SC Comp Commission Must Relinquish $1.8M From Bankrupt Firm, Appeals Court Says

The South Carolina Workers’ Compensation Commission had no legal right to hold on to – for more than 15 years – some $1.8 million set aside by a bankrupt textile manufacturer for injury claims that never materialized, the state Court of Appeals decided.

“We hold the commission improperly drew down the letter of credit because the funds were not needed for the payment of any pending claims,” the appeals court judges said in a Sept. 17 opinion in an appeal brought by WestPoint Home, the surviving company that emerged from WestPoint Stevens, which was one of the largest textile firms in the country.

The appeals court overturned a Richland County Circuit Court decision from 2023 and remanded part of the case so the lower court could determine prejudgment interest owed on the money.

Gary Cannon, the executive director of the state Workers’ Compensation Commission who is retiring next month, declined to comment Wednesday on the decision, noting that more litigation remains. He did say that the commission’s attorneys will ask the appellate judges to reconsider, but that is unlikely to be granted.

WestPoint Stevens, formed after mergers in the 1960s and 1990s, was known as a textile giant, even in parts of South Carolina, where linens and other textiles were the bedrock of the economy for decades. WestPoint Stevens, which was self-insured for workers’ compensation liabilities, went into bankruptcy and closed in 2005. The bankruptcy court required the company to deposite $1.8 million into a private account to cover injury claims. WestPoint granted the comp commission an irrevocable letter of credit so that pending and future claims could be paid, the appeals court explained.

In 2013, the surviving WestPoint entity after the reorganization, a company known as WestPoint Home, asked the commission to release most of the funds, noting that an injury claim had not been filed since 2008. Cannon and the commission pushed back, arguing that asbestos claims from workers could still manifest up to 50 years after exposure. He also asserted that WestPoint Home had not truly stepped into the shoes of WestPoint Stevens because they had disclaimed liability for injury claims.

WestPoint sued. After the circuit court ruled in favor of the commission, WestPoint appealed.

“There was no lawful basis for the Commission to sweep the entirety of WestPoint Home’s $1.8 million deposit out of its bank account in 2005,” WestPoint attorneys wrote in their appeal brief. “There was no lawful basis for the Commission to collect and keep interest on WestPoint Home’s money in the meantime. And there is no lawful basis for the Commission to retain the remainder of that deposit, as the window for any new claim that could be made against that deposit closed long ago—as the Commission concedes.”

During the trial, Cannon, who became the commission’s executive director in 2009, testified that injury claims were few and the commission had never needed the $1.8 million to pay claims.

A key point in the case turned on the South Carolina statute of limitations versus the statute of repose. Cannon had argued that the statute of limitations governed, allowing claims to be filed within two years of diagnosis, which could necessitate the need for funds to cover future asbestos claims for decades.

But Appeals Court Judge Matthew Turner, who penned the court’s 12-page opinion, wrote that the state’s statute of repose governs. That statute bars claims more than two years after the last exposure to asbestos. Thus, the window for claims has long since closed.

“We recognize that this holding may ‘impose on some plaintiffs the hardship of having a claim extinguished before it is discovered, or perhaps before it even exists,’” the appellate court wrote.

The court also pointed out that state regulations state that the comp commission may draw down a letter of credit, but only if the proceeds are needed to pay a claim.

The case also showed how diligent WestPoint has been in pursuing the return of the funds. The comp commission initially balked at disclosing the status of the money. But WestPoint went to court, seeking a loss-run report and eventually forcing the agency to reveal that about $1.16 million of the funds remained. The agency also disclosed that, with interest, the level was up to $1.7 million in recent years.

The opinion and brief did not examine how the money may have been or should have been invested over time. But an Investor.gov interest calculator shows that if $1.16 million had earned 5% interest, compounded annually, for 17 years, it would be worth about $2.65 million today.

Attorneys for WestPoint could not immediately be reached for comment Wednesday.

Photo: Textile manufacturing site (Adobe Stock)

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