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Illinois: Net Worth Provision Upheld as to Public School

The Appellate Court of Illinois issued its opinion on July 6 in Community Unit School District 200 v. Illinois Insurance Guaranty Fund, No. 02-MR-564, upholding the application of the Illinois Guaranty Fund law's net worth provision as applied to a public school.

Community Unit School District 200 (School) purchased workers compensation coverage in 2001 from Reliance Insurance Company. Reliance was ordered into liquidation in October 2001. At about the same time, three workers compensation claims were filed against the School. There is general agreement that the claims together will total about $100,000. The School submitted the claims to the Illinois Guaranty Fund (Fund) for payment.

Under the Illinois guaranty fund law, an entity with a net worth of more than $25 million is not entitled to coverage. The Fund first rejected the claims because the School had not submitted an affidavit of net worth. Then the School resubmitted the claims with a letter from its attorney giving the position that the net worth provision did not apply to public entities. At the same time, the School submitted audited financial statements. The Fund's controller reviewed the financial statements and concluded that the School's net worth was $240,000+ million. Accordingly, the claims were again rejected.

The School then filed a declaratory action against the Fund. Experts for both sides determined that the School's net worth was greater than $25 million. The School continued to argue that the provision did not apply to public entities and that only a portion of the School's assets should be used in making the net worth determination. Both parties filed motions for summary judgment and the court granted the Fund's motion, holding that the School's net worth exceeded $25 million.

On appeal, the School contended that the School Code rigidly controlled how the district managed its finances and required it to maintain separate funds to be used for limited purposes. The School also argued that other statutes and administrative regulations exclude certain encumbered funds from being defined as assets.

The appellate court rejected the School's arguments, finding that the plain language of the statute did not support them. The court pointed out that the guaranty fund law did not define net worth or aggregate net worth and did not provide an exemption from the net worth exclusion for public entities. Thus, the plain and ordinary meanings of the statutory terms were to be used and the School was subject to the net worth provision.

• Read Community Unit School District 200 v. Illinois Insurance Guaranty Fund.

Direct questions to NAMIC Regulatory Affairs Counsel Marsha Harrison.