The Supreme Judicial Court of Massachusetts, reversing a trial court's ruling, has decided that the Massachusetts Insurers Insolvency Fund could recover from a “high net worth” company certain workers' compensation benefits paid by the fund on behalf of the company's insolvent insurer.
|The case
In May 2003, Donna Poli, an assistant branch manager for Woronoco Savings Bank, injured her back while lifting coin-filled bags. Woronoco then was the named insured under a Workers' Compensation/Employer's Liability policy issued by Centennial Insurance Company. Woronoco notified Centennial of the injury, and Centennial began paying Poli weekly workers' compensation benefits under the Massachusetts law that provides temporary total incapacity benefits for up to three years.
On June 16, 2005, Woronoco merged with and into Berkshire Bank.
In August 2006, Poli exhausted her entitlement to the benefits, and Centennial voluntarily began payments under a different section of the law, which provides for partial incapacity benefits. Four years later, in August 2010, Poli exhausted her entitlement to those benefits, and Centennial stopped making any payments.
In response, Poli sought permanent and total disability compensation under the Massachusetts law. In February 2011, the Massachusetts Department of Industrial Accidents (DIA) denied her claim after a conference, and she appealed.
In April 2011, Centennial, domiciled in New York, was placed into liquidation in that state. Pursuant state law, the Massachusetts Insurers Insolvency Fund assumed administration of Poli's claim. On Sept. 7, 2011, the fund entered into a lump-sum agreement with Poli, and it agreed to pay her $85,000 and to pay all future medical expenses arising from her injury.
The DIA approved the agreement a week later; however, Berkshire was not consulted by the fund with respect to its agreement with Poli.
In January 2012, the fund sent a demand to Berkshire seeking to recoup the amounts paid to Poli on the grounds that Berkshire was a high net worth insured and, therefore, was obligated to reimburse the fund.
Berkshire refused to pay, prompting the fund to go to court, asserting a claim for breach of the statutory duty to reimburse. The fund also sought a declaratory judgment that Berkshire was liable to reimburse the fund for future payments and incurred expenses associated with Poli's workers' compensation claim.
The trial court granted summary judgment in favor of Berkshire, concluding that the law entitled the fund to recover from high net worth insureds — which included Berkshire — amounts the fund had paid only when the amounts in question had been paid “on behalf of the insured.” The court reasoned that once an employer purchased a qualifying Workers' Compensation insurance policy, the employer had no obligation to pay workers' compensation benefits to any employee because the responsibility to make payments was exclusively with the insurer.
As a result, any amounts paid by the fund would not be “on behalf of” the insured employer, and recoupment pursuant to the law would not be available.
The dispute reached the Supreme Judicial Court of Massachusetts.
|The court's decision
The state high court reversed the ruling below.
In its decision, the court ruled that, for purposes of the phrase “on behalf of the insured, whether for indemnity, defense[,] or otherwise” in the law, the fact that an insurer was directly liable for paying workers' compensation benefits was “not dispositive.”
It reasoned that, in making payments of workers' compensation benefits to an injured employee, an insurer did so “in the interest of” or “for the benefit of” the employer: The insurer was acting pursuant to an insurance contract that the employer had entered into to satisfy its statutory obligation to provide for workers' compensation benefits.
In the court's view, the fund's payments to Poli met the legal requirement of the workers' compensation statute that they be “amounts paid by the fund to or on behalf of the insured, whether for indemnity, defense[,] or otherwise.”
Simply put, the court concluded, in enacting the high net worth insured provision, the legislature “did not intend to preclude recovery from high net worth employers for this expensive type of claim.”
Want to continue reading?
Become a Free PropertyCasualty360 Digital Reader
Your access to unlimited PropertyCasualty360 content isn’t changing.
Once you are an ALM digital member, you’ll receive:
- Breaking insurance news and analysis, on-site and via our newsletters and custom alerts
- Weekly Insurance Speak podcast featuring exclusive interviews with industry leaders
- Educational webcasts, white papers, and ebooks from industry thought leaders
- Critical converage of the employee benefits and financial advisory markets on our other ALM sites, BenefitsPRO and ThinkAdvisor
Already have an account? Sign In Now
© 2024 ALM Global, LLC, All Rights Reserved. Request academic re-use from www.copyright.com. All other uses, submit a request to [email protected]. For more information visit Asset & Logo Licensing.
