Sustainability

State tries to seize $275 million from medical liability fund

Editor’s note: In December 2018, the U.S. District Court for the Middle District of Pennsylvania found that the most recent Pennsylvania law attempting to transfer money from the Pennsylvania Professional Liability Joint Underwriting Association’s fund violated the takings clause of the U.S. Constitution’s Fifth Amendment.

“When it created the Joint Underwriting Association, the General Assembly chose to solve a public health problem through a private, nonprofit association, over which the Commonwealth retained limited control, in which the Commonwealth had no financial interest, and for which the Commonwealth bore no responsibility,” Christopher C. Conner, the court’s chief judge, wrote in explaining the decision. “The Commonwealth cannot legislatively recapture this private association for the purpose of accessing its assets.”

Pennsylvania previously appealed a similar decision to the 3rd U.S. Circuit Court of Appeals.

 

The Pennsylvania physician liability insurer of last resort is facing its third fight to stop the state from seizing hundreds of millions of dollars intended to pay potential claims and instead using it to close a budget gap.

At stake is more than $275 million held by the Pennsylvania Professional Liability Joint Underwriting Association (JUA). In 2016, the state attempted to expropriate $200 million and send it directly to offset its perennial budget shortfall. State officials argued then that the association’s money was an unneeded surplus. 

This time, in what critics charge is a disingenuous bureaucratic maneuver, Pennsylvania wants control of all of money. Instead of demanding the money outright, the General Assembly passed a new law placing the association under control of a board of political appointees who will be free to direct the money wherever they wish.

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“The farmer has tapped the proverbial fox to guard the henhouse,” observes a friend-of-the-court brief filed on behalf of the JUA by the Pennsylvania Medical Society and the Litigation Center of the American Medical Association and State Medical Societies. They have joined the case to protect the fund from what they say is a transparent bid to grab the cash.

“The defendants have already showed their hand, having tried twice before in the last two years to legislate the transfer of JUA funds to the Commonwealth. The defendants intend to divert the JUA’s alleged ‘excess’ funds to the state’s funds.”

The JUA dates back to 1975 and a medical liability crisis in the state. Pennsylvania requires physicians to be insured. The fund provides liability insurance to physicians who can certify they are unable to obtain competitive-rate coverage, including those in high-risk specialties, with a prior history of claims, or those with licensure problems. The assets come from their premiums and the association’s investments.

The JUA points out that none of that money has come from the state. It is a nonprofit entity, selects its own board, and is not staffed by state employees or housed in a government building. Enabling legislation from the statehouse established the association, and lawmakers have banked on that decades-old connection to lay claim to funds. In the latest twist to the saga, the state claims its takeover will allow it to enact improvements such as modernization and operational efficiencies.

The friend-of-the-court brief counters that the takeover is a clear violation of the Fifth Amendment—which bars the government from seizing private property without just compensation—and other constitutional protections. If Pennsylvania succeeds, the result will be “an unconstitutional taking” of JUA funds, along with the vested property rights of policyholders. Moreover, the seizure would impair the “contractual relationship” between the JUA and its policyholders, the brief says.

“Perpetual budgeting inefficacies” no excuse

The brief echoes the presiding judge’s May 2018 decision knocking down Pennsylvania’s last attempt to seize the funds.

“The General Assembly cannot claim carte-blanche access to the Association’s assets. We hold that the Joint Underwriting Association is a private entity, and its surplus funds are private property. The Commonwealth cannot take those funds without just compensation,” wrote Christopher C. Conner, chief judge of the U.S. District Court Middle District of Pennsylvania.

His ruling concluded: “The General Assembly attempts to take by legislative requisition the private property of a private association to remedy its perpetual budgeting inefficacies. This it cannot do.”

Connor is the same judge who will hear the current challenge to the latest law, and has so far issued a preliminary injunction to put on hold the latest state law until the current matter is settled. Pennsylvania has also appealed his earlier ruling.