Mich. Admin. Code R. 408.43q - Irrevocable letter of credit; acceptance; requirements; payment of surety bond or letter of credit
Rule 13q.
(1) An
irrevocable letter of credit may be accepted by the agency as other security
for a self-insured program as provided by section 611(1)(a) of the act, MCL
418.611. The agency will retain discretion in each particular case to determine
if the letter of credit is acceptable and if its language and format are
satisfactory.
(2) Irrevocable
letters of credit must be issued by a state-chartered bank, a federally
chartered bank or foreign bank. Funds must be immediately payable on demand.
The director may require confirmation of acceptable letters of credit from any
state, federally or foreign chartered bank without state operations or branch
services within this state. If a confirmation is required, it shall be by a
State of Michigan chartered bank or federally chartered bank with Michigan
branch operations and state that the confirming bank is primarily obligated on
the letter of credit.
(3) An
employer who elects an irrevocable letter of credit as other security for a
selfinsured program shall furnish a memorandum of understanding with the letter
of credit, on a form provided by the agency, which affirms the employer's
acceptance of all of the following requirements:
(a) A letter of credit is furnished to the
agency instead of a surety bond as one of the requirements for approval of a
self-insured program.
(b) The
employer understands that the letter of credit is deemed automatically extended
without amendment for 1 year from the expiry date or any future expiry date
unless, 60 days before any expiry date, the agency is notified, by courier, or
certified or registered mail, that the letter of credit shall not be renewed
for any additional period.
(c) A
policy of insurance or a surety bond of equal amount may be furnished at a
later date as a substitute for the letter of credit if the policy of insurance
or surety bond covers all claims that would have been covered by the letter of
credit. All policies of insurance and surety bonds furnished as substitutes for
letters of credit are subject to prior agency approval.
(d) The employer shall affirm that the
irrevocable letter of credit in the amount requested by the agency is being
offered with the understanding that if the agency receives notice that the
letter of credit will not be renewed, then the agency, in its discretion, may,
after 30 days from the date of receipt of the notice, call the proceeds of the
letter of credit and deposit the proceeds in the state treasury. And further,
if, in the judgment of the agency, the letter of credit is needed to cover any
worker's disability compensation claims, then the proceeds of the letter of
credit shall be called immediately and deposited in the state treasury for such
purpose.
(e) If legal proceedings
are initiated by any party with respect to payment of any letter of credit,
then the proceedings shall be subject to Michigan courts and law.
(4) The agency shall not grant an
effective date for a self-insured program until a completed letter of credit
and the memorandum of understanding have been reviewed and accepted by the
agency.
(5) If it is necessary for
the director, under statute and agency rules, to call the bond or other
security, then a trust must be established with the funds, unless the provider
of the bond or other security elects to handle the claims directly and the
agency approves. If a trust is established, the funds must be deposited in the
state treasury and the state treasurer, as provided by section 551(8) of the
act, MCL 418.551, is the custodian of the trust. The trustees of the trust are
the trustees of the funds denominated in chapter 5 of the act, MCL 418.501 to
418561, and also those who are appointed as trustees under section 511 of the
act, MCL 418.511. The service company of the self-insured employer, if any,
shall continue to perform in accordance with the terms of the employer's
contract with the service company.
Notes
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