United States District Court, M.D. Pennsylvania
PENNSYLVANIA PROFESSIONAL LIABILITY JOINT UNDERWRITING ASSOCIATION, Plaintiff
TOM WOLF, in his Official Capacity as Governor of the Commonwealth of Pennsylvania, Defendant
CHRISTOPHER C. CONNER, CHIEF JUDGE
October 30, 2017, defendant Tom Wolf, in his capacity as
Governor of the Commonwealth of Pennsylvania, signed into law
Act 44 of 2017, P.L. 725, No. 44 (“Act 44”). The
Act, inter alia, mandates that the Pennsylvania Professional
Liability Joint Underwriting Association (“Joint
Underwriting Association” or “Association”)
transfer $200, 000, 000 of its “surplus” funds
for deposit into the Commonwealth's General Fund by
Friday, December 1, 2017. Act 44 includes a
“sunset” provision purporting to abolish the
Association should it fail to comply with its deadline. The
Association seeks a declaration that Act 44 violates the
United States Constitution.
Factual Background & Procedural
Joint Underwriting Association is a nonprofit association
organized under the laws of the Commonwealth of Pennsylvania.
(See Doc. 60 ¶ 1; Doc. 72 ¶ 1; Doc. 74 ¶ 1).
The General Assembly created the Association in 1975 in
response to a “hard market” for medical
malpractice insurance in the Commonwealth. (See Doc. 63
¶ 1; Doc. 65 ¶ 2). The Association was initially
established and organized by the Pennsylvania Health Care
Services Malpractice Act of 1975, P.L. 390, No. 111
(“Act 111”). The General Assembly repealed Act
111 on March 20, 2002, enacting in its place the Medical Care
Availability and Reduction of Error Act (“MCARE
Act”), 40 Pa. Stat. & Cons. Stat. Ann. §
1303.101 et seq.
The MCARE Act and the Joint Underwriting Association
MCARE Act is a sweeping piece of legislation. The Act's
overarching goal is to ensure a “comprehensive and
high-quality health care system” for the citizens of
the Commonwealth. Id. § 1303.102(1). In pursuit
of this objective, the Act seeks to guarantee that medical
professional liability insurance is “obtainable at an
affordable and reasonable cost, ” to ensure prompt and
fair resolution of medical negligence cases, and to reduce
and eliminate medical errors. Id. §
1303.102(3)-(5). The Act includes patient safety rules and
reporting obligations, see Id. §§
1303.301-.315, establishes requirements relating to reduction
and prevention of health care associated infections, see
Id. §§ 1303.401-.411, and develops
standards for medical professional liability litigation and
compensation, see Id. §§ 1303.501-.516.
MCARE Act also establishes a Medical Care Availability and
Reduction of Error Fund (“the MCARE Fund”). See
Id. §§ 1303.711-.716. The General Assembly
designed the MCARE Fund as a “special fund”
within the state treasury to be administered by the Insurance
Department of Pennsylvania (“the Department”).
Id. §§ 1303.712(a), -.713(a). The Fund
provides a secondary layer of medical professional liability
coverage for physicians, hospitals, and other health care
providers in the Commonwealth. See Id. §
1303.711(g). It is funded primarily by annual assessments
(“MCARE assessments”) on health care providers as
a condition of practicing in the Commonwealth. See
Id. § 1303.712(d)(1).
the MCARE Act continues operation of the Joint Underwriting
Association. Id. § 1303.731(a). Unlike the
MCARE Fund, the General Assembly did not establish the
Association as a “special fund” or a traditional
agency within the Commonwealth's governmental structures.
See id.; cf. Id. §§ 1303.712(a),
-.713(a). Instead, the General Assembly
“established” the Association as “a
nonprofit joint underwriting association to be known as the
Pennsylvania Professional Liability Joint Underwriting
Association.” Id. § 1303.731(a). Like its
predecessor, see Act 111, § 802, the MCARE Act mandates
membership in the Association for insurers authorized to
write medical professional liability insurance in the
Commonwealth, 40 Pa. Stat. & Cons. Stat. Ann. §
1303.731(a). Currently, the Association has 621 member
insurance companies. (Doc. 60 ¶ 43).
Association is charged by statute with offering medical
professional liability insurance to health care providers and
entities who “cannot conveniently obtain medical
professional liability insurance through ordinary methods at
rates not in excess of those applicable to [those] similarly
situated.” 40 Pa. Stat. & Cons. Stat. Ann §
1303.732(a). The MCARE Act sets forth broad parameters for
achieving this objective, to wit:
[Joint Underwriting Association] shall ensure that the
medical professional liability insurance it offers does all
of the following:
(1) Is conveniently and expeditiously available to all health
care providers required to be insured under section 711.
(2) Is subject only to the payment or provisions for payment
of the premium.
(3) Provides reasonable means for the health care providers
it insures to transfer to the ordinary insurance market.
(4) Provides sufficient coverage for a health care provider
to satisfy its insurance requirements under section 711 on
reasonable and not unfairly discriminatory terms.
(5) Permits a health care provider to finance its premium or
allows installment payment of premiums subject to customary
terms and conditions.
Id. § 1303.732(b)(1)-(5). The Association
insures “all comers” who certify that they cannot
obtain coverage at competitive rates. (P.I. Hr'g Tr.
11:3-13:8; Doc. 60 ¶ 42). According to the Association,
its insureds generally fall into four categories: (1)
providers with a history of malpractice occurrences, (2)
providers practicing high-risk specialties, (3) providers who
have gaps in coverage, or (4) providers reentering the
medical profession after loss or suspension of license or
voluntary withdrawal from practice. (Doc. 60 ¶ 42).
Association, like other insurers in the Commonwealth, is
“supervised” by the Department through the
Insurance Commissioner (“Commissioner”). 40 Pa.
Stat. & Cons. Stat. Ann. § 1303.731(a); see, e.g.,
Id. §§ 221.1-a to -.15-a, 1181-99. The
MCARE Act prescribes four “duties” to the
Association. Id. § 1303.731(b). It requires the
Association to submit a plan of operations to the
Commissioner for approval. Id. §
1303.731(b)(1). It tasks the Association to submit rates and
any rate modifications for Department approval. Id.
§ 1303.731(b)(2) (incorporating 40 Pa. Stat. & Cons.
Stat. Ann. §§ 1181-99). It requires the Association
to “[o]ffer medical professional liability insurance to
health care providers” as described above. See
Id. § 1303.731(b)(3). And it directs the
Association to file its schedule of occurrence rates with the
Commissioner, which she uses to set a “prevailing
primary premium” for calculating the annual MCARE
assessments for all health care providers in the
Commonwealth. Id. § 1303.731(b)(4)
(incorporating 40 Pa. Stat. & Cons. Stat. Ann. §
1303.712(f)). The Act insulates the Commonwealth from the
Association's debts and liabilities. Id. §
MCARE Act provides that all “powers and duties”
of the Association “shall be vested in and exercised by
a board of directors.” Id. § 1303.731(a).
The board's composition, and all of the Association's
operative principles, are set forth in a plan of operations
developed by the Association with Department assistance and
approval. (Doc. 60 ¶ 44; Doc. 63 ¶¶ 13-16);
see also 40 Pa. Stat. & Cons. Stat. Ann. §
1303.731(b)(1). The plan establishes a 14-member board of
directors, which consists of the current Association
president; eight representatives of member companies chosen
by member voting; one agent or broker elected by members; and
four health care provider or general public representatives
who may be nominated by anyone and are appointed by the
Commissioner. (Doc. 60 ¶ 45). Under the plan, the
Association may be dissolved (1) “by operation of law,
” or (2) at the request of its members, subject to
Commissioner approval. (Id. ¶ 46). The plan
provides that, “[u]pon dissolution, all assets of the
Association, from whatever source, shall be distributed in
such manner as the Board may determine subject to the
approval of the Commissioner.” (Id. ¶
Joint Underwriting Association writes insurance policies
directly to its insured health care providers. (See Doc. 63
¶ 27; Doc. 65 ¶ 19). Policyholders pay premiums
directly to the Association. (See Doc. 60 ¶ 65). The
Association is funded exclusively by policyholder premiums
and investment income. (Id. ¶ 54). It is not
and has never been funded by the Commonwealth, and it holds
all premiums and investment funds in private accounts in its
own name. (Id. ¶¶ 51, 54, 65-69). The
Association currently insures approximately 250
policyholders. (Doc. 63 ¶ 26; Doc. 65 ¶ 20). The
typical medical professional liability policy issued by the
Association covers a one-year period, with a limit of $500,
000 per claim and aggregate limits of $1, 500, 000 for
individuals and $2, 500, 000 for hospitals. (Doc. 63 ¶
Association maintains contingency funds-its
“reserves” and its “surplus”-which
allow the Association to fulfill its insurance obligations in
the event of greater-than-anticipated claims or losses. (See
Doc. 60 ¶¶ 108-12). An insurer's
“reserves” are the “best estimate of funds
. . . need[ed] to pay for claims that have been incurred but
not yet paid.” (Id. ¶ 109). Its
“surplus” represents “capital after all
liabilities have been deducted from assets.”
(Id. ¶ 111). The surplus operates as a
“backstop” to ensure that unforeseen events do
not impede an insurer's ability to meet obligations to
its insureds. (Id. ¶ 112). As of December 31,
2016, the Joint Underwriting Association maintained a surplus
of approximately $268, 124, 500. (See Id. ¶
115; Doc. 63 ¶ 32; Doc. 65 ¶¶ 23, 30).
Act 85 of 2016
13, 2016, Governor Wolf signed into law Act 85 of 2016, P.L.
664, No. 85 (“Act 85”). Act 85 is wide-ranging in
scope, but its principal effect was to amend the General
Appropriation Act of 2016 and balance the Commonwealth's
budget. Act 85, § 1. Among other things, Act 85 provides
for certain transfers to the Commonwealth's General Fund.
See Id. § 1(7). Pertinent sub judice,
Section 18 of Act 85 amends the Commonwealth's Fiscal
Code to require a $200, 000, 000 transfer to the General Fund
from the Joint Underwriting Association The relevant language
Notwithstanding Subchapter C of Chapter 7 of [the MCARE Act]
the sum of $200, 000, 000 shall be transferred from the
unappropriated surplus of the Pennsylvania Professional
Liability Joint Underwriting Association to the General Fund
The sum transferred under this section shall be repaid to the
Pennsylvania Professional Liability Joint Underwriting
Association over a five-year period commencing July 1, 2018.
An annual payment amount shall be included in the budget
submission required under Section 613 of the Act of April 9,
1929 (P.L. 177 No. 175) known as the Administrative Code of
Id. § 18 (codified prior to repeal at 72 Pa
Stat & Cons Stat Ann § 1726-C).
Association did not transfer funds to the Commonwealth
pursuant to Act 85 (Doc 60 ¶ 96) On May 18 2017 the
Association commenced a lawsuit-also pending before the
undersigned-challenging the constitutionality of Act 85 See
Pa Prof'l Liab Joint Underwriting Ass'n v
Albright No. 1:17-CV-886 Doc 1 (M.D. Pa.). The lawsuit
names as the sole defendant Randy Albright in his capacity as
the Commonwealth's Secretary of the Budget Id.
Doc. 12 Secretary Albright moved to dismiss the
Association's complaint on August 22, 2017. Id.
Doc 14 That motion is held in abeyance pending resolution of
the Association's claims herein
Act 44 of 2017
Wolf signed Act 44 into law on October 30, 2017 in another
attempt to bring balance to the state budget Act 44 § 1
Therein the General Assembly expressly repeals Act 85
Id. § 13 Act 44 inter alia amends the
Fiscal Code to include certain “findings”
concerning the Joint Underwriting Association's
relationship to the Commonwealth and the nature of its
unappropriated surplus. Id. § 1.3. The General
Assembly in Act 44 specifically “finds” as
(1) As a result of a decline in the need in this Commonwealth
for the medical professional liability insurance policies
offered by the joint underwriting association under
Subchapter B of Chapter 7 of the MCARE Act, and a decline in
the nature and amounts of claims paid out by the joint
underwriting association under the policies, the joint
underwriting association has money in excess of the amount
reasonably required to fulfill its statutory mandate.
(2) Funds under the control of the joint underwriting
association consist of premiums paid on the policies issued
under Subchapter B of Chapter 7 of the MCARE Act and income
from investment. The funds do not belong to any of the
members of the joint underwriting association nor any of the
insureds covered by the policies issued.
(3) The joint underwriting association is an instrumentality
of the Commonwealth. Money under the control of the joint
underwriting association belongs to the Commonwealth.
(4) At a time when revenue receipts are down and the economy
is still recovering, the Commonwealth is in need of revenue
from all possible sources in order to continue to balance its
budget and provide for the health, ...