Legislation inked to ease group trusts cash crunch; firm up regulation
|Resource kit 31249|
By Ellen D. Kiehl, Ph.D.
On June 30, 2008, Gov. Paterson signed into law A.11756, a bill to provide a temporary cash solution to the anticipated defaults by group workers' compensation insurers which have closed. (Note, the sponsor's memo for identical companion bill S.8708 refers to a Section 7 that has since been deleted, so Section 8 in the sponsor's memo now corresponds to Section 7 in the bill text, etc.) The bill was signed even as Plan A for handling the need for cash was set to be quashed in court. A recent ruling nullified assessments that had been levied by the New York Workers' Compensation Board (WCB) for this purpose.
PIANY members who have clients in active trusts can expect to hear more about the new legislation, combined with the thrust of the court decision. Although setting aside the WCB's 2008 assessments, the judge's ruling basically affirmed the liability of healthy trusts for insolvencies of other trusts, provided the WCB has first exhausted the defunct trusts' assets.
Members with clients who participated in trusts that have closed should be aware this law instituted aggressive collection efforts against employers who are responsible for the ongoing obligations of trusts to which they belonged.
The court's ruling appeared to be the first clear statement of how the group self-insurance law had been structured, even though part of the WCB's 2007 assessments on active trusts reportedly went to pay obligations of closed trusts. Any lingering doubts or ambiguity on the trusts' liability were swept away by the signature of A.11756.
Reportedly, group trust managers evaluated the new law and how it affects group members. Insurance producers with clients insured by the trusts can expect to hear from the managers on this point.
Background. On June 20, 2008, PIANY provided members with a briefing on the dilemma posed by actual or anticipated defaults among the group trusts that have closed, and the need to ensure that workers' claims against insolvent groups continue to be paid.
Court rules on trusts' liability, WCB procedures. The WCB's original plan was to assess all group trusts to avoid disruption of claims payments. However, the assessments that the WCB billed to active groups early were challenged in court. Collection was stayed by the court while arguments were presented. In a ruling handed down on July 7, 2008, Acting Supreme Court Justice Kimberly A. O'Conner said the Workers' Compensation Board had erred in issuing the assessments without proving that the closed trusts were insolvent.
"Insolvency must be real and actual prior to imposing the assessment, not prospective or speculative," she wrote. The order also said the 2008 assessments to cover defaults are "annulled and vacated."An attorney for the trusts that brought the suit claimed victory because their petition to nullify the assessments was granted. However, the WCB also came out a winner on the core issue of whether, in fact, the WCB can tap healthy trusts in the event a closed trust becomes insolvent.
"I am pleased the board has prevailed on the law and that this decision will allow us to collect the money needed to pay the claims of injured workers," said WCB Chairman Zachary S. Weiss. "The bottom line is the board has the legal right to pay the claims of injured workers by assessing group self-insured trusts and will conform to the court's decision as we move ahead," Weiss added.
Legislation provides short-term funds. Without their 2008 assessments, the WCB faced a possible point in time where it could not pay claims owed by the closed trusts whose affairs the WCB is managing. The 2008 legislation sets up additional ways of funding the obligations of defaulting groups.
The legislation allowed assessments to be offset by funding from a new, temporary "group self-insurer default fund" that could tap funds from the state's Uninsured Employer Fund (UEF).
Expect stepped-up enforcement efforts against employers charged with failing to maintain workers' compensation insurance, since UEF coffers benefit from these penalties. Fines are being doubled for lapses in coverage, from $1,000 to $2,000 for each 10-day period without insurance.
Calls by the healthy trusts for aggressive collection efforts against members of defaulting trusts will be answered by the law's mandatory billing for all outstanding liabilities, which went out 120 days after enactment.
Also, group trusts that were under-funded were given a limited period of time to bring funding up, or be required to terminate.
Group trust administrators will be more stringently regulated and newly licensed by the WCB, with restrictions on their involvement in commercial workers' compensation carriers that solicit or write excess insurance for members of groups they administer.
Features of the 2008 law included:
Here is a more detailed summary of A.11756:
A moratorium on forming new groups until April 1, 2009.
New standards for groups, to be spelled out by regulation:
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