-: SJC-13696, Arrowwood Indemnity Company
versus Workers' Compensation Trust Fund.
-: Okay, Attorney Smith.
-: Good morning and may it please the court.
I'm Eric Smith, appearing for Arrowwood Indemnity Company.
Arrowwood asserts a claim for second injury reimbursement
because payments made for payments made
while it was in runoff.
-: Can you talk a teeny bit louder?
Sorry. -: Quickly.
And also step closer to the mic.
Arrowwood has pursued this case
because we believe that the earlier decisions in PANU
affirmed by home on which the reviewing board relied
in this case were wrongly decided.
Two essential reasons.
First of all, they do not correctly interpret the statutes
as the appeals court in this particular case concluded.
And then second of all, because those decisions,
in particular PANU, was based upon a flawed assumption
that the result for the trust fund is the same
where an insurance company stops writing new policies
and enters runoff as when an employer opts out
of paying assessments.
When an employer opts out, the trust fund loses
the assessments it would otherwise receive
from that employer.
When an insurance company stops writing new policies,
the trust fund continues to receive assessments
because the former insurance of that insurance company
must move on to other insurance companies
because they're required to have insurance,
workers' compensation insurance,
and they then pay their assessments
through those insurance companies.
Turning first to the statutes.
Here in our view, the statute speaks clearly
under ordinary principles.
First of all, the plain meaning of the statute,
which is that 37 mandates second injury reimbursement
and sub-equal proviso.
And that proviso refers to the opt-out provisions
of section 65, which concerns employer,
mostly self-insurers, but employers in the capacity
of employers who can file a notice of non-participation,
stop paying assessments, and the price of that,
of course, is that they don't receive a reimbursement.
There's no provision in the statute
that prohibits reimbursement to insurance companies
and runoff or that requires an insurance company
to deposit assessments as a condition
to receiving reimbursement.
And just referring to the statutory principles
that are discussed in our brief,
it's well established that where the legislature
enacted a statute subject to specific exceptions,
agencies and courts do not imply other incessions,
exceptions, and the courts regard those omissions
as purposeful.
That plain meaning, which the appeals court concluded,
is confirmed by reading the Workers' Compensation Act
as a whole, looking at some other provisions.
First of all, it's consistent
with the evident legislative intent
for the exceptions in section 34B, section 37,
and of course, spelled out in more detail in 65,
which is that under those exceptions,
the employers would otherwise pay the assessments,
they choose not to pay those exceptions,
and then lose reimbursement, that's their intent.
That intent doesn't encompass this situation
where the insurance company, excuse me,
there's been no opt-out,
insurance companies can't opt-out, they don't pay,
and the trust fund continues to receive assessments
from the employers.
Reimbursement also serves the purpose of section 37,
which is to promote the hiring of injured workers.
Where an insurer receives reimbursement,
that reduces the employer's premiums,
either directly, if they're a self-insurer,
or through the adjustment
of the experience modification factor,
if they're insured by an insurance company.
Denying the reimbursement denies
the employment's statutory incentive,
in the prism of the incentive that they had
to hire previously injured workers.
And finally, the reimbursement is consistent
with the purpose of protecting insurance companies,
which is evident from paragraph four of section 65(2),
which permits a public employer
who's insured by an insurance company to opt-out,
which of course deprives the trust funds of assessments.
In that case, the legislature denied reimbursement
from the trust fund,
but required that the employer actually itself
reimbursed the insurance company.
So clearly, the legislature contemplated
that an insurance company that issued a insurance policy
started playing on a claim,
was getting reimbursement, would continue to do so.
-: And I find your plain reading clear,
I'm not belaboring that.
I'm trying to get at why the DIA
is so concerned about the workers' comp trust fund
and the impact of this kind of problem.
And I don't get it, right?
Because this plaintiff's continued,
when the insurance, when the employer shifts,
somebody is still putting money into this fund, right?
-: Right. -: What happens here?
Describe what happened, just the facts of the cases,
Justice Walhogen, do the facts of this case
and how the money kept flowing here, right?
-: Well, in this particular case,
Arrowwood obviously wrote the insurance policy in 2001
to Scully, the employee, Pena, was injured in 2001,
at which point Arrowwood started making
the workers' compensation payments.
After a, it was apparently it satisfied the conditions
for a second injury reimbursement.
So after two years, 104 weeks as in the statute,
the second injury reimbursement provisions kick in.
And then there's a lag because the insurer
has to submit the request for reimbursement,
and it has two years by statute to do so.
And of the insurers, Arrowwood,
which was by then in runoff,
'cause it went into runoff in 2003,
submitted requests for reimbursement,
which were paid through 2013, roughly,
at which point the PANU decision came down
and the position shifted.
-: The plaintiff has a new insurer.
That new insurer is contributing
to the workers' compensation trust fund, correct?
-: That's correct. -: So there's not
a negative impact on the worker,
'cause it seems like, I understand, again,
the importance of that workers' comp trust fund,
and particularly in 1991, 'cause the system was blowing up.
So there's, I'm trying to understand what's happening
when they write this language.
And is there any argument?
Do the insurers contribute in any way
to the workers' compensation trust fund?
Do they have any payments
into the workers' compensation trust fund?
Or is it totally paid for by employers,
and the insurers just act as a conduit?
-: My understanding is that is,
and looking at the statutes,
is that is simply the insurers are a conduit.
They do not themselves fund the trust fund, which is-
-: But the insurers do provide information
for to set the next year's assessments, right?
-: Yes, they provide information.
-: And an insurer in runoff period no longer is doing that.
-: That's not correct, Your Honor.
-: Oh, is that?
Okay, so explain to me how that happens.
-: Non-completely, there's two aspects of it.
The argument that the trust fund had made before
and the reviewing board adopted
was the participation argument.
In their recent brief,
they argued that Arrowwood was not
complying with the brief.
The record is not fully fleshed out on that point.
But it does include one stipulations that,
excuse me, statement of testimony,
you're not gonna find this right here.
Ms. Feaster of the DA-
-: Wait, just to cut to the chase.
Is it your position that an insurer in runoff
reports to the trust fund?
-: It continues to report.
The record shows here the filing of the Form 50s,
which, as Ms. Feaster testified,
is the DIA's way
of obtaining information about assessments.
Judge: Okay, so, okay.
-: And the insurer in runoff continues to file Form 50s.
Judge: Our Form 50s are the form that says,
"We're paying these benefits."
-: It says, "We are paying these, we have collected,"
well, actually, to be more precise,
"It specifies that we have collected
"the following assessments,
"which we are now obligated to turn
over to the trust fund."
Here, of course, Arrowwood, in runoff,
doesn't have any current insurers,
and therefore has no assessments to act as a conduit for,
because assessments are collected
from the current insurers,
and Arrowwood doesn't have any.
It's continued to comply with its obligation
to file the Form 50s, but it's not reporting-
Judge: Oh, so the Form 50 contains no information?
-: Yes. -: Okay.
-: Yeah, the Form 50s,
because there's no information to provide,
because it has no current insurers from whom to collect.
So in our view, Arrowwood is complying with the statutes
as they apply to it.
It doesn't have any current insurers,
and therefore doesn't have any information to provide,
other than reporting that it doesn't have
information to provide.
With respect to-
-: The DIA decision where they talk about
the negative effect of this, what's your response to it?
Again, 'cause I don't quite follow it,
but the DIA, we owe deference, these people are experts.
We owe some deference to their discussion
that not having the insurers
in this status, whatever the status is,
has an impact on the Workers' Compensation Trust Fund,
and I'm just trying to understand
what your response to that is,
and how you feel about giving them some deference.
-: Well, two points.
First of all, in our view, there is no impact,
because the assessment base is not affected,
and the collection of assessments
from the current employers,
who are the assessment base, is not affected.
So in our view, there is no impact on the trust fund.
With respect to the deference point,
obviously in our view, the statutes are clear,
but moving beyond that, the reason that Arrowwood
presented a record below-
-: They aren't really making a statutory,
they're suggesting that almost as a fact-finding
of some sort by the DIA,
that this administrative burden that's imposed
when your clients check out,
'cause they don't rely on it
as a statutory interpretation, right?
They have this, they sort of back into this.
-: Yes, and the administrative burden argument,
I think, Your Honor, has arisen in response
to one paragraph in the appeals court's decision,
which, in our view, is essentially just sort of saying
that employers need to participate,
and participate means they are required to do so
unless they file a notice of non-participation.
So that's not an issue.
And then they refer to Scully,
which was as an example here,
we showed, of course, in the record,
that Scully was insured by many other insurance companies
through the time of the hearing,
and therefore was obligated to pay.
-: I wasn't talking about Chief Justice Greene's decision.
I'm talking about the decision by the reviewing board,
which seems to be concerned about the effect
of going into this status where you don't report,
or you don't have any,
that you somehow burden the system,
'cause that doesn't,
we owe some deference to them on that,
as opposed to pure statutory language,
which I think you do a very nice job
of explaining how the statute works.
-: Well, Your Honor...
-: I don't know how important it is,
but they do make-
-: In our view, they sort of,
it becomes, as in the words of the other side's brief,
the connective tissue.
I mean, these are very large,
J broad, general sweeping statements.
In our view, they lack substance
because there is no actual impact.
The insurer's in runoff,
continue to file the required forms,
and of course, to the extent that there were
any actual noncompliance with anything,
there's a remedy in the statute.
I mean, failing to provide information
for the assessment base is subject to a $1,000 fine under,
and I don't know whether that's daily or not,
but it's subject to a fine under section 65(3).
Failure to transmit assessments,
of course there are none here,
are subject to liens and fines under 65(5),
so there are remedies for noncompliance type issues.
I'm just not certain if there's any actual burden
other than the fact that it has to pay reimbursement
on the trust fund.
-: Meaning that if they don't pay the reimbursement,
the trust fund has more money.
-: Exactly. -: Puts less pressure on,
and the trust fund does a lot of different things
besides paying COLAs and second injuries.
It pays for the DIA's expenses,
it pays for workers' comp benefits
for uninsured employers too, right?
But again, insurance companies don't pay any of that,
right, it's all done on employers.
-: It's done on the assessment base.
I mean, section 65 is quite clear.
The revenues for the trust fund shall be obtained
from an assessment on all employers,
subject to this chapter.
So that the,
the legislature is clear that this is supposed to be
for the whole system is funded by employers
in the current year.
And the reason for that, in some sense,
I think is the fact that employers do go out of business.
So it needs to be focusing on the current employer base,
both because old employers may go out of business,
and for administrative reasons,
because obviously the collection of assessments
is part of the premium process.
They're at a surcharge of premiums.
-: It makes it much easier for them
to deal with the insurance companies
because there are many fewer insurance companies
than there are employers, right?
-: Yes, many more, many, excuse me,
many fewer insurance companies, absolutely.
The only other point I think I can make
is with respect to the participating concept,
which is sort of floated around,
that arose out of the Dupont
and the Marcos-Weisswillow decisions in the appeals court.
And those cases, of course, of concern,
employer insureds, they were self-insureds, who opted out.
So they are actually examples of a situation
where the, of the gap of the type
that is actually ordinarily understood.
Because there, the employers opted out,
and the question was simply,
how does that opt-out affect a particular claim?
I mean, in one case, there was the claim,
the employer opted out, and the question was,
does that opt-out affect a reimbursement on that claim?
The other one, the employer opted out,
the claim occurred, and then the effective date
that the opt-out occurred,
and the question was, how does that play out?
And those are the kinds of situations
where there's a gap in the statute.
There's no gap here.
-: Before you leave, can you just take,
the pay-as-you-go language appears
in a couple of the appeals court cases,
and it's a prominent part of their brief.
Do you wanna address the,
why the appeals court has the pay-as-you-go confused?
-: Yes, the pay-as-you-go concerns the overall system,
which is funded by employer assessments.
And it does not have to do with
the historic payment of claims.
It has to do with the funding mechanism.
Here, what we have is a payment of a claim,
rising years ago, which the insurer
continues to pay reimbursement on,
and our view should be entitled to receive
the reimbursement that goes with
those compensation payments
that it's making while in runoff.
-: Okay. -: Thank you.
Okay, Attorney Martland.
-: Good morning, Your Honors.
May it please the Court, Douglas Martland,
Assistant Attorney General for the Trust Fund.
At its heart, this case is about deference.
The legislature- -: Talk a little louder.
-: The legislature left a gap in the statute.
The agency filled the gap,
and the agency's means for filling that gap-
-: What's the gap?
'Cause I'm looking at the statutory language,
and it seems pretty clear to me.
So where are you seeing this gap?
-: The gap is what to do when an insurer
stops fulfilling its obligations under Section 65.
And those obligations- -: No, that's where,
but where, why isn't the statutory language saying
the insurer shall be reimbursed
other than the self-employed, self-insured,
who opt out, groups that opt out,
and municipalities that opt out?
Where's the gap in that?
It doesn't say some insurers, so go ahead.
-: And, Your Honor, the answer to that question
is the Court needs to look at both Section 37
and Section 65 in conjunction.
The logic underlying your question here
is primarily focused on one part of the language
in Section 37 that is repeated in Section 65
regarding an insurer making payments.
But that ignores the other equally significant components
of Section 65, and these are in Section 65(3)
and Section 65(5) regarding an insurer's
reporting of assessments, and you talked a little bit
about that here with my brother,
the billing and collecting of the assessments
from the employers, and the transmittal
of those assessments to the trust fund,
which form the monetary basis-
-: But there are consequences to an insurer
who fails to follow those reporting obligations,
and one of them is not that they
shall not be reimbursed, is it?
-: So I certainly agree that there are some consequences
set out in the statute regarding those,
but those consequences do not address
the type of situation that we have here
where we have an insurer that at the time
of this case began was in runoff and now in liquidation.
It would make no sense for the trust fund
to be going out and putting a lien
on an insurer in liquidation.
That is not a productive-
-: That's 'cause they don't pay money into the trust fund.
They don't have, I mean, and they're not,
they don't have no one to assess,
'cause they're not, they have no ongoing clients.
I just, the whole thing seems baffling to me.
What are you accomplishing?
By this.
They don't pay the trust.
The trust fund is paid entirely by employers, right?
-: Yes, Your Honor.
-: They're paid entirely by employers.
This plaintiff's employer has a new insurance company
that's reporting their loss claims, right?
-: And so I would like to address that point,
'cause I think that gets to the unworkability
of the solution that the appeals court proposed
in this decision, and this is an equally important part
of this court's consideration
of the two statutes at issue here,
that the appeals court, under the appeals court's new test,
every insurer seeking reimbursement,
not just the limited class of insurers that we have
that would be subject to the trust fund's old rule
and the old rule under the appeals court at home,
so that would be insurers in runoff
and insurers in liquidation,
now have to prove that their employer that they insured,
and again, using some of the examples from the prior case,
in 1990, in 1991, in 1997, in 2005,
still exists and is still paying assessments.
-: Why? -: Because that's the rule
that the appeals court articulated.
-: That's not the rule, that's just the logic
behind why the trust fund's argument is flawed.
The trust fund, I thought, was arguing
that it was no longer receiving assessments,
and the appeals court, in response, said,
"No, you're not, because Scully has got a new insurer
"that's now paying the assessments into the trust fund."
-: So I agree that, for this particular example,
Scully is a bit of an exception.
It is an employer that has survived, to its credit,
a very long time, and it remains paying assessments
into the trust fund.
No dispute about that, but that is unusual
for that particular type of-
-: What's that in the record?
-: This is coming up subsequent
to the appeals court's decision,
so if the court wanted specific facts about this-
-: No, I'll stick to the record here,
but you're representing that the lion's share
of insured employers whose insurer goes into runoff
are defunct?
-: No. -: Okay.
-: Well, excuse me.
What we are trying to articulate here, Your Honor,
is that under the appeals court's new rule,
if adopted by this court,
every insurer seeking reimbursement
will have to establish that their employer
is paying assessment, because that's the rule
set out on page 424 of the decision.
-: Well, let's just say we don't think
that that's what the appeals court meant,
nor is it a rule or an obligation of the insurer
to prove subsequent events.
The question we have is whether, under the statute,
the insurer in runoff is entitled to reimbursements
from the trust fund, not how it proves it.
Presumably, how it proves it is
if it's playing the second injury claim,
it submits the claim to the trust fund,
and whatever portion of that claim it gets reimbursed for.
I don't understand why it has to be tied
to the continuing existence of some former employer
that it used to insure.
-: So we agree on that point.
We do not think that it needs to be tied
in any way to the employer, and in fact,
that we see as a separate and distinct error
in the appeals court, and I think all four parties
that have argued today, or three parties technically,
would agree on that point, that that part
of the appeals court's decision,
to the extent it's a rule, is wrong.
Judge: What language in the appeals court,
are you talking about the word participates?
-: That the employer still participates in the system.
That's how they-
-: They're just drawing a distinction
between the people who opt out, and the people who don't.
-: Respectfully, your honor, I disagree,
and I think that the appeals court,
that reliance on the employer's-
-: So let's say that's not the test.
Regardless of how you read it, and how I read it,
it's not the test, so go ahead.
-: And this comes back to why there's a gap, then,
in the statute, and fundamentally, if there is a gap,
then this court has said, and again and again,
that if the trust funds-
-: But you identified the gap coming from section three,
or part three of section 65, so explain that to me.
Where does that gap-
-: So sections 65.3 and section 65.5,
require an insurer to fulfill a set of responsibilities.
The trust fund here has said,
because this particular scenario is not addressed
anywhere in the statute of what happens
when an insurer just stops fulfilling
those responsibilities.
-: But no, I thought the insurer
is fulfilling the responsibilities under,
I thought it was form 50, which contains no information,
because there's none to give.
-: So to the extent that they
are reporting zero assessments,
they are not fulfilling their other responsibilities,
which is billing and collecting,
and transmitting funds to the trust fund.
-: So they have to bill and collect what?
Judge: From whom?
-: From existing, from writing existing policies.
-: But they have none.
-: Exactly.
-: So hold on. -: Those are obligations-
-: So I have no existing policies out there.
Am I violating my obligation to?
-: Again, you're on-
-: 65.3 and 5, I don't understand that.
I mean, it's as if they're no longer
an insurance company in Massachusetts.
They're in runoff.
They have obligations under the policies that they wrote,
and so they're paying them.
-: Right, and the-
-: But they have no information to report under 3 and 5.
-: Separate question is whether,
because of their change in status,
they should be eligible for reimbursement.
And the trust fund's position is that there are-
-: Does section, gosh, what section is it, two?
Does section two say anything about eligibility
for reimbursements conditioned on 3 and 5?
-: No, section two does not-
-: So you're reading that into the statute
and then finding a gap from the reading it in?
-: I would disagree, Your Honor.
We are- -: No, I'm asking.
I'm not stating- -: Yes, yes.
-: I'm trying to understand your position
'cause you've identified a gap,
but I'm still not seeing it in 3 and 5.
-: The point is that the language in section 65.2
does not address this scenario.
That is the gap.
-: Can you, and just when are you done?
'Cause I don't wanna cut you off on this.
Judge: I think I have the information I'm gonna get.
-: Okay, so I don't, tell me practically, okay,
'cause I always find the language makes more sense
when I understand the reality underneath it.
So the reality here is these insurers have no,
they're not selling any new policies anymore.
-: Correct.
-: And so, and they are fulfilling their obligations
to the employees, which is what the whole system
is designed to do.
They're paying out these COLA benefits.
What is it that they're not doing
in the real world
that is somehow hurting the system?
Give me, 'cause I feel like this was a practical problem
and a practical solution.
I don't see what you're talking about.
Go ahead, tell me what it is they're not doing
that meaningfully harms the workers'
compensation trust fund
'cause again, I get how important that fund is.
-: And to understand your question, your honor,
I think we have to back up to HOME,
which is a little different than this case.
This case only involves an insurer in runoff.
HOME involved both an insurer in liquidation
and in runoff, those stages as the company
progressed to liquidation.
And the rule in HOME originally came about
because the insurer, as you discussed in the last case,
was no longer making the payments to the injured worker.
And the reviewing board there explained
that when you're not making the payments
and fulfilling your statutory preconditions
to reimbursement, you're not entitled to reimbursement.
-: Of course, of course. -: Okay, but that's it.
And the reviewing board there continued that logic
because that arises out of both sets of obligations
in section 37 and 65.
-: Again, give me, again, speak in practicalities.
They're not doing something, and why is that meaningful?
They're not reporting on clients they don't have.
In this context, I get the other context.
Tell me, give me a real world example
where there's harm here.
-: And I think at the end of the day, your honor,
this is really about apportioning the risk of loss
to the system, not necessarily to the fund,
but to the system.
-: But the system apportions the loss among employers.
It doesn't apportion the loss against insurance companies.
It doesn't, again, go ahead.
-: I agree that the system apportions the loss
against insurance companies and the-
-: Employers, not insurance. -: Sorry, sorry, excuse me.
Employers, and that the trust funds rule here
was created to anticipate that risk of loss
and to resolve it.
There is a separate mechanism that you talked about
in the prior case for resolving situations
where an insurance company goes into liquidation.
That's a separate legislative scheme
created by the legislature.
-: I'm giving you an opportunity,
'cause I like to understand,
I don't wanna harm someone out there,
and I don't wanna harm the fund,
but I need you to explain how the result he's arguing for,
which seems to be consistent with the statutory language,
is somehow damaging here.
And so far, it's still incredibly esoteric to me.
-: And so one portion of that, Your Honor,
is the administrability of the rule.
The trust fund, as explained in our briefing here,
determines eligibility for repayment
by looking at those several criteria
in section 65.3 and section 65.5
that I was referring to earlier.
So the assessments, the billing, the collecting,
the transmittal, all of which-
-: You're gonna run out of time.
Practically, we know they have no ongoing clients.
So all we have is the existing ones
before they went into this status.
So tell me how the harm is
by having them not file something.
-: I'm attempting to distinguish
between the harm and the administrability,
and I do think that the administrability
of this rule is important.
The trust fund here isn't an entity
that should be going out there
and identifying the status of every insurer
that's operating in the commonwealth.
The way that they have used a shortcut, you could say,
to identify that status is to look at situations
where an insurer is meeting these criteria
of no longer billing, collecting,
and transmitting assessments.
Again, we have the zero, like we're talking about here,
as a shortcut for identifying
that they are on the path or in liquidation.
And that, again, is where the real harm occurs,
when the insurer hits the liquidation
and they are no longer making the payments,
they would be receiving-
-: They don't make the payments.
The employers make the payments.
-: Exactly, but under- -: So again,
what is the real-world harm you're describing?
They don't make the payments,
and there's a successor insurance
company for that employer.
So, I mean- -: So, I agree,
but the fact pattern in HOME was the insurer-
-: Right, so that makes the second part
of HOME entirely dicta, right?
Because the insurer in HOME
was not actually paying anything,
it was actually just asking for money,
reimbursements for money it had not paid out.
-: So, no, and the reason for that is
there were claims for both periods in HOME.
So there was claims that arose
while the insurer was in runoff,
and there were claims that arose
while the insurer was in liquidation.