Whether a workers’ compensation self-insurance group qualifies for payments from the Massachusetts Insurers Insolvency Fund when its excess insurer is insolvent.

The Massachusetts Care Self-Insurance Group (“MCSIG”) is a self-insurance pool of nursing home care businesses, designed to meet the member businesses’ duties under the Workers Compensation Act. As of 1995, MCSIG was set up to pay out claims of $250,000 or less itself, and contracted with the Reliance Insurance Group to pay out the portion of any claim over $250,000.

An employee was permanently injured in 1995. By 2005, her claims had exceeded $250,000. However, Reliance was then insolvent, and unable to pay the excess claim. MCSIG therefore applied to the Massachusetts Insurers Insolvency Fund for payments on Reliance’s behalf. The Fund refused to pay. A Superior Court judge refused to order the Fund to pay, MCSIG appealed, and the SJC granted direct appellate review.

The Insurers Insolvency Fund is designed to protect consumers of insurance from insolvency — not other insurers. It therefore applies only to “direct insurance.” G.L. c. 175D, § 2. It explicitly does not cover claims by a “reinsurer, insurer, insurance pool or underwriting association.” G.L. c. 175D, § 1(2). The judge found that MCSIG was doubly ineligible for payments from the Fund, because (1) its policy with Reliance did not constitute direct insurance, but rather “excess insurance” or “reinsurance,” and (2) MCSIG was an insurer.

MCSIG argues, as to (1), that its contract with Reliance constituted excess insurance, and that courts in a number of other jurisdictions have found that excess insurance is still direct insurance; and as to (2), that it does not meet the definition of an “insurer” in G.L. c. 175D, § 1(5), that self-insurance groups are explicitly exempted from the category of “insurers” by G.L. c. 152, § 25E, and that it would be unfair to exempt it from payouts from the Fund because it is an insurer while also denying it insolvency protection from the Fund because it is not an insurer.

The Court seems to have the ability to go either way within the language cited by MCSIG. The resolution may depend on whether Reliance’s relationship is primarily with the employee, or with the self-insurance group. If that distinction is indeed decisive, this case could have significant implications for self-insurance groups purchasing excess insurance.