Fighting New Hampshire’s Effort to Transfer to the State’s General Fund Monies Wholly Derived from the Contributions of Private Individuals
This is an appeal by the State of New Hampshire from an adverse declaratory judgment issued by the Superior Court holding that a recently enacted statute requiring the transfer of $110 million from the New Hampshire Medical Malpractice Joint Underwriting Association (“JUA”) to the State’s general fund is unconstitutional under both the federal and state constitutions. The JUA was formed pursuant to statute for the stated purpose of providing medical malpractice insurance for risks that could not otherwise find coverage in the commercial market. By 2008 the JUA was writing $8.8 million of the total $40 million in medical malpractice premiums written in New Hampshire and was insuring over 900 of the 11,000 healthcare providers in the state. The JUA’s accumulated assets of $152 million derive exclusively from premiums paid by policyholders and from investment income earned from those funds. Despite the state’s role in forming the JUA, New Hampshire has never contributed any money to it and has no obligation to do so. The JUA’s policies make policyholders liable for assessments that may be needed in the event the JUA has a deficit, while also providing that any excess surplus may be applied beneficially to the policy holders either in the form of distributions to them or as a reduction in future assessments. The state statute at issue recites that the healthcare interests of the people of New Hampshire would be better served if the JUA’s excess surplus were transferred to the state’s general fund for use in providing health services to “underserved” residents.
In an action brought by policyholders to enjoin the transfer, the trial court ruled that the law violates both the state and federal constitutions because it effects an unconstitutional taking of the policyholders’ property and impermissibly impairs their contract rights. On appeal, the State argued that the policyholders lack a vested interest in the excess surplus, while the State’s claim rests on the fact that the JUA was created pursuant to statute and “capitalized” by the State’s granting it state tax exemptions. The policyholders countered that the law is unconstitutional under both the federal and state constitutions because they have a vested property right, arising out of statute, regulation, and contract, in any excess surplus and the State’s taking possession of the funds is an uncompensated taking. They also argued that the law is retroactive in violation of the state constitution and impairs the obligations of contract in violation of the federal constitution. NELF, joined by co-amicus National Association of Mutual Insurance Companies, filed an amicus brief in support of the policyholders urging the state Supreme Court to affirm the lower court’s decision. Supplementing the policyholders’ arguments, NELF argued that the state was improperly attempting to burden the policyholders with societal costs that should be borne more broadly by the New Hampshire public as a whole and that under U.S. Supreme Court precedent the state had no right to the monetary value it was seeking to appropriate because it did not create that value.
In a 3-2 decision issued on January 28, 2010, the New Hampshire Supreme Court sided with NELF and affirmed the trial court’s decision. Reviewing the language of the policies, the Court held that the law effects a retrospective impairment of contracts in violation of the state constitution because the law negates the participating character of the policies and divests the JUA’s board of directors of their obligation to apply any excess surplus to the benefit of policyholders. Rejecting the rationales advanced by the State to justify the impairment, the Court held that the impairment was substantial and unreasonable. Echoing one of NELF’s arguments, the Court noted that, while the law might be intended to fund an important societal need, it was not broad-based in its effect, but rather “singularly targets . . . discrete funds generated by premiums paid by a discrete class of private parties.”
This is an appeal by the State of New Hampshire from an adverse declaratory judgment issued by the Superior Court holding that a recently enacted statute requiring the transfer of $110 million from the New Hampshire Medical Malpractice Joint Underwriting Association (“JUA”) to the State’s general fund is unconstitutional under both the federal and state constitutions. The JUA was formed pursuant to statute for the stated purpose of providing medical malpractice insurance for risks that could not otherwise find coverage in the commercial market. By 2008 the JUA was writing $8.8 million of the total $40 million in medical malpractice premiums written in New Hampshire and was insuring over 900 of the 11,000 healthcare providers in the state. The JUA’s accumulated assets of $152 million derive exclusively from premiums paid by policyholders and from investment income earned from those funds. Despite the state’s role in forming the JUA, New Hampshire has never contributed any money to it and has no obligation to do so. The JUA’s policies make policyholders liable for assessments that may be needed in the event the JUA has a deficit, while also providing that any excess surplus may be applied beneficially to the policy holders either in the form of distributions to them or as a reduction in future assessments. The state statute at issue recites that the healthcare interests of the people of New Hampshire would be better served if the JUA’s excess surplus were transferred to the state’s general fund for use in providing health services to “underserved” residents.
In an action brought by policyholders to enjoin the transfer, the trial court ruled that the law violates both the state and federal constitutions because it effects an unconstitutional taking of the policyholders’ property and impermissibly impairs their contract rights. On appeal, the State argued that the policyholders lack a vested interest in the excess surplus, while the State’s claim rests on the fact that the JUA was created pursuant to statute and “capitalized” by the State’s granting it state tax exemptions. The policyholders countered that the law is unconstitutional under both the federal and state constitutions because they have a vested property right, arising out of statute, regulation, and contract, in any excess surplus and the State’s taking possession of the funds is an uncompensated taking. They also argued that the law is retroactive in violation of the state constitution and impairs the obligations of contract in violation of the federal constitution. NELF, joined by co-amicus National Association of Mutual Insurance Companies, filed an amicus brief in support of the policyholders urging the state Supreme Court to affirm the lower court’s decision. Supplementing the policyholders’ arguments, NELF argued that the state was improperly attempting to burden the policyholders with societal costs that should be borne more broadly by the New Hampshire public as a whole and that under U.S. Supreme Court precedent the state had no right to the monetary value it was seeking to appropriate because it did not create that value.
In a 3-2 decision issued on January 28, 2010, the New Hampshire Supreme Court sided with NELF and affirmed the trial court’s decision. Reviewing the language of the policies, the Court held that the law effects a retrospective impairment of contracts in violation of the state constitution because the law negates the participating character of the policies and divests the JUA’s board of directors of their obligation to apply any excess surplus to the benefit of policyholders. Rejecting the rationales advanced by the State to justify the impairment, the Court held that the impairment was substantial and unreasonable. Echoing one of NELF’s arguments, the Court noted that, while the law might be intended to fund an important societal need, it was not broad-based in its effect, but rather “singularly targets . . . discrete funds generated by premiums paid by a discrete class of private parties.”
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