Pa. Prof'l Liab. Joint Underwriting Ass'n v. Wolf
| Decision Date | 18 December 2018 |
| Docket Number | CIVIL ACTION NO. 1:18-CV-1308 |
| Citation | 381 F.Supp.3d 324 |
| Parties | PENNSYLVANIA PROFESSIONAL LIABILITY JOINT UNDERWRITING ASSOCIATION, Plaintiff v. Tom WOLF, in his Official Capacity as Governor of the Commonwealth of Pennsylvania, et al., Defendants |
| Court | U.S. District Court — Middle District of Pennsylvania |
Dennis A. Whitaker, Melissa A. Chapaska, Kevin J. McKeon, Hawke McKeon Sniscak & Kennard LLP, Harrisburg, PA, for Plaintiff.
Keli M. Neary, Nicole J. Boland, Office of Attorney General, Harrisburg, PA, Karl S. Myers, Michael D. O'Mara, Stradley Ronon Stevens & Young, LLP, Philadelphia, PA, for Defendants.
Christopher C. Conner, Chief Judge In May of this year, we entered judgment in Pennsylvania Professional Liability Joint Underwriting Ass'n v. Wolf ("JUA I"), No. 1:17-CV-2041 (M.D. Pa.), declaring portions of Act 44 of 2017, P.L. 725, No. 44 ("Act 44"), to be violative of the Takings Clause of the Fifth Amendment to the United States Constitution and permanently enjoining enforcement of the Act's operative provisions. Finding the Pennsylvania Professional Liability Joint Underwriting Association (the "Joint Underwriting Association" or "Association") to be a private entity and its assets to be private property, we concluded that the state cannot expropriate to its own use funds held in the Association's coffers.
The General Assembly responded by enacting Act 41 of 2018, P.L. 273, No. 41 ("Act 41"), on June 22, 2018. Act 41 deploys JUA I as a blueprint, endeavoring to avoid the constitutional infirmities that felled Act 44. Specifically, Act 41 purports to transform the Joint Underwriting Association into a governmental entity housed within the Commonwealth's Insurance Department ("Department") and operating under the control and oversight of the Commonwealth's Insurance Commissioner ("Commissioner"). It also seeks to accomplish indirectly what JUA I forbade the state from doing directly—forcing the transfer of the Association's assets to the Department. By order of July 18, 2018, we preliminarily enjoined enforcement of Act 41 pending merits review of the Joint Underwriting Association's constitutional claims. The parties' cross-motions for summary judgment are now before the court.
The factual backdrop of this litigation is outlined in extenso in this court's summary judgment opinion in JUA I and our preliminary injunction opinion in this action, familiarity with which is presumed. See generally JUA I, 324 F.Supp.3d 519 (M.D. Pa. 2018) ; Pa. Prof'l Liab. Joint Underwriting Ass'n v. Wolf ("JUA II"), 328 F.Supp.3d 400 (M.D. Pa. 2018). We reiterate salient facts for context in addressing the parties' Rule 56 arguments.
The Joint Underwriting Association was established by statute as a nonprofit association organized under the laws of the Commonwealth of Pennsylvania. The General Assembly created the Association in 1975 in response to a decline in the availability of medical malpractice insurance in the Commonwealth. (Doc. 33 ¶ 3). The Association was initially established and organized by the Pennsylvania Health Care Services Malpractice Act of 1975, P.L. 390, No. 111 (the "CAT Fund Statute").
The CAT Fund Statute authorized the Commissioner to either "establish and implement" or "approve and supervise" a "plan" for ensuring that medical professional liability insurance is made "conveniently and expeditiously" available to providers in the Commonwealth who cannot obtain insurance on the open insurance market. See CAT Fund Statute, § 801 ). Section 801 provided that the plan "may be implemented by a joint underwriting association," id., and Section 803 permitted insurers to consult and agree with each other as to "organization, administration and operation of the plan" and rates for coverage, id. § 803(a) ). An "Ad Hoc Industry Committee" of insurers submitted the Joint Underwriting Association's original proposed plan of operations to the then-Commissioner, who approved same on December 30, 1975. (Doc. 33 ¶¶ 7-8). The plan established a 12-member board of directors, one member of which was appointed by the Commissioner, and vested authority in the board to "decide all matters of policy and have authority to exercise all reasonable and necessary powers relating to the operation of the Association which are not specifically delegated by the plan to others or reserved to members of the Association." (Id. ¶¶ 9, 11). The statute authorized the Commissioner to dissolve the plan if he deemed it unnecessary and authorized the Association to borrow funds from the state in the event of a deficit. CAT Fund Statute, §§ 803(b), 808 . The Association was granted Section 501(c)(6) status by the Internal Revenue Service in 1976 and has since maintained that status. (Doc. 33 ¶¶ 12-14).
The General Assembly repealed the CAT Fund Statute on March 20, 2002, replacing it with the current statutory framework, the Medical Care Availability and Reduction of Error Act ("MCARE Act"), 40 PA. STAT. AND CONS. STAT. ANN. § 1303.101 et seq. The MCARE Act is a sweeping piece of legislation, with an overarching goal of ensuring a "comprehensive and high-quality health care system" for the citizens of the Commonwealth. Id. § 1303.102(1). Among other things, the MCARE Act establishes the Medical Care Availability and Reduction of Error Fund ("the MCARE Fund"), id. §§ 1303.711-.716, as a "special fund" within the state treasury to be administered by the Department, id. §§ 1303.712(a), -.713(a). The Fund offers a secondary layer of medical professional liability coverage for physicians, hospitals, and other health care providers and is funded primarily by annual assessments on those providers as a condition to practice in the Commonwealth. See id. § 1303.712(d)(1).
The MCARE Act continued operation of the Joint Underwriting Association. Id. § 1303.731(a). Unlike the MCARE Fund, the Association was not established as a "special fund" or a traditional agency within the Commonwealth's governmental structures. See id.; cf. id. §§ 1303.712(a), -.713(a). Instead, the General Assembly "established" the Association as "a nonprofit joint underwriting association to be known as the Pennsylvania Professional Liability Joint Underwriting Association." Id. § 1303.731(a). Like its predecessor, the MCARE Act mandates membership in the Association for insurers authorized to write medical professional liability insurance in the Commonwealth. Id.
The MCARE Act requires the Association to offer medical professional liability insurance to health care providers and entities who "cannot conveniently obtain medical professional liability insurance through ordinary methods at rates not in excess of" rates applicable to those similarly situated. Id. § 1303.732(a). The Act sets forth broad parameters for achieving this objective, tasking the Association to ensure that its insurance is conveniently and expeditiously available, offered on reasonable and not unfairly discriminatory terms, and subject only to the payment of a premium for which payment plans must be made available. Id. § 1303.732(b)(1)-(5). The MCARE Act prescribes four "duties" for the Association. Id. § 1303.731(b). It requires the Association to (1) submit a plan of operations to the Commissioner for approval, (2) submit rates and any rate modifications for Department approval, (3) offer insurance as described supra , and (4) file its schedule of occurrence rates with the Commissioner. See id. § 1303.731(b)(1)-(4).
The Association, like other insurers licensed to operate within the Commonwealth, is "supervised" by the Department through the Commissioner. Id. § 1303.731(a); see, e.g., id. §§ 221.1-a to -.15-a, 1181-99. The MCARE Act otherwise provides that all "powers and duties" of the Association "shall be vested in and exercised by a board of directors." Id. § 1303.731(a). The board's composition, and all of the Association's operative principles, are set forth in a plan of operations developed by the Association with Department assistance and approval. (See Doc. 33 ¶¶ 38-41); JUA I, 324 F.Supp.3d at 536. The existing plan establishes a 14-member board of directors, which consists of the current Association president; eight representatives of member companies chosen by member voting; one agent or broker elected by members; and four health care provider or general public representatives who may be nominated by anyone and are appointed by the Commissioner. (Doc. 33 ¶ 38). Under the plan, the Association may be dissolved (1) "by operation of law" or (2) at the request of its members, subject to Commissioner approval. (Id. ¶ 40). The plan provides that, "[u]pon dissolution, all assets of the Association, from whatever source, shall be distributed in such manner as the Board may determine subject to the approval of the Commissioner." (Id. ¶ 41).
The Joint Underwriting Association writes insurance policies directly to its insured health care providers, and those policyholders pay premiums directly to the Association. (See id. ¶ 52). The Association is funded exclusively by policyholder premiums and investment income generated therefrom. (Id. ¶¶ 46, 49, 50-51). It is not and has never been funded by the Commonwealth, (id. ¶ 49), and it has historically held all premiums and investment funds in private accounts in its own name, (Doc. 41 ¶¶ 8-9; Doc. 52 ¶¶ 8-9; see also Doc. 58 ¶¶ 8-9). Prior to enactment of Act 41, the MCARE Act insulated the Commonwealth from the Association's debts and liabilities. See 40 PA. STAT. AND CONS. STAT. ANN. § 1303.731(c); (Doc. 33 ¶ 32). The Association has never borrowed money to fund its operations, either in its current form or under the CAT Fund Statute which...
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Pa. Prof'l Liab. Joint Underwriting Ass'n v. Wolf
...Association v. Wolf, 324 F.Supp.3d 519 (M.D. Pa. 2018) (" JUA I") , and Pennsylvania Professional Liability Joint Underwriting Association v. Wolf, 381 F.Supp.3d 324 (M.D. Pa. 2018) (" JUA II"), as well as the preliminary injunction opinion issued in this case, (see Doc. 16). The parties ha......