Bankruptcy by the Employer or the Insurance Carrier

On top of every other problem with suffering a work injury there is also a risk that your employer or the work comp insurance carrier can go bankrupt. In this section of our website we are going to talk about the two main variations of this problem and how our law firm deals with them.

An Employer with a High Deductible Work Comp Policy Goes Bankrupt

Iowa law requires most employers to have work comp insurance unless the employer can show that it has the financial ability to pay for any work comp injuries that may occur. The requirements to operate in Iowa without workers’ compensation insurance are very high, and there are only 62 employers in Iowa that have satisfied the standard to be self-insured.

Therefore, most employers in Iowa do have to purchase workers’ compensation insurance. Workers’ compensation insurance has deductibles just like your auto insurance. The deductible is the amount that the employer must pay towards workers’ compensation expenses before the insurance company has to pay the remainder of the expenses. If an employer chooses the low deductible that means that the cost of the insurance to the employer will be higher. On the other hand, if the employer chooses a very high deductible, then the premium cost to the employer will be much lower.

Unfortunately, that means that some financially unstable employers end up purchasing work comp insurance policies that have very high deductibles. For example, employers can purchase policies with deductibles of $250,000 per claim or even higher. If an employer has a $250,000 deductible that means that the employer has to pay for the first $250,000 of medical expenses and weekly benefits that the injured worker is entitled to receive before the insurance company has to pay anything.

If the employer files for bankruptcy then the “automatic stay” of the bankruptcy system stops the payment of medical bills and weekly benefits for the injured worker. Once the employer files bankruptcy the work comp insurance company frequently takes the position that it does not have to pay the injured worker until the employer has paid the complete amount of the deductible. This leaves the injured worker out in the cold.

Our law firm has successfully argued that Iowa law makes both the employer and the insurance carrier 100% responsible for all workers’ compensation liability. Therefore, even though the insurance company charged a very low premium based on its belief that its exposure was very limited, the insurance carrier was required to step into the shoes of the employer and become responsible for all past and future workers’ compensation benefits.

In one case our law firm was able to recover $650,000.00 for an injured worker where the employer had filed for bankruptcy and the insurance company argued that it had no duty to pay because the deductible was extremely high.

The Work Comp Insurance Company becomes Insolvent

Another problem is when the workers’ compensation insurance company ends up failing. Most employers do not have the financial ability to pay for the medical expenses and weekly benefits for injured workers.

Fortunately, the Iowa Insurance Guaranty Association is available to deal with this situation.

The Iowa Insurance Guaranty Association is a creation of Iowa law. The Iowa Insurance Guaranty Association effectively takes over for the failed workers’ compensation insurance company. Any assets of the failed insurance company go to the Iowa Insurance Guaranty Association. However, the insolvent insurance company never has enough money to pay all the claims. The Iowa Insurance Guaranty Association covers this shortfall by charging an assessment to all insurance companies doing business in the State of Iowa.

The nature of the job of the Iowa Insurance Guaranty Association means that it only gets involved in cases where the work comp insurance company is in financial trouble and having a lot of problems. There are some time delays, but the Iowa Insurance Guaranty Association does a very nice job in taking over for insurance companies in trouble and getting uncontested benefits flowing.

However, the Iowa Insurance Guaranty Association is entitled to make any defense arguments that the insurance company could have made, and take the cases to trial. See here for an outline of how our law firm handles workers’ compensation cases in order to get the best result for our clients.

Call or email us now with any workers’ compensation questions you may have. We would be happy to talk to you without charge or obligation.