Does the grandfather clause in § 58-47-65(c), which exempts pre-1995 group workers' compensation self-insurance funds from the 1997 licensing rewrite, still protect a fund that was organized in 1993, filed dissolution articles in 1998, but never completely wound down before deciding to resume operations?

Plain-English summary

In 1997 the General Assembly overhauled the rules for group workers' compensation self-insurance funds. The new § 58-47-65 required these groups to be licensed by the Commissioner of Insurance and imposed several qualifications: two or more employers, all members of a single bona fide trade association incorporated in NC, association in existence at least five years, IRS 501(c) determination. The legislature attached a grandfather clause: "This subsection does not apply to a group that was organized and approved under North Carolina law before July 1, 1995."

Representatives Edd Nye and William Culpepper asked the AG about a specific fund organized in 1993 and approved at that time. The fund had filed Articles of Dissolution with the Department of Insurance in 1998 and started winding down its operations, but never completely shut down and remained organized and approved. The fund now wanted to resume providing workers' compensation insurance. Did the grandfather clause still protect it?

Senior Deputy AG Reginald Watkins (with Assistant AG Anne Goco Kirby) concluded yes. The fund was clearly "organized and approved" before July 1, 1995, so it falls within the grandfather clause. The purpose of a grandfather clause is to "protect and preserve bona fide rights existing at the time of the passage of the legislation" (Utilities Comm'n v. Fleming, 1952). The fund's partial wind-down between 1998 and 2002 did not extinguish its rights because it never completely shut down. Utilities Comm'n v. Fox (1954) supports the principle: a grandfather right is preserved even if the holder did not exercise it for some period, as long as the underlying authorization is intact.

The AG flagged a separate question: the fund's corporate dissolution status under Chapter 55. If the fund's parent corporation had actually completed voluntary dissolution under §§ 55-14-01 through -05, it could not resume operations except by formally revoking its dissolution under § 55-14-04, which would relate back to the dissolution date. The AG recommended further factual inquiry into whether the dissolution was completed.

Currency note

This opinion was issued in 2002. Subsequent statutory amendments, court decisions, or later AG opinions may have changed the analysis. Treat this page as historical context, not current legal advice. Verify current law before relying on any specific rule, deadline, or remedy mentioned here. § 58-47-65 has been amended multiple times since 2002, the grandfather provision may have been modified, and the underlying Workers' Compensation Act structure has evolved. Any current question about whether a particular pre-1995 fund still enjoys grandfather rights should be confirmed against current statutes and recent Insurance Department guidance.

Background and statutory framework

Why the 1997 rewrite happened. Group workers' compensation self-insurance funds had become a significant alternative to commercial workers' compensation coverage. Several high-profile fund failures in the mid-1990s prompted concern that the regulatory framework was inadequate. The 1997 rewrite added formal licensing, qualification, and oversight, including the trade-association sponsorship and incorporation-and-tenure requirements.

Why the grandfather clause matters. The new requirements (especially the trade-association sponsorship with five-year tenure and IRS letter) would have disqualified some existing legitimate funds. The General Assembly chose to grandfather pre-1995 funds to avoid disrupting them, while imposing the new rules on new entrants. The 1995 cutoff aligns with an earlier statutory tightening that started the modern licensing trajectory.

The "organized and approved" trigger. The grandfather clause uses "organized and approved" rather than "currently operating." That language matters: a fund that existed and had regulatory approval before July 1, 1995 keeps its grandfather status whether or not it was actively writing coverage at any particular moment.

Corporate dissolution complications. Even if the fund retains grandfather rights for licensing purposes, its underlying corporate vehicle has to exist. Chapter 55 governs corporate dissolution. A corporation that completes voluntary dissolution continues to exist only to wind up and liquidate (§ 55-14-05(a)); it cannot resume normal business absent revocation under § 55-14-04, which relates back to the dissolution date. So the fund's revival is a two-layer question: (1) does the grandfather protect it from new licensing requirements? and (2) does the corporate entity still exist (or can it be revived)?

Common questions

Q: What if the fund's parent corporation actually fully dissolved in 1998?

A: Then resumption requires either (a) revocation of dissolution under § 55-14-04 within the time limits, or (b) creation of a new corporation. A new corporation would be a "new entrant" without the grandfather rights of the original fund. So the question of complete dissolution is decisive.

Q: Could the fund qualify under the post-1997 rules instead of relying on the grandfather?

A: Possibly, if it could meet the trade-association sponsorship, IRS letter, and other licensing requirements. The grandfather is an alternative path that avoids those requirements; if the fund could satisfy them, it would not need the grandfather.

Q: Does the grandfather expire if the fund stays inactive for many years?

A: The opinion does not establish a time limit. The grandfather is tied to organization-and-approval status, not active operation. But as a practical matter, the longer a fund stays inactive, the more likely circumstances change (corporate dissolution, loss of underlying sponsorship). The fund here had been at least partially active throughout.

Q: Why did the AG cite the Truck Act case Utilities Comm'n v. Fox?

A: Fox involved a carrier that had not exercised a grandfather right for years and the Utilities Commission tried to deny renewal on that basis. The Supreme Court held the right was preserved regardless of non-exercise. The same principle applies to a workers' compensation fund that did not write business for a few years but never lost its underlying authorization.

Citations

Statutes and session laws:
- N.C.G.S. § 58-47-65(c) (group self-insurance fund licensing; grandfather clause)
- N.C.G.S. § 97-93(a)(2) (1995 amendments to Workers' Compensation Act)
- N.C.G.S. §§ 55-14-01 through 55-14-05 (corporate dissolution and revocation)
- N.C.G.S. § 55-14-04 (revocation of dissolution; relates back to dissolution date)
- Act of July 28, 1997, ch. 362, 1997 N.C. Sess. Laws 899
- Act of July 25, 1995, ch. 471, sec. 1, 1995 N.C. Sess. Laws 1347

Cases:
- Lemons v. Old Hickory Council, BSA, 322 N.C. 271, 367 S.E.2d 655 (1988) (plain meaning when clear)
- State ex. rel. Utilities Comm'n v. Fleming, 235 N.C. 660, 71 S.E.2d 41 (1952) (grandfather clause purpose)
- State ex. rel. Utilities Comm'n v. Fox, 239 N.C. 253, 79 S.E.2d 391 (1954) (grandfather right preserved despite non-exercise)

Source

• Landing page: https://ncdoj.gov/opinions/applicability-of-grandfather-clause-to-a-general-self-insurance-fund/

Original opinion text

June 20, 2002

The Honorable Edd Nye
North Carolina General Assembly
639 Legislative Office Building
Raleigh, NC 27601-1096

The Honorable William T. Culpepper, III
North Carolina General Assembly
404 Legislative Office Building
Raleigh, NC 27601-1096

Re: Advisory Opinion; Applicability of grandfather clause to a general self-insurance fund under given scenario; N.C. Gen. Stat. § 58-47-65(c).

Dear Representative Nye and Representative Culpepper, III:

You have requested an opinion from the Attorney General's office on the applicability of the grandfather clause set forth in N.C. Gen. Stat. § 58-47-65(c) to a particular worker's compensation self-insurance fund [hereinafter, "Fund"].

In July 1997, the General Assembly rewrote the laws concerning employer and employer groups which provide workers' compensation self-insurance pursuant to the Workers' Compensation Act [hereinafter, "the Act"]. Act of July 28, 1997, ch. 362, 1997 N.C. Sess. Laws 899. The 1997 rewrite significantly changed the law by requiring employer groups who agree to pool their workers' compensation liabilities to be licensed by the Commissioner of Insurance and by establishing qualifications for the approval of such licenses. G.S. § 58-47-65. G.S. § 58-47-65(c) requires that:

The group shall comprise two or more employers who are members of and are sponsored by a single bona fide trade or professional association. The association shall (i) comprise members engaged in the same or substantially similar business or profession within the State, (ii) have been incorporated in North Carolina, (iii) have been in existence for at least five years before the date of application to the Commissioner to form a group, and (iv) submit a written determination from the Internal Revenue Service that it is exempt from taxation under 26 U.S.C. § 501(c). This subsection does not apply to a group that was organized and approved under North Carolina law before July 1, 1995.

This subsection is nearly identical to provisions which the General Assembly included in the Act by amendment to N.C. Gen. Stat. § 97-93(a)(2) in 1995. Act of July 25, 1995, ch. 471, sec. 1, 1995 N.C. Sess. Laws 1347 (providing safeguards to reduce the chances and lessen the effects of workers' compensation self-insurance insolvencies).

When the language of a statute is clear and unambiguous, the rules of statutory construction do not apply, and the statute must be given its plain and definite meaning. Lemons v. Old Hickory Council, BSA, 322 N.C. 271, 276, 367 S.E.2d 655, 658 (1988). The grandfather clause set forth in G.S. § 58-47-65(c) clearly applies to groups which were organized and approved under North Carolina law prior to 1995. The manifest intent of this clause is to preserve the rights of these groups to continue pooling their workers' compensation liability free of the requirements set forth in G.S. § 58-47-65(c). "The purpose of a grandfather clause is to protect and preserve bona fide rights existing at the time of the passage of the legislation which contains such clause." State ex. rel. Utilities Comm'n v. Fleming, 235 N.C. 660, 668, 71 S.E.2d 41, 47 (1952) (Emphasis added).

You have informed us that the Fund about which you have inquired has been organized and approved under North Carolina laws since 1993. In 1998, the Fund filed Articles of Dissolution with the Department of Insurance, began winding down operations, and stopped providing workers' compensation insurance. However, the Fund never completely ceased operations and it continued to be organized and approved under North Carolina laws. The Fund now wants to resume providing workers' compensation insurance. Given these facts, it is our opinion that the grandfather clause applies to the Fund. Moreover, the Fund's actions since 1998 have not caused it to lose the rights preserved to it under the grandfather clause because it had not completely shut down operations. Cf State ex. rel. Utilities Comm'n v. Fox, 239 N.C. 253, 79 S.E.2d 391 (1954) (holding that Utilities Commission could not deny carrier's request for permission to interchange freight with intrastate carriers on ground that carrier never intended to interchange freight with intrastate carriers since the right to engage in this activity was preserved to the carrier under the grandfather clause in Section 7 of the North Carolina Truck Act).

This opinion is based on the facts as presented. Prudence suggests that further inquiry should be made with respect to the facts surrounding the Fund's attempted dissolution. For example, if the Fund was a North Carolina corporation and if the corporation had voluntarily dissolved in 1998, as the facts suggest, then the corporation would be prohibited from resuming its business. To be effective, however, such dissolution must be made by delivering Articles of Dissolution to the Secretary of State for filing in accordance with one of the methods set forth in N.C. Gen. Stat. §§ 55-14-01 to -03. The corporation is dissolved upon the effective date of its Articles of Dissolution. G.S. §§ 55-14-01(b) and 55-14-03(b). Once dissolved, the corporation "continues its corporate existence but may not carry on any business except that appropriate to wind up and liquidate its business and affairs . . .." G.S. § 55-14-05(a) (Emphasis added). However, if the corporation complies with G.S. § 55-14-04 in revoking its voluntary dissolution, the revocation of dissolution, when effective, "relates back to and takes effect as of the effective date of the dissolution and the corporation resumes carrying on its business as if dissolution had never occurred . . .." G.S. § 55-14-04(e).

We hope this advisory opinion will be useful to you. If you require additional information, please let us know.

Sincerely,

Reginald L. Watkins
Senior Deputy Attorney General

Anne Goco Kirby
Assistant Attorney General