Original Notice.

Preproposal statement of inquiry was filed as WSR 01-11-150.

Title of Rule: General reporting rules, classifications, audit and recordkeeping, rates and rating system for workers' compensation insurance, chapter 296-17 WAC.

Purpose: To formalize how the cost of certain claims are apportioned to employers in the retrospective rating plan and update other existing retrospective rating rules to address customer concerns and needs.

Statutory Authority for Adoption: RCW 51.18.010(2).

Statute Being Implemented: RCW 51.18.005 - 51.18.900.

Summary: Proposal adds two new categories to the industry/business group table found in WAC 296-17-90421; clarifies membership list requirements found in WAC 296-17-90409 and places into rule the current methodology used to apportion the cost of certain workers' compensation injury and occupational disease claims within the retrospective rating plan.

Reasons Supporting Proposal: Changes requested by business and trade associations that participate in the retrospective rating plan and to clarify participation requirements in existing rules.

Name of Agency Personnel Responsible for Drafting, Implementation and Enforcement: Frank Romero, Tumwater, (360) 902-4835.

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: Labor and Industries is proposing to amend two existing rules and adopt a new rule applicable to the retrospective rating program. The subject rules outline how the cost of certain types of injury claims are apportioned to employers in the rating plan when they contribute to the injury; clarify membership list requirements when an organization seeks to sponsor a new group plan; and adds two new industry categories to the industry grouping list. Employers and organizations that sponsor retrospective rating group plans requested these rule changes. Labor and industries believes that the changes being proposed will result in greater clarity for our customers that participate in retrospective rating.

Proposal Changes the Following Existing Rules: (1) WAC 296-17-90409, requirement that a sponsoring organization provide Labor and Industries a complete membership list is being changed to a list of the sponsoring organization's members that want to participate in the organization's group plan. Also clarifies that this rule is only applicable to new group plans; and (2) WAC 296-17-90421, adds two new categories to the business/industry group table.

No small business economic impact statement has been prepared under chapter 19.85 RCW. The Regulatory Fairness Act requires that the economic impact of proposed regulations be analyzed in relationship to small business and outlines the information that must be included in the small business economic impact statement (SBEIS). Preparation of an SBEIS is required when a proposed rule has the potential of placing more than a minor impact on business. Labor and industries believes that the proposed rules do not place more than a minor impact on business therefore an SBEIS is not required.

RCW 34.05.328 does not apply to this rule adoption. The department does not consider the rules to meet the definition of significant, and further considers that if significant, they would be exempt under RCW 34.05.328 (5)(b)(v) and (vi).

Hearing Location: Labor and Industries, Tumwater Office,

Auditorium, 7273 Linderson Way S.W., Tumwater, WA 98504, on November 2, 2001, at 10:30 a.m.

Assistance for Persons with Disabilities: Contact Mark Matthies by November 1, 2001, (360) 902-4838.

Submit Written Comments to: Labor and Industries, Attention: Frank Romero, P.O. Box 4180 [44180], Olympia, WA 98504-4180, fax (360) 902-4258, by 5 p.m. (PT), November 1, 2001.

Date of Intended Adoption: November 20, 2001.

September 19, 2001

Gary Moore

Director

OTS-5050.2

AMENDATORY SECTION(Amending WSR 00-11-060, filed 5/12/00, effective 7/1/00)

WAC 296-17-90409   I understand that there are specific prerequisites that an organization must meet to sponsor a new retrospective rating group plan.   Can you tell me what these requirements are? Yes. Before we can consider an organization's request to sponsor a new retrospective rating group plan they must meet all the following requirements:

(1) The sponsoring organization must have been in existence for at least four years prior to sponsoring a retrospective rating group.

(a) To validate this, the sponsoring organization must provide the department with copies of its articles of incorporation, bylaws and marketing/membership applications or similar material, accompanied with an affidavit certifying that the documents are true and the information contained in the documents is accurate as of the date of submittal.

(b) The department will verify this information through contacts with various state, local and federal agencies and other businesses.

(2) The sponsoring organization must have been formed for purposes other than that of obtaining or offering insurance coverage or insurance services described in WAC 296-17-90408.

(3) Employer members of the proposed retrospective rating group must be dues paying members of the organization. We recognize that some organizations may be funded through member donations and not dues. The intent of this requirement is to ensure that the members of the organization are current members as opposed to potential members. Where an organization's members do not pay dues the organization must provide a list of its current members and a written explanation of how member contributions are determined.

(a) An organization seeking to sponsor a group retrospective rating plan must submit a ((complete)) list of its current ((membership)) members that want to participate in the organization's group plan to the department ((that details)). The membership list must include the effective date of membership ((accompanied with)) for each proposed member and an affidavit signed by an officer of the sponsoring organization certifying the list to be true and accurate as of the date of submittal.

(b) Each employer member who wants to participate in the organization's retrospective rating group plan must have an industrial insurance account in good standing with the department.

(c) Each employer member who wants to participate in the proposed sponsoring organization's retrospective rating group must provide us with a written request/release. This is to be done on a form provided by the sponsoring organization and approved by the department. Sample forms can be found in Appendix A of this manual. Completion and submission of this application to the department signifies the employer's desire to participate in the organization's retrospective rating group if it is approved. The proposed retrospective rating group membership list must be submitted with the group application of the organization and the other material listed in this section.

(d) All employers in the retrospective rating group must be members of the sponsoring entity.

(e) Fifty percent of the members of the proposed retrospective rating group must have been members of the sponsoring organization for one year prior to the group's entrance into the retrospective rating program. We will verify this from the membership information provided to the department in (a) of this subsection.

(4) The sponsoring organization must have an industrial insurance account and the account must be in good standing at all times, including the application process and the coverage and adjustment periods.

(5) The initial premium level of the proposed retrospective rating group must be at least one million five hundred thousand dollars. This will be based on the standard premium of the proposed group members' most current fiscal year (four quarters) of reporting.

(6) The requirements contained in this rule are in addition to any other requirements contained in the retrospective rating manual such as those found in WAC 296-17-90412(2) applicable to an annual safety report and WAC 296-17-90421(2) applicable to selection of an industry group by the sponsoring organization.

[Statutory Authority: RCW 51.18.010. 00-11-060, 296-17-90409, filed 5/12/00, effective 7/1/00.]

(2) The first step in this process is for the sponsoring organization to select the single retrospective rating group it wishes to sponsor. This is done at the time the application for group is submitted to the department from the broad industry or business category from the table below:

Industry/business group table

	Agriculture and related services.
	Automotive, truck and boat, manufacturing, sales, repair and related services.
	Construction and related services.
	Distillation, chemicals, food and related services.
	Entertainment, hospitality and related services.
	Facilities, property management, maintenance and related services.
	Government, utilities, schools, healthcare and related services.
	Grocery stores, grocery distribution centers, bakeries, milk and dairy products processing, delivery to customers and related services.
	Healthcare, pharmaceutical, laboratories and related services.
	Logging and wood products manufacturing and related services.
	Manufacturing, processing, mining, quarrying, and related services.
	Retail and wholesale stores and professional services such as banks and law firms and related services.
	Temporary help and related services.
	Transportation, recycle, warehousing, facility maintenance and related services.

The intent of this process is to ensure that the homogeneity requirement of RCW 51.18.040 is met.

Example: An organization that was formed to advance the interests of apple growers would select the agriculture and related services business/industry group plan. This organization could sponsor a single group for all its grower members or could offer different performance groups for its grower members.

(3) To simplify administration and keep the administrative costs associated with devising a different classification system for the retrospective rating plan to a minimum, the retrospective rating program follows the same classification procedure established by the department to assign workers' compensation insurance classifications to an employer (WAC 296-17-31012). This procedure requires employers to be assigned a classification or series of classifications based on the nature of their business, not the occupations or duties of the workers they employ. Only those members whose business undertakings are substantially similar to the industry/business group selected by the organization will be permitted to participate. This grouping technique is fundamental to workers' compensation insurance and is referred to as "homogeneity of risk."

Example: Having selected the agriculture and related services business/industry grouping the department would verify that the employer members of the apple grower organization were either apple growers or were involved in a related service such as an apple processing operation owned by the grower.

[Statutory Authority: RCW 51.18.010. 00-11-060, 296-17-90421, filed 5/12/00, effective 7/1/00.]

(a) For claims with injury dates prior to July 1, 1996, a potential claim cost recovery from action against a third party, either by the injured worker or by the department, shall not be considered in the evaluation of incurred losses until the third party action has been completed.

(b) For claims with injury dates on or after July 1, 1996, if the department determines that there is a reasonable potential of recovery from an action against a third party, the incurred loss value of the claim shall be reduced by fifty percent until the third-party action has been completed. This valuation shall not be retroactively adjusted, regardless of the final outcome of the third-party action. After a third-party recovery is made, the actual percentage recovery shall be applied to the incurred losses used in future retrospective premium calculations.

(c) For third-party actions completed on or after July 1, 1996, the claim shall be credited with the department's gross share of the recovery, before deducting attorney fees and costs.

(2) Second injury claims. The incurred losses of any claim that becomes eligible for second injury relief under the provisions of RCW 51.16.120 shall be reduced by the percentage of relief granted.

(3) Occupational disease claims. When a claim results from a worker's exposure to an occupational disease hazard, the "date of injury" for retrospective rating purposes shall be the last date of employment involving the exposure to the hazard. In the event it is determined that the last exposure to an occupational disease hazard involves a state fund insured employer the department will prorate the cost of the claim to all state fund employers that exposed the worker to the occupational disease hazard that contributed to the injury. The date of last employment involving exposure to the occupational disease hazard shall be used for the injury date for retrospective premium calculations. Any employer charged with ten percent or more of an occupational disease claim as provided in our experience rating plan (chapter 296-17 WAC) will have their prorated share of the incurred losses included in the retro premium calculation if the date of injury (as defined above) falls within the retro coverage period being adjusted.

(4) Incurred losses determined in subsections (1) through (3) of this section are still subject to development for retrospective premium calculations per the provisions of WAC 296-17-90401 through 296-17-90497.

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Washington State Code Reviser's Office