Mass. ‘Run-Off’ Insurers May Collect 2nd Injury Reimbursements

Case File

An insurer in "run-off" sought to collect second-injury trust fund reimbursements for payments it made to an injured worker, but the trust fund contended that the insurer was a nonparticipant and so could no longer collect from the fund. Massachusetts top court rejected the argument, finding that the statute didn't include run-off insurers with self-insurers, self-insurance groups, and municipalities as ineligible to receive reimbursement. Simply Research subscribers have access to the full text of the decision.

Case

Armwood Indemnity Company v. Workers' Compensation Trust Fund, No. SJC-13696 (Mass. 07/01/25)

What Happened

An employee for a signal company sustained a work-related back injury necessitating surgical treatment. Seven years later, the employee sustained a second work-related back injury. Following this injury, an impartial examiner concluded that the employee would "probably not return to any substantial gainful employment." The company's insurer initiated payment to the employee under the company's workers' compensation policy.

Roughly a year later, the insurer entered run-off and stopped issuing new insurance policies but continued to administer and pay claims under its previously issued policies.

Workers' Comp 101: An insurer in run-off no longer issues new insurance policies but continues to administer and pay claims under its previously issued policies.

Because the insurer no longer collected premiums from employers while it was in run-off, it also no longer collected the employers' mandatory assessments to transmit to the second injury trust fund.

Two years later, the insurer filed a petition for second-injury reimbursements from the trust fund for its payments to the employee. The insurer entered into a settlement agreement with the fund and continued to request and receive second-injury reimbursements until the fund began denying the insurer's reimbursement requests under Panu v. Chrysler Motors Corp., 28 Mass. Workers' Comp. Rep. 91 (2014), aff'd, Home Ins. Co. v. Workers' Compensation Trust Fund, 88 Mass. App. Ct. 189 (2015).

Under Panu, as affirmed in Home, even if an insurer in run-off remained obligated to pay out benefits, it could no longer seek reimbursement if it no longer collected and transmitted assessments to the trust fund.

An administrative law judge denied the insurer's claim for reimbursement, and the Department of Industrial Accidents reviewing board affirmed the ALJ's decision.

The insurer appealed to court, and the court reversed the board and abrogated the Home ruling. The trust fund appealed to the Massachusetts Supreme Judicial Court.

Rule of Law

In Massachusetts, if an employer pays into the trust fund, the employer's insurer is eligible, after the first 104 weeks from the onset of an employee's second injury, to be reimbursed by the trust fund for up to 75% of workers' compensation payments due under the employer's policy.

The insurer then reduces the employer's corresponding claims by the reimbursement amount and accordingly adjusts the employer's associated experience rating.

Workers' Comp 101: Insurers gather information about the insured's loss experience during the course of the policy period and use that information in a process known as "experience rating" to make retroactive pricing adjustments or prospective pricing adjustments for future policy periods. See Ben-Shahar & Logue, Outsourcing Regulation: How Insurance Reduces Moral Hazard, 111 Mich. L. Rev. 197, 206 (2012).

What the Supreme Judicial Court Said

According to the Supreme Judicial Court, neither the plain language of the statutory reimbursement exclusions nor the statutory enforcement mechanism as a whole supported the board's interpretation.

Under the relevant statute, there are three categories that are excluded from trust fund reimbursement:

(1) Non-insuring public employers.

(2) Self-insurers.

(3) Self-insurance groups.

The court explained that these categorical terms did not include insurers in run-off.

"If the Legislature intended to exclude such insurers from second-injury reimbursement eligibility, 'the wording of the statute could have easily reflected it,'" the court wrote, citing DiMasi v. Secretary of the Commonwealth, 491 Mass. 186 (2023). "'It does not.'"

The court also reasoned that the trust fund's interpretation was inconsistent with the "over-all division and allocation of responsibilities between insurers and employers with respect to second-injury reimbursements."

Under this allocation, revenues for the trust fund are raised by an assessment on all employers, and insurers transmit assessments collected each quarter. Thus, employers pay into the trust and insurers act as the conduit through which the payments are transferred from an employer to the trust fund.

"The statute provides little to no support for the argument that insurers should not be reimbursed by the trust fund unless they continue to provide for the funding of the trust fund," the court wrote. "It is employers, not insurers, who pay for the trust fund, with insurers only facilitating the administration of such payments."

Verdict: The Supreme Judicial Court reversed the Department of Industrial Accidents reviewing board's decision denying second-injury reimbursement to the insurer. It remanded the case to the board.

Takeaway

Massachusetts insurers in "run-off" are not precluded by statute from receiving second-injury reimbursements when such insurers have paid out the associated workers' compensation benefits to an injured employee.

Share This Article: