States Gang Up On Utah WC Fund

States Gang Up On Utah WC Fund

By Gary Mogel

NU Online News Service, Nov. 6, 2:05 p.m. EST?The Utah Workers' Compensation Fund, facing ongoing disputes with several states over whether its government-owned subsidiary can lawfully write workers' comp business in those states, is now trying to divest the unit.

According to a WCF statement, the action is in response to regulatory challenges by the approximately 25 states?most notably Idaho?that ban out-of-state government-owned insurance companies.

WCF also announced that it is suing the State of Utah over the ownership of the Fund's assets. According to a WCF statement, the Fund believes its policyholders own the assets, whereas Utah thinks the state owns the assets.

"This action is to protect the rightful owners, the policyholders of the company," said Lane A. Summerhays, WCF's chief executive officer and president.

In addition to the states, insurers and their trade groups also oppose state funds venturing out of the fund's state of domicile. "It is basically a fairness in competition issue," said Keith Bateman, vice president and director of workers' compensation for the Downers Grove, Ill.-based Alliance of American Insurers.

Mr. Bateman pointed out that the state funds have a tax advantage under Section 501 of the Internal Revenue Code that private insurers do not have.

"Carriers under that section qualify for an exemption if they are markets of last resort, established by the state, have a majority of their board appointed by the governor or legislature or other public official, and have their assets returned to the state upon dissolution," he explained.

Under the proposed divestiture plan, the subsidiary, Salt Lake City-based Advantage Workers' Compensation Insurance Company, would become a publicly traded stock company. The divestiture is planned for completion by June 30, 2004, if a stock distribution formula can be approved by the Utah Insurance Department by that time.

WCF spokesperson Thomas E. Callanan noted that, earlier this year, a bill (S.B. 170) that would have eliminated government ownership and made WCF into a mutual insurance company failed to win passage after heavy opposition from insurers.

"Without a legislative solution, we believe it is in the best interest of WCF policyholders to protect Advantage's value through this divestiture," said Mr. Summerhays in a statement. "If we do nothing, Advantage may well lose its ability to write insurance in other states and its value will be greatly harmed."

A similar dispute?but with a different result?occurred in Maine after that state's workers' comp fund, Maine Employers' Mutual Insurance Company, attempted expansion into New Hampshire and other states.

"We prevailed because we were able to show that MEMIC did not have any special advantages, such as a tax advantage," said MEMIC spokesperson Michael Bourque. "There was no special exemption, as there is in Utah. We competed like everyone else."

Mr. Bourque noted that MEMIC, through a subsidiary, now writes workers' comp coverage in New Hampshire, Vermont, Massachusetts and Connecticut.