The suit, filed August 13 in U.S. District Court for the Southern District of New York, targets the New York State Insurance Fund, its commissioners and the New York State Workers’ Compensation Board. The Boston-based insurer takes issue with three amendments made to three aspects of the reform, claiming the amendments violate the contract, takings, equal protection and due process clauses of the U.S. Constitution.

According to the suit, the amendments impair the insurer and its subsidiaries’ property, contractual and procedural rights. The changes, according to court documents, will require that insurers make lump-sum deposits to the Aggregate Trust Fund to cover types of permanent partial disability benefits.

This condition applies only to insurers—not to employers who self-insure or the NYSIF—which Liberty Mutual contends violates the equal protection clause of the Fourteenth Amendment “because there is no rational basis for discriminating against insurers,” the court documents states. They add that this amendment also creates a “significant cost advantage” for the NYSIF, a competitor of Liberty Mutual.

Also at issue is the amendment that allows the Aggregate Trust Fund to enter settlements with claimants in regard to claims against insurers without insurer consent. Liberty Mutual contends that this violates the due process clause.

Finally, Liberty Mutual said the lump-sum deposit obligation, which according to the suit applies retroactively to claims arising from workers’ compensation insurance policies issued before the 2007 amendments, violates the contract clause of Article I of the Constitution, the takings clause of the Fifth Amendment as made applicable to New York by the Fourteenth Amendment, and the due process doctrine.

As a result, Liberty Mutual states that it will incur a substantial loss of investment income as well as the additional costs associated with the changes.

Those costs include: increased loss-adjustment expenses due to the need to coordinate with the Aggregate Trust Fund on handling of covered claims; increased litigation costs resulting from a reduction of settlements; and increased medical claims costs, because the trust fund’s exclusive authority to settle indemnity claims will make it more difficult for the plaintiffs to settle medical claims.

A spokesman for Liberty Mutual said the insurer participated in New York’s workers’ compensation reform discussions and that the company “likes much about the reforms.”

“We are troubled with the regulations dealing with the ATF,” the spokesman said.

A spokesman for NYSIF said he could not comment on pending litigation.

Filed by Jeff Casale of Business Insurance, a sister publication of Workforce Management. To comment, e-mail editors@workforce.com.

Workforce Management's online news feed is now available via Twittter.