This summer, Georgia Governor Sonny Purdue signed into a law a bill that allows employers whose previous workers compensation insurance carriers went
This summer, Georgia Governor Sonny Purdue signed into a law a bill that allows employers whose previous workers compensation insurance carriers went out of business to pay into the insolvency pool to cover claims left hanging by the insolvency. This law was largely in response to the October 2009 liquidation of Southeastern US Insurance Co. (SEUS). At the time of its liquidation, SEUS was the state’s eighth largest workers’ compensation carrier. As a captive insurer, SEUS was exempt from having to participate in the Georgia Insolvency Pool prior to January 1, 2008. Under SEUS’s liquidation orders, claims placed after June 23, 2006 would be covered under the Insolvency Pool. Prior claims would not. So, when SEUS failed, claims with a date of accident before June 23, 2006 were left without insurance companies, leaving injured workers to pursue payment directly from their Employers. However, several of these employers had already been dissolved or were bankrupt, and others claimed that they would go bankrupt if forced to pay the remaining Workers’ Compensation claim.
The bill passed into law by Governor Purdue allows employers to “buy in” and receive coverage in the insolvency pool for claims affected by the dissolution of their insurer. Companies with a net worth under $25 million can pay $10,000 per claim to have them covered by the pool, and companies with net worth more than $25 million can pay $50,000 per claim. The statute provides that in order to buy-in, payment must be made to the Insolvency Pool by October 1, 2010.
The law has been much criticized by private insurers, and the constitutionality of the law is currently being challenged in DeKalb Superior Court. Advocates of the Bill argue that it is wrong to leave these insureds, and the injured workers affected by the insolvency, without coverage when they had purchased a policy and believed themselves to be covered. Opponents to the Bill argue that the Bill violates core insurance principles and question the effect that such a bill will have on the willingness of insurance companies to operate in Georgia if they feel that they cannot accurately assess their risk. The Bill has been compared to requiring an insurance company to pay a claim on a vehicle that was wrecked the day before coverage was purchased.
The Declaratory Judgment action filed by the Georgia Insolvency Pool is still pending in DeKalb Superior Court. The Insolvency Pool originally asked the Court to stay implementation of the law until it has ruled on its constitutionality, but realizing that such a stay could create quite a hardship on the Employers affected by this law, the Pool agreed, and submitted an Order to the Court addressing the issue, to pick up SEUS claims with one “small” caveat: if the Court ultimately finds that the Bill is unconstitutional, Employers would have 12 months to reimburse the Pool for any amounts paid out since SEUS was liquidated in October 2009. The Order allowing the Insolvency Pool to pick up the claims in this manner has yet to be signed by the Judge. Nevertheless, the Pool has taken the position that since this Bill was passed into law, they will pay the claims according to the law until the Court makes their decision. There is some talk that the payment deadline may be extended due to the constitutional challenge, but at this point, in order to benefit from this Bill, affected Employers must submit payment by October 1, 2010.