June 18, 2010

New York: Joint and Infinite Liability

The saga of the New York self insurance trusts continues. We reported in April that justice had been served by Judge Kimberly O'Connell, who ruled that requiring solvent trusts to pay for the sins of insolvent trusts was unconstitutional. Now, according to Work Comp Central (subscription required), O'Connell herself has been overruled by a four judge panel, which has reinstated the assessments on the solvent trusts. While the justices are undoubtedly correct in their literal interpretation of the law, the ruling comes under the heading of "let no good deed go unpunished." It may be legal, but it is in no way just.

Here's the (rotten) deal: 15 self-insurance trusts are shut down by the state. They ran out of money because they under-priced their premiums, under-reserved claims and sold insurance like a ponzi scheme. Oh, they also paid themselves handsomely for their fine work as administrators. These defunct trusts are in the hole to the tune of $500-$600 million. State oversight? There wasn't any.

Who Pays?
The WCB decides to assess the remaining, solvent trusts to make up the deficit. In other words, the "joint and several liability" within a trust group now expands to include liability for all trust groups. To be sure, the enabling legislation allows the WCB to do this. After all, someone has to pay and this is New York, so deal with it. In this case, the trusts that operated by the rules, fairly pricing and fairly reserving claims, are penalized for the sins of the clowns who are no longer in business.

As we pointed out in yesterday's post, a task force has recommended that New York get out of the self insured trust business. We concur. Any state that loads the dice of "joint and several liability" to this absurd point makes a mockery of the concept. Self-insurance is based upon the ability to limit risk and contain exposures. Given New York's operating rules for self-insured trusts, conventional management tools are rendered useless. The liabilities of operating a group trust are uncontrollable and virtually infinite. Why would any company choose this path for managing risk?



CRM still operates in california even after destroying the market in NY.


As I noted to trust members with their joint and several liability for many years, there should be a secure, solid transfer of risk of loss when insurance premiums are paid. The claims were covered with a limit of accessible funding. The WC Law Section 50 failed to structure the alternative of bonding or collateral support and responsible monitoring of the financial status of the trusts. In effect, it allowed non-financial support of individuals to form their own WC insurance companies with no financial requirements.

Insurance companies have enough trouble running their business. states should try to get their own house in shape.

The ruling was not over ruled. They only got a stay. Thanks for your support.

Rich Flaherty
President CEO
First Cardinal

Trustees of these Trusts better start reviewing the options available for their groups ASAP. These insureds should be moving to the standard market or group captive.


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This page contains a single entry by Jon Coppelman published on June 18, 2010 11:11 AM.

New York: In Trusts We Trust Not was the previous entry in this blog.

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