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Chapter 8. Office of the Director
Subchapter 2. Administration of Self-Insurance Plans
Article 3. Security Deposit Requirements

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§15215. Letters of Credit.

(a) An irrevocable standby letter of credit may be accepted by the Manager as all or part of the security deposit for a private self insurer. The Manager shall determine whether the letter of credit submitted is acceptable and if its language and format meets the requirements of this Section.

(b) Irrevocable letters of credit shall be issued by and payable at a branch in the continental United States, Alaska or Hawaii. The issuing bank or financial institution shall meet the requirements of this section and may be:

  (1) A State of California chartered bank or savings institution; or  


  (2) A federally chartered bank or savings institution; or  


  (3) Any other foreign or domestic bank or savings institution; or  


  (4) A group (syndication) of domestic or foreign banks or savings institutions.  


  (5) A federally chartered or State of California chartered credit union  


(c) The Manager shall provide a model letter of credit format and language that will meet the requirements for acceptance. The letter of credit shall include, but not be limited to, the following provisions:

  (1) The letter of credit will be automatically extended without amendment for an additional one year from the expiry date or any subsequent expiry date unless, at least 45 days before the expiry date, the Manager is notified in writing by the bank or financial institution that the letter of credit will not be renewed;  


  (2) The letter of credit can be called if the self insurer fails to pay its workers' compensation liabilities; or the self insurer files bankruptcy; or the self insurer fails to renew or substitute acceptable security by ten days prior to the expiry date of the letter of credit; or any combination of these events;  


  (3) The letter of credit is not subject to any qualification or condition by the issuing or confirming bank or financial institution and is the bank or financial institution's individual obligation which is in no way contingent upon reimbursement;  


  (4) Payment of any amount under the letter of credit shall be made only by wire transfer in the name of "The Department of Industrial Relations In Trust For [the legal name of the self insurer]" to an account of the State Controller, State of California, at a designated bank;  


  (5) All letters of credit shall include a statement that if legal proceedings are initiated by any party with respect to the payment of any letter of credit, it is agreed that such proceedings shall be subject to the jurisdiction of California courts and administrative agencies and subject to California law; and  


  (6) Letters of credit shall be subject to the Uniform Customs and Practices for Documentary Credits, UCP600, 2007 Revision, ICC Publication No. 600, which is hereby incorporated by reference, and a reference to this publication shall be included within the text of the letter of credit.  


  (7) Discrepancy fees, if any, shall be payable by the self insurer. Note:A model single bank letter of credit (Revised 7/94) is contained in Plate I of the Appendix following the last Article in these Subchapter 2 regulations.  


(d) A syndicated letter of credit shall include all the language of the single bank or financial institution issued letter of credit and in addition:

  (1) Authorize all demands for payment to be presented at a designated branch ( "agent bank" or "agent") of one of the participating banks or financial institutions;  


  (2) Include a draft to be presented for payment of all or part of the credit available under the letter of credit;  


  (3) Permit any participating bank's or financial institution's portion of the total credit available to be drawn upon if the participating bank's or financial institution's credit rating falls below the acceptable credit rating level specified in subsection (e) of this Section; and  


  (4) State that the obligations of the banks or financial institutions issuing a syndicated letter of credit are several and not joint, and neither the agent bank or financial institution or any other participating bank or financial institution shall be responsible for or otherwise liable for the failure of any other participating bank or financial institution to perform its obligations under the syndicated letter of credit. The failure of any participating bank or financial institution to perform its obligations under the syndicated letter of credit shall also not relieve any other participating bank or financial institution of its obligations under the syndicated letter of credit.  


(e) The issuing bank(s) or financial institution(s) or the parent holding corporation of an unrated bank or financial institution issuing a letter of credit shall have at the time of issuance of the letter of credit an acceptable credit rating as set forth below:

  (1) An "Aaa", "Aa", "A" long term certificate of deposit (CD) rating for the bank or financial institution in the current monthly edition of "Moody's Statistical Handbook" prepared by Moody's Investors Service, Inc., New York; or  


  (2) An "AAA", "AA" or "A" long term certificate of deposit (CD) rating for the bank or financial institution in the current quarterly edition or monthly supplement of "Financial Institutions Ratings" prepared by Standard & Poor's Corporation, New York; or  


  (3) An "AAA", "AA+" or "AA" credit quality rating for the issuing financial institution along with a CD/Debt Credit Limit Code above the dollar amount of the letter of credit as well as a Credit Limit Maturity Code of "a, b, c or d" in the current annual edition of "GFI Credit Ratings", or the latest monthly "GFI Bank Letter" supplement thereto; or  


  (4) If applicable, be backed by federally chartered instrumentalities of the United States operating under authority of the Farm Credit Act of 1971, as amended, or be a state or federally chartered credit union whose shares are insured by the National Credit Union Share Insurance Fund.  


(f) A letter of credit issued by a bank or financial institution or syndication of banks or financial institutions that does not meet the credit rating set forth in subsection (e) at the time of issuance shall be accepted by the Manager with a confirming letter of credit issued by a bank or financial institution meeting the criteria of subsection (e). The confirming letter of credit shall state that the confirming bank or financial institution is primarily obligated to pay on demand the full amount of the letter of credit regardless of reimbursement from the bank or financial institution whose letter of credit is being confirmed. Note:Advising letters of credit shall not be accepted in lieu of the confirmation requirement for the letter of credit bank with a unacceptable credit rating.

(g) If a bank or financial institution's rating subsequent to the issuance of the letter of credit falls below the acceptable rating level as set forth in subsection (e), the Manager shall, within 60 days of the publication of the lower credit rating, require the self insurer to:

  (1) Replace the letter of credit with a new letter of credit issued by a bank or financial institution with an acceptable credit rating; or  


  (2) Confirm the letter of credit by a bank or financial institution with an acceptable rating.  


     Note: Authority cited: Sections 54, 55 and 3702.10, Labor Code. Reference: Sections 59, 3700, 3701, 3701.5, 3702, 3702.3, 3702.6, 3702.10, 3740, 3741 and 3742, Labor Code.  

 HISTORY 
   
1. New section filed 12-22-92; operative 1-21-93 (Register 93, No. 2).

2. New subsection (e)(3) and subsection redesignation, and amendment of subsections (e)(1) and (2) filed 3-24-94; operative 4-25-94 (Register 94,  No. 12).

3. Amendment of subsection (c)(6) and (c)(7) Note filed 12-1-94; operative 1-2-95 (Register 94, No. 48).

4. Amendment filed 3-2-2009; operative 3-2-2009 pursuant to  Government Codesection 11343.4 (Register 2009, No. 10).

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