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What Happens to Workers’ Compensation if an Employer Goes Bankrupt?

bankruptcy petition under gavelThe short answer is that any remaining benefits should be covered by the insurance carrier. However, it depends on the situation and how the employer is covering workers’ compensation benefits.

Below, Berry, Smith & Bartell explains how workers’ compensation claims are handled following an employer’s bankruptcy. For assistance with your claim, request a free, no-obligation consultation with our legal team today.

Coverage After Bankruptcy

Workers’ compensation systems are individually run by each state and require employers to provide proof they carry workers’ compensation insurance. The employer typically pays into the company’s insurance policy weekly or monthly, though they are not necessarily funding your benefits with these payments.

Your claim is paid by your employer’s workers’ compensation insurance company. As such, it is not your employer who pays your benefits, so the fact the company declared bankruptcy should not affect whether you receive benefits.

What if Your Employer was Self-Insured?

An employer that is self-insured for workers’ compensation is responsible for funding employee claims. An outside administrator may manage workers’ claims, but the employer still pays the bill for benefits.

In bankruptcy, your employer may not have enough money to fulfill the claim. In this situation, the Self-Insurers’ Security Fund (SISF) provides benefits.  

What About Uninsured Employers?

Unfortunately, some companies that are required to purchase workers’ compensation coverage fail to do so. When an injury occurs, the Uninsured Employers Benefits Trust Fund (UEBTF) provides benefits.

What if an Insurance Carrier Becomes Insolvent?

The California Insurance Guarantee Association (CIGA) takes over fulfilling workers’ compensation claims when an insurance carrier becomes insolvent.

CIGA is partially funded through contributions from all workers’ compensation insurance policies. Receiving workers’ compensation benefits through CIGA is pretty much like receiving them through an insurance company. CIGA uses its own medical care control and has other limitations on benefits in accordance with the California Labor Code.

Delays in Payments and Other Issues

If you had only just began the workers’ compensation claims process right before your employer filed for bankruptcy, you may experience a delay in receiving your benefits. Claims must be investigated before benefits are approved and to do so, the insurance company needs information from the employer. If the insurance company is unable to get the required information about your claim from your employer, it may take longer for your claim to be approved.

In some cases, benefits are connected to a person’s ability to go back to work. When your job no longer exists due to the company filing for bankruptcy, determining your ability to go back to work gets tricky. This is especially complicated if you held a role specific to that one company.

If you are attempting to settle your workers’ compensation with a lump sum settlement, you may run into a situation where there is not enough money within the workers’ compensation insurance policy to cover the value of your claim. If your claim value is higher than the policy limits, normally anything over would be paid by the employer. In a situation involving an employer who files bankruptcy, there may no longer be an employer to pursue for the difference.

Another possibility is that the employer will attempt to have your workers’ compensation award discharged in the company’s bankruptcy. If this happens, your employer could get out of paying you the remainder of your workers’ compensation award. One way to protect yourself against this possibility is to file adversary proceeding in the company’s bankruptcy, which is much like a lawsuit.

Get Help from Our Licensed Attorneys

If you are experiencing problems with your workers’ compensation claim due to your employer filing for bankruptcy, you can contact the Fresno workers’ compensation lawyers of Berry, Smith & Bartell with your questions.

Request a free, no-obligation consultation today to learn the legal options that may help in your situation. We charge no upfront fees and you only pay us if we recover compensation for you.

For a free case evaluation with Berry, Smith & Bartell, a Professional Law Corporation call 1-800-848-6288 today!

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