Security Fund Not Subject to Assessment of Counsel Fees

While many folks know what happens when an Employer violates Pennsylvania law and fails to carry PA workers’ compensation insurance (this is governed by the Uninsured Employers’ Guaranty Fund [UEGF]), few know what happens when a PA workers’ compensation insurance carrier goes bankrupt or ceases to exist.  This is where the Security Fund (Fund) steps in and pays the appropriate compensation.

Much like the UEGF, it is well settled that the Fund is not an “insurance company,” and therefore immune from penalties for a violation of the Act.  The Fund also cannot be assessed counsel fees for maintaining an unreasonable contest.  But, the Fund, like the UEGF, is responsible for paying for wage loss and medical treatment related to a work injury, and for the reimbursement of reasonable costs of litigation incurred by the injured worker in procuring such benefits.

On this blog, we discussed the landmark Lorino case, where the Supreme Court of Pennsylvania held that a Workers’ Compensation Judge (WCJ) can order a payment to an injured worker’s attorney of a counsel fee, even in there was a reasonable contest, and that such a fee is considered a litigation cost.

Using this theory, that the payment of counsel fees is a “litigation cost,” a clever attorney representing an injured worker argued that such counsel fees may be assessed against the Fund, since they constitute a litigation cost.  This is the case of Parrish v. Yeager Supply, Inc. (Workers’ Compensation Appeal Board).

The WCJ was convinced, and ordered such counsel fees to be paid.  Upon appeal, the Workers’ Compensation Appeal Board (WCAB), reversed, finding that counsel fees cannot be assessed against the Fund, regardless of whether the fees are due to unreasonable contest or an award of counsel fees under Lorino.

The Commonwealth Court of Pennsylvania affirmed, agreeing with the WCAB.  The Court found that litigation costs and assessment of counsel fees under Lorino are two distinct things.  Specifically, the Court observed that, “Section 440(a) of the Act only authorizes an award of attorney’s fees against an employer or insurer as defined by Section 401 of the Act.”  And, the Court said the Security Fund (like the UEGF) is not an “insurer,” as defined by the Act.

As attorneys who represent injured workers across the Central and Southeastern part of Pennsylvania, it is disappointing that an injured worker is being punished for the sins of his or her employer, or its insurance carrier.  The injured worker should not lose his or her rights simply because an insurance carrier (that the injured worker didn’t select) goes bankrupt (or that his or her employer failed to carry appropriate workers’ comp insurance).  The practical effect of this decision means injured workers put into this position, through no fault of their own, may have an unfair difficulty in obtaining an attorney willing to help with their case.