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In a recent opinion, a Massachusetts appeals court was required
to determine who is liable to pay workers' compensation
benefits owed by a self-insured employer that has gone bankrupt? In
a choice between the state created Workers' Compensation Trust
Fund and a reinsurer of that bankrupt employer, the court chose the
reinsurer.
The case involved benefits due to Robert Janocha, whose employer
at the time of his injury was self-insured for workers'
compensation claims. In compliance with Massachusetts law, the
employer had ensured its ability to pay such claims with a $2.4
million surety bond and a reinsurance contract with ACE American
Insurance Company, which had a $400,000 retention provision
applicable to each injured employee. In 2007, the employer went
bankrupt, and in 2012 the surety bond was exhausted. However, Mr.
Janocha's benefits had not reached the $400,000 retention
floor, and ACE argued that, until that floor was reached, his
benefits were the responsibility of the Workers' Compensation
Trust Fund under a statute requiring the Trust Fund to pay benefits
for claims against employers "uninsured in violation" of
the law. The court found that this statute only applied when the
employer was uninsured at the time of the injury in question,
however, and did not apply when the lack of insurance was the
result of bankruptcy. Thus, the Trust Fund was not obliged to pay
the benefits. The court then found that ACE was statutorily
required to pay benefits in the event the self-insured employer
became insolvent, and that the retention provision would not be
enforced because "a party is unable to contract away its
statutory obligations." Thus, ACE was required to pay Mr.
Janocha's benefits.
Janocha's Case, No. 16-P-1181 (Mass. App.
Ct. May 2, 2018)
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