With the end of the 2024 Legislative Session, the Department of Labor & Industries (L&I) has restarted the ongoing rulemaking process for “good faith and fair dealing” rules impacting the 18 cities that are self-insured for workers’ compensation. AWC has been engaged in the rulemaking process since last fall. Our last update on the rulemaking was in January.

L&I has released proposed rules and scheduled a public hearing for March 29. The department anticipates adopting the final rules by April 30, with an effective date of July 1, 2024. Read the proposed rules and L&I’s cost benefit analysis.

The proposed rules were prompted by the Legislature’s passage of HB 1521 (2023). The proposed rules only apply to municipal self-insured employers and self-employed private sector firefighter employers with 50 or more firefighters. The proposed rules:

• Apply existing surety requirements to self-insured public employers in case of default. In the event that a self-insured employer ends its self-insurance program, the surety requirements persist for at least three years after the end of the employer’s self-insurance program.
• Define a violation of the duty of “good faith and fair dealing” to mean managing a claim in a way that “demonstrates a greater concern for the self-insured employer's interest than the worker's interest” and provides a list of examples that, if they occur frequently enough to constitute a “general business practice,” violate the duty.
• In the event that a self-insurer ends its self-insurance program, former self-insured employers are required to continue managing existing claims and submit annual audited financial reports.
• Add the requirement for “good faith and fair dealing” to the definition of “default” and consider an action brought by L&I for violation of “good faith” to constitute a default.
• Create a new section outlining the circumstances when L&I will take corrective action against a self-insured employer.
• When decertifying a self-insured employer for violations, the rules shorten the time between L&I’s order and the actual withdrawal of certification from 90 days to 30 days.
• Adjust existing penalties to align with the “good faith and fair dealing” requirements.
• Establish how L&I will calculate penalties, including an up to 3x multiplier of the penalty based on the self-insured employer’s recent behavior, and a multiplier of up to 52x the average weekly wage for factors relating the regular violation of good faith and fair dealing.

At the L&I stakeholder meetings last December, AWC raised concerns about several issues, including the then-draft’s requirement that cities carry a surety bond after only two violations and the attempt to define “good faith” as requiring cities to equally consider a claimant’s interests when managing claims. Due to the unique nature of cities compared to private employers, we felt it unnecessary for cities to carry a surety bond. We also felt that the way the draft defined “good faith” could interfere with a city’s fiduciary responsibilities to protect its own assets for the good of its whole self-insurance pool and to assert its rights. We recommended that L&I remove the employee vs. employer interest issue entirely, since the statute already addresses it. L&I also said at a stakeholder meeting on January 5 that they were planning to drop the surety requirement from draft rules and address the issue with legislation in a later legislative session. AWC also asked for the rules to include prohibiting filing frivolous complaints against self-insured employers.

The most recent proposed rules from L&I do not address any of these previously stated concerns, and AWC continues to be concerned about the potential impact of these proposed rules on self-insured cities.

Cities can send their written comments on the rules to L&I until March 29 at 5 pm. Comments can be sent to Nicole.Mitchell@Lni.wa.gov.

Dates to remember

The proposed rules are scheduled for a public rulemaking hearing on March 29 at 10 am. Cities can join the meeting in-person or join remotely using the information below: