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Court denies failed insurer’s use of California special deposit funds for administrative expenses

News: 2018 Press Release

For Release: June 19, 2018
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Court denies failed insurer’s use of California special deposit funds for administrative expenses
Court upholds Jones’ position—funds used only for paying workers’ compensation claims

SACRAMENTO, Calif. — In a case against Lumbermens Mutual Casualty Company, the Appellate Court of Illinois issued its decision supporting Insurance Commissioner Dave Jones and the California Insurance Guarantee Association's (CIGA) position requiring Lumbermens California workers' compensation deposits may not be used to reimburse overhead and administrative expenses incurred in connection with the company's liquidation, which began in 2013.

"As regulator of largest insurance market in the country, I am committed to making sure California workers are protected and insurance companies keep their promises to policyholders," said Insurance Commissioner Dave Jones. "The court's ruling upholds my position that Lumbermens Mutual Casualty Company must use funds reserved for workers' compensation claims on actual claims-and not other expenses. This ruling preserves financial protections for California's workers and businesses that rely on workers' compensation insurance."

The department argued that the California Insurance Code plainly states special deposit proceeds must be used solely for the payment of compensable workers' compensation claims. The department contended that general administrative expenses are not related to the payment of a specific workers' compensation claims, so it is improper for Lumbermens to require CIGA to pay general administrative expenses such as rent, postage, telephone, lighting, cleaning, heating and electricity with funds held in a special deposit.

The court agreed and determined the special California workers' compensation deposit is security for the payment of workers' compensation claims in California and must be used exclusively to protect policyholders from insolvent insurers by providing an asset from which to pay compensable workers' compensation claims.



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Media Notes:


  • At one time, Lumbermens was one of the top five largest workers' compensation insurers in the U.S.
  • Link to decision 
  • Insurance Code §11691 requires a "special deposit" be made by workers' compensation insurers that is specific to secure a workers' compensation insurer's obligation in the event that it fails to pay claims or is placed into liquidation. The deposit is required so that funds are available to pay workers' compensation claims in the event an insurer is unable to do so because it is insolvent. The funds are deposited either with the California Treasurer's office or with a bank that meets certain requirements with a Trust Agreement spelling out the terms of the deposit. 
  • The initial deposit of $100,000 is made as a condition for obtaining authority to write workers' compensation in California, and is reevaluated and updated to reflect business written and losses incurred. 
  • At the time that Lumbermens was placed into liquidation on May 8, 2013, the special deposit was $162,175,000.   



Led by Insurance Commissioner Ricardo Lara, the California Department of Insurance is the consumer protection agency for the nation's largest insurance marketplace and safeguards all of the state’s consumers by fairly regulating the insurance industry. Under the Commissioner’s direction, the Department uses its authority to protect Californians from insurance rates that are excessive, inadequate, or unfairly discriminatory, oversee insurer solvency to pay claims, set standards for agents and broker licensing, perform market conduct reviews of insurance companies, resolve consumer complaints, and investigate and prosecute insurance fraud. Consumers are urged to call 1-800-927-4357 with any questions or contact us at via webform or online chat. Non-media inquiries should be directed to the Consumer Hotline at 800-927-4357. Teletypewriter (TTY), please dial 800-482-4833.

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