Supreme Court Rules Against Workers’ Compensation Insurers

Illinois does not have a workers’ compensation fund — at least not in the sense that it compensates with insurers to offer coverage to employers required to carry workers’ compensation insurance. Nationally, about half the states have funds that will pay workers’ compensation benefits when an employee is injured on the job. In four jurisdictions, the state is the sole provider of workers’ compensation insurance. In the rest of the fund states, the state fund compensates with private insurers, ostensibly keeping premiums reasonable across the board.

Lower premiums benefit both employers, who pay less for workers’ compensation coverage, and employees, because a portion of the savings will be passed along in the form of higher wages or greater benefits. But, what happens when a state decides to get out of the business of providing workers’ compensation coverage? The United States Supreme Court answered that question recently when it declined to hear an appeal from a group of insurers in a case against the state of New York.

In American Economy Ins. Co. v. New York, several workers’ compensation insurers were left responsible for paying benefits on re-opened workers’ compensation cases after the state shuttered a fund that had been making the payments since 1933. The fund covered cases in which workers filed new claims years after being injured. With closure of the fund, though, insurers are on the hook for hundreds of millions of dollars in claims.

A panel in New York’s Appellate Division ruled in favor of the companies, finding that the move was unconstitutional. New York’s highest court, the Court of Appeals, reversed the decision, finding in favor of the state. By denying the insurers’ appeal, the Supreme Court opens the door for other states to repurpose similar workers’ compensation funds and shift the burden to private insurers.