View this article online: https://www.insurancejournal.com/news/east/2016/11/04/431568.htm
The Supreme Judicial Court of Massachusetts in Boston, Mass., has ruled that the Massachusetts Insurers Insolvency Fund is authorized to recover certain amounts paid by the fund in workers’ compensation benefits on behalf of Berkshire Bank.
The lawsuit, Massachusetts Insurers Insolvency Fund v. Berkshire Bank, was originally brought against Berkshire in 2014 by the fund, a nonprofit, unincorporated legal entity established in 1970 to provide a limited form of protection from insurer insolvencies.
The Fund stands in place of an insolvent insurer and is obligated to pay all covered claims against that insurer, in most instances up to a cap of $299,999 per claim, the court decision explains. There are certain types of insurance that are excluded from coverage by the Fund, but since 1988, workers’ compensation insurance claims have qualified for Fund coverage. Since 1993, there has been no cap on the Fund’s financial responsibility for these claims.
In its decision, the court cited a section of Massachusetts General Law that identifies Berkshire as a high net worth insured. Under section 17 of Massachusetts General Law chapter 175D, which deals with the Massachusetts Insurers Insolvency Fund, the fund has the right to recover from a high net worth insured amounts paid by the Fund to or on behalf of the insured.
Section 17 was added in 2006 to address the issue of high net worth insureds. It defines a high net worth insured as any insured whose net worth exceeds $25 million on December 31 of the year before the year in which the insurer becomes an insolvent insurer. An insured’s net worth on that date includes the aggregated net worth of the insured and all of its subsidiaries and affiliates, excluding any federal, state or local government entities, the section states.
“Section 17 contains no language carving out any exceptions for any particular types of insurance otherwise covered by the Fund, and Berkshire indisputably qualifies as a high net worth insured under the definition of the term,” the court outlined in its ruling.
The 2014 lawsuit came after a series of incidents involving workers’ compensation benefits over the previous decade.
In May 2003, Donna Poli, an assistant branch manager for Woronoco Savings Bank of Westfield, Mass., injured her back while lifting coin-filled bags. Woronoco was then named the insured under a workers’ compensation/employer’s liability policy issued by New York-based Centennial Insurance Company, according to the court decision. Centennial began paying Poli weekly workers’ compensation benefits, providing total incapacity benefits for up to three years.
On June 16, 2005, Woronoco merged with Berkshire. Poli exhausted her entitlement to benefits in August 2006, and Centennial voluntarily began payments providing partial incapacity benefits for four years.
In August 2010, Poli exhausted her entitlement to those benefits, and Centennial ceased making any payments. Poli then sought permanent and total disability compensation, and in February 2011, the Department of Industrial Accidents (DIA) denied her claim. Poli appealed this decision.
In April 2011, however, the New York Supreme Court placed Centennial into liquidation. The Fund assumed administration of Poli’s claim and entered into a lump sum agreement with her in which it agreed to pay $85,000 and to pay all future medical expenses arising from the injury. Berkshire was not consulted by the Fund about the agreement, which was approved by the DIA, according to the court decision.
In January 2012, the Fund sought to recoup the amounts paid to Poli from Berkshire on the grounds that Berkshire was a high net worth insured obligated to reimburse the Fund. Berkshire refused to pay the Fund, prompting it to bring the lawsuit against Berkshire in July 2014.
In the Fund’s amended complaint, it claims Berkshire committed a breach of statutory duty to reimburse and seeks a declaratory judgment that Berkshire is liable to reimburse the Fund for future payments and expenses associated with Poli’s workers’ compensation claim.
Berkshire argued that the Fund’s payments were not made on its behalf because under Commonwealth of Massachusetts’ workers’ compensation law, once the employer purchases workers’ compensation, the liability to pay compensation benefits is the insurer’s and the employer retains no further responsibility, according to the decision document.
In the court’s ruling in favor of the Fund, it stated that employers are required by law to provide workers’ compensation benefits to employees.
“Berkshire is correct that the insurer is directly liable for paying workers’ compensation benefits,” the decision stated. “Berkshire concedes, as it must, that employers are required to provide their employees with workers’ compensation benefits or face severe penalties and common-law tort liability. The employer’s obligation to provide coverage is a statutory one that exists independently of the insurer.”