Small business risk pooling

AN ACT Relating to enabling opportunities for risk pooling by 1
small businesses for property and liability risks; and adding a new 2
chapter to Title 48 RCW. 3
BE IT ENACTED BY THE LEGISLATURE OF THE STATE OF WASHINGTON:4
NEW SECTION. Sec. 1. This chapter is intended to provide 5
authority for two or more small business entities to participate in a 6
joint self-insurance program covering property or liability risks. 7
This chapter provides small business entities with the authority to 8
jointly self-insure property and liability risks, jointly purchase 9
insurance or reinsurance, and contract for risk management, claims, 10
and administrative services with other small business entities. This 11
chapter must be liberally construed to grant small business entities 12
maximum flexibility in jointly self-insuring to the extent the self-13
insurance programs are operated in a safe and sound manner. This 14
chapter is intended to require prior approval for the establishment 15
of every joint self-insurance program. In addition, this chapter is 16
intended to require every joint self-insurance program for small 17
business entities established under this chapter to notify the state 18
of the existence of the program and to comply with the regulatory and 19
statutory standards governing the management and operation of the 20
programs as provided in this chapter. This chapter is not intended to 21
H-0897.1
HOUSE BILL 1714
State of Washington 69th Legislature 2025 Regular Session
By Representatives Cortes, Walen, Parshley, Callan, Zahn, Peterson,
Shavers, Salahuddin, Street, Reed, Nance, Ormsby, and Hill
Read first time 01/29/25. Referred to Committee on Consumer
Protection & Business.
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authorize or regulate self-insurance of unemployment compensation 1
under chapter 50.44 RCW or industrial insurance under chapter 51.14 2
RCW. 3
NEW SECTION. Sec. 2. The definitions in this section apply 4
throughout this chapter unless the context clearly requires 5
otherwise.6
(1) "Program" means a joint self-insurance program authorized 7
under section 3 of this act. 8
(2) "Property and liability risks" includes the risk of property 9
damage or loss sustained by a small business entity and the risk of 10
claims arising from the tortious or negligent conduct or any error or 11
omission of the entity, its officers, employees, agents, or 12
volunteers as a result of a claim that may be made against the 13
entity. 14
(3) "Self-insurance" means a formal program of advance funding 15
and management of entity financial exposure to a risk of loss that is 16
not transferred through the purchase of an insurance policy or 17
contract. 18
(4) "Small business entity" means a corporation, limited 19
liability company, limited partnership, limited liability 20
partnership, general cooperative association, limited cooperative 21
association, sole proprietorship, or another type of for-profit 22
business entity, so long as the entity has no more than 20 employees 23
employed on average over the latest 24 calendar months, counting all 24
employees regardless of the hours worked or temporary status of an 25
employee, provided that if an entity has not been in business for 24 26
months, the average number of employees is used for each of the pay 27
periods during which it has been in business. 28
(5) "State risk manager" means the risk manager of the office of 29
risk management within the department of enterprise services.30
NEW SECTION. Sec. 3. (1) A small business entity may join or 31
form a joint self-insurance program together with one or more other 32
small business entities, and may jointly purchase insurance or 33
reinsurance with one or more other small business entities for 34
property and liability risks only as permitted under this chapter. 35
Small business entities may contract for or hire personnel to provide 36
risk management, claims, and administrative services in accordance 37
with this chapter.38
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(2) The agreement to form a program may include the organization 1
of a separate legal or administrative entity with powers delegated to 2
the entity. The entity may include or form another entity.3
(3) If provided for in the organizational documents, a program 4
may, in conformance with this chapter: 5
(a) Contract or otherwise provide for risk management and loss 6
control services; 7
(b) Contract or otherwise provide legal counsel for the defense 8
of claims and other legal services; 9
(c) Consult with the commissioner and the state risk manager;10
(d) Jointly purchase insurance and reinsurance coverage in a form 11
and amount as provided for in the organizational documents;12
(e) Obligate the program's participants to pledge funds or 13
revenues to secure the obligations or pay the expenses of the 14
program, including the establishment of a reserve fund for coverage, 15
including an additional assessment if the reserve fund or the 16
program's revenue or assets are insufficient to cover the program's 17
liabilities; and 18
(f) Possess any other powers and perform all other functions 19
reasonably necessary to carry out the purposes of this chapter.20
(4) Every program governed by this chapter must appoint the state 21
risk manager as its attorney to receive service of, and upon whom 22
must be served, all legal process issued against the program in this 23
state upon causes of action arising in this state.24
(a) Service upon the state risk manager as attorney constitutes 25
service upon the program. Service upon programs subject to this 26
chapter may only occur by service upon the state risk manager. At the 27
time of service, the plaintiff shall pay to the state risk manager a 28
fee to be set by the state risk manager, taxable as costs in the 29
action. 30
(b) With the initial filing for approval with the state risk 31
manager, each program must designate by name and address the person 32
to whom the state risk manager must forward legal process that is 33
served upon him or her. The program may change this person by filing 34
a new designation. 35
(c) The appointment of the state risk manager as attorney is 36
irrevocable, binds any successor in interest or to the assets or 37
liabilities of the program, and remains in effect as long as there is 38
in force in this state any contract made by the program or 39
liabilities or duties arising from the contract. 40
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(d) The state risk manager shall keep a record of the day and 1
hour of service upon him or her of all legal process. A copy of the 2
process, by registered mail with return receipt requested, must be 3
sent by the state risk manager to the person designated to receive 4
legal process by the program in its most recent designation filed 5
with the state risk manager. Proceedings may not commence against the 6
program, and the program is not required to appear, plead, or answer, 7
until the expiration of 40 days after the date of service upon the 8
state risk manager. 9
(e) For any legal process issued against the program for causes 10
of action arising outside of this state, the program shall provide 11
the state risk manager a copy of such claim. 12
(5) A program approved under this chapter may not be transferred 13
to, nor may control over such a program be given to or taken by, a 14
broker or other person without the express agreement of all small 15
business entities participating in the approved program and the 16
approval of the state risk manager. 17
NEW SECTION. Sec. 4. This chapter does not apply to a small 18
business entity that:19
(1) Individually self-insures for property and liability risks;20
(2) Participates in a risk pooling arrangement, including a risk 21
retention group or a risk purchasing group, regulated under chapter 22
48.92 RCW, or is a captive insurer authorized in its state of 23
domicile; or 24
(3) Is a hospital licensed under chapter 70.41 RCW, or an entity 25
owned, operated, controlled by, or affiliated with such a hospital 26
that participates in a self-insurance risk pool or other risk pooling 27
arrangement. 28
NEW SECTION. Sec. 5. The state risk manager shall adopt rules 29
governing the management and operation of programs for small business 30
entities that cover property or liability risks. All rules must be 31
appropriate for the type of program and class of risk covered. The 32
state risk manager's rules must include:33
(1) Standards for the management, operation, and solvency of 34
programs, including the necessity and frequency of actuarial analyses 35
and claims audits; 36
(2) Standards for claims management procedures;37
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(3) Standards for contracts between programs and private 1
businesses, including standards for contracts between third-party 2
administrators and programs; and 3
(4) Standards requiring pool verification of each member's lawful 4
business status in their state of domicile. 5
NEW SECTION. Sec. 6. Before the establishment of a program 6
covering property or liability risks by small business entities, the 7
entities must obtain the approval of the state risk manager. The 8
small business entities proposing the creation of a program requiring 9
prior approval shall submit a plan of management and operation to the 10
state risk manager that provides at least the following information:11
(1) The risk or risks to be covered, including any coverage 12
definitions, terms, conditions, and limitations; 13
(2) The amount and method of funding the covered risks, including 14
the initial capital and proposed rates and projected premiums;15
(3) The proposed claim reserving practices; 16
(4) The proposed purchase and maintenance of insurance or 17
reinsurance in excess of the amounts retained by the program;18
(5) The legal form of the program including, but not limited to, 19
any articles of incorporation, bylaws, charter, or trust agreement or 20
other agreement among the participating entities; 21
(6) The agreements with participants in the program defining the 22
responsibilities and benefits of each participant and management;23
(7) The proposed accounting, depositing, and investment practices 24
of the program; 25
(8) The proposed time when actuarial analysis will be first 26
conducted and the frequency of future actuarial analysis;27
(9) A designation of the individual to whom service of process 28
must be forwarded by the state risk manager on behalf of the program;29
(10) All contracts between the program and private persons 30
providing risk management, claims, or other administrative services;31
(11) A professional analysis of the feasibility of the creation 32
and maintenance of the program; 33
(12) A legal analysis or an internal revenue service opinion on 34
the federal income tax exposure or liability of the program; and35
(13) Any other information required by rule of the state risk 36
manager that is necessary to determine the probable financial and 37
management success of the program or that is necessary to determine 38
compliance with this chapter. 39
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NEW SECTION. Sec. 7. A small business entity may participate in 1
a program covering property or liability risks with similar small 2
business entities from other states if the program satisfies the 3
following requirements:4
(1) An ownership interest in the program is limited to some or 5
all small business entities of this state and small business entities 6
of other states that are provided insurance by the program;7
(2) The small business entities of this state and other states 8
elect a board of directors to manage the program, all of whom must be 9
affiliated with one or more of the participating small business 10
entities; 11
(3) The program provides coverage through the delivery to each 12
participating small business entity of one or more written policies 13
affecting insurance of covered risks; 14
(4) The program is financed, including the payment of premiums 15
and the contribution of initial capital, in accordance with the plan 16
of management and operation submitted to the state risk manager in 17
accordance with this chapter; 18
(5) The financial statements of the program are audited by a 19
certified public accountant, and these audited financial statements 20
are delivered to the state risk manager not more than 120 days after 21
the end of each fiscal year of the program; 22
(6) The investments of the program are initiated only with 23
financial institutions or broker-dealers, or both, doing business in 24
those states in which participating small business entities are 25
located, and these investments are audited annually by the certified 26
public accountants for the program; 27
(7) The treasurer of a multistate joint self-insurance program is 28
designated by resolution of the program and the treasurer is located 29
in the state of one of the participating entities; and30
(8) The program obtains approval from the state risk manager in 31
accordance with this chapter and remains in compliance with this 32
chapter, unless exempt from application for reapproval, as granted 33
under RCW 48.180.015. 34
NEW SECTION. Sec. 8. (1) Within 120 days of receipt of a plan 35
of management and operation, the state risk manager shall either 36
approve or disapprove of the formation of the program after reviewing 37
the plan to determine whether the proposed program complies with this 38
chapter and all rules adopted in accordance with this chapter.39
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(2) If the state risk manager denies a request for approval, the 1
state risk manager shall specify in detail the reasons for denial and 2
the manner in which the program fails to meet the requirements of 3
this chapter or any rules adopted in accordance with this chapter.4
(3) If the state risk manager determines that a joint self-5
insurance program covering property or liability risks is in 6
violation of this chapter or is operating in an unsafe financial 7
condition, the state risk manager may issue and serve upon the 8
program an order to cease and desist from the violation or practice.9
(a) The state risk manager shall deliver the cease and desist 10
order to the appropriate entity or entities directly or mail it to 11
the appropriate entity or entities by certified mail with return 12
receipt requested. 13
(b) If the program violates the cease and desist order or has not 14
taken steps to comply with the cease and desist order after the 15
expiration of 20 days after the cease and desist order has been 16
received by the program, the program is deemed to be operating in 17
violation of this chapter, and the state risk manager shall notify 18
the attorney general of the violation. 19
(c) After hearing, or with the consent of a program governed 20
under this chapter, and in addition to or in lieu of a continuation 21
of the cease and desist order, the state risk manager may levy a fine 22
upon the program in an amount not less than $300 and not more than 23
$10,000. The order levying the fine must specify the period within 24
which the fine must be fully paid. The period within which the fines 25
must be paid must not be less than 15 and not more than 30 days from 26
the date of the order. Upon failure to pay the fine when due, the 27
state risk manager shall request the attorney general to bring a 28
civil action on the state risk manager's behalf to collect the fine. 29
The state risk manager shall pay any fine collected to the state 30
treasurer for deposit into the general fund. 31
(4) Each program approved by the state risk manager shall 32
annually file a report with the state risk manager providing:33
(a) Details of any changes in the articles of incorporation, 34
bylaws, charter, trust agreement, or other agreement among the 35
participating small business entities; 36
(b) Copies of all the insurance coverage documents;37
(c) A description of the program structure, including 38
participants' retention, program retention, and excess insurance 39
limits and attachment point; 40
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(d) An actuarial analysis; 1
(e) A list of contractors and service providers;2
(f) The financial and loss experience of the program; and3
(g) Other information as required by rule of the state risk 4
manager. 5
(5) A program requiring the state risk manager's approval may not 6
engage in an act or practice that in any respect significantly 7
differs from the management and operation plan that formed the basis 8
for the state risk manager's approval of the program unless the 9
program first notifies the state risk manager in writing and obtains 10
the state risk manager's approval. The state risk manager shall 11
approve or disapprove the proposed change within 60 days of receipt 12
of the notice. If the state risk manager denies a requested change, 13
the state risk manager shall specify in detail the reasons for the 14
denial and the manner in which the program would fail to meet the 15
requirements of this chapter or any rules adopted in accordance with 16
this chapter. 17
NEW SECTION. Sec. 9. (1) The state risk manager shall establish 18
and charge an investigation fee in an amount necessary to cover the 19
costs for the initial review and approval of a program. The fee must 20
accompany the initial submission of the plan of management and 21
operation required under section 6 of this act.22
(2) The costs of subsequent reviews and investigations must be 23
charged to the program being reviewed or investigated in accordance 24
with the actual time and expenses incurred in the review or 25
investigation. 26
(3) Any program failing to remit its assessment when due is 27
subject to denial of permission to operate or to a cease and desist 28
order until the assessment is paid. 29
NEW SECTION. Sec. 10. (1) A program may by resolution of the 30
program designate a person having experience with investments or 31
financial matters as treasurer of the program. The program must 32
require a bond obtained from a surety company in an amount and under 33
the terms and conditions that the program finds will protect against 34
loss arising from mismanagement or malfeasance in investing and 35
managing program funds. The program may pay the premium on the bond.36
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(2) All interest and earnings collected on program funds belong 1
to the program and must be deposited to the program's credit in the 2
proper program account. 3
NEW SECTION. Sec. 11. (1) An employee or official of a 4
participating small business entity in a program may not directly or 5
indirectly receive anything of value for services rendered in 6
connection with the operation and management of a program other than 7
the salary and benefits provided by his or her employer or the 8
reimbursement of expenses reasonably incurred in furtherance of the 9
operation or management of the program. An employee or official of a 10
participating small business entity in a program may not accept or 11
solicit anything of value for personal benefit or for the benefit of 12
others under circumstances in which it can be reasonably inferred 13
that the employee's or official's independence of judgment is 14
impaired with respect to the management and operation of the program.15
(2) RCW 48.30.140, 48.30.150, and 48.30.157 apply to the use of 16
insurance producers and surplus line brokers by a program.17
NEW SECTION. Sec. 12. A program approved in accordance with 18
this chapter is exempt from insurance premium taxes, fees assessed 19
under chapters 48.02, 48.32, and 48.32A RCW, business and occupation 20
taxes imposed under chapter 82.04 RCW, and any assigned risk plan or 21
joint underwriting association otherwise required by law. This 22
section does not apply to or provide exemptions for insurance 23
companies issuing policies to cover program risks and third-party 24
administrators or insurance producers serving the program.25
NEW SECTION. Sec. 13. (1) Any person who files, reports, or 26
furnishes other information required under this title, required by 27
the state risk manager under the authority granted under this title, 28
or which is useful to the state risk manager in the administration of 29
this title is immune from liability in any civil action or suit 30
arising from the filing of any such report or furnishing such 31
information to the state risk manager, unless actual malice, fraud, 32
or bad faith is shown.33
(2) The state risk manager and his or her agents and employees 34
are immune from liability in any civil action or suit arising from 35
the publication of any report or bulletin or from dissemination of 36
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information related to the official activities of the state risk 1
manager unless actual malice, fraud, or bad faith is shown.2
(3) The immunity granted under this section is in addition to any 3
common law or statutory privilege or immunity enjoyed by such person. 4
This section is not intended to abrogate or modify in any way such 5
common law or statutory privilege or immunity. 6
NEW SECTION. Sec. 14. Sections 1 through 13 of this act 7
constitute a new chapter in Title 48 RCW.8
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