Illinois court denies failed insurer’s use of California special deposit funds for administrative expenses

(Sacramento, CA – Insurance News 360) – On June 19, the Appellate Court of Illinois issued a decision that denied Lumbermens’ Mutual Casualty Company the ability to use California workers compensation funds to reimburse overhead and administrative expenses connected to the company’s liquidation. Insurance Commissioner Dave Jones and the California Insurance Guarantee Association (CIGA) had a stated position that the company could not use workers’ compensation deposits for this purpose.

“As regulator of largest insurance market in the country, I am committed to making sure California workers are protected and insurance companies keep their promises to policyholders,” said Insurance Commissioner Dave Jones. “The court’s ruling upholds my position that Lumbermens Mutual Casualty Company must use funds reserved for workers’ compensation claims on actual claims-and not other expenses. This ruling preserves financial protections for California’s workers and businesses that rely on workers’ compensation insurance.”

According to the insurance department, the California Insurance Code plainly states special deposit proceeds must be used solely for the payment of compensable workers’ compensation claims.General administrative expenses are not related to the payment of specific workers’ compensation claims, so it is improper for Lumbermens to require CIGA to pay general administrative expenses such as rent, postage, telephone, lighting, cleaning, heating and electricity with funds held in a special deposit.

The court agreed and determined the special California workers’ compensation deposit is security for the payment of workers’ compensation claims in California and must be used exclusively to protect policyholders from insolvent insurers by providing an asset from which to pay compensable workers’ compensation claims.

Source: California Department of Insurance.

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