.km.rrnnr. TH‘*:xanaeaaa1 November 23, 1976

The Honorable Cue 0. Boykin Opinion No. H-902 Chairman Texas Industrial Accident Board Re: second Injury Fund 8. 0. BOX 12757, Capitol Station replenishment. Austin, Texas 78711

Dear Mr. Boykin:

You have asked: [Whenshould1 payments into this Board

. . .stop requiring

the Second Injury Fund, or

. . more.specifically, what ismeant ny tne phrase 'existing liabilities' asused in Article 8306, Section 12c-2(b).
The legal history of the Second Injury Fund, a creation of theWorkmen's Compensation Law, isrecounted inTexas Rmployers' Ins.Ass'n v. Haunschild, 527 S.W.Zd 270(Tex. Civ. App. --Amam m75, writ ref'd n.r.e.). Generally, sections 12~ and 12c-1 of article 8306,V.T.C.S., provide that when an employee who haspreviously suffered a compensable injury isreinjured and the second injury combines with the first toproduce agreater incapacity than the second injury alone would have caused, the employer is liable for the entire resulting incapacity.

But the employer can recover from the Second Injury Fund the extra amount he has topay as aresult of combining the losses of capacity if theprevious injury was of a specific type and if the combined effects of the two injuries totally andpermanently disabled the employee. See Houston General Ins. Co.v. Teague, 531S.W.2d 457 (Tex.Civ. App. -- Waco 1§75,ritrz'd n.r.e.1.

p. 3782The Honorable Cue 0. Boykin -page 2 (H-902)

Section 12c-2 of the statute reads:

The special fund known as the 'Second Injury Fund' shall be created in the following manner: (a)Inevery case of the death of an employee under thisAct where there isno person entitled to compensation surviving said employee, the association shall pay to the Industrial Accident Board the fulldeath benefits, but not to exceed 360weeks of compensation

. . .tobe deposited with the Treasurer of the State for the benefit of said Fund and the Board shall direct the distribution thereof. (b)When the total amount of all such payments into the Fund, together with the accumulated interest thereon, equals or exceeds Two Hundred Fifty Thousand Dollars ($250,000)& excess of existing liabilities, no further payments sii&l be required tobe paid to said Fund; butwhenever thereafter the amount of such Fund shall be reduced below One Hundred Twenty-Five Thousand Dollars ($125,000)by reason of payments from such Fund, thepayments to such Fund shall be resumed forthwith, and shall continue until such Fund again amounts to Two Hundred Fifty Thousand **Dollars** ($250,000) including accumulated interest thereon. (Emphasisadded). Inconstruing theprovisions of the Second Injury Fund Act, that interpretation will be employed which is **most** beneficial to injured employees and which will best promote thepurposes of theAct. Industrial Accident Board v. Parker, 348 S.W.2d 188 (Tex.Civ. App. -- Texarkana 1960,rE m n.r.e.). The purpose of the Legislature in setting up the Second Injury Fund Act was to compensate the injured employee for the **total** andpermanent incapacity he has actually suffered without sacrificing thepolicy of encouraging the employment ofphysically handicapped workers. Miears v. Industrial Accident Board, 232 S.W.2d 671 (Tex.Sup. lE0). The Supreme Court exmed:

P. 3783The Honorable Cue 0. Boykin -page 3 (H-902)

The employer's insurer remains liable only for the compensation payable for the second injury considered alone; theremainder of the compensation ispaid out of the fund which ismade upof sumswhich, except for this statute, would bewindfalls to insurers inother cases. Id.at 675-76. - You report that on aparticular date late lastyear a payment to the Second Injury Fund caused thebalance in the fund to exceed $250,000, but the fund at that timewas obligated on a long termbasis tomake direct payments toan injured worker on behalf of his employer inone case, and there were three pending claims against the fund for reimbursement, the subsequent payment ofwhich reduced the fund below the $250,000mark. Additionally, there were at that time eight other claims against the fundwhich the Board had denied but which were on appeal to the courts and which would substantially reduce the balance in the fund if they were ordered paid by the courts. Also, you advise, there were, perhaps, twenty or thirty potential claims against the fund in existence on that date which had notyet been reported, thepayment ofwhich would substantially reduce the fund balance ifallowed.

We believe the Supreme Court of Texas would construe the term "existing liabilities" as used in section 12c-2 to mean those liabilities known or reasonably anticipated to exist and notmerely those previously and finally determined payable. A contrary interpretation would endanger the capacity of the Second Injury Fund to respond when its liabilities are finally determined andwould produce an unintended wmfall for otherwise liable insurers. Cf Bd. of Ins. Commissioners v. Texas Employers' Ins. Ass'n, 192 s.w.m m(Tex. Sup. 1946x
The Second Injury Fund responds inamanner similar to that of an excess insurance carrier and unless its legitimate reserves forprobable losses are considered liabilities which reduce itsavailable current assets, its fiscal strength will be overstated and subject tounexpected and imprudent depletion. SeeV.T.C.S., Ins. Code § 21.39;V.T.'C.S.art. 8308, 5 23. Wedo not believe theTexas Legislature intended such a result.

p. 3784.

The Honorable Cue 0. Boykin -page 4 (H-902)

A somewhat similar provision requires theEmployers Insurance Association to suspend assessments against its members when at the end of a calendar year ithas accumulated "an admitted surplus in excess of incurred losses, expenses and unearned premiums or other liabilities amounting to the sumof.

. . ($200,000) ormore . . . ." V.T.C.S. art. 8308, S 16a. co., 103 S.W.2d Emex. clv. refia), InTexas "pl?yer~.,~nsl-A~~;~~~o~~~~~~O~it

Humble argued that theAisociation had no legal authority toreduce the surplus distributable to subscribers bymaintaining a reserve against anticipated costs, but the Court disagreed, saying that indoing so thedirectors of theAssociation did not.abuse their discretion.

Inour opinion, the Industrial Accident Board should stop requiring payments into the Second Injury Fund when the amount in the fund, exclusive of reserves for known or reasonably anticipated liabilities, exceeds $250,000.

SUMMARY
The Industrial Accident Board should stop requiring payments into the Second Injury Fund when the amount in the fund, exclusive of reserves forknown or reasonably anticipated liabilities, exceeds $250,000.

-JOHEL. HILL Attorney General of Texas
APPROVED:

Opinion Committee