In two separate rulings, the Massachusetts Supreme Judicial Court has found that an insurer in runoff and the state’s insolvency fund were both wrongly denied certain payments they are entitled from the state’s workers’ compensation fund.
The high court found that under the Massachusetts workers’ compensation act Arrowood Indemnity is entitled to reimbursements from the Massachusetts Workers’ Compensation Trust Fund for some of the second injury claims that it has paid, even though the insurer is now in runoff. While a company like Arrowood in runoff is no longer issuing new policies, it continues to pay claims under its old policies.
In the second case, the court said the Massachusetts Insurers Insolvency Fund (MIIF), which pays claims on behalf of insolvent insurers, is entitled to cost of living adjustment (COLA) payments from trust fund.
In both cases, the court found that the fund administrator, the Department of Industrial Accidents (DIA) ,misinterpreted the plain language of the workers’ compensation law in denying the payments and reversed the DIA denials. According to the high court’s Arrowood opinion, while the law explicitly excludes three types of insurance organizations from second injury claim reimbursements, an insurer in run-off is not one of the three that are excluded. Also, in its insolvency fund opinion, the high court said DIA incorrectly determined that MIIF is not an insurer for purposes of COLA payments.
Arrowood Case
In the Arrowood case, the high court agreed with the appeals court that insurers in “run-off” are not precluded by statute from receiving second-injury reimbursements when they have paid out the associated workers’ compensation benefits to an injured employee. Neither the plain language of the statutory reimbursement exclusions nor the statutory enforcement mechanism as a whole supports the board’s interpretation, the high court concluded.
The trust fund pays previously injured employees who sustain a further work-related injury second injury that is exacerbated by the prior injury, a portion of the compensation to which they are entitled. The purpose of the fund is “to encourage the employment of persons who have previously suffered certain defined personal injuries by relieving the employer or the insurer from the burden of paying the entire compensation for further disability of the employee due to the combined effect of his previous injury and one later received in the course of his employment.”
The trust fund’s revenue is generated by assessments on employers. The trust fund relies on insurers to “bill and collect” these employer assessments alongside premium payments for workers’ compensation insurance policies. Insurers then transmit the assessments to the trust fund quarterly. If an employer pays into the trust fund via the assessments, the employer’s insurer is eligible to be reimbursed by the trust fund for up to 75% of workers’ compensation payments due under the employer’s policy.
Arrowood Indemnity is the successor entity to several now-defunct insurance companies. From January 2001 to January 2002, Arrowood insured Scully Signal Co. for workers’ compensation. After a Scully employee sustained a second back injury, an impartial examiner determined he would not likely be able to return to work. Arrowood initiated payment to the employee under Scully’s workers’ compensation insurance policy that month.
Arrowood entered run-off in 2003. In this status it no longer issued new policies but continued to administer and pay claims under its previously issued policies, including the policy covering the Scully employee. Scully obtained workers’ compensation from other licensed insurers in Massachusetts going forward and the firm continued to pay into the trust fund via these insurers and, in doing so, Scully remained a trust fund participant after moving on from Arrowood.
Because Arrowood no longer collected premiums from employers while it was in run-off, it no longer participated in collecting the employers’ assessments to transmit to the trust fund. However, Arrowood continued to file the requisite documentation with the trust fund on a quarterly basis.
In 2005, Arrowood sought second-injury reimbursements from the trust fund for its payments to the Scully employee. Arrowood requested and received second-injury reimbursements through November 2013. In 2015, however, the trust fund began denying Arrowood’s requests, insisting that an insurer in run-off is excluded from reimbursements. The trust fund also claimed that reimbursements to Arrowood would amount to a “windfall.”
The trust fund asked the court to defer to its interpretation of the act’s second-injury reimbursement provisions, describing its interpretation is both “reasonable and longstanding.” But the high court rejected that plea, noting that the trust fund’s interpretation is not supported by either the plain language or over-all structure of the law.
The court noted that act enumerates three categories of nonparticipating employers that are excluded from trust fund reimbursements. The Legislature specifically excepted “any non-insuring public employer, self-insurer or self-insurance group which has chosen not to participate in the fund.” In two sections the law “explicitly designates these three categories as the exceptions to second-injury reimbursement eligibility.” Neither of the lists in the act includes insurers in run-off, nor does the plain meaning or statutory definitions of these categorical terms include insurers in run-off.
The court reminded the DIA that the trust fund is financed by employers, not insurers. The court said that the trust fund’s assertion that Arrowood would receive a “windfall” if it were to receive the second-injury reimbursements while in run-off was inaccurate. The high court explained that Arrowood, as required by Scully’s insurance policy, has paid, and continues to pay, workers’ compensation benefits to Scully’s injured employee. Thus, any reimbursement received by Arrowood from the trust fund is not a profit to Arrowood, but a partial offset of Arrowood’s already completed disbursements. There is therefore no “windfall” for Arrowood when it receives the second-injury reimbursements to which it is entitled.
Insolvency Case
The issue in the second case was whether the Massachusetts Insurers Insolvency Fund (MIIF) is eligible to receive cost-of-living adjustment (COLA) reimbursements from the trust fund. For some of the same reasons set out in the Arrowood case, the high court concluded that the plain language of the relevant statutes and the funding and reimbursement requirements they contain entitle MIIF to receive COLA-payment reimbursements.
Accordingly, as in Arrowood, the court reversed the decision of DIA.
The workers’ compensation act permits certain employers to “opt out” of paying assessments to the trust fund, subject to the condition that they then cannot benefit from trust fund reimbursements. The statute is explicit about barring these “opt out” employers from trust fund reimbursements.
Among other duties, MIIF administers and pays certain “covered claims” filed against an insolvent insurer prior to the insurer’s declaration of insolvency or within a limited period after such declaration. MIIF raises its revenue via mandatory assessments on Massachusetts insurers.
Under the workers’ compensation act, insurers are entitled to quarterly reimbursements for COLA payments made to injured employees. Between 1989 and 2013, MIIF initiated payment of workers’ compensation benefits on behalf of several Massachusetts insurers declared insolvent. MIIF filed six claims with the trust fund between March 2015 and September 2021, seeking $15,418,924.84 in total reimbursement for COLA payments made between January 2013 and September 2020.
In August 2016, the trust fund denied MIIF’s March 2015 reimbursement. The fund determined that MIIF had no claim to reimbursements because it is not an insurer and does not participate in the trust fund or remit assessments. MIIF continued to make the statutorily mandated COLA payments to the insolvent insurers’ claimants.
The definition of “insurer” in MIIF’s enabling statute does not include or reference MIIF. The trust fund relies on this omission to conclude that MIIF cannot be eligible for COLA-payment reimbursements because, as a non-insurer, it is categorically excluded from the act’s insurer reimbursement provisions.
Although the law does not explicitly refer to MIIF as an “insurer,” the high court noted that another provision in the workers’ compensation act provides that MIIF “shall be deemed the insurer to the extent of its obligation on the covered claims” and “shall have all rights, duties and obligations of the insolvent insurer” when it takes on an insolvent insurer’s covered claims.
MIIF therefore “stands in the shoes” of the insolvent insurer and consequently qualifies as an “insurer” eligible for reimbursement under the act, the high court concluded.
In addition, the high court said the trust’s argument that the insolvency fund should be denied COLA-payment reimbursements on the grounds that MIIF does not transmit payments to the trust fund is also incorrect, as it ignores that the trust fund is paid for by employers, not insurers.
Topics
Workers’ Compensation
Massachusetts
