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4000 - Advisory Opinions

Insurance Coverage of Accounts Established for Workman's Compensation Benefits


November 6, 1987

Patty C. Fox, Attorney

I am in receipt of your letter dated July 21, 1987, to Robert Green, Senior Attorney, San Francisco Regional Office. You have requested deposit insurance coverage information regarding funds held by *** (the "Fund") on behalf of its members. The Fund is a non-profit corporation organized to administer workers' compensation benefits of member self-insurers in the event of their bankruptcy. Each member provides a bond or letter of credit to be used only if a member declares bankruptcy and has workers' compensation liabilities.

In our telephone conversation of September 21, you clarified that the Fund administers workers' compensation benefits only, and that there is no pooling of funds among the members for their mutual benefit. Members are assessed, however, if a shortfall occurs in a bankrupt member's obligations. Excess amounts after claims are paid revert to the debtor's estate or the surety or issuer of credit. Subject to the shortfall provision, the funds provided by each member are used solely to meet the member's workers' compensation obligations.

Based on the foregoing, the relationship between the Fund and its members appears to be one of principal-agent. Section 330.2(b) provides that funds owned by a principal and deposited in accounts in the name of an agent or nominee will be added to any individual accounts of the principal and insured to $100,000. Deposits attributed to each member, as principal, would be aggregated with any other individual accounts held by that member and insured to $100,000. If certain portions of the funds are due, contractually or by law, to the fund as administrator, those amounts would be aggregated with other deposits owned by the Fund and insured to $100,000.

In order to obtain pass-through insurance coverage, the recordkeeping requirements must be met. Section 330.1(b)(1) of FDIC regulations provides that the deposit account records of a bank "are conclusive as to the existence of any relationship pursuant to which the funds in the account are deposited and on which a claim for insurance coverage is founded." When deposit account records of a bank "are conclusive as to the existence of any relationship pursuant to which the funds in the account are deposited and on which a claim for insurance coverage is founded." When deposit account records disclose the existence of such a relationship, "the details of the relationship and the interests of other parties in the account must be ascertainable either from the records of the bank or the records of the depositor maintained in good faith and in the regular course of business." 12 C.F.R. § 330.1(b)(2).

Although the Fund establishes a separate account for each member in the Fund's name, it is unclear whether the deposit account records of the bank reflect the custodial relationship between the Fund and the members with respect to each account. It is not enough that Fund records indicate the custodial nature of each member's account; bank records must reflect a trustee, custodial, or agency relationship in the first instance.

In addition, deposit insurance would not flow through to the potential claimants of workers' compensation. No principal-agent relationship can be said to have been established between potential or actual claimants and a member where no claim has been made. If the Fund were processing fully adjusted claims resulting in fixed entitlement for a claimant, there may be a basis for that claimant-beneficiary to claim the benefits of pass-through coverage based on the trust fund regulations at section 330.10 which insures beneficiaries of employee welfare and benefit plans.

Pursuant to those regulations, the trust interest of each employee-beneficiary is separately insured to $100,000 if the value of the trust interest is capable of determination, without the evaluation of contingencies, except for those covered by the present worth tables and rules of calculation for their use set forth in 26 CFR § 20.2031-7 of the Federal Estate Tax Regulations. 12 C.F.R. § 330.1(c)(1). In worker's compensation plans, the employee-beneficiary's interest typically is incapable of determination without the evaluation of contingencies, because the beneficiary's interest is dependent solely on making claims to the insurer. If contingencies exist, section 330.1(c)(2) provides that maximum insurance coverage with respect to the trust interests of all beneficiaries shall be limited to $100,000 in the aggregate. The funds of approved claims awaiting payment to a beneficiary by the trustee, however, represent allocable interests and are separately insured to $100,000 for each beneficiary. To obtain these benefits for individual claimants, the Fund would need to show that it was acting in a trustee capacity for the handling of claims for a bankrupt member.

Please be advised that the FDIC is not bound by the staff opinion expressed in this letter. The FDIC does not issue formal interpretations on specific factual situations, but reserves the right to examine deposit insurance claims on a case-by-case basis. I hope this has been of assistance to you. Please let me know if you need further information.

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