State Compensation Fund

Revision Date: 
Friday, May 1, 2015

Agency Contact Information

N/A

For earlier see: Industrial Commission of Arizona

Authority – Transferred

The Arizona Constitution, Article 18 outlines provisions related to labor and Section 8, adopted in 1925, specifically addresses workers' compensation. The 1925 Arizona Workman's Compensation Act initially created the State Compensation Fund as part of the Industrial Commission of Arizona. In 1968 the State Compensation Fund was established as a stand-alone agency. It was subsequently privatized and terminated as a state agency, effective January 1, 2013.

Function

State law requires all employers to provide workers' compensation insurance for their employees. The employer, not the employee, pays the insurance premium. The State Compensation Fund was established to help Arizona employers provide medical coverage, rehabilitation and supplemental income for workers injured on the job. The mission of the SCF was to provide a ready market for workers' compensation insurance at the lowest possible cost. Employers could choose to obtain this type of insurance from the SCF, from a private insurance carrier, or by self-insuring.

Although not required to do so by statute, the SCF served as the insurer of last resort, accepting all employers regardless of claims history, size or business experience. The SCF also accepted employers unable to obtain workers' compensation insurance coverage from private carriers as well as those employers who were unable to self-insure.

The SCF received no state general fund appropriations, as it generated operating revenues from premiums paid by policyholders and from investment income. If SCF revenues exceeded the amount necessary to cover benefit payments and required reserves, dividends were paid to policyholders.

The State Compensation Fund continued until January 1, 2013 when it was privatized and replaced by a successor mutual insurer corporation that assumed all liabilities and assets of the SCF. The successor was Copper Point Mutual Insurance Company. See Laws 2010, Chapter 268 and Laws 2011, Chapter 157 for additional information.

History

The Industrial Commission of Arizona (ICA) was created in 1925 to oversee state programs related to workplace safety and workers' compensation (Laws 1925, Chapter 83). In addition to other responsibilities, the ICA administered the State Compensation Fund, which offered liability insurance to employers.

Laws 1943, Chapter 26 made the ICA the administrator of Arizona's Occupational Disease Disability Law. The law also created a liability insurance fund, the State Occupational Disease Compensation Fund, to insure employers against liability and to provide compensation for employees who contracted an occupational disease as a result of their employment. The State Treasurer served as custodian of the Fund.

The State Compensation Fund, which had been a part of the ICA since 1925, was established as a separate agency in 1968 in order to provide a ready market for workers' compensation insurance coverage for Arizona employers. A board and manager were responsible for oversight of the State Compensation Fund, and the manager handled day-to-day operations of the Fund. See Laws 1968, Fourth Special Session, Chapter 6.

The Industrial Commission of Arizona (ICA) originally functioned as a state-owned insurance company with authority to regulate all other insurers who provided workers' compensation coverage in the state. When the ICA was reorganized in 1968, the Arizona Department of Insurance assumed the responsibility to license workers' compensation insurance carriers.

According to Auditor General reports, in 1997 the SCF insured approximately 48,000 employers, accounting for approximately 61 percent of the employers who purchased workers' compensation insurance. In 2007, the SCF provided workers' compensation insurance to over 55,000 businesses, accounting for approximately 58 percent of Arizona employers (Auditor General Performance Audit Reports #98-22 and #09-05).

In 1990, the Legislature exempted the SCF from requirements related to the state personnel administration, risk management, employee compensation and insurance requirements. See Auditor General Report 88-10, page 3 and Laws 1990, Chapter 249.

In 2004 the Legislature transferred $50 million from the SCF to the state General Fund in exchange for a transfer of $50 million worth of state assets to the SCF. See Laws 2003, First Special Session, Chapter 2. The SCF filed suit against the state and in April 2004, the Maricopa County Superior Court ruled the transfer a violation of the Arizona Constitution. The Court stated monies and assets held by the SCF are not public monies, but are assets held in trust for the employer, injured workers and their families. See State Compensation Fund v. Petersen, CV2003-011970 (Maricopa County Superior Court, filed June 20, 2003).

In March 2006, the SCF registered the trade name SCF Arizona and used that name as its official corporate name. In June 2006, SCF Premier was launched as a subsidiary company, which offered lower premium prices to large companies with strong safety records. See Auditor General Performance Audit, No. 09-05, page 2.

Laws 2010, Chapter 268, required the SCF Board of Directors to establish a successor corporation no later than January 1, 2013. Legislation was adopted the following year making conforming changes to state statutes in order to reflect the termination of the SCF (Laws 2011, Chapter 157).

The State Compensation Fund continued until January 1, 2013 when it was privatized and replaced by a successor mutual insurer corporation that assumed all liabilities and assets of the SCF. The successor was Copper Point Mutual Insurance Company.

Sources

  • Arizona Constitution, Article 18, Section 8
  • Arizona Revised Statutes
  • Session Laws
    • Laws 1925, Chapter 83
    • Laws 1943, Chapter 26
    • Laws 1968, Chapter 6, 4th Special Session
    • Laws 1990, Chapter 249
    • Laws 2003, Chapter 2, 1st Special Session
    • Laws 2010, Chapter 268
    • Laws 2011, Chapter 157
  • Arizona Auditor General Performance Audits (1988, 1998, 2009) www.azauditor.gov
  • Industrial Commission of Arizona www.ica.state.az.us