What Happens to Workers Compensation Claims when an Insurance Company goes Bankrupt?

When a workers' compensation insurance company goes bankrupt the claims of the insolvent company go to the Michigan Property & Casualty Guarantee Association (MPCGA). The MPCGA then becomes the carrier for those claims.

The issue was recently discussed by the Court of Appeals in Smith v. Parkland Inn, 22 MIWCLR (LRP) 122:

"MPCGA is an association of all insurers authorized to engage in the business of insurance in Michigan. The statutory purpose of MPCGA is to fulfill the obligations of an insolvent insurer in regard to covered claims. To effectuate this purpose, MPCGA assumes the rights of an insolvent."

All insurance companies licensed to operate as workers compensation insurnace companies pay premiums into, or "fund" the MPCGA.

"Each insurer is a member of the association as a condition of its authority to transact insurance business in this state. MCL 500.7911(1). To fund the cost of MPCGA's operations, all member insurers are levied assessments by MPCGA. MCL 500.7941(1).

Any claims assumed by the MPCGA are processed like any other claim. The MPCGA becomes just like any other workers compensation insurance carrier and is subject to the the laws of this state:

MPCGA is subject to the laws "of this state to the extent that it would be subject to those laws if it were an insurer organized and operating under [MCL 500.5000 et seq.], to the extent that those other laws are consistent with this chapter." MCL 500.7911(3)."