Section 0780-01-83-.05 - SECURITY DEPOSITY REQUIREMENTS(1) Each Employer shall provide security for incurred liabilities for compensation through a deposit with the Commissioner in the following forms: (a) Negotiable securities;(c) Certificates of deposit; or(2) The sum of the securities on deposit with the Commissioner shall be at least equal to the greater of the following: (b) One hundred and twenty-five percent (125%) of the Employer's incurred liabilities for compensation; or(c) Such other amount determined by the Commissioner to be necessary to provide sufficient security.(3) The security, or a contract between the Employer, a depository institution and the Commissioner evidencing the security held in said depository institution for purposes of compliance with this Rule, shall be held by the Commissioner and shall be conditioned to run solely and directly for the benefit of the Employees of the Employer.(4) Any legal actions to enforce the payment of the security being held for purposes of compliance with this section shall be brought by the Commissioner for the benefit of the Employees of the Employer.(5) The security held pursuant to this Rule may be used for the payment of any and all fees or costs required to administer the disbursement of the proceeds to or for the benefit of the Employees.(6) The venue for any suit filed by the Commissioner under this provision is in Davidson County, Tennessee.(7) Negotiable securities.(a) All negotiable securities filed under this Rule shall be the classes of securities listed below and shall be subject to the following requirements: 1. Obligations issued, assumed or guaranteed by any business entity created or existing under the laws of the United States or any state thereof; provided, that the obligation is or the issuing, assuming or guaranteeing business entities' long term obligations are rated one (1) of the four (4) highest grades by any of the nationally recognized statistical rating organizations recognized by the securities valuation office of the National Association of Insurance Commissioners or one (1), two (2) or three (3) by the securities valuation office of the National Association of Insurance Commissioners.2. Obligations, not in default as to principal or interest, which are valid and legally authorized obligations issued, assumed or guaranteed by the United States, or by any state thereof, or by any county, city, town, village, municipality or district therein, or by any political subdivision thereof, or by any civil division or public instrumentality of one (1) or more of the foregoing, if, by statutory or other legal requirements applicable thereto, such obligations are payable, as to both principal and interest, from taxes levied, or by such law required to be levied, upon all taxable property or all taxable income within the jurisdiction of such governmental unit or from adequate special revenues pledged or otherwise appropriated or by such law required to be provided for the purpose of such payment, but not including any obligations payable solely out of special assessments on properties benefited by local improvements.(b) Before accepting any negotiable security for purposes of this Rule, the Commissioner shall determine whether such negotiable security is suitable for such use. The Commissioner shall consider, as appropriate, the interest rate, credit, liquidity, price, transaction, and other risks associated with such negotiable security.(8) Bonds. (a) All bonds filed under this Rule shall be issued by an insurer authorized to do business in the state of Tennessee and the insurer shall maintain at least an A rating as determined by the A.M. Best Company.(b) Any bond issued by an insurer for purposes of this Rule shall contain a provision requiring the insurer to give the Commissioner ninety (90) days' written notice of its intention to cancel such bond. The insurer shall not cancel such bond until written notice is given to the Commissioner and a copy of such notice is given to the Employer.(c) An insurer that cancels a bond issued pursuant to this Rule before the date specified in the written notice as set forth above shall be liable to the Employees of the Employer for any lawful workers' compensation claims that were incurred on or before the date the bond was cancelled in amounts up to the maximum penal sum of the bond.(9) Certificates of deposit.(a) All certificates of deposit filed under this Rule must be held in a depository institution that is located in the state of Tennessee and is either federally chartered or state chartered.(b) If a certificate of deposit is filed with the Commissioner, an agreement shall be entered into between the Commissioner, the depository institution and the Employer pledging the certificate of deposit for the benefit of the Employer's Employees. The agreement shall contain a provision executed between the depository institution and the Employer requiring the Employer and the depository institution to give at least ninety (90) days' written notice of their intention not to renew the certificate of deposit and a provision that, unless written notice not to renew is given to the Commissioner by the Employer and depository institution within ninety (90) days, the certificate of deposit shall be automatically renewed. The Employer shall submit to the Commissioner, on an annual basis, the status of such certificate of deposit, including evidence of its renewal.(c) If the Employer and depository institution fail to comply with T.C.A. § 50-6-405(b)(1)(G)(i) or this Rule, the certificate of deposit shall be automatically renewed.(d) Any interest accruing on the certificate of deposit while held in the depository institution shall be returned to the Employer at the termination of the certificate of deposit, with the prior written approval of the Commissioner, provided that no claim is due or asserted against the certificate of deposit by the Commissioner.(10) Letters of credit. (a) Any letter of credit filed under this Rule must be issued or guaranteed by a Qualified United States Financial Institution that is located in the State of Tennessee.(b) If an Employer elects to secure payment of its workers' compensation claims by way of a letter of credit, an agreement shall be entered into between the Commissioner, the Employer and the depository institution pledging the letter of credit for the benefit of the Employer's Employees and naming the Commissioner as beneficiary under such letter of credit.(c) Such letter of credit shall be clean, irrevocable and unconditional and shall contain a provision which requires the issuer to automatically renew such letter of credit unless the issuer shall provide at least ninety (90) days' prior written notice to the Commissioner of an intention to revoke or not renew such letter of credit. The Employer shall annually submit to the Commissioner information regarding the status of such letter of credit, including evidence of its renewal.(d) Letters of credit meeting applicable standards of issuer acceptability as of the dates of their issuance or configuration shall, notwithstanding the issuing or confirming institution's subsequent failure to meet applicable standards of issuer acceptability, continue to be acceptable as security until their expiration, extension, renewal, modification or amendment, whichever occurs first.(11) An Employer shall notify the Commissioner if the security no longer meets the requirements of this Rule. Such notice shall be given no later than fifteen (15) days from the time the Employer determines or should have determined that the security no longer meets such requirements.(12) Any security held for purposes of compliance with this Rule shall be held for a minimum of ten (10) years after the Employer is no longer self-insured and the Employer shall maintain the fair market value of security on deposit at not less than five hundred thousand dollars ($500,000), unless otherwise approved by the Commissioner.(13) Any security held for purposes of compliance with this Rule shall be in a form substantively that has been previously approved by the Commissioner. Any security that fails to meet any requirement under this section shall not be considered for purposes of determining an Employer's compliance with any of the security maintenance requirements of this Rule.Tenn. Comp. R. & Regs. 0780-01-83-.05
Original rule filed August 11, 2005; effective October 25, 2005.Authority: T.C.A. §§ 50-6-405(b)(1), 50-6-405(b)(8), 50-6-405(e), and 50-6-405(h).