AZ Legislature Passes Bill To Mutualize SCF Arizona

Phoenix, AZ (CompNewsNetwork) - On April 29, the Arizona Legislature approved Senate Bill 1045 directing that SCF Arizona become an Arizona mutual insurance company. The legislation will take effect Jan. 1, 2013. The Legislature have planned for this transition, and do not expect it will change the day-to-day operations of SCF Arizona. View more details about the bill below:

As passed the Senate, S.B. 1045 makes a technical correction relating to the state budget report.

The House of Representatives adopted a strike everything amendment that does the following:

Purpose

            Requires, effective January 1, 2013, a successor mutual insurer corporation to become the successor in interest to all the assets and liabilities of the State Compensation Fund (SCF).

Background

The SCF was created in 1925 by the Legislature as part of Arizona's original Workman's Compensation Act (Act).  The Act provided start-up capital of $100,000 for the SCF and required the SCF to repay the amount.  The capital was fully repaid by 1938. From 1925 through 1968, the Industrial Commission of Arizona (ICA) administered the SCF. Beginning in 1969, the SCF was removed from the ICA, becoming a separate entity. 

The SCF's mission is to provide a ready market of workers' compensation insurance for Arizona's employers at the lowest possible cost. The SCF is a nonprofit agency.  All income is derived from policyholders' premiums and investments.  Income that is not used to provide benefits to injured workers or for operating expenses is returned to policyholders in the form of dividends.  The SCF is under the direct supervision of a Board of Directors (Board), which consists of five members appointed by the Governor for staggered five-year terms.  The Board is set to terminate on July 1, 2010. 

The SCF receives no monies from the state General Fund.

Provisions

The Board

1.      Continues, retroactive to July 1, 2010, the Board until July 1, 2012.

2.      Adds two members to the Board.  Stipulates that the two members are not required to be policyholders or employees of policyholders of the SCF.

3.      Prohibits the additional members from having any interest as a stockholder, employee, attorney, agent, broker or contractor of any other insurance entity who writes workers' compensation insurance in the state or whose affiliates write workers' compensation insurance in the state.

4.      Prescribes that at least one Board member must have at least 10 years of substantial property and casualty insurance expertise.

5.      Prescribes that at least one Board member must have at least 10 years of substantial business or financial management expertise.

6.      Stipulates that the term of office for the two additional members begins on the effective date until July 1, 2012.

7.      Requires, on or before January 1, 2011, the Board to provide a report to the Governor, the President of the Senate and the Speaker of the House of Representatives that calculates the value of state equity or other state financial interests in the SCF and to provide a copy to the Secretary of State.

8.      Requires, on or before January 1, 2013, the ICA to adopt rules to conform to the termination of the SCF and Board.

9.      Repeals SCF related statutes (Title 23, Chapter 6, Article 5) on January 1, 2013.

Successor Mutual Insurer Corporation

10.  Requires, on or before January 1, 2013, the Board to perform all acts necessary to establish a successor mutual insurer corporation.

11.  Requires the successor mutual insurer corporation to operate to the same extent as any mutual casualty insurer that is licensed and authorized to write insurance in Arizona and subject to the authority and regulation by the Arizona Department of Insurance.  Requires the successor mutual insurer corporation to operate with all the powers and subject to all the laws, rules and requirements of a mutual insurer corporation that is organized under the laws of Arizona.

12.  Requires the Board to perform all necessary acts to file articles of incorporation of the successor mutual insurer corporation and take all necessary action to qualify for a certificate of authority.

13.  Effective January 1, 2013, requires the successor mutual insurer corporation to become the successor in interest to all the assets and liabilities of the SCF without any conveyance or transfer and without any further act or deed.  Requires the successor mutual insurer corporation to be vested by operation of law with title to all property of the SCF.

14.  Prescribes that the successor mutual insurer corporation is responsible for the obligations of the SCF to the same extent as though incurred originally by the mutual insurer corporation, including obligations assumed by intergovernmental agreements with the ICA regarding the processing of claims.

15.  Specifies that the successor mutual insurer corporation is not an agency or a public entity of Arizona.

16.  Effective July 1, 2014, prohibits the successor mutual insurer corporation from using the term state compensation fund or SCF in its new name or logo.

Miscellaneous

17.  Contains a purpose statement.

18.  Makes conforming changes.

19.  Directs Legislative Council to prepare proposed legislation conforming A.R.S. to the termination of the SCF Board for consideration in the 50^th Legislature, 1^st Regular Session.

20.  Becomes effective on the general effective date, with delayed effective dates as noted.

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