Liberty Mutual Sues New York over Workers’ Comp Law Changes

Boston-based insurer Liberty Mutual Holding Co. has filed a federal lawsuit challenging several recent amendments to New York State’s workers’ compensation law as unconstitutional.

The suit alleges that changes made in 2007 as part of a major overhaul of workers’ comp insurance in the state violate the contract, takings, equal protection and due process clauses of the Constitution.

At issue are several provisions that Liberty Mutual claims unfairly target insurers. In particular is an amendment that expands the type of workers’ comp claims – permanent partial disability — for which insurers must now deposit a lump sum into the state’s Aggregate Trust Fund. The fund is a Great Depression-era mechanism designed to guarantee payments to injured workers in the event of an insurer’s insolvency.

However. the law does not require lump sum deposits from employers who self-insure for workers’ comp or the state-owned New York State Insurance Fund (NYSIF) — the largest workers’ comp writer in New York.

By requiring only private insurers to make those payments, the law violates the equal protection clause of the 14th Amendment, Liberty Mutual contends, and creates an uneven playing field between private insurers and the NYSIF.

In court documents, Liberty Mutual said it has not yet paid lump sum deposits, since a pending bill that would have repealed those changes. However, the close of the 2008 legislative session ended hopes of a repeal.

Now, the company says, the state Workers’ Compensation Board will begin deciding PPD appeals claims, which will likely begin to require the insurer and its subsidiaries to begin making deposits into the trust fund.

There are also two procedural rules which the insurer says are unconstitutional. One allows the Aggregate Trust Fund to enter into settlements with the consent of an insurer, a violation of Liberty Mutual’s due process rights.

The other makes retroactive the lump sum deposit rule, and applies to policies issued before the law was passed in 2007. The insurer also contends that retroactive law is unconstitutional.