After being contacted by numerous clients for help and information, long-time TFS columnist Robert Fiorito is bringing attention to what could be a significant issue for New York’s restaurant community, involving what is called a “Group Self-Insured Trust”. After taking a deeper dive into this matter upon request of his clients, Fiorito uncovered the following through research done by HUB’s internal Workers’ Compensation specialists.
“These were developed to bring group employers of a similar industry segment together to provide coverage for Workers’ Compensation benefits to its member employees, the veteran Manhattan based broker explained. These trusts were marketed by insurance carriers and trade associations as a low cost alternative to standard workers’ compensation markets and products.”
Fiorito serves as Vice President with HUB International Northeast, a leading global insurance brokerage, where he specializes in providing insurance services to the restaurant industry. As a 25+ year veteran and former restaurateur himself, Robert has worked with a wide array of restaurant and food service businesses, ranging from fast-food chains to upscale, and “white tablecloth” dining establishments.
What TFS has found in looking at the Group Self-Insured Trust product is that the cost to pay claims and administer the trust was made by contributions of each member of the trust. HUB’s Fiorito went on to explain the potential risk, “The outcome is that there is no insurance policy, and there is no transfer of risk to an insurance carrier. While each member paid an initial contribution, they were joint and severally liable for ongoing liabilities of each member of the trust.” NY State required that excess insurance be purchased by group trusts starting in January of 2001. The trust administrator would have to provide timely notice to the excess carrier when a claim reached a specific percentage/value in relation to the attachment point or the claim for excess coverage could be denied for lack of notice.
Fiorito and his HUB team have brought their concern to the marketplace because of the potential for future litigation. “In addition, New York State stated that each trust was joint and severally liable to all the other trusts. This has led to much ongoing litigation in New York when the majority of the trusts dissolved.”
Group self-insured trusts have a checkered past. They grew in popularity in the 1990’s. At one point, 10,000 New York employers were members of groups of self-insured trusts. “Questions regarding funding of the groups began to arise in the mid-to-late 2000’s”, Fiorito noted. From 2007- 2009, the NY Workers’ Compensation Board found that many trusts were underfunded and in some cases insolvent, and began taking over administration of many of the insolvent trusts. Much litigation has ensued as Member Deficit Assessment Invoices went out to the affected members of both solvent and insolvent trusts.
Given the economic challenges it’s easy to see how these Group Self-Insured Trusts grew in popularity. The initial contributions of the group self-insured trust were considered lower than the premium for a guaranteed cost policy from a standard carrier. A loss sensitive or retrospectively rated policy could match the upfront pricing but the ultimate pricing was determined by the workers’ compensation losses. “It is ironic that policies were often dismissed by employers for the potential to pay additional premiums at a later date in favor of the Trust agreements that were open ended liabilities in which each member was joint and severally liable to each other,” Fiorito added.
HUB’s initial advice is that all restaurateurs ask their broker/carrier if they are in fact involved with one of the trusts. “Members should ask that the trust provide an update on the solvency of the trust, Fiorito suggested. If yes then members should then request the trust provide an update on what the liabilities of the trust are. They should also ask that the trust to provide the number of open claims that the trust is administering. The members should ask how the administrator determined the pro rata share of trust liabilities.”
“We can help members who need to review the trust agreement they signed. If members have concerns about the assessment or want to review legal options, we can refer them to consult with a contract lawyer. If members agree with the assessment, they should request a payment plan option.”
“Our goal is to help the New York city restaurateur get relief moving forward by moving to standard carriers’ products that feature guaranteed cost plans, deductible options, retrospectively rated options, New York Safety Groups, New York State Insurance Fund, etc.”
HUB warns that Member Deficit Assessment invoices are now being sent out by the administrator of the Trust. Assessment notices are issued when the trust is not properly funded to pay for ongoing liabilities (claims) or administration costs. Fiorito and his HUB team have worked diligently to find a solution to unnecessary litigation. “We have the resources and expertise to ensure restauranteurs are comprehensively insured with a standard carrier or the NY state insurance fund at the most competitive pricing, whether or not we are your current broker or carrier with a free-no obligation/cost consultation.”
