In re Penn Treaty Network Am. Ins. Co.
| Decision Date | 22 December 2021 |
| Docket Number | No. 1 ANI 2009,1 PEN 2009 |
| Citation | 268 A.3d 1154 |
| Parties | IN RE: PENN TREATY NETWORK AMERICA INSURANCE COMPANY (In Liquidation) In Re: American Network Insurance Company (In Liquidation) |
| Court | Pennsylvania Commonwealth Court |
Michael J. Broadbent, Philadelphia, for Plaintiffs Teresa D. Miller and Jessica K. Altman.
D. Alicia Hickok, Philadelphia, for Intervenor the National Organization of Life and Health Insurance Guaranty Associations.
Harold S. Horwich (admitted Pro Hac Vice), Hartford, CT, for Intervenors Anthem Inc. and UnitedHealthcare Insurance Company.
BEFORE: HONORABLE P. KEVIN BROBSON, President Judge, HONORABLE MARY HANNAH LEAVITT, Judge, HONORABLE PATRICIA A. McCULLOUGH, Judge, HONORABLE ANNE E. COVEY, Judge, HONORABLE MICHAEL H. WOJCIK, Judge, HONORABLE ELLEN CEISLER, Judge, HONORABLE J. ANDREW CROMPTON, Judge
OPINION BY JUDGE LEAVITT
Before the Court are exceptions filed by the Statutory Liquidator to an opinion and order issued by a three-judge panel of this Court on July 9, 2021, in the ongoing liquidation of long-term care insurer Penn Treaty Network America Insurance Company (PTNA) and its subsidiary American Network Insurance Company (ANIC) (collectively, the Companies). In Re: Penn Treaty Network America Insurance Company (In Liquidation), 259 A.3d 1028 (Pa. Cmwlth. 2021) ( Panel Opinion ).1 The panel denied the Liquidator's application for a declaration that she is authorized under Article V of The Insurance Department Act of 1921 (Article V)2 to allocate assets from the Companies’ estates to a captive insurer, created by the Liquidator, to cover policyholder claims for benefits that exceed applicable statutory guaranty association limits and will accrue more than 30 days after the Companies’ policies terminated by virtue of the Companies’ liquidation. The panel held that the Liquidator's proposal lacks support in Article V and the enabling act for the Pennsylvania Life and Health Insurance Guaranty Association, codified in Article XVII of The Insurance Company Law of 1921 (PLHIGA Act).3 Presently, the Liquidator argues that the panel erred in its application of the relevant law and asks the Court en banc to grant her application. Upon review, we overrule the exceptions and reaffirm the panel's decision.
The underlying facts and procedural history of this matter are set forth in the Panel Opinion and incorporated herein by reference.4 For purposes of deciding the Liquidator's exceptions, we provide the following brief summary.
Pursuant to the Court's March 2017 liquidation orders, the Companies’ policy obligations were transferred to guaranty associations to continue coverage and to pay claims up to the limits set in the applicable state law. Because some policyholders will reach statutory guaranty association limits before reaching the limits provided in the policies issued by the Companies, the Liquidator took steps to create a way to provide coverage for claims in excess of guaranty association limits. These claims are termed the Non-Guaranty Association (GA) Policy Benefits. To that end, the Liquidator entered into a partial assumption reinsurance agreement with a captive insurer, Penn Treaty Plus, Inc. (Captive), during the 30-day period following entry of the liquidation orders. Under this partial assumption reinsurance agreement, the Captive will provide coverage excess of guaranty association coverage and pay approximately 10% of a policyholder's claim for Non-GA Policy Benefits.
The Liquidator sought authorization from this Court to distribute some of the Companies’ assets to the Captive for this purpose. Based on the information available as of June 30, 2019, and using a gross premium reserve methodology, the Liquidator proposed to allocate approximately 61.2% of PTNA's available assets ($211.6 million) and 67.3% of ANIC's available assets ($95.4 million) to the guaranty associations and approximately 38.8% of PTNA's available assets ($117.3 million) and 32.7% of ANIC's available assets ($45.4 million) to the Captive. Panel Opinion at 11. Under this proposed allocation of the Companies’ assets, the Liquidator estimated that the Captive will be able to cover approximately 10% of the Non-GA Policy Benefit claims. The Liquidator also estimated that approximately 10% of the claims paid by the guaranty associations will be funded by estate assets.
In support of her application, the Liquidator asserted that policyholder claims for Non-GA Policy Benefits are entitled to be paid even where the loss arises after the policy has terminated by virtue of the Companies’ liquidation. She proposed to accept and value policyholder claims for Non-GA Policy Benefits under one of two legal theories. First, the Liquidator argued that she can pay Non-GA Policy Benefits as claims under active policies of insurance, i.e. , the coverage provided by the guaranty associations and the coverage to be provided by the Captive. Second, in the alternative, assuming the Companies’ policies were terminated by operation of law under Article V, the Liquidator argued that she can pay the Non-GA Policy Benefits as claims for breach of contract, which occurred when the policies were terminated. The Liquidator argued that her plan comports with the unifying purpose of the governing statutes, i.e. , Article V and the PLHIGA Act, because it is designed to minimize the harm caused to policyholders by a liquidation.
Intervenors Anthem, Inc. and UnitedHealthcare Insurance Company (Health Insurers), which are members of PLHIGA and other life and health guaranty associations, opposed the Liquidator's application. They did not write long-term care insurance, but they will be required to pay assessments to the guaranty associations. The cost to guaranty associations to continue long-term care insurance coverage for the former policyholders of the Companies, in excess of the premiums they will collect from those policyholders and assets they will receive from the Companies’ estates, totals approximately $2 billion. Panel Opinion at 1034. The Health Insurers will be responsible for covering this $2 billion funding gap, which they will pass on to their policyholders through surcharges and to taxpayers through premium offsets in states where such offsets are allowed. The Health Insurers argued that the Liquidator's proposal to create a facility to pay claims in excess of those paid by guaranty associations lacks a statutory foundation. They asserted that the estate assets that the Liquidator proposes to distribute to the Captive are owed to the guaranty associations.
Following oral argument in March of 2021, the panel held that the Liquidator's proposal to use estate assets to set up an excess coverage insurer departed from Article V and the PLHIGA Act. The Liquidator has filed 12 exceptions to the panel's decision,5 which she consolidated in her brief into six issues. We consider these issues seriatim .6
The Liquidator first argues that Pennsylvania law permits her to use estate assets to set up a mechanism for the payment of Non-GA Policy Benefits, and the panel erred in holding otherwise. Subsumed in that issue is whether policyholders’ claims for Non-GA Policy Benefits should be assigned to class (b) under Section 544 of Article V, 40 P.S. § 221.44,7 as "claims under policies for losses" on the theory that the policies are still alive but with the guaranty associations serving as the "insurers." Alternatively, the Liquidator argues that policyholders have breach of contract claims against the Companies’ estates for the loss of their policies, which claims were allowed in the pre-guaranty association regime to prevent shareholders from receiving all of the assets.
Central to the Liquidator's position is her argument that under Section 544(b) of Article V, policyholders have class (b) claims against the Companies’ estates notwithstanding the continuation of their coverage by guaranty associations. Stated otherwise, policyholders are entitled to coverage in excess of guaranty association coverage, either by a transfer of policy obligations to the Captive or by direct payments from the estate for Non-GA Policy Benefit claims. We disagree with the Liquidator's premise that policyholders have class (b) claims against the Companies’ estates.
As the panel explained, Section 520(d) of Article V, 40 P.S. § 221.20, fixes the rights and liabilities of an insolvent insurer and its creditors upon the issuance of a liquidation order, except as provided in Section 521 of Article V, 40 P.S. § 221.21. See Panel Opinion at 1041–42. Under Section 521, policies remain in force for no more than 30 days after entry of the liquidation order. Policy claims that accrue during that 30-day period are allowed, but claims accruing after the 30-day period are not allowed against the estate. Necessarily, the Non-GA Policy Benefit claims will accrue after the 30-day period has expired. Those claims are barred by the plain text of Sections 520 and 521 and the Pennsylvania Supreme Court's construction of those provisions in Warrantech Consumer Products Services, Inc. v. Reliance Insurance Company in Liquidation , 626 Pa. 218, 96 A.3d 346 (2014). Further, Sections 520 and 521 terminate all insurance policies, regardless of the type of insurance coverage. The Liquidator's attempt to distinguish Warrantech on the basis that it involved a property and casualty insurer, whereas the Companies were life insurers, is unavailing.
Equally unpersuasive is the Liquidator's alternative argument that the termination of a policy mandated by Sections 520 and 521 of Article V gives rise to a breach of contract claim entitled to class (b) priority. Section 544(b) assigns class (b) priority to "claims under policies for losses wherever incurred." 40 P.S. § 221.44(b) (emphasis added). We agree with the panel's conclusion that Section 544(b) accords priority to claims for benefits under the terms of the policies, not for the loss of the policy itself. S...
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