A bill tying into one of the unresolved issues surrounding the state’s new “good faith and fair dealing” standards for municipal self-insured employers is scheduled for a hearing this week.

Readers will remember that last biennium, the legislature passed HB 1521 (2023), a bill that AWC was engaged on. It created a duty of “good faith and fair dealing” for municipal employers that are self-insured for workers’ compensation and could result in decertification as a self-insured employer after repeated violations. AWC also engaged in the Department of Labor & Industries’ (L&I) rulemaking process to implement the bill in early 2024. There are 18 self-insured cities in Washington.

One issue that arose out the rulemaking process was L&I’s initial proposal to require self-insured cities to pay for a surety bond to cover outstanding claims in the event a city is decertified as a self-insurer. L&I eventually dropped the surety issue from the final “good faith and fair dealing” rules.

The surety issue is now re-raised in new legislation, SB 5381, sponsored by Sen. Steve Conway (D–Tacoma) at the request of L&I. The bill requires that in the event that a self-insured employer is decertified, L&I’s state workers’ compensation program will fulfill the decertified employer's obligations to employees, including paying compensation. Decertified employers will reimburse L&I for those costs on at least a quarterly basis. Importantly, the bill also grants L&I broad rulemaking authority regarding those continuing obligations of decertified employers, as well as methods of ensuring self-insured employers meet those financial obligations.

There is also a House companion, HB 1275, sponsored by Rep. Shaun Scott (D–Seattle). That bill was heard on January 21.

During the “good faith” rulemaking, AWC opposed requiring cities to pay for an additional surety bond due to the unique nature of municipalities. Unlike private sector companies, cities cannot simply disappear, and city financial obligations remain the responsibility of taxpayers. So the risk that L&I would go unreimbursed if a city were decertified is low. Because of this, AWC argued for a more flexible approach to dealing with the surety issue for public sector self-insured employers, including making sure that decertified municipal employers are individually assessed for their own outstanding obligations and taking into account the unique nature of cities’ ability fund obligations.

AWC will work with the department and the bill’s sponsors to ensure the unique needs of cities are met.

Dates to remember

HB 1275 is scheduled for a committee vote in the House Labor & Workplace Standards Committee on January 29 at 8 am.

SB 5381 is scheduled for a hearing in the Senate Labor & Commerce Committee on January 27 at 10:30 am.