Alliance of American Insurers v. Cuomo

Citation854 F.2d 591
Decision Date09 August 1988
Docket NumberD,No. 727,727
PartiesALLIANCE OF AMERICAN INSURERS, National Association of Independent Insurers, New York State Insurance Association, Allstate Insurance Company, Government Employees Insurance Co., Liberty Mutual Insurance Co., Lumbermans Mutual Casualty Co., Metropolitan Property & Liability Insurance Co., Utica Mutual Insurance Company, Richard C. Van Essendelft, and Gerald J. Pierce, Plaintiffs-Appellants, v. Mario M. CUOMO, in his capacity as Governor of the State of New York, James P. Corcoran, in his capacity as Superintendent of the Department of Insurance of the State of New York, Defendants-Appellees. ocket 87-7888.
CourtUnited States Courts of Appeals. United States Court of Appeals (2nd Circuit)

Kaye, Scholer, Fierman, Hays & Handler, New York City (Kenneth R. Feinberg, David O. Bickart, William F. Tyndall, of counsel), for plaintiffs-appellants.

Robert Abrams, New York State Atty. Gen. (Jane Breslin Jacobs, New York City, of counsel), for defendants-appellees.

Before TIMBERS and KEARSE, Circuit Judges and WEXLER, District Judge *.

WEXLER, District Judge.

Introduction

This action involves a challenge to the constitutionality of Secs. 8 and 40 of Chapter 266 of the New York Medical and Dental Malpractice and Professional Conduct Act of 1986 (the "1986 Act"). Plaintiffs are three insurance trade associations, six insurance companies, and two insurance policy holders. The insurance companies and at least 132 association members write property and casualty insurance in the State of New York. The association members account for approximately 40% of the total property and casualty insurance premiums collected in the State of New York in 1985. The individual policy holders are residents of New York.

Plaintiffs brought suit in the United States District Court for the Southern District of New York against Mario Cuomo, the Governor of New York, and James Corcoran, the New York Superintendent of Insurance, in their capacities as state officials. In their suit, plaintiffs sought a declaration that Secs. 8 and 40 of the 1986 Act deprive them of property without due process of law and constitute a taking of their property without just compensation, thereby violating their rights under the United States Constitution.

Defendants moved for dismissal on the grounds that no case or controversy exists and that abstention is appropriate. The district court granted defendants' motion for dismissal, finding both that the lawsuit failed to present a case or controversy and that the Court should abstain under the Burford doctrine. This appeal followed.

Background

Under the regulatory system governing the insurance industry in New York, both prior to and after the 1986 Act, insurance companies, including plaintiff insurers, serve as guarantors of all medical malpractice insurers in the state, even though they do not write medical malpractice insurance themselves. Most of the medical malpractice insurance in New York is offered by two providers, the Medical Liability Mutual Insurance Company ("MLMIC") and the New York Medical Malpractice Insurance Association ("MMIA"). MLMIC is owned and operated by physicians and is affiliated with the Medical Society of the State of New York. MMIA was established in 1975 by the New York State Legislature in response to the withdrawal of many private insurance companies from the medical malpractice market in New York. MMIA is a non-profit, joint underwriting association created by law to provide medical malpractice insurance to those physicians and surgeons who are unable to obtain it otherwise. N.Y.Ins.Law Sec. 5502 (McKinney 1985 & Supp.1988). All insurers, including plaintiff insurance companies and association members, are statutorily required to be members of MMIA as a condition of writing property or casualty insurance in New York. N.Y.Ins.Law Sec. 5502(a). As members, plaintiffs must contribute funds to MMIA to cover its operating deficits. N.Y.Ins.Law Secs. 5507, 5509 (McKinney 1985 & Supp.1988).

Liability insurers in New York, including plaintiff insurance companies and many association members, are also required to contribute to the New York Property/Casualty Insurance Security Fund (the "Fund"). The Fund secures all claims by insured New York residents against insolvent insurance companies. N.Y.Ins.Law Sec. 7603(a)(1) (McKinney 1985 & Supp.1988). The Superintendent of Insurance ("Superintendent") is responsible for establishing the level of contribution and may compel contribution when the Fund falls below $150 million. N.Y.Ins.Law Sec. 7603(c)(1) (McKinney 1985). MMIA and MLMIC are covered by the Fund and are also subject to contribution to it. N.Y.Ins.Law Secs. 5502(b), 7603.

When the regulatory system governing the insurance industry was originally enacted, the system provided safeguards to ensure adequate claim reserves and rates as well as to maintain sound financial operations of insurers. Medical malpractice insurers were required to submit annual rate requests to the Superintendent for approval, including actuarial evidence that the requested rates were reasonable and self-supporting. The Superintendent was responsible for assuring that insurance companies set neither excessive nor insufficient rates. N.Y.Ins.Law Secs. 2303, 5503 (McKinney 1985). In addition, he was authorized to rehabilitate or liquidate insolvent insurers. N.Y.Ins.Law Secs. 7402, 7404 (McKinney 1985). When, pursuant to regular examination of a carrier's financial records, the Superintendent found that the company's liabilities exceeded its admitted assets, including required reserves, he was required to find the company insolvent. N.Y.Ins.Law Secs. 307, 309, 315, 1309 (McKinney 1985 & Supp.1988). This system was designed to ensure that insurance companies had sufficient assets to cover any claims, while still offering reasonable rates.

In response to the ever-worsening medical malpractice crisis, New York State enacted the 1986 Act in an attempt to reduce the cost of medical malpractice insurance and the number and amount of malpractice claims. Section 8 of the 1986 Act, N.Y.Ins.Law Sec. 2343(c) (McKinney Supp.1988), imposes a moratorium on medical malpractice insolvencies by suspending the Superintendent's authority to order the liquidation or rehabilitation of any medical malpractice insurer until January 15, 1990. Section 40 of the 1986 Act, Ch. 266, 1986 N.Y.Laws 503, 570, authorizes the Superintendent to stabilize rates for medical malpractice coverage from July 1, 1985 to June 30, 1988 without conducting hearings in which insurance companies may participate. It also authorizes an 8% cap on the imposition of surcharges for medical malpractice premiums used to satisfy any deficiency resulting from the stabilization of rates during this three year period. Id.

Plaintiffs contend that Secs. 8 and 40 of the 1986 Act unconstitutionally deprive them of property without due process of law by significantly increasing demands on plaintiffs to cover the severe deficit of MMIA. Plaintiffs also allege that the effect of Secs. 8 and 40 amounts to an unconstitutional taking of their property by forcing them to contribute to the Fund to pay for claims left by the current insolvency of MMIA and MLMIC, which insolvency has purportedly been caused by the 1986 Act.

Plaintiffs assert that MMIA and MLMIC are currently operating at severe deficits. At the time of the 1986 Act, MLMIC was operating with a deficit of approximately $1.2 billion, MMIA with a deficit of about $85 million. The combined total, approximately $1.3 billion, dwarfs the reserves in the Fund of $150 million. Both of these providers currently meet the statutory definition of insurer insolvency under N.Y.Ins.Law Sec. 1309(a) (McKinney 1985). Section 8 of the 1986 Act, however, overrides Sec. 1309 and withdraws until 1990 the Superintendent's powers to act to rehabilitate the MMIA or MLMIC despite their insolvency. Therefore, plaintiffs contend, MMIA and MLMIC can continue to operate in a manner that is economically detrimental to the Fund. In addition, Sec. 40 supersedes the original requirement that insurers set adequate and self-supporting rates. The implementation of Sec. 40 authorizes the Superintendent to hold down medical malpractice insurance premium costs by stabilizing rates at artificially low levels without considering input from insurers. In plaintiffs' view, the rates are "stabilized" at the expense of increasing the current deficits of MMIA and MLMIC and ensuring their insolvency.

Plaintiffs project that, by 1990, the combined deficits of MMIA and MLMIC will reach more than $4 billion, and that the 8% surcharge to be imposed by the Superintendent after June 1988 can neutralize only a small portion of the 1985-88 deficit and none of the prior deficit. Plaintiffs allege that the introduction of Secs. 8 and 40 to this depressed financial picture can lead to only one result. They contend that, given the size of this $4 billion deficit, MMIA can forestall insolvency, if at all, only by requiring contribution from its members, including plaintiffs. Regardless of such contribution, because MLMIC's assets are grossly inadequate as well, in 1990 or thereabout, the Superintendent will be forced to seize MLMIC for insolvency. If at the time MMIA is also unable to return to solvency through involuntary contributions, it too will be seized. At that point, outstanding claims from MLMIC, and possibly MMIA, must be satisfied from the Fund. The amount of those claims, accounting for the deficit of $4 billion, will obliterate the Fund and any prior contributions. As a result, insurers, including plaintiffs, will be called upon involuntarily to provide massive contributions in order to replenish the Fund and satisfy the claims.

Plaintiffs contend that these massive, potentially bankrupting, involuntary contributions to MMIA and the Fund will be the direct result of the suspension, under Sec. 8, of the...

To continue reading

Request your trial
170 cases
  • Doe v. Zucker
    • United States
    • U.S. District Court — Northern District of New York
    • 17 Febrero 2021
    ... ... Defendants Exhibits 8 and 9 are vaccine recommendations by the American Academy of Pediatrics ("AAP") and the American Academy of Family ... v. Cuomo , 878 F.2d 588, 593 (2d Cir. 1989). Further, the Supreme Court has ... Sobol , 703 F. Supp. 1113, 1120 (S.D.N.Y. 1989) (citing Alliance of Am. Insurers v. Cuomo , 854 F.2d 591, 601 (2d Cir. 1988) (holding ... ...
  • Cruz v. TD Bank, N.A.
    • United States
    • U.S. District Court — Southern District of New York
    • 2 Marzo 2012
    ... ... constitutional claim did not require resolution of state law); Alliance of Am. Ins. v. Cuomo, 854 F.2d 591, 60001 (2d Cir.1988) (declining to ... ...
  • Fireman's Fund Ins. Co. v. Garamendi, C-91-2854-CAL
    • United States
    • U.S. District Court — Northern District of California
    • 13 Abril 1992
    ... ... Prop. 103 required insurers in the following year to reduce their automobile and other property and ... In Alliance of Am. Insurers v. Cuomo, 854 F.2d 591 (2d Cir.1988), plaintiffs ... ...
  • Cecos Intern., Inc. v. Jorling, 87-CV-1186.
    • United States
    • U.S. District Court — Northern District of New York
    • 23 Febrero 1989
    ... ...      Coincidentally, in the interim, on August 4, 1987, Governor Cuomo signed into law Assembly Bill 7835-C. That Assembly Bill amended some ... law by allowing a state court to resolve an issue of state law." American Disposal Services, Inc. v. O'Brien, 839 F.2d 84, 87 (2d Cir.1988) (citing ... In Alliance of American Insurers v. Cuomo, 854 F.2d 591 (2d Cir.1988), the plaintiffs ... ...
  • Request a trial to view additional results

VLEX uses login cookies to provide you with a better browsing experience. If you click on 'Accept' or continue browsing this site we consider that you accept our cookie policy. ACCEPT