South Carolina Property and Cas. Ins. Guar. Ass'n v. Carolinas Roofing and Sheet Metal Contractors Self-Insurance Fund

• Decision Date: 07 April 1994
• Docket Number: No. 24106,SELF-INSURANCE,24106
• Citation: 315 S.C. 555,446 S.E.2d 422
• Parties: SOUTH CAROLINA PROPERTY AND CASUALTY INSURANCE GUARANTY ASSOCIATION, Respondent, v. CAROLINAS ROOFING AND SHEET METAL CONTRACTORSFUND, Hosea Foster, and Cannon Roofing Company, Defendants, Of which Carolinas Roofing and Sheet Metal Contractors Self-Insurance Fund is Appellant. . Heard
• Court: South Carolina Supreme Court

Page 422

446 S.E.2d 422

315 S.C. 555

SOUTH CAROLINA PROPERTY AND CASUALTY INSURANCE GUARANTY

ASSOCIATION, Respondent, v. CAROLINAS ROOFING AND SHEET METAL CONTRACTORS SELF-INSURANCE

FUND, Hosea Foster, and Cannon Roofing Company, Defendants,

Of which Carolinas Roofing and Sheet Metal Contractors

Self-Insurance Fund is Appellant.

No. 24106.

Supreme Court of South Carolina.

Heard April 7, 1994.

Decided June 20, 1994.

Janet L. Carter and Robert P. Wood both of Sherrill and Rogers, Columbia, for appellant.

Linda S. Wolhbruck of Nelson, Mullins, Riley & Scarborough, Columbia, and Richard B. Watson of Nelson, Mullins, Riley & Scarborough, Charleston, for respondent.

E. Ross Huff, Jr. and Samuel F. Painter both of Nexsen, Pruet, Jacobs & Pollard, Columbia, amicus curiae for S.C. Self-Insurers Ass'n, Inc.

FINNEY, Justice.

Appellant (Roofers Fund) is a group self-insurer under the Workers' Compensation Act which purchased catastrophic insurance from Mission Insurance Company. Mission became insolvent, and Roofers Fund submitted a claim to respondent (Guaranty Association). The Guaranty Association rejected the Roofers Fund claim, and then brought this declaratory judgment action to determine whether it was obligated to cover it. The circuit court held the claim was not covered, and that contrary to the Roofers Fund's position, the Guaranty Association was not estopped to deny coverage. We affirm.

I. FACTS

Under S.C.Code Ann. § 42-5-20 (1985), the Workers' Compensation Commission is authorized to "permit two or more employers in businesses of a similar nature to enter into agreements to pool their liabilities under the Workers' Compensation Law for the purpose of qualifying as self-insurers." The Roofers Fund, composed of roofers located in North and South Carolina, operates under this provision.

The members of the group contribute an individual annual assessment to the Roofers Fund. Part of the assessment goes to administrative costs, and the rest into a fund to cover members' employees' claims. The Roofers Fund employs a third party administrator, the Fred S. James Co., ¹ to do the actual claims work. If funds remain after payment of administrative costs and annual claims, then those remaining funds are distributed pro rata to members of the Roofers Fund whose employee claims were less than their annual assessments. Thus, in order to get a refund, both the Roofers Fund and the individual employer must have a good year. The Roofers Fund requires its members to sign a joint and several liability provision requiring all members to contribute additional monies if the annual assessments do not generate enough funds to pay the claims for that year. Certain reserves are maintained by the Roofers Fund, although it does not have any capital in the traditional sense.

For the 1984-1985 policy year the Roofers Fund purchased catastrophic coverage from Mission. Under this policy, Mission agreed to cover any individual employee claim which exceeded $100,000 (the specific retention), and to cover all claims after the Roofers Fund had paid $900,000 (the aggregate retention). The retentions are essentially large deductibles. If a claim or claims exceeded the retention, then the policy provided for the Roofers Fund to pay the claim and to be reimbursed (indemnified) by Mission. During this policy year, one of the Roofers Fund members' employees (Foster) suffered a serious on-the-job injury which rendered him a paraplegic. The resulting claim exceeded the Mission policy's specific retention. Since Mission was insolvent, Roofers Fund sought payment from the Guaranty Association.

The Guaranty Association was created by the "South Carolina Property and Casualty Insurance Guaranty Association Act" (the Act) which is presently codified at S.C.Code Ann. §§ 38-31-10 et seq. (1989). ² The Guaranty Association is a non-profit organization composed of persons who are licensed to transact insurance by the Insurance Department and who write certain types of insurance in South Carolina. §§ 38-31-20(8) and 38-31-30. Its purpose is to provide some protection to insureds whose insurance companies become insolvent. Mission was a member of the Guaranty Association. ³

The Act does not apply to reinsurance contracts, but only to direct insurance. § 38-31-30. The circuit court found the Mission policy was reinsurance, not direct insurance, and therefore the Roofers Fund could not recover from the Guaranty Association. Even if the policy is direct insurance, the Act applies only to a "covered claim." § 38-31-20(6). Amounts due an "insurer" are not a "covered claim." Id. The circuit court found the Roofers Fund was an "insurer" and therefore not entitled to recover under the Act. Finally, the circuit court held it would be unfair to allow a self-insurer to recover under the Act. The Roofers Fund argues public policy demands it be covered. We find the insurer issue dispositive and affirm.

II. IS THE ROOFERS FUND AN INSURER?

The statute authorizing group self-insurers such as the Roofers Fund specifically provides they are subject to the "exclusive jurisdiction" of the Workers Compensation Commission and "... shall not be deemed to be insurance companies and shall not be regulated by the Department of Insurance." § 42-5-20 (emphasis added). The Guaranty Act does not exclude claims made by an insurance company, but rather those made by an insurer. § 38-31-20(6). Thus, the issue is whether the Roofers Fund is an insurer under the Act. We agree with the circuit court's finding that the Roofers Fund is an insurer.

While the Guaranty Act itself does not define insurer, that term is defined under Title 38, "The Insurance Law," to include:

... any corporation, fraternal organization, burial association, other association, partnership, society, order, individual, or aggregation of individuals engaging or proposing or attempting to engage as principals in any kind of insurance or surety business, including the exchanging of reciprocal or interinsurance contracts between individuals, partnerships, and corporations.

S.C.Code Ann. § 38-1-20(25) (Supp.1993).

South Carolina defines insurance as "a contract whereby one undertakes to indemnify another or pay a specified amount upon determinable contingencies...." § 38-1-20(19) (Supp.1993). Both the arrangement between the Roofers Fund and its members, and between the Roofers Fund and Mission, meet this statutory definition of insurance. Thus, under the Insurance Law's definitions, it appears the Roofers Fund is an insurer since it is an "association ... engaging in [a] kind of insurance ... business...."

This Court has never been asked whether a group self-insurer such as the Roofers Fund is an insurer. In a different context, we have noted that while single automobile self-insurers are not technically insurers, the service they provide is insurance. Wright v. Smallwood, --- S.C. ----, 419 S.E.2d 219 (1992); Southern Home Ins. Co. v. Burdette's Leasing Service, Inc., 268 S.C. 472, 234 S.E.2d 870 (1977); see also SCE & G v. Jeter, 288 S.C. 432, 343 S.E.2d 47 (Ct.App.1987); cf., Wake County Hosp. System, Inc. v. Nat'l Casualty Co., 804 F.Supp. 768 (E.D.N.C.1992) (noting South Carolina is among a minority of jurisdictions holding self-insurance is insurance); but see Collins Cadillac, Inc. v. Bigelow-Sanford, Inc., 276 S.C. 465, 279 S.E.2d 611 (1981) ("Bigelow, as a self-insurer held a dual role of insured and insurer....") In none of these cases, however, were we asked to decide whether the individual self-insurer met the statutory definition of insurer.

A single employer self-insured merely retains its own risk that an event will occur which will render it liable. See Zinke-Smith, Inc. v. Florida Ins. Guaranty Ass'n, 304 So.2d 507 (Fla.App. 4th Dist.1974) reh. denied 315 So.2d 469 (Fla.1975). Since insurance traditionally involves a transfer of risk from one entity to another, it is conceptually difficult to consider a single employer self-insured an insurer. In contrast, the members of a group self-insurer such as Roofers Fund transfer a portion of their risk to the group, and in turn assume a risk that belongs to the other members of the group.

At the circuit court hearing all parties agreed there was some risk transferred from its members to the Roofers Fund, but the expert witnesses disagreed whether the amount of risk transferred was sufficient to characterize the relationship as insurance. The trial judge found the Guaranty Association's experts' opinions more credible and found there was a substantial transfer of risk. Since this finding is supported by the evidence, we affirm it. Noisette v. Ismail, 299 S.C. 243, 384 S.E.2d 310 (Ct.App.1989) ("Unless the cause of action and relief sought in a declaratory judgment action are distinctly equitable, the action will be considered one at law.") rev'd in part on other grounds 304 S.C. 56, 403 S.E.2d 122 (1991). Further, our statutory definition of insurance does not even reference risk transference, but instead requires a contractual agreement to pay or indemnify another.

We hold that since the Roofers Fund engages in a "kind of insurance", it is an insurer under § 38-1-20(25) and therefore its claim is not covered by the Act. § 38-31-20(6). We recognize that other jurisdictions have found coverage under their version of the guaranty act for self-insurers, but find each of those cases distinguishable. See Zinke-Smith, Inc., supra (single employer self-insurer and narrow statutory definition of insurer); In re Mission Ins. Co., 112 N.M. 433, 816 P.2d 502 (1991) (single employer self-insurer and statutory definitions of insurance and insurer); and Stamp v. Department of Labor and Industries, 122 Wash.2d 536, 859 P.2d 597 (1993) (single employer self-insurer and analogy to automobile self-insurer liability case law holding coverage is not insurance).

The decision in Iowa Contractors...