805 KAR 9:100. Public liability insurance and self-insurers

Link to law: http://www.lrc.ky.gov/kar/805/009/100.htm
Published: 2015

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KAR 9:100. Public liability insurance and self-insurers.



Chapter 13B, 349.040


AUTHORITY: KRS 349.040, 349.115


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



      Section 1.

Definitions. (1) "Commissioner" is defined by KRS 349.010(6).


"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


      (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


      (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


      (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


      (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


      (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


      (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



      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;


"Self-Insurers’ Guarantee Agreement," Form CBM-13, Jan. 2005;


"Continuous Bond and Surety Rider," Form CBM-14, Jan. 2005;


"Irrevocable Letter of Credit," Form CBM-15, Jan. 2005; and


"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.)