An action filed against the New York Workers Compensation Board (WCB) by group self-insured trusts over an increase in assessments could be decided by the end of this month.

The increased assessment was levied in part to cover the shortfall in benefits payments caused by defaulting trusts administered by Compensation Risk Managers, LLC, according to Brian M Keegan, public information officer for the WCB. The trusts are captive insurers created to cover workers' comp claims for participants.

Richard E. Honen, an attorney with Phillips Lytle LLP, representing petitioners administered by First Cardinal, LLC, said that in New York State, every member of a self-insured trust, as well as self-insured employers, contribute to the operational costs of the WCB.

"It's not a huge amount," he said of the annual assessment. In February of this year, however, Mr. Honen said the assessment skyrocketed.

"Round numbers, last year our assessment for all of our petitioners was in the neighborhood of about $140,000. This year, it was $12 million," he said.

His clients tried to meet with the WCB "several times" to discuss the increase, but were refused, Mr. Honen said. They subsequently brought an action against the WCB in the state Supreme Court, Albany County, to challenge not only the WCB's authority to levy the increased assessment but also the board's handling of the entire process.

"We were never told what the increase was for," Mr. Honen said, "but we're pretty sure, and I think it's conceded by now, the increase was to make up for what the Workers Compensation Board thinks--keyword 'thinks'--might be the results of the failed CRM-managed trusts."

Mr. Keegan confirmed that the reason for the increase was in part to make up the payments for claims of injured workers from defaulted group self-insured trusts, predominantly CRM.

When a group self-insured trust defaults, he said, the WCB becomes responsible for paying current claims. He noted that the members of the defaulted trust are ultimately liable for those payments due to joint and several liability. He explained, however, that it takes time to collect from those trust members, and that some claims need to be paid immediately. The increased assessment to the nondefaulting trusts will help cover those payments, he said.

"When, in the future, we're able to collect from these defaulted trusts, the assessment will be adjusted accordingly to the members of the nondefaulted trusts," Mr. Keegan said. The nondefaulted trust members would be rebated, he said, and he called the current increase essentially a bridge loan.

Mr. Honen sees this issue as determining whether group self-insured trusts are jointly and severally liable for each other. He noted that members having to cover a shortfall for their individual trusts is an accepted reality, but "if the Workers Compensation Board now attempts to impose liability on trusts for every other trust, that would be a difficult proposition."

Mr. Keegan, meanwhile, contended that the trusts are "balking at paying an assessment that they've paid faithfully for years now because it's so high."

Asked if there was an understanding among the trusts that the assessments could rise for all of them when a trust defaults, Mr. Keegan said, "I believe that there was. It's in the law. That's our position--that it's in the law. We haven't been hiding this. This hasn't been a secret."

The section of the Workers' Comp law in dispute is Section 50-5f, which says, in part, "Whenever the chairman shall determine that the compensation and benefits provided by this chapter may be unpaid by reason of the default of an insolvent private self-insured employer and the penal sum of the surety bond and/or the securities or irrevocable letters of credit or cash held on its behalf by the chairman are about to become exhausted, the chairman shall levy an assessment against all private self-insured employers in accordance with paragraphs c and e of this subdivision to assure prompt payment of such compensation and benefits."

Special Reports /

N.Y. Trust Assessment Decision Imminent

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