[Federal Register Volume 69, Number 50 (Monday, March 15, 2004)]
[Proposed Rules]
[Pages 12218-12231]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 04-5631]



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Part III





Department of Labor





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Employment Standards Administration



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20 CFR Parts 701 and 703



Regulations Implementing the Longshore and Harbor Workers' Compensation 
Act and Related Statutes; Proposed Rule

  Federal Register / Vol. 69, No. 50 / Monday, March 15, 2004 / 
Proposed Rules  

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DEPARTMENT OF LABOR

Employment Standards Administration

20 CFR Parts 701 and 703

RIN 1215-AB38


Regulations Implementing the Longshore and Harbor Workers' 
Compensation Act and Related Statutes

AGENCY: Employment Standards Administration, Labor.

ACTION: Notice of proposed rulemaking; request for comments.

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SUMMARY: The Department of Labor (DOL) proposes to revise the 
regulations governing certain aspects of the administration of the 
Longshore and Harbor Workers' Compensation Act and its extensions: The 
Defense Base Act; the Outer Continental Shelf Lands Act; the 
Nonappropriated Fund Instrumentalities Act; and the District of 
Columbia Workmen's Compensation Act. The Office of Workers' 
Compensation Programs (OWCP), an agency within the Employment Standards 
Administration, administers the LHWCA and its extensions.
    The proposed rule updates the existing regulations to reflect 
amendments to the LHWCA and organizational changes that have taken 
place within both the Employment Standards Administration and OWCP over 
the last several years. The proposed rule also requires, as a condition 
of being authorized to write LHWCA insurance, that a carrier establish 
to OWCP that its potential LHWCA obligations are sufficiently secured. 
A carrier's LHWCA obligations would be considered sufficiently secured 
if funds will be available to cover all of its workers' compensation 
claims in the event of the carrier's default or insolvency. As an 
alternative, a carrier could fully secure its obligations by posting a 
security deposit with the Secretary of Labor. Carriers would not, 
however, be required to make this showing for States with guaranty 
funds that fully and immediately cover LHWCA claims in the event of a 
carrier's default or insolvency. In addition, the proposed rule 
conforms, where appropriate, the rules governing OWCP's authorization 
of employers as self-insurers to the provisions governing carrier 
security deposits.

DATES: The Department invites written comments on the proposed rule and 
the new information collection requirements that are subject to the 
Paperwork Reduction Act of 1995 (44 U.S.C. 3501 et seq.) from 
interested parties. Written comments must be received by May 14, 2004.

ADDRESSES: You may submit written comments, identified by RIN number 
1215-AB38, on the proposed rules by any of the following methods:
     Federal eRulemaking Portal: http://www.regulations.gov. Follow the instructions for submitting comments.
     E-mail: [email protected]. Include 
RIN number 1215-AB38 in the subject line of the message. Your comment 
must be in the body of the e-mail message; do not send attached files.
     Fax: (202) 693-1380 (this is not a toll-free 
number). Only comments of ten or fewer pages (including a fax cover 
sheet and attachments, if any) will be accepted by fax.
     Mail: Submit comments (preferably with three 
copies) to Michael Niss, Director, Division of Longshore and Harbor 
Workers' Compensation, Office of Workers' Compensation Programs, 
Employment Standards Administration, U.S. Department of Labor, Room C-
4315, 200 Constitution Avenue, NW., Washington, DC 20210. Because of 
security-related concerns, there may be a significant delay in the 
receipt of submissions by U.S. mail. You must take this into 
consideration when preparing to meet the deadline for submitting 
comments.
    Instructions: All submissions received must include the agency name 
and Regulatory Information Number (RIN) 1215-AB38 for this rulemaking.
    Comments on the proposed regulations will be available for public 
inspection during normal business hours at the above address.
    You may submit written comments on the new information collection 
requirements by sending them to the Office of Information and 
Regulatory Affairs, Office of Management and Budget, Attention: Desk 
Officer for Employment Standards Administration, Washington, DC 20503.

FOR FURTHER INFORMATION CONTACT: Michael Niss, Director, Division of 
Longshore and Harbor Workers' Compensation, Office of Workers' 
Compensation Programs, Employment Standards Administration, U.S. 
Department of Labor, Room C-4315, 200 Constitution Avenue, NW., 
Washington, DC 20210. Telephone: (202) 693-0038 (this is not a toll-
free number). TTY/TDD callers may dial toll free (877) 889-5627 for 
further information.

SUPPLEMENTARY INFORMATION:

I. Background of This Rulemaking

    Employers subject to the Longshore and Harbor Workers' Compensation 
Act, as amended (LHWCA), 33 U.S.C. 901 et seq., are required by section 
32 of the LHWCA to secure the payment of compensation under the Act by 
either purchasing insurance from an insurance carrier authorized by the 
Secretary of Labor to write LHWCA insurance, or by becoming authorized 
self-insured employers. The Division of Longshore and Harbor Workers' 
Compensation (DLHWC) within OWCP authorizes insurance carriers to write 
LHWCA coverage and employers to self-insure. It also requires that some 
authorized insurance carriers and all self-insured employers post 
security deposits in an amount sufficient to secure their future claim 
liabilities. Authorization to write insurance or to self-insure may be 
suspended or revoked for good cause shown.
    Prior to June 29, 1990, DLHWC did not require authorized insurance 
carriers to post security deposits to guard against possible default or 
insolvency. Since LHWCA obligations of insolvent authorized insurance 
carriers accrue to, and are payable out of, the special fund in the 
United States Treasury established pursuant to section 44 of the LHWCA, 
the insolvency of a single carrier with a large amount of unsecured 
LHWCA obligations can result in a substantial drain on the resources of 
the fund. When this occurs, DLHWC, as guardian of the fund, must 
replenish the resources of the fund by increasing the annual 
assessments it collects from all authorized carriers and self-insured 
employers pursuant to 20 CFR 702.146(c).
    Following a number of insurance carrier insolvencies in the 1980's, 
and to avoid further increases in annual assessments, DLHWC changed its 
policy regarding authorized insurance carriers and announced the change 
in a June 29, 1990, ``Industry Notice.'' From that date, DLHWC began 
requiring authorized insurance carriers to post security deposits in an 
amount sufficient to secure the payment of their LHWCA obligations in 
States without guaranty or analogous funds and in States whose funds 
did not fully secure such obligations. This requirement was waived for 
insurance carriers with financial security ratings of ``A'' or higher 
issued by the A.M. Best Company. DLHWC determined the required security 
deposit amount after considering a number of factors, including the 
insurance carrier's scale of projected coverage, its financial history, 
its A.M. Best rating and its loss history.
    Since that time, changing conditions have led DLHWC to reconsider 
the manner and extent to which authorized insurance carriers must 
secure their

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LHWCA obligations. These conditions include: (1) Changes in the A.M. 
Best Company rating system; (2) the number of insurance carriers that 
have become insolvent over the past three years; (3) the significant 
increase in the number of insurance carriers that have been issued 
financial security ratings of ``A-'' or lower for the first time (which 
triggers the requirement to post security deposits under DLHWC's 
current policy) due to adverse conditions in the insurance industry and 
the general economic downturn; and (4) the industry-wide impact of 
September 11, 2001, losses. In addition to developing several possible 
solutions to this evolving problem internally, DLHWC also solicited 
suggestions and advice from the insurance industry in a request for 
information that was published in the Federal Register on February 22, 
2002 (67 FR 8450).
    DLHWC received 15 responses to this solicitation: eight from 
authorized self-insured employers or groups of authorized self-insured 
employers, five from authorized insurance carriers, and two from other 
groups. None of the responses set forth any legal or policy objections 
to requiring deposits from insurance carriers to fully secure their 
LHWCA obligations. On the contrary, many of the responses from all 
sources, including authorized insurance carriers, recommended requiring 
all authorized carriers to fully secure (through the posting of 
securities) their LHWCA obligations. The reasons offered for this 
position included the recognition that it was in the financial self-
interest of carriers to insist on fully securing all LHWCA obligations 
since this would obviate the need for DLHWC to collect annual 
assessments from healthy carriers to pay for the insolvency of weaker 
carriers. Other reasons were the inherent inability of any static 
rating scheme to accurately predict the future financial stability of 
an insurance carrier, and the potential for catastrophic losses due to 
terrorism in the shipping and shipbuilding industries.
    DLHWC recognizes that requiring all carriers to fully secure their 
LHWCA obligations would place the risk of an insolvency on the failed 
insurer rather than the surviving, healthy members of the insurance 
industry (and self-insured employers) and also would ensure that 
disabled workers will suffer no delay in obtaining their compensation 
following an insolvency. But DLHWC believes that this approach might 
force those insurance carriers who could not absorb the additional 
costs of posting securities to leave the market and therefore create 
instability that could lead to further problems. DLHWC also believes 
that this approach would duplicate, at least to some extent, the 
reserve requirements imposed by State insurance regulators.
    DLHWC has considered two other approaches not suggested in the 
responses to the request for information. The first approach would use 
the existing special fund as an overall guaranty fund for all LHWCA 
claims under the authority of 33 U.S.C. 918(b). Under this approach, 
the special fund would make the compensation payments insured by an 
insolvent carrier and recover these costs in current and subsequent 
years by means of increased annual assessments and supplemental 
assessments on the remaining authorized insurance carriers and self-
insured employers, and through its subrogated rights against the 
insolvent carrier itself. Because DLHWC would not require any security 
deposits from authorized carriers, it would be relatively easy to 
administer. But this approach would likely create negative incentives 
for prudent fiscal responsibility in the insurance industry.
    The second alternative DLHWC considered, and the one adopted in the 
proposed regulations, is to continue requiring authorized insurance 
carriers to post security deposits, but only where there is no adequate 
State guaranty fund and only in amounts that reflect the actual risk of 
loss to the special fund. The proposed rule represents a measured 
approach: It will end DLHWC's undue reliance on A.M. Best ratings yet 
limit the number of carriers that must post deposits to those carriers 
operating in States with inadequate guaranty funds. DLHWC believes that 
this approach is the best way for it to address this situation and 
still fulfill its fiduciary responsibility as the special fund's 
guardian.

II. Summary of the Proposed Rule

    The proposed regulations, which are more fully described below, 
establish the processes by which OWCP will determine the extent of an 
insurance carrier's LHWCA obligations, the amount of the deposit 
necessary to secure those obligations in light of the guaranty or 
analogous funds in the State or States in which the carrier writes 
LHWCA insurance, the manner in which such deposits will be held, and 
the circumstances under which they could be seized or otherwise used to 
avoid draining the available resources of the special fund. The 
proposed regulations also include those applicable to self-insured 
employers; the proposed revisions update the regulations and align them 
with the new carrier security deposit regulations. The proposed 
regulations will appear in 20 CFR parts 701 and 703.

A. 20 CFR Part 701

    The proposed regulations in this part have been updated to reflect 
amendments to the LHWCA and organizational changes that have taken 
place within both OWCP and the Employment Standards Administration over 
the last several years. Other than these minor changes, the proposed 
rule is substantially the same as current part 701, with the exception 
of the sections describing the establishment of OWCP, the functions 
assigned to OWCP by the Assistant Secretary of Labor for Employment 
Standards, and OWCP's historical background at Sec. Sec.  701.201 
through 701.203. In the proposed rule, Sec.  701.202 and Sec.  701.203 
are reserved, and Sec.  701.201 refers the reader to the description of 
these same matters that is set out in subchapter A of chapter I of 
title 20 (20 CFR part 1).

B. 20 CFR Part 703

General Provisions
    Except for the introductory statements in Sec.  703.1 and the list 
of forms set out in Sec.  703.2, those two proposed regulations and 
Sec.  703.3 are generally unchanged from their current version.
Insurance Carrier Security Deposit Requirements

20 CFR 703.201

    This section contains general introductory material, including the 
purpose of carrier security deposits.

20 CFR 703.202

    In determining the required security deposit amount, DLHWC will 
consider the extent to which State insurance guaranty funds secure the 
carrier's LHWCA obligations in the event of default or insolvency. 
Section 703.202 sets forth a non-exclusive list of factors DLHWC may 
use to evaluate the coverage afforded by each State guaranty fund, if 
any. In the event a State guaranty fund's coverage cannot be 
determined, the regulation adopts a default rule providing that 33\1/3\ 
percent of a carrier's LHWCA obligations in that State will be deemed 
unsecured. This section also notes that DLHWC will make its 
determinations regarding each State's coverage available to the 
regulated community and the public by posting them on its Web site.

20 CFR 703.203

    An insurance carrier will be required to apply annually for a 
determination of the extent of its unsecured LHWCA obligations, and the 
amount of the

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deposit necessary to satisfy the regulations' security requirements. 
Section 703.203 describes the application process. As proposed, the 
carrier will submit yearly statements to the Branch of Financial 
Management and Insurance (Branch) within DLHWC setting forth its LHWCA 
obligations in each State where it does business. The carrier will also 
suggest an amount for the security deposit needed to fully secure such 
obligations. If the carrier chooses to base its suggested security 
deposit on a determination of a gap in State coverage that differs from 
that posted by DLHWC on its Web site, the carrier may submit evidence 
and/or argument in support.

20 CFR 703.204

    Section 703.204 provides that the Branch may consider several 
different factors when it evaluates the carrier's suggested security 
deposit amount. One significant factor will be the extent to which a 
carrier's LHWCA obligations are secured by a State guaranty fund. 
Because State guaranty fund coverage varies dramatically among States, 
proposed Sec.  703.204(b) adopts a sliding scale: carriers who write 
more than an insignificant amount of LHWCA insurance in States without 
guaranty funds or funds that only partially secure LHWCA obligations 
will be required to deposit an amount equal to 33\1/3\ percent of their 
outstanding LHWCA obligations in each State up to an amount equal to 
100 percent of those obligations. DLHWC intends to evaluate a carrier's 
obligations on a state-by-state basis to determine the amount of its 
unsecured obligations in each State and to set the required security 
deposit in accordance with that evaluation. The carrier may challenge 
the Branch's decision by requesting a hearing before the Director of 
DLHWC. The Director will then issue the final agency decision on the 
application.

20 CFR 703.205, 703.207, 703.208

    Once a final decision on the carrier's application is reached, 
section 703.205 requires the carrier to both execute an Agreement and 
Undertaking and post the required security within 45 days of its 
receipt of the decision. Neither of these requirements differs 
substantially from the requirements under DLHWC's current policy. In 
the Agreement and Undertaking, the carrier agrees to post the required 
security deposit and authorizes the Branch to seize the deposit if: (1) 
It defaults on any of its LHWCA obligations; (2) it fails to renew or 
replace deposited letters of credit or matured negotiable securities; 
(3) a State initiates insolvency proceedings against the carrier; or 
(4) it violates any of the other terms of the Agreement and Undertaking 
(Sec.  703.205(a)). This section also sets out the three ways a carrier 
can satisfy the requirement for posting a security deposit: through the 
use of approved indemnity bonds, letters of credit, or negotiable 
securities (Sec.  703.205(b)). If the carrier chooses to deposit 
negotiable securities, Sec. Sec.  703.207 and 703.208 detail the types 
of securities that may be deposited, conditions of their deposit and 
places for their deposit. Section 703.206 is reserved.

20 CFR 703.209, 703.210

    Substitutions and/or withdrawals of the instruments representing a 
carrier's security deposit, as well as changes in the amounts of such 
deposits, are governed by Sec. Sec.  703.209 and 703.210. These 
regulations conform to the Branch's current practice, with two 
exceptions. The Department has made explicit in Sec.  703.209(b) that 
``no withdrawals will be authorized unless there has been no claim 
activity for a minimum of five years, and the Branch is reasonably 
certain no further claims will arise.'' The Department has proposed 
this provision to insure that funds are available to pay all claims 
that are attributable to the carrier. The Department has also linked 
DLHWC's demand for an additional security deposit under Sec.  
703.210(a) with the procedures applicable to initial security deposit 
determinations, including a hearing before the Longshore Director or 
his representative upon the carrier's request. This provision ensures 
that the carrier has the same rights regarding a determination 
increasing the security deposit amount as when that amount was 
initially set.

20 CFR 703.211

    Paragraphs (a) and (b) of Sec.  703.211 together constitute one of 
the major improvements to DLHWC's policy. Currently, DLHWC seizes a 
carrier's security deposit when the carrier defaults on its LHWCA 
obligations. But to protect the special fund and ensure funds are 
available for compensation payments, DLHWC must take action on the 
deposited security when a carrier fails to secure future payments even 
though the carrier is meeting its current payment obligations. 
Accordingly, proposed Sec. Sec.  703.211 (a) and (b) make explicit 
DLHWC's authority to draw upon a letter of credit or seize a carrier's 
deposit of negotiable securities at maturity when the carrier fails to 
keep its LHWCA obligations secured by renewing or replacing the 
deposited security, even if the carrier is not in default. Letters of 
credit currently acceptable to DLHWC routinely spell out this 
authority. While deposited negotiable securities do not contain similar 
terms, they are nevertheless held subject to DLHWC's order (see 
Sec. Sec.  703.208 and 703.209). A carrier who has deposited negotiable 
securities with a Federal Reserve bank must withdraw (or roll over) 
those securities upon maturity. A viable carrier usually rolls the 
matured securities over or replaces them with new securities to 
continue meeting the security deposit requirements. A financially 
troubled carrier, however, may not be able to replace the matured 
securities. Rather than allowing the securities to revert to the 
carrier--assets that the carrier could deplete for purposes other than 
payment of LHWCA benefits--DLHWC will seize the negotiable securities 
at maturity and hold those funds as security for the carrier's future 
LHWCA obligations, even if the carrier has not yet defaulted on its 
obligations. Finally, proposed Sec. Sec.  703.211 (a) and (b) codify 
DLHWC's authority to seize the deposited security when a State 
initiates insolvency proceedings against a carrier. Like a carrier that 
is unable to renew its posted security, an insolvent carrier may not be 
able to meet its LHWCA obligations. Seizure of the security insures 
continued payment of those obligations. When it determines that the 
security is no longer necessary, DLHWC will return any negotiable 
securities (and their proceeds) still in its possession to the carrier 
(Sec.  703.211(c)).

20 CFR 703.212

    This section provides for the submission of certain periodic and ad 
hoc reports to the Branch so it can monitor the financial health of all 
authorized insurance carriers and thereby assist DLHWC fulfill its 
obligation as guardian of the special fund.

20 CFR 703.213

    Should a carrier fail to meet its obligations under these security 
deposit regulations, Sec.  703.213 clarifies that OWCP may revoke or 
suspend its authorization to write LHWCA insurance.
Authorization of Self-Insurers
    The proposed revisions to Sec. Sec.  703.301 through 703.312 are 
designed to: Modernize their language and structure; reflect 
organizational changes within OWCP; and conform them to both DLHWC's 
current policies and the proposed carrier security deposit regulations. 
As a result, most of the revisions are not intended to change the

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substance of the current regulatory requirements. Several revisions, 
however, are noteworthy. Throughout this part, the proposed regulations 
add letters of credit as a method an employer may use to secure its 
LHWCA obligations. This is in addition to indemnity bonds and deposits 
of negotiable securities, the two methods set forth in the current 
regulations. Proposed Sec.  703.303(b) clarifies that DLHWC's 
authorization to self-insure, although effective immediately, will 
later be deemed ineffective for all periods if the employer does not 
timely complete and file with DLHWC an Agreement and Undertaking and 
give security in the amount DLHWC requires. Proposed Sec.  703.303(d) 
also affords employers the same hearing rights accorded carriers who 
wish to challenge DLHWC's security deposit determination in proposed 
Sec.  703.204(d). Finally, like the carrier security deposit 
regulations, proposed Sec. Sec.  703.310 (a) and (b) codify DLHWC's 
authority to draw upon a letter of credit or seize a self-insurer's 
deposit of negotiable securities at maturity when the self-insurer 
fails to keep its future LHWCA obligations secured by renewing or 
replacing the deposited security, even if the self-insurer has not 
defaulted on its current payment obligations.

III. Information Collection Requirements (Subject to the Paperwork 
Reduction Act) Imposed Under the Proposed Rule

    The new collections of information contained in this rulemaking 
have been submitted to OMB for review in accordance with the Paperwork 
Reduction Act of 1995, 44 U.S.C. 3501 et seq., and its implementing 
regulations at 5 CFR part 1320. No person is required to respond to a 
collection of information request unless the collection of information 
displays a valid OMB control number.
    The new information collection requirements are found in Sec. Sec.  
703.2, 703.203, 703.204, 703.205, 703.209, 703.210, 703.212, 703.303 
and 703.304. With the exception of Sec. Sec.  703.303 and 703.304, 
these collections relate to information insurance carriers are required 
to submit as part of the authorization process for writing LHWCA 
insurance, and as part of the process by which the Branch of Financial 
Management and Insurance within DLHWC decides both the extent of an 
authorized insurance carrier's unsecured LHWCA obligations and the 
amount of the required security deposit. To implement these new 
collections, the Department is proposing to create two new forms (Form 
LS-276 and LS-275 IC) described below. The information collections 
established in Sec. Sec.  703.303 and 703.304 relate to the security a 
self-insured employer deposits to secure its payment of compensation 
under the LHWCA and its extensions. To implement these collections, the 
Department is proposing one new form (Form LS-275 SI) described below.
    The public is invited to submit comments on the new information 
collection requirements. The Department is particularly interested in 
comments that:
    (1) Evaluate whether the proposed collections of information are 
necessary for the proper performance of the functions of the agency, 
including whether the information will have practical utility;
    (2) Evaluate the accuracy of the agency's estimates of the burdens 
of the collections of information, including the validity of the 
methodology and assumptions used;
    (3) Enhance the quality, utility and clarity of the information to 
be collected; and
    (4) Minimize the burden of the collections of information on those 
who are to respond, including through the use of appropriate automated, 
electronic, mechanical, or other technological collection techniques or 
other forms of information technology, e.g., permitting electronic 
submission of responses.
    Send comments regarding these proposed collections of information 
to the Office of Information and Regulatory Affairs, Office of 
Management and Budget, Attention: Desk Officer for Employment Standards 
Administration, Washington, DC 20503. Comments must be received by May 
14, 2004.
    This proposed rulemaking also restates, with no substantive 
changes, the currently approved collections of information in 
Sec. Sec.  703.302, 703.308, 703.309 and 703.311 (Forms LS-271 and LS-
274, OMB Control No. 1215-0160 (expires December 31, 2006)). These 
collections relate to information that employers applying to be self-
insurers under the LHWCA and its extensions or who are currently 
authorized self-insurers must submit; the rulemaking does not change 
these collections in any manner.

A. Form LS-276, Application for Security Deposit Determination

    Summary: As discussed above, the LHWCA gives the Secretary of Labor 
authority to authorize insurance carriers to write insurance under the 
Act and its extensions (33 U.S.C. 932). As a condition to 
authorization, each carrier will be required to establish that its 
LHWCA obligations are fully secured either through an applicable state 
guaranty (or analogous) fund, a deposit of security with DLHWC in an 
amount determined by DLHWC, or a combination of both. To meet these 
requirements, each currently authorized carrier and any carrier seeking 
such authorization will apply annually for a determination of the 
amount of security it must deposit by completing Form LS-276. Form LS-
276 is structured to elicit information regarding a carrier's 
outstanding LHWCA obligations on a state-by-state basis. DLHWC will use 
the information collected on Form LS-276 to determine the required 
security deposit amount for each carrier in light of any applicable 
state guaranty fund coverage.
    Respondents and frequency of response: Approximately 385 insurance 
carriers annually will file Form LS-276.
    Total annual burden estimates: The Department estimates that on 
average, it will take an insurance carrier one hour to collect the 
information, complete Form LS-276 and mail it. Thus, the total annual 
hour burden is estimated to be 385 hours. There are no capital or 
startup costs associated with this information collection. The 
Department estimates respondents' total annual operating and 
maintenance (printing and mailing) costs to be $163.80.

B. LS-275 IC, Agreement and Undertaking (Insurance Carrier); LS-275 SI, 
Agreement and Undertaking (Self-Insured Employer)

    Summary: After DLHWC determines the amount of the required security 
deposit, an insurance carrier or self-insured employer will execute 
Form LS-275 IC or LS-275 SI, respectively, to: (1) Report the security 
it has deposited and grant the Department a security interest in the 
collateral; (2) agree to abide by the Department's rules; and (3) 
authorize the Department to bring suit on any deposited indemnity bond, 
draw upon any deposited letters of credit, or to collect the interest 
and principal or sell any deposited negotiable securities when it deems 
it necessary to assure the carrier's or self-insurer's prompt and 
continued payment of compensation and any other LHWCA obligations it 
has. DLHWC will review the information collected to verify that the 
carrier or self-insurer has deposited the correct amount of security. 
DLHWC will also use this information if it takes action on the security 
deposited when necessary to insure that the carrier or self-insurer 
meets its LHWCA obligations.
    Respondents and proposed frequency of response: The Department 
estimates

[[Page 12222]]

that approximately 343 (or 50%) of all authorized insurance carriers 
and self-insurers annually will complete and file Form LS-275 IC or LS-
275 SI.
    Total annual burden estimates: The Department estimates that on 
average, it will take a respondent 15 minutes to locate the 
information, complete form LS-275 IC or LS-275 SI and mail it. Thus, 
the total annual hour burden is estimated to be 85.75 hours. There are 
no capital or startup costs associated with this information 
collection. The Department estimates respondents' total annual 
operating and maintenance (printing and mailing) costs to be $145.60.
    Copies of the complete information collection request, including 
the OMB 83-I form and supporting statement, may be obtained from the 
Department of Labor by contacting Linda Myer at 202-693-0289 (this is 
not a toll free number).

IV. Statutory Authority

    Section 39 of the LHWCA (33 U.S.C. 939) authorizes the Secretary of 
Labor to prescribe rules and regulations necessary for the 
administration and enforcement of the Act and its extensions, and 
section 32 of the LHWCA (33 U.S.C. 932) requires that all insurance 
carriers writing coverage under the LHWCA and all employers seeking to 
self-insure its liabilities be authorized by the Secretary.

V. Executive Order 12866 (Regulatory Planning and Review)

    This proposed rule has been drafted and reviewed in accordance with 
Executive Order 12866, section 1(b), entitled ``The Principles of 
Regulation.'' The Department has determined that this proposed rule is 
not a ``significant regulatory action'' under Executive Order 12866, 
section 3(f). Accordingly, it does not require an assessment of 
potential costs and benefits under section 6(a)(3) of that order.

VI. Small Business Regulatory Enforcement Fairness Act of 1996

    As required by Congress under the Small Business Regulatory 
Enforcement Fairness Act of 1996, enacted as Title II of Public Law 
104-121, 110 Stat. 847, 857 (March 29, 1996), the Department will 
report promulgation of this proposed rule to both Houses of the 
Congress and to the Comptroller General prior to its effective date as 
a final rule. The report will state that the Department has concluded 
that the rule is not a ``major rule'' as defined under 5 U.S.C. 804(2).

VII. Unfunded Mandates Reform Act of 1995

    Title II of the Unfunded Mandates Reform Act of 1995 (2 U.S.C. 1531 
et seq.) directs agencies to assess the effects of Federal regulatory 
actions on State, local, and tribal governments, and the private 
sector, ``other than to the extent that such regulations incorporate 
requirements specifically set forth in law.'' For purposes of the 
Unfunded Mandates Reform Act, this rule does not include any Federal 
mandate that may result in increased expenditures by State, local, and 
tribal governments, or increased expenditures by the private sector of 
more than $100,000,000.

VIII. Regulatory Flexibility Act and Executive Order 13272 (Proper 
Consideration of Small Entities in Agency Rulemaking)

    The Regulatory Flexibility Act of 1980 (RFA), as amended (5 U.S.C. 
601 et seq.), requires an agency to prepare regulatory flexibility 
analyses when it proposes regulations that will have ``a significant 
economic impact on a substantial number of small entities,'' or to 
certify that the proposed regulations will have no such impact, and to 
make the analyses or certification available for public comment.
    If promulgated as a final rule, the proposed carrier security 
deposit regulations would apply to the approximately 385 insurance 
carriers currently authorized by DLHWC to write LHWCA insurance, as 
well as to any other carriers seeking such authorization in the future.
    To evaluate the proposed rule's potential impact on small entities, 
the Department evaluated insurance carriers currently authorized to 
write Longshore insurance. While carriers enter and leave the market 
over time and their individual liability fluctuates, over at least the 
past two years the number and nature of the authorized carrier pool and 
the total benefit payments made by insurance carriers have remained 
relatively constant. Moreover, many of these carriers already comply 
with the security deposit requirements that the proposed regulations 
would impose on all carriers. Finally, because authorized carriers must 
file annual reports detailing LHWCA payments they have made for the 
prior calendar year, the Department possesses concrete information 
supplied by these carriers on which to base its analysis. Thus, the 
Department believes that the recent past experience of authorized 
carriers forms a valid basis for judging the potential impact of the 
proposed rule.
    The Department first determined the number of small entities in the 
authorized carrier group. The Department divided the authorized carrier 
group into two segments based on their classifications under the North 
American Industry Classification System for 2002 (NAICS 2002). It then 
applied the Small Business Administration's (SBA) size standards for 
each of these segments.\1\
---------------------------------------------------------------------------

    \1\ The Department was unable to determine the number of 
employees and/or total revenues for seven authorized carriers and, 
thus, unable to determine whether they meet the SBA's size standards 
for small entities. These entities include two non-U.S. public 
companies.
---------------------------------------------------------------------------

    The first segment is direct property and casualty insurers (code 
524126). For these insurers, the SBA size standard is 1,500 employees, 
regardless of a firm's annual revenues. Entities with fewer employees 
are considered ``small'' for RFA purposes. Applying this size standard, 
the Department estimates that one direct property and casualty insurer 
authorized to write Longshore insurance is ``small.''
    The second segment is all other insurers (including direct life 
insurance carriers, code 524113; direct health and medical insurance 
carriers, code 524114; direct title insurance carriers, code 524127; 
all other direct insurance carriers, code 524128; and reinsurance 
carriers, code 524130). The SBA's size standard for the rest of the 
insurance carrier industry is annual revenues of $6,000,000. Entities 
with revenues falling below this amount are considered ``small'' for 
RFA purposes. Applying this size standard, the Department estimates 
that three of the authorized carriers falling into the remaining 
categories are ``small.'' Thus, of the 385 carriers authorized to write 
Longshore insurance, the Department estimates that approximately 4, or 
a total of 1.05%, are small entities under the SBA's size standards.\2\
---------------------------------------------------------------------------

    \2\ Two of these four carriers are not-for-profit; thus, they 
potentially meet the ``small organization'' definition in RFA 
section 601(4). To determine whether these carriers should be 
considered small, the Department applied the SBA size standards for 
a ``small business.'' Both carriers meet those standards. Thus, the 
Department has classified both as ``small organizations.'' Because 
these carriers serve the same function and would be governed by the 
same security deposit requirements as for-profit carriers, the 
Department has chosen to include them with the ``small business'' 
carriers in evaluating the proposed rule's potential impact.
---------------------------------------------------------------------------

    The Department then evaluated the potential impact the proposed 
regulations would have had on these four individual insurance carriers 
had they been in place for calendar years 2001 and 2002. Two of these 
carriers currently have no security deposited and, for calendar years 
2001 and 2002,

[[Page 12223]]

paid no Longshore benefits. Under the proposed rule, these carriers 
would not have had to post a security deposit because the rule ties the 
security deposit amount to a carrier's current liabilities. Thus, for 
these two small carriers, the rule would have imposed no additional 
cost.
    The third carrier's premium revenues (apart from other income) for 
calendar year 2002 totaled $3,262,000. During calendar years 2001 and 
2002, which are representative of average years for this carrier, the 
carrier paid a total of $47,000 in Longshore benefits. In 1992, this 
carrier posted $400,000 in negotiable securities to secure its 
liabilities. Under the proposed rules, this carrier would not have been 
required to post security because it is in a State whose guaranty fund 
fully secures Longshore Act obligations. Thus, its security deposit 
would have been reduced. Even assuming this or a similar carrier were 
required to post $400,000 under the proposed rules because it was not 
in such a State, it could have met its security obligation by a method 
requiring a small initial cash outlay, such as by purchasing an 
indemnity bond. The Department estimates a $400,000 bond would cost 
approximately $6,000-$8000 at typical current rates; that cost amounts 
to only 0.18% to 0.24% of the carrier's 2002 revenues. Many carriers 
choose to deposit negotiable securities to secure their obligations, as 
this one did. Although in this case the deposit of $400,000 in 
negotiable securities amounted to approximately 12% of the carrier's 
2002 revenues, the carrier continued to own the securities (subject to 
DLHWC's security interest) and received the income generated by them. 
Moreover, because carriers may freely choose whether to deposit 
negotiable securities or purchase an indemnity bond, the appropriate 
cost measure for this analysis is the cost of the indemnity bond.
    The fourth carrier is a direct property and casualty insurer that 
is classified as ``small'' because it employs fewer than 1,500 people. 
Its high premium revenues, however, render its security deposit 
obligations under both DLHWC's current policy and the proposed 
regulations insignificant. For calendar year 2002, this carrier's 
premium revenues (apart from other income) totaled approximately 
$300,000,000. It pays, on average, $2,000,000 per year in Longshore 
benefits and currently has posted $3,125,000 in negotiable securities 
to secure its LHWCA obligations. Assuming the same deposit would be 
required under the proposed rule, the cost to the carrier would be 
approximately 1.04% of its annual revenues, a percentage the Department 
does not deem significant especially because the carrier would continue 
to receive any income from the negotiable securities posted.
    Thus, the Department believes that the proposed rule will have no 
significant economic impact on any currently authorized small carriers. 
For reasons similar to those explained above, the Department further 
believes that the proposed rule will have no significant economic 
impact on possible small carrier entrants.
    Small carriers who would not be required to post security deposits 
with DLHWC under its current policy (such as carriers doing business in 
States with guaranty funds that fully secure their liability) will for 
the same reason likely not be required to post security deposits, 
including the minimum security provided for in proposed Sec.  
703.204(c), under the proposed policy. Other small carriers will only 
have to post security deposits in the amount of their own current 
obligations, making posting more affordable for firms with low 
liabilities and thus making entry easier for small firms that would 
like to enter this market. Indeed, the proposed rules will not require 
the posting of any security by carriers with no outstanding 
obligations, so such carriers would no longer have to post the minimum 
$200,000 deposit that DLHWC currently requires of all carriers who do 
not have an A or better rating from the A.M. Best Company.
    The proposed regulations will also result in a financial benefit to 
some small carriers in another way. Once all carriers have fully 
secured their liabilities, as the proposed rule requires, special fund 
assessments for those small carriers who must pay them are expected to 
decrease. The special fund's costs, which are calculated and assessed 
against authorized Longshore insurance carriers and self-insured 
employers each year, are primarily incurred for benefit payments in two 
circumstances: (1) When a carrier (and the employer it insured) or a 
self-insurer are insolvent; and (2) when a carrier or employer is 
entitled to relief under 33 U.S.C. 908(f) (second-injury fund). Because 
the requirement that liabilities be fully secured should decrease the 
fund's costs for benefits paid on behalf of insolvent carriers, the 
special fund assessments levied against small carriers are expected to 
decrease commensurately.
    Although not dispositive, the Department has also noted that no 
carriers--small or otherwise--left the authorized carrier ranks when 
DLHWC first instituted its security deposit requirements in 1990. 
Moreover, no one who responded to DLHWC's Request For Information 
published in the Federal Register on February 22, 2002, expressed 
concern over any impact that OWCP's current security deposit 
requirements or those it might adopt would have on small entities.
    Thus, whether viewed as four small entities out of 385, 11 small 
entities (four plus the seven carriers the Department was unable to 
classify) out of 385, or no entities within the four identified as 
small, the Department concludes that the proposed carrier security 
deposit rules will not have a significant economic impact on a 
substantial number of small entities.
    The Department also believes that the proposed revisions to the 
self-insurer authorization regulations will not have a significant 
economic impact on a substantial number of small entities. These 
revisions do not change the financial or record-keeping requirements 
currently imposed on self-insurers. As explained above, the revisions 
are principally designed to modernize the rules' language and 
structure, reflect organizational changes within OWCP, and conform the 
rules to DLHWC's current policies and practices. For instance, the 
proposed revisions codify DLHWC's longstanding policy of allowing self-
insurers to use letters of credit from approved financial institutions 
to secure their LHWCA obligations. DLHWC will continue to require self-
insured employers to deposit security in the same amounts and form as 
under the current regulations. Thus, the proposed revisions to the 
self-insurer regulations will not have a significant economic impact on 
any entities, including those that might be classified as small under 
the SBA's size standards.
    The Assistant Secretary of Labor for Employment Standards hereby 
certifies that this rule will not have a significant economic impact on 
a substantial number of small entities. As a result, no regulatory 
impact analysis is required. The factual basis for this certification 
is set out above. The Department invites comments from members of the 
public who believe the proposed regulations will have a significant 
economic impact on a substantial number of small insurance carriers or 
employers seeking authority to self-insure. The Assistant Secretary has 
also provided the Chief Counsel for Advocacy with a copy of this 
certification, together with the factual basis for the certification.

[[Page 12224]]

IX. Executive Order 12988 (Civil Justice)

    This proposed rule has been drafted and reviewed in accordance with 
Executive Order 12988 and will not unduly burden the Federal court 
system if promulgated as a final rule. The LHWCA does not provide any 
specific procedures for insurance carriers to follow in order to seek 
review of DLHWC decisions regarding the extent of their LHWCA 
obligations and the amount of any required security deposit. Nor does 
the statute set out procedures for employers denied authorization to 
self-insure or who disagree with the security deposit amount set by 
DLHWC. A very small number of these carriers and employers annually 
(three or less) will likely seek review of adverse decisions in the 
United States district courts pursuant to the Administrative Procedure 
Act. This rule should minimize the burden placed upon the courts by 
litigation seeking to challenge these decisions by giving carriers and 
employers an opportunity to seek administrative review of adverse 
decisions and by providing a clear legal standard for such decisions. 
The rule has also been reviewed carefully to eliminate drafting errors 
and ambiguities.

X. Executive Order 13132 (Federalism)

    The Department has reviewed this proposed rule in accordance with 
Executive Order 13132 regarding federalism, and has determined that it 
does not have ``federalism implications.'' The proposed rule will not 
``have substantial direct effects on the States, on the relationship 
between the national government and the States, or on the distribution 
of power and responsibilities among the various levels of government,'' 
if promulgated as a final rule.

XI. Executive Order 13045 (Protection of Children From Environmental, 
Health Risks and Safety Risks)

    In accordance with Executive Order 13045, the Department has 
evaluated the environmental health and safety effects this proposed 
rule would have on children. The Department has determined that if 
promulgated as a final rule, the proposed rule would have no effect on 
children.

XII. Executive Order 13211 (Actions Concerning Regulations That 
Significantly Affect Energy Supply, Distribution, or Use)

    In accordance with Executive Order 13211, the Department has 
evaluated the effects of this proposed rule on energy supply, 
distribution or use, and has determined that this rule, if promulgated 
as a final rule, would likely not have a significant adverse effect on 
them.

XIII. Congressional Review Act

    This proposed rule is not a ``major rule'' as defined in the 
Congressional Review Act (5 U.S.C. 801 et seq.). If promulgated as a 
final rule, this rule will not result in an annual effect on the 
economy of $100,000,000 or more; a major increase in costs or prices 
for consumers, individual industries, Federal, State, or local 
government agencies, or geographic regions; or significant adverse 
effects on competition, employment, investment, productivity, 
innovation, or on the ability of United States-based enterprises to 
compete with foreign-based enterprises in domestic and export markets.

XIV. Catalog of Federal Domestic Assistance Number

    This program is not listed in the Catalog of Federal Domestic 
Assistance.

List of Subjects

20 CFR Part 701

    Longshore and harbor workers, Organization and functions 
(government agencies), Workers' compensation.

20 CFR Part 703

    Bonds, Insurance companies, Longshore and harbor workers, Reporting 
and recordkeeping requirements, Securities, Workers' compensation.

    For the reasons set forth in the preamble, title 20, chapter VI, 
subchapter A of the Code of Federal Regulations is proposed to be 
amended as follows:

PART 701--GENERAL PROVISIONS, DEFINITIONS AND USE OF TERMS

    1. The authority citation for part 701 is revised to read as 
follows:

    Authority: 5 U.S.C. 301 and 8171 et seq.; 33 U.S.C. 939; 36 D.C. 
Code 501 et seq.; 42 U.S.C. 1651 et seq.; 43 U.S.C. 1331; 
Reorganization Plan No. 6 of 1950, 15 FR 3174, 3 CFR, 1949-1953 
Comp., p. 1004, 64 Stat. 1263.

    2. Revise Sec.  701.101 to read as follows:


Sec.  701.101  Scope of this subchapter and subchapter B.

    (a) This subchapter contains the regulations governing the 
administration of the Longshore and Harbor Workers' Compensation Act, 
as amended (LHWCA), 33 U.S.C. 901 et seq., except activities, pursuant 
to 33 U.S.C. 941, assigned to the Assistant Secretary of Labor for 
Occupational Safety and Health. It also contains the regulations 
governing the administration of the direct extensions of the LHWCA: the 
Defense Base Act (DBA), 42 U.S.C. 1651 et seq.; the Outer Continental 
Shelf Lands Act (OCSLA), 43 U.S.C. 1331; and the Nonappropriated Fund 
Instrumentalities Act (NFIA), 5 U.S.C. 8171 et seq.
    (b) The regulations in this subchapter also apply to claims filed 
under the District of Columbia Workmen's Compensation Act (DCCA), 36 
D.C. Code 501 et seq. That law applies to all claims for injuries or 
deaths based on employment events that occurred prior to July 26, 1982, 
the effective date of the District of Columbia Workers' Compensation 
Act, as amended (D.C. Code 32-1501 et seq.).
    (c) The regulations governing the administration of the Black Lung 
Benefits Program are in subchapter B of this chapter.
    3. Revise Sec.  701.102 to read as follows:


Sec.  701.102  Organization of this subchapter.

    Part 701 provides a general description of the regulations in this 
subchapter; sets forth information regarding the persons and agencies 
within the Department of Labor authorized by the Secretary of Labor to 
administer the Longshore and Harbor Workers' Compensation Act, its 
extensions and the regulations in this subchapter; and defines and 
clarifies use of specific terms in the several parts of this 
subchapter. Part 702 of this subchapter contains the general 
administrative regulations governing claims filed under the LHWCA. Part 
703 of this subchapter contains the regulations governing insurance 
carrier authorizations, insurance carrier security deposits, self-
insurer authorizations, and certificates of compliance with the 
insurance regulations, as required by sections 32 and 37 of the LHWCA 
(33 U.S.C. 932, 937). Because the extensions of the LHWCA (see Sec.  
701.101) incorporate by reference nearly all the provisions of the 
LHWCA, the regulations in parts 701, 702 and 703 also apply to the 
administration of the extensions (DBA, DCCA, OCSLA, and NFIA), unless 
otherwise noted. Part 704 of this subchapter contains the exceptions to 
the general applicability of parts 702 and 703 for the DBA, the DCCA, 
the OCSLA, and the NFIA.
    4. Revise Sec.  701.201 to read as follows:

[[Page 12225]]

Sec.  701.201  Office of Workers' Compensation Programs.

    The Office of Workers' Compensation Programs (OWCP) is responsible 
for administering the LHWCA and its extensions (see 20 CFR 1.2(e)). The 
regulations in subchapter A of chapter I of this title (20 CFR part 1) 
describe OWCP's establishment within the Employment Standards 
Administration, the functions assigned to it by the Assistant Secretary 
of Labor for Employment Standards, and how those functions were 
performed before OWCP's establishment.


Sec.  701.202  [Reserved]


Sec.  701.203  [Reserved]

    5. Remove and reserve Sec. Sec.  701.202 and 701.203.
    6. Amend Sec.  701.301 by revising paragraphs (a)(1), (a)(5), 
(a)(6), (a)(7), (a)(8), (a)(9), (a)(10), (a)(12)(i)(B), (a)(12)(ii)(A) 
and (a)(12)(iii)(E) to read as follows:


Sec.  701.301  Definitions and use of terms.

    (a) * * *
    (1) Act or LHWCA means the Longshore and Harbor Workers' 
Compensation Act, as amended (33 U.S.C. 901 et seq.), and includes the 
provisions of any statutory extension of such Act (see Sec.  701.101(a) 
and (b)) pursuant to which compensation on account of an injury is 
sought.
* * * * *
    (5) Office of Workers' Compensation Programs or OWCP or the Office 
means the Office of Workers' Compensation Programs within the 
Employment Standards Administration, referred to in Sec.  701.201 and 
described more fully in part 1 of this title. The term Office of 
Workmen's Compensation Programs shall have the same meaning as Office 
of Workers' Compensation Programs (see 20 CFR 1.6(b)).
    (6) Director means the Director of OWCP, or his or her authorized 
representative.
    (7) District Director means a person appointed as provided in 
sections 39 and 40 of the LHWCA or his or her designee, authorized to 
perform functions with respect to the processing and determination of 
claims for compensation under the LHWCA and its extensions as provided 
therein and under this subchapter. The term District Director is 
substituted for the term Deputy Commissioner used in the statute. This 
substitution is for administrative purposes only and in no way affects 
the power or authority of the position as established in the statute. 
Any action taken by a person under the authority of a district director 
will be considered the action of a deputy commissioner.
    (8) Administrative Law Judge means a person appointed as provided 
in 5 U.S.C. 3105 and subpart B of 5 CFR part 930, who is qualified to 
preside at hearings under 5 U.S.C. 557 and is empowered by the 
Secretary to conduct formal hearings whenever necessary in respect of 
any claim for compensation arising under the LHWCA and its extensions.
    (9) Chief Administrative Law Judge means the Chief Judge of the 
Office of Administrative Law Judges, United States Department of Labor, 
whose office is at the location set forth in 29 CFR 18.3(a).
    (10) Board or Benefits Review Board means the Benefits Review Board 
established by section 21 of the LHWCA (33 U.S.C. 921) as amended and 
constituted and functioning pursuant to the provisions of chapter VII 
of this title and Secretary of Labor's Order No. 38-72 (38 FR 90), 
whose office is at the location set forth in 20 CFR 802.204.
* * * * *
    (12) (i) * * *
    (B) Any harbor worker, including a ship repairer, shipbuilder and 
shipbreaker; and
* * * * *
    (ii) * * *
    (A) A master or member of a crew of any vessel; or
* * * * *
    (iii) * * *
    (E) Aquaculture workers, meaning those employed by commercial 
enterprises involved in the controlled cultivation and harvest of 
aquatic plants and animals, including the cleaning, processing or 
canning of fish and fish products, the cultivation and harvesting of 
shellfish, and the controlled growing and harvesting of other aquatic 
species; or
* * * * *

PART 703--INSURANCE REGULATIONS

    7. The authority citation for part 703 is revised to read as 
follows:

    Authority: 5 U.S.C. 301 and 8171 et seq.; 31 U.S.C. 9701; 33 
U.S.C. 932 and 939; 36 D.C. Code 501 et seq.; 42 U.S.C. 1651 et 
seq.; 43 U.S.C. 1331; Reorganization Plan No. 6 of 1950, 15 FR 3174, 
3 CFR, 1949-1953 Comp., p. 1004, 64 Stat. 1263; Secretary's Order 4-
2001, 66 FR 29656.

    8. Amend part 703 by designating Sec. Sec.  703.1 through 703.3 as 
``Subpart A--Generals,'' by designating the center heading 
``Authorization of Insurance Carriers'' as ``Subpart B--Authorization 
of Insurance Carriers'' and revising subpart A to read as follows:
Subpart A--General
Sec.
703.1 Scope of part.
703.2 Forms.
703.3 Failure to secure coverage; penalties.
Subpart B--Authorization of Insurance Carriers
* * * * *

Subpart A--General


Sec.  703.1  Scope of part.

    Part 703 governs insurance carrier authorizations, insurance 
carrier security deposits, self-insurer authorizations, and 
certificates of compliance with the insurance regulations. These 
provisions are required by the LHWCA and apply to the extensions of the 
LHWCA except as otherwise provided in part 704 of this subchapter.


Sec.  703.2  Forms.

    (a) Any information required by the regulations in this part to be 
submitted to OWCP must be submitted on forms the Director authorizes 
from time to time for such purpose. Persons submitting forms may not 
modify the forms or use substitute forms without OWCP's approval.

------------------------------------------------------------------------
                 Form No.                               Title
------------------------------------------------------------------------
(1) LS-271................................  Application for Self-
                                             Insurance.
(2) LS-274................................  Report of Injury Experience.
(3) LS-275 SI.............................  Self-Insurer's Agreement and
                                             Undertaking.
(4) LS-275 IC.............................  Insurance Carrier's
                                             Agreement and Undertaking.
(5) LS-276................................  Application for Security
                                             Deposit Determination.
(6) LS-405................................  Indemnity Bond.
(7) LS-570................................  Card Report of Insurance.
------------------------------------------------------------------------

    (b) Copies of the forms listed in this section are available for 
public inspection at the Office of Workers' Compensation Programs, 
Employment Standards Administration, U.S. Department of Labor, 
Washington, D.C. 20210. They may also be obtained from OWCP district 
offices and on the Internet at http://www.dol.gov/esa/owcp/dlhwc/lsforms.htm.


Sec.  703.3  Failure to secure coverage; penalties.

    (a) Each employer must secure the payment of compensation under the 
Act either through an authorized insurance carrier or by becoming an 
authorized self-insurer under section 32(a)(1) or (2) of the Act (33 
U.S.C. 932(a)(1) or (2)).

[[Page 12226]]

An employer who fails to comply with these provisions is subject, upon 
conviction, to a fine of not more than $10,000, or by imprisonment for 
not more than one year, or both. Where the employer is a corporation, 
the president, secretary and treasurer each will also be subject to 
this fine and/or imprisonment, in addition to the fine against the 
corporation, and each is severally personally liable, jointly with the 
corporation, for all compensation or other benefits payable under the 
Act while the corporation fails to secure the payment of compensation.
    (b) Any employer who willingly and knowingly transfers, sells, 
encumbers, assigns or in any manner disposes of, conceals, secretes, or 
destroys any property belonging to the employer after an employee 
sustains an injury covered by the Act, with the intent to avoid payment 
of compensation under the Act to that employee or his/her dependents, 
shall be guilty of a misdemeanor and punished, upon conviction, by a 
fine of not more than $10,000 and/or imprisonment for one year. Where 
the employer is a corporation, the president, secretary and treasurer 
are also severally liable to imprisonment and, along with the 
corporation, jointly liable for the fine.
    9. Amend Part 703 by adding subpart designations to the 
undesignated center headings ``Authorization of Self-Insurers'' and 
``Issuance of Certificates of Compliance,'' adding Subpart C, and 
revising subpart D to read as follows:
Subpart C--Insurance Carrier Security Deposit Requirements
Sec.
703.201 Deposits of security by insurance carriers.
703.202 Identification of significant gaps in State guaranty fund 
coverage for LHWCA obligations.
703.203 Application for security deposit determination; information 
to be submitted; other requirements.
703.204 Decision on insurance carrier's application; minimum amount 
of deposit.
703.205 Filing of Agreement and Undertaking; deposit of security.
703.206 [Reserved]
703.207 Kinds of negotiable securities that may be deposited; 
conditions of deposit; acceptance of deposits.
703.208 Deposits of negotiable securities with Federal Reserve banks 
or the Treasurer of the United States; interest thereon.
703.209 Substitution and withdrawal of indemnity bond, letters of 
credit or negotiable securities.
703.210 Increase or reduction in security deposit amount.
703.211 Authority to seize security deposit; use and/or return of 
proceeds.
703.212 Required reports; examination of insurance carrier accounts.
703.213 Failure to comply.
Subpart D--Authorization of Self-Insurers
703.301 Employers who may be authorized as self-insurers.
703.302 Application for authority to become a self-insurer; how 
filed; information to be submitted; other requirements.
703.303 Decision on employer's application.
703.304 Filing of Agreement and Undertaking; deposit of security.
703.305 [Reserved]
703.306 Kinds of negotiable securities that may be deposited; 
conditions of deposit; acceptance of deposits.
703.307 Deposits of negotiable securities with Federal Reserve banks 
or the Treasurer of the United States; interest thereon.
703.308 Substitution and withdrawal of indemnity bond, letters of 
credit or negotiable securities.
703.309 Increase or reduction in the amount of indemnity bond, 
letters of credit or negotiable securities.
703.310 Authority to seize security deposit; use and/or return of 
proceeds
703.311 Required reports; examination of self-insurer accounts.
703.312 Period of authorization as self-insurer.
703.313 Revocation of authorization to self-insure.

Subpart E--Issuance of Certificates of Compliance

* * * * *

Subpart C--Insurance Carrier Security Deposit Requirements


Sec.  703.201  Deposits of security by insurance carriers.

    The regulations in this subpart require certain insurance carriers 
to deposit security in the form of indemnity bonds, letters of credit 
or negotiable securities (chosen at the option of the carrier) of a 
kind and in an amount determined by the Office, and prescribe the 
conditions under which deposits must be made. Security deposits secure 
the payment of benefits when an insurance carrier defaults on any of 
its obligations under the LHWCA, regardless of the date such 
obligations arose. They also secure the payment of benefits when a 
carrier with LHWCA obligations becomes insolvent in States with no 
insurance guaranty funds, or with guaranty funds that do not fully 
secure such obligations. Any gap in State guaranty fund coverage will 
have a direct effect on the amount of security the Office will require 
a carrier to post. The terms ``obligations under the Act'' and ``LHWCA 
obligations'' include a carrier's obligations arising under the 
Longshore and Harbor Workers' Compensation Act and any of its 
extensions.


Sec.  703.202  Identification of significant gaps in State guaranty 
fund coverage for LHWCA obligations.

    (a) In determining the amount of a carrier's required security 
deposit, the Office will consider the extent to which a State guaranty 
fund secures the insurance carrier's LHWCA obligations in that State. 
When evaluating State guaranty funds, the Office may consider a number 
of factors including, but not limited to--
    (1) Limits on weekly benefit amounts;
    (2) Limits on aggregate maximum benefit amounts;
    (3) Time limits on coverage;
    (4) Ocean marine exclusions;
    (5) Employer size and viability provisions; and
    (6) Financial strength of the State guaranty fund itself.
    (b) OWCP will identify States without guaranty funds and States 
with guaranty funds that do not fully and immediately secure LHWCA 
obligations and will post its findings on the Internet at http://www.dol.gov/esa/owcp/dlhwc/lstable.htm. These findings will indicate 
the extent of any partial or total gap in coverage provided by a State 
guaranty fund, and they will be open for inspection and comment by all 
interested parties. If the extent of coverage a particular State 
guaranty fund provides either cannot be determined or is ambiguous, 
OWCP will deem one third (33\1/3\ percent) of a carrier s LHWCA 
obligations in that State to be unsecured. OWCP will revise its 
findings from time to time, in response to substantiated public 
comments it receives or for any other reasons it considers relevant.


Sec.  703.203  Application for security deposit determination; 
information to be submitted; other requirements.

    (a) Each insurance carrier authorized by OWCP to write insurance 
under the LHWCA or any of its extensions, and each insurance carrier 
seeking initial authorization to write such insurance, must apply 
annually, on a schedule set by OWCP, for a determination of the extent 
of its unsecured obligations and the security deposit required. The 
application must be addressed to the Branch of Financial Management and 
Insurance (Branch) within OWCP's Division of Longshore and Harbor 
Workers' Compensation, and be made on a form provided by OWCP. The 
application must contain--
    (1) A statement of the carrier's outstanding liabilities under the 
LHWCA or any of its extensions for its

[[Page 12227]]

LHWCA obligations for each State in which the obligations arise;
    (2) A statement:
    (i) Of the deposit amount it believes will fully secure its 
obligations; or
    (ii) That it has sufficient assets or other means to fully secure 
its obligations; and
    (3) Any other information the Branch requests to enable it to give 
the application adequate consideration including, but not limited to, 
the reports set forth at Sec.  703.212.
    (b) If the carrier disagrees with any of OWCP's findings regarding 
State guaranty funds made under Sec.  703.202(b) as they exist when it 
submits its application, the carrier may submit a statement of its 
unsecured obligations based on a different conclusion regarding the 
extent of coverage afforded by one or more State guaranty funds. The 
carrier must submit evidence and/or argument with its application 
sufficient to establish that such conclusion is correct.
    (c) The carrier must sign and swear to the application. If the 
carrier is not an individual, the carrier's duly authorized officer 
must sign and swear to the application and list his or her official 
designation. If the carrier is a corporation, the officer must also 
affix the corporate seal.
    (d) At any time after filing an application, the carrier must 
inform the Branch immediately of any material changes that may have 
rendered its application incomplete, inaccurate or misleading.
    (e) By filing an application, the carrier consents to be bound by 
and to comply with the regulations and requirements in this part.


Sec.  703.204  Decision on insurance carrier's application; minimum 
amount of deposit.

    (a) The Branch will issue a decision on the application determining 
the extent of an insurance carrier's unsecured LHWCA obligations and 
fixing the amount of security the carrier must deposit to fully secure 
payment of its unsecured obligations. The Branch will transmit its 
decision to the applicant in a way it considers appropriate.
    (b) The Branch may reject the deposit amount suggested by the 
insurance carrier in its application and make its own determination of 
this amount. When evaluating the suggested amount, the Branch may 
consider a number of factors including, but not limited to, the--
    (1) Financial strength of the carrier;
    (2) Financial strength of the carrier's insureds;
    (3) Carrier's reinsurance protection;
    (4) Carrier's surplus and its recent settlements;
    (5) Amount of the carrier's business that is written through the 
National Reinsurance Pool operated by the National Council on 
Compensation Insurance or other assigned risk pool providing full 
protection for LHWCA obligations;
    (6) Carrier's deductibles secured by letters of credit;
    (7) Carrier's reduced exposure;
    (8) Carrier's increases in capitalization;
    (9) Extent to which State guaranty funds secure the carrier's LHWCA 
obligations in the event the carrier defaults on its obligations or 
becomes insolvent; and
    (10) Carrier's expansion of business into additional States with 
guaranty funds that will not fully secure its LHWCA obligations.
    (c) The Branch will require all carriers that write LHWCA insurance 
in one or more of the States identified by OWCP under Sec.  703.202(b) 
to deposit security for its unsecured LHWCA obligations in each State 
identified. For carriers that write only an insignificant or incidental 
amount of LHWCA insurance, the Branch will require a deposit in an 
amount determined by the Branch from time to time. For all other 
carriers, the Branch will require a minimum deposit of one third (33\1/
3\ percent) of a carrier's outstanding LHWCA obligations in each State, 
but may require a deposit up to an amount equal to the carrier's total 
outstanding LHWCA obligations (100 percent) in each State.
    (d) If a carrier believes that a lesser deposit would fully secure 
its LHWCA obligations, the carrier may request a hearing before the 
Director of the Division of Longshore and Harbor Workers' Compensation 
(Longshore Director) or the Longshore Director's representative. 
Requests for hearing must be in writing and sent to the Branch within 
10 days of the date of the Branch's decision. The carrier may submit 
new evidence and/or argument in support of its challenge to the 
Branch's decision and must provide any additional documentation OWCP 
requests. The Longshore Director or his representative will notify the 
carrier of the hearing date within 10 days of receiving the request. 
The Longshore Director or his representative will issue the final 
agency decision on the application within 60 days of the hearing date, 
or, where evidence is submitted after the hearing, within 60 days of 
the receipt of such evidence, but no later than 180 days after 
receiving the carrier's request for a hearing.


Sec.  703.205  Filing of Agreement and Undertaking; deposit of 
security.

    Within 45 days of the date on which the insurance carrier receives 
the Branch's decision (or, if the carrier requests a hearing, a period 
set by the Longshore Director or the Longshore Director's 
representative) determining the extent of its unsecured LHWCA 
obligations and fixing the required security deposit amount (see Sec.  
703.203), the carrier must:
    (a) Execute and file with the Branch an Agreement and Undertaking, 
in a form prescribed and provided by OWCP, in which the carrier shall 
agree to--
    (1) Deposit with the Branch indemnity bonds or letters of credit in 
the amount fixed by the Office, or deposit negotiable securities under 
Sec. Sec.  703.207 and 703.208 in that amount;
    (2) Authorize the Branch, at its discretion, to bring suit under 
any deposited indemnity bond or to draw upon any deposited letters of 
credit, as appropriate under the terms of the security instrument, or 
to collect the interest and principal as they become due on any 
deposited negotiable securities and to sell or otherwise liquidate such 
negotiable securities or any part thereof when--
    (i) The carrier defaults on any of its LHWCA obligations;
    (ii) The carrier fails to renew any deposited letter of credit or 
substitute acceptable securities in its place;
    (iii) The carrier fails to renew any deposited negotiable 
securities at maturity or substitute acceptable securities in their 
place;
    (iv) State insolvency proceedings are initiated against the 
carrier; or
    (v) The carrier fails to comply with any of the terms of the 
Agreement and Undertaking; and
    (3) Authorize the Branch, at its discretion, to pay such ongoing 
claims of the carrier as it may find to be due and payable from the 
proceeds of the deposited security;
    (b) Give security in the amount fixed in the Office's decision:
    (1) In the form of an indemnity bond with sureties satisfactory to 
the Branch and in such form, and containing such provisions, as the 
Branch may prescribe: Provided, That only surety companies approved by 
the United States Treasury Department under the laws of the United 
States and the rules and regulations governing bonding companies may 
act as sureties on such indemnity bonds (see Department of Treasury's 
Circular-570), and that a surety company that is a corporate subsidiary 
of an insurance carrier may

[[Page 12228]]

not act as surety on such carrier's indemnity bond;
    (2) In the form of letters of credit issued by a financial 
institution satisfactory to the Branch and upon which the Branch may 
draw; or
    (3) By a deposit of negotiable securities with a Federal Reserve 
Bank or the Treasurer of the United States in compliance with 
Sec. Sec.  703.207 and 703.208.


Sec.  703.206  [Reserved]


Sec.  703.207  Kinds of negotiable securities that may be deposited; 
conditions of deposit; acceptance of deposits.

    An insurance carrier electing to deposit negotiable securities to 
secure its obligations under the Act in the amount fixed by the Office 
under the regulations in this part shall deposit any negotiable 
securities acceptable as security for the deposit of public monies of 
the United States under regulations issued by the Secretary of the 
Treasury. (See 31 CFR part 225.) The approval, valuation, acceptance, 
and custody of such securities is hereby committed to the several 
Federal Reserve Banks and the Treasurer of the United States.


Sec.  703.208  Deposits of negotiable securities with Federal Reserve 
banks or the Treasurer of the United States; interest thereon.

    Deposits of negotiable securities provided for by the regulations 
in this part must be made with any Federal Reserve bank or any branch 
of a Federal Reserve bank designated by the Branch, or the Treasurer of 
the United States, and must be held subject to the order of the Branch. 
The Branch may, however, authorize the insurance carrier to collect 
interest on the securities deposited by it.


Sec.  703.209  Substitution and withdrawal of indemnity bond, letters 
of credit or negotiable securities.

    (a) No substitution or withdrawal of an indemnity bond, letters of 
credit or negotiable securities deposited by an insurance carrier under 
the regulations in this part shall be made except when authorized by 
the Branch. A carrier that has ceased to write insurance under the Act 
may apply to the Branch for withdrawal of its security deposit. The 
carrier must file with its application a sworn statement setting 
forth--
    (1) A list of all cases in each State in which the carrier is 
paying compensation, together with the names of the employees and other 
beneficiaries, a description of causes of injury or death, and a 
statement of the amount of compensation paid;
    (2) A similar list of all pending cases in which the carrier has 
not yet paid compensation; and
    (3) A similar list of all cases in which injury or death has 
occurred within one year before such application or in which the last 
payment of compensation was made within one year before such 
application.
    (b) The Branch may authorize withdrawal of previously-deposited 
indemnity bonds, letters of credit and negotiable securities that, in 
the opinion of the Branch, are not necessary to provide adequate 
security for the payment of the carrier's outstanding and potential 
LHWCA liabilities. No withdrawals will be authorized unless there has 
been no claim activity involving the carrier for a minimum of five 
years, and the Branch is reasonably certain that no further claims will 
arise.


Sec.  703.210  Increase or reduction in security deposit amount.

    (a) Whenever the Office considers the security deposited by an 
insurance carrier insufficient to fully secure the carrier's LHWCA 
obligations, the carrier must, upon demand by the Branch, deposit 
additional security in accordance with the regulations in this part in 
an amount fixed by the Branch. The Branch will issue its decision 
requiring additional security in accordance with Sec.  703.204, and the 
procedures set forth at Sec. Sec.  703.204(d) and 703.205 for 
requesting a hearing and complying with the Office's decision will 
apply as appropriate.
    (b) The Branch may reduce the required security at any time on its 
own initiative, or upon application of a carrier, when in the Branch's 
opinion the facts warrant a reduction. A carrier seeking a reduction 
must furnish any information the Office requests regarding its 
outstanding LHWCA obligations for any State in which it does business, 
its obligations not secured by a State guaranty fund in each of these 
States, and any other evidence as the Branch considers necessary.


Sec.  703.211  Authority to seize security deposit; use and/or return 
of proceeds.

    (a) The Office may take any of the actions set forth in paragraph 
(b) of this section when an insurance carrier--
    (1) Defaults on any of its LHWCA obligations;
    (2) Fails to renew any deposited letter of credit or substitute 
acceptable securities in its place;
    (3) Fails to renew any deposited negotiable securities at maturity 
or substitute acceptable securities in their place;
    (4) Has State insolvency proceedings initiated against it; or
    (5) Fails to comply with any of the terms of the Agreement and 
Undertaking.
    (b) When any of the conditions set forth in paragraph (a) of this 
section occur, the Office may, within its discretion and as appropriate 
to the security instrument--
    (1) Bring suit under any indemnity bond;
    (2) Draw upon any letters of credit;
    (3) Seize any negotiable securities, collect the interest and 
principal as they may become due, and sell or otherwise liquidate the 
negotiable securities or any part thereof.
    (c) When the Office, within its discretion, determines that it no 
longer needs to collect the interest and principal of any negotiable 
securities seized pursuant to paragraphs (a) and (b) of this section, 
or to retain the proceeds of their sale, it must return any of the 
carrier's negotiable securities still in its possession and any 
remaining proceeds of their sale.


Sec.  703.212  Required reports; examination of insurance carrier 
accounts.

    (a) Upon the Office's request, each insurance carrier must submit 
the following reports:
    (1) A certified financial statement of the carrier's assets and 
liabilities, or a balance sheet.
    (2) A sworn statement showing the extent of the carrier's unsecured 
LHWCA obligations for each State in which it is authorized to write 
insurance under the LHWCA or any of its extensions.
    (3) A sworn statement reporting the carrier's open cases as of the 
date of such report, listing by State all death and injury cases, 
together with a report of the status of all outstanding claims.
    (b) Whenever it considers necessary, the Office may inspect or 
examine a carrier's books of account, records, and other papers to 
verify any financial statement or other information the carrier 
furnished to the Office in any statement or report required by this 
section, or any other section of the regulations in this part. The 
carrier must permit the Office or its duly authorized representative to 
make the inspection or examination. Alternatively, the Office may 
accept an adequate independent audit by a certified public accountant.


Sec.  703.213  Failure to comply.

    The Office may suspend or revoke a carrier's certificate of 
authority to write LHWCA insurance under Sec.  703.106 when the carrier 
fails to comply with any of the requirements of this part.

[[Page 12229]]

Subpart D--Authorization of Self-Insurers


Sec.  703.301  Employers who may be authorized as self-insurers.

    The regulations in this subpart set forth procedures for 
authorizing employers to self-insure the payment of compensation under 
the Longshore and Harbor Workers' Compensation Act, or its extensions. 
The Office may authorize any employer to self-insure who, pursuant to 
the regulations in this part, furnishes to the Office satisfactory 
proof of its ability to pay compensation directly, and who agrees to 
immediately cancel any existing insurance policy when OWCP approves the 
employer's application to be self-insured. The regulations require 
self-insurers to deposit security in the form of an indemnity bond, 
letters of credit or negotiable securities (at the option of the 
employer) of a kind and in an amount determined by the Office, and 
prescribe the conditions under which such deposits shall be made. The 
term ``self-insurer'' as used in this part means any employer securing 
the payment of compensation under the LHWCA or its extensions in 
accordance with the provisions of 33 U.S.C. 932(a)(2) and this part.


Sec.  703.302  Application for authority to become a self-insurer; how 
filed; information to be submitted; other requirements.

    (a) Any employer may apply to become an authorized self insurer. 
The application must be addressed to the Branch of Financial Management 
and Insurance (Branch) within OWCP's Division of Longshore and Harbor 
Workers' Compensation, and be made on a form provided by OWCP. The 
application must contain--
    (1) A statement of the employer's total payroll for the 12 months 
before the application date;
    (2) A statement of the average number of employees engaged in 
employment within the purview of the LHWCA or any of its extensions for 
the 12 months before the application date;
    (3) A statement of the number of injuries to such employees 
resulting in disability of more than 7 days' duration, or in death, 
during each of the 5 years before the application date;
    (4) A certified financial report for each of the three years before 
the application date;
    (5) A description of the facilities maintained or the arrangements 
made for the medical and hospital care of injured employees;
    (6) A statement describing the provisions and maximum amount of any 
excess or catastrophic insurance; and
    (7) Any other information the Branch requests to enable it to give 
the application adequate consideration including, but not limited to, 
the reports set forth at Sec.  703.310.
    (b) The employer must sign and swear to the application. If the 
employer is not an individual, the employer's duly authorized officer 
must sign and swear to the application and list his or her official 
designation. If the employer is a corporation, the officer must also 
affix the corporate seal.
    (c) At any time after filing an application, the employer must 
inform the Branch immediately of any material changes that may have 
rendered its application incomplete, inaccurate or misleading.
    (d) By filing an application, the employer consents to be bound by 
and to comply with the regulations and requirements in this part.


Sec.  703.303  Decision on employer's application.

    (a) The Branch will issue a decision granting or denying the 
employer's application to be an authorized self-insurer. If the Branch 
grants the application, the decision will fix the amount of security 
the employer must deposit. The Branch will transmit its decision to the 
employer in a way it considers appropriate.
    (b) The employer is authorized to self-insure beginning with the 
date of the Branch's decision. Each grant of authority to self-insure 
is conditioned, however, upon the employer's execution and filing of an 
Agreement and Undertaking and deposit of the security fixed in the 
decision in the form and within the time limits required by Sec.  
703.304. In the event the employer fails to comply with the 
requirements set forth in Sec.  703.304, its authorization to self-
insure will be considered never to have been effective, and the 
employer will be subject to appropriate penalties for failure to secure 
its LHWCA obligations.
    (c) The Branch will require security in the amount it considers 
necessary to fully secure the employer's LHWCA obligations. When fixing 
the amount of security, the Branch may consider a number of factors 
including, but not limited to, the--
    (1) Employer's overall financial standing;
    (2) Nature of the employer's work;
    (3) Hazard of the work in which the employees are employed;
    (4) Employer's payroll amount for employees engaged in employment 
within the purview of the Act; and
    (5) Employer's accident record as shown in the application and the 
Office's records.
    (d) If an employer believes that the Branch incorrectly denied its 
application to self-insure, or that a lesser security deposit would 
fully secure its LHWCA obligations, the employer may request a hearing 
before the Director of the Division of Longshore and Harbor Workers' 
Compensation (Longshore Director) or the Longshore Director's 
representative. Requests for hearing must be in writing and sent to the 
Branch within ten days of the date of the Branch's decision. The 
employer may submit new evidence and/or argument in support of its 
challenge to the Branch's decision and must provide any additional 
documentation OWCP requests. The Longshore Director or his 
representative will notify the employer of the hearing date within 10 
days of receiving the request. The Longshore Director or his 
representative will issue the final agency decision on the application 
within 60 days of the hearing date, or, where evidence is submitted 
after the hearing, within 60 days of the receipt of such evidence, but 
no later than 180 days after receiving the employer's request for a 
hearing.


Sec.  703.304  Filing of Agreement and Undertaking; deposit of 
security.

    Within 45 days of the date on which the employer receives the 
Branch's decision (or, if the employer requests a hearing, a period set 
by the Longshore Director or the Longshore Director's representative) 
granting its application to self-insure and fixing the required 
security deposit amount (see Sec.  703.303), the employer must:
    (a) Execute and file with the Branch an Agreement and Undertaking, 
in a form prescribed and provided by OWCP in which the employer shall 
agree to:
    (1) Pay when due, as required by the provisions of the Act, all 
compensation payable on account of injury or death of any of its 
employees injured within the purview of the Act;
    (2) Furnish medical, surgical, hospital, and other attendance, 
treatment and care as required by the Act;
    (3) Deposit with the Branch indemnity bonds or letters of credit in 
the amount fixed by the Office, or deposit negotiable securities under 
Sec. Sec.  703.306 and 703.307 in that amount;
    (4) Authorize the Branch, at its discretion, to bring suit under 
any deposited indemnity bond or to draw upon any deposited letters of 
credit, as appropriate under the terms of the security instrument, or 
to collect the

[[Page 12230]]

interest and principal as they become due on any deposited negotiable 
securities and to seize and sell or otherwise liquidate such negotiable 
securities or any part thereof when the employer:
    (i) Defaults on any of its LHWCA obligations;
    (ii) Fails to renew any deposited letter of credit or substitute 
acceptable securities in its place;
    (iii) Fails to renew any deposited negotiable securities at 
maturity or substitute acceptable securities in their place; or
    (iv) Fails to comply with any of the terms of the Agreement and 
Undertaking;
    (5) Authorize the Branch, at its discretion, to pay such 
compensation, medical, and other expenses and any accrued penalties 
imposed by law as it may find to be due and payable from the proceeds 
of the deposited security; and
    (6) Obtain and maintain, if required by the Office, excess or 
catastrophic insurance in amounts to be determined by the Office.
    (b) Give security in the amount fixed in the Office's decision:
    (1) In the form of an indemnity bond with sureties satisfactory to 
the Office, and in such form and containing such provisions as the 
Office may prescribe: Provided, That only surety companies approved by 
the United States Treasury Department under the laws of the United 
States and the rules and regulations governing bonding companies may 
act as sureties on such indemnity bonds (see Department of Treasury's 
Circular--570);
    (2) In the form of letters of credit issued by a financial 
institution satisfactory to the Branch and upon which the Branch may 
draw; or,
    (3) By a deposit of negotiable securities with a Federal Reserve 
Bank or the Treasurer of the United States in compliance with 
Sec. Sec.  703.306 and 703.307.


Sec.  703.305  [Reserved]


Sec.  703.306  Kinds of negotiable securities that may be deposited; 
conditions of deposit; acceptance of deposits.

    A self-insurer or a self-insurer applicant electing to deposit 
negotiable securities to secure its obligations under the Act in the 
amount fixed by the Office under the regulations in this part shall 
deposit any negotiable securities acceptable as security for the 
deposit of public monies of the United States under regulations issued 
by the Secretary of the Treasury. (See 31 CFR part 225.) The approval, 
valuation, acceptance, and custody of such securities is hereby 
committed to the several Federal Reserve Banks and the Treasurer of the 
United States.


Sec.  703.307  Deposits of negotiable securities with Federal Reserve 
banks or the Treasurer of the United States; interest thereon.

    Deposits of negotiable securities provided for by the regulations 
in this part shall be made with any Federal Reserve bank or any branch 
of a Federal Reserve bank designated by the Office, or the Treasurer of 
the United States, and shall be held subject to the order of the 
Office. The Office may, however, authorize the self-insurer to collect 
interest on the securities deposited by it.


Sec.  703.308  Substitution and withdrawal of indemnity bond, letters 
of credit or negotiable securities.

    (a) No substitution or withdrawal of an indemnity bond, letters of 
credit or negotiable securities deposited by a self-insurer under the 
regulations in this part shall be made except when authorized by the 
Office. A self-insurer discontinuing business, discontinuing operations 
within the purview of the Act, or securing the payment of compensation 
by commercial insurance under the provisions of the Act may apply to 
the Office for the withdrawal of the security it provided under the 
regulations in this part. The self-insurer must file with its 
application a sworn statement setting forth--
    (1) A list of all cases in each compensation district in which the 
self-insurer is paying compensation, together with the names of the 
employees and other beneficiaries, a description of causes of injury or 
death, and a statement of the amount of compensation paid;
    (2) A similar list of all pending cases in which the self-insurer 
has not yet paid compensation; and
    (3) A similar list of all cases in which injury or death has 
occurred within one year before such application or in which the last 
payment of compensation was made within one year before such 
application.
    (b) The Office may authorize withdrawal of previously-deposited 
indemnity bonds, letters of credit and negotiable securities that, in 
the opinion of the Office, are not necessary to provide adequate 
security for the payment of the self-insurer's outstanding and 
potential LHWCA obligations. No withdrawals will be authorized unless 
there has been no claim activity involving the self-insurer for a 
minimum of five years, and the Office is reasonably certain no further 
claims will arise.


Sec.  703.309  Increase or reduction in the amount of indemnity bond, 
letters of credit or negotiable securities.

    (a) Whenever the Office considers the principal sum of the 
indemnity bond or letters of credit filed or the amount of the 
negotiable securities deposited by a self-insurer insufficient to fully 
secure the self-insurer's LHWCA obligations, the self-insurer must, 
upon demand by the Office, deposit additional security in accordance 
with the regulations in this part in an amount fixed by the Branch. The 
Branch will issue its decision requiring additional security in 
accordance with Sec.  703.303, and the procedures set forth at 
Sec. Sec.  703.303(d) and 703.304 for requesting a hearing and 
complying with the Office's decision will apply as appropriate.
    (b) The Office may reduce the required security at any time on its 
own initiative, or upon application of a self-insurer, when in the 
Office's opinion the facts warrant a reduction. A self-insurer seeking 
a reduction must furnish any information the Office requests regarding 
its current affairs, the nature and hazard of the work of its 
employees, the amount of its payroll for employees engaged in maritime 
employment within the purview of the Act, its financial condition, its 
accident experience, a record of compensation payments it has made, and 
any other evidence the Branch considers necessary.


Sec.  703.310  Authority to seize security deposit; use and/or return 
of proceeds.

    (a) The Office may take any of the actions set forth in paragraph 
(b) of this section when a self-insurer--
    (1) Defaults on any of its LHWCA obligations;
    (2) Fails to renew any deposited letter of credit or substitute 
acceptable securities in its place;
    (3) Fails to renew any deposited negotiable securities at maturity 
or substitute acceptable securities in their place; or
    (4) Fails to comply with any of the terms of the Agreement and 
Undertaking.
    (b) When any of the conditions set forth in paragraph (a) of this 
section occur, the Office may, within its discretion and as appropriate 
to the security instrument--
    (1) Bring suit under any indemnity bond;
    (2) Draw upon any letters of credit;
    (3) Seize any negotiable securities, collect the interest and 
principal as they may become due, and sell or otherwise liquidate the 
negotiable securities or any part thereof.
    (c) When the Office, within its discretion, determines that it no 
longer

[[Page 12231]]

needs to collect the interest and principal of any negotiable 
securities seized pursuant to paragraphs (a) and (b) of this section, 
or to retain the proceeds of their sale, it must return any of the 
employer's negotiable securities still in its possession and any 
remaining proceeds of their sale.


Sec.  703.311  Required reports; examination of self-insurer accounts.

    (a) Upon the Office's request, each self-insurer must submit the 
following reports:
    (1) A certified financial statement of the self-insurer's assets 
and liabilities, or a balance sheet.
    (2) A sworn statement showing by classifications the payroll of 
employees of the self-insurer who are engaged in employment within the 
purview of the LHWCA or any of its extensions.
    (3) A sworn statement covering the six-month period preceding the 
date of such report, listing by compensation districts all death and 
injury cases which have occurred during such period, together with a 
report of the status of all outstanding claims showing the particulars 
of each case.
    (b) Whenever it considers necessary, the Office may inspect or 
examine a self-insurer's books of account, records, and other papers to 
verify any financial statement or other information the self-insurer 
furnished to the Office in any report required by this section, or any 
other section of the regulations in this part. The self-insurer must 
permit the Office or its duly authorized representative to make the 
inspection or examination. Alternatively, the Office may accept an 
adequate report of a certified public accountant.


Sec.  703.312  Period of authorization as self-insurer.

    (a) Self-insurance authorizations will remain in effect for so long 
as the self-insurer complies with the requirements of the Act, the 
regulations in this part, and OWCP.
    (b) A self-insurer who has secured its liability by depositing an 
indemnity bond with the Office will, on or about May 10 of each year, 
receive from the Office a form for executing a bond that will continue 
its self-insurance authorization. The submission of such bond, duly 
executed in the amount indicated by the Office, will be deemed a 
condition of the continuing authorization.


Sec.  703.313  Revocation of authorization to self-insure.

    The Office may for good cause shown suspend or revoke the 
authorization of any self-insurer. Failure by a self-insurer to comply 
with any provision or requirement of law or of the regulations in this 
part, or with any lawful order or communication of the Office, or the 
failure or insolvency of the surety on its indemnity bond, or 
impairment of financial responsibility of such self-insurer, shall be 
deemed good cause for suspension or revocation.

    Signed in Washington, DC, this 5th day of March, 2004.
Victoria Lipnic,
Assistant Secretary for Employment Standards.
[FR Doc. 04-5631 Filed 3-12-04; 8:45 am]
BILLING CODE 4510-CF-P