Justice for New York Trusts: Too Little, Too Late?

April 26th, 2010 by

We have been following the implosion of self insurance groups (SIGs) in New York. Back in June 2008, SIGs operated by Compensation Risk Management (CRM) collapsed. CRM had grown their business by offering comp coverage at very low rates. For a long time, they were able to maintain an illusion of profitability by under-reserving losses. Eventually, it all caught up with them.
When the CRM SIGs went belly up, the state worker’s comp board looked around for some free cash to pay for the $450 million in unfunded liabilities incurred by CRM. They decided to penalize all the SIGs that had been operating in the black. In a move stunning for its arrogance (facilitated by legislation passed in 2008), they decided to raise assessments on these SIGs from the modest annual total of $104,000 to a whopping $11.1 million.
In other words, the insurance groups operating prudently – charging adequate premiums, controlling losses and turning a modest profit – were forced to make up the losses incurred by a company operating like a ponzi scheme. Well, as they like to say in New York: “You gotta problem with that?”
Acting state Supreme Court Justice Kimberly O’Connor had a problem with it. She ruled on April 14 that the 2008 laws that empowered the comp board to assess the SIGs were unconstitutional, as were the assessments issued by the board.
Justice Too Late
Unfortunately, judicial relief comes long after the once-profitable SIGs have folded their tents. First Cardinal once operated 13 SIGs in New York, with $166 million in premium. When hit with the exponential increase in assessments, First Cardinal decided to move its business out of the state (in itself a sure sign of management that was paying attention). They stopped writing in New York and laid off the 57 (innocent) workers who were doing a good job of managing the New York business.
You may recall the old saying: “The wheels of justice grind slow but they grind exceeding fine.” In this case, justice – and fairness – were eventually served. But the pace of the process seems to have crushed the parties harmed by an unjust law.
Of course, the comp board believes that the assessments are legal and is planning to appeal. That should add a few more months to this ridiculous situation.
“You gotta problem with that?” Indeed, I do.