the General Assembly for their examination;
(c) Directing and controlling all expenditures of the approved budget;
(d) From time to time, upon the recommendation of an actuary, recommending to the board actuarially-sound rating plans, and the amount of dividends, if any, to be returned to policyholders;
(e) Investing the assets of the authority under the guidance of the board and in accordance with the provisions of Subtitle 7 of KRS Chapter 304;
(f) Recommending to the board and administering[Formulating and administering] a system of personnel administration[ and employee compensation that uses merit principles of personnel management, includes employee benefits and grievance procedures, and includes in-service training programs];
(g) Preparing and administering fiscal, payroll, accounting, data processing, and procurement procedures for the operation of the authority;
(h) Recommending to the board bylaws and uniform procedures for the management of the authority;
(i) Within the limitations of the budget, employing necessary staff personnel in accordance with the personnel policies of the board;
(j) Maintaining appropriate levels of property, casualty, and liability insurance as approved by the board to protect directors, officers, employees, and assets of the authority; and
(k) Contracting[ by competitive bidding]in accordance with Section 4 of this Act[pursuant to KRS Chapter 45A] for claims administration, safety services, legal defense, actuaries, medical providers, financial services, and other services which the manager elects to obtain outside employed staff.
(4) The manager may:
(a) Reinsure any risk or part of any risk;
(b) Cause to be inspected and audited the payrolls of policyholders or employers applying to the authority for insurance;
(c) Establish procedures for adjusting claims in accordance with this chapter; and
(d)[ Contract with physicians, surgeons, hospitals, and other health care providers for medical and surgical treatment provided by this chapter;
(e) Contract with qualified third-party entities to assist in the development and formulation of rates and rating plans; and
(f)] Require policyholders to maintain an adequate deposit to provide security for periods of coverage for which premiums have not been paid.
(5) The manager shall give an official bond in an amount and with sureties approved by the board. The premium for the bond shall be paid by the authority.
(6) The provisions of KRS Chapters 18A and 64[ relating to salaries, salary limits, or benefits] shall not apply to the board, the manager, or the staff of the authority; however, the board shall adopt a system of personnel administration that includes benefits, grievance procedures, training and compensation.
Section 6. KRS 342.823 is amended to read as follows:
(1) In determining the solvency of the authority in regard to maintaining adequate reserves, the commissioner of insurance, the independent accountant engaged for the annual audit, and the board, in exercising its prudent stewardship, shall not utilize the practice of "discounting" the funds to reduce future liabilities, except in conformity with standards or rules promulgated by the National Association of Insurance Commissioners.
(2) The authority[board] shall file reports required by KRS 304.3-240[submit an annual independently-audited financial statement in accordance with procedures governing annual statements adopted by the National Association of Insurance Commissioners within ninety (90) days of the close of the business year].
(3) The authority shall file a report not later than March 31 of each year indicating[ The statement shall be a public record and shall be delivered to the Governor, commissioner of insurance, and the co-chairs of the Legislative Research Commission. It shall indicate] the business done by the authority during the previous year, including a balance sheet showing assets and liabilities at the beginning and conclusion of that year. The report shall be a public record and shall be delivered to the Governor, commissioner of insurance, Auditor of Public Accounts, Attorney General, and the co-chairs of the Legislative Research Commission. Additionally, a statement of solvency shall be prepared which shall include, at a minimum:
(a) A summary of the prior quarterly reports required in KRS 342.821;
(b) A management[An actuarial] projection of the future solvency status for the authority[at least ten (10) years in the future]; and
(c) Any recommendations pertaining to the same.
(4)[(3)]The authority shall not enter into any contract with a certified public accountant for an audit unless the Auditor of Public Accounts has declined in writing to perform the audit or has failed to respond within thirty (30) days of receipt of a written request for an audit. Any contract with a certified public accountant entered into as a result of the Auditor of Public Accounts declining to perform the audit shall specify the following:
(a) That the certified public accountant shall forward a copy of the audit report and management letters to the Auditor of Public Accounts, Attorney General, and Legislative Research Commission; and
(b) That the Auditor of Public Accounts shall have the right to review the certified public accountant's work papers.
(5) If at any time the assets of the authority are less than its liabilities, the board may levy an assessment on its policyholders[. The board may enforce payment of the assessment] in the manner provided in Subtitle 24 of KRS Chapter 304.
Section 7. KRS 342.841 is amended to read as follows:
(1) The board shall comply with KRS Chapter 61 in regard to open meetings and open records in the conduct of ordinary business. In addition to the exemptions listed in KRS Chapter 61, proceedings to discuss rates, proposed rates, or anything that relates to rates if that discussion would jeopardize the competitiveness of the authority may be closed, as well as,[ except that] proceedings which would provide an unfair competitive advantage to private sector competitors providing workers' compensation coverage in the Commonwealth[ may be closed to the public. The authority shall act as any other domestic mutual insurance company with regard to all of its records. Any request for records shall be in writing. Any records requested shall be in pursuit of the investigation, and the confidentiality of the information in the records shall be maintained].
(2) All records of the authority shall be deemed open records and subject to public inspection, unless:
(a) The record is excluded from inspection under KRS Chapter 61;
(b) The record includes information that would provide an unfair competitive advantage to private sector competitors providing workers' compensation coverage in the Commonwealth;
(c) In addition to the exemption provided by KRS 61.878(1)(c)1., the record is generated by the authority, generally recognized as confidential or proprietary, and which if openly disclosed would permit an unfair commercial advantage to competitors of the authority or other entity to which the record relates; and
(d) The record relates to a fraud investigation conducted by the authority and that does not become evidence in a criminal or civil action.
Section 8. KRS 342.843 is amended to read as follows:
(1) The Attorney General and the Auditor of Public Accounts shall[ continuously] monitor the operations of the authority.
(2) Either the Attorney General or the Auditor of Public Accounts, or both, may make at any time any examinations or investigations, jointly or severally, of the operations, practices, management, or other matters relating to the authority as they deem necessary. Either of them shall have the power to subpoena witnesses and records for these purposes, and otherwise to compel the giving of evidence for any matter under study. The Attorney General, the Auditor of Public Accounts, or any employee authorized by either of them may require the giving of this evidence under oath and may administer the oath. Any person voluntarily providing information or evidence may be required to do so under oath administered by the Attorney General, the Auditor of Public Accounts, or any employee authorized by either of them. If any person fails or refuses to testify or furnish documentary evidence concerning any matter requested, the Franklin Circuit Court, on application of either the Attorney General or the Auditor of Public Accounts or both, may compel obedience by proceedings for contempt as in the case of disobedience of a subpoena issued from the Circuit Court or of a refusal to testify in the Circuit Court.
(3) The Attorney General and the Auditor of Public Accounts shall have without restriction:
(b) Full access to all financial transactions and investigations of the authority; and
(c) The right to attend all meetings of the board and its committees[The right of subpoena; and
(d) Full access to claims, records, and supporting data].
(4) If fraud, mismanagement, illegal activity, imprudent practices, or other deficiencies are found in the operations or other practices of the authority, the Attorney General or Auditor of Public Accounts, or both shall:
(b) Institute a civil action or action for injunctive relief to compel corrective action;
(c) Institute criminal proceedings against any officer or employee of the authority or any other person, as defined in KRS 446.010, as may be necessary; or
(d) Any combination of the above listed actions or any other form of action reasonably calculated to assure efficient and honest operations of the authority and those involved with it.
(5) The Attorney General and the Auditor of Public Accounts shall report jointly to the General Assembly in January of each year in which the General Assembly convenes in regular session the results of the monitoring activities required by this section.
Section 9. If the reorganization of the Department of Personnel into the Personnel Cabinet is confirmed by this 1998 Regular Session of the General Assembly, the reference to the Commissioner of the Department of Personnel appearing in subsection (2)(b) of Section 1 of this Act shall be codified as the Secretary of the Personnel Cabinet.
Section 10. If the reorganization of the Department of Personnel into the Personnel Cabinet is confirmed by this 1998 Regular Session of the General Assembly, the reference to "and the commissioner of personnel" appearing in subsections (4) and (6) of Section 3 of this Act shall be deleted.