The financial troubles of Mutual Risk Management's US insurance companies - Legion and Villanova - could mean some North Carolina residents are left short on workers compensation payments they are due.

News reports yesterday said North Carolina regulators were scrambling to pay up to $25 million in 1,500 workers' compensation claims after the state's insurance industry was left to pick up the workers' comp tab - or the difference between claims and the $14 million on deposit from the failed companies. The Mutual Risk (MRM) US-based subsidiaries were taken over by state regulators earlier this year and put into state regulated run-off. MRM, as the parent company, has been fighting to bring the companies out of rehabilitation, claiming that the companies are solvent.

But, because of the way the Legion and Villanova cases have proceeded in Pennsylvania courts, some North Carolina residents could see an interruption in their weekly workers' comp claims payments and the payment gap could run from two to four weeks. Meanwhile State insurance regulators said Legion and Villanova's failure could be attributed to stiff competition in the workers' comp market that led to rate-cutting to the point that premiums were not keeping pace with claims.

Pennsylvania insurance regulators, after examining the companies' books, ordered both Legion and Villanova into rehabilitation, which the news report said was "one step short of insolvency in the insurance industry bankruptcy process".

A Pennsylvania judge recently delayed action on declaring the two companies insolvent, however, after MRM objected. The judge also ruled that Legion and Villanova could stop paying workers comp claims in states where the two companies had posted deposits.

Without a formal declaration of insolvency North Carolina reportedly could not use the $14 million on deposit to pay claims and neither could it get the case files on whom to pay. To get around these difficulties, officials from the Guaranty Association, the Department of Insurance and the North Carolina Industrial Commission asked the General Assembly to pass a hastily-crafted bill allowing them to use the $14 million and to begin cleaning up after the two firms, even though they haven't been declared insolvent in Pennsylvania.

The General Assembly rushed the bill through in a single day, passing it only hours before it adjourned. And on November 1, North Caroline Insurance Commissioner Jim Long won a Wake County court order declaring the two firms insolvent in that state.

The Guaranty Association, which is still waiting for the case files from the two companies, will asses its 700 insurance company members for the amount of unpaid claims exceeding the $14 million deposit.