Pa. Prof'l Liab. Joint Underwriting Ass'n v. Wolf
| Decision Date | 22 December 2020 |
| Docket Number | CIVIL ACTION NO. 1:19-CV-1121 |
| Citation | 509 F.Supp.3d 212 |
| Parties | PENNSYLVANIA PROFESSIONAL LIABILITY JOINT UNDERWRITING ASSOCIATION, Plaintiff v. Tom WOLF, in his Official Capacity as Governor of the Commonwealth of Pennsylvania, and the General Assembly of the Commonwealth of Pennsylvania, 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.
Karen Mascio Romano, Nicole J. Boland, Pennsylvania Office of Attorney General, Harrisburg, PA, for Defendant Tom Wolf.
Michael D. O'Mara, Karl S. Myers, Spencer R. Short, Pro Hac Vice, Stradley Ronon Stevens & Young LLP, Philadelphia, PA, for Defendant General Assembly of the Commonwealth of Pennsylvania.
For more than four years, the General Assembly of the Commonwealth of Pennsylvania has had the Pennsylvania Professional Liability Joint Underwriting Association ("Joint Underwriting Association" or "Association") in its sights. We have now twice declared unconstitutional the General Assembly's attempts to take the Association's assets as violative of the Fifth Amendment's Takings Clause. Both times, we reasoned that the Association's statutory origin and public purpose do not give the Commonwealth carte blanche over the Association's private property.
The General Assembly has now tried a different tack, one it describes as "giving" rather than "taking." (See Doc. 54 at 13). Act 15 of 2019 purports to fund the Association's operating budget with state appropriations and resource it with state attorneys and office space in exchange for the Association's compliance with various oversight and accountability statutes. See Act of June 28, 2019, P.L. 101, No. 15, § 7 ("Act 15" or "the Act"). The Association resists these measures, seeking a declaration that Act 15 is unconstitutional in toto and a permanent injunction against its enforcement. We conclude that certain aspects of Act 15—specifically, its attempt to force the Association to operate using Commonwealth funding and to litigate using Commonwealth lawyers—once more transgress the United States Constitution. The balance of the Act, however, is an appropriate exercise of state authority over a private entity charged with carrying out a critical public-health mission. We will accordingly grant in part and deny in part the parties’ cross-motions for summary judgment.
The factual backdrop of this litigation is outlined at length in our opinions in Pennsylvania Professional Liability Joint Underwriting 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 have stipulated that the factual records developed in JUA I and JUA II constitute part of the record in this case for purposes of their cross-motions for summary judgment. We reiterate salient facts for context below.
The Joint Underwriting Association is a nonprofit association organized under the laws of the Commonwealth of Pennsylvania. See JUA I, 324 F. Supp. 3d 519, 523 (M.D. Pa. 2018) ; JUA II, 381 F. Supp. 3d 324, 326 (M.D. Pa. 2018). The Association was initially established by the Pennsylvania Health Care Services Malpractice Act, P.L. 390, No. 111 (1975), and later reestablished by the Medical Care Availability and Reduction of Error (MCARE) Act, 40 PA. STAT. AND CONS. STAT. ANN. § 1303.101 et seq.
The General Assembly conceived of the Association in 1975 in response to declining availability of medical malpractice insurance in the Commonwealth. See JUA I, 324 F. Supp. 3d at 523; JUA II, 381 F. Supp. 3d at 326. Through the MCARE Act, the General Assembly tasked the Association to offer medical professional liability ("MPL") insurance to healthcare providers and entities that "cannot conveniently obtain" it through ordinary methods at ordinary market rates. See 40 PA. STAT. AND CONS. STAT. ANN § 1303.732(a). Membership in the Association is mandatory for insurers authorized to write MPL insurance in the Commonwealth. Id. § 1303.731(a).
The MCARE Act assigns four "duties" to the Association, requiring it to (1) submit a plan of operations to the Commonwealth's Insurance Commissioner, (2) submit rates and any modifications for approval by the Insurance Department, (3) offer insurance as described above, and (4) file its schedule of occurrence rates with the Commissioner. Id. § 1303.731(b)(1)-(4). The Association, like other insurers licensed to operate within the Commonwealth, is "supervised" by the Insurance Department. Id. § 1303.731(a); see JUA I, 324 F. Supp. 3d at 525; JUA II, 381 F. Supp. 3d at 328. The MCARE Act otherwise provides that all "powers and duties" of the Association "shall be vested in and exercised by a board of directors." 40 PA. STAT. AND CONS. STAT. ANN § 1303.731(a).
The Association's plan of operations, developed with and approved by the Insurance Department, establishes a 14-member board of directors comprised of the Association's current president, nine directors chosen by the Association's members, and four directors appointed by the Insurance Commissioner. See JUA I, 324 F. Supp. 3d at 525; JUA II, 381 F. Supp. 3d at 328. The plan provides that the Association may be dissolved (1) "by operation of law" or (2) at the request of its members, subject to Commissioner approval. JUA I, 324 F. Supp. 3d at 525 ; JUA II, 381 F. Supp. 3d at 328. The plan also 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." JUA I, 324 F. Supp. 3d at 525 ; JUA II, 381 F. Supp. 3d at 328.
Susan Sersha is the Association's President and Chief Executive Officer. (See Doc. 40-1 ¶ 25; Doc. 56 ¶ 25). Sersha testified that the Association currently maintains a staff of between four and five employees. ). The Association hires and pays its own employees, who do not participate in the State Employees’ Retirement System or receive any other Commonwealth employee benefits. See JUA I, 2017 WL 5625722, at *3 (M.D. Pa. Nov. 22, 2017). The Association operates from a privately leased office in Blue Bell, Pennsylvania. (See Doc. 40-1 ¶¶ 26, 54; Doc. 56 ¶¶ 26, 54). Its lease will expire in October 2021. (See Doc. 40-1 ¶ 26; Doc. 56 ¶ 26).
The Association is obligated under the insurance policies it issues to supply legal counsel for its policyholders. (See Doc. 43 ¶ 51; Doc. 53 ¶ 51; Doc. 58 ¶ 51). It also has an "ongoing need" for advice and representation from corporate counsel, as well as a need "from time to time," as in this case, for litigation counsel. (See Doc. 43 ¶¶ 52-53; Doc. 53 ¶¶ 52-53; Doc. 58 ¶¶ 52-53). The Association independently vets, selects, and retains private counsel for these purposes. (See Doc. 43 ¶¶ 51-53; Doc. 53 ¶¶ 51-53; Doc. 58 ¶¶ 51-53).
Since its inception, the Association has functioned much like a private insurance company. The Association writes insurance policies directly to its insureds, who pay premiums directly to the Association. JUA I, 324 F. Supp. 3d at 525 ; JUA II, 381 F. Supp. 3d at 328. The Association is funded exclusively by policyholder premiums and investment income, which it holds in private accounts in its own name. JUA I, 324 F. Supp. 3d at 525; JUA II, 381 F. Supp. 3d at 328. The Commonwealth has never funded the Association, nor has it ever been responsible for the Association's debts. JUA I, 324 F. Supp. 3d at 525; JUA II, 381 F. Supp. 3d at 328. Indeed, prior to recent legislative enactments, the MCARE Act expressly disclaimed Commonwealth responsibility for claims against and liabilities of the Association. See JUA I, 324 F. Supp. 3d at 537-38; JUA II, 381 F. Supp. 3d at 328.
The Association maintains two pools of assets: its "reserves," which represent funds designated for payment of anticipated claims during the calendar year, and its "surplus," which represents all funds not earmarked as reserves. See JUA I, 324 F. Supp. 3d at 525-26; JUA II, 381 F. Supp. 3d at 328-29. The surplus serves as a safety net or "backstop" of sorts to ensure that the Association can continue to meet its obligations in the event its actuaries underestimate claim maturation or other market factors. See JUA I, 2017 WL 5625722, at *3 ; JUA I, 324 F. Supp. 3d at 526; JUA II, 381 F. Supp. 3d at 329. Sersha testified during a March 2020 deposition that the Association's surplus is approximately $298,276,876. (See Doc. 47 ¶ 6; Doc. 55 ¶ 6; see also Doc. 40-1 ¶ 28; Doc. 56 ¶ 28).
The legal tug-of-war underlying this lawsuit began in 2016, with the General Assembly's first attempt to access the Joint Underwriting Association's assets. Act 85 of 2016 directed the Association to make a $200,000,000 loan to the Commonwealth from the Association's surplus. See Act of July 13, 2016, No. 85, § 18 ("Act 85"). Next came Act 44 of 2017, in which the General Assembly repealed Act 85, declared the Association to be "an instrumentality of the Commonwealth," and ordered the Association, under threat of abolishment, to pay $200,000,000 to the State Treasurer for deposit into the General Fund. See Act of October 30, 2017, No. 44, §§ 1.3, 13 ("Act 44"). Act 41 of 2018, enacted the following year, took the most drastic steps to date, attempting to fold the Association into the Department, shift control of the Association to a board of political appointees, oust the Association's president, and mandate transfer of all of the Association's assets to the Department within 30 days. See Act of June 22, 2018, No. 41, § 3 ...
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