Recently, the Massachusetts Reviewing Board of Industrial Accidents reviewed a decision in favor of an injured worker who received compensation benefits for permanent and total incapacity from his employer until his employer filed for bankruptcy. The issue in this appeal was how the employee would receive compensation, without a gap in payments. Both the Workers’ Compensation Trust Fund (WCTF) and Safeco Insurance Company cross-appealed a lower court decision awarding § 34 benefits to the employee.
The Board, in reviewing the decision of the judge, based much of the analysis on the purpose of the Workmen’s Compensation Act and an employee’s right to benefits.
In this case, the employee had worked for the employer until his injury on January 21, 2005. At that time, the employer was self-insured. The employee began receiving § 34 benefits and then § 34A benefits. On the date of the injury, the self-insurer had reinsurance that it bought from ACE. The employer also posted a bond with the department before filing for bankruptcy. Safeco held the bond and began to pay compensation to the employee.
In October 2012, Safeco notified the employee that the bond was exhausted. The employee then filed a claim against the excess carrier, ACE, seeking payment of benefits to him. ACE wanted the WCTF to pay, and a judge ordered the WCTF to pay the employee § 34A benefits.
The judge had found that after the Safeco bond was exhausted, the employer was “uninsured” under § 65(2)(e), and the WCTF was responsible for providing benefits to the employee. The WCTF was ordered to pay benefits until the employee reached $400,000.00, and at that time, ACE, the excess carrier, would be responsible.
The WCTF argued that the judge erred and that the employer was never “uninsured” as required by the Workmen’s Compensation Act, and therefore they were not responsible for paying benefits to the employee. They also contended that ACE should reach below the contractual amount to cover the benefits once the bond was exhausted.
The Board stated the law, which requires the WCTF to pay compensation benefits when an employer is uninsured. “Uninsured” is defined as an employer that has not obtained a workers’ compensation insurance policy to cover itself and its employees as of the date of the injury set forth by the employee with a claim for compensation.
In this case, the employer was insured as of the date of the injury. The employer had been granted a license by the department to be self-insured. The employer had obtained a bond and reinsurance as required by law. Seven years later, the employer was bankrupt, and the bond was exhausted, but the Board stated that this does not make the employer “uninsured in violation of the chapter.” Instead, the employer had complied with the law as of the date of the employee’s injury in 2005. Since the employer was not “uninsured” as of the date of the injury, the WCTF was not obligated under § 65(2)(e) to pay benefits to its injured employees at any time.
Next, the Board stated that the employee still had not recovered when the employer became bankrupt. Once the employer exhausted the bond, in October 2012, and the amount paid the employee had not reached $400,000.00, it appeared that the employee did not have a remedy for the gap in coverage. The Board stated that § 25 A(2) helps to guarantee the continuance of compensation benefits to injured employees.
If an insurer becomes insolvent, the purpose of the Workmen’s Compensation Act is fulfilled through the Insurer’s Insolvency Fund. In this case, the self-insurer became insolvent. The Board summarized three tiers of protection for employees, with the first tier being the payment by the self-insurer to the employee. The second tier comes into play when the self-insurer is bankrupt, and a bond guarantees payment of the self-insurer’s liability. Once the bond has been exhausted, the third tier comes into play, which is the requirement of reinsurance.
ACE, as the excess carrier, argued that in a situation in which the self-insurer becomes insolvent, the plain language of the policy stated that their obligation cannot be expanded to include a drop down, when the bond exhausts. To do so, they argued, would violate the rule that an excess policy is a distinct and separate policy from original coverage.
The judge in this case had agreed, finding the ACE policy was a retention rather than a deductible policy. The WCTF contended that the judge erred and that the ACE should have begun directed payment of benefits to the employee once the Safeco bond had been exhausted.
The Board stated that workers’ compensation insurance is set forth by statute, and the rights and obligations of parties to that contract must be determined by looking at the language in the policy. First, the Board stated that the employee has a right to receive benefits under the Act, and there should not be a gap in receiving benefits, even when the second tier bond is exhausted. Therefore, the ACE language limiting their position to one of indemnification contradicts its statutory obligation to ensure the employee receives benefits. In sum, ACE must pay the employee benefits directly when there is no longer an entity that can do so.
Here, ACE contracted with the employee to “guarantee” payment of employee compensation when certain conditions took place. The employer then became bankrupt, and their second tier payor, Safeco, exhausted the bond. The third tier payor, ACE, must directly compensate the employee, or there will be no source for payment benefits.
The Board held that the ACE contract must be construed according to the employee’s right to compensation. ACE was required to pay the employee once the bond was exhausted, regardless of the specified retention amount.
If you have suffered injuries while working on a job site, you may be entitled to compensation for your injuries and lost wages. The Massachusetts attorneys at Pulgini & Norton offer experienced legal representation for injured clients pursuing workers’ compensation benefits. To discuss your claim with one of our hardworking attorneys, contact our office at (781) 843-2200 or online and schedule a consultation.
More Blog Posts:
Massachusetts Reviewing Board Finds in Favor of Employee Suffering Disability due to Repetitive, Strenuous Work, Massachusetts Workers’ Compensation Lawyer Blog, June 30, 2016
Massachusetts Appeals Court Finds for Worker Claiming Partial Incapacity Benefits, Massachusetts Workers’ Compensation Lawyer Blog, August 12, 2015