Workers’ Compensation – Withdrawal of Deposit – Letter of Credit

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The South Carolina Workers’ Compensation Commission improperly drew down the letter of credit because the funds were not needed for the payment of any pending claims.

We reversed the order of the circuit court and remanded to the circuit court for further proceedings.

Appellant corporate entity ultimately emerged out of the dissolution of a South Carolina textile manufacturer (predecessor corporation) that went into bankruptcy and closed in 2005. The predecessor corporation was a self-insured employer for purposes of its workers’ compensation liabilities in South Carolina. In conjunction with the purchase of the predecessor corporation’s assets, Appellant deposited $1.8 million in a private account to fund an irrevocable letter of credit as security for potential workers’ compensation claims against the predecessor corporation.

Appellant appealed an order of the circuit court finding the Commission could indefinitely retain the $1.8 million Appellant deposited as security for potential workers’ compensation claims filed by former employees after its predecessor corporation entered bankruptcy.

Among other things, we held the Commission improperly drew down the letter of credit because the funds were not needed for the payment of any pending claims. The regulation at issue plainly states the Commission may draw down the letter of credit “if the proceeds are needed for payment of a claim” or if “the self-insurer fails to replace the letter with another accepted proof of compliance [with the surety requirement].” S.C. Code Ann. Regs. 67-1507(D)(4)-(5) (2006). The MOU contained similar language stating that the Commission could “draw on the letter of credit, if needed, to pay any Workers’ Compensation claim or claims of administration expense which are the responsibility of the employer.” It also stated that if the Commission “is notified that the [l]etter of [c]redit is being cancelled or will not be renewed and a new letter of credit or surety bond . . . is not filed . . ., the Commission may, at its discretion, draw on the [l]etter.” However, on the date the Commission drew down the letter, it did not need the full $1.8 million balance to pay pending claims, and in fact, Appellant has never had $1.8 million in claims pending against it.

Moreover, the Commission was aware Appellant had secured the predecessor corporation’s obligations under the letter of credit, and at no time did the Commission believe the letter had been revoked or cancelled. Further, pursuant to the applicable regulations, the Commission’s permission would have been required for the irrevocable letter of credit to be cancelled. Accordingly, the circuit court erred in determining the Commission was justified in drawing down the entire $1.8 million letter of credit.

Reversed and remanded.

South Carolina Workers’ Compensation Commission v. WestPoint Home LLC (Lawyers’ Weekly No. 011-031-25, 12 pp.) (Matthew P. Turner, J.) Appealed from Richland County Circuit Court (Alison Renee Lee, J.) Matthew Todd Carroll, of Womble Bond Dickinson (US) LLP, of Columbia, and Herbert Beigel, of Tucson, Arizona, both for Appellant. Michael H. Montgomery, of Montgomery Willard, LLC, and James Keith Roberts, of the South Carolina Workers’ Compensation Commission, both of Columbia, for Respondent. South Carolina Court of Appeals