Budget package hit with lawsuit

Association challenges demand for $200M

A state-created medical malpractice insurer of last resort is asking a federal judge to block the Pennsylvania government’s demand for $200 million from its reserves and a threat to shut it down if it does not hand over the cash.

The Pennsylvania Professional Liability Joint Underwriting Association sued last week and said the state’s attempt to take most of its reserves is an unconstitutional nationalization of a nonprofit organization. It said in court papers that losing that amount of money would “seriously imperil” its abil-

ity to make good on its coverage obligations to its policy holders.

Budget-related legislation signed by Democratic Gov. Tom Wolf last month would shut down the association on Dec. 1 if it doesn’t hand over the $200 million, which the state has sought to help stabilize its deficitridden finances.

U.S. District Judge Christopher C. Conner in Harrisburg scheduled a Tuesday hearing on the association’s request for an injunction.

Blocking the state’s demand would presumably blow a $200 million hole in a $32 billion state budget that already relies heavily on borrowing and other one-time cash infusions, a package driven by the Legislature’s huge bloc of antitax Republicans.

In a response filed Monday, the Pennsylvania attorney general’s office said the state created the association and can dissolve it. The association’s reserves are excessive and do not belong to it, state lawyers said.

The association, created by the state in 1975 amid a medical malpractice crisis, provides coverage to more than 600 health care providers, and it said in court papers that its reserves were generated from premiums. The state has no right to the money, it said, and no regulator, such as the state Department of Insurance, has deemed the association’s reserves to be excessive.

Taxpayer money has never funded any of the association’s operations, and its employees are not hired or paid by the state, it said. As of last Dec. 31, it had a surplus of $268 million, it said.

Handing over the $200 million would also force it to absorb transaction costs, such as brokerage fees, and subject it to losses on the value of its investments.

Transferring the $200 million would threaten the association’s tax-exempt status, and the resulting tax burden could leave it without enough cash to fulfill its policies, it said.