JUA policyholders begin making their case against state

The opening shots of the legal battle waged by policyholders of the New Hampshire Medical Malpractice Joint Underwriting Association (JUA) to prevent the state from using $110-million of the association's fund to balance its budget were fired before Justice Kathleen McGuire in Belknap County Superior Court yesterday. The justice is expected to rule on whether the N.H. attorney general can fairly represent the JUA's interests by Thursday, when a hearing on the merits of the policyholder's case is scheduled.

The state created the JUA in 1975, when private insurers failed to offer malpractice coverage. The JUA operates much like a mutual insurance company, meetings its claims and overhead from the premiums paid by policyholders. The rules, drafted by the Insurance Department and approved by the Legislature, provide that if JUA accumulates a surplus, that is if premiums "exceed the amount necessary to pay losses and expenses," then "the board shall . . . distribute such excess to those health care providers covered by the association, in such a manner as is just and equitable." This provision is mirrored in the contracts between the JUA and its individual policyholders, among them LRGHealthcare, one of three named plaintiffs in the suit, which pays $1.1-million in annual premiums.

Later today, the Legislature will vote on the 2010-2011 budget, which includes the JUA's surplus calculated at $110-million. Last week the policyholders staked their claim to the money by filing suit. They asked the court to compel the directors of the JUA to confirm the amount of the surplus and distribute it to policyholders in keeping with the terms of their contracts and the letter of the law. At the same time, they sought an order prohibiting the Insurance Department from hindering the JUA in performing its duty, an injunction to halt the transfer of any funds from the JUA to the state treasury and an attachment of the funds in dispute. Finally, the policyholders asked the court to disqualify the attorney general from representing the JUA, citing a conflict of interest.

The hearing yesterday was confined to the motion to disqualify the attorney general. But, Associate Attorney General Anne Edwards countered by asking the court to disqualify the attorney for the policyholders, Nixon Peabody, LLP, claiming that the firm had a conflict of interest.

However, prior to the hearing Edwards agreed that the state would not seek to have funds transferred to the treasurer until the court ruled on the policyholders' motion to attach the money.

Representing the policyholders, Kevin Fitzgerald argued that although the JUA was established by the Insurance Department under authority granted by legislation, it is not a state agency, but operates as an "autonomous voluntary association" under the the authority of its board of directors. Unlike state agencies, which have obligations to all citizens, he said that the JUA has fiduciary obligations to its policyholders with whom it has entered contracts. In the circumstances, he emphasized, the interest of the state in transferring the JUA's surplus to the general fund is at odds with the fiduciary duty of the board to serve the interests of the policyholders. Therefore, Fitzgerald insisted, for the attorney general to represent both the state and the JUA would be "an irreconcilable conflict of interest."

For the state, Edwards claimed that the JUA is "part of the government," created and supervised by the insurance commissioner, who appoints its directors and hears appeals of their rulings under the authority of rules approved by the Legislature. Moreover, since the rules were amended last December, the commissioner must review and approve any distribution of the surplus to policyholders.

"As officials of the state," Edwards contended, "the JUA Board of Directors, collectively and individually, does not and cannot have interests adverse to those of the insurance commissioner such that a potential or actual conflict arises from representation of all parties by the New Hampshire Attorney General's Office."

McGuire asked if the board of the JUA, which by rule shall distribute a surplus to policyholders, could bring legal action if the commissioner refused to approve a distribution. "No," answered Edwards.

Earlier McGuire had asked Fitzgerald if the state either provided funds or guaranteed funding to the JUA. "The JUA gets zero dollars from the general fund of the state of New Hampshire," he said, "and under the rules the state could not be a guarantor. The state has never contributed a single penny," he continued. "Nor are they obligated to do so."

Asked the same question, Edwards acknowledged that the state did not fund the JUA, but claimed that it acted as a guarantor by granting the JUA board authority to assess all private insurance carriers as well as its policyholders in the event it lacked the funds to meet its liabilities.

Turning the tables on Fitzgerald, Edwards asked the court to disqualify NixonPeabody as counsel for the policyholders. She explained that attorneys from the firm's San Francisco office represent the Home Insurance Company, which is in liquidation, and that Insurance Commissioner Roger Sevigny , who is a defendant in the action brought by the JUA policyholders, is the liquidator. Edwards told McGuire that the Attorney General had been prepared to waive the conflict until Fitzgerald filed the pleadings on behalf of the policyholders.

Edwards noted that the pleadings began with the commandment "thou shalt not steal," proceeded to apply words like "theft," "raid" and "plunder" to the proposed transfer of funds from the JUA and suggested that Sevigny colluded with the attorney general to effect the transfer of funds. Referring to "personal attacks" that impugned the character and integrity of the commissioner, she claimed that the pleadings would be cited to diminish Sevigny's stature and authority in the liquidation proceedings. Identifying the company and the liquidator, she said "if the liquidator's own attorneys said these things about him, the pleadings will be used."

Fitzgerald stressed that Nixon Peabody represented Home Insurance Company, not Sevigny, with whom it had no connection, and while conceding the language of the pleadings may have been "exaggerated," insisted it applied generally to the government — the governor and Legislature as well as the Insurance Department — but not to Sevigny personally.

"I'm not seeing this as such a big problem," said McGuire.

McGuire said that she expected to rule on the motions to disqualify by Thursday, when a second hearing on the merits of the case and other motions is scheduled. She indicated that she may request that the hearing be deferred to a later date.