Under the Massachusetts Workers’ Compensation Act (the Act) an individual who suffers a workplace injury is entitled to benefits. While obtaining benefits due to a covered injury is generally a relatively straightforward process, it can become complicated if your employer is unable to provide benefits. Generally, employers maintain insurance policies that provide coverage for workers’ compensation claims, but if your employer is self-insured and becomes insolvent it may not initially be clear who is responsible for your benefits. Recently, the Appeals Court of Massachusetts addressed the issue of who bears the responsibility of paying benefits when an employer becomes insolvent, and ultimately held that under Massachusetts Workers Compensation law a reinsurer is required to pay workers’ compensation benefits if a self-insured employer’s surety bond is exhausted.
In Janocha, the facts were undisputed. The employee suffered a workplace injury, which resulted in a permanent and total incapacitation for work. At the time of the employee’s injury the employer was self-insured, and held both a surety bond with a bond holder and a reinsurance policy with a reinsurer, pursuant to the terms of the Act. The reinsurance policy contained a retention provision, which stated the reinsurer would provide indemnification for covered losses once the benefits paid for a covered loss reached $400,000. The employer paid the employee’s benefits directly from the time of the employee’s injury until the employer’s bankruptcy in 2007, after which the bond holder issued payments directly to the employee. In 2012, the bond was exhausted and no further payments were made to the employee; however, the $400,000 retention limit had not been reached.
The employee filed a claim against the reinsurer, seeking reinstatement of his benefits. Following a hearing, an administrative judge held that once the employer’s bond was exhausted the employer was uninsured under the terms of the act and, therefore, the workers’ compensation trust fund was responsible for providing the employee’s workers’ compensation benefits until the payments reached $400,000. The trust fund appealed. On appea,l the workers’ compensation board reversed the administrative judge’s ruling, finding that the provisions of the Act stated the trust would only be the responsible party when the employer was uninsured on the date of the injury. As such, the board found the reinsurer to be responsible for paying benefits directly to the employee. The board further ruled that the reinsurer must act as a guarantee of a self-insured employer’s ability to pay benefits, and found the retention limit was void, as it conflicted with the reinsurer’s statutory obligation to provide benefits to the employee. The reinsurer appealed to the Appeals Court of Massachusetts.