Commissioner Poizner announced that he will file a lawsuit

Sacramento, CA (CompNewsNetwork) - Commissioner Poizner announced that he will file a lawsuit to have the $1 billion sale of State Compensation Insurance Fund (SCIF) assets declared unconstitutional, saying that such a transaction could lead to skyrocketing workers’ compensation insurance costs for California’s construction firms, agricultural industry and other small businesses.

“The pilfering of funds used to pay the claims of injured workers to instead help fill the state budget gap is both unconscionable and unconstitutional,” said Commissioner Poizner. “This $1 billion sale of SCIF assets could not only endanger the solvency of SCIF, but is a direct affront to the state’s jobs and business climate. In these tough economic times, the state should be doing everything possible to create jobs, not use budget gimmickry to hurt the economy. The Schwarzenegger Administration simply got it wrong with their proposal and the Legislature failed to adequately scrutinize the consequences.”

ABX4 12, part of the July budget revision, authorizes the Department of Finance to sell or otherwise dispose of assets and liabilities belonging to SCIF with the intent of raising $1 billion in general fund revenue. The lawsuit will ask a judge to rule that ABX4 12 violates Article XIV, Section 4 of the California Constitution.

That constitutional provision requires the Legislature to enact “appropriate legislation” to establish a “complete system of workers’ compensation.” The system specifically includes SCIF as a self-supporting entity whose assets must be devoted solely to providing compensation to injured employees and their dependents. Selling SCIF’s assets for the purpose of benefiting the General Fund is not “appropriate legislation” within the meaning of Article XIV, Section 4. The statute authorizing the sale therefore violates that provision of the state constitution.

One of the primary roles SCIF plays in the workers’ compensation insurance market is to be the insurer of last resort. Many employers who hire workers in dangerous occupations – such as roofers, construction workers, agricultural workers, etc. – have difficulty in finding workers’ compensation insurance in the private market because of the nature of the work these occupations perform and therefore they are forced to purchase insurance from SCIF. Construction and agricultural workers are SCIF’s two largest industries, representing 27 percent of their business. In addition, many newer small businesses that have yet to establish a safety track record are also compelled by the market to purchase workers’ compensation insurance from SCIF. Of SCIF’s 200,000 policyholders, nearly 75 percent are small businesses that have less than $5,000 in premiums per year. Overall, SCIF sells nearly one out of every five workers’ compensation insurance policies in the state.

Even prior to ABX4 12, SCIF has been raising rates faster than the rest of the workers’ compensation insurance market. In the last year, it has raised rates by 25 percent. Experts at the Department of Insurance predict that the sale of SCIF assets will incur the risk of not having enough funds left to pay the remaining liabilities and as a result cost each of its 200,000 policyholders thousands of dollars in additional premiums.

Similar efforts like this have been attempted in other states and have failed. In both Colorado and Utah, legal authorities have determined that funds could not be transferred from their respective insurers to the states’ general funds.

The lawsuit is expected to be filed in Sacramento County Superior Court in the coming days. The defendants are the Director of the Department of Finance and the State Treasurer. SCIF will be named as a Real Party in Interest in the case.

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