The U.S. Supreme Court declined to hear the petition filed by Liberty Mutual subsidiaries for relief from changes to New York workers’ compensation law that the company says may cost carriers as much as one billion dollars.

Liberty argues in its Petition for Writ of Certiorari filed in the high court this February, that the State of New York has operated a special workers’ compensation insurance fund for cases that reopen after being closed for a statutorily defined period, with the goal of protecting employers and their insurance carriers from bearing the costs of unforeseeable changes in the status of beneficiaries’ work-related medical conditions.

For decades, Section 25-a of the New York Workers’ Compensation Law (“WCL”) has required employers to support the fund through annual assessments and assigned the fund exclusive financial liability for reopened cases.

Correspondingly, the WCL exempted employers from the duty to obtain insurance to cover claims meeting Section 25-a’s prerequisites, and insurance carriers’ state-approved workers’ compensation policies defined the scope of coverage accordingly: They did not cover Section 25-a cases.

Likewise, Liberty Mutual claims the state-approved premiums that employers paid carriers for workers’ compensation insurance did not account for potential liability in Section 25-a cases, nor did the amount of loss reserves carriers maintained under state insurance law and generally accepted actuarial principles.

In 2013 the New York Legislature amended the WCL, closing the fund to cases reopened in 2014 or later.

As a result, carriers became liable for future reopened cases, regardless of whether the cases arose under a future workers’ compensation insurance policy or a preexisting one.

According to the legislative history, this amendment was intended to save New York businesses hundreds of millions of dollars in assessments per year by eliminating what the Legislature perceived to be a double charge for Section 25-a claims: once in the form of assessments paid to the fund, and once in the form of premiums paid to carriers – who, in the State’s view, received a “windfall,” since they would not incur liability for Section 25-a cases.

But Liberty Mutual says that rationale was obviously wrong. “It was clear then and it is undisputed now that carriers’ premiums were not computed to compensate them, and did not compensate them, for Section 25-a liability”.

Instead, Liberty says the real effect of the amendment is to impose on carriers a new liability for cases they had specifically excluded from their preexisting state-approved policies and that they had not been paid to cover.

According to the state-designated entity responsible for computing workers’ compensation costs, the amendment’s closure of the fund to future reopened cases under preexisting policies will inflict on carriers a staggering “unfunded liability” of over $1 billion.

The New York Court of Appeals rejected the Liberty Mutual subsidiary challenges to the amendment under the Contracts, Due Process, and Takings Clauses of the U.S. Constitution.

Amicus briefs were filed in the U.S. Supreme Court case by the Property Casualty Insurance Association and the Washington Legal Foundation.

Nonetheless, the U.S. Supreme Court declined to issue a Writ of Certiorari. They will not look into the matter or issue a ruling on the merits, which means the lower court holding applies. Not a good day for New York workers’ compensation insurance carriers.