Recently, the Massachusetts Reviewing Board of Industrial Accidents struck down an agreement between an excess insurer and an employer, when the employee was not aware of the agreement, nor was the Department of Industrial Accidents. In this decision, the Board focused their analysis on the need to protect injured employees from insolvent employers, since the employer in this case had declared bankruptcy. The Board also stated that the rules that might apply to insurance policy agreements outside the workers’ compensation realm did not in fact apply here, since the Department’s goal is to protect injured workers as well as the self-insurer.
John Pastore, the employee, suffered a work-related injury on September 8, 1983, while working for Polaroid Corporation, Inc. Polaroid was then a licensed self-insurer. They purchased an excess reinsurance contract with One Beacon’s predecessor, Commercial Union. The purpose of this contract was to cover workers’ compensation obligations that Polaroid incurred between January 1, 1983 and January 1, 1984. Included in these obligations was the payment of Mr. Pastore’s benefits.
Polaroid had accepted the employee’s claim and paid weekly benefits stemming from his injury. Then, they agreed to pay section 34A permanent and total incapacity benefits. After One Beacon’s $250,000 self-insured retention limit had been met, when Polaroid sought payment under the policy, One Beacon denied the request because they claimed Polaroid had voluntarily placed the employee on section 34A benefits.
One Beacon and Polaroid then entered into a settlement agreement concerning the dispute. Polaroid accepted $155,000 to redeem One Beacon’s obligations under the excess policy to reimburse it for current and future payments to the employee. Neither the Department of Industrial Accidents nor the employee was aware of the 1998 settlement at the time.
Polaroid declared Chapter 11 bankruptcy and ceased paying the employee’s benefits. The statutory bond was activated, and when that was exhausted, the employee stopped receiving his workers’ compensation benefits. The employee then filed this claim seeking weekly section 34A benefits, section 34B Cost of Living Adjustments (COLA), medical benefits, interest, and a penalty.
The employee’s claim was denied, and the Workers Compensation Trust Fund (WCTF) was joined as a party. The judge held that the WCTF must pay the employee benefits. The judge also found the 1998 agreement in violation of the Act, since the Act required maintaining excess insurance coverage. One Beacon was held responsible for paying COLA, directly or indirectly, to the employee.
The Board stated first that the WCTF’s appeal was based on the argument that it should not be required to pay the employee’s benefits. According to the WCTF, the date of the employee’s accident controls the determination of whether the employer was uninsured, in violation of the Workers’ Compensation Act, which triggers the WCTF’s responsibility to pay.
One Beacon contended that the judge erred when he found the employee was not bound by its 1998 agreement with Polaroid. According to One Beacon, their agreement with Polaroid redeemed any obligation they had to make payments concerning the employee’s claim. They alleged that they may freely compromise a claim with the reinsured without notice to the employee, a stranger to the reinsurance contract.
The Board stated that this argument is persuasive if it is seen as an ordinary reinsurance arrangement, one that was voluntarily entered into between two insurance companies. The relationship at issue here was different, they made clear, since workers’ compensation laws governed Polaroid and One Beacon’s relationship. It also governed the employee’s claim for benefits, with the purpose of protecting injured workers. Workers’ compensation laws prohibit this kind of transaction without notice and approval by the department.
The Board held that self-insured employers in the workers’ compensation realm are not in the insurance business. They are not subject to typical insurance rules. Instead, the employer’s “self-insured” status is one created by G.L. c. 152 section 25A , and the self-insurer is in fact regulated by the department. In other words, the department must be involved throughout the reinsurance relationship.
At the beginning of the relationship, the department is involved because it alone determines whether the reinsurance arrangements satisfy the need to protect the self-insurer and their injured workers. Case law has held that when parties try to terminate or modify the agreement without approval by the department, they are making a substantive change to the agreement that “bypasses the statutory scheme.” This, according to the Board, prevents the department from making clear whether the changes are satisfactory, according to the Act. Here, One Beacon contended that its agreement with Polaroid meant there was no reinsurance, but this is a scenario prohibited by the Act.
The Board also made clear that the statute requires a self-insurer to notify the department of its plans to dispose of money received from a reinsurer. This is because the department must approve of the use or disposition of any money received. But in this case, the department did not learn of the agreement until Polaroid, and the $155,000 it received, no longer existed. The Board made clear that the purpose of involving the department in dispute resolutions between the self-insurer and the reinsurer is to make sure that injured workers’ benefits are paid.
Overall, the Board stated the issue with the agreement was the effect of operating as a lump sum settlement of the employee’s claim. The employee had not consented and was not considered. He had no knowledge of the agreement until 2013. The Board stated that the employee must not be prejudiced by an agreement to which he was not a party, and an agreement that was never deemed in his best interests. The Board stated the judge properly found the agreement violated the Workers’ Compensation Act.
In conclusion, the Board vacated the award against the WCTF, upheld the judge’s finding that the employee was not bound by One Beacon’s agreement in 1998 with Polaroid, and ordered One Beacon to pay section 34A and section 34B benefits from the date that Polaroid’s statutory bond exhausted onward.
At Pulgini & Norton, an experienced Boston workers’ compensation attorney can provide legal guidance and strong advocacy on behalf of your right to compensation following a work-related injury. We provide a free, confidential consultation with a dedicated workers’ compensation lawyer. Call our office today to discuss your claim at (781) 843-2200 or contact us online.
More Blog Posts:
Massachusetts Employee Has Standing to Bring Claim for Reimbursement of Benefits Paid by MassHealth and Medicare, Massachusetts Workers’ Compensation Lawyer Blog, December 10, 2015
Massachusetts Reviewing Board Affirms Decision Awarding Injured Employee Workers’ Compensation Benefits, Massachusetts Workers’ Compensation Lawyer Blog, October 13, 2015