Liability Investigative Fund Effort, Inc. v. Massachusetts Medical Professional Ins. Ass'n

• Decision Date: 12 December 1994
• Citation: 418 Mass. 436,636 N.E.2d 1317
• Parties: LIABILITY INVESTIGATIVE FUND EFFORT, INC., & others 1 v. MASSACHUSETTS MEDICAL PROFESSIONAL INSURANCE ASSOCIATION & others 2 (and a companion case 3 ).
• Court: United States State Supreme Judicial Court of Massachusetts Supreme Court

Page 1317

636 N.E.2d 1317

418 Mass. 436

LIABILITY INVESTIGATIVE FUND EFFORT, INC., & others¹ v. MASSACHUSETTS MEDICAL PROFESSIONAL INSURANCE ASSOCIATION &amp others ² (and a companion case³).

Supreme Judicial Court of Massachusetts Hampden.

Argued April 7, 1994.

Decided July 21, 1994.

Certiorari Denied Dec. 12, 1994.

See 115 S.Ct. 666.

Henry Mark Holzer, Mount Kisco, NY, for Liability Investigative Fund Effort, Inc., & others.

Michael J. Lacek, Boston, for Massachusetts Medical Professional Ins. Ass'n.

Eric A. Smith, Asst. Atty. Gen., for Com'r of Ins. & another.

Before LIACOS, C.J., and ABRAMS, NOLAN, LYNCH and GREANEY, JJ.

GREANEY, Justice.

In these consolidated cases, the corporate plaintiff and the individual plaintiffs, on behalf of themselves and others similarly situated, bring constitutional challenges to two statutes relating to the provision of medical malpractice insurance by the Massachusetts Medical Professional Insurance Association (MMPIA). Both St.1975, c. 362, § 6, as amended by St.1980, c. 333, and St.1986, c. 351, provide for payments by malpractice insureds for costs incurred by the MMPIA in providing malpractice insurance in past years. The complaints sought declaratory and other relief to challenge the statutes as violations of the contracts clause of the United States Constitution, Federal and State guarantees of procedural due process, and the separation of power requirements of art. 30 of the Declaration of Rights to the Massachusetts Constitution. Both the plaintiffs and the defendants moved for summary judgment. See Mass.R.Civ.P. 56(a), (b), 365 Mass. 824 (1974). A judge of the Superior Court denied the plaintiffs' motion and granted the defendants' motions in a well-reasoned memorandum of decision. We granted the plaintiffs' application for direct appellate review and now affirm.

We first set forth the undisputed facts. In 1975, "to guarantee the continued availability of medical malpractice insurance" in the Commonwealth, the Legislature enacted St.1975, c. 362, of which § 6 established the Medical Malpractice Joint Underwriting Association of Massachusetts, which is now the MMPIA. The MMPIA was authorized to issue malpractice insurance policies to physicians and hospitals that "[have] made a reasonable effort to obtain insurance and [have] been unable to obtain it." St.1975, c. 362, § 6, fifth par. The statute stated that the MMPIA's purpose was to provide this insurance "on a self-supporting basis." St.1975, c. 362, § 6, second par. Toward that end, both the original statute creating the MMPIA and a later statute, St.1986, c. 351, have provided for the collection by the MMPIA of funds for past, underfunded insurance periods. It is the validity of those two statutes that the plaintiffs challenge here.

The challenged portion of St.1975, c. 362, § 6, which we will refer to as the deficit recoupment statute, provided as follows:

"Any deficit sustained by the association in any one year shall be recouped, pursuant to the plan of operation and the rating plan then in effect by [an assessment upon the policyholders, or] a rate increase applicable prospectively [, or both]; provided, however, that in no event shall a deficit incurred by the association be charged, directly or indirectly, to any person other than the insured under a policy of medical malpractice insurance; and provided, further, that for purposes of this sentence, when deficits sustained on account of physician or hospital malpractice coverage are being recouped, the term 'policyholders' shall mean all those licensed physicians or hospitals insured under a policy of medical malpractice insurance, whether obtained through [MMPIA] or not."

St.1975, c. 362, § 6, seventh par. This paragraph was subsequently repealed and reenacted without the bracketed language. St.1980, c. 333. During the first dozen years of its operation, the MMPIA did not seek to recoup any deficits under this statute.

In 1987, however, the MMPIA filed a request to begin recouping deficits that accrued in the years 1975-1982. A hearing officer of the Division of Insurance, and subsequently the Commissioner of Insurance (commissioner), determined that if recoupment were ordered, it would be made from all physicians and hospitals, regardless of whether they were insured by the MMPIA. That decision was challenged and affirmed in Risk Management Found. of Harvard Medical Insts., Inc. v. Commissioner of Ins., 407 Mass. 498, 503-505, 554 N.E.2d 843 (1990). Subsequently, on February 25, 1991, the parties to that case entered into a stipulation that no requests for recoupment would be made before April 1, 1993. To the present time, no specific determination has been made regarding the MMPIA's deficits, and no rate increase has been established.

The second statute at issue is St.1986, c. 351, which we will refer to as the deferred premium liability statute. This statute was the eventual result of the MMPIA's recommendation of a 162.7% increase in its premium rates for its 1983 rate year. The commissioner rejected that recommendation and instead allowed only a 42% increase. The MMPIA appealed, and we determined that the commissioner had misinterpreted the applicable statutes, so we ordered further ratemaking proceedings. Medical Malpractice Joint Underwriting Ass'n of Mass. v. Commissioner of Ins., 395 Mass. 43, 478 N.E.2d 936 (1985). The Legislature then froze premium rates at the level of the commissioner's overturned decision. St.1985, c. 671, § 1. It later extended the freeze to July 1, 1986. St.1986, c. 37.

On June 6, 1986, the commissioner issued a new decision, raising the 1983 rate 93.9% above the previous year's rate, and raising the 1984 rate 10.9% above the 1983 rate. No appeal was taken from those rate decisions. Later that month the Legislature enacted the deferred premium liability statute as a means to allow the MMPIA to recover premiums it lost as a result of the legislative rate freeze. The operation of the statute was described as follows in a previous decision in this case:

"The statute established a 'total deferred premium liability,' which is a sum representing the difference between the rates set by the commissioner pursuant to c. 175A, § 5A, for the 1983-1985 rate years and the premiums actually paid for the period pursuant to the freeze. The statute provided for recovery of the total deferred premium liability over a five-year period from July 1, 1987, through June 30, 1992, by means of a 'separate rate' added to the normal rate for policies issued during that period. The separate rates were to be assessed and recovered in the same manner as rates established pursuant to c. 175A, § 5A. See St.1986, c. 351, § 38. The statute did not refer to the deficit recoupment provision of St.1975, c. 362, § 6, 7th par., discussed above."

Liability Investigative Fund Effort, Inc. v. Medical Malpractice Joint Underwriting Ass'n of Mass., 409 Mass. 734, 738-739, 569 N.E.2d 797 (1991).

The plaintiffs challenge the deficit recoupment statute and the deferred premium liability statute on three grounds. First, they argue that the 1980 amendment of the deficit recoupment statute violates the contracts clause of the United States Constitution. ⁴ Second, they contend that the provisions of both statutes for the recovery of funds for past policy periods violate both State and Federal guarantees of procedural due process. Third, they argue that some of the MMPIA's actions under the statutes were taken without having in place the "plan of operation" provided for by St.1975, c. 362, § 6, and that in the absence of such a plan those actions violate the separation of powers provisions of art. 30 of the Declaration of Rights. We address each of these arguments in turn.

1. The plaintiffs' first argument is that the malpractice insurance policies issued by the MMPIA in 1975-1982, the period for which it seeks recoupment, committed it to contractual obligations that are inconsistent with St.1980, c. 333. The specific contractual provisions on which the plaintiffs rely are exemplified by the following language in a policy endorsement from 1977: "Any deficit sustained by the [MMPIA] in any one year shall be recouped by an assessment upon all medical malpractice insurance policyholders, whether insured through the [MMPIA] or otherwise." In light of such provisions, the plaintiffs argue, "an essential term of [the MMPIA] contracts/policies was the method by which, and the pool from which, the [MMPIA] would collect, and the insureds would pay, deficits which might later be recouped"; the contracted-for method was assessment, and the "pool" was the class of policyholders existing at the time the deficits accrued. Therefore, the argument continues, the 1980 amendment providing for recoupment only "by a rate increase applicable prospectively," and the MMPIA's proposal to recoup deficits under that amendment, are inconsistent with the MMPIA's contractual limitation to recoupment by assessment and with the commitment to recoupment from the class of policyholders existing at the time of the contracts. This, the plaintiffs say, violates art. I, § 10, of the United States Constitution, which provides that "[n]o State shall ... pass any ... [l]aw impairing the [o]bligation of [c]ontracts."

Resolution of the plaintiffs' claim is straightforward in light of the provision in St.1980, c. 333, for "a rate increase applicable prospectively" (emphasis added). The contracts clause "applies only to laws with retrospective, not prospective, effect." Local Div. 589, Amalgamated Transit Union v. Commonwealth, 666 F.2d 618, 637 (1st Cir.1981) (citing Ogden v. Saunders, 25 U.S. [12 Wheat.] 213, 6 L.Ed. 606 [1827] ), cert. denied, 457 U.S. 1117, 102 S.Ct. 2928, 73 L.Ed.2d 1329 (1982). Hence, the clause is inapplicable here. It cannot be the case that by entering into its insurance policies the MMPIA restricted the Legislature's ability to authorize any future deficit...