The fund asked Photocircuits for the additional $466,100 in premium money based on coverage the company had under a retrospective rating plan policy, which bases premiums on claims experience during a policy period and can adjust them up or down.

According to Mr. Dreux, there is "lots of anecdotal evidence" of many other unhappy customers of the fund, which serves as an insurer for a third of the employers in New York State.

Photocircuits action against the fund was supported in a friend of court brief by Independent Insurance Agents and Brokers of New York.

In making its ruling, in an opinion written by Justice Luis A. Gonzalez, a panel of the Appellate Division noted that among other things, "it is uncontested that the fund paid benefits to a known imposter."

According to the decision, in 1996 when the board investigated a claim against Photocircuits by a claimant named Traore Sekou, it was told by Mr. Sekou "that he had never worked for Photocircuits and that he suspected a former roommate had used his name and Social Security number to file for Workers' Compensation and had taken the checks."

The court found that despite this information the fund, which had started making payments to the imposter in 1992, paid him another $39,000 for a total of $66,626.

In a second case, the court said the fund paid out $116,501 to a claimant who produced no medical evidence that her injuries were related to her job.

The fund, according to the court, paid another claimant $367,762 and ignored evidence of a pre-existing medical condition that under law would have reduced the award by $328,798.

Another case, according to the decision, involved the fund's loss of a case file and failure to lodge an appeal despite evidence of questionable billing.

Normally the fund would be protected against a bad faith claim based on a deficient investigation or mismanagement, but "in this case there is clearly a question of fact as to whether the fund met its basic obligations to perform its duties to Photocircuits under the policy in a reasonable manner," Justice Gonzalez wrote. The decision noted it was "uncontested that the fund paid benefits to a known impostor."

The decision also stated that "the Fund has an important role in protecting against runaway and fraudulent claims. If the fund does not properly investigate a claim or fails to invoke the statutory protections given to employers," the Workers' Compensation Board cannot "sort out the real claims from the inflated and false ones."

A spokesman for NYSIF, when asked if the agency would appeal forwarded an e-mail statement that "it would be inappropriate to comment while the matter is still in litigation."

The statement also claimed that NYSIF "has dramatically increased the efficiency of its services by leading the fight against fraud and introducing the latest technology to its claims and policyholder operations."