Insurance Commissioner to sue State over sale of SCIF

By CMTA Staff

Capitol Update, Aug. 28, 2009 Share this on FacebookTweet thisEmail this to a friend

On Thursday morning, August 27th, Insurance Commissioner Steve Poizner (R-Los Gatos) announced that he would file a lawsuit against the State, declaring that the sale of the State Compensation Insurance Fund (SCIF) assets is unconstitutional.  A part of the July budget revision authorized 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.  See ABX4 12 (http://www.leginfo.ca.gov/cgi-bin/postquery?bill_number=abx4_12&sess=CUR&house=B&author=evans))

Commissioner Poizner believes that selling any SCIF assets will increase workers’ compensation costs for California’s construction firms, agricultural industry and other small businesses, that currently rely on SCIF as their insurer of last restore.
 
"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."

A 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.

SCIF currently serves employers who hire workers in dangerous occupations which have a difficult time finding workers’ compensation insurance in the private market.  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.  These policyholders rely heavily on SCIF’s solvency.  The Department of Insurance believes that the sale of SCIF assets puts at risk and limits the funds available to pay the remaining liabilities.  Policyholders could face a $200,000 dollar increase in additional premiums.
 
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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