Utah Court Rules in Favor of Workers Compensation Fund

A Utah court ruled in favor of Workers Compensation Fund in February, stating that the state has no ownership in the Fund except as a policyholder. In Utah State Auditor v. Workers Compensation Fund, Utah District Judge Leslie A. Lewis agreed with previous case law that Utah has no ownership in WCF or its assets, other than as a policyholder.

“We feel very good about the ruling,” said Lane Summerhays, WCF’s president and CEO. “We were very confident that the courts would rule as they did.”

The issue of WCF’s ownership originally arose when the Fund was working with the state to change its status to a mutual company, according to Summerhays. The Utah State Auditor asserted in the case that Workers Compensation Fund is a state agency.

Summerhays said that it was the intent of all parties, including the governor and the Legislature, to retain WCF’s federal tax exemption status and have the company continue as the carrier of last resort for Utah. He said that WCF approached the Internal Revenue Service for clarification on WCF’s tax status. The state auditor asked to see a copy of the IRS filing, but WCF denied him the opportunity and the auditor filed suit. The negotiations to “mutualize” the company through legislation ultimately failed, so the issue of the IRS filing became a moot point. But Summerhays said that the auditor broadened the issue, questioning who retains ownership of Workers Compensation Fund. “He sought to bring in an issue that has actually already been ruled on by another third district judge here in the state,” Summerhays said.

Judge Lewis stated that the case is indeed very similar to a previous one, a March 2004 ruling by Third District Court Judge Timothy Hanson in Workers Compensation Fund v. State, and Judge Lewis ruled in favor of WCF. In last year’s case, Judge Hanson concluded that “the State has no ownership in the WCF or its assets other than as a policyholder.” He cited three separate cases from 1936, 1977 and 1982 that concluded that WCF is privately owned. In the 1982 case, the court reiterated that “the State Insurance Fund operates essentially as a private insurance company. The moneys paid into the Fund do not belong to the State but in effect to contributing employers.”

Summerhays was not surprised with the most recent court ruling. “This was a second attempt by the state to get a different ruling and the courts simply wouldn’t allow them to do that,” he said. “If you look at prior Supreme Court case law, the state of Utah has always ruled that the assets of the company are owned by the policyholders.”

The cases also asserted Workers Compensation Fund’s status as a quasi-public corporation. Up until 1988, the Fund functioned as a state government agency, but was spun into a quasi-public company. Summerhays defined quasi-public as private in ownership but public in purpose.

Prior to the March 2004 and February 2005 rulings, the state filed a separate lawsuit against Workers Compensation Fund over the same ownership issues. The courts have ruled in favor of WCF and the state has appealed. That original case is scheduled to be heard in Utah Supreme Court on April 5.

Workers Compensation Fund currently maintains about 65 percent of Utah’s workers’ compensation market. Summerhays said that its market share has increased over the last two or three years because rates became too low. The Fund previously retained about 50 percent of the workers’ comp market in the state.