Roberto Ceniceros of Business Insurance has been tracking the potential impact that a Chrysler bankruptcy and sale could have on state workers comp systems. In a story last week, he reports that Michigan Attorney General Mike Cox has taken legal action to protect the state. Cox stated that Michigan’s Self-Insurers’ Security Fund could face insolvency as a result of Chrysler’s bankruptcy and sale.
Now, Ohio state officials are raising concerns about how the Chrysler sale could affect Ohio’s workers comp system. This week, Ohio’s Attorney General Richard Cordray has filed a “limited objection” to the pending sale. “While Chrysler’s bankruptcy filings show the automaker is committed to fulfilling its workers comp obligations, the filings do not hold a new owner to the same conditions, the attorney general said.” According to a news report in Columbus Business First, there are about 5,000 Chrysler workers in the state.
It is likely that this issue is on the radar screen for other stat attorneys general, too. Ceniceros states that, “As of Dec. 31, Chrysler had 38,257 U.S. employees. It purchases workers comp insurance in some states while self-insuring in others, according to various state regulator databases.”
And beyond Chrysler, there is the matter of whether General Motors is another likely candidate for bankruptcy – many expect this to be the case – see key dates in GM run-up to bankruptcy deadline. GM is a much larger company so problems could be multiplied, a matter that we discussed in our December posting about Maryland officials monitoring GM solvency related to workers comp.
For more on the way bankruptcy works for both insured and self-insured entities, see our postings of Robert Auerbach’s three-part series on bankruptcy and workers compensation, part 2, part 3.
Posts Tagged ‘guaranty funds’
Collision course: the potential impact of Chrysler’s bankruptcy & sale on state workers’ comp systems
Tuesday, May 19th, 2009Maryland officials monitoring GM solvency related to workers compensation
Monday, December 8th, 2008With the Big 3 automakers discussing potential fallout if the federal government doesn’t come through with a bailout package, there is one aspect of the fallout that would likely be a mere footnote in the wake of such a massive failure, but that would be of interest to thousands of workers: the issue of what happens to workers compensation claims.
Maryland officials are considering and planning for such a scenario now in the case of GM. The state’s Workers’ Compensation Commission (WCC) is closely monitoring GM and other distressed, self-insured firms with operations in Maryland. Officials note that GM has 200 employees statewide that are covered for workers compensation under the company’s self-insured plan. They note that even in the case of a bankruptcy (which GM states it is not considering), the funding for claims would not automatically be wiped out. R. Karl Aumann, chairman of WCC, said it’s rare for a company to default on its workers’ compensation program. The last time this happened, he said, was with Bethlehem Steel Corp., which declared bankruptcy in October 2001.
In the case of property and casualty insurer insolvencies, every state has a safety net for policyholders, usually in the form of a Guaranty Fund. However, these funds do not necessarily cover self-insured employers, according to an overview of the insolvency process and guaranty fund laws by the The National Conference of Insurance Guaranty Funds:
Q: Am I covered by a state property and casualty guaranty association if I purchased my policy from an unlicensed carrier or a managed care plan?
A: No. Guaranty associations cover only licensed insurers. Companies not licensed in the state, surplus lines carriers, managed care plans, preferred provider organizations (PPOs), Health Maintenance Organizations (HMOs) and self insured plans are not covered under the property and casualty guaranty association statutes. If you purchased coverage from one of these entities, and the company is now insolvent, you may file a claim with the Liquidator. There may also be other guaranty associations that may provide coverage for policies issued by these types of organizations. Your state Department of Insurance can provide you additional information.
Q: How can find out if my company was licensed in my state?
A: Check with your state Department of Insurance. They should have a listing of all admitted companies.
However, many states have some type of guaranty mechanism established that covers self-insured entities. Here are some resources to learn more about the protections that your state affords:
State Insurance Departments
Self-Insurance Guaranty Funds of America
State Guaranty Fund websites
State Guaranty Fund Directory (PDF)
In the case of bankruptcies, workers comp claims payments are often considered a priority – see this discussion of a recent court ruling in Pennsylvania. However, insurers may be out of luck when it comes to payment for workers comp premium in the case of bankruptcy. In the 2006 case of Delivery Service, Inc., et al v. Zurich American Insurance Co., The U.S. Supreme Court ruled that a workers compensation insurer does not have a priority claim against a bankrupt business for unpaid premiums under bankruptcy law.
For more information on State Guaranty Funds and insurer insolvencies, see the Bob Hartwig’s excellent overview for the Insurance Information Institute, which includes a chart about the top 10 largest insurer insolvencies:
Year / Insolvent company / Payments / Recoveries / Net cost
– 2001 Reliance Insurance Co / $2,265,845,612 / $1,415,385,230 / $850,460,383
– 2002 Legion Insurance Co / 1,272,694,066 / 227,503,349 / 1,045,190,717
– 2000 California Compensation Insurance Co / 1,049,745,420 / 327,756,089 / 721,989,331
– 2000 Fremont Indemnity Insurance Co / 843,405,746 / 643,377,434 / 200,028,312
– 2001 PHICO Insurance Co / 699,420,144 / 205,770,569 / 493,649,574
– 1985 Transit Casualty Insurance Co / 566,549,902 / 379,499,906 / 187,049,996
– 2000 Superior National Insurance Co / 555,797,035 / 174,168,193 / 381,628,842
– 1988 American Mutual Liability Insurance Co / 543,085,140 / 238,199,539 / 304,885,602
– 1986 Midland Insurance Co / 531,641,477 / 50,648,348 / 480,993,129
– 2006 Southern Family Insurance Co / 516,844,804 / 246,101,399 / 270,743,405
Insurer insolvencies, guaranty funds, and joint and several liabilities between temp staffing agencies & contracting employers
Monday, October 25th, 2004Roberto Ceniceros of Businss Insurance points to a recent interesting decision by California’s 2nd District Court of Appeals in Los Angeles dealing with general and special employers. The case involved a claim by an employee of RemedyTemp, a temporary staffing firm, considered the general employer; the employee was injured while on assignment at Jacuzzi Inc, the contracting or special employer. Normally, Remedy Temp’s insurer would be responsible for the claim, but in this case, the insurer – Reliance – was in liquidation. The court found that Jacuzzi – not the California Insurance Guarantee Association (CIGA) – was responsible for the claim.
There are several interesting issues involved in this case, perhaps more than can be easily addressed in one post, but we’ll give it a try. The whole issue of “general” vs. “special” employers is one facet worth discussing. But by way of laying groundwork, let’s first look at the issue of employee protection when an insurer goes belly up. Sadly, this is not an uncommon scenario in recent times. In the first quarter of 2004, NAIC recorded 20 property casualty insurer insolvencies.
In this case, the original insurer, Reliance National, went into liquidation. While remedies vary state to state, most jurisdictions have an established state guaranty fund as an insurer of last resort to ensure outstanding workers comp claims are paid. A guaranty fund is usually funded through assessments of a state’s licensed insurers. If an insurer fails and a claim is pending, the guaranty fund generally pays the claim and seeks recovery through litigation. Generally, guaranty funds leave no stone unturned in an effort to exhaust any other available insurance .
This is a simplistic summary of a much more complex issue. The Insurance Information Institute (III) has an excellent overview on the issue of insurer insolvencies and state guaranty funds that is well worth a read. Just look at how the Reliance insolvency affected Pennsylvania and the tsunami effect it had on other states:
The Pennsylvania Insurance Department is seeking to recover hundreds of millions of dollars from former executives of the bankrupt Reliance Global Holdings and its insolvent subsidiary Reliance Insurance Company and also from companies that the department says owe the company money. Reliance has only about $5.9 billion in assets, which are being disbursed rapidly because the company has to pay claims as well as the salaries of administrative staff and law firms that keep the firm running until the liquidation process is complete. The company has 144,000 claims amounting to $8.7 billion, almost twice as many claims as expected. Every state has been affected by the insolvency, but those most severely impacted are California, New York and Texas. At the time Reliance was declared insolvent it had 187,000 unsettled claims. In a lawsuit filed in June 2002 in Philadelphia, the insurance commissioner blamed the company’s executives for the failure, charging them with draining cash from the company to support their “lavish lifestyle.” Reliance Insurance Company, established in 1817, is the largest insurance company to be liquidated in U.S. history.
Guaranty funds have been severely challenged by the flood of insolvencies in recent years. For example, III says that in California, where may insolvencies have occurred, the Guaranty Fund faced a more than $750 million shortfall, no small part of the recent crisis.
In the case at hand, Mark Micelli v. Jacuzzi, Inc., Remedy Temp, Inc., American Home Insurance Co., Reliance National Indemnity Co., and California Insurance Guaranty Association (PDF), the court reaffirmed the idea of CIGA as an “insurer of last resort,” and found that joint and several liability existed between Remedy Temp and Jacuzzi, and that Jacuzzi’s workers comp insurer, American Home Assurance, qualifies as “other available insurance.”
The implication for temp staffing agencies remains to be seen. According to Ceniceros’ report:
The appeals court ruling could cause customer dissatisfaction for RemedyTemp and “could affect thousands of companies that, in part, rely on temporary staffing to avoid the costly overhead associated with carrying additional workers compensation insurance,” RemedyTemp said in a statement.
