Liberty Mutual Group subsidiaries have filed a suit challengingNew York's decision to close a state workers' compensation funddealing with settled claims that are later reopened.

The suit alleges that the decision by the governor andlegislature, included as a component of the state budget for thenext two years, will cost insurers and self-insured employers up to$1.6 billion in unfunded liabilities.

However, an industry official experienced in the workings of thestate's workers' compensation fund questions the viability of thesuit.

This official explains that the suit was filed against theDepartment of Financial Services, even though state law mandatedthat the DFS implement the closure.

The official also says that while it could result in greaterliability for insurers and employers, the only substantive impactof the change is to alter the cost for the ultimate payer,employers, from an assessment on their bills to a rateincrease.

The case is American Economy Insurance Co. v. the State ofNew York. It names Benjamin Lawsky, superintendent of thestate Department of Financial Services as defendant.

It was filed on behalf of American Economy and 19 otherinsurance subsidiaries of Liberty Mutual Insurance Co. The suitprojects the cost of the change to its companies at $62 million inunfunded, retroactive liability.

Christopher Goetcheus, senior consultant, public relations, forLiberty Mutual, says, "For over a half century, the fund wasfinanced through employer-paid assessments, which the legislationhas eliminated."

He says Liberty Mutual and the industry "never anticipated thatthey would be responsible for these reopened claims."

Consequently, Goetcheus adds, "the state never approved, nor didthey ever consider rates that included pricing for thoseliabilities. Liberty Mutual Insurance believes the [legislationclosing the fund] warrants judicial review."

Joe DiGiovanni, senior vice president for state affairs for theAmerican Insurance Association, says, "Insurers have never beenable to price for this cost so we are not surprised that a majorinsurer has decided to challenge this provision of thelegislation."

The closing of the reopened-cases fund was among a number ofchanges Gov. Andrew Cuomo proposed in a general overhaul of theState Insurance Fund.

The governor estimated closing the fund would save employers$300 million annually.

The lawsuit was filed in state Supreme Court for New York Countyon behalf of Liberty by lawyer for Greenberg Traurig.