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Update: Movement in Montana’s Work Comp Crisis

Posted By Administration, Tuesday, February 20, 2018

Things continue to happen in the Montana’s State Fund (MSF) workers’ compensation crisis. In a special session in November last year the Legislature authorized the placement of a 3% management fee on the MSF. 

That money will go to a firefighting fund.

A coalition of businesses and insurance organizations was put together to challenge the Legislature’s decision. Calling themselves the Montana State Fund Justice Coalition and led by Montana House Republican Rep. Greg Hertz of Polson, the coalition filed suit in January claiming the taking of the money is unconstitutional.

The state has since requested a venue change out of Lake County but the coalition’s attorney filed a rebuttal saying there is no legal basis for the request. No ruling has been made yet.

Last week the Montana Board of Investments approved the transfer of $14.7 million out of the MSF by April 1st. At the end of the two-year fee estimates are more than $30 million will be removed from the fund.

Weekly Industry News spoke with Hertz about the decision and wondered if the coalition would file an injunction to keep the funds with the MSF. He believes going for an injunction will actually do more harm than good. “Weve elected not to file an injunction and will continue to go with the merits of the case and the understanding if we win the court will then refund the money back to the State Fund,” he said.

Hertz — and others familiar with Montana law and the contract language for those purchasing workers’ compensation insurance from the State Fund — believes the group will prevail. The workers’ compensation contracts say the premium dollars paid for workers’ compensation will be used for paying claims or will be returned as a dividend.

“Just about any insurance agent I talk to feels it violates Montana law. Not only that but they feel it violates what's the good and proper management of the Montana State Fund as it should be managed as an independent insurance company,” Hertz said.

Professional Independent Agents (PIA) of Montana President Travis Clark said the decision by the investment board was not a surprise. “PIA Montana — like others battling the issue — is aware that the money for the 3% ‘management’ fee would eventually be taken. Like the leadership of the Montana State Fund Justice Coalition — of which we are a part — we believe the Montana Legislature overstepped its authority and that the taking of the $14.7 million and the dollars that will be taken in the future is unconstitutional. We continue to monitor the situation and keep our membership informed,” he said.

Hertz said the business community is as equally appalled as the agent community. “Everybody who understands it is against it. People just aren't aware what's going on and once they learn about it they are opposed to it,” Hertz added.

With a laugh, he said the Legislature blew it when passing Senate Bill 4 last November. Not to give the Legislature any ideas but he said, "They could have put a 3% tax on the Montana State Fund assets and it would have been legal. But no one in the Legislature wants to add the word tax to anything.”

One huge problem Hertz said is that many in the Legislature are fairly unfamiliar with insurance. The Montana State Fund was established years ago to be managed like a private insurance company with a board of directors that has the same responsibility a private insurance board would possess.

Taking it a step farther, he said in 2015 the Legislature gave the Montana Commissioner of Insurance the ability to look at the state fund much like he or she looks at a private insurance company.

“Some legislators just see this as a big pot of money and wanted to go after it to use for something else. It’s over $1 billion of assets and they think the State Fund doesn’t need all that money. Then they say to themselves, ‘They have too much money so we should have some of it,’” he pointed out.

He noted that — as a member of the Montana House — many legislators knew the decision on Senate Bill 4 would be challenged in court, and likely ruled unconstitutional and overturned by the Montana Supreme Court. So how did this manage to get out of the Legislature?

“It’s a special session. Legislators want to get in, get the business done and then they want to get out. A lot of legislators knew a lawsuit would come and voted I for it anyway,” Hertz said.

He — and others — hope the Montana battle will help insurance entities and businesses in other states with Legislatures looking at state run workers’ compensation program dollars and wanting some of the funds to help balance budgets.

“It would be my hope to educate other states to make sure their statutes are very solid so workers’ compensation funds cannot be used for other causes,” he said.

Then again, Hertz said, “We thought our statutes were already strong but apparently that's not the case. That said, I think it is pretty evident by multiple statutes in Montana law that the money in the fund can only be used for purpose of workers’ compensation. That was the legislative intent when the Montana State Fund was established.”

Tags:  Insurance Content  Insurance Industry  Insurance News  Update: Movement in Montana’s Work Comp Crisis  Weekly Industry News 

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