805
KAR 9:100. Public liability insurance and self-insurers.
RELATES TO: KRS
Chapter 13B, 349.040
STATUTORY
AUTHORITY: KRS 349.040, 349.115
NECESSITY,
FUNCTION, AND CONFORMITY: KRS 349.115 requires the Department for Natural
Resources to promulgate administrative regulations necessary to implement KRS
Chapter 349. KRS 349.040(3)(e) requires applicants to maintain public liability
coverage or be self-insured, and requires the department to establish
requirements for self-insurers. This administrative regulation establishes
minimum requirements for public liability insurance and for public liability
self-insurers.
Section 1.
Definitions. (1) "Commissioner" is defined by KRS 349.010(6).
(2)
"Guarantor" means a parent company whose financial statement is used
by the applicant to obtain self-insurance status.
(3) "Public
liability insurance" means insurance to protect against loss or liability
by reason of personal injuries to persons other than employees and damage to
property owned by third parties.
(4) "Service
organization" means a person or entity which provides services including
claims adjustment, safety engineering, computation of statistics, preparation
of loss or tax reports, purchase of excess insurance, or preparation of any
required self-insurance report.
(5) "Specific
excess insurance" means an insurance policy, which insures the amount of a
claim from one (1) occurrence involving one (1) or more claimants in the same
occurrence or incident of exposure in excess of a specified dollar amount.
Section 2. Terms
and Conditions for Liability Insurance. (1) The applicant shall submit, as part
of the permit application or maintain on file with the division, a certificate
issued by an insurance company authorized to do business in Kentucky certifying
that the applicant has a public liability insurance policy in force for the
coal bed methane well and reclamation operation for which the permit is sought.
The certification shall be on a Form CBM-16 as prescribed by the department.
The public liability insurance policy shall provide for bodily injury and
property damage coverage for all persons injured or property damaged as a
result of coal bed methane well operations, including damage to water wells.
Minimum insurance coverage for bodily injury and property damage shall be
$300,000 for each occurrence and $500,000 aggregate, in accordance with KRS
349.040(3)(e).
(2) The public
liability insurance policy shall be maintained in full force during the term of
the permit or any renewal thereof, and until completion of all reclamation
operations under these coal bed methane well administrative regulations, 805
KAR Chapter 9.
(3) The policy
shall include a clause requiring that the insurer notify the department if any
change whatsoever is made in the policy, including any termination of a policy
or failure to renew the policy.
(4) The public
liability insurance policy shall not contain a deductible to be paid by the
applicant if there is a claim.
Section 3.
Certification for Self-Insurers. A person shall not act as or hold itself out
as an approved self-insurer unless approved by the department, in accordance
with Section 5 of this administrative regulation. A certification issued by the
department shall remain in effect on an annual basis, unless otherwise revoked
pursuant to Section 11 of this administrative regulation. The department may
prescribe additional security based upon the type, volume, and nature of risk
being self-insured.
Section 4.
Application for Certification of Self-Insurers. (1) An initial application for
approval as a self-insurer shall be submitted to the Department on Form CBM-12
and shall include:
(a) The
self-insurer's name, location of its principal office, date of organization,
identification of its immediate parent organization, if any, and its ultimate
parent, the percentage shareholder ownership of its immediate parent
organization, identification of its fiscal year and federal identification
number. A subsidiary which is to be covered under the application, or who is
already an approved self-insurer, shall be identified with the relationship to
the applicant described fully;
(b) A statement of
the principal business activities engaged in Kentucky by the applicant
including a list of site locations and number of drilling units at each site;
(c) The proposed
specimen specific excess insurance policy, identifying the insurance company,
attachment points and limits of liability. A copy of the policy or certificate
of insurance shall be received by the department at least five (5) days prior
to certification of self-insurance;
(d) A copy of the
proposed surety deposit or letter of credit instrument required by Section 5 of
this administrative regulation. The surety shall be received by the department
prior to certification to self-insure;
(e) A schedule of
projected three (3) years claimant liabilities;
(f) Annual claims
payment requirements for the five (5) years preceding the application;
(g) A certified
audit report of the applicant's financial status for three (3) calendar years
immediately preceding the application, prepared and executed by a certified
public accountant;
(h) If the
applicant is a corporation or a limited liability corporation, a resolution by
the board of directors, authorizing and directing the corporation to undertake
to self-insure;
(i) If the
applicant is a subsidiary corporation, a guarantee from the subsidiary's parent
corporation on Form CBM-13;
(j) An individual
or service organization responsible for administration or adjustment of a claim
shall provide satisfactory evidence to the department as to the organization's
qualifications to administer and adjust public liability claims; and
(k) If a service
organization is used, a statement from the service organization and
self-insurer stating that the contract between the two (2) parties meets the
requirements set forth in subsection (4) of this section.
(2) An applicant
may perform, if qualified, a function of a service organization or may contract
with a service organization to perform these functions. An applicant's or
service organization's employees and agents shall be duly licensed to perform
those functions for which a license is required by Kentucky law.
(3) The
application shall be filed no later than ninety (90) days prior to the proposed
inception date of self-insurance. Upon receipt of a complete application and
all required documents, the department shall approve or reject status as a
self-insurer within ninety (90) days.
(4) A contract
with a service organization shall include one (1) of the following provisions:
(a) The service
organization shall adjust to a final conclusion each claim that results from an
occurrence during the period for which the contract is effective unless a
substitute service organization has been procured; or
(b) The service
organization shall adjust each claim for a period of sixty (60) days following
an order from the department finding the self-insurer in default unless a
substitute service organization has been procured.
(5) Variation from
the requirements of this section, if an applicant is unable to meet all
requirements, may be sought by application to the department. The department
may prescribe additional security based upon the type, volume, and nature of
risk being self-insured.
Section 5.
Approval of Self Insurer Certification. (1) In determining whether an applicant
is eligible for self-insurance and in establishing the amount of surety
required, the department shall consider all relevant factors including the
following:
(a) The financial
strength of the applicant or guarantor;
(b) The excess
insurance policy and retention level;
(c) The experience
of the service organization;
(d) The ratio of
current assets to current liabilities, the ratio of long-term debt to net
worth, and shareholder equity;
(e) Profit and
loss history;
(f) Five (5) year
liability loss history of the applicant;
(g) The prospect
of increased losses by the self-insurer’s bankruptcy or cessation of operations
in Kentucky;
(h) The number of
drilling units and degree of hazard to which the public is exposed; and
(i) Safety
programs.
(2) In order to be
certified as a self-insurer, the applicant or guarantor shall have assets in
excess of all liabilities of at least $3,000,000. Variance from this
requirement may be granted to a currently certified individual self-insurer who
has demonstrated excellent claims paying capability and over-all financial
stability.
(3) Approval shall
be granted if the department finds that:
(b) The applicant
has complied with all sections of this administrative regulation; and
(b) Persons responsible
for the operations of the applicant are financially stable, competent, and
experienced in the administration of self-insurance liabilities and claims.
Section 6.
Specific Excess Insurance and Surety Requirements. (1) The department may
require that specific excess insurance be purchased with a coverage limit of at
least $300,000 per occurrence and $500,000 aggregate, with no deductible to be
paid by the insured if there is a claim. The department may also require that aggregate
excess insurance be purchased, with no deductible to be paid by the
self-insured if there is a claim. In fixing the amount of aggregate coverage
that must be purchased, the department shall consider all relevant factors
including liability associated with anticipated claims.
(2) To be eligible
to write specific excess insurance for a self-insurer in Kentucky, a casualty
insurance company on its latest annual statutory financial statement filed with
the department shall reflect a minimum policyholder surplus of not less than
$25,000,000. The casualty insurance company shall have demonstrated excellent
overall performance and a strong ability to meet its obligations to
policyholders over an extended period of time.
(3) Each applicant
who qualifies for a self-insurance certificate shall, prior to the certificate
being issued, provide primary security in the form of a continuous surety bond
on Form CBM-14 or by irrevocable letter of credit on Form CBM-15, in an amount
specified by the department, but not less than $500,000. In fixing the amount
of security, the department shall consider all relevant factors including
liability associated with anticipated claims.
(4) In lieu of a
bond with security or letter of credit, the self-insurer may deposit cash in an
amount specified by the department, but not less than $500,000. To be
acceptable, a security which is deposited shall be eligible under the laws of
Kentucky for investment by insurance companies, as provided in KRS Chapter 304,
Subtitle 7.
Section 7.
Coverage of Subsidiary or Related Corporations. A corporation having a
wholly-owned subsidiary may submit one (1) joint application to the department,
if the parent corporation has sufficient assets to qualify for a self-insurance
certificate for both itself and the subsidiary. A joint application shall be
accompanied by a certificate of the secretary of each corporation indicating
that their respective boards of directors have by resolution authorized joint
and several liability for all claims asserted against them. These certificates
shall be effective until revoked by the corporations following thirty (30) days
written notice to the department.
Section 8.
Examination and Review of Filings. A certified public accountant or actuary may
be employed by the department for the purpose of reviewing and analyzing the
annual filings of individual self-insurers, and applicants for self-insurance,
and for making recommendations based on that review.
Section 9.
Cessation Liability Security. (1) Cessation liability security shall be
distinct from the primary security required in Section 6 of this administrative
regulation.
(2) Upon cessation
of all operations of a self-insurer in the Commonwealth of Kentucky, cessation
liability security shall be called for payment of a claim after all other
security posted by the self-insurer has been exhausted.
(3) Cessation
liability security shall be issued in one (1) or more of the following forms:
(a) A surety bond
or insurance policy issued by a casualty insurance company qualified pursuant
to Section 6 of this administrative regulation;
(b) An escrow
account; or
(c) An irrevocable
letter of credit.
(4) If a
self-insurer secures its liability obligations by obtaining standard insurance
"tail" coverage, the department may release the cessation liability
security, effective as of the date acquiring other coverage.
Section 10. Annual
filings. (1) A self-insurer shall file with the department on or before 120
days from the end of the self-insurer's fiscal year:
(a) The statement
of financial condition, including balance sheet, income statement, cash flow
statement, and narrative summary of current year operations;
(b) Total claims,
both reported and incurred but not reported, for the prior fiscal year, the
projected total claims for the next year by quarter, and other reasonable
information requested by the department, including relevant claim data; and
(c) If a service
organization is used, a statement from the service organization and
self-insurer stating that the contract between the two (2) parties meets the
requirement set forth in Section 4(4) of this administrative regulation.
(2) At least ten
(10) days prior to the end of each fiscal year, the self-insurer shall file
proof of specific excess insurance and aggregate excess insurance for the
following year with the department, if required.
(3) If the annual
required filings are not timely made, the self-insurance certificate shall not
be renewed.
Section 11. Change
in Ownership; Subsidiaries; Mergers and Acquisitions. (1) If there is a change
in majority ownership of a parent company, the self-insurer shall notify the
department within thirty (30) days of that change. A new application to
self-insure shall be filed upon a change in ownership.
(2) If another
entity is added, merged, acquired, or otherwise brought within the
self-insurance coverage, the self-insurer shall notify the department within
thirty (30) days, and the adequacy of the surety bond shall be reviewed and
shall be increased accordingly.
(3) If the claim
liabilities of the self-insurer during a quarter exceeds 150 percent of the
projection previously filed, the self-insurer shall immediately report that
change to the department, and the adequacy of the surety bond requirements
shall be reviewed and the bond shall be increased accordingly.
Section 12.
Revocation or Modification of Certification. (1) If the department receives
information furnishing reasonable grounds to believe that the self-insurer is
not meeting, or may not be able to timely meet, all of its obligations arising
under KRS Chapter 349 or this administrative regulation, a show cause order
shall be issued to the self-insurer detailing the purported deficiency and
setting a time and place for hearing, pursuant to KRS Chapter 13B.
(2) The department
may revoke the self-insurance certification upon a finding that any of the
following conditions exist:
(a) The
self-insurer is operating in:
1. Contravention
of its submitted application; or
2. In material
violation of this administrative regulation;
(b) The
self-insurer or parental guarantor no longer has the financial stability to
assure its ability to meet its obligations for the payment of liabilities and
claims;
(c) The
self-insurer has failed or refused to provide access to the books and documents
relating to the self-insurance activities of the entity, if requested by the
department; or
(d) The
self-insurer has failed to respond or appear before the department.
(3) Self-insurance
certification may be revoked by the department after issuance of a show cause
order setting forth the grounds of revocation and an opportunity for a hearing,
pursuant to KRS Chapter 13B. The hearing shall be conducted pursuant to Section
14 of this administrative regulation. During the pendency of a hearing or
appeal, the department may utilize the surety deposit provided by the
self-insurer to make a payment of actual claims which are currently due for
which a payment is not being made by the self-insurer or its service
organization.
Section 13. Notice
of Cancellation of Excess Coverage. (1) Insurance carriers shall notify the
department at least sixty (60) days prior to cancellation or nonrenewal of
excess insurance or aggregate excess insurance for any self-insurer required to
maintain insurance.
(2) If the
insurance carrier fails to notify the department pursuant to this section, the
cancellation or nonrenewal shall be deemed void from the beginning and coverage
shall remain in force and effect.
Section 14.
Aggrieved Parties. (1) A person aggrieved by an action of the department may
request a hearing by filing a written request with the department setting forth
the basis. Upon receipt of a request, the department shall issue a notice of
hearing to be held pursuant to KRS Chapter 13B.
(2) Hearing shall
be conducted pursuant to KRS Chapter 13B. The department’s final order may
revoke or modify a self-insurance certification or allow a self-insurer to
continue to self-insure subject to certain terms and conditions.
(3) The final
order of the department may be appealed to the Franklin Circuit Court in
accordance with KRS 13B.140.
Section 15. Role
of the Office of Insurance. The department may seek advice and recommendations
from the Office of Insurance concerning the filing and analysis of submissions
and data related to an insured or self-insured entity’s compliance with
insurance or self-insurance regulatory requirements. Any Memorandum of Understanding
entered between the department and the Office of Insurance shall limit the
Office of Insurance to an advisory role, only. The approval of insurance
certifications, applications for self-insurance, and all other compliance
decisions shall remain with the department.
Section 16.
Material Incorporated by Reference. (1) The following material is incorporated
by reference:
(a) "Coal Bed
Methane Operator’s Application for Approval to Self-Insure," Form CBM-12,
Jan. 2005;
(b)
"Self-Insurers’ Guarantee Agreement," Form CBM-13, Jan. 2005;
(c)
"Continuous Bond and Surety Rider," Form CBM-14, Jan. 2005;
(d)
"Irrevocable Letter of Credit," Form CBM-15, Jan. 2005; and
(e)
"Certificate of Liability Insurance," Form CBM-16, Jan. 2005.
(2) This material may be
inspected, copied, or obtained, subject to applicable copyright law, at the
Department for Natural Resources, Division of Oil and Gas Conservation, 1025
Capital Center Drive, Suite 210, Frankfort, Kentucky 40601, Monday through Friday,
8 a.m. to 4:30 p.m. (31 Ky.R. 1478; Am. 1969; eff. 6-8-2005.)
