MISSOURI DEPARTMENT OF INSURANCE WILL APPEAL WORKERS COMP DECISION

An insurance trade group was proclaiming a circuit court decision on workers' compensation this week as a victory for the insurance industry, although the Missouri Department of Insurance made it clear they would appeal the decision.

Cole County Circuit Judge James F. McHenry ruled unconstitutional a plan by the Department of Insurance to require workers' compensation insurers to cover any employer the state declares safe.

McHenry said in his ruling that the department's "acts to adopt the proposed rule were in excess of its lawful jurisdiction, power and authority and must be prohibited."

"We feel the department's proposal was based on erroneous assumptions about small business," said Fred McGarvey, a spokesman for the American Insurance Association and the group that filed the legal challenge last December.

The suit was filed in response to Senate Bill 251, passed in 1993 by the General Assembly. The court decision struck down the delegation of rulemaking authority by the legislature to the Department of Insurance.

The court held that the General Assembly's delegation of rulemaking authority to depopulate the residual market pool was unconstitutional. The court also held that the provision for legislative review of the so-called "depopulation plan" was ineffective because the General Assembly was not in session when the plan was submitted."

Under rulemaking provisions of SB-251, the department had been authorized to issue a regulation that permitted Misouri companies to leave the workers' compensation pool and buy coverage in the less expensive voluntary or commercial market. That rule was expected to take effect Jan. 1, but was blocked by the insurance industry's lawsuit filed on Dec. 14.

Jay Angoff, director of the Missouri Department of Insurance, who immediately announced the decision would be appealed, stressed that because of the ruling, insurers cannot now raise rates charged to companies in the workers' comp pool.

Angoff explained that in December of 1993 he authorized no rate increase under current law, but allowed a 16.8 percent rate hike if the state won this case and companies could leave the pool to buy policies.

McHenry's ruling concerned only the constitutionality of the rulemaking powers and procedures in SB-251, not the merits of the so-called "depopulation plan" that the department planned to implement.

McGarvey, in reaction to the decision, said it is a myth that small businesses cannot get coverage in the voluntary market without a government mandate.

"Most businesses in the pool are small, but so are most businesses in the voluntary market," said McGarvey. "There's no question, however, that there are too many businesses in the high-risk pool. We've always agreed with the department that the system needs fixing, and it's important that solutions promote a healthy insurance market.

"However, the department's plan is unworkable, requiring insurers to risk their capital using politically-based government standards rather than sound business judgment."

McGarvey promised the insurance industry would continue to meet with the Department of Insurance to come up with a workable plan that expands the voluntary market without jeopardizing insurers' rights.

The American Insurance Association is a national trade assocaition representing more than 270 property-casualty insurance companies. Members write more than 55 percent of all workers' compensation insurance in Missouri.