APA Leaders Update Members On Liability Insurance Program
APA leadership and staff continue to monitor closely developments regarding the APA-endorsed Professional Liability Insurance Program (Program or PLIP). We understand that the financial difficulties of the former carrier for the program, Legion Insurance Company, have raised substantial concerns among many members. Although the situation remains complex and many questions are still unanswered, we want to take this opportunity to update you on the situation.
The Program provides malpractice insurance to more than 7,000 members. Since 2002, two member companies of the American Insurance Group (AIG), both rated A++ by A.M. Best, have issued policies under the Program, which provides insurance to members in all states.
It has been more than two years since the previous policy-issuing carrier, Legion Insurance Company, was placed into rehabilitation by order of the Commonwealth Court of Pennsylvania, where Legion was domiciled (Psychiatric News, June 7, 2002).
At that time, the insurance commissioner of Pennsylvania was appointed as statutory rehabilitator. We had hoped that Legion would remain in rehabilitation, which would have permitted the company to continue to operate under the direction of the rehabilitator, but in summer 2002 the rehabilitator petitioned the court to place Legion into liquidation. Assisted by APA, the Psychiatrists’ Purchasing Group (PPG), a private entity that sponsors the Program, successfully petitioned to intervene in the matter to oppose the petition for liquidation. APA also filed a statement of interest with the court, opposing liquidation and describing the Program and the implications for members insured through it should liquidation be ordered (Psychiatric News, November 1, 2002; May 16, 2003).
Despite these efforts and those of others insured by Legion, on June 26, 2003, Judge Leavitt of the Commonwealth Court granted the rehabilitator’s liquidation petition and on July 25, 2003, ordered Legion liquidated. However, Judge Leavitt also granted the requests of PPG and three other policyholder or group interveners that they—and in the case of PPG, the individual psychiatrists insured through the Program—be given direct access to the reinsurance that had been purchased for their benefit.
Like many insurance companies, Legion had obtained reinsurance to cover it for the underlying risks that it assumed when issuing a policy. Ordinarily, only the insurers themselves can collect under such reinsurance contracts. As a result, when an insurer is liquidated, the reinsurance to which it is entitled is usually considered an asset of its insolvent estate. It becomes available to satisfy the claims of all of the insolvent insurer’s creditors and policyholders, not just the policyholders, whose risks are covered by the particular reinsurance at issue. Judge Leavitt exempted PPG, its insureds, and three other policyholder interveners from this treatment—potentially good news for those covered by the Program.
After considering the evidence offered by PPG and the other policyholder interveners, Judge Leavitt found that they were the intended beneficiaries of the Legion reinsurance contracts that pertained to their particular programs. Therefore, the reinsurance available through these contracts was not an asset of Legion’s estate and could not be used to pay the claims of Legion’s other policyholders and creditors. Rather, it could be used only for the benefit of the insureds who were members or participants in the PPG-sponsored program and those related to the three other policyholders or groups. In the case of PPG and the APA-endorsed Program, Legion was reinsured by Transatlantic Reinsurance Company (TRC) for almost all of the risk associated with the policies it issued; Legion itself retained very little risk. TRC is a strong and highly rated reinsurer.
This was an unusual and controversial ruling and was appealed by the Pennsylvania Insurance Commissioner, acting as Legion’s liquidator. The appeal is pending before the Pennsylvania Supreme Court. Briefing—including an amicus brief by APA addressing the issues important to our members—has been completed. It is expected that oral argument will occur sometime this spring, but by press time it had not yet been scheduled.
Despite the appeal and the fact that the litigation is still ongoing, Legion, now run by the Pennsylvania Insurance Department, moved ahead to send notice of the court’s decision and its ordered liquidation to all policyholders who have been insured by Legion over the past seven years. If you were covered by a Legion policy during the time in question, you may have received such a notice last fall from the Pennsylvania Insurance Department’s Office of Liquidations, Rehabilitations, and Special Funds. On its Program Web site, Professional Risk Management Services (PRMS, the administrator of the Program and a Legion subsidiary) advises that if action by an insured is required, the deadline for such action would not be until June 30, 2005.
PPG explains on its Web site, at www.psychpurchasing.com, that because the matter remains in litigation, its counsel believes that no immediate response to the mailing is required at this time. However, if you have received such a notice and have further questions about it, you may contact the Pennsylvania Insurance Department at (215) 979-7879 or PRMS, which also continues to update information about this and related issues on its Web site at www.prms.com.
In addition to the appeal, there has been a sustained level of legal activity as the liquidator, PPG, other interveners, and reinsurers continue to interpret Judge Leavitt’s liquidation order and other rulings and attempt to implement them accordingly. Frequent filings, for example, seeking clarification of specific portions of the rulings, opposing the interpretation and implementation of other parties, seeking to stay the effectiveness of various provisions, supporting additional intervention, and so on, have been briefed, argued, and decided in both the Commonwealth and Pennsylvania supreme courts.
It is not possible to summarize the thousands of pages of pleadings and orders, but some of their effects or possible implications are worth noting. First, Judge Leavitt’s order granting PPG and other interveners direct access to reinsurance purchased for their programs has in effect been stayed until there is a final decision by the Pennsylvania Supreme Court as to whether to uphold or reverse the grant of direct access by the Commonwealth Court. While liquidation, ordered by Judge Leavitt last summer, may proceed, the liquidator may not take any actions without the judge’s approval that would alter the status quo with respect to Judge Leavitt’s grant of direct access to reinsurance. Thus, while the appeal is pending, no additional claims files should be transferred to state guaranty funds. In addition, Judge Leavitt has directed that all court actions against PPG program participants be stayed while the liquidator’s appeal is pending.
Although the Pennsylvania Supreme Court should resolve some of the important issues now in dispute, it is likely that a number of issues will remain even after it has issued its decision. Depending on its ruling, these could include whether premium dollars held by Legion for the relatively small number of claims for which it remains at risk are being held in trust for the benefit of PPG members and should be made available for their benefit rather than being considered assets of the Legion estate; the enforcement of Judge Leavitt’s ruling giving PPG and member insureds direct access to TRC reinsurance; and the extent of coverage under state guaranty funds.
We understand that these complex legal issues are difficult to follow, and we share many members’ frustration at the length of time required by the legal system to clarify where financial responsibility rests for claims filed against psychiatrists during the period in which they were insured by a Legion policy. APA leadership, with the assistance of our attorneys, continues to track these developments closely. A work group has been charged with monitoring the situation. As additional information becomes available, we will share it with you. ▪
Marcia Goin, M.D, is APA president, and Paul Appelbaum, M.D., is immediate past APA president and chair of a work group appointed by Goin to monitor and address developments with regard to the APA-endorsed Psychiatrists’ Professional Liability Insurance Program.
