House Passes Bills Tackling Unprecedented Liability Facing Work Comp System, Self-Insured Employers

May 28, 2014

The Michigan House has passed a package of bills to address a crisis facing the self-insured workers’ compensation system in Michigan as a result of the Delphi bankruptcy. Amendments adopted on the floor of the Michigan House will further reduce the exposure of self-insured employers in Michigan and help mitigate costs.

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.

The Michigan Chamber has long argued that the state made two pivotal and costly mistakes in the handling of the Delphi bankruptcy, dating back to 2005: First, 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. Second, 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.

Finding a solution to this issue is a priority for the Michigan Chamber but, given the mistakes made by the State, we have argued that self-insured employers should not bear all of the costs of these claims. House Bills 5478-90 seek to strike a balance between the mistakes that were made and self-insured employers’ legal obligation to pay bankrupt company’s claims.

The bills contemplate paying these claims in two waves due to the difficulty in placing a precise estimate on the cost of the claims (i.e., estimates suggest lifetime costs ranging from $30 to $46 million). Claims would first be paid by using $21 million in existing funds, including excess SISF assessment dollars and Delphi settlement dollars, and $8 million in state general fund dollars. If an actuarial analysis indicates that this $29 million is insufficient to settle the claims, the Agency would then have the ability to simultaneously distribute another $7 million in state general funds and assess self-insured employers an additional 0.5% over a five-year period. Because of how the bills are structured, if claims come in lower than anticipated, it is entirely possible that self-insured employers will see no increase in their assessment and state dollars will be refunded to the general fund.

The changes in the House-passed versions of the bills are positive for self-insured employers, given that the Agency originally proposed a 5% increase in the SISF assessment to cover this problem, which would have cost self-insured employers over $30 million. The bills as introduced authorized a 1% increase in the SISF assessment for four years, which would have cost self-insured employers $8 million. The bills that passed the House allow for the potential of a 0.5% increase in SISF assessments for 5 years but only if initial funding sources are insufficient. Hence, the total potential liability to self-insured employers is $5 million and, if the total cost of the claims is less than $29 million, self-insured employers will see no additional costs under this plan.

We expect there to be hearing in the Senate on these bills in the coming weeks, with the goal of putting these bills on the Governor’s desk by mid-June. Please contact Wendy Block with any questions at (517) 371-7678 or wblock@michamber.com.