APA Urges Judge to Keep Legion From Liquidation

It has been over a year since the commissioner of the Pennsylvania Insurance Department, which regulates Philadelphia-based Legion, petitioned the Commonwealth Court of Pennsylvania to place Legion in rehabilitation. Since the time that motion was granted, Legion has operated under the control of the department, which oversees its finances and maintains its day-to-day operations. As long as it remains in rehabilitation, Legion remains responsible for claims brought against psychiatrists who are insured under policies it issued.

In late August 2002, however, the rehabilitator petitioned the court for an order of liquidation. Judge Mary H. Leavitt appears to be subjecting the rehabilitator’s claim that Legion should be placed in liquidation to very close scrutiny. A number of concerned parties, including the Psychiatrists’ Purchasing Group (PPG), the current sponsor of the Psychiatrists’ Professional Liability Insurance Program (the Program), have successfully intervened in the proceeding and are actively opposing liquidation, arguing that Legion should remain in rehabilitation. As long as it does so, claims should be covered as they have been in the past.

Intervenors, including Legion’s parent, MRM, are questioning whether Legion is in fact currently insolvent and whether it could actually be spared from liquidation altogether. One focus is the potential viability of Legion should it obtain access to the reinsurance coverage it had obtained and the likelihood that those funds will become available. APA assisted PPG in its petition to intervene and also filed a statement of interest with the court detailing the adverse consequences to psychiatrists and their patients should Legion be liquidated.

PPG, with APA’s support, is also arguing that even if the liquidation of Legion is ordered, the court has the authority to order that psychiatrist insureds should be granted direct access to reinsurance purchased specifically for the Program from Transatlantic Reinsurance Company (TRC), the Program’s reinsurance carrier, which remains strong. This arrangement—known as a “cut-through”—would provide a greater measure of protection for most psychiatrists insured through the Program, but it is not a typical outcome. When an insurance carrier is liquidated, reinsurance funds from all programs are usually placed into a general fund that is accessed to satisfy all policyholders, regardless of the reinsurance for their individual programs, and other creditors in the manner specified by statute.

Several hearing sessions have been held, the last on March 6 and 7, during which PPG witnesses testified in opposition to the rehabilitator’s motion. PPG Chair Alan I. Levenson, M.D., testified, explaining why Legion should remain in rehabilitation and not declared insolvent and why a “cut-through” to TRC reinsurance coverage would be appropriate.

Martin Tracy, chief executive officer of Professional Risk Management Services (PRMS), also testified on behalf of PPG. Charles Gruber, who has served as actuary for the Program since 1987, provided further support for PPG’s position, testifying as to the projected losses for the Program.

Post-hearing briefing is currently in process. PPG has filed its initial brief, including findings of fact. The rehabilitator’s brief was due on May 9; final responsive briefs are to be filed by May 19. In addition to assisting PPG in connection with its intervention, APA leadership continues to monitor this situation closely, working with PRMS and PPG to obtain up-to-date information for members.

If you have specific questions about your policy, please contact PRMS by phone at (800) 245-3333 or by e-mail at [email protected]. As we learn more, we will use the pages of Psychiatric News and other means as appropriate to keep you updated. Updates are also being posted on the PRMS Web site at www.psychprogram.com. ▪