Section 904(a) states, “Every employer shall be liable for and shall secure the payment to his employees of the compensation payable ….”
Section 932(a) states, “Every employer shall secure the payment of compensation under this Act –
- By insuring and keeping insured the payment of such compensation with any stock company or mutual company or association, or with any other person or fund, while such person or fund is authorized (A) under the laws of the United States or of any State, to insure workmen’s compensation, and (B) by the Secretary, to insure payment of compensation under this Act; or
- By furnishing satisfactory proof to the Secretary of his financial ability to pay such compensation and receiving an authorization from the Secretary to pay such compensation directly…. Any employer securing compensation in accordance with the provisions of this paragraph shall be known as a self-insurer.
You have two choices. Buy insurance from an insurance carrier authorized by the Secretary of Labor to write Longshore Act coverage. Or obtain authorization from the Secretary of Labor as a self-insurer.
Here's how you can become self insured. You complete Form LS-271, Application for Self-Insurance, which, along with the supporting documentation, goes to the Division of Longshore and Harbor Workers’ Compensation’s National Office at the U.S. Department of Labor, 200 Constitution Ave., NW, Room C-4315, Washington, DC 20210.
What is the supporting documentation?
- Audited financial statements for the most recent three years. They must be audited, certified by a public accounting firm. No exceptions. If you don’t have audited financial statements, save yourself the trouble. The financial statements will be evaluated using standard liquidity, profitability, and debt ratios.
- Loss information for the most recent five years, showing paid and total incurred losses under the Longshore Act.
- The identity of the carrier and the limits of your proposed excess insurance coverage, and a sample of the policy form if requested.
- Statement of proposed claims administration. If claims will be self administered, submit resumes of your claims people. If you will use a third party administrator, submit sufficient information to demonstrate the organization’s experience with the Longshore Act.
- Statement of annual Longshore Act payroll by classification code.
A corporate officer certification on a Longshore Division form committing the company to voluntary compliance with all statutory and regulatory requirements, and good faith participation in dispute resolution and self-policing.
That’s it. There’s no filing or other fee associated with the application process. You will have a decision in 30 – 60 days.
There are a number of other considerations, however, of which you should be aware.
Every self-insured employer must meet a security requirement. The minimum security required is $400,000 for incidental Longshore exposure. Otherwise, for a ballpark estimate take the last five years total incurred losses, increase the most recent two years by 35%, and obtain the five year average. This will be your approximate starting point for the required collateral.
You have three ways to meet the security requirement: 1) deposit cash in a Federal Reserve Bank account in the name of the Office of Workers’ Compensation Programs, 2) obtain a letter of credit from an approved bank on the form supplied by the Longshore Division, or 3) obtain a surety bond on a form supplied by the Longshore Division issued by a surety company approved by the U.S. Treasury.
If a parent company and one or more separately incorporated subsidiaries are applying for self-insurance, a separate application will be required for each company. A parent company guarantee will be required in the format provided by the Longshore Division.
The self-insurance authorization is non-transferable, so if ownership of the company changes, a new application will be required. There is no expiration date or renewal date. The authorization will continue until revoked by the Longshore Division for good cause.
There are annual reporting requirements. Form LS-513, Report of Payments, will provide the basis of the self-insurer’s annual Special Fund Assessment. Form LS-274, Report of Outstanding Liabilities, will measure the ongoing security requirement. The self-insurer is also required to file an annual statement of its excess insurance coverage, and, if requested, an annual audited financial statement. Also, any corporate name changes, significant changes in exposure, and new operations in previously unlisted locations should also be immediately reported.
Note: There are currently about 209 authorized individual Longshore Act self-insurers. If you go back about 25 five years, there were twice that many.