IR # 97-59
Tuesday, December 16, 1997

Rick Rice
Dean Fryer
(415) 972-8835

D.I.R. Intervenes on Behalf of Workers' Compensation Claimants in Montgomery-Wards Bankruptcy

SAN FRANCISCO -- Intervention by the Department of Industrial Relations (DIR) will ensure that injured employees of bankrupt retailer Montgomery-Wards will continue to receive the workers' compensation benefits to which they are entitled, according to Acting Director, John Duncan.

Montgomery-Wards was self-insured until 1987 and has been insured since 1987 for compensation to employees with job-related injuries. A 45 day nationwide stay was granted to Wards on evidentiary hearings and trials of fact in its workers' compensation proceedings as a result of an order by the U.S. Bankruptcy Court in Delaware. Following legal intervention by the office of Self Insurance Plans within DIR, the company has turned over payment of its workers' compensation claims in California to its insurance carries and, for older claims to the self insurers' security fund.

"The net result is that the processing of all Montgomery-Wards' workers' compensation claims has now returned to normal," said Duncan. "As a direct result of two interventions by DIR in its Bankruptcy proceedings, the workers' compensation claims of Montgomery-Wards, at least in California, have been turned over to the workers' compensation insurance carriers that wrote the company's policies and to the Self Insurer's Security Fund for pre-1988 claims that were self-insured by the bankrupt company."

In response to DIR objections filed in September, Montgomery-Wards agreed to let all self-insured workers' compensation claims in California be taken over by the California Self Insurer's Security Fund. The company left self-insurance in mid-1987 and very few self-insured claims remained open at the time of its bankruptcy filing on July 7, 1997. The security deposit posted with DIR will be used to fund payment of these self-insured claims.

In October, DIR filed additional objections to Montgomery-Wards' plan to further delay payment of insured workers' compensation claims. As a result, the company agreed to turn over payment of all insured claims to the insurance carriers that wrote large deductible workers' compensation insurance policies for them. Under the policies, Montgomery-Wards was to fund the first $500,000 of every claim.

"Under California law the carrier is responsible to pay the entire claim including any deductible amount," Duncan explained, "and collect back the deductible from the employer if it can. In this case, the carriers will pay the insured claims and stand in line with other creditors in the hope of getting some deductible amounts reimbursed to them."

The Bankruptcy Court, while ordering the carriers to pay, did give Montgomery-Wards a 45 day reprieve on any evidentiary hearings or trials of fact before any State Workers' Compensation Appeals Boards. This stay ended on December 9, 1997.

Montgomery-Wards Holding Corporation and its subsidiaries filed a Chapter 11 bankruptcy protection in U.S. Bankruptcy Court, District of Delaware on July 7, 1997 and payment to all creditors, including workers' compensation liabilities, were interrupted by the automatic stay in the payment of all creditors while the bankrupt company continues efforts to reorganize its operations.

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