News & Updates

Governor Cuomo’s Proposed Workers’ Compensation Reform Garners Praise, But Raises Questions February 5, 2013

In a rare twist, New York Governor Andrew Cuomo’s recent proposed changes to workers’ compensation in New York have earned praise from both the business side and the labor side. 

On January 22, Governor Cuomo proposed significant new changes to workers’ compensation as part of his proposed state budget. These would be the most comprehensive changes since the 2007 Reform Act. The American Insurance Association specifically praised two portions of the proposal: first, the plan to simplify the assessment mechanism, in which employers would be assessed on their pro-rata share of premiums, regardless of how they secure their workers’ comp coverage, and second, to close the Aggregate Trust Fund to new deposits. The proposal also seeks to issue $800 million in bonds to cover the residual liability from group self-insured trusts, increase the weekly minimum benefit from $100 to $150, and close the Special Fund for Reopened Cases (also known as the 25-a fund). 

The New York Workers’ Compensation Alliance, an advocacy group for injured workers, also praised the proposed reforms, noting that closure of the 25-a fund has been on the NYWCA’s agenda for some time. 

At the time of the 2007 Reform Act, the concern was that the Aggregate Trust Fund (ATF) would force the value of Section 32 settlements to rise dramatically, as the ATF demanded deposits equal to the lifetime value of a claim. Where a case often settled for six to seven years worth of benefits, an ATF deposit might represent several times more than that. However, the ATF has held firm on a refusal to pay more than 5.5 years of benefits to settle the indemnity on a claim, and as such, the value of settlements has not risen anywhere near as much as expected. Even so, the threat of a significant ATF deposit has been a drawback for most carriers, as the money is gone when it is deposited; if a claimant dies a week after a deposit is made, they would not be due further benefits, but the ATF would still keep the deposit. 

While cessation of the ATF deposit is a definite positive, the pending closure of the 25-a fund presents numerous questions, however. Ordinarily, one would expect that the law would be changed to say that no cases with a date of injury after a certain future date would be eligible for 25-a transfer. However, given the experience with ATF deposits, where the direction was made retroactively, one can fairly question whether 25-a transfer will be available for current, active cases. Over the last several years, indemnity-only Section 32 agreements have become more prominent, on the theory that the residual liability will transfer to the 25-a fund eventually. Until there is clarity on how the closure of the 25-a fund will be effected, carriers and employers need to proceed cautiously when proceeding with indemnity-only settlement, and be aware that there is a possibility that the residual value of the claim will remain their liability. 

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