CIGA Must Borrow to Meet WC Commitments

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NU Online News Service, May 16, 3:10 p.m.EDT?The financially strapped California InsuranceGuarantee Association has been given permission by CommissionerGaramendi to dip into $170 million in funds earmarked forautomobile and homeowners claims in order to meet workers'compensation obligations, according to Norman Williams, aspokesperson for the California Department of Insurance.

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"The portion of the CIGA fund intended to pay workers' compclaims is gone," Mr. Williams noted.

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In a letter dated May 16, 2003, Lawrence E. Mulryan, CIGA'sexecutive director, informed Commissioner Garamendi that CIGA wasfacing "an acute financial crisis" stemming from the recent rash ofworkers' comp insurer insolvencies and the loss of a credit line.The credit line was being used to fund claim payments to injuredemployees whose employers had purchased workers' comp coverage frominsurers that became insolvent.

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"We realize that this is not a long-term solution," Mr. Williamssaid. "On a long-term basis, we need legislative reform of theworkers' comp system to reduce the litigation and fraud that areraising costs so fast."

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A long-term solution proposed by CIGA is the issuance of $500million in tax-exempt 10-year revenue bonds to raise the fundsneeded to finance workers' comp claim payments, according to theletter from Mr. Mulryan.

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CIGA's board of governors also considered seeking legislation toincrease the assessment charged employers that purchase workers'comp policies. But that option was rejected as too burdensome onCalifornia employers, which are already paying high premiums, Mr.Mulryan's letter stated.

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