Lawmakers Won’t Bail Idaho Workers’ Comp Fund Out of ‘Pickle’

April 10, 2009

Idaho’s Senate Commerce and Human Resources Committee voted 5-4 on April 7 to kill a bill that trial lawyers insisted was aimed at scuttling their three-year-old class-action lawsuit against the Idaho State Insurance Fund.

Since at least 2003, the state fund has paid dividends only to larger policy holders whose premiums exceeded $2,500 annually, and $1,500 starting in 2008.

In March, however, the Idaho Supreme Court ruled in the lawsuit filed in 3rd District Court in Canyon County that a 1917 state law requires that all companies that buy workers’ compensation coverage from the fund share in dividends relative to the amount of their premium payments.

The bill that died, sponsored by Sen. John Goedde, R-Coeur d’Alene and a member of the Idaho State Insurance Fund board, sought to repeal that law retroactively to 1998, the year Idaho reformed its worker’s compensation insurance laws. Lawyers for the class-action plaintiffs contended that would be an unconstitutional violation of policy holders’ contract rights — and a majority of the Senate panel agreed.

“If the Idaho State Insurance Fund has gotten themselves in a pickle, it doesn’t seem very fair for the Idaho Legislature to bail them out,” Sen. Joe Stegner, a Lewiston Republican, said before the vote. “You don’t come to the Legislature and ask to get a special favor.”

The State Insurance Fund was created by the Idaho Legislature 92 years ago as part of the Worker’s Compensation Act. It’s run by a governor-appointed board, but isn’t officially a state agency and doesn’t get taxpayer money.

The lawsuit, which originated in Nampa in 2006 and could include as many as 30,000 to 50,000 class-action plaintiffs who missed dividend payments, has yet to be concluded in state court. Lawyers for the state have asked for a rehearing after the Idaho Supreme Court’s March 5 ruling.

Don Lojek, a lawyer for the plaintiffs, told committee members his case as “open and alive.” As a result, he feared if lawmakers repealed the law retroactively with Goedde’s measure, state high court justices might conclude they no longer had jurisdiction, prompting yet another constitutional challenge.

“This bill is unconstitutional because it retroactively affects the fund’s contractual obligations,” Lojek told the committee. “In the past, people thought they were going to be eligible for dividends.”

Rich Hall, a lawyer for the Idaho State Insurance Fund, conceded the bill’s “retroactivity was unusual. But we believe it’s such a significant financial impact that it is a reasonable way to handle this situation.”

Jim Alcorn, the fund’s manager, told the panel that the possible loss to the state insurance fund if lawsuits are successful could be as much as $24 million, resulting in higher premiums for businesses large and small and costing state agencies that get coverage from the fund millions more annually.

“My obligation is to make sure the State Insurance Fund stays financially solvent,” Alcorn said.

In 1998, Sen. Dean Cameron, R-Rupert, sat on then-Gov. Phil Batt’s committee that helped reform Idaho’s insurance laws in an effort to extend coverage to farm workers. Bill Deal, the current director of the Idaho Department of Insurance, was also on the committee.

Now a member of the Senate Commerce panel, Cameron recalled that his committee more than a decade ago always intended to let the fund distribute dividends as its manager saw fit, but failed to remove the statute requiring dividends for everyone who paid premiums. That oversight could cost the fund millions.

“We obviously missed one section,” Cameron said. “Therein lies the problem.”

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