Appeals court says Pennsylvania can siphon cash from state-chartered medical malpractice insurer

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HARRISBURG, Pa. (AP) — A federal appeals court is reversing lower court decisions that had blocked Pennsylvania state government from siphoning cash from a state-chartered medical malpractice insurer of last resort.

The 3rd U.S. Circuit Court of Appeals ruled Monday against the Pennsylvania Professional Liability Joint Underwriting Association, saying state government created the insurer, imbued it with its power and held the only interest in it.

The state, the court said, can amend or repeal the law that created the nonprofit association “as it sees fit, free from interference by federal courts.”

The decision came seven years after the association first sued the state in federal court, asking a judge to block Pennsylvania's threat to shut it down if it didn’t hand over at least $200 million from its reserves.

The association, created by the state in 1975 amid a medical malpractice crisis, provides coverage to hundreds of health care providers, and reported a $342 million surplus last Dec. 31.

It can ask the appeals court for a rehearing or appeal to the U.S. Supreme Court. A lawyer for the association declined comment Tuesday, and Democratic Gov. Josh Shapiro's office said it had no immediate comment.

For three years, from 2017 to 2019, the Legislature and then-Gov. Tom Wolf sought the association's cash to help plug a deficit in the state government's operating budget.

The association sued, winning repeatedly in federal court. U.S. District Judge Christopher Conner ruled that the association was a private entity and that it was unconstitutional to take its surplus without fair compensation.

But in Tuesday's decision, Judge Kent A. Jordan of the 3rd Circuit wrote that the state created the association as part of a broader effort to maintain a health care system. The association’s cash is the result of those goals and its policyholders and members don't have a legal interest in its assets, Jordan wrote.

“It is difficult to imagine where the assets, including the surplus, would go except to the Commonwealth, as the JUA has no private stakeholders, no property in trust, and no charitable purpose,” he wrote.

The association has said in court papers that its reserves were generated from policyholder premiums and that taxpayer money never funded any of its operations.

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Follow Marc Levy on X at: https://x.com/timelywriter.