Court Rules in Favor of Massachusetts Insurers Insolvency Fund in Workers’ Comp Suit

The Supreme Judicial Court of Massachusetts ruled that the Massachusetts Insurers Insolvency Fund is authorized to recover certain amounts paid by the Fund in workers’ compensation benefits on behalf of Berkshire Bank.

The lawsuit, Massachusetts Insurers Insolvency Fund v. Berkshire Bank, was originally brought against Berkshire in 2014 by the Fund, a nonprofit, unincorporated legal entity established in 1970 to provide a limited form of protection from insurer insolvencies.

In its decision, the court cited a section of Massachusetts General Law that identifies Berkshire as a high net worth insured. Under section 17 of Massachusetts General Law chapter 175D, the Fund has the right to recover from a high net worth insured amounts paid by the Fund to or on behalf of the insured.

Section 17 was added in 2006 to address the issue of high net worth insureds. It defines a high net worth insured as any insured whose net worth exceeds $25 million on December 31 of the year before the year in which the insurer becomes an insolvent insurer.

“Section 17 contains no language carving out any exceptions for any particular types of insurance otherwise covered by the Fund, and Berkshire indisputably qualifies as a high net worth insured under the definition of the term,” the court outlined in its ruling.

The 2014 lawsuit came after a series of incidents involving workers’ compensation benefits over the previous decade.

In May 2003, Donna Poli, an assistant branch manager for Woronoco Savings Bank of Westfield, Mass., injured her back while lifting coin-filled bags. Woronoco was then named the insured under a workers’ compensation/employer’s liability policy issued by New York-based Centennial Insurance Company, according to the court decision. Centennial began paying Poli weekly workers’ compensation benefits, providing total incapacity benefits for up to three years.

On June 16, 2005, Woronoco merged with Berkshire. Poli exhausted her entitlement to benefits in August 2006, and Centennial voluntarily began payments providing partial incapacity benefits for four years. In August 2010, Poli exhausted her entitlement to those benefits, and Centennial ceased making payments.

In April 2011, the New York Supreme Court placed Centennial into liquidation. The Fund assumed administration of Poli’s claim and entered into a lump sum agreement with her in which it agreed to pay $85,000 and to pay all future medical expenses arising from the injury. Berkshire was not consulted by the Fund about the agreement, which was approved by the DIA, according to the court decision.

In January 2012, the Fund sought to recoup the amounts paid to Poli from Berkshire, who refused to pay, prompting the July 2014 lawsuit.

Berkshire argued that the Fund’s payments were not made on its behalf because under Commonwealth of Massachusetts’ workers’ compensation law, once the employer purchases workers’ compensation, the liability to pay compensation benefits is the insurer’s and the employer retains no further responsibility, according to the decision document.

The court ruled, however, that the employer’s obligation to provide coverage is a statutory one that exists independently of the insurer, the decision document stated.

“Berkshire is correct that the insurer is directly liable for paying workers’ compensation benefits,” the decision said. “Berkshire concedes, as it must, that employers are required to provide their employees with workers’ compensation benefits or face severe penalties and common-law tort liability.”