Original Notice.

Preproposal statement of inquiry was filed as WSR 99-07-100.

Title of Rule: Chapter 296-17 WAC, Manual of rules, classifications, rates, and rating system for workers' compensation insurance.

Purpose: Amend risk classification premium base rates, and experience rating and retrospective rating tables to reflect updated loss experience and provide a 0% general rate increase effective January 1, 2000. This proposal also amends two general rules and creates a new rule to allow members of a limited liability company to elect optional workers' compensation coverage. This proposal specifically amends WAC 296-17-855, 296-17-875, 296-17-880, 296-17-885, 296-17-890, 296-17-895, 296-17-89502, and 296-17-920. This proposal also specifically amends WAC 296-17-31007, 296-17-31018, and creates a new section WAC 296-17-75306.

Statutory Authority for Adoption: RCW 51.16.035 Base rates, 51.32.073 Supplemental pension, and 51.04.020(1) General authority.

Statute Being Implemented: RCW 51.16.035 and 51.32.073.

Summary: Proposals to the following rules establish premium rates for workers' compensation insurance classifications for calendar year 2000 and modifications to the related experience rating and retrospective rating plans: WAC 296-17-855 Experience modification, 296-17-875 Table I, primary losses for selected claim values, 296-17-880 Table II, "B" and "W" values, 296-17-885 Table III, expected loss rates and D ratios, 296-17-890 Table IV, maximum experience modifications, 296-17-895 Base rate table by class of industry, 296-17-89502 Industrial insurance rates for nonhourly rated classifications, and 296-17-920 Assessment for supplemental pension fund.

Proposals to the following rules allow members of a limited liability company to elect optional workers' compensation coverage: WAC 296-17-31007 Owner coverage and 296-17-31018 Exception classifications.

Creation of the following rule establishes a new classification 7100-00 for members of a limited liability company: WAC 296-17-75306.

Reasons Supporting Proposal: Insurance base rates and experience rating tables are being modified to reflect changes in loss data associated with the classification and rating plan from the previous 1999 rating period. Washington law provides that rates should be adjusted annually to reflect the hazards of each industry and in accordance with the rating plan. Similarly the rating plan is revised to recognize changes within industry groups. A 0% general increase in premium rates is also proposed, reflecting low medical inflation, reduction of long-term disability claims, and continued success in investments for the workers' compensation which helps finance the state fund.

Name of Agency Personnel Responsible for Drafting: Ken Woehl/Bill Vasek, Tumwater, Washington, 902-4748/902-5015; Implementation: Kathy Kimbel/Ken Woehl, Tumwater, Washington, 902-4739/902-4748; and Enforcement: Doug Mathers, Tumwater, Washington, 902-4750.

Name of Proponent: Department of Labor and Industries, governmental.

Rule is not necessitated by federal law, federal or state court decision.

Explanation of Rule, its Purpose, and Anticipated Effects: The purpose of the proposal is to establish 2000 premium rates and experience rating parameters for calendar year 2000. Washington law (RCW 51.16.035 and 51.32.073) requires labor and industries to adjust rates to ensure solvency of the accident, medical aid and supplemental pension funds. RCW 51.16.035 also provides that premium rates charged to industry vary by degree of hazard. Labor and industries is proposing a 0% general rate increase to workers' compensation insurance premium rates beginning January 1, 2000. However, labor and industries is proposing to adjust each industry risk classification rate to reflect more current loss experience. In addition, due to recent legislation this proposal also allows members of a limited liability company to be exempted from mandatory workers' compensation coverage.

Proposal Changes the Following Existing Rules: Overall premium levels will remain the same. Rates for each industry classification will reflect updated loss experience. Industries with improved loss experience will see reductions in their premium rates. Industries with worsening loss experience will see increases in their premium rates. This proposal also amends two general rules and creates a new rule to allow members of a limited liability company to elect optional workers' compensation coverage.

A small business economic impact statement has been prepared under chapter 19.85 RCW.

A copy of the statement may be obtained by writing to Department of Labor and Industries, P.O. Box 4100, Olympia, WA 98504-4100.

RCW 34.05.328 does not apply to this rule adoption. RCW 34.05.328 (5)(b)(vi) provides an exemption for rules that set rates or fees pursuant to legislative standards. RCW 51.16.035 requires labor and industries to set premium rates according to legislative standards. Although the department was not required to prepare analysis under RCW 34.05.328, it has voluntarily completed this analysis.

Hearing Location: On November 3, 1999, at 10:00 a.m., Conference Room #4, Spokane Labor and Industries Office, 901 North Monroe, Suite 100, Spokane, WA 99201-2149; and on November 5, 1999, at 10:00 a.m., First Floor Auditorium, Tumwater Labor and Industries Office, 7273 Linderson Way S.W., Tumwater, WA 98504-4851.

Assistance for Persons with Disabilities: Contact Classification Services, (360) 902-4776, by November 3, 1999, TDD (360) 902-4776.

Submit Written Comments to: Department of Labor and Industries, Douglas Connell, Assistant Director for Insurance Services, P.O. Box 4100, Olympia, WA 98501, or fax (360) 902-4729, by November 5, 1999.

Date of Intended Adoption: November 29, 1999.

September 22, 1999

Gary Moore

Director

OTS-3378.3

AMENDATORY SECTION(Amending WSR 98-18-042, filed 8/28/98, effective 10/1/98)

WAC 296-17-31007
Owner coverage.

(1) As a business owner, can I buy workers' compensation insurance to cover myself?

Yes((, as a business owner or corporate officer)). If you are a sole proprietor, partner, corporate officer, or member of a limited liability company you may not be required to have industrial insurance coverage as provided in RCW 51.12.020. In these instances, you can still obtain workers' compensation coverage from us. We refer to this coverage as optional coverage since as the owner/((corporate)) officer, you are not required to have this insurance. Because owner insurance coverage is optional, you must meet certain conditions and requirements which are detailed on the application for owner/((corporate)) officer optional coverage. These requirements include:

•	Completing an application for optional owner/((corporate)) officer coverage;
•	Reporting owner/((corporate)) officer hours in the classification assigned to your business that is applicable to the work being performed by the owner/officer;
•	Submitting a supplemental report which lists the name of each covered owner/((corporate)) officer; and
•	Reporting four hundred eighty hours or actual hours worked each quarter for each covered owner/((corporate)) officer and in the applicable workers' compensation classification code.

(2) When will my owner/((corporate)) officer coverage become effective?

Your coverage will become effective immediately after the filing date we receive your application unless you indicate a future date. We will not make coverage effective on the same date or a date prior to our receipt of your completed application for owner/((corporate)) officer coverage.

(3) Where can I obtain an application for owner/((corporate)) officer coverage?

To obtain a copy of this application, contact your local labor and industries office. We are listed in the government pages of your local directory or you can call our underwriting section at (360) 902-4817.

[Statutory Authority: RCW 51.16.035.  98-18-042, § 296-17-31007, filed 8/28/98, effective 10/1/98.]

(1) What are exception classifications?

In WAC 296-17-31012 we discussed our classification policy. We described the process used to classify risk and stated that we assign the basic classification or basic classifications that best describe the nature of your company's business. While this policy is modeled after the policy used by private insurance carriers and is geared to administrative ease for you, we recognize that there are some duties or operations where your employees do not share the same general workplace hazards that your other employees are exposed to. To provide for those operations that are outside the scope of a basic classification, we have created three types of exception classifications listed below:

•	Standard exception classifications,

•	Special exception classifications, and

•	General exclusion classifications.

(2) What are the standard exception classifications?

Standard exception classifications cover those employments that are administrative in nature and common to many industries. Employees covered by a standard exception classification cannot be exposed to any operative hazard of the business. If the language of the basic classification assigned to your business does not include these employments, you may be able to report them separately. The standard exception classifications are:

•	Classification 4904 (WAC 296-17-653) "clerical office employment." This classification includes clerical, administrative, and drafting employees.

•	Sales personnel classifications 6301 (WAC 296-17-696), 6302 (WAC 296-17-697), and 6303 (WAC 296-17-698) includes outside sales personnel and messengers.

•

Classification 7101 (WAC 296-17-754) applies to corporate officers who have elected optional coverage. A corporate officer as used in these rules is a person who is an officer in the corporation, such as the president, who also serves on the corporation's board of directors and owns stock in the corporation.

•	Classification 7100 (WAC 296-17-75306) applies to members of a limited liability company who have elected optional coverage.

Clerical office employees are defined as employees whose duties are limited to: Answering telephones; handling correspondence; creating or maintaining financial, employment, personnel, or payroll records; composing informational material on a computer; creating or maintaining computer software; and technical drafting. Their work must be performed in a clerical office which is restricted to:

•	A work area which is physically separated by walls, partitions, or other physical barriers, from all other work areas of the employer, and

•	Where only clerical office work as described in this rule is performed.

A clerical office does not include any work area where inventory is located, where products are displayed for sale, or area where the customer brings products for payment. Clerical office employees can perform cashiering and telephone sales work if they do not provide any retail or wholesale customer service that involves handling, showing, demonstrating, or delivering any product sold by the employer. Clerical office employees can make bank deposits, pick up and deliver mail at the post office, or purchase office supplies, if their primary work duties are clerical office duties as defined in this rule.

Sales personnel are defined as employees whose duties are limited to: Soliciting new customers by telephone or in person; servicing existing customer accounts; showing, selling, or explaining products or services; completing correspondence; placing orders; performing public relations duties; and estimating. Although some of sales person's duties may be performed in a clerical office, most of their work is conducted away from the employer's physical business location or in showrooms. We refer to work that takes place away from the employer's premises as "outside sales." Sales personnel whose duties include customer service activities such as, but not limited to, the delivery of product, stocking shelves, handling inventory, or otherwise merchandising products sold to retail or wholesale customers are excluded from all standard exception classifications. Sales personnel with duties such as delivery and stocking of shelves are to be reported in the basic classification applicable to the business unless the basic classification assigned to the business requires another treatment.

Messengers are defined as employees whose duties are delivering interoffice mail, making deposits, and similar duties that are exclusively for the administration of the employer's business. Classification 6303 "messengers" does not include delivering mail or packages to the employer's customer or as a service to the public. If a messenger is engaged in delivering mail or packages as a service to the public they are to be assigned to the basic classification of the business or classification 1101 as applicable.

Corporate officers duties in classification 7101 must be limited to: Clerical duties; outside sales duties as described above; administrative duties such as hiring staff, attending meetings, negotiating contracts, and performing public relations work. To qualify for this classification, a corporate officer must:

•	Be a shareholder in the corporation,

•	Be elected as a corporate officer and empowered in accordance with the articles of incorporation or bylaws of the corporation,

•	Serve on the corporation's board of directors,

•	Not have any exposure to any operative hazard of the business, and

•

Not directly supervise employees who have any exposure to any operative hazard of the business. Members of a limited liability company (LLC) duties in classification 7100 must be limited to: Clerical duties; outside sales duties as described above; administrative duties such as hiring staff, attending meetings, negotiating contracts, and performing public relations work. This includes only those members who have duties and authority similar to the exemption criteria of corporate officers in RCW 51.12.020.

Classification 6303 may apply to a corporate officer or member of a limited liability company whose duties are limited to outside sales activities as described in the sales personnel section of this rule. Under no circumstance is classification 4904 to be assigned to any corporate officer or member of a limited liability company. You cannot divide the work hours of an employee between a standard exception classification and a basic classification unless it is permitted by another rule. If an employee works part of their time in a standard exception classification and part of their time in your basic classification, then all exposure (hours) must be reported in the highest rated basic classification applicable to the work being performed.

(3) What are the special exception classifications?

Special exception classifications represent operations found within an employer's business that are allowed to be reported separately when certain conditions are met. Assuming the conditions have been met, the following classifications may be used even if your basic classification includes the phrases "all operations" or "all employees."

Security guards - classification 6601 (WAC 296-17-723) will apply if the security guard:

•	Is an employee of an employer engaged in logging or construction,
•	Is for the purpose of guarding the employer's logging or construction sites,
•	Is employed at the site only during the hours the employer is not conducting any other operations at the site,
•	Has no other duties during their work shift as a security guard.

If all of the above conditions are not met, the security guard is to be reported in the basic classification applicable to the construction or logging operation being conducted.

Janitors - classification 6602 (WAC 296-17-724) will apply if:

•	The janitorial/cleaning activities being performed are limited to the employer's clerical office,
•	The clerical office meets the criteria described earlier in this rule, and
•	The employer's office employment is assigned to be reported in classification 4904.

Log truck drivers - classification 5003 (WAC 296-17-66001) will apply if the log truck driver has no other duties during their work shift that are subject to the logging classification 5001 (WAC 296-17-659).

(4) What are the general exclusion classifications?

General exclusion classifications represent operations that are so exceptional or unusual that they are excluded from the scope of all basic classifications. If you have these operations, we will assign a separate classification to cover them. You must keep accurate records of the work hours your employees work in these classifications. If you do not keep accurate time records for each employee performing work covered by a general exclusion classification, we will assign the work hours in question to the highest rated classification applicable to those hours. The general exclusion classifications are:

•	Aircraft operations: All operations of the flying crew.

•	Racing operations: All operations of the drivers and pit crews.

•	Diving operations: All operations of diving personnel and ship tenders who assist in diving operations.

•	New construction or alterations of the business premises.

•	Musicians and entertainers.

A division of work time is permitted between a standard exception classification and flight crew operations, racing operations, or diving operations. If you fail to keep original time records that clearly show the time spent in the office or in sales work, we will assign all work hours in question to the highest rated classification applicable to the work hours in question.

Example: Assume a corporate officer performs duties which are described in classification 7101. Occasionally, the officer flies a plane to attend a meeting. You would report the flying exposure (hours) of the corporate officer in classification 6803. The remainder of the corporate officer's time would continue to be reported in classification 7101.

[Statutory Authority: RCW 51.16.035.  98-18-042, § 296-17-31018, filed 8/28/98, effective 10/1/98.]

7100-00 Exempt limited liability company members, N.O.C. Applies to members of a limited liability company exempt from mandatory coverage under RCW 51.12.020(13) who have elected optional coverage, and perform only administrative, clerical and outside sale duties. Any LLC member electing optional coverage who performs duties directly related to the operational activities of the company must be reported in the basic classification applicable to the work being performed.

Special note: Under no circumstances is classification 4904 to be assigned to any member of a limited liability company. Any member of a limited liability company who has elected optional coverage and is engaged exclusively in outside sales is to be reported separately in classification 6303.

[]

The basis of the experience modification shall be a comparison of the actual losses charged to an employer during the experience period with the losses which would be expected for an average employer reporting the same exposures in each classification.  The comparison shall contain actuarial refinements designed to mitigate the effects of losses which may be considered catastrophic or of doubtful statistical significance, due consideration being given to the volume of the employer's experience.  Except for those employers who qualify for an adjusted experience modification as specified in WAC 296-17-860 or 296-17-865, the experience modification shall be calculated from the formula:

MODIFICATION	=	Ap+ WAe+ (1-W) Ee+ B
		E+ B

The components Ap, WAe, and (1-W) Ee are values which shall be charged against an employer's experience record.  The component, E, shall be the expected value of these charges for an average employer reporting the same exposures in each classification.  The meaning and function of each symbol in the formula is specified below.

"Ap" signifies "primary actual losses." For each claim the primary actual loss is defined as that portion of the claim which is considered completely rateable for all employers and which is to enter the experience modification calculation at its full value.  For each claim in excess of $10,072 the primary actual loss shall be determined from the formula:

PRIMARY LOSS	=	((25,180)) 26,260	x total loss
		Total loss+ ((15,108)) 15,756

Primary actual losses for selected claim values are shown in Table I.  For each claim less than (($10,072)) $10,504 the full value of the claim shall be considered a primary loss.

"Ae" signifies "excess actual losses." For each claim the excess actual loss is defined as that portion of the claim which is not considered completely rateable for all employers.  The excess actual loss for each claim shall be determined by subtracting the primary loss from the total loss.

"W" signifies "W value." For each employer, the W value determines the portion of the actual excess losses which shall be included in the calculation of his experience modification, due consideration being given to the volume of his experience.  This amount is represented by the symbol "WAe" in the experience modification formula.  W values are set forth in Table II.

"E" signifies "expected losses." An employer's expected losses shall be determined by multiplying his reported exposure in each classification during the experience period by the classification expected loss rate.  Expected loss rates are set forth in Table III.

"Ee" signifies "expected excess losses." Expected losses in each classification shall be multiplied by the classification "D-Ratio" to obtain "expected primary losses." Expected excess losses shall then be calculated by subtracting expected primary losses from expected total losses.  Each employer shall have a statistical charge included in the calculation of his experience modification, said charge to be actuarially equivalent to the amount forgiven an average employer because of the exclusion of a portion of his excess actual losses.  This charge is represented by "(1-W) Ee" in the experience modification formula.  D-Ratios are set forth in Table III.

"B" signifies "B value" or "ballast." In order to limit the effect of a single severe accident on the modification of a small employer, a stabilizing element (B value) shall be added to both actual and expected losses.  B values are set forth in Table II.

[Statutory Authority: RCW 51.04.020, 51.16.035 and 51.32.073.  98-24-094, § 296-17-855, filed 12/1/98, effective 1/1/99;  97-24-062, § 296-17-855, filed 12/1/97, effective 1/1/98; 96-24-063, § 296-17-855, filed 11/29/96, effective 1/1/97.  Statutory Authority: RCW 51.04.020.  95-23-080, § 296-17-855, filed 11/20/95, effective 1/1/96; 94-24-007, § 296-17-855, filed 11/28/94, effective 1/1/95; 93-24-114, § 296-17-855, filed 12/1/93, effective 1/1/94.  Statutory Authority: RCW 51.04.020(1) and 51.16.035.  93-12-093, § 296-17-855, filed 5/31/93, effective 7/1/93; 92-24-063, § 296-17-855, filed 11/30/92, effective 1/1/93; 91-24-053, § 296-17-855, filed 11/27/91, effective 1/1/92; 90-24-042, § 296-17-855, filed 11/30/90, effective 1/1/91; 89-24-051 (Order 89-22), § 296-17-855, filed 12/1/89, effective 1/1/90.  Statutory Authority: RCW 51.16.035 and 51.04.020.  88-24-012 (Order 88-30), § 296-17-855, filed 12/1/88, effective 1/1/89.  Statutory Authority: RCW 51.16.035.  87-24-060 (Order 87-26), § 296-17-855, filed 12/1/87, effective 1/1/88.  Statutory Authority: RCW 51.04.020(1) and 51.16.035.  86-24-042 (Order 86-41), § 296-17-855, filed 11/26/86.  Statutory Authority: RCW 51.16.035.  85-24-032 (Order 85-33), § 296-17-855, filed 11/27/85, effective 1/1/86; 84-24-016 (Order 84-23), § 296-17-855, filed 11/28/84, effective 1/1/85; 83-24-017 (Order 83-36), § 296-17-855, filed 11/30/83, effective 1/1/84; 82-24-047 (Order 82-38), § 296-17-855, filed 11/29/82, effective 1/1/83; 81-24-042 (Order 81-30), § 296-17-855, filed 11/30/81, effective 1/1/82; 80-17-016 (Order 80-23), § 296-17-855, filed 11/13/80, effective 1/1/81.  Statutory Authority: RCW 51.04.030 and 51.16.035.  79-12-086 (Order 79-18), § 296-17-855, filed 11/30/79, effective 1/1/80; Order 77-27, § 296-17-855, filed 11/30/77, effective 1/1/78; Order 74-40, § 296-17-855, filed 11/27/74, effective 1/1/75; Order 73-22, § 296-17-855, filed 11/9/73, effective 1/1/74.]

((Primary Losses for Selected Claim Values

CLAIM VALUE		PRIMARY LOSS
	10,072	10,072
	11,720	11,000
	13,755	12,000
	16,125	13,000
	18,919	14,000
	26,332	16,000
	37,875	18,000
	58,332	20,000
	104,521	22,000
	168,469*	23,108
	251,800**	23,755))

*	Average death value
**	Maximum claim value))

Primary Losses for Selected Claim Values

CLAIM VALUE		PRIMARY LOSS
	10,504	10,504
	11,358	11,000
	13,259	12,000
	15,447	13,000
	17,992	14,000
	24,571	16,000
	34,335	18,000
	50,339	20,000
	81,369	22,000
	180,015*	24,147
	262,600**	24,774

*	Average death value
**	Maximum claim value

[Statutory Authority: RCW 51.04.020, 51.16.035 and 51.32.073.  98-24-094, § 296-17-875, filed 12/1/98, effective 1/1/99;  97-24-062, § 296-17-875, filed 12/1/97, effective 1/1/98; 96-24-063, § 296-17-875, filed 11/29/96, effective 1/1/97.  Statutory Authority: RCW 51.04.020.  95-23-080, § 296-17-875, filed 11/20/95, effective 1/1/96; 94-24-007, § 296-17-875, filed 11/28/94, effective 1/1/95; 93-24-114, § 296-17-875, filed 12/1/93, effective 1/1/94.  Statutory Authority: RCW 51.04.020(1) and 51.16.035.  92-24-063, § 296-17-875, filed 11/30/92, effective 1/1/93; 91-24-053, § 296-17-875, filed 11/27/91, effective 1/1/92; 90-24-042, § 296-17-875, filed 11/30/90, effective 1/1/91; 89-24-051 (Order 89-22), § 296-17-875, filed 12/1/89, effective 1/1/90.  Statutory Authority: RCW 51.16.035 and 51.04.020.  88-24-012 (Order 88-30), § 296-17-875, filed 12/1/88, effective 1/1/89.  Statutory Authority: RCW 51.16.035.  87-24-060 (Order 87-26), § 296-17-875, filed 12/1/87, effective 1/1/88.  Statutory Authority: RCW 51.04.020(1) and 51.16.035.  86-24-042 (Order 86-41), § 296-17-875, filed 11/26/86.  Statutory Authority: RCW 51.16.035.  86-12-041 (Order 86-18), § 296-17-875, filed 5/30/86, effective 7/1/86; 85-24-032 (Order 85-33), § 296-17-875, filed 11/27/85, effective 1/1/86; 84-24-016 (Order 84-23), § 296-17-875, filed 11/28/84, effective 1/1/85; 83-24-017 (Order 83-36), § 296-17-875, filed 11/30/83, effective 1/1/84; 82-24-047 (Order 82-38), § 296-17-875, filed 11/29/82, effective 1/1/83; 81-24-042 (Order 81-30), § 296-17-875, filed 11/30/81, effective 1/1/82; 80-17-016 (Order 80-23), § 296-17-875, filed 11/13/80, effective 1/1/81.  Statutory Authority: RCW 51.04.030 and 51.16.035.  79-12-086 (Order 79-18), § 296-17-875, filed 11/30/79, effective 1/1/80.  Statutory Authority: RCW 51.04.020(1) and 51.16.035.  78-12-043 (Order 78-23), § 296-17-875, filed 11/27/78, effective 1/1/79; Order 77-27, § 296-17-875, filed 11/30/77, effective 1/1/78; Order 76-36, § 296-17-875, filed 11/30/76; Order 75-38, § 296-17-875, filed 11/24/75, effective 1/1/76; Order 74-40, § 296-17-875, filed 11/27/74, effective 1/1/75; Order 73-22, § 296-17-875, filed 11/9/73, effective 1/1/74.]

(("B" and "W" Values

Maximum Claim Value= $251,800

Average Death Value= $168,469