Maryland Attorney General Opinion 96 OAG 003

WORKERS’ COMPENSATION

I NJURED W ORKERS’ I NSURANCE F UND – W HETHER THE S TATE
HAS AN I NTEREST IN THE R ESERVES, S URPLUS, AND OTHER
A SSETS OF THE I NJURED W ORKERS’ I NSURANCE F UND

March 14, 2011

Thomas Phelan
CEO/President
Injured Workers Insurance Fund

You have asked for our opinion on two questions concerning
the Injured Workers’ Insurance Fund (“IWIF”). Specifically, you
ask:

1. Who owns IWIF’s reserves and surplus?

2. Does the State have any claim to IWIF’s reserves,
surplus, or other assets?

For the reasons set forth below, it is our opinion that:

1. The reserves and surplus that the Insurance Article
requires IWIF to maintain with respect to its policies are held in trust
for the employers who are IWIF’s policyholders and the employees
who are entitled to benefits under IWIF’s policies. If the General
Assembly chose to terminate IWIF’s existence, it would need to
make arrangements to preserve such funds for those purposes.

2. To the extent that IWIF has assets in excess of the
reserves and surplus required by the Insurance Article, upon IWIF’s
termination, those assets would belong to the State, which created
IWIF. The statute governing IWIF provides for the General
Assembly to direct the disposition of those assets or for the assets to
be distributed “as justice requires.”

I

Background

A. State Workers’ Compensation System

Like the laws of other states, Maryland law requires employers
to have workers’ compensation insurance to compensate employees

3
4 [96 Op. Att’y

for workplace injuries. Annotated Code of Maryland, Labor &
Employment Article (“LE”), §9-402. Many employers purchase
workers’ compensation insurance from insurers, while other
employers self-insure. The Workers’ Compensation Commission
adjudicates employees’ entitlement to benefits and oversees the
workers’ compensation system. As part of that system, the
Legislature has created several entities to ensure that employers can
obtain the necessary insurance and that benefits are paid even when
employers fail to arrange for insurance.1

B. IWIF – the Agency

IWIF was created by statute to provide insurance for employers
who would otherwise be unable to obtain coverage. See R. P.
Gilbert & R. L. Humphreys, Maryland Workers’ Compensation
Handbook (3d ed. 2007) at pp. 2-18. Since its inception, IWIF has
been an agency or instrumentality of the State. Central Collection
Unit v. DLD Assoc. Limited Partnership, 112 Md. App. 502, 510,
685 A.2d 873 (1996). It was established in 1914 as part of the State
Industrial Accident Commission, a predecessor to the Workers’
Compensation Commission.2 Chapter 800, §16, Laws of Maryland
1914. It was made a separate agency in 1941, later incorporated into
the Department of Personnel, and still later made an independent
agency. See Chapters 584, 585, Laws of Maryland 1987; Chapter
98, Laws of Maryland 1970; Chapter 504, Laws of Maryland 1941.

IWIF is governed by a board, which is appointed by the
Governor with the advice and consent of the Senate. LE §10-110.
Although the Legislature has exempted IWIF generally from laws
affecting State agencies, it has explicitly made the agency and its
employees subject to specified laws governing State agencies and
employees. See LE §10-107(b). Among those laws are the Public
Information Act, the Public Ethics Law, and the State whistleblower
law. Id.

1
In addition to the Workers’ Compensation Commission and
IWIF, the Legislature has established the Uninsured Employers’ Fund,
which provides benefits to employees whose employers have failed to
obtain insurance, and the Subsequent Injury Fund, which provides
additional benefits to injured workers with pre-existing health conditions.
LE §9-801 et seq.; LE §9-1001 et seq.
2
IWIF was originally known as the State Accident Fund. It was
renamed in 1990. Chapter 71, Laws of Maryland 1990.
Gen. 3] 5

IWIF’s operations are limited to the realm of workers’
compensation insurance. LE §10-106(b)(4). IWIF is to function in
a manner similar to a private workers’ compensation insurer. LE
§10-106(a). While it is to operate as a competitive insurer in the
marketplace, it must also guarantee the availability of workers’
compensation insurance in Maryland and serve as the insurer of last
resort. LE §10-106(b)(1)-(3). In addition to providing insurance,
IWIF administers claims for certain employers who choose to self-
insure. See LE §10-105(b). As a workers’ compensation insurer,
IWIF is subject to oversight by the Workers’ Compensation
Commission. See LE §9-309(e) (approval of policy forms); LE §9-
316(a)(3), (c) (Commission assessment). IWIF is also a member of
Property and Casualty Insurance Guaranty Corporation, a State-
created entity that backstops claims against insurers that become
insolvent. LE §10-107(c); see also Annotated Code of Maryland,
Insurance Article, §9-301 et seq.

IWIF is also subject to regulation by the Maryland Insurance
Administration (“MIA”) in much the same manner as a private
workers’ compensation insurer. LE §10-105(a). It is exempted from
provisions specifically directed to stock and mutual insurers, the
premium tax, and insurance rate making. Id. It is subject to
examination by the MIA, which must determine, at least once every
five years, whether IWIF’s rates are actuarially sound. LE §10-125.
IWIF is also to file a report each year with the Governor about its
operations, its financial condition, and market trends. LE §10-
126(a). In addition, on an annual basis, it is to provide the Governor
with a copy of each policy form it uses, a schedule of its rates, its
provisions for payment of claims, and other information, all in a
format similar to that used by insurance rating organizations. LE
§10-126(b).

C. IWIF - the Fund

The agency administers a fund that finances the insurance
coverage it was created to provide. LE §10-117 et seq. The statute
governing IWIF refers to “the Fund” to mean both the agency and
the moneys that the agency oversees. For purposes of this opinion,
we will use the term “IWIF” to refer to the agency and the term
“Fund” to refer to the moneys that the agency administers.

The Fund consists of premiums received for insurance policies,
income from invested funds, interest from deposited funds, and
proceeds of any debt collections. LE §10-118(a). IWIF is to use
6 [96 Op. Att’y

these moneys to pay the expenses of the agency and any losses
incurred on its policies. LE §10-118(c). It is to keep reserves and
surplus in accordance with the Insurance Article. LE §10-121. The
statute provides that, if IWIF’s enabling legislation is repealed, the
moneys that are in the Fund are to be distributed as directed by the
General Assembly or, failing specific direction, “as justice requires,
with due regard for existing obligations for compensation.” LE §10-
127.

II

Analysis

You first ask who owns IWIF’s reserves and surplus.
Secondly, you ask whether the State has any claim to IWIF’s
reserves, surplus, or assets. From these questions – and the
discussion in your letter – we gather that your concern is the ultimate
disposition of IWIF’s assets, should IWIF cease to exist, either in its
current form or altogether. Because a change in the form of IWIF
could raise a host of issues that may or may not affect our answer,
we will focus on a scenario where IWIF’s existence is simply
terminated.

A. Disposition of the Fund upon IWIF’s Termination

IWIF’s enabling law provides that, if it should be repealed, the
moneys in the Fund are to be distributed “as the General Assembly
provides” or, failing such direction, “as justice requires, with due
regard for existing obligations for compensation.” LE §10-127.
Thus, the Fund would not automatically revert to the State’s general
fund. Indeed, such a reversion might well be challenged as a
unconstituional impairment of the insurance contracts between IWIF
and its policyholders. See Allstate Insurance Co. v. Kim, 376 Md.
276, 298-300, 829 A.2d 611 (2003) (discussing whether legislation
substantially impaired insurance contract).

On the other hand, the Fund is not simply the property of the
current policyholders. IWIF was not created as a mutual insurance
company. Nor is there any indication in its enabling law that its
assets belong to its current policyholders. If the Fund simply
belonged to current policyholders, there would be no need for the
General Assembly’s direction on how to distribute its funds upon
termination. Moreover, the statute explicitly contemplates the
possibility that there may be assets to be distributed even after there
Gen. 3] 7

has been “due regard for existing obligations for compensation.”
This provision has been part of IWIF’s enabling law since its
inception. See Chapter 800, §28, Laws of Maryland 1914. This
indicates that it has always been the intention of the General
Assembly to retain authority over the disposition of any residual of
the Fund.

What part of the Fund is devoted to “existing obligations for
compensation,” and what part is subject to other dispositions? Part
of the Fund that consists of the statutorily-mandated reserves and
surplus required to service IWIF’s liabilities and existing policies.
If IWIF were to cease operations, that part of the Fund would
presumably fulfill IWIF’s “existing obligations” under current and
past insurance contracts. Any moneys in the Fund in excess of the
required reserves and surplus would belong to the State, as the
“owner” of IWIF.3 There would not appear to be a basis for any
other disposition. For example, payment of excess funds that
derived from prior operations to current policyholders would simply
be a windfall to current policyholders without any apparent
economic or legal basis.4 If the Fund lacked sufficient funds to
satisfy IWIF’s required reserves and surplus, there would be no
excess assets for the State to distribute.

B. 1968 Attorney General Opinion

More than 40 years ago, Attorney General Burch was asked
whether the Legislature could make the Fund part of the State’s
general fund. He was also asked whether the State would be liable

3
The principle that the State may control the disposition of assets
in excess of the required reserves and surplus applies even without the
dissolution of IWIF. The circumstances under which the State would do
so, and the mechanics by which the extent of excess assets would be
determined are beyond the scope of this opinion.
4
It is notable that a federal tax exemption for entities such as IWIF
contemplates, as a condition of the exemption, that assets of those
organizations revert to the state upon dissolution of the entity. See 26
U.S.C. §501(c)(27)(B)(iii)(II); Aprill, The Integral, Essential, and the
Instrumental: Federal Income Tax Treatment of Governmental Affiliates,
23 J. Corp. L. 803, 833 (1998).
8 [96 Op. Att’y

for claims against IWIF5 if the Fund were insolvent. The resulting
opinion concluded, correctly in our view, that (1) the Legislature
could not “take over the moneys [of the Fund] and apply them to
general State purposes” and (2) the State was not liable for claims
against IWIF. 53 Opinions of the Attorney General 3, 12 (1968)
(“1968 Opinion”). However, some of the language of that opinion
was more expansive than necessary and could be read to espouse
what is, in our view, an unwarranted assignment of the entire Fund
to current policyholders. We explain.

In concluding that the Fund could not be merged into the
State’s general fund, the 1968 Opinion observed that the moneys in
the Fund derived from premiums paid by employers for insurance.
1968 Opinion at 4. Part of that sum would be used to pay current
claims by injured employees. The remainder would be used for
reserves and surplus. The opinion noted that IWIF was required by
statute to set up a reserve sufficient to meet anticipated losses and
“carry all claims and policies to maturity” and to maintain a surplus
“sufficiently large to cover the catastrophe hazard.” Id. at 5 (quoting
Article 101, §78). Those statutory requirements have been modified
in the intervening years, but IWIF’s basic obligation to maintain a
sufficient balance in the Fund to cover anticipated claims remains in
the law.6

The 1968 Opinion observed that the Fund, as well as similar
funds in other states, had been created for the benefit of employers
and employees, and not for the benefit of the State. 1968 Opinion at
5. It noted that “if the Legislature were to appropriate the assets of
[IWIF] and use them for general State purposes, employers would be
deprived of the protection of adequate reserves to guard against
claims of injured employees.” Id. at 5-6. The opinion appeared to
be focused on the validity of the State “taking over the reserves and
surplus of the ... Fund.” Id. at 9; see also id. at 11. Indeed, it posited
a situation in which the distribution of Fund assets would mean that

5
At the time of the opinion, the agency was still known as the
State Accident Fund. To avoid confusion, we use its current name in this
opinion.
6
During the past decade, after the relevant provision was
recodified as LE §10-121, the specific reserves and surplus requirements
in IWIF’s enabling law were eliminated, and the agency was made subject
to the same requirements that apply to other insurers. See Chapter 336,
Laws of Maryland 2009.
Gen. 3] 9

there would not be “adequate reserves to cover incurred liabilities.”
Id. at 11.

The diversion of the necessary reserves and surplus from the
Fund to other uses obviously would undermine its purpose and might
well impair the contracts between IWIF and its policyholders.7
However, the 1968 Opinion summarized its analysis by stating that
“the assets [of IWIF] belong exclusively to the policyholders ...” Id.
at 3 (emphasis added). The use of the words “belong exclusively,”
which might suggest that current policyholders had a property
interest in the entirety of the Fund and that no portion of the Fund
could ever be devoted to anything other than the payment of claims
or dividends, went beyond the reasoning of the opinion. In
particular, the 1968 Opinion did not consider the possibility that the
Fund might contain funds in excess of those needed to pay current
claims and to satisfy the statutorily required reserves and surplus.
Nor did it discuss the possibility that only a portion of the Fund, as
opposed to the entire Fund, might be directed to general State
purposes.

Similarly, the 1968 Opinion stated that the Fund was “in effect
a trust fund which belongs to employers...” Id. at 11.8 It is true that,
in creating IWIF, the State pledged the Fund, including the amounts
needed for current claims and the statutorily described reserves and
surplus, for the benefit of the policyholders. The statute limited the

7
The 1968 Opinion did not itself analyze the impairment of
contract issue. For a discussion of a state government’s obligation not to
impair its own contracts, see 90 Opinions of the Attorney General 195,
207-9 (2005). The issue has been discussed in the context of state-created
workers’ compensation insurers in numerous cases in other states. See
Part II.B of this opinion.
8
The 1968 Opinion supported its conclusion that IWIF held the
Fund “in trust” for policyholders and employees with a survey of similar
laws in many other states. 53 Opinions of the Attorney General at 6-9.
However, as will be seen in the next section of this opinion, courts in a
number of those states have concluded that funds similar to the Fund do
not belong exclusively to the policyholders served by those funds.
10 [96 Op. Att’y

State’s liability to the amount of the Fund and did not permit any
recourse to other State funds.9 Thus, the current liabilities, reserve,
and surplus could properly be considered to be held in trust for the
policyholders and their employees. However, that does not mean
that all assets of IWIF are held in trust for, or owned by, the
policyholders and that the General Assembly is helpless to devise
some other disposition of any excess assets. Indeed, the General
Assembly reserved the power to distribute funds remaining after
“due regard” for existing obligations.

Thus, we agree with the essential conclusions of the 1968
Opinion that the Legislature may not merge the reserves and surplus
of the Fund into the State’s general fund and that the State is not
liable for claims against the Fund. To the extent that some language
of the 1968 Opinion could be read to adopt a more expansive view
of current policyholders’ interest in the Fund and a more restrictive
view of the State’s interest, we overrule that opinion.

C. Cases Involving State-Created Workers’ Compensation
Insurers in Other States

Questions concerning the disposition of assets of state-
sponsored workers’ compensation insurers have been addressed by
courts in other jurisdictions. While none of those insurers is
identical to IWIF10 , and the courts have reached varying results, the
cases make clear that a state may retain some interest in the assets
of a state-created workers compensation insurer.

The highest appellate courts in several states with state-
sponsored workers’ compensation insurers similar to IWIF have
rejected claims that policyholders have a property interest in the
funds administered by those insurers. On the other hand, several
courts in other states have held that the state had no interest in funds

9
This has been the case since the creation of the Fund. See
Chapter 800, §16, Laws of Maryland 1914 (“Such fund shall be
administered by the Commission without liability on the part of the State
or the custodian thereof beyond the amount of such fund and shall be
applicable to the payment of losses sustained on account of insurance and
to the payment of expenses in the manner provided in this Act.”).
10
The variety of such entities poses a particular challenge to
authors of legal encyclopedias who attempt a general description. See 100
CJS Workers’ Compensation §647 (“Nature of fund”).
Gen. 3] 11

administered by a state-sponsored workers’ compensation insurer
and overturned efforts to transfer moneys from those funds to a state
general fund. However, the latter holdings appear to be based on
specific provisions of the enabling statutes not found in the
Maryland statute or on a finding that all of the moneys in the fund
were needed to fulfill the obligations of the fund.

Sale or Liquidation of State-Created Insurer

In a case involving privatization of a state-created insurer, the
Michigan Supreme Court was asked to determine the
constitutionality of legislation authorizing the sale of the State
Accident Fund (“SAF”) – the Michigan analog to IWIF. In re
Certified Question: Fun ‘n Sun RV, Inc. v. Michigan, 527 N.W.2d
468 (Mich. 1994). That legislation authorized the sale of the assets
of SAF, together with the transfer of its liabilities, with the proviso
that most of the consideration for the transaction would go to the
state treasury. Policyholders asserted that they were entitled to a
distribution of any profit from the transaction. They argued that the
direction of the profits to the state treasury was unconstitutional as
an impairment of contract and a deprivation of property without
compensation. Id. at 473.

The Michigan Supreme Court acknowledged that, in prior
unrelated cases, a federal court and an intermediate state appellate
court had held that SAF’s assets were held in trust for its
policyholders and could not be used by the state for general
purposes. Id. at 472. However, by the time of the Fun ‘n Sun RV
case, the structure of SAF had been fundamentally changed by the
legislature. In particular, it had been made independent of any state
department and various changes had been made in its statute to put
it on “an equal footing with private insurers in the marketplace and
ensure that it did not compete unfairly with them.” Id. at 473.

In the end, the Michigan Supreme Court found no merit in
either constitutional claim. First, it concluded that the relevant
statutes did not give the policyholders a contractual right to SAF’s
excess assets. Rather, they had a vested contractual right to liability
coverage for the period for which they had paid premiums. There
had been no showing that those contractual rights would be impaired
12 [96 Op. Att’y

by the sale. Id. at 473-78.11 Second, it held that the federal court’s
statement that the assets of SAF were held “in trust” for
policyholders did not mean that those assets were the property of the
policyholders. The Michigan court explained:

We note that the “trust” language then
employed by the Court did not speak in terms
of an ownership interest on the part of the
policyholders. Indeed, the Court did not
expressly identify any beneficiary of the
“trust” to which it referred.

We are convinced that the Court of
Appeals used the words “in trust” in an
informal, descriptive sense, rather than as
declaration of a formal trust relationship....
The better inference is that the Court of
Appeals used the words “in trust” in the sense
that the state’s receipt of the policyholders’
premiums resulted in an obligation to manage
those premiums to assure the intended benefit,
insurance coverage.

Id. at 479. The court contrasted SAF to a mutual insurance
company, in which a policyholder would have a property interest in
the surplus of the company. Id. at 480. In the absence of such a
property interest, there could be no taking in violation of due
process. Id. at 480-82.

In Moran v. State, 534 P.2d 1282 (1975), the Oklahoma
Supreme Court reached a different conclusion in a case involving a
partial liquidation of the state-created workers compensation insurer
when there was no surplus in the fund. In that case, the legislature
directed the partial liquidation of the fund of the insurer for
appropriation by the legislature. Upon a constitutional challenge by
policyholders, the court held that, because the funds were not “state
funds,” but rather funds held in trust for insured employers and their
employees, they were not subject to appropriation by the legislature.
This conclusion was based, in part, on a finding that there were “no

11
The court distinguished an Oregon case in which the state had
explicitly disclaimed any state proprietary interest in a workers’
compensation fund. See Eckles v. State, 760 P.2d 846 (1988), described
later in the text.
Gen. 3] 13

excess surplus funds” in the fund and that policyholders would be
obligated to make up any shortfall. 534 P.2d at 1285-88.

Transfers of Funds from State-Created Insurer

In the early 1980s, the New York legislature passed a law that
transferred $190 million from the State Insurance Fund (“SIF”), a
fund that existed to insure employers with respect to workers’
compensation claims, to the state’s general fund. See Methodist
Hospital of Brooklyn v. State Insurance Fund, 476 N.E.2d 304 (N.Y.
1985). The same law provided for an appropriation of the same
amount back to SIF for the purpose of maintaining its solvency if
deemed necessary by the state’s budget director. 476 N.E.2d at 306-
7. Two employers insured by SIF sought to overturn the law,
alleging that it was unconstitutional for a variety of reasons.

The New York Court of Appeals rejected the notion that SIF
was essentially a mutual insurance pool such that its policyholders
had a property interest in it. While SIF was required to make reports
to the state insurance commissioner similar to those made by mutual
insurance companies, its policyholders were not members and had
no say in its governance. Id. at 308. Nor did they have any
responsibility to contribute to make up its losses. Like IWIF, SIF
was a state agency. Id. at 309. Unlike the situation with IWIF, the
state faced potential liability if SIF were insufficient to satisfy
claims.12 The New York court concluded that the policyholders had
no property interest in the surplus amount of that fund, unless SIF
exercised its discretion to declare a dividend to policyholders. Id. at
310. Accordingly, the transfer of a portion of the surplus to the
state’s general fund did not violate state or federal law. Id.13

12
A state’s exposure to liability should not be a determining factor
as to its ownership interest in a state-created workers compensation
insurer, according to the Michigan Supreme Court. In the Sun ‘n Fun RV
case, it rejected an argument that a state that has limited its exposure
would thereby lose its ownership interest. 527 N.W.2d at 785 n. 21.
13
The New York Court of Appeals reached a somewhat different
result in a subsequent case concerning a transfer from New York’s
Property and Liability Insurance Security Fund – a fund perhaps analogous
to Maryland’s Property and Casualty Insurance Guaranty Corporation – to
the New York general fund. Alliance of American Insurers v. Chu, 571
N.E.2d 672 (1991). The court held that the transfer was unconstitutional
(continued...)
14 [96 Op. Att’y

A different conclusion was reached when the state legislature
explicitly disclaimed any interest in the fund. In Eckles v. State 760
P.2d 846 (Or. 1988), the Oregon Supreme Court held that a transfer
of funds from a state-created workers’ compensation insurer to the
state’s general fund breached the state’s contract with employers and
violated the state constitution. State law had specifically provided
that the fund was a trust fund “exclusively for the uses and purposes
of” the workers’ compensation law, that the state had “no proprietary
interest” in the fund, and that it had waived any right to reclaim its
own initial contributions to the fund. 760 P.2d at 852. In tracing the
origin of the key statutory provisions, the court demonstrated that
they were a reaction to an earlier instance in which money had been
transferred out of the fund for other governmental purposes. The
court concluded that the statutory provisions disclaiming any state
interest in the fund amounted to a contractual promise to induce
employers to obtain insurance from the fund. Id. at 855. It held that
the subsequent amendment allowing a transfer of money from the
fund for general government use impaired existing insurance
contracts, although the amendment would be valid as to subsequent
contracts and contract renewals. Id. at 858.14

13
(...continued)
because the insurers that had contributed to the fund had a property right
in the earnings of the fund. The court distinguished Methodist Hospital
on the grounds that the payment of dividends to policyholders by SIF was
discretionary, that SIF’s policyholders had no obligation to make
contributions to offset losses of the fund, and that the state had not
pledged its full faith and credit in the case of SIF. 571 N.E. 2d at 680-81.
Each of those factors also distinguishes the Fund managed by IWIF.
14
In Colorado, the state’s Solicitor General looked to similar
provisions in Colorado law in concluding that moneys of a state sponsored
workers’ compensation insurer could not be used for general state
purposes. See <www.coloradoattorneygeneral.gov/sites/default/files/
press_ releases/2009/04/10/.pdf> (noting that state law provided that the
state-sponsored workers’ compensation insurer was to “operate as a
domestic mutual insurance company,” that its board was to have the
powers, rights, and duties of the board of a mutual insurance company,
that all revenues, moneys, and assets of the insurer belonged “solely” to
the insurer, and that the state had “no claim to, nor any interest in” those
revenues, moneys, and assets).
Gen. 3] 15

General Question of Ownership of Funds of State-Created Insurer

In a variety of circumstances, courts in other states have held
that policyholders do not have a property interest in a state-created
workers’ compensation fund, unless the law creating the fund clearly
dedicated the entirety of the fund to the policyholders. In Kelso &
Irwin, P.A. v. State Insurance Fund, 997 P.2d 591, 596-97 (Id.
2000), the Idaho Supreme Court held that policyholders had no
ownership interest by statute or by contract in a state-created
worker’s compensation insurer and therefore could not compel the
insurer to issue a dividend to them. Rather, the court held that,
because assets of the fund belonged to the fund for purposes of
insuring employers against liability under the workers’ compensation
law, the fund itself was the “owner.” Id. at 597. The fact that the
relevant statute provided that the fund was to be “deemed” a mutual
insurer did not change that conclusion. The court did not consider
the disposition of the assets, were the insurer to be dissolved by the
state legislature. See also Williams v. Industrial Commission of
Ohio, 156 N.E. 101, 103 (Oh. 1927) (holding that an employee of an
insolvent employer could recover from fund created under worker’s
compensation law and consisting of premium payments of other
employers because “the fund becomes property of the state, and is
held in trust for the payment of compensation to such injured
employees as the State may designate”).

By contrast, in Workers’ Compensation Fund v. Utah, 125 P.3d
852 (Ut. 2005), the Supreme Court of Utah held that the state had no
ownership interest in a quasi-public corporation created by the state
to provide workers’ compensation insurance when, among other
things, a state statute explicitly prohibited the use of its funds “for
any purpose other than the operation of the fund.” See also Chez v.
Industrial Commission of Utah, 62 P.2d 549, 551 (Ut. 1936) (if Utah
fund were discontinued by state, any excess proceeds of liquidation
would belong to policyholders, not state); State Compensation Fund
of Arizona v. Peterson, CV 2003-011970 (Ariz. Super. Ct. 4/13/04)
(employer policyholders had vested right in workers’ compensation
fund when underlying statute provided that assets of fund were to be
used “solely” for workers’ compensation benefits and administrative
expenses; accordingly, a transfer of part of fund to state’s general
fund was unconstitutional).
16 [96 Op. Att’y

Summary

In sum, courts in other jurisdictions have recognized a state’s
right to dispose of funds of a state-sponsored workers’ compensation
insurer when those funds exceeded the amount necessary to fulfill
the insurer’s contractual obligations and when the underlying statute
did not explicitly disclaim the state’s interest in those moneys or
dedicate all moneys in such a fund solely to the payment and
administration of claims.

III

Conclusion

As explained above, it is our opinion that:

1. The reserves and surplus that the Insurance Article
requires IWIF to maintain with respect to its policies are held in trust
for the employers who are IWIF’s policyholders and the employees
who are entitled to benefits under IWIF’s policies. If the General
Assembly chose to terminate IWIF’s existence, it would need to
make arrangements to preserve such funds for those purposes.

2. To the extent that IWIF has assets in excess of the
reserves and surplus required by the Insurance Article, upon IWIF’s
termination, those assets would belong to the State, which created
IWIF. The statute governing IWIF provides for the General
Assembly to direct the disposition of those assets or for the assets to
be distributed “as justice requires.”

Douglas F. Gansler
Attorney General

Robert N. McDonald
Chief Counsel
Opinions and Advice