articles.swaneylawfirm.com » Bankruptcy

St. Louis Attorney Posts Info regarding General Motors Bankruptcy and Workers Comp Benefits

tni_adm — Tue, 09 Jun 2009 21:41:51 +0000

Article cited to keep up with GM bankruptcy and its affect on workers compensation claims. JEFF SWANEY FREE CONSULTATION 314-481-7778
(June 1, 2009 – Madison, WI) Self insurance directors had a jolting start to their work week as headlines of General Motors bankruptcy petition filled the news yesterday. The so called “first day motion” to the court included a petition to continue wages and benefits to GM’s workforce. As part of this motion, General Motors’ management took the position that payment for all workers’ compensation benefits, whether for future or past claims, was in the best interest of preserving the commitment of its labor force. Thus, the petition calls for the payment of all workers’ compensation benefits for any of its past or present employees, administrative expenses, and any workers compensation insurance premiums due, with exceptions for certain states, as noted below.

It is assumed that GM will continue premium payments, as most companies in bankruptcy place high priority in maintaining health and disability insurance. In fact, it is commonly assumed that a company’s assets can be best preserved by continuation of normal operations until the court deliberates on reorganization and releases the organization from bankruptcy as a viable entity.

The petition before the court includes workers’ compensation liabilities for active plants and operations, as well as incurred claims for ongoing workers’ compensation benefits in many jurisdictions where operations have ceased. According to the petition, the magnitude of past claims is enormous:

As of the Commencement Date approximately 12,500 workers’ compensation claims were pending against the Debtors. The Debtors estimate that the aggregate amount payable on account of incurred but not yet paid claims and IBNR claims arising prior to the Commencement Date is approximately $1.47 billion. Of course, not all of this amount is immediately due, but rather would be payable throughout the succeeding months and even years. The Debtors estimate that cash payments for the next 12 months related to prepetition workers’ compensation claims will be approximately $240 million.

The formal request to honor these past payments is stated as follows:

The Debtors intend to continue to review the proposed treatment of the Debtors’ obligations under Workers Compensation programs in the various states in which they operate or have in the past operated. Although this review is ongoing, the Debtors seek authority to pay all amounts related to workers’ compensation claims and IBNR claims that arose prior to the Commencement Date as they become due in the ordinary course of business (including reimbursements of administrators for claims paid by them), including all insurance premiums and administrative costs, and to continue their Workers’ Compensation Programs in the ordinary course, as deemed necessary to continue to operate and preserve value in the exercise of their business judgment in all states other than Alabama, Georgia, New Jersey and Oklahoma. In these four states, the Debtors do not currently intend to pay amounts related to workers’ compensation claims and IBNR claims that arose prior to the Commencement Date.

A GM official commented that Alabama, Georgia, New Jersey, and Oklahoma were omitted because they have no current GM operations. However, Greg Krohm, Executive Director of the IAIABC notes, “Even if collateral or surety coverage is sufficient to pay all future claims, there is likely going to be at least a few weeks delay in initiating payments in these four states. Moreover, the adequacy of security at ultimate payout is not guaranteed.”

How quickly the court will respond to the petition is unclear. If the Bankruptcy Court of the Southern District of New York rules that evidentiary filings and hearings are called for, turning claims over to sureties or third party administrators will inevitably result in some interruptions in benefit payments. The company rationale to the court for priority preference for these claims is:

If the Debtors are not authorized to pay their prepetition workers’ compensation obligations, the Debtors expect that the letters of credit, security deposits, and/or surety bonds will be drawn, resulting in millions of dollars of claims against the Debtors’ estates. Moreover, if they are not permitted to honor their workers’ compensation obligations, (a) alternative arrangements for workers’ compensation coverage likely would be more costly, (b) the failure to provide coverage may, in some states, subject the Debtors or their officers to significant penalties and possibly a shut down of operations, and (c) the Debtors may have their qualified self-insured employer status revoked in the respective states, resulting in substantially higher costs.

“If unopposed, this first day petition is likely to be granted. However, if creditors object the matter may be reopened,” according to Robert Aurbach, Principle, Uncommon Approach.

St. Louis Work Comp Attorney Carefully Watching Chrysler’s Bankruptcy

tni_adm — Sat, 16 May 2009 18:20:10 +0000

We are all concerned about Chrysler’s injured workers. Here is a recent article I found. Jeff Swaney FREE CONSULTATION 314-481-7778

States watch Chrysler’s possible impact on workers’ comp

Roberto Ceniceros
Business Insurance
May 11, 2009 – 1:31 pm ET

NEW YORK — States are carefully monitoring Chrysler LLC’s bankruptcy case for its possible impact on workers’ compensation funds.

Indeed, Michigan’s workers’ compensation guaranty fund for self-insured employers would be exhausted if Chrysler reneges on its pledge to keep paying workers’ comp claims despite its Chapter 11 bankruptcy filing, according to the state’s attorney general.

In a court filing last week, Michigan Attorney General Mike Cox stated that Michigan’s Self-Insurers’ Security Fund could face insolvency as a result of Chrysler’s April 30 Chapter 11 filing and attempt to sell its assets to Italian automaker Fiat S.p.A.

Other states where Chrysler self-insures its comp liabilities say they also are monitoring the action, despite assurances from Chrysler that it will continue to pay its workers’ comp claims.

A Chrysler spokesman said the troubled automaker has court authority to keep paying workers’ comp liabilities owed to injured employees across the country.

As of Dec. 31, Chrysler had 38,257 U.S. employees. It purchases workers’ comp insurance in some states while self-insuring in others, according to various state regulator databases.

Objecting to language

Cox filed a motion in the U.S. Bankruptcy Court for the Southern District of New York, which is handling the Chrysler bankruptcy, last week objecting to some of the language in Chrysler’s bankruptcy filings. He said filings show there is potential for Chrysler and a buyer of its assets to disregard the auto manufacturer’s existing workers’ comp obligations.

The company’s recent court pleadings “may be interpreted as an intention to no longer meet such statutory obligations,” the attorney general’s motion states.

Proposed sale documents specifically reject a successful bidder’s assumption of Chrysler workers’ comp liabilities, so it appears an entity would not be left to make payments to injured Chrysler workers, the attorney general said.

The attorney general filed the motion on behalf of the Michigan Workers’ Compensation Agency and Funds Administration, which regulates self-insureds and oversees the security fund.

“If [Michigan's] Self-Insurers Security Fund was forced to assume [Chrysler's] workers’ compensation obligations, enough funds exist only to make benefit payments for a matter of weeks before this fund becomes insolvent itself,” the motion said.

“The concern…applies not only to [Chrysler's] injured employees, but to all injured employees in Michigan entitled to benefits from an insolvent self-insured employer,” the motion states. “If the proposed sale order is approved and the debtors are unable or unwilling to continue paying their workers’ compensation obligations, the Self-Insurers’ Security Fund would eventually become insolvent.”

The attorney general’s motion also said other self-insured employers in Michigan could face additional assessments to help shore up the security fund in their state, but that would fall short.

Emergency assessments?

Michigan risk managers are concerned their self-insured programs would face an emergency assessment to make up for a security fund shortfall should Chrysler fail to meet its obligations, said Leigh Stepaniak, director of risk management for the Wayne County Airport Authority, Detroit Metropolitan Airport.

Such an assessment would be difficult given economic conditions, said Stepaniak, who also is a member of the board of managers for the Michigan Self-Insurers’ Association.

“We are all looking at our budgets, which are extremely tight, and we are looking at our own losses, and if they do any emergency assessment it is going to impact us,” Stepaniak said

Even if emergency assessments were levied, the fund’s “maximum possible balance would be approximately $9 million — substantially less than needed to cover the debtors’ statutory obligations,” according to the attorney general’s motion.

Chrysler’s workers’ comp liability potentially exceeds $150 million and requires the company to expend more than $25 million annually, according to the attorney general.

The Michigan Self Insurer’s Security Fund paid out nearly $5 million in benefits in 2008. There were 470 individually self-insured employers in the state, according to the Workers’ Compensation Agency’s 2008 annual report.

Officials in other states where Chrysler self-insures workers’ comp liabilities said they were reviewing the Michigan Attorney General’s filing to see if any action might be appropriate.

Illinois, too

“We have been talking to our attorney [general's office] about our options and we are monitoring the Michigan situation,” said a spokeswoman for Illinois Workers’ Compensation Commission, which supervises self-insureds and operates a security fund. “We are talking with workers’ comp agencies [in Indiana, Missouri and Ohio] to see what they are doing,” the Illinois spokeswoman said. “But we don’t have any conclusions as of now.”

A spokeswoman for Missouri’s Department of Labor said they too are monitoring the situation and “will respond as more information becomes available regarding the bankruptcy filing.”

The Ohio Bureau of Workers’ Compensation expects that Chrysler will continue meeting its workers’ comp obligations because of the bankruptcy court judge’s approval to allow Chrysler to do so, a spokeswoman said.

Chrysler assured her several weeks ago that it would pay its workers’ comp claims, said Linda Hamilton, chairman of the Workers’ Compensation Board of Indiana in Indianapolis.

“There is concern, but Chrysler contacted us a number of weeks ago about what possibly may happen,” Hamilton said. “They made sure that they [addressed] all of their outstanding obligations for injured workers.”

Chrysler asked for the bankruptcy judge’s permission to continue paying its workers’ comp claims even before Michigan filed its motion.

While the judge has approved Chrysler’s request to continue paying its workers’ comp claims during bankruptcy, he did not rule on the Michigan Attorney General’s objection, a spokesman for Mr. Cox said.

“I’m not going to criticize the Michigan Attorney General, nor am I going to point out whether the Michigan Attorney General’s motion had any veracity at all,” a Chrysler spokesman said. “But we went to the court and the court has given us the authority to pay and we will pay our workers’ comp obligations to employees around the country.”