Utah Workers’ Comp Fund Sues State

December 1, 2003

The Utah Workers Compensation Fund has filed a lawsuit against the State of Utah over the ownership of the assets of WCF, in efforts to put to rest the dispute over ownership which stems back to the Fund’s inception in 1917.

“This has been something of a long-standing dispute over the ownership of the assets of the company,” said Thomas Callanan, senior vice president, chief underwriting and marketing officer of the WCF.

“Our belief is that the policyholders own the assets of the company.”

Callanan said the action is spurred by the announcement that the WCF intends to spin off its subsidiary, the Advantage Workers Compensation Insurance Company, which would turn Advantage into a publicly traded company, allowing shares to be distributed among the policyholders.

A press release from the WCF stated, “This plan could be placed in jeopardy if the State of Utah claims it owns the assets of the company and would somehow be entitled to a disproportionate share in the proceeds of that spin-off.”

Callanan said the state of Utah’s Attorney General’s office recently distributed a memorandum stating the opinion that the state of Utah substantially owns all of the assets of the company. “We were forced, with that having been done, to file the lawsuit,” he said.

“Our Board of Directors voted and recommended that we file this declaratory action, so that’s the purpose of the lawsuit. We want a court to say who owns the assets of the company, and we believe the policyholders own the assets of the company. The only interest of the state, that we believe, is their interest as a policyholder, so they are a client of our company, and so they have an ownership in the company to the extent that they are a policyholder.

“There were several other things going on in parallel,” Callanan added, including a full mutualization plan that would turn WCF into a fully mutualized company “that is not under the state in the sense of the governor-appointed Board of Directors.”

According to Callanan, there have been four different attempts from the state of Utah to take assets from the WCF dating back to the 1930s. In each case, the Utah Supreme Court denied the state, stating that the policyholders of the company own the WCF’s assets.

The WCF was started in 1917 with $40,000 in seed money granted by the state of Utah, which was repaid by the WCF in 1922.

“Since that time there has been no monetary support for any tax support from the state of Utah going to the WCF,” he said. “Our company has operated since that time on its own premium revenue and investment income.

“Our legal counsel tells us we’re on quite firm ground, that the policyholders do own the assets,” Callanan added.

The state has responded to the complaint, and has retained the outside legal counsel of Suitter Axland.

The state has formally denied every allegation in the WCF’s complaint. In the response, the state affirms that the WCF is both a governmental and public entity “which was created by the Utah Legislature in 1988 as an ‘independent state agency and a body politic and corporate,’ whose status has not been constitutionally altered to a privately-owned entity. The statutes governing WCF may only be amended by the Legislature.”

The parties will now move in to a period of discovery, according to Utah Assistant Attorney General Thom Roberts.

To comment on this story, e-mail cbeisiegel@insurancejournal.com.

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Insurance Journal West December 1, 2003
December 1, 2003
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