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Applicability of Grandfather Clause to a General Self-Insurance Fund


(919) 716-6610 FAX NO.(919) 716-6757

June 20, 2002

The Honorable Edd Nye North Carolina General Assembly 639 Legislative Office Building Raleigh, NC 27601-1096

The Honorable William T. Culpepper, III North Carolina General Assembly 404 Legislative Office Building Raleigh, NC 27601-1096

Re: Advisory Opinion; Applicability of grandfather clause to a general self-insurance fund under given scenario; N.C. Gen. Stat. § 58-47-65(c).

Dear Representative Nye and Representative Culpepper, III :

You have requested an opinion from the Attorney General’s office on the applicability of the grandfather clause set forth in N.C. Gen. Stat. § 58-47-65(c) to a particular worker’s compensation self-insurance fund [hereinafter, “Fund”].

In July 1997, the General Assembly rewrote the laws concerning employer and employer groups which provide workers’compensation self-insurance pursuant to the Workers’ Compensation Act [hereinafter, “the Act”]. Act of July 28, 1997, ch. 362, 1997 N.C. Sess. Laws 899. The 1997 rewrite significantly changed the law by requiring employer groups who agree to pool their workers’ compensation liabilities to be licensed by the Commissioner of Insurance and by establishing qualifications for the approval of such licenses. G.S. § 58-47-65. G.S. § 58-47-65(c) requires that:

The group shall comprise two or more employers who are members of and are sponsored by a single bona fide trade or professional association. The association shall (i) comprise members engaged in the same or substantially similar business or profession within the State, (ii) have been incorporated in North Carolina, (iii) have Edd Nye William T. Culpepper, III May 30, 2002 Page 2

been in existence for at least five years before the date of application to the Commissioner to form a group, and (iv) submit a written determination from the Internal Revenue Service that it is exempt from taxation under 26 U.S.C. § 501(c). This subsection does not apply to a group that was organized and approved under North Carolina law before July 1, 1995.

This subsection is nearly identical to provisions which the General Assembly included in the Act by amendment to N.C. Gen. Stat. § 97-93(a)(2) in 1995. Act of July 25, 1995, ch. 471, sec. 1, 1995

N.C. Sess. Laws 1347 (providing safeguards to reduce the chances and lessen the effects of workers’ compensation self-insurance insolvencies).

When the language of a statute is clear and unambiguous, the rules of statutory construction do not apply, and the statute must be given its plain and definite meaning. Lemons v. Old Hickory Council, BSA, 322 N.C. 271, 276, 367 S.E.2d 655, 658 (1988). The grandfather clause set forth in

G.S. § 58-47-65(c) clearly applies to groups which were organized and approved under North Carolina law prior to 1995. The manifest intent of this clause is to preserve the rights of these groups to continue pooling their workers’ compensation liability free of the requirements set forth in G.S. § 58-47-65(c). “The purpose of a grandfather clause is to protect and preserve bona fide rights existing at the time of the passage of the legislation which contains such clause.” State ex. rel. Utilities Comm’n v. Fleming, 235 N.C. 660, 668, 71 S.E.2d 41, 47 (1952) (Emphasis added).

You have informed us that the Fund about which you have inquired has been organized and approved under North Carolina laws since 1993. In 1998, the Fund filed Articles of Dissolution with the Department of Insurance, began winding down operations, and stopped providing workers’ compensation insurance. However, the Fund never completely ceased operations and it continued to be organized and approved under North Carolina laws. The Fund now wants to resume providing workers’ compensation insurance. Given these facts, it is our opinion that the grandfather clause applies to the Fund. Moreover, the Fund’s actions since 1998 have not caused it to lose the rights preserved to it under the grandfather clause because it had not completely shut down operations. Cf State ex. rel. Utilities Comm’n v. Fox, 239 N.C. 253, 79 S.E.2d 391 (1954)(holding that Utilities Commission could not deny carrier’s request for permission to interchange freight with intrastate carriers on ground that carrier never intended to interchange freight with intrastate carriers since the right to engage in this activity was preserved to the carrier under the grandfather clause in Section 7 of the North Carolina Truck Act).

This opinion is based on the facts as presented. Prudence suggests that further inquiry should be made with respect to the facts surrounding the Fund’s attempted dissolution. For example, if the Fund was a North Carolina corporation and if the corporation had voluntarily dissolved in 1998, as the facts suggest, then the corporation would be prohibited from resuming its business. To be effective, however, such dissolution must be made by delivering Articles of Dissolution to the Secretary of State for filing in accordance with one of the methods set forth in N.C. Gen. Stat. §§ Edd Nye William T. Culpepper, III May 30, 2002 Page 3

55-14-01 to -03. The corporation is dissolved upon the effective date of its Articles of Dissolution.

G.S. §§ 55-14-01(b) and 55-14-03(b). Once dissolved, the corporation “continues its corporate existence but may not carry on any business except that appropriate to wind up and liquidate its business and affairs . . ..” G.S. § 55-14-05(a)(Emphasis added). However, if the corporation complies with G.S. § 55-14-04 in revoking its voluntary dissolution, the revocation of dissolution, when effective, “relates back to and takes effect as of the effective date of the dissolution and the corporation resumes carrying on its business as if dissolution had never occurred . . ..” G.S. § 55-1404(e).

We hope this advisory opinion will be useful to you. If you require additional information, please let us know.


Reginald L. Watkins Senior Deputy Attorney General

Anne Goco Kirby Assistant Attorney General