The Supreme Judicial Court of Massachusetts, reversing atrial court's ruling, has decided that the Massachusetts InsurersInsolvency Fund could recover from a “high net worth” companycertain workers' compensation benefits paid by the fund on behalfof the company's insolvent insurer.

The case

In May 2003, Donna Poli, an assistant branch manager forWoronoco Savings Bank, injured her back while lifting coin-filledbags. Woronoco then was the named insured under a Workers'Compensation/Employer's Liability policy issued by CentennialInsurance Company. Woronoco notified Centennial of the injury, andCentennial began paying Poli weekly workers' compensation benefitsunder the Massachusetts law that provides temporary totalincapacity benefits for up to three years.

On June 16, 2005, Woronoco merged with and into Berkshire Bank.

In August 2006, Poli exhausted her entitlement to the benefits,and Centennial voluntarily began payments under a different sectionof the law, which provides for partial incapacity benefits. Fouryears later, in August 2010, Poli exhausted her entitlement tothose benefits, and Centennial stopped making any payments.

In response, Poli sought permanent and total disabilitycompensation under the Massachusetts law. In February 2011, theMassachusetts Department of Industrial Accidents (DIA) denied herclaim after a conference, and she appealed.

In April 2011, Centennial, domiciled in New York, was placedinto liquidation in that state. Pursuant state law, theMassachusetts Insurers Insolvency Fund assumed administration ofPoli's claim. On Sept. 7, 2011, the fund entered into a lump-sumagreement with Poli, and it agreed to pay her $85,000 and to payall future medical expenses arising from her injury.

The DIA approved the agreement a week later; however, Berkshirewas not consulted by the fund with respect to its agreement withPoli.

In January 2012, the fund sent a demand to Berkshire seeking torecoup the amounts paid to Poli on the grounds that Berkshire was ahigh net worth insured and, therefore, was obligated to reimbursethe fund.

Berkshire refused to pay, prompting the fund to go to court,asserting a claim for breach of the statutory duty to reimburse.The fund also sought a declaratory judgment that Berkshire wasliable to reimburse the fund for future payments and incurredexpenses associated with Poli's workers' compensation claim.

The trial court granted summary judgment in favor of Berkshire,concluding that the law entitled the fund to recover from high networth insureds — which included Berkshire — amounts the fund hadpaid only when the amounts in question had been paid “on behalf ofthe insured.” The court reasoned that once an employer purchased aqualifying Workers' Compensation insurance policy, the employer hadno obligation to pay workers' compensation benefits to any employeebecause the responsibility to make payments was exclusively withthe insurer.

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As a result, any amounts paid by the fund would not be “onbehalf of” the insured employer, and recoupment pursuant to the lawwould not be available.

The dispute reached the Supreme Judicial Court ofMassachusetts.

The court's decision

The state high court reversed the ruling below.

In its decision, the court ruled that, for purposes of thephrase “on behalf of the insured, whether for indemnity, defense[,]or otherwise” in the law, the fact that an insurer was directlyliable for paying workers' compensation benefits was “notdispositive.”

It reasoned that, in making payments of workers' compensationbenefits to an injured employee, an insurer did so “in the interestof” or “for the benefit of” the employer: The insurer was actingpursuant to an insurance contract that the employer had enteredinto to satisfy its statutory obligation to provide for workers'compensation benefits.

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In the court's view, the fund's payments to Poli met the legalrequirement of the workers' compensation statute that they be“amounts paid by the fund to or on behalf of the insured, whetherfor indemnity, defense[,] or otherwise.”

Simply put, the court concluded, in enacting the high net worthinsured provision, the legislature “did not intend to precluderecovery from high net worth employers for this expensive type ofclaim.”

The case is Massachusetts Insurers Insolvency Fund v. BerkshireBank.