Judge denies Pa. Insurance Dept. bid to liquidate insurers - Pittsburgh Post Gazette
May 14, 2012 12:02 am
By Gina Passarella / The Legal Intelligencer
For what appears to be the first time in the state's history, a Commonwealth Court judge has denied the Pennsylvania Insurance Department's request to liquidate two insurers and offered some strong language about the department's failure to help rehabilitate the insurers.
In a 173-page opinion, Judge Mary Hannah Leavitt denied a request by Michael F. Consedine, Pennsylvania's insurance commissioner, to liquidate Penn Treaty Network America Insurance Co. and its subsidiary, American Network Insurance Co.
Mr. Consedine had been brought in to rehabilitate the two long-term care insurers, but then requested those rehabilitations be converted into liquidations, according to the opinion in Consedine v. Penn Treaty Network America Insurance.
"The insurance commissioner, wearing his hat as a regulator of the Pennsylvania insurance industry, refused to approve the companies' actuarially justified rate increase filings in the amount requested, both before and after rehabilitation," Judge Leavitt said. "The commissioner has even discouraged other state regulators from approving rate increases. Now the commissioner seeks to liquidate the companies because their premium rates are inadequate."
Finding that Mr. Consedine did not undertake a meaningful effort to rehabilitate the companies and "to the contrary, has acted to frustrate rehabilitation," Judge Leavitt denied the petitions and ordered the commissioner to create a plan for rehabilitation for the companies within 90 days. The plan must address and eliminate the "unfairly discriminatory" premium rates for the companies' older insurance plans, she said.
According to Judge Leavitt's opinion, the two insurers have a combined $1 billion in assets, no debt and are meeting all of their obligations as they come due. The companies' cash flow is in excess of $200 million per year and has been sufficient to pay all policyholder claims in full and on a timely basis.
The companies are insolvent, however, because their existing premium rates are too low to fund all expected future claims and the companies cannot non-renew those underpriced policies, she said.
Both insurers agreed to enter rehabilitation in 2009 under then-Commissioner Joel Ario, and the commissioner was appointed the statutory rehabilitator.
In order for a rehabilitation to be converted to a liquidation, the rehabilitator must prove that continued rehabilitation is either futile or will substantially increase the risk of loss to policyholders, creditors and the public, Judge Leavitt said.
The judge called "unfounded" the rehabilitator's claims that the companies masked their true financial health and it was only after his examination that the truth was unearthed.
Douglas Y. Christian of Ballard Spahr, an attorney for the insurance companies, said this is the first time he has ever seen a court deny the Insurance Department's petition for liquidation. He said long-term care policies are different from other policies in that they are guaranteed to be renewed. Mr. Christian said there needs to be room for the insurers of such policies to increase premium rates if the payouts are going to exceed what they have coming in.
Thomas S. Harty of Cozen O'Connor represented the insurance commissioner and did not return a call for comment.
14 May, 2012
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