The Perils of Self-Insurance

Today we continue our previews of the new civil review grants from the May term of the Illinois Supreme Court.

In Skokie Castings, Inc. v. Illinois Insurance Guaranty Fund, [pdf] the Court will face questions about the operation of the Illinois Insurance Guaranty Fund with respect to self-insurers. A worker was seriously injured on the job. At the time, plaintiff's predecessor company was a self-insurer with respect to workers' compensation insurance, but also held an aggregate excess policy and a specific excess policy.   Following the accident, the employer paid the retention amount, after which the insurer took over, until it went into receivership. The Fund began paying, but ultimately informed plaintiff that it had reached its $300,000 cap on covered claims, and stopped. Plaintiff sued and won its motion for summary judgment.

Skokie turns purely on a question of statutory interpretation. Specifically, according to the Insurance Code, 215 ILCS 5/537.2, the Fund's obligations "shall not . . . exceed $300,000, except that this limitation shall not apply to any workers compensation claims." The Fund argued that the plaintiff's claim for reimbursement of amounts paid was not a "workers compensation claim," but -- noting that the Code states a purpose to protect both claimants and policyholders, 215 ILCS 5/532 -- the Court held that the term encompassed claims brought by policyholders of insolvent insurers.

The broader -- and ultimately perhaps more important -- issue in Skokie is whether the self-insuring employer is an "insurer" within the meaning of the statute, and thus liable to pay the claims until it becomes insolvent before the Fund's liability kicks in. Noting that there was no Illinois law on the subject, the Court surveyed decisions from around the country, concluding that the majority view was that a self-insuring employer was not an "insurer" for purposes of such a statute. Following a decision of the New Mexico Supreme Court, In re Delinquency Proceedings Against Mission Insurance Co., 816 P.2d 502 (N.M. 1991), the Court agreed.   The Court noted that the guaranty statute in New Jersey expressly exempted self-insuring employers, and concluded that if the Illinois legislature had wished to do the same, it would have said so.

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