Insurers Entitled to Second Injury Fund Payments Even If No Longer Writing in State

A workers’ compensation insurer is entitled to continue to receive reimbursements from the Massachusetts second injury fund even after it stops writing business in the state, the state’s high court has ruled in an opinion reversing itself on the issue.

The court said insurers are eligible for reimbursement so long as the employer pays the assessments that supply the revenues for the fund through its new insurer.

In a 2015 ruling the same court had found that insurers that are no longer collecting assessments from employers for the Workers’ Compensation Trust Fund are not eligible for reimbursements from the fund.

This time, however, the Supreme Judicial Court reasoned that while the insurer in run-off is no longer collecting assessments from the employer, the employer is still contributing to the second injury fund through its new insurer. Thus the trust fund is not losing any revenue by the exiting insurer continuing to receive reimbursements.

The court also stressed that the plain language of the statute only excludes self-insurers, group self-insurers or municipalities that choose not to be subject to the assessments from receiving reimbursements. The statute does not prohibit insurance companies that are in run-off periods from receiving reimbursements.

The Workers’ Compensation Trust Fund is the state’s statutorily created entity that reimburses insurers for certain workers’ compensation benefits, including a portion of the benefits paid to previously injured employees who suffer further work-related injuries. Revenues for the trust fund come from assessments on employers that are based on premiums and collected by their insurers.

In the case before the high court, a worker sustained a back injury in 1994 and another in 2001 while working at Scully Signal Co. Despite receiving treatment, the combination of injuries rendered him unable to return to substantial gainful employment and resulted in a substantially greater disability than that which would have resulted from the second injury alone.

Following the second injury, Scully’s insurer, Arrowood Indemnity Co., began paying workers’ compensation benefits to the worker. For as long as Arrowood was doing business in the state, it collected premiums as well the fund assessments from its insured employers including Scully. In 2003, Arrowood stopped issuing new policies in Massachusetts. Once Arrowood did not have any premiums to collect, it also did not have any assessments to collect from Scully.

However, during its “run-offf” period, Arrowood continued to service claims under previously issued policies, and it has continued to pay workers’ compensation claims under previously issued policies including paying benefits to Scully’s injured worker.

Throughout the time that Arrowood has paid benefits to Scully’s employee, the insurer has requested second-injury reimbursements from the trust fund. For a time, the trust fund approved those requests. Then, in 2014, the fund’s reviewing board decided another case involving an insurance company, Home Insurance, that was in a run-off period. The reviewing board concluded that Home became ineligible for reimbursement “once it ceased collecting assessments.”

In its 2014 decision, the reviewing board stated that there was no material difference between an insurance company that, as a result of being in a run-off period, did not have any premiums or assessments to collect and employers that choose not to pay the assessments. According to the reviewing board, “the end result was the same” because the insurance company did not participate in the assessment provisions. The reviewing board concluded that, because the assessments provide the revenues for the trust fund, the insurance company was ineligible for reimbursement.

The Supreme Judicial Court deferred to the board and upheld that decision in 2015. The trust fund then applied the reasoning in Home to Arrowood’s case and began to deny Arrowood’s requests for reimbursement.

Arrowood sued and the high court took up the appeal as an opportunity to revisit Home because it recognized “there is a critical difference between the roles that employers and insurers play with respect to the trust fund” and because the statutory language governing the trust fund’s administration does not support the interpretation adopted by the board and affirmed in Home.

The court noted that employers pay the assessments that provide the revenues for the trust fund, while insurers merely transmit those payments to the trust fund. “When an employer chooses not to pay the assessments, that deprives the trust fund of revenues; when an insurance company enters a run-off period and no longer has any premiums or assessments to collect, that does not deprive the trust fund of revenues. By its own terms, the statutory exception to reimbursement applies only to employers that choose not to pay the assessments,” the court wrote.

In the case before the court, Scully continued to pay assessments through its new insurer, OneBeacon Insurance Co.

“In other words, Arrowood’s actions did not deprive the trust fund of any revenues, and the logic behind the narrow exception to reimbursement does not apply to Arrowood,” the high court determined.

The court also noted that public policy considerations support allowing insurance companies that are in run-off periods to receive reimbursements. The purpose of the second-injury reimbursements is to encourage employers to hire persons with disabilities. The reimbursements reduce the amount of the loss and improve the employer’s experience modification factor, which is used in determining the employer’s premium. As a result, the employer’s premium is reduced.

“An employer that has contributed to the trust fund should be able to receive this benefit, even if its insurer has stopped issuing new policies and therefore does not have any premiums or assessments to collect,” the opinion states.

Topics Carriers