Wednesday, June 24, 2009
LRGHealthcare & other policyholders begin to make
their case against state in Belknap court
by Michael Kitch
LACONIA — The opening shots of the legal battle waged by
policyholders of the New Hampshire Medical Malpractice Joint
Underwriting Association (JUA) to prevent the state from using $110-
million of the association’s fund to balance its budget were fired before
Justice Kathleen McGuire in Belknap County Superior Court yesterday.
The justice is expected to rule on whether the N.H. attorney general can
fairly represent the JUA’s interests by Thursday, when a hearing on the
merits of the policyholder’s case is scheduled.
The state created the JUA in 1975, when private insurers failed to
offer malpractice coverage. The JUA operates much like a mutual
insurance company, meetings its claims and overhead from the
premiums paid by policyholders. The rules, drafted by the Insurance
Department and approved by the Legislature, provide that if JUA
accumulates a surplus, that is if premiums “exceed the amount
necessary to pay losses and expenses,” then “the board shall . . .
distribute such excess to those health care providers covered by the
association, in such a manner as is just and equitable.” This provision is
mirrored in the contracts between the JUA and its individual
policyholders, among them LRGHealthcare, one of three named
plaintiffs in the suit, which pays $1.1-million in annual premiums.
Later today, the Legislature will vote on the 2010-2011 budget,
which includes the JUA’s surplus calculated at $110-million. Last week
the policyholders staked their claim to the money by filing suit. They
asked the court to compel the directors of the JUA to confirm the
amount of the surplus and distribute it to policyholders in keeping with
the terms of their contracts and the letter of the law. At the same time,
they sought an order prohibiting the Insurance Department from
hindering the JUA in performing its duty, an injunction to halt the
transfer of any funds from the JUA to the state treasury and an
attachment of the funds in dispute. Finally, the policyholders asked the
court to disqualify the attorney general from representing the JUA,
citing a conflict of interest.
The hearing yesterday was confined to the motion to disqualify the
attorney general. But, Associate Attorney General Anne Edwards
countered by asking the court to disqualify the attorney for the
policyholders, Nixon Peabody, LLP, claiming that the firm had a
conflict of interest.
However, prior to the hearing Edwards agreed that the state would
not seek to have funds transferred to the treasurer until the court ruled
on the policyholders’ motion to attach the money.
Representing the policyholders, Kevin Fitzgerald argued that
although the JUA was established by the Insurance Department under
authority granted by legislation, it is not a state agency, but operates as
an “autonomous voluntary association” under the authority of its board
of directors. Unlike state agencies, which have obligations to all
citizens, he said that the JUA has fiduciary obligations to its
policyholders with whom it has entered contracts. In the circumstances,
he emphasized, the interest of the state in transferring the JUA’s surplus
to the general fund is at odds with the fiduciary duty of the board to
serve the interests of the policyholders. Therefore, Fitzgerald insisted,
for the attorney general to represent both the state and the JUA would
be “an irreconcilable conflict of interest.”
For the state, Edwards claimed that the JUA is “part of the
government,” created and supervised by the insurance commissioner,
who appoints its directors and hears appeals of their rulings under the
authority of rules approved by the Legislature. Moreover, since the
rules were amended last December, the commissioner must review and
approve any distribution of the surplus to policyholders.
“As officials of the state,” Edwards contended, “the JUA Board of
Directors, collectively and individually, does not and cannot have
interests adverse to those of the insurance commissioner such that a
potential or actual conflict arises from representation of all parties by
the New Hampshire Attorney General’s Office.”
McGuire asked if the board of the JUA, which by rule shall
distribute a surplus to policyholders, could bring legal action if the
commissioner refused to approve a distribution. “No,” answered
Edwards.
Earlier McGuire had asked Fitzgerald if the state either provided
funds or guaranteed funding to the JUA. “The JUA gets zero dollars
from the general fund of the state of New Hampshire,” he said, “and
under the rules the state could not be a guarantor. The state has never
contributed a single penny,” he continued. “Nor are they obligated to do
so.”
Asked the same question, Edwards acknowledged that the state did
not fund the JUA, but claimed that it acted as a guarantor by granting
the JUA board authority to assess all private insurance carriers as well
as its policyholders in the event it lacked the funds to meet its liabilities.
Turning the tables on Fitzgerald, Edwards asked the court to
disqualify NixonPeabody as counsel for the policyholders. She
explained that attorneys from the firm’s San Francisco office represent
the Home Insurance Company, which is in liquidation, and that
Insurance Commissioner Roger Sevigny, who is a defendant in the
action brought by the JUA policyholders, is the liquidator. Edwards told
McGuire that the Attorney General had been prepared to waive the
conflict until Fitzgerald filed the pleadings pleadings on behalf of the
policyholders.
Edwards noted that the pleadings began with the commandment
“thou shalt not steal,” proceeded to apply words like “theft,” “raid” and
“plunder” to the proposed transfer of funds from the JUA and suggested
that Sevigny colluded with the attorney general to effect the transfer of
funds. Referring to “personal attacks” that impugned the character and
integrity of the commissioner, she claimed that the pleadings would be
cited to diminish Sevigny’s stature and authority in the liquidation
proceedings. Identifying the company and the liquidator, she said “if the
liquidator’s own attorneys said these things about him, the pleadings
will be used.”
Fitzgerald stressed that Nixon Peabody represented Home Insurance
Company, not Sevigny, with whom it had no connection, and while
conceding the language of the pleadings may have been “exaggerated,”
insisted it applied generally to the government the governor and
Legislature as well as the Insurance Department — but not to Sevigny
personally.
“I’m not seeing this as such a big problem,” said McGuire.
McGuire said that she expected to rule on the motions to disqualify
by Thursday, when a second hearing on the merits of the case and other
motions is scheduled. She indicated that she may request that the
hearing be deferred to a later date.