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 self- insured 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.