Liberty Mutual Group filed a lawsuit challenging the scheduled closing of the state's Reopened Cases Fund, arguing that doing so puts insurers and self-insured employers at risk of addressing more than $1 billion in existing, unsettled workers' compensation claims.
The case was filed July 29 in state Supreme Court for New York County against the New York Department of Financial Services. It comes in response to the legislative passage of a state budget earlier this year that contained workers' compensation reforms, including an amendment that closed the Reopened Cases Fund effective Jan. 1, 2014. Liberty Mutual is asking the court to prevent the state from enforcing the change.
The fund has been in place since 1933 and was created to relieve the employer and insurance carrier from paying for certain reopened workers' compensation cases that had been previously closed by a Workers' Compensation Law judge or a panel. When such cases are reopened, they are typically to determine the claimant's eligibility for benefits in instances to address, for example, a recurrence of an illness or renewed progress of an illness.
Insurers, self-insured employers and the State Insurance Fund transfers such claims to the Reopened Cases Fund. Finances for the fund are generated through a 4.9% assessment fee on premium rates of employers, for whom obtaining workers' compensation for employees is mandatory.
But closing the fund would impose an unfunded, retroactive liability of $62 million on Liberty Mutual Insurance and anywhere from $1.1 billion to $1.6 billion for all workers' compensation carriers in the state, according to Chris Goetcheus, a Liberty Mutual spokesperson.
"For over half a century, the Fund was financed through employer-paid assessments, which the legislation has eliminated," a Liberty Mutual statement said. "The company and the industry never anticipated that they would be responsible for these 'reopened claims.'" The state neither approved, nor considered rates that include pricing for those liabilities, the company said.
The complaint said the fund's closing will result in companies having to transfer funding to reserves to cover potential liability for future reopened cases, and increase loss costs by 4.1% to 5.0%, ultimately leading to increased premium rates. The Department of Financial Services approved a 4.5% increase on new and renewal policies to account for the fund's closing to take effect Oct. 1, according to the complaint.
Liberty Mutual argues that the fund's closing is unconstitutional because it violates due process clauses in the U.S. and New York state constitutions, because the closing shifts the burden for reopened cases that arise from accidents that occurred prior to Jan. 1, 2014.
The American Insurance Association is watching the case and has not taken a position on it. "However, we are not surprised at all that a major comp carrier sued," said Gary Henning, AIA vice president, Northeast region.
AIA initially supported the workers' compensation reform package that was offered to lawmakers that included closing of the Reopened Cases Fund. But Henning said AIA was under the impression that closing would be accomplished by phasing out the fund to give insurers time to make appropriate actuarial assumptions. But the abrupt closing of the fund has upset those companies who were sending the most claims there, he said.
"No company likes the fact that the legislation requires them to pick up unfunded liability," Henning said. AIA members wait to see what happens with the initial ruling and its likely appeal, he said. "The question is: 'After Jan. 1, can reopened cases go in there?'"
When the budget was passed containing the language closing the fund, Gov. Andrew Cuomo's office hailed the closing, saying it would eliminate the need for New York businesses to make payments into the fund. But the Property Casualty Insurers Association of America reacted by indicating that its closing would contribute to loss costs for employers (Best's News Service, April 10, 2013). PCI officials tracking the issue were not immediately available for comment.
The top five writers of workers' compensation insurance in New York during 2012 were State Insurance Fund WC Fund, with a 40.88% market share; American International Group, with 9.61%; Liberty Mutual Insurance Companies, with 7.07; Hartford Insurance Group, with 6.75%; Travelers Group, with 5.27%, according to BestLink, A.M. Best Co.'s online financial system.