Underwriting association says state officials' budget transfer of $200 million is unconstitutional

By Nicholas Malfitano | May 31, 2017

HARRISBURG – A nonprofit joint underwriting association based in Blue Bell has sued Pennsylvania’s Treasurer and Budget Secretary, claiming an act of the General Assembly unlawfully took $200 million from the association and transferred it to the state’s general fund.

On May 18, the Pennsylvania Professional Liability Joint Underwriting Association (JUA) filed suit in the U.S. District Court for the Middle District of Pennsylvania, versus Treasurer Joseph M. Torsella and Budget Secretary Randy Albright.

The JUA was established by the General Assembly in 1975 pursuant to the Pennsylvania Health Care Services Malpractice Act, to “offer medical professional liability insurance to health care providers and professional corporations, professional associations and partnerships which are entirely owned by health care providers who cannot conveniently obtain medical professional liability insurance through ordinary methods at rates not in excess of those applicable to similarly situated health care providers, professional corporations, professional associations or partnerships.”

The suit makes sure to note the JUA “is not and never has been an agency or instrumentality of the Commonwealth of Pennsylvania” and “the Commonwealth of Pennsylvania does not fund – and has never funded – any of the JUA’s operations, nor has any of the JUA’s operations ever been funded by its members.” Rather, the JUA is funded – and has always been funded – entirely by policyholder premiums and investment income and returns, per the lawsuit.

On July 13, 2016, Pennsylvania Governor Tom Wolf approved Act 85, whose Section 1 implements the 2016-2017 Commonwealth budget, with its various portions amending the General Appropriation Act of 2016.

Section 18 of Act 85 amends the General Appropriation Act of 2016 by, among other things, adding a new section 1726-C on July 13, 2016, providing for certain fund transfers.

Specifically, Section 18 transferred $200 million from the JUA’s unappropriated surplus to the General Fund and provided for that money to be repaid annually to the JUA by the state over a five-year period beginning July 1, 2018.

“This provision, in short, purportedly transfers $200,000,000 from the JUA to the Commonwealth in order to permit the Commonwealth to balance its budget, even though the JUA is a private entity, not an agency or other instrumentality of the Commonwealth, and the assets that Act 18 purports to transfer from JUA were not contributed by the Commonwealth and the Commonwealth has no ownership or other property interest in those assets,” the suit says.

The suit adds the transfer of the $200 million will have “dire and severe negative effects on the JUA and its ability to fulfill its statutory mandate.”

“As of Dec. 31, 2016, the JUA maintained a surplus in the amount of $268,124,502. Thus, the transfer contemplated by Act 85 would require the JUA to turn over to the Commonwealth nearly 75% of the surplus it has taken 15 years to build,” the complaint reads. “[It was mandating] $200,000,000 of a private entity’s assets simply be handed over to the Commonwealth on a tenuous, non-binding and unenforceable requirement that the Commonwealth repay that amount (without interest or covering transaction costs to the JUA) over a five-year period.”

According to the complaint, Section 18 of Act 85, if enforced, would have a “potentially irreparable effect on the JUA’s ability to serve the healthcare providers the JUA has established to insure both past and future.”

The JUA believes Section 18 of Act 85 defies federal law in 42 U.S.C. Section 1983 through due process violation and violates Article I, Section X, Clause I of the U.S. Constitution, as well as its Fifth and Fourteenth Amendments. 

The JUA is also seeking declaratory judgment that Act 85 is invalid, unconstitutional and unenforceable under the U.S. Constitution’s Fifth and Fourteenth Amendments and its Contract Clause, and the Pennsylvania Constitution’s Article I, Sections 1, 10 and 17 and Article III, Sections 1 and 11, plus awarding the JUA all fees and costs incurred in this action, including all reasonable attorneys’ fees pursuant to 42 U.S.C. Section 1988, and granting such other relief as this Court shall deem just and equitable under the circumstances.

The plaintiff is represented by Robert L. Byer and Brian J. Slipakoff of Duane Morris, in Philadelphia.

U.S. District Court for the Middle District of Pennsylvania case 1:17-cv-00886

From the Pennsylvania Record: Reach Courts Reporter Nicholas Malfitano at nickpennrecord@gmail.com

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