State Guaranty Funds/Associations. Several states have a state guaranty fund or association designed to protect claimants from financial loss caused by the insolvency of the original insurer.
In cases where the original insurer becomes insolvent and there is a state guaranty fund, applicable penalties and/or interest should be assessed against that guaranty fund. If the guaranty fund responds and shows that it is not liable for penalties or interest because, for example, it is exempt under state law from paying any federal longshore claims, or is exempt from paying any penalties or interest, the responsible employer should be assessed the liability for penalties and/or interest (see Canty v. S.E.L. Maduro and Florida Insurance Guaranty Association, 26 BRBS 147, and the cases cited therein). Any exemption of a state guaranty fund or association does not absolve the responsible employer from its liability under the Act.
If a guaranty fund shows that it is exempt from the payment of penalties and/or interest in a particular case, it should not automatically be considered exempt in all future similar cases. The fund/association should submit documentation in support of the alleged exemption in each case.
If the responsible employer is also insolvent and liability for the payment of benefits falls to the Special Fund under section 18(b), the Special Fund will not pay penalties or interest (see the Longshore (LHWCA) Procedure Manual, Chapter 6-202.7a(10)).