House Commitee Tackles Unprecedented Liability Facing Workers' Compensation System, Self-Insured Employers

May 12, 2014

Last week, the Michigan Chamber testified before the House Commerce Committee on a crisis facing the self-insured workers' compensation system in Michigan.

The 2009 bankruptcy of Delphi Corporation, and key errors made by the State, have left some 300 workers' compensation claimants without benefits. These claims present an unprecedented liability to the employer-funded account, the Self-Insured Security Fund (SISF), that makes payments to injured workers from bankrupt companies. Without a solution, this issue could threaten the sustainability of Michigan's self-insurance system. Read more.

The Chamber argued in its testimony that the state made two pivotal and costly mistakes in the handling of the Delphi bankruptcy, dating back to 2005: 1) the Workers' Compensation Agency allowed Delphi to self-insure, without any security (surety bond, letter of credit, etc.), as they entered into bankruptcy, which was a clear violation of the statute; 2) the Agency failed to file a timely claim in the bankruptcy proceedings, even after the court ruled in 2005 that Delphi was “authorized, but not directed, to pay or otherwise honor workers’ compensation claims.”  The State openly admits they would have received $15 million to put towards these claims had they filed a claim in the bankruptcy proceedings.

Exposure for these claims is estimated to total around $40 million. Finding a solution to this issue is a priority for the Michigan Chamber, which is why we testified in support of legislation (House Bills 5478-90) to address this issue. This legislation would:

  • Authorize use over $20 million in existing funds, including excess SISF assessment dollars;
  • Authorize a $15 million general fund appropriation to put toward the problem;
  • Authorize the Workers’ Compensation Agency to levy a temporary SISF assessment increase of 1% over four years ($8.6 million), paid for by self-insured employers and groups – but only if the funds are needed to pay claims; and
  • Put in safeguards to protect the state and self-insured employers from this scenario ever happening again.

Under a typical bankruptcy, after the bankrupt company's security is called and money is recovered during bankruptcy proceedings, all other self-insured companies share the costs of the claims. These claims are typically paid via the SISF, which is funded by a statutorily limited assessment of 3 percent on the company's paid claims the previous year. In this situation, rather than asking self-insured employers to bear the costs of the Delphi claims, the legislation seeks to strike a balance between the mistakes that were made and self-insured employers’ legal obligation to pay bankrupt company’s claims.

We expect there to be a vote on this legislative package later in May.  Please contact Wendy Block with any questions at (517) 371-7678 or wblock@michamber.com.