Let The Lawsuits Begin: Self Insured Groups
Recently (click to see May 3, 2010 Blog Entry), up to 5 self insured groups managed by CRM holdings have closed and or failed in California. One recent failure is the CAPSIG Self-insured group which CRM managed.
With a claims shortfall of $20,000,000 and growing, the 200 members of the CAPSIG Small Contractors self-insured group likely face individual assessments that will cost each member $100,000 or more. These are not insurance companies, they are small contractors who have been hit hard by the current economy and are struggling to maintain a presence and secure their futures in the construction trade.
What is their option? Litigate (of course)
Members of this group have retained counsel and filed a multi-million dollar lawsuit against CRM (Compensation Risk Managers), their holding company, Majestic Insurance Company, and many of the brokers who sold the promise of reduced rates to the consumer.
For the brokers the key here is whether or not they properly explained or even notified the groups members of the existence of the “Joint and Several Clause” in the insuring contract. When you enter into an arrangement of this nature, you are not really buying insurance, you are grouping together entities hoping that the premium paid will cover the expense of the entire groups claims cost. Well, this one did not even come close to covering it, which kicks in the Joint and Several portion of the contract. This clause binds you to the other members of the group and allows you to indemnify each other to cover costs. In a nutshell, if the group happens to fail, each member of the group is responsible to pay the claims of the group, even if said member has left the group previously or suffered no claims under the policy term of the group. Also if certain members of the group go insolvent, it does not prevent the group from attacking personal assets, and if that fails then the solvent members of the group must pay the assessment of the insolvent members.
The court will find the money to pay these claims, and brokers who sold this have Errors and Omissions Coverage for insurance transactions. Unfortunately most, if not all, of those Errors and Omissions Policies exclude coverage that is placed through self-insured groups or poorly rated insurance companies. As you can see, this will get messy and cost jobs, and eliminate many small businesses.
When someone gives you the greatest deal you have ever seen or heard of, you need to do your homework. A better suggestion than homework is to call a trusted insurance advisor before you leap. It would be best to find someone with the PWCA or CWCA designation to explain the pitfalls inherent in these types of agreements. I hold both designations, feel free to contact me with any question concerning Workers Compensation, or Insurance in general.
Link to Lawsuit: http://www.wcexec.com/Lawsuit-Filed-by-Contractors-Access-Program-of-California.aspx
