State reaches settlement with New Chrysler over workman’s comp payments

One of the many objections to the section 363 sale of the good assets from the old Chrysler to the New Chrysler that emerged after bankruptcy and a partnership with Fiat was a suit by the state of Michigan seeking to force the new company to assume the obligations of the old company in regard to payments into the state’s worker’s compensation fund. A settlement has now been reached that will require those payments to be made by the newly reorganized Chrysler.

The agreement with the new, yet-to-be-named entity commonly referred to as “New Chrysler,” narrowly averted a court fight over the company’s workers’ comp obligations.

In early May, Michigan Attorney General Mike Cox filed an objection in Chrysler’s bankruptcy proceeding to sell the company’s assets to Fiat, an Italian automaker. Cox said that Chrysler should not be allowed to abandon its obligation to the state’s workers’ compensation funds as a result of the bankruptcy. The car giant pays an estimated $25 million annually in workers’ comp benefits to its injured employees.

State officials defended their opposition to the sale by arguing that Michigan’s guarantee fund for self-insured companies would become insolvent if Fiat didn’t assume the company’s workers’ comp liabilities. Fiat agreed and the state dropped its objections to the sale. The effect of “New Chrysler” assuming these obligations is estimated to be worth nearly $174 million.

Cox and Jack A. Nolish, director of the state’s Workers’ Compensation Agency, said the settlement will protect the benefits due to Chrysler’s injured workers and help ensure the continued viability of Michigan’s workers’ comp funds.

At a time when record unemployment and plummeting revenue has the state budget in a state of perpetual crisis, this is very good news.