Reinsurer Required to Pay Workers’ Compensation Benefits if Employer Becomes Insolvent

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.

The Appeals Court of Massachusetts agreed with the Workers’ Compensation board’s finding that an employer must be uninsured on the date of the injury for the trust fund to be liable for employee benefits under the Act, contrary to the reinsurer’s argument. The Court noted that while the Act failed to define ‘uninsured’ or provide an operative date for the uninsured status of an employer, in viewing the Act as a whole it was clear the statutory intent was for the term ‘uninsured’ to apply to an employer who did not have insurance at the time of the injury. The Court then analyzed the reinsurer’s obligation under the Act. The Court declined to adopt the reinsurer’s argument that the reinsurance requirement under the Act was meant to protect employers from extraordinary losses. The Court instead held the reinsurance requirement was meant to protect injured employees in the event their employers could no longer pay benefits. As such, the court held the reinsurer was statutorily obligated to pay the employee’s benefits if the employer became insolvent.  With regards to the retention floor, the court stated the reinsurer could not contract away its statutory duties, and therefore the retention floor was unenforceable. Accordingly, the court ultimately held the reinsurer was responsible for the payment of the employee’s continued benefits.

If you are injured in the workplace, it is likely you are entitled to workers’ compensation benefits. Obtaining the benefits you are owed can pose complications that require the assistance of a skilled workers’ compensation attorney. The attorneys at the Law Office of James K. Meehan are experienced in assisting injured employees in obtaining the workers’ compensation benefits they are rightfully owed.  For a free, confidential consultation, contact our office at 508-822-6600.

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