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007 f~ << ..... iSH3) 486.9564 51 A 1E OF NEW YORK WORKERS' COMPENSATION BOARD OFFICE OF GENERAL COUNSEL 20 PARK STREET ALBANY, NY t 2207 DIl VJ() A. PATERSON GG\/V'NO~ IfaBERT E. 8ifLOTlfN C'HA#I Albert Roberts,. Esq. Vergelis, Stenger, Roberts, Davis & Diamond, LLP 1136 Route 9 Wappingcrs FaUs, NY 12590 fPdfErt;fEDW'fE~ AUG'2 7i 0 2010 OWN OF W iaWN CAPPINGER LERk July 7,2010 VIA E~!\'lail RE: PE'fNY Dear Mr. Roberts, Thank you for your letter dated June 23, 2010, While the Workers' Compensation Board (Board) would be willing to meet with you and the other representatives of the other tbnnermembers of PETNY copied on your letter, thcrc\\'ould need to be certain understandings between the parties beforehand. Before detailing these understandings, I would like to take the time to speak to ct'ftain of tile statements contained in your letter. First, it is contended tha1 the use of a premium based allocation methodolo!:,'y, which is in fact an allocation methodology that is generally accepted industry wide as appropriate for allocatingu deficit in a joint and severalliabil ity situation, is inappr()priatc in the instance of PETNY because PETNY was a group self insurance trust (GSIT) comprised (,If municipalities, It is reasoned that as Workers' Compensation La\\' (WCL) S50 provides certain exemptions for municipal GSITs, the Board's use of a premium based allocation methodology in a non municipal setting is somehow improper. Putting aside that there is no explanation of exactly why it would be improper, I must point out that the provisions ofWCL g50(3~a), and the corre~'POnding regulations at 12 NYCRR ~3l7 ct seq., aUol,vcxemptions from certain reporting requirements for OSITs comprised solelv of municipalities. (See tor example 12 NYCRR **317.5(h); 317.6(d)~ 317.19(a)). PETNY was never intended to be, and in fact was not, a solely municipal OS 11'. In fact, one of the earliest members was an entity \vhich, although meeting the homogeneity requirement set forth in the '[rust agreement, docs not fall within the definition of "municipality" set forth in 12 N'YCRR S317.2(k). Accordingly, PETNY, like all non purely municipal GSITs, was required to inter alia, post a security deposit and file annual auditc..-d financial statements and actuarial reports. l1lUs, even assuming that the argument has some articulablc basis, it is tactually inapplicable as PETNY was not a solely municipal OSIT. l".,'$ A(iENC'f EMPLOYS ;\1\0 Si.f>i\/tS f'iCM..E. V/ln~ D!:SA6fi_rnCSWlTNCUT D1SC:A1Ml\lA1TON \ . Next, your letter makes a brief argument that the provisions of the New York State Constitution Article VIII ** 1 and 2 provide a basis tor rejc<.ting the use of a premium based deficit allocation because of their alleged complete prohibition on municipal joint and several liability. I assume that not much time is devoted to this argument because Mr. Spitzer, who is copied on your c- mail, related our conversation and he directed your attention to the provisions of GenL'Ta1 Municipal Law' .~ I 19-o(2)(b) and Local Finance Law ~S 15.00(a)(&(c), among others, which arc not only supportive of joint and several liability among municipalities in a workers' compensation setting, but in fact specifically prOVide for same. Third, several "facts" arc posited as supportive of the conclusion that a premium based deficit allocation is unwarranted based on these specific "facts". First, it is argued that the fact that some members experienced dcficits while others experienced surpluses (such as your cHent), establishes that the calculation of the premiums was incoITt"Ct. This is simply untrue. A premium represents an estimate of what likely future claims costs will be for a given particip.ant based upon the risk that a particular participant brings to an insurer (orin this case, OSI1'). In fact, the amount charged \-\till never exactly equal the losses sustained by the member. Thus, the mere fact that there are members who were surpluses and others who were deficits does not render a premium based allocath:m flawed. Likewise, at several points it is mentioned that the premium based allocation is unfair to "those who paid their fair share", As you are well aware, in a GSlT, which is self insurance, there is no insurer. Rather, the risk of shortfalls is ultimately on the members. Thus, there is always the possibility that additional funds w'ill be necessary. The fact that some other members may have contributed to the need for these funds more than others is immaterial. This is best exemplified in the provisions ofWCL *50(3-a)(3) \vhich provide that all members ofa GSIT are responsible for the obligations of aU other members rcgardlt.'Ss of the bankruptcy or insolvency of any particular member. Thus, one member contributing for losses that "fairly" are those of another is contemplated by statute. ,^'11ilc it may seem intrinsically fair to your client that any deficiency be made up by another participant who contributed greatly to the deficiency, such a constmetion f1ies in the face of the participation agreement signed by your client (and indeed aU other members), the provisions of the PETNY Trust agreement and indeed~ as indicated above, the provisions oftbe \VeL. 111us, it is respectfully submitted that to totally and utterly disregard all of these legal documents, to bt'l1efit those ",,\'ho paid their faif share", (which incidentally, and based solely on the number ofparticipants who were copied on your letter, appear to be in the minority) is to ex post facto disregard the expectations ofthe whole, to benefit the few. I would dare sa}' that as Tow11 Attomcy, you have drafted, and assisted in the enactment ot: numerous laws that have had the effect of adjusting the economic burdens of your municipality upon some citizens ofthc Town of \Vappingcr more than oth<',,[5. Are all of these laws "unfair",? Should tlley be disregarded as applicd to all those who believe they operate "unfairly" upon them? Of course not. It is also argued that the Board has ignored the principle that joint tort fcasors have the right to seck pro rata contributions from other joint tort feasors. r fail to see how the uscaf a prenlium based allocation, which recoups funds from multiple jointly and severally liable parties, somehow prevents one party, such as your client, from seeking contribution from any other party whom you allege excessively contributed to the deficit of PETNY to the detrim.ent of your client. Stated othcnvise, the Board would not oppose an action by one member tor contribution and/or indemnification from other members, THIS ACENCY EMi'l..OY!; AUO St/tVE:> P(oi'I.." WIlH ClISAffifUTlf5 "",rmour DISCRIMINATION ~. Next, and changing arguments somewhat, you stated "it is my opinion that the reserves set tor outstanding claims are much too high". While it is ditlicult to respond to this type of blanket generalization without any reference whatsoever to specifics. the failure to make even tangential reference to an actuary is noteworthy. Thereafter, it is claimed that as all fonner members of PET NY are municipalities they can simply deem themselves self insured and pay their own claims. \\'hile it is true that they could do so on a going fonvard basis, having elected to participate ill PETNY for their respective periods of participation, the municipalities simply cannot renouncc their participation, and thereby escape accrued liabHi ty, Lastly, it is claimed that the 80ard tailed to notify the members of PET NY of its financial difiiculties. It is noted that on February 22,2008, the 80ard provided notice to each and every member of PET Ny' o1'a membership meeting to be held on March 18,2008. The stated purpose of the meeting ..vas to discuss the dissolution of PETNY due to its financial condition and the steps that would occur going forward. Tunling back to your initial request, the Board remains willing to engage in productive discussions with the members of PET NY and would be willing to meet again with yourself and those members that are copied on your letter. However, from the Board's perspective any such meeting must be untakenwith the understanding that any discussions would be focused on issues that ....'ould produce an immediate n(nv of funds from the members of PETNY, in amounts not less than those necessary to meet PETNY's monthly obligations. Accordingly, for the reasons set forth above, the Board docs not believe that a discussion relative to changing the allocation methodology will achieve this result Ho'w'cvcr, and in contrast, as you have expressed skepticism in the amount of the reserves, the Board would be willing to consider allowing an independent third party expert to review PETNY's claims reserves. However, such access would need to be tied to cash flow from the members of PETNY as a whole in an wnount not less than indicated above. If you arc int(''fested in such discussions, I would make myself and certain other staff available Tuesday, \Vedncsday and Thursday of next week to discuss same. [ await your response. S inc('''fely, Michael Papa Associate Attorney cc: James I10ran Daniel Spitzer Yvonne Tripi John Ryan Linda Jcn5,..n r"l $ I,GfNCY 'fMf'l<J' $ AND SERViS !'tOPl,~ wnH Pl!IiAllllinfS WI!HOU'r {llSCRiiMifilA TlON