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A Better Partnership
June 21, 2013

MSC holds that worker's comp "Second Injury Fund" gets the benefit of employer's disability-insurance policy

Employers, if you pay an injured part-time worker for all wage losses, and then pay the benefits of your disability insurance policy on top of that, do not expect the worker's comp fund to reimburse you for your generosity.

According to the Supreme Court in Smitter v. Thornapple Township, coordinating disability benefits to reduce the worker's compensation benefits is generally mandatory. When the employment that caused the injury pays less than 80% of an employee's total wages, the "Second Injury Fund" will reimburse the employer for its "portion of the benefits due the employee." But the employee is only due actual wage losses. The fund will not reimburse employers for the portion of actual wage losses that the insurance policy would have covered if properly coordinated. The court expressly overruled Rahman v. Detroit Board of Education, which had held coordination was optional. It appears that Thornapple Township will not be reimbursed in this case for overpaying its injured fire-fighter.

Despite the parties' concessions to the contrary, Justice Cavanaugh in dissent argued that the firefighter in this case was a 'volunteer.' Coordination would then be optional under MCL 418.354(15).

Justice McCormack also dissented, lamenting that only those employers entitled to reimbursement from the Second Injury Fund will now be required to coordinate benefits, while other employees will be free to offer disability insurance along with their worker's compensation benefits. Because the statute is ambiguous and the majority's reading, in her view, impedes freedom of contract between employers and employees, she would have held that coordination of benefits is not mandatory. In response, the majority explained that all employers are still free to offer such generous contract terms if they wish, but doing so does not obligate the fund to subsidize their munificence.

In this case, a part-time paid firefighter employed by Thornapple Township was injured fighting a fire. The township funded a disability insurance policy for its employees, so the firefighter received benefits from both worker's compensation and from the disability insurance policy. The township did not attempt to coordinate the benefits. Since the firefighter only earned about 11 percent of his wages from the township and earned the other 89 percent from General Motors, the township applied for reimbursement from the Second Injury Fund for 89 percent of the worker's compensation benefits it paid. The Second Injury Fund only agreed to pay 89 percent of what the township would have paid in worker's compensation if they had coordinated benefits. A magistrate and subsequently the Worker's Compensation Appellate Commission and the Michigan Court of Appeals, ordered the Fund to pay the full amount requested by the township. The Supreme Court reversed, agreeing with the decision of the Second Injury Fund.

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