Wednesday, November 21, 2012

SEUS and the Effects of Collapse

Legislators in Georgia will need to review a law that, likely unintentionally, will place one of the state's counties into a deeply troubling financial situation because of the insolvency of a workers' compensation carrier.

In 2009, Southeastern U.S. Insurance Co. (SEUS) went under amidst a very public probe and investigation based on allegations of misappropriation of funds, lavish executive spending and, of course, payola, as former Insurance Commissioner John Oxendine won court approval to force SEUS into liquidation in 2009. The suburban Atlanta insurer had 209 policyholders at the time of its collapse, including 40 cities, counties and school boards. 

SEUS had about $38.9 million in outstanding liabilities and holdings that included a 6,000-acre plantation and hunting preserve along the Chattahoochee River in South Georgia.

Georgia has a state Insurers Insolvency Pool that pays for a workers' compensation claims that would otherwise be covered by a carrier that has gone under but Official Code of Georgia 33-36-3 precludes the Insolvency Pool from paying any third-party claims for any insured with a net worth of more than $25 million.

When SEUS went into liquidation an estimated 88 workers – including eight with catastrophic injuries – had claims that weren't covered by the Insolvency Pool. Some were exempt because of the net-worth exclusion. Others were excluded because SEUS originally started as a captive of the professional employer organization (PEO) industry. Captives were initially not allowed in the pool.

SEUS converted to a stock insurance carrier in 2006.

Lumpkin County, Ga., was a SEUS customer and at the time had net assets of $66.8 million.

The county, along with cities and school boards left with claims in the wake of SEUS' failure, had argued the net-worth test should not be applied to local governments. Lumpkin County also argued in court filings that the bulk of its net worth is bridges, roads and government buildings that should be discounted as "restricted net assets."

The county said it has about $5.6 million in unrestricted net assets available to pay claims.

Lumpkin County lost at the trial level. The DeKalb County Superior Court Judge ruled that all of the counties assets were to be counted.

The Georgia Supreme Court on Monday agreed and ruled that the state Insurers Insolvency Pool is not required to pay for the county's workers' compensation claims.

Written by Justice Harold D. Melton in Lumpkin County v. Georgia Insurers Insolvency Pool, Case No. S12A1451, the court held that Georgia law is clear and that the county is exempt from protection by the pool.

"This court . . . is not in the business of rewriting unambiguous statutory authority," Melton said in the ruling. "A court of law is not authorized to rewrite the statute by inserting additional language that would expand its application."

Seems to me that if Lumpkin County wants a different result it will need to do some lobbying.

The case result is difficult in these challenging economic times as more and more liabilities are foisted upon local government from the federal and state governments.

And unfortunately this is just another example over the years of the delicate, tenuous position carriers play in the global scope of government and finance. The cascading effect of an insurance company's collapse lasts for years, and can have serious effect on an economy.

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