A news story published by Daily Mail last winter caused me to reflect on American workers' compensation. The headline refers to a "horror moment," that led to a flight attendant Breaking Her Leg in Seven Places. There is much to consider in the story.
The 27 year old employee worked for Thomas Cooke as a flight attendant ("air hostess"). On a flight from Cuba in August 2019 a hail storm was encountered. She was asked to sit, but she had to first stow some equipment. She was thus still standing when the plane hit "severe turbulence and terrifyingly rose in altitude by 500 ft." The attendant was "thrown to the ground under the crushing force of the plane's sudden rise," and suffered a significant leg injury.
Thomas Cooke was a tour operator that later failed in September 2019, stranding travelers, according to the New York Times. The company had been in financial difficulties for some months; Its decision to liquidate in September was apparently not a surprise to everyone.
However, the flight attendant with a broken "tibia, cracked . . . ankle bone and fractured . . . foot." was recovering from significant injuries at that time. After the flight landed, she had been "rushed to Wythenshawe Hospital," and underwent "surgery to insert screws and metal plates inside her leg, as well as a huge external metal brace." She was unable to "walk for two months." The Daily Mail reports that a third surgery may yet be necessary.
It also reports that the employer paid her "in full whilst she was off." However, when the company ceased operations, she was no longer paid. The Mail reports that the "receiver in charge of Thomas Cook's insolvency said: 'Former employees who may have had insurance-related claims against Thomas Cook before liquidation will now be treated as unsecured creditors."
As an aside, a "secured creditor" is one with some particular claim to particular assets. For example, if someone loaned Cook money to purchase a truck, the lender might well secure that loan by holding the title to that truck. An unsecured creditor is in a far more precarious position. An unsecured creditor lines up with all the other creditors in hopes of being paid something on her/his/its debt. In some cases, unsecured creditors recover something less than the full amount due.
It is fair to say that England was one of the leaders toward the socialization of workplace injuries. The modern workers' compensation concept began in Germany in the 1880s, driven by the Industrial Revolution and Otto Von Bismark, according to Business Insurance. The British followed about a decade behind Germany, and the United States followed suit in the early twentieth century. Because of Britain's historical leadership, the status of this air hostess was curious to me. However, British workers' compensation has evolved over the decades, according to The Geneva Papers on Risk and Insurance. The linked paper is a fascinating read.
Some will react with a "glad it cannot happen here." But, they will be overstating things perhaps. What happens in various American jurisdictions when an employer becomes insolvent? It is noteworthy, that the social contract that is workers' compensation is primarily a construct between employers and employees. It is these two who enjoy various benefits and suffer corresponding detriments from the workers' compensation construct. Many will include insurance in that construct, labeling with "employer/carrier." But, the involvement of the insurance company is contractual in most regards, and can be complicated.
In many jurisdictions, an employer is compelled to purchase workers' compensation insurance. In others, that purchase is an option that employers may or may not elect. And, even for those who do elect such a purchase, the details of such a purchase contract may be important in determining the effect of an employer bankruptcy or default. The fact is that an employer bankruptcy perhaps can interfere with the delivery of workers' compensation benefits right here in the U.S. In other instances, the alternate problem of the bankruptcy of an insurance carrier may be as likely to effect such an impact.
Many states have implemented "safety nets" to accomplish the ongoing provision of benefits in the event of such a failure. The parameters of such programs and their responsibility to step in on a particular claim will be statutory and regulatory; they may be complex. Furthermore, even when there is no complexity or complication, such a substitution of responsibility may require time simply due to the function of someone new taking over a claim(s). The transition may be time-consuming and that alone could present challenges for the injured worker. For the most part, however, it is unlikely that such injured workers in American workers' compensation would come to share status with an unsecured creditor of the employer in most settings.
But, right here in the U.S. companies cease to do business. A big story late in 2019 was the bankruptcy of Celadon, an Indiana trucking company. WKRN reported that an employee of that company had a serious injury, much like the British air hostess. He was airlifted for care and workers' compensation indemnity benefits began to arrive. But, after three checks, the payments ceased. A case worker who was involved called to tell the patient she had been instructed "to put my case on hold" and to proceed no further pending instructions.
The Chair of the Indiana Workers' Compensation Board explained to WKRN that Celadon was "self-insured." That means that the company was responsible for making those health care and wage-replacement payments. With the declaration of bankruptcy, the federal court becomes the decision-maker, and generally "puts a stay on any money going out." The Chair explained that in that event the Board generally takes over making such payments, but that there is discussion over whether it will in this instance or whether there is another contract that may call upon a different company (a bond contract) to make those payments.
In many states, there are requirements for employers to have specific and ready financial resources on hand for injured worker payments. These may be commercial insurance, bonds, letters of credit, or other assets that can be somehow dedicated to such needs outside of the bankruptcy proceedings. However, the bankruptcy proceedings can be unpredictable, like any litigation.
This Celadon accident occurred in Tennessee, and the truck driver is a Louisiana resident, working for an Indiana company that is now bankrupt. The geography involved may suggest the potential for complications. The whole payment situation illustrates the intervention of "safety net" programs such as surety bonds and state agencies. But, it also illustrates that delay and doubts that may come in such instances of bankruptcy. Though there is a significant likelihood of benefits continuing after a bankruptcy, there is a similar probability that some delay or disruption will occur in the near term. As noted in the Celadon story, there is peace of mind in knowing that payments will resume, but as of the story date, neither the injured worker nor the Indiana Board "knows when that will happen."
There is thus, potential for delay and confusion for an injured worker from bankruptcy. But, to reiterate, these seem better than finding oneself in the "unsecured creditor" position being experienced by the British air hostess. Some will argue that the air hostess may be a better situation in Britain's socialized medical care system. They may argue that the truck driver described herein, though perhaps better off in the long term due to the "safety nets," may be more frustrated in the short term with obtaining ongoing remedial medical care. The merits of those arguments is likewise interesting. Any discussion of that would likely include criticisms such as those published in Forbes regarding the delay of care some experience in socialized medicine settings like Britain.
There are, thus, a multitude of considerations and concerns about worker injuries and the programs in place for the covered employee. Meanwhile, there is discussion of the challenges of even being a covered employee. In the end, there can be much to the recovery and compensation following a work injury. Notably, the regulations and thus perhaps complications depend in large part on which state(s) laws govern the implications of a work injury and what those laws do to address issues like bankruptcy or other financial struggle. It is an enlightening discussion to be sure.
As legislative bodies and regulators seek funding in the COVID-19 era, there is some inclination for people and groups to seek expansion of workers' compensation liability. There is a mindset that making employers or their insurance carriers liable for more than they were before COVID is only fair. But, if entities are legally forced to pay for injury/illness for which they did not contract coverage or collect a premium, there is the potential that some will eventually seek bankruptcy protection. Some predict that the situation generally could result in greater bankruptcy risks for businesses. Whether employers or carriers, such bankruptcies could affect injured workers.
There will be challenges ahead, intellectual and beyond. Employers, bond issuers, insurance carriers, regulators, legislators, and beyond will be faced with complex conflicts and decisions. Guarantee funds will be watching the evolution of the business environment, and others would do well to pay attention as well.
