A reinsurer can claim trust fund reimbursement even after an employer goes bankrupt, a Massachusetts appeals court ruled January 30.
The decision reversed a state board ruling that had denied Employer's Reinsurance Corporation reimbursement for cost-of-living adjustments it paid after Polaroid Corporation collapsed into insolvency. The case illustrates the complicated web of obligations that can persist decades after a workplace injury occurs.
The dispute traces back to 1979, when Annie Talbert, an employee of Polaroid Corporation, sustained an industrial injury. At the time, Polaroid was a licensed self-insurer for workers' compensation. Like all self-insurers in Massachusetts, Polaroid had secured a bond through Greenwich Insurance Company and bought excess reinsurance from ERC to cover extraordinary losses.
Everything functioned smoothly for years. After Talbert was determined totally and permanently disabled in November 1986, Polaroid paid her benefits, which soon included cost of living adjustments. The company received reimbursement from the trust fund for a portion of those COLA payments, as state law allowed for injuries occurring before October 1986.
When Polaroid's total payments hit $250,000, ERC's reinsurance policy kicked in. The reinsurer covered the base benefits but drew the line at COLA payments. That arrangement continued until Polaroid declared bankruptcy in 2004.
Greenwich Insurance then stepped up to pay both base benefits and COLA to the injured employee through its bond, with ERC reimbursing only the base portion. By 2013, the bond was exhausted.
The question then became: who pays now? After a series of administrative proceedings, ERC ended up paying benefits directly to Talbert and filed a claim in May 2017 seeking reimbursement from the trust fund for the COLA portion. The trust fund denied the claim.
State regulators sided with the trust fund, relying on a 2015 precedent that said insurers not participating in the system by writing insurance or collecting and remitting assessments couldn't seek reimbursement. But that precedent didn't survive.
By the time the case reached the Appeals Court, both the appeals court in 2024 and the state's Supreme Judicial Court in 2025 had already overruled that earlier decision in separate rulings in Arrowood Indemnity Co. The reasoning was straightforward: state law lists exactly three categories of employers barred from trust fund reimbursement, and regulators can't add a fourth category on their own.
The trust fund tried to distinguish this case, arguing that here the employer, not just the insurer, had gone out of business and stopped paying into the fund. Justice Ditkoff, writing for the three-judge panel, wasn't persuaded.
The court stated that the Legislature identified three categories of employers ineligible for reimbursement and that the board cannot create a fourth exception, whether for insurers in run-off, insolvent employers, or anything else.
The court pointed out that the state's Supreme Judicial Court had already contemplated this exact scenario, noting that if an employer goes out of business, it would be other participating employers, not the insurance companies, that would have to make up the loss in trust fund revenues.
The trust fund made one last attempt, arguing for the first time on appeal that ERC didn't even qualify as an insurer under state law. The court called that argument strange, noting that if it were correct, ERC wouldn't be required to pay the employee at all.
State law defines an insurer as any insurance company, reciprocal, or interinsurance exchange, authorized to contract with an employer to pay the compensation provided for by the Workers' Compensation Act. ERC fit that definition. It issued a reinsurance policy to Polaroid and actually paid benefits over the years to Polaroid and then to Greenwich.
More importantly, the court said Massachusetts law treats reinsurance contracts as direct obligations to injured workers, regardless of what the contract itself says. Any provision suggesting otherwise is null and void, the court noted, citing its 2018 Janocha decision.
The case also cleared up a timing question. The reviewing board had issued its decision on November 5, 2021, but failed to notify ERC, sending electronic alerts only to the trust fund and the employee. ERC's lawyer didn't learn about the ruling until November 18, 2024, when opposing counsel mentioned it. ERC filed its appeal on December 12, 2024, within 30 days of receiving actual notice.
The court ruled the appeal was timely, holding that ERC couldn't be blamed for delays caused by the department's notification failure.
The decision, which sends the case back to the reviewing board for further proceedings, clarifies that reinsurers can claim trust fund reimbursement even when the original employer has gone under, as long as that employer was participating in the fund when the injury happened.
