Opinion
CASE NO. 1930 CRB-1-93-12
AUGUST 15, 1995
The claimants were not represented at oral argument. At the formal hearing, the interest of all 22 named claimants was represented by Stephen Edgerly of the United Auto Workers, International Union.
The respondent-appellant Coltec Industries was represented by Burton Kainen, Esq., Diana Garfield, Esq. and Sheldon D. Myers, Esq., Kainen, Starr, Garfield, Wright Escalera, P.C.
The respondent-appellee Colt Manufacturing Co., Inc. was represented by David C. Anderson, Esq., Murtha, Cullina, Richter Pinney, P.C.
The Second Injury Fund was represented by Michael J. Belzer, Esq., Assistant Attorney General.
This Petition for Review from the December 13, 1993 Finding and Dismissal of the Commissioner acting for the First District was heard December 2, 1994 before a Compensation Review Board panel consisting of the Commission Chairman Jesse M. Frankl and Commissioners Nancy A. Brouillet and Michael S. Miles.
OPINION
The respondent Coltec Industries, Inc. (Coltec) has petitioned for review from the December 13, 1993 Finding and Dismissal of the Commissioner for the First District. It argues on appeal that the commissioner erred by failing to order the transfer of liability for certain workers' compensation claims to the Second Injury Fund. We affirm the trial commissioner's decision.
The parties involved in this appeal stipulated that Coltec, also known as Colt Industries, Inc., is a Pennsylvania corporation headquartered in New York City. This corporation owned and operated several businesses in Connecticut, including Colt Firearms and Chandler Evans. All of the claimants in this case were employees of the Firearms Division who suffered or claim to have suffered compensable injuries on or before March 22, 1990. On or about that date, Coltec agreed to sell, and C.F. Holdings, Inc., agreed to purchase, certain assets and liabilities of the Firearms Division, which subsequently became known as Colt's Manufacturing Co. (Colt's).
Among those involved in the sale and purchase of the Firearms Division was the State of Connecticut, who, through its treasurer, Francisco Borges, invested $25 million in Colt's stock. The money for this investment came from the state employees' pension fund. The commissioner specifically found that, pursuant to § 31-354 C.G.S., these funds were not commingled with the assets of the Second Injury Fund, which the State Treasurer is also responsible for administering.
As part of the sale agreement, Colt's agreed to assume the runoff responsibilities for administering the workers' compensation claims that had been previously handled by the Firearms Division of Coltec. Travelers Insurance Corp. became Colt's new insurer. "Colt Industries, Inc. Firearms Division and Chandler Evans" had been self-insured for workers' compensation purposes for many years, and continued to be self-insured through January 1, 1991. This coverage terminated with respect to the Firearms Division on the date of its purchase by C.F. Holdings, Inc. "Coltec Industries, Inc./Chandler Evans Division" subsequently received certificates of solvency for 1991 and 1992.
On March 18, 1992, Colt's filed a Chapter 11 bankruptcy petition, and thereafter ceased making workers' compensation payments. Coltec agreed to administer the claims for injuries sustained prior to March 22, 1990, until a final determination as to liability could be made. At the formal hearing, Coltec argued that liability for the claims in question was validly transferred to Colt's, and that said liability should now be transferred to the Second Injury Fund in light of Colt's bankruptcy. It further argued that the involvement of the State Treasurer in the purchase of Colt's estopped the Fund from arguing that Coltec is still liable for those claims.
The appellant moved to submit as additional evidence pursuant to Admin. Reg. § 31-301-9 the September 16, 1994 Order of the United States Bankruptcy Court for the District of Connecticut confirming Colt's Chapter 11 Reorganization Plan. We grant this motion, because the order was obviously not available at the formal hearing, and it is material to our decision in this appeal. We also note that the appellant's motion to exclude an exhibit attached to the Second Injury Fund's brief was granted at oral argument, as the Fund did not follow proper procedure in attempting to admit additional evidence.
The commissioner disagreed. She found that there was no provision in the Workers' Compensation Act relieving an employer or insurer of statutory liability for past claims, and cited § 31-290 in support of her conclusion. She also found that the state's equity ownership in Colt's did not affect the liability of the Second Injury Fund, as its funds were not improperly commingled with those of the pension fund, and the treasurer did not have the authority to induce detrimental reliance sufficient to relieve Coltec of liability for workers' compensation claims. She further found that no one had considered the ramifications of Colt's potential bankruptcy at the time of the transfer, and that neither Coltec nor Colt's presented witnesses who participated directly in the sales negotiations when workers' compensation issues were discussed.
Also weakening the respondents' estoppel argument was the fact that former Treasurer Borges and former Commission Chairman Arcudi were available at the time of the formal hearing, but did not testify and were not deposed. Finally, the commissioner observed that Colt's being in Chapter 11 at the time prevented her from entering a finding and award against it, from which a § 31-355 C.G.S. order against the Second Injury Fund could be derived. Thus, the commissioner concluded that Coltec was legally liable for the workers' compensation claims in question and dismissed the respondent's claims. Coltec appeals from that decision.
We first consider whether the Workers' Compensation Act allows a self-insured employer to permanently relieve itself of liability for existing workers' compensation claims. Section 31-284(b) C.G.S. provides that "[e]ach employer who does not furnish to the chairman of the workers' compensation commission satisfactory proof of his solvency and financial ability to pay directly to injured employees or other beneficiaries compensation provided by this chapter shall insure his full liability under this chapter . . . ." Implicitly underlying this provision is the notion that some employers might not be required to purchase workers' compensation insurance, which is borne out by other sections of the Act. See, e.g., § 31-284(c)-(d) C.G.S.; § 31-345 C.G.S. We stress, however, that the statute does not entitle an employer to forego such insurance even if proof of solvency and ability to pay compensation exists; rather, § 31-284 (b) directly speaks only to when insurance is required.
In practice, this Commission has granted certificates of solvency to employers who have been able to their prove solvency under § 31-284(b) and their financial ability to pay compensation and required assessments under § 31-284(b)-(c). Security in the form of a surety bond and excess insurance coverage are required by this Commission before an application to self-insure may be granted, and updated applications are required annually. Violations of the statutes or regulations surrounding self-insurance and the administration of claims under the Act result in revocation of one's certificate of solvency. Also, a self-insurance certificate terminates upon the sale or merger of a company, and financial information regarding the new owner or parent company is required before another certificate of solvency can be issued. These practices demonstrate that this Commission does not take the self-insurance privilege lightly, as it is of utmost importance under the Act that an employee's right to compensation for his or her injuries be protected by ensuring the financial responsibility of his insurer.
In the case at bar, Coltec was an authorized self-insurer with a certificate of solvency during the years in which the claimants' claims accumulated. Therefore, one can presume that this Commission had deemed Coltec financially sound enough to administer those claims itself. Once the Firearms Division of Coltec was sold, however, its self-insured status ceased. The newly-formed Colt's notified the Commission that it would "assume the runoff responsibilities of all prior claims under [the Firearms Division's] self-insured program," and that Travelers would be insuring its future workers' compensation liability. The trial commissioner found that then-Chairman Arcudi, upon receipt of the notice, requested formal documentation regarding the sale of the assets and liabilities of the Firearms Division as well as insurance information. It is undisputed that Colt's was never certified as a self-insured under § 31-284(b).
Although Coltec and Colt's were free to contract between themselves as to indemnification for the workers' compensation claims at issue here, the fact remains that Coltec was the certified self-insurer on the risk when the claims at issue arose. The safeguards we have imposed regarding the financial solvency of self-insureds are for the protection of claimants, and are intended to assure that an employer is able to provide the compensation required by the Workers' Compensation Act. It would be inimical to the integrity of those safeguards if a self-insurer were allowed to exonerate itself of all liability for prior claims by transferring that liability to another employer.
Just as we would not allow an insurer to transfer primary and secondary liability for its claims to an entity that did not meet the requirements of an insurer, we would not allow a self-insurer to transfer all of its liability on a preexisting claim to such an entity. Doing so would remove the protection that the financial stability of an insurer provides to a claimant. The mere fact that Colt's sent this Commission notice of its intent to assume responsibility for Coltec's claims did not permanently extinguish Coltec's liability for them. Whether such a transfer would ever be possible is uncertain; in these circumstances, however, we hold that the Act does not permit a self-insured to relieve itself of liability for existing workers' compensation claims. Therefore, Coltec's contract with Colt's does not operate to extinguish its secondary liability for payment of the "runoff" claims.
Because we hold that the contract between Coltec and Colt did not excuse Coltec's liability for the workers' compensation claims in question, the argument that the Second Injury Fund should be estopped from denying liability based on the involvement of the former Treasurer in the purchase of the Firearms Division becomes moot. Even if the Treasurer did agree on behalf of the Second Injury Fund that Coltec would no longer be responsible in any way for the workers' compensation claims (and we do not think he did), he clearly did not have the authority to act on behalf of the Workers' Compensation Commission. As we stated above, only the actions of this Commission could conceivably excuse a solvent self-insured from liability for prior claims. No such permission was given in this case. As the Second Injury Fund is ultimately liable under § 31-355 C.G.S. only when an employer and insurer are both unable to pay, Fund liability not yet implicated in this case because Coltec, the self-insurer, is not insolvent. Thus, we need not delve deeper into the issues of estoppel and reliance.
Likewise, the issue of whether an award may be entered against Colt's in light of the Chapter 11 reorganization is moot, as a § 31-355 order against the Second Injury Fund will not be necessary in this case. We need consider no other issues here.
The trial commissioner's decision is affirmed.
Commissioners Nancy A. Brouillet and Michael S. Miles concur.