An interesting legal battle going on in New York has escalated to the United States Supreme Court and has implications beyond workers' compensation if the court decides to grant a hearing.
Chairmen of 12 former self-insurance trusts managed by New York administrator First Cardinal filed a petition for writ of certiorari asking the Supreme Court to intervene in a three-year battle over assessments levied by the State Workers' Compensation Board (SWCB) to pay off claims left by a string of trust failures dating back to 2006.
The trusts argue that SWCB had no legal authority to assess healthy trusts – those considered fully funded under New York law – for the failure of 17 other trusts declared insolvent and taken over by the board in the past five years.
The so-called "First Cardinal" trusts won summary judgment from the New York Supreme Court, the state's trial court, in May 2010.
The court ruled that assessing healthy trusts for the liabilities of failed ones constituted an improper taking of the rights of trust members to "reasonable, investment-based expectations" under the Fifth Amendment to the U.S. Constitution.
The trial court's ruling was overturned by a New York appeals court on April 21, 2011. The Appellate Division of the Third Judicial Department ruled that the board's assessments were designed to promote the common good and didn't "rise to the level of a taking."
The New York Court of Appeals -- the state's highest court -- declined to hear the case in September. In a two-paragraph slip opinion, the court said it found no constitutional issues that would merit a hearing.
The First Cardinal trusts contend that their combined board assessments swelled from $155,000 in 2007 to $12 million in 2008, after then SWCB Chairman Zachary Weiss invoked a section of New York law allowing him to impose emergency assessments to pay workers' claims.
To avoid further assessments, the twelve trusts voluntarily dissolved, effective Jan. 1, 2009. They contend they were assessed more than $100 million to pay for failed trusts and are facing another $33 million in exit penalties.
A quick search of "workers' compensation" in the Cornell University Law Library web site did not produce too many results, as one might expect, the last being in 2006, HOWARD DELIVERY SERVICE, INC., et al., PETITIONERS v. ZURICH AMERICAN INSURANCE CO.
The Howard case involved a carrier seeking priority status for unpaid premiums in a bankruptcy proceeding of its insured.
The court held that a carriers’ claims for unpaid workers’ compensation premiums owed by an employer fall outside the priority allowed by §507(a)(5) reasoning that such premiums are more appropriately bracketed with liability insurance premiums for, e.g., motor vehicle, fire, or theft insurance, than with contributions made for fringe benefits that complete a pay package, e.g., pension plans and group health, life, and disability insurance:
"In sum, we find it far from clear that an employer’s liability to provide workers’ compensation coverage fits the §507(a)(5) category 'contributions to an employee benefit plan … arising from services rendered.' Weighing against such categorization, workers’ compensation does not compensate employees for work performed, but instead, for on-the-job injuries incurred; workers’ compensation regimes substitute not for wage payments, but for tort liability."
The First Cardinal petitioners argue that New York's group-trust crisis is part of a bigger liability problem facing multi-employer pension systems and health insurance plans across the U.S.
"The court should grant review in this case to provide sorely needed guidance to the lower courts as they deal with the inevitable flood of litigation to follow," the petition contends. "The crisis in New York’s self-insurance market is a microcosm of a broader nationwide crisis in unfunded pension and health-care liabilities."
It seems to me that the US Supreme Court has made its view pretty clear with the Howard case - workers' compensation is unlike pensions in that it is not a wage payment. Equating a state requirement of joint and several liability, to which the trust members agreed going into the arrangement, to a pension or health-care liability, which are employee contract obligations, doesn't seem to hold up to legal analysis.
If the US Supreme Court does take up the challenge it could be a game changer. workers compensation, work comp, injured worker
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