SECTION III – GENERAL PROVISIONS

A risk shall qualify for application of the Merit Rating Plan if BOTH of the following conditions are met:

1. 1. The risk does not qualify for experience rating, and
   2. The risk has exposure greater than zero during each year of the Merit Rating Plan experience period as defined herein.
      1. Eligibility requirements will be determined without consideration of maritime liability, liability under the Federal Employers’ Liability Act, excess limits and additional medical coverage, the nonrateable element for explosives manufacturing, and atomic energy projects.
      2. Risks shall be disqualified by a lapse of insurance of two years or more until they again qualify for merit rating following the lapse.

The application of Rule 2 of this section is subject to the provisions of Section V “Tabulation of Experience” of this Plan.

The experience period for purposes of the Merit Rating Plan shall be not more than two (2) years, commencing three (3) years prior and terminating one (1) year prior to the date for which a Merit Rating Plan adjustment is to be established but in no event shall be less than one policy year (12 months) commencing two (2) years prior and terminating one (1) year prior to the date for which merit rating is to be established. Completed policy periods only shall be used, and all such periods wholly within the experience period shall be used.

If the experience used in rating a risk involves two or more policies varying in expiration date, the experience period shall be determined for each entity separately in accordance with the foregoing rules, except that the experience for each non-controlling entity shall close with the completed policy period beginning more than one year and terminating not less than six months prior to the date for which a Merit Rating Plan adjustment is to be established.

The entire experience of the risk (except as otherwise provided in Rule I of Section V of this Plan) incurred within the experience period on all its operations, whether such operations are normal to the business or otherwise, shall be reported and used in determining the Merit Rating Plan adjustment. The DCRB may, at its discretion, verify any or all the data from which the Merit Rating Plan adjustment is to be determined.

The experience of self-insurers may be accepted by the DCRB provided the experience on self-insured operations is submitted on the approved form, giving the required information with respect to payrolls and losses. Such statement shall be secured, verified and submitted by an interested carrier.

Self-insured experience shall not be used in applying the Merit Rating Plan to a risk unless the operations that produced such experience are to be insured under a Standard Workers Compensation and Employers’ Liability Policy.

Ownership interest shall be deemed to be vested in a fiduciary when a fiduciary is involved. However, “Fiduciary” shall not include a debtor in possession or a trustee under a revocable trust or a franchisor. Ownership interest held by an entity in a fiduciary capacity and ownership interest held by the same entity in a non-fiduciary capacity shall be deemed to be ownership by the same entity.

1. 1. Affiliates shall be combined for merit rating purposes if:
      1. The affiliates involved constitute the component parts of an enterprise performing a continuous and/or integrated process or operation, or
      2. There is interchange of employment (other than office and salesmen) between two or more of the affiliates.

Separate policies may not be issued to affiliates which are required to be combined under this rule.

1. 2. Affiliates which are not required to be combined under Rule 7(a) may be combined upon the mutual agreement of the risk and the carrier(s) involved. If such combination is agreed to, insurance may be provided either by a single policy insuring all affiliates, or by separate policies for each affiliate issued by one or more insurance carriers. In the latter case, the Merit Rating Plan adjustment established for the entire risk shall apply on each policy to each affiliate. If all affiliates are not combined, then each affiliate not otherwise subject to Rule 7(a) shall be insured under a separate policy and merit-rated on its own experience, providing it meets the qualifications for merit rating as specified in Rule 1 of this Section.
   3. When one or more mandatory combinations of affiliates under Rule (a) exist, insurance for each such combination may be provided by a single policy. Each mandatory combination and any other affiliates which are not required to be a part of any mandatory combination pursuant to Rule 7(a) may be separately rated and separately insured. Exception: If any one or more affiliates not required to be combined under Rule 7(a) or mandatory combinations voluntarily choose to be insured under a single policy, then all affiliates shall be insured under a single policy and the Merit Rating Plan Adjustment established for the entire risk shall apply to each affiliate.

Example: Five legal entities are commonly owned. Company A and Company B have an interchange of employees. Company C and Company D have a continuity of operations. Company E is unrelated except through ownership.

By Rule 7(a), Company A and Company B must be combined for rating and must be covered by a single policy. Similarly, by Rule 7(a), Company C and Company D must be combined for rating and must be covered by a single policy. Company E may be separately rated and covered by a separate policy.

If any combination of these separate policy coverages is elected, then all commonly-owned entities must be combined for Merit rating purposes and must be covered by a single policy. Thus, if Companies A and B desire to be combined with Company E, they must also combine with Companies C and D, and all must be covered by a single policy.

1. 4. If an entity owns a majority interest in another entity which, in turn, owns the majority interest in another entity, all entities so related shall be considered as being under the same ownership for the purposes of this rule, regardless of the number of entities in succession.
   5. Separate legal entities organized for religious purposes within the same religious denomination shall not be combined for Merit rating purposes, provided, however, that combination may be made as respects all such entities in each of which the same central authority appoints or controls the appointment of the board of trustees or similar body and exercises direct, complete and active control over the finances, properties, operations and activities.

In the term “majority interest,” as used in this rule, “majority” shall mean more than 50 percent.

If an entity other than a partnership:

1. 1. 1. has issued voting stock, majority interest shall mean a majority of the issued voting stock.
      2. has not issued voting stock, majority interest shall mean a majority of the members.
      3. has not issued voting stock and has no members, majority interest shall mean a majority of the board of directors or comparable governing body.

If an entity is a partnership, majority interest shall be determined in accordance with the participation of each general partner in the profits of the partnership.

Note: If a combination of entities is required or has been elected and if two or more different combinations are possible in accordance with the provisions of this rule, the combination involving the greatest number of entities shall be made. The experience of any entity used in such a combination shall not be used in combination with any other entity.

The experience to be used in any combination for purposes of the Merit Rating Plan shall be subject to the provisions of the Rule 8, “Ownership Changes,” of this section.

1. 6. Affiliates combined for rating voluntarily (i.e., not a mandatory combination), which wish to change their rating option and have each affiliate separately rated based on its individual experience, may petition the DCRB to do so. Upon DCRB approval, separate policies must be issued for each affiliate. Unless the DCRB is provided with the segregated experience needed to produce separate ratings for each affiliate in an acceptable format, each affiliate will continue to be rated using combined experience for any policy period(s) for which segregated experience is not available and its own separately reported experience for policy period(s) subsequent to the separation.

1. 1. For purposes of this Plan a change in ownership includes any of the following:
      1. sale, transfer or conveyance of all or a portion of an entity’s ownership interest.
      2. sale, transfer or conveyance of an entity’s physical assets to a purchasing entity which takes over the operation of the selling entity and wherein the selling entity
         1. becomes entirely inactive with no employees or
         2. retains a few employees for the purpose of closing out its affairs prior to dissolution as a legal entity or
         3. retains a few clerical employees for the purpose of carrying on operations in connection with investment of its financial assets.
      3. merger or consolidation of two or more entities.
      4. formation of a new entity subsequent to the dissolution or non-operative capacity of an entity
      5. voluntary or court-mandated establishment of a trustee or receiver, excluding a debtor in possession, a trustee under a revocable trust or franchiser.
   2. Continuation of Experience. Unless excluded under paragraph (c), the experience for any entity undergoing a change in ownership shall be transferred to the experience of the acquiring, surviving or new entity. The date of revision will be the later of the following two dates: 1) the effective date of the policy in effect at the time the DCRB receives a completed ERM-14 form outlining the ownership change or 2) the date on which the change in ownership occurred.
      1. Partial Sale. If an entity disposes of a part of its assets or operations but otherwise continues to operate its business, all experience incurred prior to the sale shall be used in future Merit Rating Plan adjustments of the entity.

Note: Future Merit Rating Plan adjustments of a risk shall retain all experience for any part of its operations which may have been discontinued or self-insured.

1. 3. Exclusion of Experience. The experience of any entity undergoing a change in ownership shall be retained and used in future Merit Rating Plan adjustments unless one or both of the following requirements (i) and (ii) are met at the same time of the ownership change.
      1. A change in majority interest occurs, and the change in majority interest is accompanied by a complete change in operation and function sufficient to result in a change of governing classification, and the change in majority interest is accompanied by a change in the process and hazard of the operation.
      2. A change in majority interest occurs, and the change in majority interest is accompanied by a change in employees such that all or a substantial portion of the employees of the new ownership are not retained from the prior ownership.
   4. If the experience of an entity undergoing a change in ownership is to be excluded from future Merit Rating Plan adjustments for the entity, the Merit Rating Plan adjustment no longer applies as of the date of the ownership change unless the entity is acquired by another entity which has an existing Merit Rating Plan adjustment. In that case the Merit Rating Plan adjustments of the acquiring entity shall apply.
   5. Multiple Entities. When two entities under substantially the same ownership have been insured under a single policy and the ownership of one or both of them is changed so that there is no longer any connection between them, the merit rating procedure shall be as follows:
      1. If the experience of the entities has been combined for merit rating purposes during the entire experience period, the experience incurred prior to the change shall not be used for future merit rating plan adjustment, unless
         1. the insurance carrier or carriers request that a new Merit Rating Plan adjustment be established, and
         2. the DCRB is furnished with the experience required for the calculation of a Merit Rating Plan adjustment submitted in an acceptance format.
      2. If the experience of the entities has been combined for less than two years at the time of the change, so that the experience for each entity is available during the period they were separately insured, the experience for each entity shall be used for the purpose of calculating a new Merit Rating Plan adjustment.

When three or more entities under substantially the same ownership have been insured under a single policy and the ownership of one of the entities has been changed so that there is no longer any connection between it and the remaining entities, the existing Merit Rating Plan adjustment shall continue to apply to the entities whose ownership has not changed. The entity whose ownership has changed shall not be subject to merit rating unless it has been purchased by an entity which has an applicable Merit Rating plan adjustment.

When three or more entries under substantially the same ownership have been insured under a single policy and the ownership of two or more of the entities has been changed so that common ownership is no longer present, the experience incurred prior to the date of the change shall not be used for future Merit Rating Plan adjustments, unless

(a) the insurance carrier or carriers request that new modifications be established, and

(b) the DCRB is furnished with the experience required for the calculation of such modifications submitted in an acceptable format.

1. 6. Employee Leasing. If (1) an entity terminates its employment relationship with all, or substantially all, its employees, and (2) all substantially all of such employees are thereafter employed by another entity which leases such employees to the original employer, the experience incurred prior to the termination of the original employment relationship shall be used in future merit rating plan adjustments of the second entity.

When two or more risks associate for the purpose of undertaking one or more projects as a joint venture, the premium for the operation involved shall not be subject to merit rating until such time as the joint venture qualifies in accordance with the provisions of Rule 1 of this section, subject, however, to the following conditions:

1. The contracts shall be awarded in the name of the associated risks as a joint venture.
2. The joint ventures shall share responsibility for and participate in the control, direction and supervision of all work undertaken.
3. The joint ventures shall maintain a common bank account, payroll and business records.
4. When the joint venture becomes subject to merit rating, all applicable Merit Rating Plan adjustments shall be based exclusively on the experience of the joint venture. The experience developed under a joint venture shall be excluded from the future Merit Rating Plan adjustments of the individual ventures.