The Commonwealth Court of Pennsylvania has rejected the efforts of the Pennsylvania Insurance Department (PID) to liquidate two long-term care insurance (LTCI) companies domiciled in Pennsylvania. The ruling in Consedine v. Penn Treaty Network America Insurance Co. marks the first time a petition to liquidate an insurance company has been defeated in Pennsylvania. Nationwide, such petitions filed by state insurance departments are routinely granted.
More than 10 million Americans have purchased LTCI policies. In recent years, many companies have decided to no longer sell such policies because of their inability to obtain actuarially justified premium rate increases from state insurance companies. Judge Mary Hannah Leavitt described the case as “a serious indictment of the existing system of rate regulation of long-term care insurance.”
In 2009, the Commonwealth Court appointed PID to act as Rehabilitator for the two Pennsylvania-domiciled companies—Penn Treaty Network America Insurance Company (PTNA) and its subsidiary, American Network Insurance Company (ANIC). The companies, headquartered in Allentown, Pennsylvania, are subsidiaries of Penn Treaty American Corporation (PTAC) of Frisco, Texas.
When PID moved to liquidate the two companies, the companies’ boards authorized their Chairman, Eugene J. Woznicki, to intervene and defend against the petitions to liquidate. Mr. Woznicki and the companies’ ultimate parent company, PTAC, were permitted to intervene to defend against the petitions to liquidate, and they vigorously contested PID’s efforts. Ballard Spahr represented Mr. Woznicki and PTAC.
Last week, Judge Leavitt rejected liquidation. In her 164-page opinion, she found that PID “never devised a plan of rehabilitation but, rather, looked for reasons to be excused from that duty.”
Judge Leavitt, who presided over a 30-day trial, ordered PID to work in consultation with the companies’ corporate parent to develop a rehabilitation plan of rehabilitation, which it must submit to the court within 90 days. Significantly, the judge ordered PID to “address and eliminate” the problem of inadequate premium rates for certain policies.
Judge Leavitt noted that PTNA and ANIC have $1 billion in assets, no debt, and cash flow in excess of $200 million per year—sufficient funds to meet all obligations as they come due. The companies “are meeting their obligations as they come due,” she wrote, “and will be able to do so for many years, notwithstanding their inadequate rate structure and notwithstanding the Rehabilitator’s phlegmatic effort to address that problem before abandoning it entirely.”
Ballard Spahr argued that the insurers had proven that premium increases were actuarially justified, and the judge agreed. Despite its evidence that rate increases were justified, the insurers were routinely denied any increases by many of the state insurance commissions around the country.
Liquidating the companies as PID requested would harm the policyholders, the judge found, and would “shift to the taxpayer the ultimate cost of a state’s refusal to grant actuarially sound rate increases.”
