The United States District Court for the District of New Hampshire recently addressed an interesting Special Fund question: whether the Longshore and Harbor Workers’ Compensation Act (“LHWCA”) preempts New Hampshire’s state law establishing the priority in which payments will be made from the assets of a liquidated insurer. The court determined that the state law was not preempted by the LHWCA.
The Home Insurance Company was declared insolvent in 2003 by the New Hampshire Superior Court. Liquidation was ordered and the United States Department of Labor filed a proof of claim seeking $2,600,000.00 in Special Fund assessments. The DOL was assigned as a Class III priority, and it was believed that Class III claims would not be paid because of insufficient funds. The DOL then filed the instant suit seeking its preemption declaration. The goal was to move up to a Class I or Class II level in order to have a better chance at securing payment for the assessments.
The statutory basis for the Special Fund is 33 U.S.C. § 944. Generally, the Special Fund provides workers compensation to injured workers who suffered a “second injury,” and provides workers compensation in the event of employer insolvency. Importantly, Section 44 authorizes the Secretary of Labor to fund the Special Fund through annual assessments on self-insured employers and insurance carriers. See 33 U.S.C. § 944(c)(2).
Although Section 44 contains this assessment provision, the district court refused to hold that the provision preempted state law. Neither Section 44 as a whole nor the specific assessment provision assigns a preferential priority that would elevate the DOL from the Class III level to a more favorable level. Congress did not intend to displace state priority laws in the field of insurer insolvency proceedings. Finally, after a lengthy discussion of the McCarran-Ferguson Act, which was enacted to protect “the continued regulation and taxation by the several States of the business of insurance,” the court concluded that New Hampshire’s state priority law was protected from federal intrusion.
(Note: I originally published this post on Navigable Waters: A Maritime, Longshore and Defense Base Act Blog.)