Statutory Funds, Bonds, and Mass Tort Funds

AuthorDavid J. Cook
Statutory Funds, Bonds, and
Mass Tort Funds
When a business fails, bankruptcy offers some recompense to creditors
when the debtor is not stone cold dead. What happens when the debtor
really rides off the rails? If bankruptcy is a version of Humpty Dumpty’s
great fall, a mega catastrophe leaves no pieces to even try to put together
again; little to nothing remains for present and future creditors. What about
a major company that files bankruptcy in the face of mass torts (e.g., asbes-
tos, silicone breast implants, intrauterine devices)? Granted the company
files a Chapter 11, and bankruptcy rules apply, but the outcomes are beyond
normal expectations. These are each unique insolvency cases, so the rules
and expectations are different.
Let’s begin by looking at statutory funds or bonds due victims of licens-
ees, permit holders, and certificate holders.
Statutory Funds
State governments provide statutory funds to compensate members of the
general public who have been injured at the hands of a licensee or other
business operator.
These are the usual funds:
• Real Estate Recovery Funds (Department of Real Estate)
• Client Security Funds (State Bar or State Attorney General)
• Workers’ Compensation Uninsured Funds (CA: Uninsured Employ-
ers Benefits Trust Fund (UEBTF); NY: Uninsured Employers Fund
• Victims of Crime Funds (Attorney General or Department of Justice
of the relevant state)
• Victims of Corporate Fraud and Compensation Funds (Secretary of
State, Department of Corporation or Business Oversight)
These funds offer victims compensation based on the timely filing of a
claim, proof that the claim is covered by the fund’s rules, and adjudication
(i.e., verifiable proof of loss). Some of these funds have a cap on the amount
of payments. Some claims compensate victims based on embezzlement suf-
fered by the client (Real Estate Recovery and Client Security Funds). The
victim funds are based on theft, personal injury, or other tangible losses
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