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Pennsylvania Professional Liability Joint Underwriting Association v. Wolf

United States District Court, M.D. Pennsylvania

July 17, 2019

PENNSYLVANIA PROFESSIONAL LIABILITY JOINT UNDERWRITING ASSOCIATION, Plaintiff
v.
TOM WOLF, in his Official Capacity as Governor of the Commonwealth of Pennsylvania, et al., Defendants

          MEMORANDUM

          Christopher C. Conner, Chief United States District Judge.

         For the fourth time in as many years, the Pennsylvania General Assembly has passed, and Governor Tom Wolf has signed into law, legislation targeting the Pennsylvania Professional Liability Joint Underwriting Association (the “Joint Underwriting Association” or “Association”). The serial enactments have varied in form and function, but the core of each was the same: an attempt to exercise a degree of state control over the Association, its assets, or both. The latest iteration, Act 15 of 2019, compels the Association to participate in the state's annual budget and appropriations processes, to accept representation by Commonwealth attorneys, to conduct its operations from Commonwealth-owned facilities, and to comply with certain laws promoting government accountability and transparency. The Association, also for the fourth time, has commenced a lawsuit asking the court to declare the legislation unconstitutional and permanently enjoin its enforcement. Before the court is the Association's request for a preliminary injunction.

         I. Background

         The Joint Underwriting Association initiated this lawsuit with the filing of a verified complaint on July 1, 2019, just three days after Act 15 was signed into law. The Association asserts that Act 15 violates its rights under the Substantive Due Process Clause (Count I), the Takings Clause (Count II), the Contract Clause (Count III), and the Procedural Due Process Clause and First Amendment (Count IV). The verified complaint names two defendants: (1) Tom Wolf, in his capacity as Governor of the Commonwealth of Pennsylvania, and (2) the General Assembly of the Commonwealth of Pennsylvania.

         The Association immediately moved for a temporary restraining order and preliminary injunction. We denied the request for a temporary restraining order but expedited proceedings on the request for a preliminary injunction, hearing argument on the Association's motion on July 12, 2019. The parties agreed that, for purposes of this motion, the factual records developed in two prior lawsuits- Pennsylvania Professional Liability Joint Underwriting Ass'n v. Wolf, No. 1:17-CV-2041 (M.D. Pa.), and Pennsylvania Professional Liability Joint Underwriting Ass'n v. Wolf, No. 1:18-CV-1308 (M.D. Pa.)-constitute part of the record of this case. Accordingly, the findings of fact that follow are largely adopted from the court's summary judgment opinions in JUA I and JUA II, with emphasis and reiteration of facts most pertinent to the nuanced claims in this case.

         II. Findings of Fact

         The Joint Underwriting Association is a nonprofit association organized under the laws of the Commonwealth of Pennsylvania. See Pa. Prof'l Liab. Joint Underwriting Ass'n v. Wolf (“JUA I”), 324 F.Supp.3d 519, 523 (M.D. Pa. May 17, 2018); Pa. Prof'l Liab. Joint Underwriting Ass'n v. Wolf (“JUA II”), No. 1:18-CV-1308, __ F.Supp.3d__, 2018 WL 6617702, at *1 (M.D. Pa. Dec. 18, 2018). The Association was initially established by the Pennsylvania Health Care Services Malpractice Act, P.L. 390, No. 111 (1975), and later reestablished by the Medical Care Availability and Reduction of Error (MCARE) Act, 40 Pa. Stat. and Cons. Stat. Ann. § 1303.101 et seq.

         A. The Joint Underwriting Association

         The General Assembly created the Association in response to a decline in the availability of medical malpractice insurance in the Commonwealth in the mid-1970s. JUA I, 324 F.Supp.3d at 523; JUA II, 2018 WL 6617702, at *1. The MCARE Act tasks the Association to offer medical professional liability insurance to health care providers and entities that “cannot conveniently obtain medical professional liability insurance” through ordinary methods at ordinary market rates. 40 Pa. Stat. and Cons. Stat. Ann § 1303.732(a). Membership in the Association is mandatory for all insurers authorized to write medical professional liability insurance in the Commonwealth. Id. § 1303.731(a).

         The MCARE Act assigns four “duties” to the Association, requiring it to: (1) submit a plan of operations to the Commonwealth's Insurance Commissioner (“Commissioner”), (2) submit rates and any rate modifications for approval by the Insurance Department (“Department”), (3) offer insurance as described above, and (4) file its schedule of occurrence rates with the Commissioner. Id. § 1303.731(b)(1)-(4). The Association, like other insurers licensed to operate in the Commonwealth, is “supervised” by the Department. Id. § 1303.731(a); see JUA I, 324 F.Supp.3d at 525; JUA II, 2018 WL 6617702, at *2. The MCARE Act otherwise provides that all “powers and duties” of the Association “shall be vested in and exercised by a board of directors.” 40 Pa. Stat. and Cons. Stat. Ann § 1303.731(a). The Association's plan of operations, developed with and approved by the Department, establishes a 14-member board of directors comprised of the Association's current president, nine directors chosen by the Association's members, and four directors appointed by the Commissioner. JUA I, 324 F.Supp.3d at 525; JUA II, 2018 WL 6617702, at *2. The plan provides that the Association may be dissolved (1) “by operation of law” or (2) at the request of its members, subject to Commissioner approval. JUA I, 324 F.Supp.3d at 525; JUA II, 2018 WL 6617702, at *2. The plan also 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.” JUA I, 324 F.Supp.3d at 525; JUA II, 2018 WL 6617702, at *2.

         Since its inception, the Association has functioned much like a private insurance company. The Association writes insurance policies directly to its insureds, who pay premiums directly to the Association. JUA I, 324 F.Supp.3d at 525; JUA II, 2018 WL 6617702, at *3. The Association is funded exclusively by policyholder premiums and investment income, which it holds in private accounts in its own name. JUA I, 324 F.Supp.3d at 525; JUA II, 2018 WL 6617702, at *3. The Commonwealth has never previously funded the Association, nor has it ever been responsible for the Association's debts. JUA I, 324 F.Supp.3d at 525; JUA II, 2018 WL 6617702, at *3. Indeed, prior to recent enactments signed by Governor Wolf, the MCARE Act expressly disclaimed Commonwealth responsibility for claims against and liabilities of the Association. See JUA II, 2018 WL 6617702, at *3.

         The Association hires its own employees, who are paid by the Association, are not part of the Pennsylvania State Employees' Retirement System, and do not receive any other Commonwealth employee benefits. See JUA I, No. 1:17-CV-2041, 2017 WL 5625722, at *3 (M.D. Pa. Nov. 22, 2017); (Doc. 4-1 ¶¶ 40-42). The Association leases real estate in its own name without Commonwealth involvement, see JUA I, 2017 WL 5625722, at *3; (Doc. 4-1 ¶ 43), and is presently party to a noncancellable lease for private office space in Blue Bell, Pennsylvania, through September 2022, (see Doc. 4-1 ¶ 45; Doc. 14-3). The Association has always retained private legal counsel and has never been represented by Commonwealth attorneys or their designees. See JUA I, 2017 WL 5625722, at *3; (Doc. 4-1 ¶¶ 55-56).

         The Association maintains two pools of assets: its “reserves, ” which represent funds designated for payment of anticipated claims during the calendar year, and its “surplus, ” which represents all funds not earmarked as reserves. JUA I, 324 F.Supp.3d at 525-26; JUA II, 2018 WL 6617702, at *3. The surplus serves as a safety net of sorts in the event that actuaries underestimate claim maturation or other market factors. JUA I, 2017 WL 5625722, at *3; JUA I, 324 F.Supp.3d at 526; JUA II, 2018 WL 6617702, at *3. As of December 2016, the Association had a surplus of $268, 124, 502. JUA I, 324 F.Supp.3d at 526; JUA II, 2018 WL 6617702, at *3.

         B. Prior Legislative ...


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