New Hampshire Fight over Malpractice Fund Surplus Continues

By | May 26, 2010

The tug-of-war over surplus money in a state-created malpractice insurance fund intensified Monday, with the insurance commissioner seeking to change the fund’s rules and the policyholders heading back to court.

The Joint Underwriting Association fund was created by the Insurance Department in 1975 to provide affordable medical malpractice insurance to high-risk health care providers. It’s been at the center of a dispute since last year, when the governor and Legislature tried to use $110 million in surplus money from the fund to balance the state budget.

Both a superior court judge and the state Supreme Court have rejected the state’s claim to the money and sided with policyholders, who argue they have a constitutionally protected contractual right to the money. Those rulings left policyholders expecting at least some of the money to be distributed as dividends to doctors and other health care providers, but Gov. John Lynch has continued to insist the money belongs to taxpayers.

Insurance Commissioner Roger Sevigny has instructed the JUA’s board of directors not to take any action on surplus money until he completes a financial examination of the plan, which could take many months.

“I have no plans to distribute anything to any policyholder at anytime,” he said.

Sevigny argues that by challenging the fund’s status as a public entity, the policyholders have threatened the plan’s exemption from taxation by the federal government. On Monday, he proposed new rules that he said would clarify long-standing aspects of the plan’s operation that support its tax-exempt status, and would eliminate any possibility of dividends for policyholders in the future.

Deputy Insurance Commissioner Alex Feldvebel said the JUA faces a potential tax liability of $100 million if it loses its tax-exempt status. Any distributions to policyholders would threaten the fund’s public purpose of ensuring that consumers have access to the health care providers they need, he said.

“That purpose is greatly aided by the tax-exempt status of the JUA,” he said. “The plaintiffs appear to place no value in establishing the tax-exempt status, and their interest appears to be in getting a windfall at the expense of the ability of JUA to continue to serve its important public purpose.”

Lawyers for the policyholders called the proposed changes an attempt to rewrite history and give the commissioner exclusive control over the JUA and any surplus money.

“It’s pretty much as outrageously unconstitutional, illegal and in-your-face as it gets,” said Kevin Fitzgerald.

He filed an urgent petition with the state Supreme Court on Monday asking it to stop the state from doing anything that would interfere with the policyholders’ rights, or as lawyer Scott O’Connell put it, “Tell the governor to stop claiming these monies belong to the state,” “tell the attorney general to stop trying to represent the JUA board, which has independent fiduciary duties,” and “tell the insurance commissioner to stop asking like this is his money.”

“This is third-world dictatorship we’re seeing here,” he said.

The lawyers said they expect the court to decide whether to accept the case in about a week.

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