ARTICLE 2.5. Self-Insurers’ Security Fund [3740. - 3747.]

Cal. Labor Code - LAB 2.5.

in effect

Cal. Labor Code - LAB § 3740. Section 3740.

It is the intent of the Legislature in enacting this article and Article 1 (commencing with Section 3700) to provide for the continuation of workers’ compensation benefits delayed due to the failure of a private self-insured employer to meet its compensation obligations when the employers’ security deposit is either inadequate or not immediately accessible for the payment of benefits. With respect to the continued liability of a surety for claims that arose under a bond after termination of that bond and to a surety’s liability for the cost of administration of claims, it is the intent of the Legislature to clarify existing law. The Legislature finds and declares that the establishment of the Self-Insurers’ Security Fund is a necessary component of a complete system of workers’ compensation, required by Section 4 of Article XIV of the California Constitution, to have adequate provisions for the comfort, health and safety, and general welfare of any and all workers and their dependents to the extent of relieving the consequences of any industrial injury or death, and full provision for securing the payment of compensation.

Cal. Labor Code - LAB § 3741. Section 3741.

As used in this article: (a) “Director” means the Director of Industrial Relations. (b) “Private self-insurer” means a private employer which has secured the payment of compensation pursuant to subdivision (b) of Section 3700. (c) “Insolvent self-insurer” means a private self-insurer who has failed to pay compensation and whose security deposit has been called by the director pursuant to Section 3701.5. (d) “Fund” means the Self-Insurers’ Security Fund established pursuant to Section 3742. (e) “Trustees” means the Board of Trustees of the Self-Insurers’ Security Fund. (f) “Member” means a private self-insurer which participates in the Self-Insurers’ Security Fund.

Cal. Labor Code - LAB § 3742. Section 3742.

(a) The Self-Insurers’ Security Fund shall be established as a Nonprofit Mutual Benefit Corporation pursuant to Part 3 (commencing with Section 7110) of Division 2 of Title 1 of the Corporations Code and this article. If any provision of the Nonprofit Mutual Benefit Corporation Law conflicts with any provision of this article, the provisions of this article shall apply. Each private self-insurer shall participate as a member in the fund, unless its liabilities have been turned over to the fund pursuant to Section 3701.5, at which time its membership in the fund is relinquished. (b) The fund shall be governed by a board of trustees with no more than eight members, as established by the bylaws of the Self-Insurers’ Security Fund. The director shall hold ex officio status, with full powers equal to those of a trustee, except that the director shall not have a vote. The director, or a delegate authorized in writing to act as the director’s representative on the board of trustees, shall carry out exclusively the responsibilities set forth in Division 1 (commencing with Section 50) through Division 4 (commencing with Section 3200) and shall not have the obligations of a trustee under the Nonprofit Mutual Benefit Corporation Law. The fund shall adopt bylaws to segregate the director from all matters that may involve fund litigation against the department or fund participation in legal proceedings before the director. Although not voting, the director or a delegate authorized in writing to represent the director, shall be counted toward a quorum of trustees. The remaining trustees shall be representatives of private self-insurers. The self-insurer trustees shall be elected by the members of the fund, each member having one vote. Trustees shall be elected to four-year terms, and shall serve until their successors are elected and assume office pursuant to the bylaws of the fund. (c) The fund shall establish bylaws as are necessary to effectuate the purposes of this article and to carry out the responsibilities of the fund, including, but not limited to, any obligations imposed by the director pursuant to Section 3701.8. The fund may carry out its responsibilities directly or by contract, and may purchase services and insurance and borrow funds as it deems necessary for the protection of the members and their employees. The fund may receive confidential information concerning the financial condition of self-insured employers whose liabilities to pay compensation may devolve upon it and shall adopt bylaws to prevent dissemination of that information. (d) The director may also require fund members to subscribe to financial instruments or guarantees to be posted with the director in order to satisfy the security requirements set by the director pursuant to Section 3701.8.

Cal. Labor Code - LAB § 3743. Section 3743.

(a) Upon order of the director pursuant to Section 3701.5, the fund shall assume the workers’ compensation obligations of an insolvent self-insurer. (b) Notwithstanding subdivision (a), the fund shall not be liable for the payment of any penalties assessed for any act or omission on the part of any person other than the fund, including, but not limited to, the penalties provided in Section 132a, 3706, 4553, 4554, 4556, 4557, 4558, 4601.5, 5814, or 5814.1. (c) The fund shall be a party in interest in all proceedings involving compensation claims against an insolvent self-insurer whose compensation obligations have been paid or assumed by the fund. The fund shall have the same rights and defenses as the insolvent self-insurer, including, but not limited to, all of the following: (1) To appear, defend, and appeal claims. (2) To receive notice of, investigate, adjust, compromise, settle, and pay claims. (3) To investigate, handle, and deny claims.

Cal. Labor Code - LAB § 3744. Section 3744.

(a) (1) The fund shall have the right and obligation to obtain reimbursement from an insolvent self-insurer up to the amount of the self-insurer’s workers’ compensation obligations paid and assumed by the fund, including reasonable administrative and legal costs. This right includes, but is not limited to, a right to claim for wages and other necessities of life advanced to claimants as subrogee of the claimants in any action to collect against the self-insured as debtor. For purposes of this section, “insolvent self-insurer” includes the entity to which the certificate of consent to self-insure was issued, any guarantor of the entity’s liabilities under the certificate, any member of a self-insurance group to which the certificate was issued, and any employer who obtained employees from a self-insured employer under subdivision (d) of Section 3602. (2) The Legislature finds and declares that the amendments made to this subdivision by the act adding this paragraph are declaratory of existing law. (b) The fund shall have the right and obligation to obtain from the security deposit of an insolvent self-insurer the amount of the self-insurer’s compensation obligations, including reasonable administrative and legal costs, paid or assumed by the fund. Reimbursement of administrative costs, including legal costs, shall be subject to approval by a majority vote of the fund’s trustees. The fund shall be a party in interest in any action to obtain the security deposit for the payment of compensation obligations of an insolvent self-insurer. (c) The fund shall have the right to bring an action against any person to recover compensation paid and liability assumed by the fund, including, but not limited to, any excess insurance carrier of the self-insured employer, and any person whose negligence or breach of any obligation contributed to any underestimation of the self-insured employer’s total accrued liability as reported to the director. (d) The fund may be a party in interest in any action brought by any other person seeking damages resulting from the failure of an insolvent self-insurer to pay workers’ compensation required pursuant to this division. (e) At the election of the Self-Insurers’ Security Fund, venue shall be in the Superior Court for the State of California, County of Sacramento, for any action under this section. All actions in which the Self-Insurers’ Security Fund and two or more members or former members of one self-insurance group are parties shall be consolidated if requested by the Self-Insurers’ Security Fund.

Cal. Labor Code - LAB § 3745. Section 3745.

(a) The fund shall maintain cash, readily marketable securities, or other assets, or a line of credit, approved by the director, sufficient to immediately continue the payment of the compensation obligations of an insolvent self-insurer pending assessment of the members. The director may establish the minimum amount to be maintained by, or immediately available to, the fund for this purpose. (b) The fund may assess each of its members a pro rata share of the funding necessary to carry out the purposes of this article. (c) The trustees shall certify to the director the collection and receipt of all moneys from assessments, noting any delinquencies. The trustees shall take any action deemed appropriate to collect any delinquent assessments.

Cal. Labor Code - LAB § 3746. Section 3746.

The fund shall annually contract for an independent certified audit of the financial activities of the fund. An annual report on the financial status of the fund as of June 30 shall be submitted to the director and to each member, or at the election of the fund, posted on the fund’s Internet Web site.

Cal. Labor Code - LAB § 3747. Section 3747.

This article shall be known and may be referred to as the “Young-La Follette Self-Insurers’ Security Act.”

Source: CA Legislative Counsel Bulk DataURL: https://downloads.leginfo.legislature.ca.gov/pubinfo_2025.zipFetched: 6/27/2026