October 1, 1993

Shelley Stingley, Deputy Secretary
Department of Labor
700 Governors Drive
Pierre, SD 57501

OFFICIAL OPINION NO. 93-07

Qualifications for self-insured status under SDCL Ch. 62-5

Dear Deputy Secretary Stingley:

You have requested an official opinion from this Office concerning interpretation of SDCL 62-5-5 and 62-5-10, which address requirements that employers must meet to qualify as self-insured for the purposes of workers' compensation. Employers so qualified are exempt from the provisions of SDCL 62-5-1, which generally mandates that employers purchase workers' compensation insurance.

FACTS:

SDCL 62-5-5, which has been in effect since 1931, directs, in part, that employers who seek to qualify as self-insured and thereby avoid purchasing workers' compensation insurance must annually submit to the Department of Labor (Department) proof of solvency and financial ability to pay compensation as required under SDCL Title 62. In 1989, the Legislature added a new section, SDCL 62-5-10, to Title 62, requiring such employers to furnish the Department with surety for performance of their obligations to their employees. Some employers are now claiming the surety requirements of SDCL 62-5-10 constitute a statutory definition of proof of solvency and financial ability to pay referred to in SDCL 62-5-5, thus eliminating the need to provide separate proof of solvency and financial ability under the latter section.

Based upon these facts, you have asked the following question:

QUESTION:

Does SDCL 62-5-10 define solvency and financial ability to pay compensation under SDCL 62-5-5, or are these two sections independent components that must be met to be authorized to self-insure for the purposes of workers' compensation?

IN RE QUESTION:

Employers who seek self-insured status must meet the requirements of both SDCL 62-5-5 and SDCL 62-5-10. Such employers must provide proof of solvency and financial ability to pay compensation mandated under SDCL Title 62, as set out in SDCL 62-5-5, and must provide surety as defined in SDCL 62-5-10.

The two sections at issue are independent of each other, in that both must be satisfied before an affected employer can be relieved from the mandate of SDCL 62-5-1 to provide workers' compensation insurance. SDCL 62-5-5 provides:

If an employer coming under the provisions of this title annually furnishes satisfactory proof to the department of labor, of the employer's solvency and financial ability to pay the compensation required by this title, he shall be relieved from the provisions of <185> 62-5-1. It is satisfactory proof of the employer's solvency and financial ability to pay the compensation required by this title and satisfactory security therefor, if the employer shows that he is a member of an association as provided for in <185> 62-5-2 or <185> 62-5-3 and submits a financial statement showing such association to be in a solvent condition. Each employer shall submit an application fee not to exceed one thousand dollars to the department of labor at the time proof of solvency is submitted. The department of labor shall set, by rules promulgated pursuant to chapter 1-26, the amount of the application fee.

This statute, which was passed by the Legislature in 1931, is a delegation of power authorizing the agency to grant relief to qualified employers. In 1942, the South Dakota Supreme Court illuminated the purpose of this enactment:

Manifestly, it was a continuing solvency and ability to pay that the legislature had in mind as a prerequisite for exemption from the insurance requirement of the act. As practical men the legislators knew that financial status does not remain static and that a statute which expended its force in a single examination would provide little assurance of prompt payment of compensation during future years. To accomplish its purpose it was required by the nature of the subject matter with which it was dealing to set up an agency capable of maintaining constant watch and check on the employer's financial position and to clothe that agency with power to dispense and revoke relief or exemption.

Utah Idaho Sugar Co. v. Temmey, 68 S.D. 623, 630-31, 5 N.W.2d 486, 489 (1942).

SDCL 62-5-10, enacted in 1989, provides:

An employer seeking permission to be a self-insurer, or seeking renewal of its permission to be a self-insurer, shall furnish to the department, on a form required by the department, a bond, written by a surety company authorized by the division of insurance to write surety bonds, or cash, or a certificate of deposit, or approved government securities or irrevocable letter of credit, alone or in any combination, in a total amount equal to the greater of:

(1) Two hundred fifty thousand dollars; or
(2) Twice the amount of compensation claims paid by the employer during the preceding calendar year; or
(3) The amount designated by the employer as a reserve for workers' compensation claims.

This enactment does not, in my opinion, supersede SDCL 62-5-5 or define "satisfactory proof . . . of the employer's solvency and financial ability to pay the compensation required by this title," for the purposes of complying with that section. The security required by SDCL 62-5-10 is to be used in the event of the employer's bankruptcy, as specified in SDCL 62-5-15, but these sections do not eliminate the authority of the Department to examine the solvency of an applicant employer under SDCL 62-5-5. When the language of a statute is clear, certain and unambiguous, there is no need of statutory construction. Appeal of AT&T Information Systems, 405 N.W.2d 24, 27 (S.D. 1987). Further, all provisions of statutes are to be given effect, where possible. People in Interest of H.M., 474 N.W.2d 267, 270 (S.D. 1991); Beitelspacher v. Winther, 447 N.W.2d 347, 351 (S.D. 1989). A statute is construed according to its intent, which must be determined from the statute as a whole and other enactments on the same subject. Border States Paving v. South Dakota Department of Revenue, 437 N.W.2d 872, 874 (S.D. 1989). Examining these two statutes in light of the above authorities, it is clear that the surety for performance to be provided under SDCL 62-5-10 is a separate requirement from the proof of solvency addressed in SDCL 62-5-10.

Further, the concerns addressed in SDCL 62-5-5 include both solvency in general and financial ability to pay compensation required by Title 62, while SDCL 62-5-10 addresses only the latter. SDCL 62-5-5 concerns matters beyond the reach of SDCL 62-5-10. To give the will of the Legislature effect, the provisions of both sections must be followed. The necessity for both enactments is reflected in Self-Insurer's Sec. Fund v. ESIS, Inc., 251 Cal. Rptr. 693, 204 Cal.3d 1148 (Cal.App. 1988), which concerned an employer who declared bankruptcy after underestimating its workers' compensation liability.

In summary, my answer to your question is that the requirements of both SDCL 62-5-5 and SDCL 62-5-10 must be satisfied before the Department can grant an affected employer self-insured status and relief from SDCL 62-5-1. I cannot tell you whether that result is in fact what the Legislature intended, but I can tell you that such result is what was written. The Legislature regularly provides for alternative methods of complying with the law, and in such cases, the methods are clearly labelled as alternatives. The Legislature chose not to use alternative language here.

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