In an action filed in New York County Supreme Court on July 30, 2013, twenty workers’ compensation insurance carriers seek a declaratory judgment that the recent amendments to WCL §25-a which eliminates the Fund for Reopened Cases is unconstitutional.

The plaintiffs, which include Liberty Mutual Insurance Company, Peerless Insurance Company and the Employers Insurance Company of Wausau, assert that the elimination of the Fund for Reopened Cases violates the contract clause of the United States Constitution, amounts to a deprivation of a property interest in violation of the due process clauses of the United States and New York State constitutions, and amounts to an improper taking of plaintiff’s property without just compensation in violation of the takings clauses under the United States and New York State constitutions. The State of New York, the New York State Department of Financial Services and the New York Worker’s Compensation Board are named as defendants.

Similar constitutional challenges were raised following enactment of the mandatory deposits into the Aggregate Trust Fund following the 2007 reforms to the Worker’s Compensation Law and were unsuccessful. In the Matter of Raynor v. Landmark Chrysler, 18 N.Y.3d 48 (2012), New York’s Court of Appeals from there was no violation of the Takings Clause because the statute did not increase the amount of compensation owed to the claimant and did not appropriate the carrier’s assets for use by the state.

The Court also found the statute did not violate the contracts clause of the United States Constitution finding no substantial impairment to the insurance contract despite an acknowledgment that the carrier’s contract may have become less profitable as a result of the mandatory deposit into the Aggregate Trust Fund.

In addition, in Raynor, the Court of Appeals found no violation of substantive or procedural due process rights because there was no vested property right in as much as the amendment did not increase the amount that the carriers owed, and the carrier failed to show that the statute was without legal justification or supported by a rational legislative purpose.

Interestingly, plaintiffs filed suit in New York County, not Albany County. Following a decision by the Supreme Court an appeal would be taken to the First Department, not the Third Department. The latter hears all appeals from adverse decisions of the Workers’ Compensation Board and the Board has historically enjoyed a favorable affirmance rate in the Third Department.

I would expect further litigation in connection with the amendments to WCL §25-a with respect to its retroactive application once the amendment becomes effective on January 1, 2014. Given the language in the statute permitting an application for WCL-25-a relief to be filed for those claims which are ripe for adjudication of the issue prior to the effective date of the amendment, the legislature may have solved the retroactivity problem which was adjudicated in the decision of the Matter of Mills v. Staffking, 271 A.D.2d 146 (3 Dept. 2000) following the change in the retention period for reimbursement from the Special Disability Fund under WCL § 15(8) from 104 to 260 weeks. In Mills, the Third Department held that the retention period could not be changed from 104 to 260 weeks for those claims where the entitlement to WCL §15(8) relief was established as of the effective date of the amendment.

Stay tuned. A copy of the complaint can be accessed below.

<a href="https://thelomad.com/getmad.today/wp-contentthelomad.com/getmad.today/wp-content/uploads/2013/08/Challenge-to-the-Closing-of-the-25-a-Fund.pdf" target="_blank" rel="noopener">Challenge to the Closing of the 25-a Fund</a>