The Home Insurance Co. v. Workers' Compensation Trust Fund

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14-P-1356 Appeals Court

THE HOME INSURANCE COMPANY vs. WORKERS' COMPENSATION TRUST
FUND.

No. 14-P-1356

Suffolk. June 2, 2015. - September 3, 2015.

Present: Vuono, Grainger, Blake, JJ.

Workers' Compensation Act, Reimbursement of insurer, Cost of
living allowance. Insurance, Insolvency of insurer.
Practice, Civil, Standing. Administrative Law, Agency's
interpretation of statute. Statute, Construction.

Appeal from a decision of the Industrial Accident Reviewing
Board.

Eric A. Smith (Donald E. Wallace with him) for the
plaintiff.
Douglas S. Martland, Assistant Attorney General, for the
defendant.
W. Frederick Uehlein & Dorothy M. Linsner, for Lumbermens
Mutual Casualty Company, amicus curiae, submitted a brief.
Joseph C. Tanski, Gregory P. Deschenes, & Kurt M. Mullen,
for Massachusetts Insurers Insolvency Fund, amicus curiae,
submitted a brief.

GRAINGER, J. We are called upon to analyze certain rights

and obligations resulting from the liquidation of a New

Hampshire insurance company that issued workers' compensation
2

policies in Massachusetts. At issue in this appeal is the

company's entitlement pursuant to G. L. c. 152, § 65(2), to

reimbursement for cost of living adjustments (COLA, COLA

increases), as prescribed by G. L. c. 152, § 34B, to eleven

individuals receiving workers' compensation benefits. Both an

administrative judge (judge) and the reviewing board (board) of

the Department of Industrial Accidents (DIA) determined, albeit

on different rationales, that the company was not entitled to

reimbursement.

Background. The undisputed facts, excerpted below, are

recounted in detail in the board's comprehensive decision.

COLA payments as part of the workers' compensation scheme.

Persons receiving workers' compensation benefits in

Massachusetts are entitled to receive annual COLA increases to

reflect changes in the cost of living. See G. L. c. 152, § 34B.

These COLA increases are funded, then subject to reimbursement,

as follows: Revenues to fund the defendant Workers'

Compensation Trust Fund (trust fund) are raised by an annual

assessment1 on employers pursuant to G. L. c. 152, § 65. Under

normal circumstances (i.e., involving solvent insurers), the

1
These assessments are determined with reference to the
amount an employer paid out to satisfy workers' compensation
claims for the prior twelve-month period and by projecting what
proportion of the fund's budget that employer is likely to
require in the current year. See G. L. c. 152, §§ 65(3) and
(4)(d).
3

yearly assessments are collected from employers by their

insurers such as the plaintiff Home Insurance Company (Home),

who transmit them to the trust fund. The insurers then pay the

COLA increases together with other monthly benefits to injured

workers. See G. L. c. 152, § 65(2). This, in turn, entitles

the insurers to reimbursement from the trust fund for the COLA

payments on a quarterly basis. Ibid.

Home's conduct of business and eventual withdrawal from the

Commonwealth. Home, a New Hampshire Corporation since 1973 now

in liquidation (the estate), was licensed to issue workers'

compensation insurance policies in Massachusetts. As a foreign

insurer issuing policies in Massachusetts, Home was required to

provide a bond to the Commonwealth securing any obligations that

might be outstanding upon its withdrawal from the state that it

would not otherwise be able to satisfy (the insolvency bond).

See G. L. c. 152, §§ 61 and 62.2 As an additional condition of

doing business in Massachusetts, Home was required to deposit

funds "with the state treasurer . . . in exclusive trust for the

benefit and security of its policyholders in an amount

satisfactory to the [Massachusetts] [C]ommissioner [of

2
The bond is required, by its terms, to secure the
obligations relating to the deposit of funds by a foreign
insurance company at the time it withdraws from the transaction
of business in the Commonwealth. See G. L. c. 152, § 62.
4

Insurance]" (insolvency fund). G. L. c. 175, § 151, as inserted

by St. 1993, c. 226, § 46.

In June of 1995, the New Hampshire Commissioner of

Insurance became concerned about Home's solvency and ordered the

company to stop issuing policies. Home was placed into

rehabilitation, also referred to as a "run-off" period, whereby

it could not issue new policies but continued to administer

existing policies.3 The run-off period ended in June of 2003,

when Home was placed into liquidation.

The COLA reimbursement process outlined above was not

followed during the run-off period. As of June, 1995, Home was

no longer writing policies and had stopped collecting

assessments from employers, even while it continued paying

benefits, including COLA, to injured workers under existing

policies.

When Home was liquidated in 2003, its estate was ordered to

cancel existing policies. Consequently, the Massachusetts

Insurers Insolvency Fund (MIIF) became obligated to pay valid

outstanding claims arising from any policies Home had previously

issued in Massachusetts, including workers' compensation

3
As of December, 1995, Home's business essentially
consisted of managing, adjusting, and administering claims made
against previously existing policies.
5

policies. See G. L. c. 175D, § 5(1)(a) and (b). These claims

included COLA.

MIIF paid outstanding Home claims from the insolvency fund

it administers pursuant to G. L. c. 175D, § 5(1)(c). After

making these payments, MIIF sought reimbursement from the

estate's liquidator in New Hampshire. The liquidator, in turn,

authorized MIIF to apply the proceeds of the aforementioned

insolvency bond paid by Home to the Commonwealth. See G. L. c.

152, § 61.4 Accordingly, MIIF received reimbursement for its

payments to workers directly from the insolvency bond proceeds

until those proceeds were exhausted. Once the bond proceeds

were exhausted, MIIF became one of the unsecured creditors of

the estate and could no longer rely on reimbursement in full.

Administrative proceedings. In 2008, the former principals

of Home, purporting to represent the company, initiated

administrative proceedings in the DIA for reimbursement of COLA

payments made to injured workers both during the run-off period

and after the company was placed into liquidation. The

administrative judge determined that the company lacked standing

4
The liquidator reimbursed MIIF directly from the estate
for the administrative costs associated with the payment of
claims; the claims themselves were reimbursed after the
liquidator authorized the Massachusetts Commissioner of
Insurance, designated as the estate's ancillary receiver, to
petition the Supreme Judicial Court for permission to receive
reimbursement from the insolvency bond created pursuant to § 62.
6

to apply for reimbursement of payments it had made during either

period.

The board affirmed the judge's ruling that the company

lacked standing to apply for reimbursement of payments made

after liquidation. The board reversed the judge's determination

with respect to standing during the run-off period, and ruled

that Home did enjoy standing to apply for reimbursement of

payments made during that time. However, with respect to the

merits, the board ruled that while the company had standing to

assert the claim, it nevertheless would not be entitled to

reimbursement for run-off period payments.

Discussion. As stated, Home's standing to seek

reimbursement for COLA payments is disputed by the parties with

respect to two different periods of time. The more

straightforward question, relating to standing after the company

was placed into liquidation in 2003, need not detain us. We

agree with both the judge and the board that the commencement of

liquidation proceedings deprived Home of standing.

Home's claim of postliquidation standing is based on its

assertion that it enjoys a property interest in the insolvency

bond. The first flaw in this approach is the fact that the bond

fund's proceeds are depleted. In response, Home asserts that

the reimbursements it seeks would be applied to replenish the

bond fund. That assertion, however, founders on the board's
7

ruling, discussed infra, that Home's failure to collect

assessments during the run-off period is fatal to its claim for

reimbursement. As Home is not entitled to reimbursement with

which to replenish the fund, its argument that it has a property

interest in the nonexistent contents of the fund cannot succeed.

Finally we note that, even if Home were entitled to

reimbursement, any resulting proceeds would not inure to the

benefit of the bond fund. Under the provisions of G. L. c. 175,

§ 180E, the insurance commissioner, as ancillary receiver,

"shall, as soon as practicable, liquidate from their respective

securities such special deposit claims and secured claims as are

approved and allowed in the ancillary proceedings in this

commonwealth, and, under the orders of the court, shall pay from

the assets in his hands as receiver the necessary costs and

expenses of such proceedings, including compensation, and shall

transfer all remaining assets to the domiciliary receiver."

Thus, if Home were able to obtain any funds for reimbursement,

any surplus not expended for administrative costs or benefits

would simply be paid from the bond fund to the New Hampshire

estate.

With respect to the run-off period, the board conditioned

Home's standing to claim any reimbursement for COLA payments on

its transmittal to the trust fund of assessments collected from
8

employers.5 The board reasoned that the "pay as you go" concept

underlying the workers' compensation scheme makes the collection

and transmittal of assessments an integral part of the

reimbursement process. The board emphasized, notwithstanding

the fact that Home's COLA payments to injured workers provided

at least a facial basis for it to claim reimbursement, that

collection and transmittal of assessments provide the underlying

funding for reimbursement. Accordingly, it determined that

noncontributors of assessments cannot claim reimbursement.

The board's ruling falls within its area of expertise and

within the authority delegated by the legislature.

Consequently, the board's interpretation of G. L. c. 152, § 65,

that Home is not entitled to COLA reimbursements from the trust

fund deserves deference. See generally Molly A. v. Commissioner

of the Dept. of Mental Retardation, 69 Mass. App. Ct. 267, 280

(2007). Our deference is especially warranted in a situation,

as here, where the board has chosen between "two equally

plausible readings of the statutory language." Falmouth v.

Civil Serv. Commn., 447 Mass. 814, 821 (2006).6

5
The board initially ordered a remand to the administrative
judge for a factual determination whether any such assessments
had occurred. Home, however, thereafter stipulated that it had
not collected any such assessments, successfully requested a
final decision from the board, and has now appealed.
6
In this context, the trust fund makes a separate argument,
asserting that standing to claim reimbursement for COLA payments
9

Accordingly we discern no error in the board's rulings with

respect to either the run-off or the liquidation periods.

Decision of reviewing
board affirmed.

under the statute requires a party to qualify as an "insurer."
G. L. c. 152, § 34B(c) ("Insurers shall be entitled to quarterly
reimbursement . . .") (emphasis supplied). The trust fund
contends that Home did not qualify as an insurer because it
could not issue new policies during the run-off period so it did
not meet the statutory definition of "[a]ny insurance company
. . . authorized to do so, which has contracted with an employer
to pay the [workers'] compensation provided for by this chapter"
(emphasis added). G. L. c. 152, § 1(7), as appearing in St.
1991, c. 398, § 85. The board did not address this argument; we
find it unnecessary as well to the resolution of the appeal and
note that we consider it an appropriate subject for the board
under the doctrine of primary jurisdiction. See Lumbermens Mut.
Cas. Co. v. Workers' Compensation Trust Fund, 88 Mass. App. Ct.
, (2015).