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(c) 2018 Jon L Gelman, All Rights Reserved.

Wednesday, June 6, 2018

US Supreme Court - NY State Permitted to Close State Fund

The US Supreme Court [SCOTUS] has declined to review the challenge by multiple insurance carriers to the closure of the New York State Insurance Fund. Consistent with a national trend to terminate Second Injury Funds as being obsolete, economically impractical, and no longer warranted,  SCOTUS, by declining the Petition for a writ of certiorari, validated the methodology employed by the State of New York to implement the termination of the Fund.

"Since 1933 the State of New York has operated a special workers’ compensation insurance fund for cases that reopen after being closed for a statutorily defined 3 period, with the goal of protecting employers and their insurance carriers from bearing the costs of unforeseeable changes in the status of beneficiaries’ work-related medical conditions."

The State of New York contended, ".... [The] case concerns the New York Legislature’s authority to regulate the Special Fund for Reopened Cases, a statutory fund created by the Legislature and unique to New York’s workers’-compensation system. While the Fund was open, private insurance carriers could apply to transfer their liabilities from workers’- compensation policies to the Fund in a narrow category of cases involving claims made long after the workplace injury occurred, if certain conditions were satisfied. When the costs of operating the Fund skyrocketed, the New York Legislature closed the Fund to future transfer applications. The New York Court of Appeals unanimously held that the Legislature could permissibly regulate the Fund in this manner under the Contracts Clause, the Takings Clause, and the Due Process Clause of the United States Constitution." 

The State of New Jersey also operates a Second Injury Fund. "In order to insure that workers who have been injured previously can obtain gainful employment, the New Jersey Legislature created a second injury fund to insulate subsequent employers from responsibility for prior disability if the employee in question became totally disabled from a compensable accident or event during the last employment. The fund was established to encourage the employment of the handicapped by alleviating the burden placed upon the employer for compensation benefits should the injured worker become totally and permanently disabled. Contributions to the fund are made by each mutual association or stock company which writes compensation or employer's liability insurance in the State of New Jersey in accordance with statutory assessments."  Gelman, Jon L, Workers’ Compensation Law, 38 NJPRAC 14.1 (Thomson-Reuters 2018). Assets from the NJ Second Injury Fund are also utilized for general operating funds of the NJ Division of Workers Compensation. L.1990, c. 46, § 6(d)(2)(j), eff. June 28, 1990.

The issues presented to SCOTUS were:

(1) Whether an amendment to state law violates the contracts clause of the U.S. Constitution when it transfers the substantial cost for certain claims under pre-existing insurance policies from employers to their insurance carriers, when those insurance policies reflect an agreement that the carriers would not cover those claims, when the carriers correspondingly pay premiums that do not account for those claims, and when the legislative basis for the new law is obviously false at the time of enactment; 

(2) whether an amendment to state law violates the due process clause of the U.S. Constitution when it transfers the substantial cost for certain claims under pre-existing state-approved insurance policies from employers to their insurance carriers, when those insurance policies reflect an agreement that the carriers would not cover those claims, when the carriers correspondingly accept state-approved premiums that do not account for the cost of such claims in reliance on the terms of those insurance policies and longstanding state law, and when the legislative basis for the new law is obviously false at the time of the enactment; and 

(3) whether an amendment to state law violates the takings clause of the U.S. Constitution when it transfers the substantial cost for certain claims under pre-existing state-approved insurance policies from employers to their insurance carriers, when those insurance policies reflect an agreement that the carriers would not cover those claims, when the carriers correspondingly accept state-approved premiums that do not account for the cost of such claims in reliance on the terms of those insurance policies and longstanding state law, and when the legislative basis for the new law is obviously false at the time of the enactment.

Timeline of the case:

Dec 22 2017 Application (17A685) to extend the time to file a petition for a writ of certiorari from January 22, 2018 to February 21, 2018, submitted to Justice Ginsburg.
Dec 28 2017 Application (17A685) granted by Justice Ginsburg extending the time to file until February 21, 2018.
Feb 21 2018 Petition for a writ of certiorari filed. (Response due March 26, 2018)
Mar 14 2018 Motion to extend the time to file a response from March 26, 2018 to April 25, 2018, submitted to The Clerk.
Mar 20 2018 Motion to extend the time to file a response is granted and the time is extended to and including April 25, 2018.
Mar 26 2018 Brief amici curiae of Property Casualty Insurers Association of America, et al. filed.
Mar 26 2018 Brief amicus curiae of Washington Legal Foundation filed.
Mar 26 2018 Amicus brief of Property Casualty Insurers Association of America, American Insurance Association, National Association of Mutual Insurance Companies, New York Insurance Association, Inc. not accepted for filing. (March 26, 2018)
Apr 25 2018 Brief of respondents State of New York, et al. in opposition filed.
May 14 2018 Reply of petitioners American Economy Insurance Co., et al. filed.
May 15 2018 DISTRIBUTED for Conference of 5/31/2018.
Jun 04 2018 Petition DENIED.

American Economy Insurance Co. v. New York, Docket No. 17-1179.


Jon L. Gelman of Wayne NJ is the author of NJ Workers’ Compensation Law (West-Thomson-Reuters) and co-author of the national treatise, Modern Workers’ Compensation Law (West-Thomson-Reuters).