                   .km.rrnnr.TH‘*:xan aeaaa1
                       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:

          [When should1 this Board . . . stop requiring
          payments into the Second Injury Fund,
                                           .    .or
          more.specifically, what is meant ny tne
          phrase 'existing liabilities' as used in
          Article 8306, Section 12c-2(b).

     The legal history of the Second Injury Fund, a creation
of the Workmen's Compensation Law, is recounted in Texas
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 has previously suffered a compensable
injury is reinjured and the second injury combines with the
first to produce a greater 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 to pay as a result of combining
the losses of capacity if the previous injury was of a
specific type and if the combined effects of the two injuries
totally and permanently disabled the employee.   See Houston
General Ins. Co. v. Teague,  531 S.W.2d 457 (Tex. Civ. App. --
Waco 1§75,ritrz'd      n.r.e.1.



                             p. 3782
The 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) In every case of the death of an
          employee under this Act where there is no
          person entitled to compensation surviving
          said employee, the association shall pay to
          the Industrial Accident Board the full death
          benefits, but not to exceed 360 weeks of
          compensation . . . to be 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 to be
          paid to said Fund; but whenever 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, the payments 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.   (Emphasis added).

     Inconstruing   the provisions of the Second Injury Fund
Act, that interpretation will be employed which is most
beneficial to injured employees and which will best promote
the purposes of the Act.   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  and permanent incapacity he has actually
suffered without sacrificing the policy of encouraging the
employment of physically handicapped workers. Miears v.
Industrial Accident Board, 232 S.W.2d 671 (Tex. Sup. lE0).
The Supreme Court exmed:

                       P. 3783
The 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; the remainder of
         the compensation is paid out of the fund
         which is made up of sums which, except for
         this statute, would be windfalls to insurers
         in other cases. -Id. at 675-76.

     You report that on a particular date late last year a
payment to the Second Injury Fund caused the balance in the
fund to exceed $250,000, but the fund at that time was
obligated on a long term basis to make direct payments to an
injured worker on behalf of his employer in one case, and
there were three pending claims against the fund for reim-
bursement, the subsequent payment of which reduced the fund
below the $250,000 mark. Additionally, there were at that
time eight other claims against the fund which 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 not yet been reported,
the payment of which would substantially reduce the fund
balance if allowed.

     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 not merely 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 and would 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 in a manner similar to
that of an excess insurance carrier and unless its legitimate
reserves for probable losses are considered liabilities which
reduce its available current assets, its fiscal strength will
be overstated and subject to unexpected and imprudent deple-
tion. See V.T.C.S., Ins. Code § 21.39; V.T.'C.S. art. 8308,
5 23. Wedo not believe the Texas Legislature intended such
a result.
                         p. 3784
.




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



         A somewhat similar provision requires the Employers
    Insurance Association to suspend assessments against its
    members when at the end of a calendar year it has accumulated
    "an admitted surplus in excess of incurred losses, expenses
    and unearned premiums or other liabilities amounting to the
    sumof.    . . ($200,000) or more . . . ." V.T.C.S. art.
    8308, S 16a. In Texas "pl?yer~.,~nsl-A~~;~~~o~~~~~~O~it
    co., 103 S.W.2d Emex.      clv.
    refia), Humble argued that the Aisociation had no legal
    authority to reduce the surplus distributable to subscribers
    by maintaining a reserve against anticipated costs, but the
    Court disagreed, saying that in doing so the directors of
    the Association did not.abuse their discretion.

         In our 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 for known or
                reasonably anticipated liabilities,
                exceeds $250,000.




                                     -JOHE L. HILL
                                     Attorney General of Texas
    APPROVED:




    Opinion Committee
