Connecticut Court Rules on Guaranty Fund Role in Workers’ Comp Claims

By Andrew G. Simpson | August 24, 2011

The state insurance guaranty fund can be considered the last insurer on a workers’ compensation risk that has multiple insurers and be initially liable for paying benefits to the injured employee, with the right to recover from the other insurers, the Connecticut Supreme Court has ruled.

The Connecticut Insurance Guaranty Association (CIGA), which pays claims for insolvent insurers, had tried to avoid not only paying first and getting reimbursed but also paying anything at all on a permanent disability claim. CIGA argued that the state’s guaranty law says other insurance policies covering the same claim must be exhausted before recovery is permitted from the association.

But the state Supreme Court said that the state’s workers compensation law requiring apportionment of payments among all insurers on a risk applies to the state guaranty association just as it does to private insurers.

The high court upheld rulings by both the workers’ compensation review board and the workers’ compensation commissioner making CIGA initially liable for payment of benefits to the injured worker, Willie Franklin, since the failed insurer that CIGA represented, American Mutual, was the most recent insurer on the risk. Liberty Mutual had also insured the risk during the earlier years of Franklin’s employment.

“An insolvent insurer’s position in time on a risk may determine whether the association will be liable. Thus, in the present case, where American Mutual was the last insurer on the risk, both Liberty Mutual and the association are liable for their respective proportionate shares,” the court said.

Franklin was employed Superior Casting from January, 1963, through October, 1977. In 2003, he was diagnosed with silicosis, caused by having breathed in sand dust and chemical fumes during his employment. He was unable to work and had a 40 percent permanent partial impairment to both lungs. Following his diagnosis, he filed a claim for workers’ compensation benefits alleging an occupational disease brought about by repetitive trauma.

Liberty Mutual Insurance Co. insured the period from January, 1963, through August, 13, 1964, while American Mutual Liability Insurance Co. insured the period from August 14, 1964, through October, 1977.

Sometime after Franklin terminated his employment with Superior, American Mutual was declared insolvent. As a result, CIGA became liable for American Mutual claims under the guaranty act.

Because Franklin’s trauma occurred during the periods of both insurers’ coverage, the commissioner determined that under the state’s workers’ compensation act, payments should be apportioned. The commissioner ruled that since American Mutual was the last insurer on the risk, it was initially liable for any payment of benefits due Franklin. Liberty Mutual was ordered to reimburse the guaranty association for its proportionate share—11.26 percent—of retroactive benefits, as well as future benefits presented by the association.

The association balked at paying, arguing that shifting liability to solvent insurers is consistent with the policies underlying the guaranty act. CIGA relied on the exhaustion clause, and another claim that there was overlapping coverage, both of which it said negated its obligation and meant that Liberty Mutual must assume all liability for the claim.

But the high court agreed with the commissioner that the exhaustion requirement does not conflict with the apportionment rules and also dismissed the notion there was overlapping coverage.

“The mere fact that the association is entitled to reimbursement for the period that Liberty Mutual insured does not render the coverage overlapping. The reimbursement arises from the administration of the claim, not substantive liability for the claim,” the court said.

The case is Willie Franklin v. Superior Casting et al (SC 18501).

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