NIXON PEABODYLLP

ATTORNEYS AT LAW

TO: New Hampshire Insurance Department
Joint Legislative Committee on Administrative Rules

CC: Georgia Tuttle, Henry Lipman and Thomas Buchanan

DATE: July 30, 2010

RE: Comments to Proposed Amendment to Ins 1700
Plan of New Hampshire Medical Malpractice Joint Underwriting Association

Background

The Department of Insurance ("Department") proposes substantial changes to Ins 1700

(the "proposed rules") that would fundamentally alter the essential architecture, rights, and
responsibilities of the plan of the New Hampshire Medical Malpractice Joint Underwriting
Association ("JUA"), which have been in place since 1986. While the Commissioner of
Insurance ("Commissioner") is authorized under RSA chapter 404-C to promulgate Mandatory
Risk Sharing Plans, his authority is bounded by the enabling statute and other New Hampshire
law and he may only take action expressly authorized by the New Hampshire General Court.
The proposed rules exceed in material ways the enabling authority granted to the Commissioner.
Moreover, in some instances, the proposed rules impermissibly violate New Hampshire statutes
and common law. Perhaps most starkly, the proposed rules ignore the New Hampshire Supreme
Court's recent ruling in Tuttle v. NH. Med. Malpractice Joint Underwriting Ass 'n, 159 N.H.
627 (Jan. 28, 2010), which recognized that the JUA policyholders hold vested contractual rights
in the surplus funds of the JUA and that the State's proposed transfer of those funds to the
general fund was an unconstitutional impairment of the policyholders' contracts!

Pursuant to RSA 541-A:13, W, the Joint Legislative Committee on Administrative Rules

("JLCAR") may object to a proposed rule if it is: (a) beyond the authority of the agency; (b)
contrary to the intent of the legislature; (c) determined not to be in the public interest; or (d)
deemed by the committee to have a substantial economic impact not recognized in the fiscal
impact statement. For the reasons explained below, the proposed rules run afoul of each of these
standards. Accordingly, these changes are unlawful and should not be adopted as a matter of
law.

1 The Department has issued answers to Frequently Asked Questions about the proposed rules changes. These
answers demonstrate that the Department is relying on false and misleading information as well as erroneous
legal conclusions about the Tuttle case to justify these changes. Attached as Exhibit A is a rebuttal which
identifies these many material mistakes, misrepresentations, and errors. Attached as Exhibit B is the
Petitioners' Responses to Frequently Asked Questions as to Why They Oppose The Rules Changes.

13088477.2
I. THE DEPARTMENT OF INSURANCE'S AUTHORITY TO ADOPT RULES IS
BOUNDED BY THE CONSTITUTION, STATUTES AND COMMON LAW

The Department, like any other administrative agency, cannot adopt rules beyond the
limited authority conferred to it by statute. In re Alexis 0., 157 N.H. 781, 791 (2008) (quoting
Kimball v. NH. Bd. of Accountancy, 118 N.H. 567, 568 (1978)); Appeal of Monsieur Henri
Wines, Ltd., 128 N.H. 191, 194 (1986) ("[A]n agency may not add to, change, or modify [law]
by regulation or through case-by-case adjudication . . . . [t]he legislature may not delegate the
power to make the law; it may only confer authority or discretion as to its execution, to be
exercised under and in pursuance of the law.") (quotations omitted). The necessary corollary to
that rule is that "[a]dministrative regulations that contradict the terms of a governing statute
exceed the agency's authority, and are void." Id. (citing WMUR Channel Nine v. N.H. Dep't of
Fish & Game, 154 N.H. 46, 49 (2006)); RSA 541-A:13, IV(a). The same restriction applies to
the governor. Opinion of the Justices, 118 N.H. 582, 587 (1978) (holding that executive orders
barring hiring and vehicle purchases were void as beyond scope of governor's authority).

In the WMUR Channel Nine case, the New Hampshire Supreme Court held that the New
Hampshire Department of Fish and Game could not enforce rules prohibiting cameras from that
department's meetings and hearings because such rules contradicted New Hampshire's Right-to-
Know law. WMUR Channel Nine, 154 N.H. at 49 (citing RSA 91-A:2, II, which expressly
allows the use of recording devices at public meetings). Significantly, the court found that "RSA
91-A:2, II applied to the department's hearing, and was, thus, a governing statute." Id.
Accordingly, an agency rule which contradicts a pertinent statute of general applicability, such as
RSA chapter 91-A, is beyond the authority of the state agency and invalid. Here, the proposed
rules violate statutory prohibitions against government management or ownership in an insurer.
RSA 400-A:12; RSA 402:11-2-a, I.

Not surprisingly, a governmental entity is also prohibited from performing any act in
violation of the State Constitution See State v. LaFrance, 124 N.H. 171, 176 (1983). Yet,
although both the Superior Court and the Supreme Court in Tuttle ruled that the proposed
transfer of the JUA's surplus funds to the State's general fund was an unconstitutional
impairment of vested contractual rights, see Tuttle, 159 N.H. at 658, the proposed rule changes
purport to do just that. See Proposed Ins 1708.02(b).

2
The Commissioner appears to contend that the JUA is not an insurance company. This newfound contention
designed to circumvent prohibitions on Department involvement in management of insurance companies is of
very recent vintage. Indeed, historically the State has routinely referred to the JUA as an insurance Company.
For example, a January 3, 1984 of the Governor's Medical Liability Committee, on which former Insurance
Commissioner Louis Bergeron sat, described the JUA this way:
The JUA is, in essence, a state authorized and regulated medical liability insurance company for the
state's health providers. Providers pay premiums to the JUA, which is directed by a Board approved
by the N.H. Department of Insurance. The membership of the Board is determined by statute. The
JUA Board hires an administrator who actually operates the "insurance company." The Association is
regulated by the N.H. Department of Insurance, as are other insurance entities in the state.
See Exhibit C, the Second Affidavit of Alexander K. Feldvebel (Exhibit A, pp. i, and 1) (emphases added).

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2
II. THE SWEEPING POWERS PURPORTEDLY GRANTED TO THE
COMMISSIONER BY THE PROPOSED RULES VIOLATE MULTIPLE STATE
STATUTES

New Hampshire law mandates that the State may not, directly or indirectly, own or run
an insurer. 3 The proposed rules violate this prohibition. RSA 402:11-a, I states, in relevant part:

No insurer which is directly or indirectly owned or controlled in

whole or in substantial part by any government or governmental
agency shall be authorized to transact insurance in this state.

This ban on the State's control of an insurer is stated more expansively in RSA 400-A:12, which
specifically prohibits indirect control as follows:

The commissioner, deputies, assistants, actuaries, examiners, or

employees of the [insurance] department shall not be connected with
the management or be holder of material number of shares of any
insurer, insurance holding company, insurance agency or broker.

(Emphasis added).

The proposed rules cannot be reconciled with these statutes. They unambiguously state
that the recast JUA would be absorbed into the State under the exclusive control of the
Commissioner: The JUA "shall operate . . . as an integral part of the State of New Hampshire
under the direction, authority and supervision of the commissioner." 4 Proposed Rule Ins 1701.02
(emphasis added). The proposed rules attempt to wrest for the Commissioner direct control of
the operations of the JUA from the JUA Board. Compare Current Ins 1703.04(1) (requiring the
commissioner to grant the board the "authority to exercise all reasonable or necessary powers
relating to the operation of the association"). Under the current rules, the Commissioner does
not have the discretion to provide anything less than this plenary authority. See id. (The
Commissioner "shall grant"). Also, at present, there is no provision which permits the
Commissioner to reclaim any of the authority granted. This structure enabled the Department to
regulate this entity as it was being operated by an independent board.

As set forth in detail below, countless additional provisions of the proposed rules are to
the same effect and purport to grant broad powers to the Commissioner that were never intended
by the enabling statute. Below is a summary of the Commissioner's complete functional control
of the JUA under the proposed rules.

3
Any effort to define the JUA as anything other than an insurance company is belied by its actual activities and
how the state has previously referred to this association. See supra footnote 1.
4
The Commissioner labors under the mistaken belief that somehow he can preserve an exemption for the plan
by making changes that appear to make the JUA part of state government. A Section 115 exemption is not
plausible given the vested contractual rights that policyholders have under the contracts and regulations for the
period 1986 to 2010. See Tuttle, 159 N.H. at 644. Indeed, as detailed infra, the failure to segregate these funds
and make purely prospective changes to the plan does great violence to the rights of policyholders.

13088477.2
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 A. The Commissioner Is Granted Plenary Control of the Board

The JUA "board of directors" will exist in name only; the actual operational control
would lie with the Commissioner:

• While the "activities and affairs" of the JUA "shall be managed by a board of
directors" any action by the board is expressly made "subject to the direction,
supervision and oversight of the commissioner," Proposed Rule Ins 1703.02(a);

• The Commissioner or the Commissioner's representative will have a seat on the

board of directors, Proposed Rules Ins 1703.02(b);

• Voting board members are to be appointed by the Commissioner, Proposed Rule

Ins 1703.02(b);

• If any director vacancy occurs, the Commissioner has exclusive power to appoint
a replacement, Proposed Rule Ins 1703.02(f);

• The Commissioner is also empowered to remove board members "with or without

cause," Proposed Rule Ins 1703.02(h);

• Finally, the authority vested in the board, a board appointed and removed at the
pleasure of the Commissioner, is made expressly "subject to the commissioner's
direction, supervision, and approval, Proposed Rule Ins 1704.01(a).

B. The Commissioner's Removal Power Is Unlawful

The Commissioner's unbridled power to remove board members "with or without cause,"
Proposed Rule 1703.02(h), plainly violates New Hampshire law. This provision violates RSA
4:1 which provides, inter alia, that "[n]o state official who is not a classified employee shall be
discharged or removed except for malfeasance, misfeasance, inefficiency in office . . . according
to the procedures in this section." Those procedures are a petition to the governor and council to
remove the official, subject to notice and hearing. RSA 4:1, II; see also King v. Thomson, 119
N.H. 219, 221 (1979) ("State officials can only be removed from office when cause exists.").

C. The Commissioner Is Granted Full Control of the JUA's Operations

As with the board of directors, the proposed rules also afford the Commissioner with
plenary, and largely exclusive, control over the operations of the JUA itself. The
Commissioner's breathtaking control is set forth in numerous provisions:

• The servicing carrier, which is responsible for the day-to-day operations of the
JUA, is to be selected by the Commissioner, "pursuant to a written contract,
which shall be approved and executed by the commissioner." Proposed Rules Ins
1703.05(a).

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 • The Commissioner is given the power to "appoint one or more required
participants to be servicing organizations or shall appoint a person that does not
operate as an insurance company to act as a servicing organization." Proposed
Rules Ins 1703.05(b).

• Perhaps most significantly, all of the essential operations of this state-run

insurance company will be subject to the "direction, supervision and approval" of
the Commissioner. Thus, the servicing organizations shall perform the following
duties at the behest of and pursuant to the direction, supervision and approval of
the Commissioner:

o Binding of coverage;
o Issuing policies;
o Collecting premiums;
o Processing of subsequent policy transactions;
o Performing necessary and reasonable loss prevention services;
o Servicing of claims on a timely basis;
o Carrying out of all necessary accounting procedures; .. .
o Calculating and collecting assessments upon required
participants imposed by the plan; Investing premiums paid for
coverage . . .

Proposed Rule Ins 1703.05(c).

• Any payment to be received by the servicing plan will be subject to a "written

contract entered into with the commissioner." Proposed Rule Ins 1704.03(a)(2).

• Policies to be issued by the JUA shall be "at the direction, supervision and
approval of the commissioner." Proposed Rule Ins 1704.05(a). The coverage
"shall be provided on an occurrence or claims-made basis under such policies and
forms and subject to such rates, rating plans and classification systems approved
by the commissioner." Proposed Rule Ins 1704.05(b) (emphasis added).

• While the JUA's books and records shall be "generally" open to inspection under
RSA chapter 91-A, the Right-to-Know Law, "the commissioner shall determine
the extent to which exemptions from disclosure under RSA 91-A apply and shall
instruct the board and servicing organizations accordingly." Proposed Rule Ins
1704.07(a) (emphasis added). Thus, not only is the Commissioner seeking to
control the disclosure of the JUA's books and records, but the proposed rules
would make him the final arbiter of what the public has a right to know. This not
only violates the provisions of RSA chapter 91-A, but also pt. 1, art. 8 of the New
Hampshire Constitution.

• The commissioner "shall have the exclusive authority to determine . . . the level
of capital and reserves required to pay all known or reasonably ascertainable

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 losses . . . as well as to maintain an adequate surplus with respect to policies
issued on or after January 1, 1986." Proposed Rule Ins 1703.08(b) (emphasis
added). Further, the "commissioner shall have the exclusive authority to
determine the amount of assets held by the plan that are in excess of the amounts
of capital reserves." Proposed Rule Ins 1703.08(d) (emphasis added).

• The accounts of the JUA "shall be reported on the financial statements of the state
in accordance with generally accepted accounting principles and the standards for
reporting established by the government accounting standards board." Proposed
Rule 1704.10 (emphasis added).

• The commissioner has sole authority to terminate the JUA based on a finding that
medical malpractice insurance is readily available in the voluntary market or it is
"otherwise in the public interest to terminate the plan." Proposed Rule Ins
1708.01.

• Upon such a termination order, the Commissioner alone "shall determine the
amount of assets of the plan . . . that exceed the amount necessary to pay all
known or reasonably ascertainable losses." Proposed Rule Ins 1708.02. After
termination, the excess funds shall be payable to either the State's general fund or
to a successor plan established by the commissioner. Proposed Rule Ins 1708.03.

D. Other Flaws in the Proposed Rules

The proposed rules improperly attempt to define themselves out of their conflict with
RSA 402:11-a, I and RSA 400-A:12. See Proposed Rule 1701.02 ("The plan shall operate in
accordance with the provisions of this chapter and except as provided herein, the plan shall not
be regulated or licensed as an insurance company pursuant to the provisions of Title XXXVII.").
The Commissioner, however, does not have the authority to issue rules that amend, modify or
change the statutory law of New Hampshire. Thus, the effort to make these statutes inapplicable
to the plan is pure sophistry.

The proposed rules are additionally silent on the impact to the market of having the
Insurance Commissioner as both regulator and market participant. Participation in the market by
other insurers may be substantially chilled because the Commissioner is both a competitor and
regulator with responsibility for setting rates. The proposed rules do nothing to address the
manifest conflict created by having the Insurance Commissioner perform both functions. Indeed,
the current constitution of the JUA, with an independent board of directors on which the
Commissioner does not sit, is designed precisely to protect others in the voluntary market from
just such a conflict. While the enabling statute provides the Insurance Commissioner with
authority to create residual market mechanisms, nowhere does it provide authority for the
Commissioner to run and generate fees from such mechanisms. Also, there is no regulatory
oversight for any overreaching of the Commissioner in the operation of the JUA. To whom
would an aggrieved customer or competitor complain for alleged improper actions of the
Commissioner in operating the JUA? These proposed changes, therefore, threaten an already

13088477.2
6
compromised market. It is simply not in the public interest to create such further impairments to
an already insufficiently competitive market.

Pursuant to RSA 541-A:13 IV(a), (b), and (c), JLCAR may, and should, object to these
changes as beyond the Insurance Department's authority, contrary to the intent of the legislature,
and not in the public interest.

III. THERE IS NO ENABLING STATUTE THAT PERMITS THE JUA TO

GENERATE REVENUES FOR THE STATE

The JUA is a Mandatory Risk Sharing Plan created pursuant to RSA 404-C:1 et seq.
Nowhere in that statute is there a provision authorizing the Commissioner to generate state
revenues through such a plan. Indeed, the statute is silent as to any monetary benefits that may
inure to the state. 5 To the contrary, the JUA was created to address a singular public need: to
fund a gap in the market for professional medical malpractice liability insurance. See Tuttle, 159
N.H. at 635.

Nevertheless, the Commissioner submits a new regulatory regime that allows him
exclusively to determine whether the plan has excess surplus funds, Proposed Ins. 1704.08(c),
and whether such funds should inure to the general fund of New Hampshire, Proposed Ins.
1708.03. The proposed rules purport to authorize the Commissioner to transfer JUA funds to the
general fund exceed any colorable authority.

Whether the revenue generated is properly characterized as a "tax" or a "fee," it is still

improper. The distinction between a tax and a fee "is often difficult to determine because each
partakes to some extent of the characteristics of the other." Opinion of the Justices, 98 N.H. 527,
528 (1953). The authority to license an activity "cannot be exercised as a means of taxation,
with a view to [generating] revenue, unless such appears to have been the legislative intent."
State v. Angelo, 71 N.H. 224, 228-29 (1902). Fees are charges that necessarily "bear a relation
to and approximate the expense of issuing the licenses and of inspecting and regulating the
business licensed." Laconia v. Gordon, 107 N.H. 209, 211 (1966). They must be incidental to
the implementation of a regulatory program and cannot primarily be intended to produce
additional revenues. See id. The validity of such fees is measured "principally by the necessary
expenses of issuing the license, and of such inspection, regulation and supervision as may be
necessary." Opinion of the Justices, 112 N.H. 166, 170 (1972). The amount of a fee will be
sustained so long as it is not "grossly disproportionate" to the regulatory expenses. Hooksett
Drive-In Theatre, Inc. v. Hooksett, 110 N.H. 287, 289 (1970). The New Hampshire Supreme
Court has required "definite information" as to the relationship between the amount of money
generated by a licensing statute and the costs associated with licensing and regulating the activity

5
This absence is conspicuous especially because section 404-C:11 expressly provides for assessments to pay
federal obligations. Had the legislature intended that such Risk Sharing Programs be revenue generating, such
assessments would have been specifically provided for in the statute. The statute's express provision of a
revenue component to reckon with federal obligations illustrates that the legislature understood how to provide
a revenue generating provision if it intended to do so. Clearly it did not.

13088477.2
7
in question. Am. Auto. Ass'n v. State, 136 N.H. 579, 587 (1992); Opinion of the Justices, 112
N.H. at 171.

To determine the proper characterization of a statute, "it is necessary to discover its basic
purpose." Opinion of the Justices, 98 N.H. at 528; see also Coltin Co. v. Manchester Sa y. Bank,
105 N.H. 254, 256 (1964) (the "touchstone" as to whether a licensing statute is a revenue
measure (i.e., a tax) or a police power regulation (i.e., a license fee) is the intent of the
legislature). In so doing, one must consider the statute's declared purpose as well as its "essential
characteristics." Opinion of the Justices, 98 N.H. at 528. Here, the essential purpose of the
statute is to address a deficiency in the voluntary insurance market. See Tuttle, 159 N.H. at 635.
Indeed, it has until now been treated as an insurance company regulated by the Department. See
Exhibit B., Feldvebel Aff. (Governor Sununu's Medical Liability Committee Report). While the
Department attempts to ascribe other noble purposes such as the access of healthcare to the
underserved, the enabling statute, legislative history and Medical Liability Committee Report is
silent on that issue. Additionally, the state has never incurred any expenses in the administration
of this program and there is no indication that it will do so under the proposed changes. Indeed,
under the existing and proposed plan, all liability runs to policyholders and members of the plan
(i.e., liability insurance underwriters doing business in New Hampshire). Thus, to the extent the
Commissioner intends to label the new found revenue stream as a license "fee," such a fee,
untethered to the direct or incidental costs of providing the program, is per se improper and
unlawful. Laconia, 107 N.H. at 211.

If revenues generated by an act "clearly and materially exceed the direct and incidental
costs of licensing," the excess revenue "becomes a tax subject to all the constitutional
requirements of taxation." Opinion of the Justices, 112 N.H. at 170-71. Inasmuch as there is no
stated connection between monies that could inure to the State and the costs of administration of
the JUA, the proposed rules seemingly cross the line from proposed fee into that of a tax. A "tax
is an enforced contribution to raise revenue and not to reimburse the state for special services."
Opinion of the Justices, 117 N.H. 749, 756 (1977). Under New Hampshire Constitution, part II,
article 5, taxes must be proportional and reasonable, "that is, equal in valuation and uniform in
rate, and just." Id. at 755 (citation omitted). Here, the revenue which inures to the State is
neither proportional nor reasonable. Under this "tax," a very small subset of New Hampshire
taxpayers—those who need medical malpractice insurance coverage that cannot be purchased in
the voluntary market—are those who will pay this tax. In such a circumstance, similarly situated
people are disparately responsible for the tax. This is patently unreasonable, disproportionate
and unlawful.

More importantly, the Commissioner cannot levy a new tax by administrative fiat. A
new tax requires an act of the New Hampshire General Court. See New Hampshire Constitution,
pt. I, art. 28 ("No subsidy, charge, tax, impost, or duty, shall be established, fixed, laid, or
levied, under any pretext whatsoever, without the consent of the people, or their representatives
in the legislature, or authority derived from that body."). No New Hampshire statute grants the
Department the authority to promulgate a rule that establishes an insurer for the Department to
operate so that the State can, in effect, tax 100 percent of its profits.

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8
 Pursuant to RSA 541-A:13, IV(a) through (d), JLCAR may, and should, object to these
changes as beyond the Insurance Department's authority, contrary to the intent of the legislature,
not in the public interest and as having a substantial economic impact.

IV. THE PROPOSED RULES IGNORE THE POLICYHOLDERS' VESTED

CONTRACTUAL RIGHTS IN VIOLATION OF THE HOLDING OF TUTTLE

Proposed Rule Ins 1701.04 purports to provide that, "[n]otwithstanding any amendment
of these rules governing the establishment, maintenance and operation of the plan, the plan has
been established and continues to be maintained and operated as a single continuing program
under the direction, authority and supervision of the commissioner for the purpose stated in Ins
1701.01." Proposed Rules Ins. 1704.06—Prohibition on Private Inurnment—states, in pertinent
part:

(a) No part of the net earnings or assets of the plan shall inure to
the benefit of or be distributable to any required participant,
policyholder, director or officer or any other private individual....

These provisions are at odds with and cannot be reconciled with the Supreme Court's
holding in Tuttle that the JUA policyholders hold vested contractual rights to the surplus funds of
the JUA. The Supreme Court found, in pertinent part:

[T]hat the language of the policies and the regulations, taken

together, confers upon the policyholders a vested contractual right
in the treatment of any surplus. The policies entitle the
policyholder to "participate in the earnings of the [JUA]" and the
incorporated regulations mandate the board's application of excess
funds in one or both of the two specified ways: either against
future assessments, or distribution to the policyholders. Under
either option, the policyholders have a direct fmancial interest, and
not a mere expectancy, in any excess surplus. Thus, the
policyholders have a vested right not necessarily in the distribution
of the funds, but in the treatment of the funds for their benefit.

Tuttle, 159 N.H. at 644.

In its responses to the Frequently Asked Questions about the Proposed Rules Changes,
the Department suggests that because the policyholders rights are beneficial until distributions
are declared, somehow rules changes which affect these rights are permissible. This exposes a
profound misreading of the Tuttle decision which on this important point states:

Importantly, the policyholders' vested rights are beneficial, rather

than possessory. While a "beneficial interest is defined as a right
or expectancy in something (such as a trust or an estate), as
opposed to legal title to that thing," (citations omitted), such

13088477.2
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 interest may, nonetheless, constitute a vested property right,
subject to protection, see, e.g., Ohio State Life Insurance
Company, 274 F.2d at 777 (holding that policyholders had "a
vested contract right to the beneficial interest in the surplus" of the
issuing non-mutual insurance company); Chu, 569 N.Y.S.2d 364,
571 N.E.2d at 679 (finding a vested property right in the subject
fund where the governing statute provided that the monies would
either remain in the fund to accumulate interest or be distributed to
the contributors). Here, the policyholders' interest in any JUA
excess surplus is vested and not contingent: either they benefit
from the surplus by its reinvestment for application against future
assessments; or they benefit from the surplus by receipt of a
dividend.

Id. at 645 (emphases added).

The above-cited proposed rules not only fail to acknowledge expressly and protect these
vested rights, but attempt to vitiate them, contending that there is no private inurnment under the
plan. The Commissioner, however, cannot ignore the Supreme Court's finding of vested
contractual rights. Any proposed rule which interferes with these vested rights would be
unlawful.

V. CONCLUSION

The proposed rules violate the New Hampshire Constitution, statutes, and common law.
Pursuant to RSA 541-A:13, W, JLCAR should object to the proposed rules.

Attachments:

Exhibit A: Rebuttal to NH Insurance Department's FAQs On Proposed Rules Changes to the

Medical Malpractice Joint Underwriting Association ("JUA")

Exhibit B: Petitioners' Responses to FAQs on Why They Oppose the Rules Changes

Exhibit C: Second Affidavit of Alexander K. Feldvebel (Attaching Final Report of Governor

Sununu's Medical Liability Committee)

Exhibit D: Tuttle v. N.H. Med. Malpractice Joint Underwriting Ass 'n, 159 N.H. 627 (Jan. 28,
2010)

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Exhibit A

Rebuttal to NH Insurance Department’s FAQs

On Proposed Rules Changes to the
Medical Malpractice Joint Underwriting Association (“JUA”)
In support of its Proposed Rules changes to Ins. 1700 which implements the JUA, the New
Hampshire Insurance Department has published false and misleading information. Below is a table that
details the inaccurate contentions offered by the Department and the actual facts.1

1. Is the proposed rule consistent with the New Hampshire Supreme Court’s decision in the
Tuttle Case?

Department’s Contentions Ruling The Truth

“Yes, the proposed rule is completely
consistent with the Court’s decision in the
Tuttle case and carefully implements the
guidance provided by the Court”
False. The rule make no effort to protect
the vested contractual rights of the
policyholders in the surplus amassed
between 1986 and 2010. The contracts
and regulations for this time period state
explicitly that policyholders are entitled to
any excess surplus funds for this period.
Indeed, these rules attempt to impose the
guidance provided in the dissenting
opinion which is not the law of the state
and represents a point of view not adopted
by the majority of the Court.

“The Supreme Court prohibited the Half True. The Supreme Court ruled that
transfer because it concluded that the law all policyholders—not simply current
would impact the contract rights of current policyholders-- have vested contractual
policyholders in violation of the New rights in the surplus under the contracts
Hampshire Constitution.” and regulations in place from 1986 to
2010.

1
For purposes of describing these inaccuracies, we borrow the Truth-O-Meter definitions from the 2009 Pulitzer Prize
Winner PolitiFact.com. TRUE – The statement is accurate and there’s nothing significant missing. MOSTLY TRUE –
The statement is accurate but needs clarification or additional information. HALF TRUE – The statement is accurate but
leaves out important details or takes things out of context. BARELY TRUE – The statement contains some element of
truth but ignores critical facts that would give a different impression. FALSE – The statement is not accurate. PANTS
ON FIRE – The statement is not accurate and makes a ridiculous claim.

13084810.1
Exhibit A
“Any impact on policies resulting from the
change in the rule will not affect policies
that already have been issued. The rule
change will only apply to policies issued or
renewed after the proposed rule become
law. The proposed rule does not apply
retroactively but prospectively and does not
resulting an unconstitutional impairment of
contract.”
2. Didn’t the Court say that the Plan funds are owned by the policyholders and should be
given to those policyholders?
Department’s Contentions
“The Supreme Court said that current
policyholders have a “beneficial” and not
a “possessory” interest in the assets of the
Plan.
“This means that the policyholders do not
own the excess surplus and not have the
right to demand a distribution of the excess
surplus.”
“Neither the Superior Court nor the
Supreme Court nor the Supreme Court said
the Board or the Insurance Commissioner
had to give the Plan assets to current
policyholders. There is no court order or
decision that says the Board or the
Insurance Commissioner must or should
make a distribution to the policyholders.”
Pants of Fire False. This is a complete
falsehood and makes a ridiculous claim.
The rules make no effort to protect the
current surplus funds—which the
Insurance Commissioner has previously
declared to be $110 million—for the
policyholders for the period 1986 to 2010.
Indeed, the Commissioner contends that
rules changes are necessary to qualify for
a federal tax exemption which by its
terms would prohibit payment of these
surplus funds to the policyholders. There
can be no credible contention that these
rules are only prospective and not
retrospective.
Ruling The Truth
Half True. Here is what the court actually
said: “Importantly, the policyholders’
vested rights are beneficial, rather than
possessory. While a ‘beneficial interest is
defined as a right or expectancy in
something (such as a trust or estate), as
opposed to legal title to that thing,’ such
interest may, nonetheless, constitute a
vested property right subject to
protection.”
False. The Court said that The only grain
of accuracy in this statement is that the
JUA Board, rather than policyholders,
have the right to determine distributions.
Half True. Policyholders sued to stop the
state from the unconstitutional taking of
$110 million and won. At all times the
Policyholders wanted the State to stop
interfering with the JUA’s fiduciary
duties to determine the surplus and
distributions. There are no orders
requiring distributions because the
Policyholders never asked the Court to
supplant its judgment for the JUA Board.
It is the Board’s job to do this and the
2
Exhibit A
“In addition, the Supreme Court said that
individuals or entities whose insurance
policies have expired cannot assert a claim
that a law change is an unconstitutional
impairment of an expired contract.
Therefore, these policyholders with expired
contracts do not have a “beneficial”
interest in the asset of the Plan.”
3. The proposed rule removes the possibility that future Plan policyholders will receive a
distribution from excess surplus. Is that fair?
Department’s Contentions
“The proposed rule eliminates the
possibility that future Plan policyholders
will receive a distribution from excess
surplus”
“The Department has determined that the
current rule must be amended to make it
clear that the Plan is for the public good
and is not intended to benefit private
interests”
4. Didn’t the Court say that the Plan is not a “state entity” and therefore the Plan’s funds are
private funds?
Department’s Contentions
“No. The Supreme Court said it would not
rule on whether the Plan is a state entity or
a private entity.”
Policyholders succeeded in stopping the
state from interfering.
Pants on Fire False. The Department is
referencing language from the Supreme
Court’s dissenting opinion which is not
the law of the state. The Commissioner
made these arguments to the Court and
lost. Now he is misrepresenting the result
to justify the rules changes which puts
him in charge of the surplus funds.
Ruling The Truth
Half True. The proposed rule not only
eliminates distributions for future plan
participants, it eliminates distributions for
the policyholders from 1986 to 2010 who
funded the current surplus have the vested
rights under their contracts and the
regulations to these monies.
False. Amending the Plan can have no
effect on the 23 years of contracts which
confers vested rights on policyholders to
surplus funds. This is another example of
the failure to protect the adjudicated rights
of policyholders.
Ruling The Truth
False. The Supreme Court did not rule on
this issue because the State failed to
appeal the ruling of the Superior Court
that the Plan was not part of the executive
branch of government. An unappealed
finding is binding law on the parties
involved.
3
Exhibit A
“The Supreme Court did not adopt the
lower court’s finding that the Plan was a
“quasi-public/private” entity and not a state
entity.”
“Therefore the final decision of the
Supreme Court did not affirm the lower
court’s ruling.”
5. Isn’t the Plan a private insurance company that has to pay federal income tax?
Department’s Contentions
“No. In a 1976 letter, the IRS said that the
Plan is operated under the Insurance
Department of the State of New Hampshire
and is therefore “an integral part of the
State of New Hampshire” and is “is exempt
from taxation.
“Since 1976, the Plan has operated under
the Insurance Department and has been
controlled by the same laws that gave the
Commissioner authority to create the Plan
and decided how the Plan operate.”
False. This is wrong for several reasons.
First, the State did not appeal the issue
and is stuck with the finding of the
Superior Court. Second, the Superior
Court found that the Plan was not part of
the executive branch but was more like
the New Hampshire Retirement System
with fiduciary obligations to its members
and policyholders, different from any
obligation to the citizens of the State
generally.
False. The State never appealed this issue
and the findings of the Superior Court are
binding.
Ruling The Truth
Mostly True. The letter granting the tax
exemption indeed states this. However, to
qualify for a Section 115 exemption, the
surplus of the Plan must inure to the state.
Here, the contracts and regulations which
implemented the Plan—under the
stewardship of the Department—created
vested contractual rights for policyholders
and not the state. Thus, there has been a
disconnect between the granted
exemption and what the Section 115
requires.
Barely True. The JUA has not been
operated under the Insurance Department.
No one from the Department is authorized
to sit on the JUA Board. The
Commissioner cannot remove a director.
The assets and liabilities of the JUA are
not carried on the books and records of
the Department. The Governor Sununu’s
Medical Liability Committee described
the JUA as “a state authorized and
regulated medical liability insurance
company.” The Board is vested with all of
the authority necessary to run the
association. The only accurate part of this
4
Exhibit A
“The Plan’s tax-exempt status is only now
an issue because the plaintiffs argued that
the Plan is not an integral part of the state
and the lower court said that the Plan is a
“quasi-public/private entity” and “not part
of the executive branch of the State
government.”
“The Department believes that it is
important to get confirmation form the IRS
that the Plan is tax-exempt in light of any
question raised by the decision of the lower
court and the continued assertions of the
Tuttle plaintiffs that the Plan is not part of
the state government”
5
statement is that the JUA has been
organized under laws that provide the
Commissioner with authority to create
mandatory risk sharing plans. There is
simply no authority in the existing plan
for the contention that the Plan is operated
under the Insurance Department. Indeed,
this is why so many of the proposed
changes include specific grants of
authority to the Commissioner which
currently don’t exist.
False. The Department’s spin machine is
on full throttle on this response. First, it
was the State not the Policyholders who
raised the tax-exemption during the Tuttle
litigation and did so in an unsuccessful
attempt to argue – as the Department is
again arguing here – that it should be
permitted to take the surplus funds the
Tuttle case decided belonged to the
Policyholders. The tax exempt status
cannot be reconciled with the contractual
and regulatory rights that policyholders
have been granted for the past 23 years.
The Department designed a plan and
approved a form of insurance contract
which promised policyholder rights that
by definition make it ineligible for the tax
exemption. The Department has
mismanaged this situtation for decades
and now is squarely responsible for the
result. The Department attempts to
declare by fiat that the vested rights of
policyholders were indeed phantom
benefits which never existed. This type of
conduct only works in third world
dictatorships that ignore the rule of law.
False. The Department has fashioned a
completely bogus contention that
preservation of the tax exemption for the
past 23 years can somehow vitiate the
policyholders vested rights. There is
simply no law to support this backwards
thinking. This amounts to the argument
“I need to steal your funds to preserve the
tax exemption.” Given the contractual
and regulatory rights that policyholders
Exhibit A
6. How big could the federal tax liability be?
Department’s Contentions
“It is possible that the worst-case federal
tax liability, including both taxes and
accumulated interest (but not any penalties)
could exceed $100 million.”
7. How long could it take to get the confirmation from the IRS of the Plan’s tax-exempt
status?
Department’s Contentions
“Once we have completed our examination
of the Plan’s finances, we will approach the
IRS to seek confirmation of the Plan’s
longstanding tax-exempt status.”
have enjoyed during the past 23 years, the
only way to avoid tax liability for that
time period to demonstrate the JUA
operated in good faith reliance on the
exemption and that upon distributions to
policyholders, the IRS will receive tax
payments from the recipients.
Ruling The Truth
Pants of Fire False. This is a complete
falsehood and makes a ridiculous claim.
This statement exposes either the
ignorance or deception of the
Commissioner and his staff about the IRS,
its practice and procedure in these
circumstances, the accounting
conventions that will be employed if the
JUA is a taxable entity and scope of the
review. This level of misunderstanding or
misinformation is stunning. The
Policyholders have retained
PricewaterhouseCoopers to assist with
resolution of this problem. Their analysis
of the situtation is profoundly different.
This is an issue that requires serious and
knowledgeable treatment, not ill-informed
or politically motivated management by
those with no relevant experience.
Ruling The Truth
False: Under federal law, the Insurance
Department has no standing to discuss the
JUA’s tax status with the IRS. Only the
JUA has this power. The Department,
once again, needs to stop interfering with
the duties and obligations of the JUA.
Also, there is no genuine issue concerning
the finances of the JUA. Indeed, prior to
losing the Tuttle case, the Commissioner
repeatedly asserted that the JUA could
6
Exhibit A
“This process could be a lengthy one, and it
is unlikely that we would receive any formal
confirmation for at least 6 months.”
8. Why is it important for the Plan to be tax-exempt?
Department’s Contentions
“Because the Plan is tax-exempt public
program, it is able to provide medical
malpractice coverage at rates equivalent to
the market rates, despite its obligation to
insure high risk medical providers who are
rejected by the private market.”
“If the Plan is not exempt from tax, the IRS
will demand that the Plan pay back taxes
and interest and future income tax. As a
result, the Plan will need to change how it
operates and will need to find a way to
provide for these additional costs.”
“This may include premium increases for
Plan policyholders or the need for regular
assessments.”
afford to pay over $110 million to the
State and still be financially sound.
False. PwC believes that a decision could
be obtained on a shorter timeline and, if it
were timely pursued in the first instance,
would likely be secured by now.. The
only reason to delay the IRS is to continue
to frustrate the Policyholders’ vested
rights and to push resolution of this issue
past the November election.
Ruling The Truth
False. The tax exempt status has very
little to do with providing affordable
coverage. Indeed, if the JUA were subject
to federal tax as a mutual insurer, it would
be entitled to multiple deductions to hold
reserves for payment of claims. The only
thing impacted by the change is the ability
of the State to take any surplus funds for
its own, entirely non-insurance purposed,
purposes.
False. Again, the Department speaks out
of either considerable ignorance or intent
to mislead so it can achieve the political
result rejected by the NH Supreme Court
in the Tuttle decision. First, it is likely
that retrospect taxation can either be
avoided entirely or substantially limited
by proceeding in the manner prescribed
by PwC. There would only be tax
obligations if the JUS makes money after
providing all appropriate deductions for
operating a mutual insurer.
False. This nothing more than
unsubstantiated scare tactics. There is no
market data from voluntary market
participants to justify this position.
7
Exhibit A

“The Plan’s important public purpose is
best served by taking all necessary steps to
retain the Plan’s tax exempt status as an
integral part of state government and avoid
this tax liability.”
False. The State is motivated to make this
argument because under the proposed
changes, it would be entitled to any
surplus funds.

8
Exhibit B

JUA Policyholders’ FAQs Concerning the Proposed Rules Changes

To the JUA Plan, Ins. 1700 et seq.

1. Why Do JUA Policyholder So Strongly Oppose the Insurance Commissioner's

Proposed Rule Changes?

The Commissioner's proposed changes make no effort to protect the Policyholders’

surplus amassed from their payments during the past 23 years. The Supreme Court, the contracts
and the regulations provide that Policyholders have vested contractual rights to these monies.
The proposed changes would enable the Commissioner to transfer this surplus to the general
fund. The state tried that last year and our Supreme Court held such actions to be an
unconstitutional impairment of vested contractual rights. Not chastened by their loss, the
Governor and Insurance Commissioner are trying a regulatory taking much like the statutory
taking from last year. It is a theft, pure and simple, and must be stopped.

2. Does the Insurance Commissioner Have the Legal Authority To Make the Kinds of
Changes He is Proposing?

No. The Insurance Commissioner cannot change the rules of the game with regard to the
amassed surplus. He can only make changes which concern revenue generated after the changes
are enacted. The Commissioner has refused to make clear that the existing surplus belongs to
Policyholders with insurance contracts from 1986 to 2010. He has also refused to acknowledge
the vested rights of Policyholders. Also, any proposed changes on prospective revenue is
limited to the authority provided to the Insurance Commissioner by statute. The Commissioner
is not authorized to create a revenue raising scheme which competes with private insurance
companies that he is in charge of regulating. The conflicts of interest in doing so are obvious.
Indeed, the proposal primarily violates existing NH law prohibiting the State from being in the
business of insurance. RSA RSA 402:11-a, I provides that: “[n]o insurer which is directly or
indirectly owned or controlled in whole or in substantial part by any government or
governmental agency shall be authorized to transact insurance in this state.” There is no way to
reconcile this prohibition with the changes proposed that has the Insurance Commissioner
running the JUA. It is, in a word, unlawful.

3. Why are Policyholders So Distrustful of the Governor and Insurance Commissioner

and Assailing Their Intentions?

The Governor and Insurance Commissioner have repeatedly breached the trust of Policyholders
and have refused to engage in a good faith process which respects the rights of Policyholders.
Until this case, the Policyholders of the belief that the Insurance Commissioner’s role was to
protect Policyholders financial interests and to protect them from unfair and deceptive trade

13081908.1
Exhibit B

practice of insurers. It is unclear at what point the Insurance Commissioner surrendered these
consumer protection obligations and decided that his mission was revenue raising and that the
theft of monies from Policyholders with vested contractual rights was acceptable. He and the
Department staff continue to insensitively trample on the rights of Policyholders. When the
policeman of the market become perpetrator of unfair and deceptive practices trampling on the
vested rights of consumers, any trust is undeserved and completely lost.

After winning the Tuttle case, the Policyholders approached the Governor through his Attorney
General to discuss a resolution of this issue. The Governor asked that the Policyholders stand
down from opposing the rules changes. The Policyholders in response asked that the Governor
and Insurance Commissioner provide assurances that any rules changes would not seek to
“divest” or frustrate the vested contractual rights of the Policyholders in the accumulated
surplus. The Governor, his Attorney General and Insurance Commissioner refuse to provide
these assurances. If their intentions were pure, such a promise would be no problem to provide.

After winning the Tuttle case, Policyholders renewed demand on the JUA Board to do their duty
to determine what monies constitute surplus funds and pay dividends accordingly. The
Insurance Commissioner, who does not sit on the JUA Board and has no authority concerning its
governance and operation, instructed the JUA Board that they should take no action on the
renewed demand and should refer any Policyholder requests to the Attorney General and not to
the JUA’s own lawyer. The Commissioner had no authority to do this to the JUA or any
insurance company writing business in this state.

Unfortunately, these actions expose the illicit intentions of the Governor and Insurance
Commissioner to take this money and put it in the general fund. Accordingly, there is no way to
deal with this dishonorable conduct but to call it out for what it is: an attempted theft by public
officials who have no rights to these funds.

4. Has the Attorney General Acted to Protect the Rights of Policyholders?

No. Despite trying to act as its lawyer, in violation of the NH rules of Professional Conduct, the
Attorney General has never advised the JUA Board of Directors that it has contractual and
regulatory obligations to Policyholders. Rather, the Attorney General has done the bidding of the
Governor and Insurance Commissioner without regard to the JUA or its Policyholders. When
we brought this ethical conflict to the attention of Attorney General Ayotte, she ignored our
concerns and took no action to provide the JUA with counsel that would evaluate the obligations
of the JUA to Policyholders. We were forced to secure a court order disqualifying the Attorney
General because of this conflict. After we won the Tuttle case, the AG tried again to represent
the JUA Board despite the conflict, the prior disqualification by the Court and the applicable
Rules of Professional Conduct. The Attorney General, despite the obligation to represent all
citizens, has been a conflicted partisan who has marshaled the considerable resources of the state
to aid and abet constitutional violations against Policyholders. In our view, the Office of the
Attorney General has been acting only in the interests of the Governor and the Insurance
Commissioner.

13081908.1 2
Exhibit B

5. How Do Policyholders Respond to the Commissioner's Contention That Their is a

Significant Federal Tx Issue Which Makes The Rules Changes Necessary?

There is indeed a tax issue but the proposed changes do nothing to deal with this problem. The
tax issue arises from the fact that in order to have a valid federal exemption, all proceeds of a
governmental program must be collected for its exclusive benefit. Here, all of the contracts and
regulations provide that Policyholders-- not the state-- are entitled to surplus funds. Indeed, this
is the ultimate conclusion of the NH Supreme Court in Tuttle. This means that, in effect, the
JUA never should have qualified for the exemption. The IRS nonetheless mistakenly granted the
exemption. This situation has been largely ignored by it and by the Insurance Department for the
past 23 years. The Insurance Commissioner is currently under the misguided or misinformed
belief that, despite this clearly documented history and the Tuttle decision, the 23 years of
contract and regulations which confer vested rights in Policyholders can be undone after the fact
with new rules. We have retained PricewaterhouseCoopers, an international tax firm, which
believes that the Commissioner cannot preserve the exemption for the existing surplus because
the rights of Policyholders developed over the past 23 years are clear. PwC believes that the
appropriate course of action is for the JUA – not the Commissioner – to work with the IRS to
solve the problem and that, properly handled, retrospective tax liability can be eliminated or
minimized. So far, the Insurance Commissioner is unwilling to do what experts in the field say
in the right thing to do. The only explanation for this refusal is his desire to push through rules
changes that lets him move the surplus funds to the general fund. No other explanation makes
sense.

13081908.1 3
Exhibit C

THE STATE OF NEW HAMPSHIRE

I3ELKNAP, SS SUPERIOR COURT

09-E-148

GEORGIA TUTTLE, M.D., ET AL.

v.

NEW HAMPSHIRE MEDICAL MALPRACTICE JOINT UNDERWRITING ASSOCIATION,

ET AL.

09-E-151

GEORGIA TUTTLE, M.D., ET AL.

v.

STATE OF NEW HAMPSHIRE

SECOND AFFIDAVIT OF ALEXANDER K. FELDVEBEL

Alexander K. Feidvebel, hereby depose and say:

I am the Deputy Commissioner of the New Hampshire Insurance Department, a

position I have held since September, 2000. I submit this second affidavit in support of the State

Respondents' Motion for Summary Judgment. The facts and information set forth below are

either within my own knowledge, in which case I confirm that they are true, or are based on

information provided to me by others, in which case they are true to the best of my knowledge,

information and belief.

2. The records of the New Hampshire Insurance Department include the January

1985 final report of the Governor's Medical Liability Committee. A copy of the report is

attached as Exhibit A.

3 The records of the New Hampshire Insurance Department include policy forms

submitted for approval by insurance companies, including Medical Mutual Insurance Company
Exhibit C

of Maine. Medical Mutual Insurance Company of Maine is a leading writer of medical

malpractice insurance in New Hampshire. A copy of the most recent comprehensive

professional liability insurance policy form submitted by the Medical Mutual Insurance

Company of Maine and approved by the Department is attached as Exhibit B.

Signed under the penalties of perjury this 1Vtay of July, 2009.

Alexander K. Feldvebe

STATE OF NEW HAMPSHIRE

MERRIMACK COUNTY

Subscribed and sworn to, before me, this /7 day of July, 2009.

us ice of the Peace

CAROLYN PETERSEN
Justice of the Peace - New
My Commission Expiies AM
lem pehlre
5, 2011
 EXHIBIT

Exhibit C
•

GOVERNOR'S
ICAL LIABILITIES COMMIT
RE1RT

• JANUARY 1985
Exhibit C

GOVERNOR'S MEDICAL LIABILITY COMMITTEE

CHAIR: SUBCOMMITTEE CHAIRS:
Senator George Freese, Jr. Commissioner Sylvio L. Dupuis, 0.D.
Frank Jillson
Commissioner Louis Bergeron

January 3, 1984

His Excellency, John H. Sununu

Governor
State House
Concord, NH 03301

Dear Governor Sununu:

Attached is the report of the Medical Liability Committee.

I wish to express my appreciation to you for allowing me the opportunity

to work with Commissioners Bergeron and Dupuis and Mr. Frank Jillson, in
forging this set of practical solutions to the complex and difficult problem
of the cost of medical liability within the health care system.

Rather than summarize the report here, I refer you to the Executive
Summary which contains our recommendations in brief. The subcommittees heard
from many individuals and groups, and reviewed many publications and relevant
research. This back-up documentation is contained in files held in the Office
of Planning and Policy Development, and can be accessed through Ms. Judy
Chynoweth, Director. Subcommittee chairs may wish to direct your attention to
some of this documentation.

I know I speak for the chairs of the subcommittees when I offer'you our
willingness to meet -with you regarding the report, and to assist you in its
implementation in any way.

Si eFely,

GF/JKC/dad 6EORG IFREESE, JR.

Senator
Attch Chair of Medical Liability
Committee
Exhibit C

MEDICAL LIABILITY COMMITTEE

FINAL REPORT

January 1985

Prepared by:

Judith K. Chynoweth
Director
Office of Planning & Policy Development
Department of Health and Welfare
January 3, 1985
Exhibit C

ACKNOWLEDGEMENTS

The Chair of the Medical Liability Committee and the Chairs of the
Subcommittees wish to appreciate the work of the staff in supporting the full
Committee and the Subcommittees in their work and the preparation of the final
report:

Judith K. Chynoweth
Director
Office of Planning & Policy Development
N.H. Department of Health and Welfare

David Kearns
Assistant Commissioner
N.H. Department of Insurance

Robert Solitro
Director of Examinations
N.H. Department of Insurance

Dee Dixon
Administrative Assistant
Office of Planning & Policy Development
N.H. Department of Health & Welfare

Barbara Chagnon
Word Processor Administrator/Supervisor
N.H. Department of Health and Welfare

-00000-4'
Exhibit C

TABLE OF CONTENTS

PAGE

EXECUTIVE SUMMARY vi

FINAL REPORT 1 - 19

I. Background 1 -

Joint Underwriting Authority Established 1

JUA Deficit 1
Insurance Department Action 3
Medical Liability Committee appointed 4

II. Exploration of Underlying Causes 5 - 9

A. National Trends: Medical and Legal 5

B. Specific New Hampshire Conditions 7

III. Problem Definition 9 - 10

IV. Recommendations. 10 - 17

A. JUA Subcommittee 10
B. Risk Management Subcommittee 12
C. Tort Reform Subcommittee 14

FOOTNOTES 18

GLOSSARY 19

APPENDIX A

APPENDIX B

APPENDIX C

APPENDIX D

--00000--

0563D
Exhibit C

EXECUTIVE SUMMARY
Exhibit C

Medical Liability Report

EXECUTIVE SUMMARY

BACKGROUND

Beginning in the mid-70's physicians throughout the country began to

experience difficulty in purchasing medical malpractice insurance. This
difficulty had broad implications for the consumer as well as the provider of
health services. In 1975, in response to this situation, the State of New
Hampshire established, the Medical Malpractice Joint Underwriting Association
(JUA). The JUA is, in essence, a state authorized and regulated medical
liability insurance company for the state's health providers. In 1981,
however, problems surfaced with the JUA. Over the six-year period, the number
of claims filed, settled, or awarded in court had increased. In addition,
several large medical malpractice decisions had been awarded by the court
system.

In the early part of 1983, the JUA informed the N.H. Insurance DepartMent
that it faced substantial future deficits in meeting expected claims from the
financial resources available to it. The actuarially estimated deficit ranged
between $30 million and $60 million. As a further complication, the number of
health care providers insured by the JUA was falling because a voluntary
market for the medical liability insurance was starting to reappear in
New Hampshire.

This problem affected not only individual health care providers and
hospitals, and the insurance industry in New Hampshire, it also affected
consumers of health care services, and indirectly, the business community
through the rising cost of health care.

In the fall of 1983 the New Hampshire Insurance Department began action to
deal with the problem of a potentially mounting JUA deficit. The Department
issued directives effectively restricting the voluntary market for medical
liability insurance to renewal of existing coverage for physicians and
surgeons. The Insurance Department also moved to change the assessment
formula of Ins. 1702.07, proposing a rules change which would assign 207. of
the responsibility for JUA deficits to health care providers, 601. of the
responsibility for such deficits to insurance companies writing voluntary
medical liability insurance in New Hampshire„ and the remainder of such
responsibility to all insurance companiea wfiting liability insurance in
New Hampshire, including automobile insurance. At a hearing held in December
of 1983, objections to the department's prTposal were raised by interested
parties including health care providers interested in purchasing insurance
from the voluntary market and private medical liability insurance carriers.
Exhibit C

In the Spring of 1984, Governor John Sununu appointed a Medical Liability

Committee, chaired by Senator George Freese, and consisting of three
subcommittees, to recommend to him a wide range of solutions to deal with the
existing New Hampshire situation. The JUA Subcommittee was chaired by
Commissioner Louis Bergeron of the New Hampshire Insurance Department; the
Risk Management Subcommittee was chaired by Frank Jillson, President of
New Hampshire Blue Cross/Blue Shield; the Tort Reform Subcommittee was chaired
by Commissioner Sylvio Dupuis of the New Hampshire Department of Health and
Welfare.

EXPLORATION OF UNDERLYING CAUSES AND PROBLE M DEFINITION

The presenting problem to the Medical Liability Committee was twofold:

How should the JUA deal with the projected large deficit?

What could be done to mitigate the further rapid escalation of

premiums which physicians were being charged in anticipation of
future incurred losses?

Underlying causes of the problem fall into two main categories:

(a) national trends which are impacting New Hampshire, and (b) specific
New Hampshire conditions. Within the medical system two major national trends
impact on medical liability. First, the rapid technological advance in
medicine and increasing utilization of high technology health care have
increased the risk for consumers of an unfavorable or unanticipated medical
outcome. Second, the specialization of health care and the rise of the group
practice has contributed to . the impersonalization of medical care. Within the
legal system, there has been an unmistakable trend towards more frequent
medical malpractice claims being brought and higher verdicts being awarded by
the courts.

Data reported on the New Hampshire JUA history of frequency and severity
of claims by Johnson and Higgins, current JUA administrators, reveal a sharp
increase in frequency and severity of claims, 1980-1983. These data paint a
picture of a frequency and severity problem to which the JUA premiums are
still adjusting. 1984 estimated figures indicate that the frequency and
severity of claims appears to be stabilizing. However, it must be emphasized
that due to the smaller number of insureds in New Hampshire, one or two- laege
claims in the future could alter this situation.

The recommendations of the three subcommittees address the following two

problems:

What steps can be taken to deal with the JUA deficit without imposing
excessive costs on any one segment of the health care system?

What steps can be taken to reduce the frequency and severity of

medical liability claims including (a) changes in the medical system
which would reduce or prevent the incidence of medical malpractice or
medical liability claims, and (b) changes in the tort system?
Exhibit C

RECOMMENDATIONS

A. JUA Subcommittee:

1. TO STABILIZE THE PRESENT JUA, THE INSURANCE DEPARTMENT SHOULD

CONTINUE UNTIL DECEMBER 31, 1985, ITS ADMINISTRATIVE ORDERS OF
SEPTEMBER 7 AND NOVEMBER 9, 1983, RESTRICTING THE ISSUANCE OF
PRIVATE MEDICAL MALPRACTICE POLICIES TO RENEWAL ONLY. THE
INSURANCE DEPARTMENT'S ORDERS SHOULD BE REMOVED ON JANUARY 1,
1986 AND THE VOLUNTARY MARKET WILL THEN BE ALLOWED TO DEVELOP
FURTHER.

2. THE INSURANCE DEPARTMENT SHOULD ADOPT A RULE ESTABLISHING A

STABILIZATION RESERVE FUND TO HELP SUPPORT JUA CASH DEFICITS
WHICH MAY ARISE IN THE FUTURE. THE STABILIZATION RESERVE FUND
WOULD BE FUNDED BY A 15% PREMIUM SURCHARGE ON ALL MEDICAL
MALPRACTICE INSURANCE POLICIES WRITTEN OR RENEWED ON OR AFTER
MARCH 1, 1985, OR 30 DAYS AFTER THE EFFECTIVE DATE OF THE RULE
ESTABLISHING THE FUND, WHICHEVER DATE OCCURS LATER. PREMIUM
SURCHARGES WOULD BE DEPOSITED IN THE STABILIZATION RESERVE
FUND. THE SURCHARGES WOULD REMAIN IN EFFECT UNTIL THE INSUPANCE
COMMISSIONER MAKES THE ACTUARIAL DETERMINATION THAT A JUA
DEFICIT NO LONGER EXISTS, CONSIDERING THE CASH POSITION OF THE
JUA AND THE SIZE OF THE STABILIZATION RESERVE FUND.

3. THE INSURANCE DEPARTMENT SHOULD REVISE INS 1702.07 TO CHANGE THE

METHOD OF DEFRAYING ANY JUA CASH DEFICIT ON OCCURRENCE POLICIES
BEYOND WHAT WOULD BE COVERED BY THE JUA OCCURRENCE FUND AND THE
STABILIZATION RESERVE FUND. THE REVISION SHOULD PROVIDE FOR
REMAINING DEFICITS TO BE SHARED AMONG ALL LIABILITY INSURANCE
CARRIERS WRITING IN THE STATE OF NEW HAMPSHIRE, INCLUDING THOSE
WRITING AUTOMOBILE LIABILITY INSURANCE. THE RULE CHANGE ALSO
SHOULD INCLUDE A POSITIVE METHOD OF RECOUPMENT, THROUGH
IDENTIFIABLE PREMIUM SURCHARGES ON ALL LIABILITY INSURANCE
POLICIES WRITTEN IN THE STATE.

4. THE INSURANCE DEPARTMENT SHOULD ADOPT A PUBLICLY STATED POLICY

THAT THE MATTER OF APPROVAL OF FUTURE JUA RATES WILL BE
UNDERTAKEN WITH EXTREME CARE, IN ORDER TO ASSURE THAT THE RACES
TO BE CHARGED BY THE JUA WILL BE NEITHER INADEQUATE, EXCESSIVE,
NOR UNFAIRLY DISCRIMINATORY. IN ADDITION, THE DEPARTMENT MUST
UNDERTAKE TO REVIEW ANNUALLY, IN. PUBLIC HEARING, THE NEED FOR
CONTINUATION OF THE STABILIZATION RESERVE FUND SURCHARGE
PROVIDED FOR IN THE SECOND REdbMMENDATION.
Exhibit C

B. Risk Management Subcommittee

1. THE INSURANCE DEPARTMENT SHOULD MANDATE A NEW RULE THAT ALL

MEDICAL LIABILITY INSURERS NOTIFY THE BOARD OF REGISTRATION IN
MEDICINE OF ALL CHARGEABLE CLAIMS AND SUITS. (The intent here
is to report every chargeable claim and suit, not incidents.)

2. THE BOARD OF REGISTRATION SHOULD NOTIFY THE HOSPITAL CHIEF

EXECUTIVE OFFICER FOR REFERRAL TO THEIR RESPECTIVE CREDENTIALS
AND QUALITY ASSURANCE COMMITTEES OR EQUIVALENT FORMAL COMMITTEES
WITH A TWO-STEP PROCESS. THE BOARD OF REGISTRATION SHALL
CONDUCT A REVIEW ON CLAIMS ARISING IN NON-HOSPITAL SETTINGS.

3. THE HOSPITALS' CREDENTIALS AND QUALITY ASSURANCE COMMITTEES OR

EQUIVALENT FORMAL COMMISSIONS WITH A TWO-STEP PROCESS SHOULD
PERFORM THEIR REVIEWS, ESTABLISH AND CARRY OUT NECESSARY
ACTIONS, IF ANY, AND REPORT BACK TO THE NEW HAMPSHIRE BOARD OF
REGISTRATION IN MEDICINE. A PROGRESS OR FINAL REPORT SHOULD BE
MADE TO THE BOARD WITHIN 45 DAYS. FURTHER DEFINITION OF THE
CONTENT OF THE REPORT SHOULD BE ACCOMPLISHED BY THE BOARD OF
REGISTRATION THROUGH ITS RULEMAKING AUTHORITY.

4 THE BOARD OF REGISTRATION SHOULD SATISFY ITSELF THAT ACTIONS

TAKEN BY THE HOSPITAL ADMINISTRATION AND BOARD ARE APPROPRIATE
AND CARRIED OUT. THE BOARD SHOULD TAKE ADDITIONAL ACTION IF IT
IS CONSIDERED NECESSARY. SHOULD THE INSURANCE DEPARTMENT HAVE
NEED TO REVIEW ANY CLAIM OR SUIT, THE COMMISSIONER SHOULD HAVE
FULL ACCESS TO THE BOARD OF REGISTRATION'S DATA.

5. THE BOARD OF REGISTRATION SHOULD ADDITIONALLY MAINTAIN A DATA

BASE IN USABLE FORM, AND SHOULD ESTABLISH AND CARRY OUT AN
ONGOING EDUCATIONAL PROGRAM FOR PHYSICIANS AND HOSPITALS,
UTILIZING CASE INFORMATION WITH NO IDENTIFIERS. IMPROVED
EDUCATION ON THE CAUSES OF MEDICAL INJURY AND CHARGEABLE CLAIMS,
AS WELL AS ON PHYSICIAN COMMUNICATION WITH PATIENTS, SHOULD HELP
TO PREVENT INJURY AND TO AVOID CLAIMS AND SUITS IN CASES OF
UNTOWARD OUTCOMES OF QUALITY MEDICAL PRACTICE.

6. RULES GOVERNING THE CONFIDENTIALITY OF DECISIONS MADE BY-TH ►

BOARD OF REGISTRATION SHOULD BE LIFTED. CARE MUST BE'TAKEN TO
INSURE-THAT INFORMATION REGARDING A PHYSICIAN IS VERIFIED AND
BONA FIDE, NOT FRIVOLOUS, BEFORE IT IS MADE PUBLIC. THIS
RECOMMENDATION REQUIRES FURTHER SPECIFIC DEFINITION BY THE BOARD
OF REGISTRATION IN MEDICINE TIfROUGH ITS RULEMAKING AUTHORITY.

iv
Exhibit C

C Tort Reform Subcommittee

1. THE NEW HAMPSHIRE DEPARTMENT OF INSURANCE SHOULD AUTHORIZE,

THROUGH ITS RULEMAKING AUTHORITY, A DEMONSTRATION PILOT PROJECT,
OF A VOLUNTARY, BINDING ARBITRATION SYSTEM FOR THE RESOLUTION OF
MEDICAL LIABILITY CLAIMS. SUBSEQUENT TO POSITIVE EVALUATION OF
THIS DEMONSTRATION BY THE N.H. INSURANCE DEPARTMENT, THE NEW
HAMPSHIRE GENERAL COURT SHOULD CONSIDER ENABLING LEGISLATION
WHICH WOULD SUPPORT AND FUND, IF NECESSARY, A VOLUNTARY, BINDING
ARBITRATION SYSTEM IN NEW HAMPSHIRE.

2. THE 1985 NEW HAMPSHIRE GENERAL COURT SHOULD CONSIDER PASSAGE OF

A TORT REFORM BILL WHICH WOULD:

ELIMINATE THE AD DANNUM CLAUSE IN FILING A LIABILITY CLAIM.

SHORTEN THE NEW HAMPSHIRE STATUTE OF LIMITATIONS IN WHICH

AN ADULT COULD BRING SUIT FROM THE CURRENT SIX YEARS TO
THREE YEARS FROM OCCURRENCE OF INJURY, OR DISCOVERY OF
INJURY (OR WHEN INJURY REASONABLY SHOULD HAVE BEEN
DISCOVERED). ALLOW STATUTE OF LIMITATION FOR A MINOR TO
RUN UNTIL THREE YEARS AFTER HE/SHE HAS REACHED MAJORITY
(18).

LIMIT THE APPLICATION OF RES IPSA LOQUITOR TO CERTAIN TYPES

OF CASES OR MANDATE THE COURTS TO PROVIDE SPECIAL
INSTRUCTIONS TO THE JURY ON THIS USE OF THIS DOCTRINE IN A
TRIAL

3. THE NEW HAMPSHIRE BAR ASSOCIATION AND THE COURTS SHOULD

ENCOURAGE THE USE OF STRUCTURED PAYMENTS FOR ALL LARGE TORT CASE
AWARDS AND AS A NEGOTIATION TOOL IN SETTLEMENT.

4. THE N.H. BAR ASSOCIATION AND THE COURTS SHOULD REVIEW THE
CURRENT CONTINGENCY FEE SYSTEM FOR MEDICAL LIABILITY CASES, AND
ENSURE AN EQUITABLE CONTINGENCY FEE SYSTEM TO MAXIMIZE . THE
AMOUNT OF THE AWARD WHICH GOES TO. THE INJURED PARTY, WITHOUT
JEOPARDIZING HIS/HER ACCESS TO THE LEGAL SYSTEM.

5. THE INSURANCE DEPARTMENT SHOULD EXPLORE THE FOLLOWING AS

INNOVATIVE, LONGER-TERM APPROACHES TO MORE EQUITABLY SPREAD THE
COST OF THE MEDICAL LIABILITY PROBLEM:

a. OTHER FORMS OF MEDICAL LABILITY INSURANCE, INCLUDING FIRST

PARTY MEDICAL LIABILITY INSURANCE (E.G. SURGERY INSURANCE),
AND DEDUCTIBLES FOR PHYSICIANS ON THEIR MALPRACTICE
INSURANCE

b. CREATION OF MEDICAL INJURY COMPENSATION POOL WHICH WOULD BE

SOMEWHAT ANALOGOUS TO WORKERS COMPENSATION.

V.
Exhibit C

c. NO-FAULT LEGISLATION FOR MEDICAL INJURY COMPENSATION

SIMILAR TO THAT IN AUTOMOBILE INSURANCE.

d. PREMIUMS ADJUSTED PROPORTIONATELY TO THE PRACTICE INTENSITY

OF THE PHYSICIAN WHICH MAY VARY BY GEOGRAPHIC LOCATION IN
THE STATE.

0567D

vi.
Exhibit C

FINAL REPORT
Exhibit C

MEDICAL LIABILITY COMMITTEE/TORT REFORM SUBCOMMITTEE

FINAL REPORT

I. BACKGROUND

Beginning in the mid-70's, physicians throughout the country began to

experience difficulty in purchasing medical malpractice insurance. This
difficulty had broad implications for the consumer of health services.
With health providers holding no medical liability insurance it was
possible that an individual, injured through medical malpractice or
negligence, would not have an adequate mechanism for receiving
compensation. Furthermore, some doctors, understanding the risks inherent
in an uninsured medical practice, might be reluctant to continue their
practice in the face of possible financial ruin if suit were brought and
won. Such an eventuality could put some consumers, particularly those in
rural areas, at risk of not receiving adequate medical care. Therefore,
the lack of available medical liability coverage had potential impact on
both providers and consumers of health care.

Joint Underwriting Association Established

In 1975, in response to this situation, New Hampshire established the

Medical Malpractice Joint Underwriting Association (JUA). The JUA is, in
essence, a state authorized and regulated medical liability insurance
company for the state's health providers. Providers pay prethiums to the
JUA, which is directed by a Board approved by the N.H. Department of
Insurance. The membership of the Board is determined by statute. The JUA
Board hires an administrator who actually operates the "insurance company."
The Association is regulated by the N.H. Department of Insurance, as are
other insurance entities in the state. As such, the JUA premiums are
proposed by the JUA, but approved by the Department of Insurance. This
solution to the medical liability insurance problem appeared to work well
for about six years.

In 1981, however, new problems had surfaced with the JUA. Over the
six-year period, the number of claims filed, settled, or awarded in court
had increased. In addition, several large medical malpractice decisions
had been awarded by the court system.

JUA Deficit
4
In the early part of 1983, the JUA informed the NH Insurance Department
that it faced substantial future deficip in meeting expected claims from
the financial resources available to it. In technical terms, the amount
of expected claims is referred to as "Incurred But Not Reported" claims
(IBNR) and outstanding claim reserves. Because these claims have not
Exhibit C

been turned into specific dollar amounts by verdict or settlement, they

are actuarially estimated figures. Various actuaries have estimated the
JUA IBNR reserve required. These estimates could result in reported
deficits ranging from $30 million to $60 million.

Despite the fact that since the early 1980's, JUA premiums had increased
dramatically, these rates proved to be inadequate to deal with the
estimated amount of future claims. 1

As a further complication, the number of health care providers insured by

the JUA was falling. The voluntary market for medical liability insurance
was starting to reappear in New Hampshire, primarily insuring hospitals
and medical specialty groups with low loss records. Reduction in the
number of JUA insureds portended increasing difficulty for the JUA in
dealing with its accumulated deficit because the withdrawals reduced the
cash flow available to make settlements and verdicts coming due. It
should be emphasized that the projected deficit would not actually be
incurred at any one time. Instead, as claims are paid over a period of
time, the JUA's cash balance would become less and less, until at some
point, the JUA would go into a negative cash position and would not have
sufficient funds to continue normal operations or pay claims. At just
what point this would occur is difficult to specify because of the many
variables and unknowns involved.

Existing NH Department rules governing the JUA make provision for

handling JUA deficits. Rule Ins 1702.07(b) and (d) sets up a process
whereby assessments would initially be made against each insurer member
of the JUA; then insurers would be permitted to recoup the assessments
through a surcharge by the JUA against all health care providers not to
exceed 1001 of each premium for the policy year in which the surcharge
was made, and/or a surcharge on future policies of liability insurance
other than automobile insurance.

However, an unresolved problem with the JUA deficit affects more than
health care providers; it involves New Hampshire health care consumers as
well:

. Some NH physicians have threatened to leave practice, feeling they

could not financially manage assessments of up to 1001 of their*"
premiums for medical liability insurance. Such action could leave
some citizens, particularly in rural areas, without adequate access
to care.
•
The costs of rising premiums are being passed through to consumers in
the form of rising health care prjses. In essence, all consumers are
paying some hidden tax to cover the costs of the existing medical
liability system. This situation appears difficult to support when
health care costs are expanding rapidly for other reasons as wel1. 2

2.
Exhibit C

The increased frequency and severity of medical malpractice claims

and awards, nationwide, have intensified the uncertainty inherent in
the provision of medical care. To compensate for this uncertainty,
doctors often order excessive tests and procedures, and patients do
not usually have information to question physicians on this. This
practice of "making sure" by excessive use of medical care is often
referred to as defensive medicine. Because defensive medicine can
lead to excess utilization of health services (more diagnostic
procedures, more surgery, etc.) it is expensive and adds to rising
health costs for consumers. Although this phenomenon is hard to
document statistically, experts in the health care field agree that
the medical liability system fuels defensive medicine which in turn
drives up the cost of health care for all consumers. 3

Insurance Department Action

In the Fall of 1983, the NH Insurance Department began action to deal with
the problem of potentially mounting JUA deficits. To stabilize the
situation, the Insurance Department issued directives effectively
restricting the voluntary market for medical liability insurance to
renewal of existing coverage for physicians and surgeons. This meant
that attrition in the number of JUA assureds was halted temporarily,
those health care providers seeking liability insurance in New Hampshire
would be required to obtain it from the JUA. This action maintained, at
least temporarily, the JUA's premium base.

The Insurance Department also moved to change the assessment formula of

Ins 1702.07, proposing a rules change which would assign 201 of the
responsibility for JUA deficits to health care providers, 601 of the
responsibility for such deficits to insurance companies writing voluntary
medical liability insurance in New Hampshire, and the remainder of such
responsibility to all insurance companies writing liability insurance in
New Hampshire, including automobile insurance.

At a hearing held in December 1983, objections to the department's

proposal were raised by certain health care providers who wished to have
the continuing opportunity to acquire medical liability insurance in the
private market. They believed they could do so at costs lower to
themselves than the insurance provided by the JUA. Also, private -Metrical
liability insurance carriers protested the proposed rule change on the
ground that it Would assign to them the risk of covering JUA deficits at
a level higher than the premiums they could expect to collect from doing
business in New Hampshire. They, theret'ore, would have no choice but to
withdraw from writing voluntary medical liability insurance in the
state. Also, at the December 1983 heating, an alternative proposal was
put forward by the American Insurance Association, an insurance trade
association, suggesting that a "Stabilization Reserve Fund" be
established to deal with impending JUA deficits, to be funded by annual
premium surcharges on all policies of medical liability insurance in the
state, both in the JUA and in the voluntary market.

3.
Exhibit C

Following the December 1983 hearing, in reviewing the available

alternatives, the Insurance Department requested an opinion from the
Attorney General about (a) the extent of the department's authority under
the governing statute which authorizes only "minimum interference" with
voluntary insurance markets, and (b) the legality of the Stabilization
Reserve Fund proposal. The Attorney General advised the department
(a) that meeting the statutory requirement for "minimum interference" is
a factual matter to be determined by comparing available alternatives,
and (b) that no illegality is perceived specific to the question asked
about the Stabilization Reserve Fund (See Appendix A).

Medical Liability Committee Appointed

In the Spring of 1984, Governor John Sununu appointed a Medical Liability

Committee, chaired by Senator George Freese, to recommend to him a wide
range of solutions to deal with the existing' New Hampshire situation.
The Governor was particularly mindful of the effect of this situation on
rapidly rising health care costs for New Hampshire citizens and businesses
who purchase health care coverage for their employees. For efficiency's
sake, the Committee was divided into three subcommittees, each dealing
with an inter-related but particular aspect of the medical liability *
situation:

1. The JUA Subcommittee, chaired by Insurance Commissioner, Louis

Bergeron
2. The Risk Management Subcommittee, chaired by Frank Jillson,
President, New Hampshire Blue Cross/Blue Shield
3. The Tort Reform Subcommittee, chaired by Department of Health and
Welfare Commissioner, Sylvio L. Dupuis, O.D.

The Governor charged the Committee with "the development of a cost

effective strategy for dealing with the problem of medical liability that
will serve the best interests of all the citizens of our state." The
three subcommittees were to (1) identify the issues, (2) propose workable
solutions, and (3) develop a plan of implementation.

The membership of the Medical Liability Committee and the three

subcommittees is listed in Appendix B.

Thee purpose of this Report is twofold: (a) to report the Committee's

recommendations to the Governor for dealing with the underlying problems
causing the current medical liability situation in New Hampshire, and
(b) to educate the New Hampshire commumAty-at-large on how all partici-
pants in the medical liability systeM contribute to and, therefore, can
help solve the current problems.

The report itself is divided into three remaining sections:

II. Exploration of Underlying Causes

III. Problem Definition
IV. Recommendations. (The recommendations are arranged by subcommittee.)

4.
Exhibit C

II. EXPLORATION OF UNDERLYING CAUSES

The presenting problem to the Medical Liability Committee was twofold:

. How should the JUA deal with the projected large deficit?
. What could be done to mitigate the further rapid escalation of
premiums which physicians were being charged in anticipation of
future incurred losses?

The Subcommittees reviewed materials and gathered data in an effort to

pinpoint the underlying causes of the large JUA projected deficit and
rapidly escalating premiums. Underlying causes fall into two main
categories: (a) national trends which are impacting New Hampshire, and
(b) specific New Hampshire conditions. National trends are occurring in
both the medical and legal systems.

A. National Trends: Medical and Legal

Within the medical system, two major trends impact on medical

liability.

1. Rapid technological advance in medicine and increasing

utilization of high technology health care have increased the
risk for consumers of an unfavorable or unanticipated medical
outcome. 4 Untoward outcomes should be expected with
state-of-the-art medical care. Unfortunately, both doctors and
patients often make health care decisions as if the medical
system were perfect, the physician infallible, and the care risk
free. This mythology is beginning to change, but it is still
operative in our society to a large degree. This mythology
often makes people feel that any untoward medical injury should
be compensated through a medical liability system.

2. The specialization of health care and the rise of the group

practice has contributed to the impersonalization of medical
care. The decline of the personal doctor/patient relationship
can lead to health care provision being viewed by both doctor
and patient as "just a business." This attitude, in turn, can
cause lack of sensitivity to the patient by the doctor or 40
willingness to sue the doctor by the patient.

National trends in the legal system affecting medical liability

have been identified in a recept ABA Journal Article. 5

a. A study by Jury Verdict iesearch, Inc. of Solon, Ohio,

reported in the September 1984 issue of the A.B.A. Journal,
states "Verdicts of $1 million or more are the headline
makers in personal injury litigation, and juries across the
country are continuing to award these verdicts in ever-

5.
Exhibit C

increasing numbers. . . . In fact, in 1982, verdicts of

this magnitude were rendered at a rate of more than four
per week. During the 1960's, million dollar verdicts were
granted no more than five times each year." ABA Journal
goes on to say that in 1982 a total of 251 verdicts of $1
million or more were awarded to individuals in personal
injury cases, cases most commonly involving product
liability or medical malpractice.

b. "Trial judges and appellate courts are sustaining

compensatory damages in more of these giant verdicts, and
in higher dollar amounts, according to lawyers for both
sides. In New York, a bellweather state, and other
jurisdictions, verdict ceilings affirmed on appeal have
risen by several million dollars recently, they say. Other
states have had a more gradual increase.

c. The concept of "making the plaintiff whole" has expanded,

as injured parties live decades longer than before and
computer-age technology greatly advances medical
treatment. New forms of suffering - psychological distress
and lifestyle changes, for example - are being
compensated. Rehabilitation is a lifetime effort,
requiring frequent hospitalization, outpatient care and
therapy, expensive drug therapy and psychological
counseling.

d. New legal theories and new applications of old ones allow

more plaintiffs to recover larger awards - for example,
through the wider application of strict liability and the
acceptance of new torts like wrongful birth.

e. Plaintiff lawyers are using new and highly effective

techniques to tell their clients' stories and are sharing
this knowledge with each other. Well-established
techniques include the use of "day-in-the-life of" films to
depict a plaintiff's misery and demographic consultants to
help pick juries. Experts of every stripe and color are
available to testify on every conceivable subject in- * m
expensive detail." 6

These national trends have brought an increasing number of

patients to make claims, and fr higher awards. National
statistics from 1966-1979 analyzed in a Rand Study on the
Frequency and Severity of Haleractice Claims, show frequency of
claims growing rapidly from 1971-1975, followed by a sharp
decrease, due no doubt, in part, to systems reforms enacted by
states in 1974, 1975 and 1976. However, partly because of
declining frequency eliminating minor claims, the severity of
liability has been outpacing the general rate of inflation
Exhibit C

throughout the last decade. In 1971-78, the average incurred

cost per claim against physicians and surgeons increased at
12.4% per annum, compared to 18.9% for claims against
hospitals." 7

B. Specific New Hampshire Conditions

Exhibits I - IV (See Appendix C), prepared for the Medical

Liabilities Committee by Johnson & Higgins, administrator of the JUA,
displays the JUA history of reserves, paid losses, and loss
adjustment expense and written premiums by calendar year. These
figures reveal a gradual increase in reserves and losses with
relatively no increase in premium from 10/75 to 12/79. The years
1980 - 1982 show a dramatic increase in outstanding reported case
reserves followed with a two-year lag by a dramatic increase in the
IBNR reserve. Paid losses and loss adjustment expense (LAE) also
increased dramatically. Note, however, that written premiums had not
yet responded to the problem. The 1983 and estimated 1984 outstanding
reported case reserves appear to be leveling off, if not declining.
The IBNR which lags between one to two years behind the outstanding
reported case reserves is still increasing, but the amount . of
increase between '83 and '84 (estimate) is half that of '82-'83.
Paid losses and LAE which have returned to the 1981 level appear to
be declining. Note that the written premium, however, is still
rising to make up for the inadequate premium increases 1980-1983.
What conclusions can be drawn from this data?

1. Frequency and Severity of Claims: Apparently New Hampshire

experienced a big rate of increase in frequency and severity of
claims, 1980 - 1983. It is difficult to explain why this
occurred because New Hampshire statistics are a very small
sample and one or two claims can skew the data for a particular
year. With this caveat in mind, it is reassuring to note that
the rate of increase appears to be declining from 1983 to
estimated 1984. Additional data in Appendix C shows that:

From 1975-1984 only two claims have been paid at $1 million

or over. None are currently in reserve at that level.' A
total of $23.5 million has been paid on 405 claims. -

The JUA has incurred 71 claims over $100,000 with a total

of $19 million paid or currently in reserve.

The bulk of claims fall under $500,000 with a total of 43

claims in the range of $100,000 - $250,000, and $6.5
million has been either paid or currently in reserve.

7.
Exhibit C

The remaining 28 claims range from $250,000 - $1,000,000

with $13.3 million either paid or currently in reserve.

The average number of new files reported during years

1978-83 (including reportable incidents, written claims,
and suits) was about 13 per month; the current average for
1984 is 17.1 per month.

In sum, the data paints a picture of a frequency and severity

problem which occurred in the recent past, to which JUA premiums
are still adjusting. It must be emphasized that due to the
small number of insureds in New Hamshire, one or two large
claims could alter this situation.

2. Rapidly Rising Premiums: Frequency and severity of claims are

not currently a crisis in New Hampshire, why then are premiums
escalating so rapidly? Premiums have increased 4051 from 1975
to July 1984 for basic coverage with 2481 from 1980 to 1984.
For maximum coverage, premiums increased 626% 1975-84 with 4011
from 1980-84. 8 In a letter of August 2, 1984, to the Medical
Liability Committee, C. Brian Burke, M.D. reported on his •
analysis of malpractice premiums in relation to gross physician
income. This analysis, performed on results of a survey by N.H.
Medical Society, broke physicians into three groups: "The
lowest group consists of specialists in internal medicine doing
a minimum of invasive testing and family practitioners who do
not deliver babies. This group pays 4.5% of their income in
insurance premiums of this kind. The second, or middle group,
consists of family practitioners with hospital privileges who
carry out obstetrical deliveries and specialists in obstetrics
and gynecology. These physicians pay about 91 of their gross
unadjusted income in premiums. The final group, the high risk
practitioners, include anesthesiologists, orthopedic surgeons
and general surgeons. The majority of these individuals are
paying premiums in the range of 14% of their gross income."

National figures available for comparison purposes indicate that

the New Hampshire situation is especially severe for New •
Hampshire physicians. Pat Danzon in 1984 testimony before W.S.
Senate hearing stated: "For physicians, malpractice insurance
premiuhs average around 31 of their gross income, ranging from
1-21 for general practitioners, to 5-61 for high-risk surgical
specialties. These percentage; have increased only slightly
since 1970." It is clear New -Hampshire physicians are bearing a
larger share of the medical liability premium cost than
physicians on the average across the U.S. This differential may
be due to several factors: one, the salary levels of New
Hampshire physicians which may be lower than national averages,
and two, the rapid increase in JUA premiums which New Hampshire
has experienced has not yet spread to other states.

8.
Exhibit C

3. The High IBNR: James Vaccarino, counsel for Johnson & Higgins
the JUA Administrator, in testimony before the N.H. Medical
Liability Committee indicated that the high JUA premiums are
necessary to cover the high IBNR (incurred but not reported)
claim estimates made by the actuarial consultants. The IBNR is
an estimated future expense an actuary develops based on (a)
analysis of national medical liability statistics (New Hampshire
statistics are too small a sample for too short a period of time
to be used), (b) perceived claims management practice in New
Hampshire, (claims management is defined as how successfully the
JUA prevents claims through successful risk management, closes
claims without indemnity, settles legitimate claims for
reasonable indemnity, or successfully fights claims in court),
(c) perceived number of New Hampshire claims which will be
brought many years after the injury has occurred, and (d)
perceived development or growth in New Hampshire in severity
plus increased loss adjustment expense of claims on the books
currently, as well as claims expected to be filed in the
future. 9

Some individuals who testified before the Committee felt New

Hampshire's actuarial estimates of the IBNR were unjustifiably
high. However, a second actuarial opinion sought by the JUA
produced even higher IBNR estimates. Unfortunately, there is no
way of comparing New Hampshire's IBNR with any other state's
IBNR, because, as stated above, the IBNR is a subjective
estimate based on state-specific factors which vary widely from
state to state. Therefore, there can be no objective measure of
comparison for New Hampshire's estimate's.

III. PROBLEM DEFINITION

The Medical Liability Committee concluded its exploration of the

situation facing New Hampshire with the following problem definitions.

A. The JUA deficit remains a reality despite rising premiums for some
health care providers in New Hampshire. Evidence indicates this
situation will continue. Some physicians in New Hampshire pay A m,
premiums at a higher percentage of the income than the national
average.

What steps can be taken to dell with the JUA deficit without
imposing excessive costs om any one segment of the health care
system?

This problem was largely addressed by the JUA Subcommittee.

Exhibit C

While frequency and severit y of claims are not now rising

dramatically, the perception exists that they will continue to rise
and, therefore, increase costs. This perception is reflected in the
high IBNR estimate.

What steps can be taken to reduce the frequency and severity of

medical liability claims including (1) changes in the medical
system which would reduce or prevent the incidence of medical
malpractice or medical liability claims, and (2) changes in the
tort system.

This problem was largely addressed by (1) the Risk Management

Subcommittee, and (2) the Tort Reform Subcommittee.

IV. RECOMMENDATIONS

A. JUA Subcommittee:

In the Subcommittee's view, there were three major questions to be

answered:

1. Should the JUA be continued?

2. Should the voluntary market be allowed to re-emerge? and

3. If the answers to the first two questions were in the

affirmative, how could the problem of JUA deficits best be
handled?

In response to the first question, the Subcommittee quickly concluded

that in light of presently expectable conditions in the health care
field, a medical JUA would probably be a necessity for the
foreseeable future. No voluntary insurers have yet come forward who
would agree to insure all health care providers in the state on a
long-term basis, and so there would probably remain a problem of
availability of medical liability insurance for at least some health
care providers. The JUA should continue this necessary function:

In response to the second question, the Subcommittee concluded that

allowing the voluntary market to re-emerge would be a desirable
long-term objective. Insurance in the voluntary market could offer
cost advantages to qualifying healti care providers. A voluntary
market could support health care cost containment efforts, as well as
encourage health care providers to_aualify for lower cost voluntary
insurance through better risk management techniques, thereby reducing
the incidence of medical injury.

1 0.
Exhibit C

In light of the answers to questions 1 and 2, this problem remained:

How to deal with the JUA deficit by sustaining the JUA to the extent
necessary, without imposing excessive costs on any one segment of the
health care field, and without interfering unduly . with the potential
re-emergence of the voluntary liability insurance market.

After a series of meetings with representatives of various segments

of the health care field and extensive consultations, the
Subcommittee identified a series of alternatives including retaining
present regulations, making the JUA mandatory, adopting the rule
changes as proposed by the Insurance Department, establishing a
Stabilization Reserve Fund, and broadening the group of entities
which would be responsible for supporting JUA deficits. The
Subcommittee concluded that no one of these alternatives would be
appropriate to deal with the problem of JUA deficits, and to attain
the combined objectives stated above.

The Subcommittee concluded that a combination of these alternatives

would be most appropriate in addressing the problem:

1. TO STABILIZE THE PRESENT JUA, THE INSURANCE DEPARTMENT SHOULD

CONTINUE UNTIL DECEMBER 31, 1985, ITS ADMINISTRATIVE ORDERS OF
SEPTEMBER 7 AND NOVEMBER 9, 1983, RESTRICTING THE ISSUANCE OF
PRIVATE MEDICAL MALPRACTICE POLICIES TO RENEWAL ONLY. THE
INSURANCE DEPARTMENT'S ORDERS SHOULD BE REMOVED ON JANUARY 1,
1986 AND THE VOLUNTARY MARKET WILL THEN BE ALLOWED TO DEVELOP
FURTHER.

' This step is designed to allow the JUA's servicing carrier more
time to carry out its management reforms, and to improve the
economics of the JUA.

2 THE INSURANCE DEPARTMENT SHOULD ADOPT A RULE ESTABLISHING A

STABILIZATION RESERVE FUND TO HELP SUPPORT JUA CASH DEFICITS
WHICH MAY ARISE IN THE FUTURE. THE STABILIZATION RESERVE FUND
WOULD BE FUNDED BY A 15% PREMIUM SURCHARGE ON ALL MEDICAL
MALPRACTICE INSURANCE POLICIES WRITTEN OR RENEWED ON OR AFTER
MARCH 1, 1985, OR 30 DAYS AFTER THE EFFECTIVE DATE OF THE RULE
ESTABLISHING THE FUND, WHICHEVER DATE OCCURS LATER. PREMIUM N
SURCHARGES WOULD BE DEPOSITED IN THE STABILIZATION RESERVE
FUND. THE SURCHARGES WOULD REMAIN IN EFFECT UNTIL THE INSURANCE
COMMISSIONER MAKES THE ACTUARIAL. DETERMINATION THAT A JUA
DEFICIT NO LONGER EXISTS, CONSIDERING THE CASH POSITION OF THE
JUA AND THE SIZE OF THE STABILIZATION RESERVE FUND.

11.
Exhibit C

Recommendation 1#2 is made with the understanding that in

addition to offering occurrence policies, the JUA will be
authorized to offer and will begin offering policies on a
"claims-made" basis at a reduction in premium during a five-
year transition period. This would help soften the financial
impact of Stabilization Reserve Fund surcharges on health care
providers. During the five-year period, the JUA would collect
amounts to meet its costs and actuarially determined risks,
together with the surcharge for the Stabilization Reserve Fund.

3. THE INSURANCE DEPARTMENT SHOULD REVISE INS 1702.07 TO CHANGE THE

METHOD OF DEFRAYING ANY JUA CASH DEFICIT ON OCCURRENCE POLICIES
BEYOND WHAT WOULD BE COVERED BY THE JUA OCCURRENCE FUND AND THE
STABILIZATION RESERVE FUND. THE REVISION SHOULD PROVIDE FOR
REMAINING DEFICITS TO BE SHARED AMONG ALL LIABILITY INSURANCE
CARRIERS WRITING IN THE STATE OF NEW HAMPSHIRE, INCLUDING THOSE
WRITING AUTOMOBILE LIABILITY INSURANCE. THE RULE CHANGE ALSO
SHOULD INCLUDE A POSITIVE METHOD OF RECOUPMENT, THROUGH
IDENTIFIABLE PREMIUM SURCHARGES ON ALL LIABILITY INSURANCE
POLICIES WRITTEN IN THE STATE.

4. THE INSURANCE DEPARTMENT SHOULD ADOPT A PUBLICLY STATED POLICY

THAT THE MATTER OF APPROVAL OF FUTURE JUA RATES WILL BE
UNDERTAKEN WITH EXTREME CARE, IN ORDER TO ASSURE THAT THE RATES
TO BE CHARGED BY THE JUA WILL BE NEITHER INADEQUATE, EXCESSIVE,
NOR UNFAIRLY DISCRIMINATORY. IN ADDITION, THE DEPARTMENT MUST
UNDERTAKE TO REVIEW ANNUALLY, IN PUBLIC HEARING, THE NEED FOR
CONTINUATION OF THE STABILIZATION RESERVE FUND SURCHARGE
PROVIDED FOR IN THE SECOND RECOMMENDATION.

The Subcommittee anticipates that this combination of proposals

will not be entirely satisfactory to everyone. Nevertheless, it
is the Subcommittee's judgement that the recommendations fairly
balance competing considerations and distribute burdens
equitably among the several interested groups. As such, the
recommendations constitute a responsible compromise resolution
to an extremely difficult set of problems. Minority opinions
are contained in Appendix D.

Risk Management Subcommittee:

The basic goals of the Risk Management Subcommittee were (1) to

formalize a statewide risk managemerl it program which would prevent, as
much as possible, medical injury; (2) to centralize a data base on
allegations of medical malpractice;_(3) to see that all actions
necessary to protect health care consumers are carried out; and (4)
to provide education to providers of health care. The Risk Management

12.
Exhibit C

Subcommittee recognizes that amendments to the law governing the

Board of Registration in Medicine will have to be passed to provide
additional authority, responsibility, and funding to meet these
recommendations.

THE INSURANCE DEPARTMENT SHOULD MANDATE A NEW RULE THAT ALL

MEDICAL LIABILITY INSURERS NOTIFY THE BOARD OF REGISTRATION IN
MEDICINE OF ALL CHARGEABLE CLAIMS AND SUITS. (The intent here
is to report every chargeable claim* and suit, not incidents.)

"Chargeable Claim" is defined as any allegation of medical

professional liability where a reserve has been established.

2 THE BOARD OF REGISTRATION SHOULD NOTIFY THE HOSPITAL CHIEF

EXECUTIVE OFFICER FOR REFERRAL TO THEIR RESPECTIVE CREDENTIALS
AND QUALITY ASSURANCE COMMITTEES OR EQUIVALENT FORMAL COMMITTEES
WITH A TWO-STEP PROCESS. THE BOARD OF REGISTRATION SHALL
CONDUCT A REVIEW ON CLAIMS ARISING IN NON-HOSPITAL SETTINGS.

3. THE HOSPITALS' CREDENTIALS AND QUALITY ASSURANCE COMMITTEES OR

EQUIVALENT FORMAL COMMISSIONS WITH A TWO-STEP PROCESS SHOULD
PERFORM THEIR REVIEWS, ESTABLISH AND CARRY OUT NECESSARY
ACTIONS, IF ANY, AND REPORT BACK TO THE NEW HAMPSHIRE BOARD OF
REGISTRATION IN MEDICINE. A PROGRESS OR FINAL REPORT SHOULD BE
MADE TO THE BOARD WITHIN 45 DAYS. FURTHER DEFINITION OF THE
CONTENT OF THE REPORT SHOULD BE ACCOMPLISHED BY THE BOARD OF
REGISTRATION THROUGH ITS RULEMAKING AUTHORITY.

4. THE BOARD OF REGISTRATION SHOULD SATISFY ITSELF THAT ACTIONS

TAKEN BY THE HOSPITAL ADMINISTRATION AND BOARD ARE APPROPRIATE
AND CARRIED OUT. THE BOARD SHOULD TAKE ADDITIONAL ACTION IF IT
IS CONSIDERED NECESSARY. SHOULD THE INSURANCE DEPARTMENT HAVE
NEED TO REVIEW ANY CLAIM OR SUIT, THE COMMISSIONER SHOULD HAVE
FULL ACCESS TO THE BOARD OF REGISTRATION'S DATA.

5. THE BOARD OF REGISTRATION SHOULD ADDITIONALLY MAINTAIN • A DATA

BASE IN USABLE FORM, AND SHOULD ESTABLISH AND CARRY OUT AN
ONGOING EDUCATIONAL PROGRAM FOR PHYSICIANS AND HOSPITALS, •
UTILIZING CASE INFORMATION WITH NO IDENTIFIERS. IMPROVED
EDUCATION ON THE CAUSES OF MEDICAL INJURY AND CHARGEABLE CLAIMS,
AS WELL AS ON PHYSICIAN COMMUNICATION WITH PATIENTS, SHOULD HELP
TO PREVENT INJURY AND TO AVOID CLAIMS AND SUITS IN CASES OF
UNTOWARD OUTCOMES OF QUALITY MDICAL PRACTICE.

13.
Exhibit C

RULES GOVERNING THE CONFIDENTIALITY OF DECISIONS MADE BY THE

BOARD OF REGISTRATION SHOULD BE LIFTED. CARE MUST BE TAKEN TO
INSURE THAT INFORMATION REGARDING A PHYSICIAN IS VERIFIED AND
BONA FIDE, NOT FRIVOLOUS, BEFORE IT IS MADE PUBLIC. THIS
RECOMMENDATION REQUIRES FURTHER SPECIFIC DEFINITION BY THE BOARD
OF REGISTRATION IN MEDICINE THROUGH IT'S RULEMAKING AUTHORITY.

C. Tort Reform Subcommittee:

The Tort Reform Subcommittee identified specific actions which had

been taken or proposed by states across the country. It evaluated
these actions on the basis of five criteria.

Affect on severity and/or frequency of medical malpractice

claims/awards

Affect on cost of medical liability insurance premiums

Affect on total cost of medical care

Affect on the percentage of the total tort system costs which go

to injured party

Affect on individual rights of redress of victims of medical

malpractice

In addition, testimony was gathered and analysis performed on

previous attempts at Tort Reform in New Hampshire: (1) RSA 507-C
enacted in 1977 which was struck down as unconstitutional by the N.H.
Supreme Court in Carson v. Maurer, 120 NH 925 (1980), and (2) a
revised proposed 507-C which was sent to Interim Study by the N.H.
Legislature in 1981 session. See Appendix C for further details.

1. THE NEW HAMPSHIRE DEPARTMENT OF INSURANCE SHOULD AUTHORIZE,

THROUGH ITS RULEMAKING AUTHORITY, A DEMONSTRATION PILOT PROJECT,
OF A VOLUNTARY, BINDING ARBITRATION SYSTEM FOR THE RESOLUTION OF
MEDICAL LIABILITY CLAIMS. SUBSEQUENT TO POSITIVE EVALUATION OF
THIS DEMONSTRATION BY THE N.H. INSURANCE DEPARTMENT, THE NEW
HAMPSHIRE GENERAL COURT SHOULD CONSIDER ENABLING LEGISLATION
WHICH WOULD SUPPORT AND FUND, IF NECESSARY, A VOLUNTARY, BINDING
ARBITRATION SYSTEM IN NEW HAMPSHIRE.

The New Hampshire Medical Society (NHMS) has taken a leadership

role in commissioning a study of various arbitration systems
being proposed and tried for_the resolution of medical liability
claims. The study makes specific design recommendations and is
available from the NHMS. The Committee agreed unanimously that
a well-designed, voluntary, binding arbitration system would
significantly reduce total costs of the medical liability system

14.
Exhibit C

over the long-term. In addition, arbitration could shorten the

time between the filing of a claim and its settlement.
Voluntary binding arbitration does not interfere with the
individual's right of redress if the system is appropriately
designed and thoughtfully implemented.

Key to successful implementation is the resolution of issues

such as (1) the timing of agreement to binding arbitration:
pre-treatment or post-treatment; and (2) the design of a
back-out period during which either party can back away from
their agreement to arbitrate should a claim arise. The
Committee believes that design of a voluntary, binding system
will be a challenge, and its implementation will require
careful, committed effort. For these reasons, joint involvement
of the medical and legal systems, as well as state executive
branch, is critical. Adequate funding, which the Committee
believes will be minimal, and an objective evaluation component
are also critical to the success of the demonstration. The
Committee believes such an approach can yield the positive
outcomes desired.

2. THE 1985 NEW HAMPSHIRE GENERAL COURT SHOULD CONSIDER PASSAGE OF

A TORT REFORM BILL WHICH WOULD:

ELIMINATE THE AD DAMNUM CLAUSE IN FILING A LIABILITY CLAIM.

Eliminating the ad damnum clause would have the affect of

prohibiting mention in a filed claim the dollar amount
demanded in damage. Large claims may encourage prejudicial
pre-trial publicity, harm the reputations of defendants who
are later vindicated, and distract the jury from basing its
award solely on the evidence presented at trial.
Furthermore, elimination of the clause could positively
affect actuarial perceptions of how New Hampshire claims
are managed and, therefore, reduce the IBNR estimate.

SHORTEN THE NEW HAMPSHIRE STATUTE OF LIMITATIONS IN WHICH

AN ADULT COULD BRING SUIT FROM THE CURRENT SIX YEARS TO
THREE YEARS FROM OCCURRENCE OF INJURY, OR DISCOVgRY - OF4a
INJURY (OR WHEN INJURY REASONABLY SHOULD HAVE BEEN
DISCOVERED). ALLOW STATUTE OF LIMITATION FOR A MINOR TO
RUN UNTIL THREE YEARS AFTER HE/SHE HAS REACHED MAJORITY
(18).

New Hampshire has one ot-the longest Statutes of

Limitations in the United States. A shortened Statute of
Limitations supports the perception of a more reasonable
"tail" on the part of plaintiffs, lawyers and actuaries.
If it can be demonstrated that such perception would lead
to a significantly lower IBNR estimate, the Committee feels
that taking this action is worth the time and attention of
the legislature.

ls.
Exhibit C

A shorter "tail" can have the affect of reducing the

severity of claims. This is so because the longer time
elapses between occurrence and the bringing of a claim, the
harder it is to reconstruct the facts of a case. Records
are harder to find; memories are vaguer; personnel involved
have moved to other areas. Some feel this lack of clear
documentation leads to larger settlements and verdicts in
favor of the plaintiff. In general, the committee believes
shortening the Statute of Limitations does not limit
individual right to seek redress of wrong if the "discovery
rule" is applied broadly as recommended. Note that such a
change must be written to apply to all tort cases, or it
could be struck down by N.H. Supreme Court as a violation
of equal protection considerations.

LIMIT THE APPLICATION OF RES IPSA LOQUITOR TO CERTAIN TYPES

OF CASES OR MANDATE THE COURTS .10 PROVIDE SPECIAL
INSTRUCTIONS TO THE JURY ON THIS USE OF THIS DOCTRINE IN A
TRIAL

Res Ipsa Loquitor means "the thing speaks for itself" it is

a legal doctrine which places the burden on the defendant
to prove he did not malpractice as opposed to the more
usual situation in which the plaintiff has the burden of
proving that malpractice actually occurred and was the
cause of injury. Some states have limited the application
of Res Ipsa Loquitor to particular types of cases, such as
those in which a sponge was left in the body during surgery.

Although the doctrine is not currently being misused in the

N.H. court system, the Committee believes such action to be
important as it reinforces the concept of clearly
compensable injury. If the limitation is narrowly applied
to a few types of cases, such action does not affect
individual rights.

3. THE NEW HAMPSHIRE BAR ASSOCIATION AND THE COURTS SHOULD

ENCOURAGE THE USE OF STRUCTURED PAYMENTS FOR ALL LARGE . TORT
CASE AWARDS AND AS A NEGOTIATION TOOL IN SETTLEMENT:

Sikh action allows payment of awards, usually in excess of

$100,000, to be made by installment at the discretion of
the court, or request of oone of the parties. Structured
payments can help a victim better handle large sums of
money. In addition, stuctured payments are useful as a
negotiation tool in settlement. An annuity can be
purchased which will earn the dollar difference between the
amounts on which the plaintiff and defendant are willing to
settle.

16.
Exhibit C

4. THE N.H. BAR ASSOCIATION AND THE COURTS SHOULD REVIEW THE
CURRENT CONTINGENCY FEE SYSTEM FOR MEDICAL LIABILITY
CASES, AND ENSURE AN EQUITABLE CONTINGENCY FEE SYSTEM TO
MAXIMIZE THE AMOUNT OF THE AWARD WHICH GOES TO THE INJURED
PARTY, WITHOUT JEOPARDIZING HIS/HER ACCESS TO THE LEGAL
SYSTEM.

5. THE INSURANCE DEPARTMENT SHOULD EXPLORE THE FOLLOWING AS

INNOVATIVE, LONGER-TERM APPROACHES TO MORE EQUITABLY SPREAD
THE COST OF THE MEDICAL LIABILITY PROBLEM:

a. OTHER FORMS OF MEDICAL LIABILITY INSURANCE, INCLUDING

FIRST PARTY MEDICAL LIABILITY INSURANCE (E.G. SURGERY
INSURANCE), AND DEDUCTIBLES FOR PHYSICIANS ON THEIR
MALPRACTICE INSURANCE

b. CREATION OF MEDICAL INJURY COMPENSATION POOL WHICH

WOULD BE SOMEWHAT ANALOGOUS TO WORKERS COMPENSATION.

c. NO-FAULT LEGISLATION FOR MEDICAL INJURY COMPENSATION

SIMILAR TO THAT IN AUTOMOBILE INSURANCE.

d. PREMIUMS ADJUSTED PROPORTIONATELY TO THE PRACTICE

INTENSITY OF THE PHYSICIAN WHICH MAY VARY BY
GEOGRAPHIC LOCATION IN THE STATE.

The above ideas were discussed briefly by the Committee and

considered worthy of further investigation by the executive
department having appropriate jurisdiction. They were
judged too new and unproven to merit consideration for
implementation at this time.
Exhibit C

FOOTNOTES

Between 1975 - 1979, the JUA premiums for basic coverage ($100,000 per
claim; $300,000 per aggregate claim) for a Class I physician (e.g. general
practitioner with no surgery) and Class VII physician (e.g.
cardio-vascular or neurosurgeon) were $310 and $2,580 respectively. In
July 1984, the premiums were $1,569 and $12,813 respectively for basic
coverage. For maximum coverage ($1 million per claim; $3 million per
aggregate claim) in between 1975-1979 premiums for Class I were $462 and
for Class VII, $3,810. As of July 1984, for Class I maximum coverage the
premium was $3,311, and for Class VII maximum $27,676. (Source: Johnson
& Higgins, November 1984)

2 There is some evidence indicating that while malpractice premiums do
affect health care costs, this affect may be exaggerated. Patricia Danzon
in testimony before Comm. on Labor and Human Resources, U.S. Senate, is
quoted as saying: "The allegation that malpractice insurance is a major
factor driving the high and rising cost of health care is exaggerated.
Between 1975 and 1982, malpractice insurance premiums rose roughly 737,
while the cost of physicians' services rose 927. and the cost of a hospital
room rose 130%. Overall, malpractice insurance premiums account for
around 1% of the $350 billion health care bill."

3 "Payment Systems, Cost Management, and Malpractice" by James E. Ludlam,
Hospitals (November 1, 1984) p 102.

4 Medical liability language calls an unanticipated, unfavorable medical
outcome an "untoward" outcome. This nomenclature specifically avoids the
implication of negligence or malpractice by the provider.

5 A.B.A. Journal (American Bar Assoc., Chicago, Ill.) Sept. 1984, pgs 52-53

6 A.B.A Journal (American Bar Assoc., Chicago, Ill.) Sept. 1984, pg. 53

7 The Frequency and Severity of Medical Malpractice Claims, a Rand Study by

Patricia Munch Danzon, pg. 6-7 •

8 Source: Johnson & Higgins, current administrators of the NH JUA.

9 In insurance language, the length of time after injury during which a

claim can be brought is called a "tail.", Studies have shown the longer
the tail the more severe the claim and greater likelihood of a case being
won.

0563D

18.
Exhibit C

GLOSSARY

JUA Joint Underwriting Association

IBNR Incurred But Not Reported

ABA American Bar Association

LAE Loss Adjustment Expense

ORCR Outstanding Reported Case Reserves

NHMS N. H. Medical Society

 ;

Exhibit C

APPENDIX A

o
Exhibit C

THE STATE OF NEW HAMPSHIRE

ATTORNEY GENERAL
GREGORY H. SMITH
DEPUTY ATTORNEY GENERAL
PETER W. MOSSEAU
ASSISTANr ATTORNEYS GENERAL
JOHN T. PAPPAS
MARC FL SCHEER
DONALD J. PERRAULT
MARTIN R. JENKINS
PETER C. SCOTT
BRIAN T. TUCKER
PAUL. BARBADORO
BRUCE E. MCHL
JOHN A. MALMBERG
DOUGLAS L. PATCH
LORETTA S. PLATT
ROBERT P. CHENEY. JR.
LESLIE J. LUDTKE
ANDREW L. ISAAC
AS q lSTANT Eys c,ENERA,T,
RONALD F. ROD GERS
G. DANA BISBEE
PETER T FOLEY
STEVEN M. HOURAN
JEFFREY R. HOWARD
EVE H. OYER
GREGORY W SwopE
JAMES D CAHILL . III
CHARLES W. GRAU
. DANIEL J. MULLEN
T. DAVID PLOURDE
THE ATTORNEY GENERAL ATTORNEYS
STATE HOUSE ANNEX EDNA M. CONWAy
AMY L. TO'NATILJS
25 CAPITOL STREET ROBERT B. Will
DAVID K. MULHERN
CONCORD. NEW HAMPSHIRE 03:101411V JAMES A. SWEENEY
ROSE-MARIE THEIS
PETER J. MINKOw

October 17, 1984

Mr. Louis Bergeron

Commissioner
New Hampshire Insurance Department
Concord, New Hampshire 03301

Dear Mr. Bergeron:

You requested our advice on two proposed regulations which

would alter the New Hampshire Medical Malpractice Joint
Underwriting Association's (JUA) assessment mechanism. First,
you asked whether the proposal offered by the American
Insurance Association (AIA) could be applied legally to
premiums paid on policies issued prior to the adoption of that
regulation. Second, you asked whether proposed regulation Ins.
1702.071 constitutes a "minimum interference with the voluntary
market" as required by RSA 404-C:2.

For the reasons stated below, the answer to your first

question is "yes," and the answer to your second question will
depend on the resolution of factual issues which must be
determined by your office. -

By letter dited January 16, 1984 from Martin Gross to you,

the AIA proposed a regulation which'would manage any JUA
defitits by establishing a Stabiliza iition Reserve Fund. As
proposed, the Stabilization Reserve Fund would be funded by an
annual premium surcharge to all medical malpractice insureds in
the State of New Hampshire, regardless of whether the policy
was written through the ,JUA. You asked whether that surcharge
can be applied to premiums paid on policies which were written

• prior to the adoption of the regulation without running afoul

of the prohibition against retrospective laws. In our opinion,
the proposed regulation does not alter the existing contracts
Exhibit C

Mr. Louis Bergeron

October 17, 1984
Page 2

of insurance; it merely imposes a surcharge on premiums paid

which will be used to manage any potential JUA deficits. That
surcharge will be levied on only those premiums paid after the
effective date of the regulations. The time honored test'of
retrospectivity for a civil law is to determine whether a
vested right would be impaired, or a new obligation created, or
a new disability attached for some past transaction or
consideration. Woart v. Winnick, 3 N.H. 473, 479 (1826). The
proposed surcharge will apply only to premiums paid for future
insurance coverage, and hence, the regulation in fact does not
have a retrospective application.

In the unlikely event the regulation is determined to be

retrospective, it could be upheld on the basis that the public
benefit outweighs the injury which results from the
retrospective applicatiOn. State v. Ballou, N.H.
(Decided July 31, 1984) (Souter, J., dissenting). In the case
of Hayes v. LeBlanc, 114 N.H. 141 (1974) the New Hampshire
Court decided that an amendment to the minimum insurance
requirements in the motor vehicle financial responsibility law
could be applied retroactively to policies written before the
effective date of the amendment. The amendment increased the
coverage limits required by law in cases where a driver after
an accident is ordered to obtain insurance as evidence of
financial responsibility. The Court applied the new coverage
limits to a policy written before the amendment, which provided
the old, lower limits. That application does not violate
either the Contract Clause (United State Constitution,
Article I, §10) or the New Hampshire prohibition against
retrospective laws (New Hampshire Constitution, Part I,
Article 23) because those "limitations must yield where,ii
reasonable for State government to regulate activities in the
exercise of the police power." 114 N.H. at 145 (citing El Paso
v. Simmons, 379 U.S. 497, 508-09 (1965); Home Building and Loan
Association v. Blaisdell, 290 U.S. 3„e8, 428 (1934); 2A.
Sutherland, Statutory Construction 41.07 (4th Ed. C. Sands
1973)). The court further noted these prohibitions "were not
intended to prevent the Legislature from amending laws which
regulate contracts in the public interest where such laws have
proven inadequate to accomplish their task." Id.

The Legislature, pursuant to its police power authority to

regulate insurance activities, gave your office the power to
establish a mandatory risk sharing plan where "any form of
liability insurance is not readily available in the voluntary
market." RSA 404-C:l. Under the rule enunciated in T:eBlanc
Exhibit C

Mr. Louis Bergeron

October 17, 1984
Page 3

Hayes, supra, you may amend the regulations where necessary to

make the plan adequate to accomplish its task and to protect
the public interest provided that interest outweighs any
resulting private injury, even if that amendment has a
retrospective application. For those reasons, it is our
opinion that the regulation proposed by the AIA may be applied
to policies written prior to its effective date.

A second regulation was proposed by the staff of the

Insurance Department as a possible solution to the potential
underfunding of the JUA. That proposal was numbered Ins.
1701.071 and filed with the Administrative Procedures Division
of the Office of Legislative Services as required by RSA 541-A,
but has not been formally adopted by your office. Amongst
other requirements, any mandatory risk sharing plan implemented
under 404-C must "establish procedures that will create minimum
interference with the voluntary market." RSA 404-C:2, II. You
asked whether the proposed regulation would satisfy that
criterion.

The only New Hampshire Supreme Court case which discusses

the minimum interference requirement is State Farm Mutual
Automobile Insurance Co. v. Whaland, 121 N.H. 400 (1981). The
court in that case upheld the plan establishing the New
Hampshire Reinsurance Facility for automobile liability
insurance partly on the basis that it satisfied the minimum
interference requirement. The Court noted that some
interference with the voluntary market is to be expected and is
implicitly authorized by the Legislature in RSA 404-C. In that
particular case, the court upheld the finding of the trial
court "that the involuntary market interferes with the
voluntary market and the voluntary market subsidizes the -
involuntary market." 121 N.H. at 406. In agreeing with the
trial court that the plan creates a minimum interference, the
Supreme Court reviewed the facts established by the evidence
below. Likewise, the decision of whether proposed Ins.
1702.071 creates only a minimum interference can be made only
after the relevant facts are known and reviewed. That decision
was , rttrusted by the Legislature to your office as the agency
p y ,, ,_!Lising the necessary experience and expertise. Because the
Legislature's use of the term "minimum" requires a relative
inquiry, you should determine whether any alternative
mechanisms will satisfy the purposes of RSA 404-C and create
less interference with the voluntary market than the regul.ition
in question. If there are not such alternatives, then the
proposed regulation will satisfy the minimum interference
standard.
Exhibit C

Mr. Louis Bergeron

October 17, 1984
Page 4

For those reasons, the answer to your second question will

depend on facts not known to us, such as the existence of
alternative proposals and the relative effect of those
proposals on the voluntary market. The gathering and
evaluation of those facts and the ultimate determination of
minimum interference is uniquely within the province of your
office. We are available to review your decision and its
factual basis for compliance with RSA 404-C at your convenience.

Please let me know if you have any further questions

concerning this matter.

Sincerely yours,
•

• 1/4„. . :

Ronald F. Rodefers
Assistant Attorney General
Division of Legal Counel

RFR/clp
84-46-I
Exhibit C

APPENDIX B
Exhibit C

Medical Liability Committee

For a number of years, the issues around medical liability have

become more and more of a problem erecting the ultimate cost of health
care. As the number of suits against physicians, and other health services
providers, have steadily increased, and as the dollar amounts of
settlements have increased even more so, there have been two basic
results. Physicians have tended to order more and more diagnostic and
treatment services as a hedge against such suits; and the cost of medical
malpractice insurance has increased in staggering amounts.

There have been attempts at solutions to the problems, including

legislation which passed and was overturned by the Courts, and a Joint
Underwriting Association which is in a difficult financial situation.
However, the basic problem continues unabated.

The Medical Liability Committee, under the Chairmanship of State

Senator George Freese, is being constituted to identify positive practical
solutions to the troubling issue of medical liability costs. These costs
to society are measured both in terms of economics and human suffering.'
The Committee will explore three broad areas of concern, namely:

(I) Joint Underwriting Authority/private insurance coverage;

(2) Tort Reform;
(3) Risk Management.

The primary mission of the Medical` Liability Study Committee will be

the development of a cost effective strategy for dealing with the problem
of medical liability that will serve the best interests of all the citizens
of our State.

The three subcommittees will char e issues

and proposing workable solutions as werrii a laza of It
p Innactivities of the working groups be coordinated
into a single comprehensive and actievable,• strategy. is anticipated
that the solutions will involve the executive branch legislative •
branch, and the private sector. The workplan cample on dates will 3e
focused to permit legislative priorities to be recommended to the 1985
legislative session.

It is also intended that the ps be supplemented by

additional persona on an ad hoc basis t5fal Triiiarairperson of the
respective groups. Testimony and input will be sought from affected and
interested parties in both the public and private sector. Many new and
creative solutions have been advanced in other states lad jurisdictions.
These areas of interest will also be examined as a part of the workplan of
the individual subcommittees.

X.U.A./Private Insurance Coverage Subcommittee

.U.A./Private Insurance Coverage subcommittee will be chaired

by Insurance Commissioner Louis Herteron.
Exhibit C

It will examine the original N.H.M.M.J.U.A. enabling legislation as

well as its record of accomplishments to date. The committee will explore
projective deficits and possible solutions, as well as examining the role
of the private insurance market in New Hampshire. the committee will be
charged with developing short range as well as mid range and long term
solutions. Staff support will be provided by the New Hampshire Insurance
Department.

Tort Reform Subcommittee

The Tort Reform Subcommittee will be chaired by Dr. Sylvio L.

Dupuis, Commissioner of Health and Welfare for the State of New Hampshire.
It will review previous attempts at state legislative tort reform, as well
as the position of the courts regarding these proposals. It will also
review efforts of other states in the area of Tort Reform, as well as the
potential for developing National Legislative standards. The committee
will be staffed through the Office of Policy and Planning of the Department
of Health and Welfare.

Committee on Risk Mana g ement

The Committee on Risk Management will be chaired by Frank Jillson,

President of the New Hampshire Blue Cross/Blue Shield. This committee will
explore the issue of risk management from both the institutional and
<i
ndividual practitioner viewpoint. The coimmittee will examine peer
eview, current licensure authority, incident repoiting, riskmanagement
s' tam e in all its aspects. it will
also examine institutions, physician and patient behavior relative to the
challenges posed by the practice of defensive medicine. Starting will be
provided by Mr. Jillson's organization.

The final recommendations and the implementation timetable will be

developed as a single unified strategy for consideration and approval by
the full committee. Staff of the participating agencies will be assigned to
draft final recommendations for approval.
Exhibit C

- 3 -

Medical Liability Committee

Major Membership

Senator George Freese, General Chairman

Chairman, Senate Insurance Committee

Nancy Baybutt
Office of the Governor

Louis Bergeron
Commissioner, Insurance Department

Dr. Merwyn Bagan

Past President, N. H. Medical Society

Representative Harold W. Burns

Vice Chairman, Committee on Commerce and Consumer Affairs

John Collins
C.E.O., Hitchcock Clinic

Representative Elizabeth Crory

Member, Committee on Commerce and Consumer Affairs

Sylvio L. Dupuis, 0.D.,

Commissioner, Department of Health and Welfare

Frank Jillson
President, Blue Cross/Blue Shield

Kennett Kendall
Kendall Insurance Agency

Les McLeod
President, Huggins Hospital

' Elizabeth Natti

'Former Executive Director, Health Careers Council

Harvey Hill, Chief Executive Officer, CPM Products

Chair, Health Cost Containment Subcommittee of Business & Industry Assoc.

Attorney James Vaccarino

Counsel for Johnson and Higgins, Managers of the Joint Underwriting
Authority for the State of New Hampshire
Exhibit C

- 4 -

Subcommittee Membership Additional Subcommittee Members

Risk Management

Frank Jillson, Chairman Vincent Denobile

Les McLeod
Elizabeth Natti
Merwyn Bagan, M.D.

Tort Reform

Sylvio L. Dupuis, 0.D., Chairman Attny. Michael P. Hall

Rep. Harold W. Burns Hamilton Putnam
Nancy Baybutt F.B. Dibble, Jr. M.D.
Harvey Hill Mike Hill
John Collins

J.U.A./Private Insurance Coverage

Commissioner Louis Bergeron, Chairman

Attorney James Vaccarino
Elizabeth Crory
Kennett Kendall

Staff People

Judy Chynoweth, Director, OPPD David Kearns, Ass't. Comm.

Dept. Health & Welfare Dept. of Insurance

Nancy Lilly, Admin. Ass't. to President

Blue Cross/Blue Shield

Leo Fraser, Jr.

Ass't. to Gen. Chmn.
Leo Fraser & Associates
PO Box 1364
Concord, NH 03301
Exhibit C

APPENDIX C
Exhibit C

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Exhibit C
N.H.M.M.J.U.A.
55 Mil — Graph of Financial History

SO Mil

Total Reserve
IBNR Reserve
Outstanding Case Reserve
45 Mil — Written Premium
Paid Loss & Adjustment
Expense

40 Mil —

35 Mil

30 Mil

25 Mil

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15 Mil —

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10/75-12/76 77 12/78 12/79 /80 12/81 12/S2 12/83 Est.12/84

Exhibit C
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Exhibit C

APPENDIX D
Exhibit C

.t tatt) of NMI iqampOirr

HOUSE OF REPRESENTATIVES

CONCORD

December 13, 1984

Dear Committee Member:

Enclosed please find my minority report to the JUA subcommittee's

full report. As my minority position was not included in the full
report, I feel your awareness of my position is important before the
meeting on December 18.

Sincerely,

Elizabeth L. Crory
Grafton, District 13

ELC/sg
Enclosure
Exhibit C

Minority Report on Joint Underwriters Association (JUA)

Stabilization Reserve Fund

Three of the four proposals of the JUA subcommittee are either

an artificial manipulation of the insurance market place or a shift-

ing of the responsibility for the anticipated JUA deficit. Before

a governing body endorses such proposals, the severity of the antici-

pated deficit and the equity of the proposed solution must be resolved.

For the past fifteen months the Insurance Department's directive

effectively restricting the voluntary market has resulted in forcing

about one hundred new persons desiring medical liability insurance

in New Hampshire to purchase their insurance at non-competitive rates

from the JUA. Their level of premium resulting to the JUA is about

$500,000. Those previously in the JUA were also "frozen" to keep

the JUA populated.

The extension of the freeze will be open to challenge if power

granted in RSA 404:C 1 and 404:C 2 has been exceeded. The Attorney

General's office has advised the Insurance Department it must, prove

this plan is minimum interference.

- 01,
This freeze is also connected to the Stabilization Reserve Fund.

In 1985 the JUA will sell "claims made" , policies to accommodate

(soften) the implementation of the 15'percent premium surcharge. Claims

made policies have a short run financial appeal which disappears

when an insured wants to leave and has to purchase "tail coverage".

If claims made policies are purchased in 1985, an expensive impedi-

ment to leave the JUA will exist.

Exhibit C

- 2 -

The JUA committee report emphasizes all physicians and hospitals

who entered into contracts with the JUA from 1975 until 1984 agreed

in their insurance contracts to their obligation for the financial

burden of any deficit. Nurses, dentists, medical technicians, the

Hitchcock Clinic, the Mary Hitchcock Hospital, the Valley Regional

Hospital and over 15 classes of health providers who have never pur-

chased medical liability insurance from the JUA will now be forced to

cover a deficit currently the responsibility of those insured by the

JUA.

The JUA currently has about fourteen million dollars in their

account. In 1983 the JUA purchased reinsurance at a cost of 1.5 million

dollars to cover all losses arising by June 30, 1983, in excess of thirty

million to forty million dollars. Testimony regarding better claims

management, case settlements, and operation of the JUA, plus the stabil-

izing effect of the freeze, support my belief that the deficit is no

longer as severe as anticipated in 1983. Before all are surcharged 15 per-

cent of premium should we begin by surcharging only those in the JUA?

The mechanism for a Stabilization Reserve Fund could be.established

and triggered only if the JUA fund reaches a low of about five million

dollars clearly defined as reserved. Cases are finalized for payment on

a staggered basis with lead time for planning.

The current regulation allows . the Insurance Department to assess

one hundred dollars from about 336 insurance companies if a deficit

is anticipated. In 1983 this assessment was made for years of licensing

by each company at $100 per year and realized $213,700, This mechanism

to meet a deficit was not used in 1984 and will be discarded in the

new regulation. A higher assessment for the next few years, coupled

with the 4ecing device approach, should be considered.

Exhibit C

- 3 -

Before the Stabilization Fund is endorsed tighter controls and

clearer language must be developed. In the final report new language

appears never discussed in our committee; "an additional amount for

deficit control" and "JUA Occurrence Fund". Additional concerns are:

- Will the 15 percent surcharge be exempt from the insurance

broker's commission?

- A level between fourteen million and thirty million should

be set now as adequate to cover the deficit for the eight
years of JUA operation. The open ended allowance for the
Insurance Department to decide an adequate level is a tempta-
tion for a continual Stabilization Reserve Fund. Agreement
was reached in committee that the Insurance Department must
conduct an annual hearing to justify extension of the sur-
charge. The report uses the permissive "should".

- The JUA has maximum coverage limits. Many institutions and

individuals buy higher maximums outside the JUA. Should the
higher limits be penalized by the 15 percent surcharge?

Proposal #3 will be levied when the JUA fund cannot meet its

quarterly obligations and will spread the deficit even further.

All persons purchasing homeowners, auto, or any type of liability

insurance will be surcharged. These proposals are anticipated to

become effective through the rule making powers of the insurance de-

partment.

The results of the proposal are:

The insurance companies will be the collector of revenues and

the JUA will manage the fund. The unpopular task of collecting higher

premiums will fall to companies who wiill find the JUA firmly entrenched

in the market when the freeze is lifted. Companies will no longer be

liable r a one hundred dollar annual 4s:ie.si-iq,eitr7.

The medical community who benefited from the JUA from 1975-1984

will have a greatly reduced obligation for the deficit and will have

paid lower premiums than others for about five years. The medical
Exhibit C
4

community who have never participated in the JUA will pay a portion of

i
the deficit and will continue to pay full premiums to their insurers.

These insurers will not have the luxury of a state provided deficit offset.

These proposals will not decrease health costs, for if a deficit

arises, the costs will be passed along. As a legislator representing

the citizens of New Hampshire, I urge consideration of a more equit-

able Stabilization Reserve Fund and a triggering mechanism if the

anticipated deficit becomes more concrete.

Elizabeth L. Crory
Representative, Grafton 13
Exhibit C

krt.
THE HITCHCOCK CLINIC
Y 717 –,
Dartmouth-Hitchcock Medical Center
hcnaver. New Hampshire 03756 December 14, 1984
603/646- 5326

HAND DELIVERED

Honorable Louis Bergeron

Commissioner
New Hampshire Insurance Department
Concord, New Hampshire 03301

Dear Commissioner Bergeron:

I have received the draft report prepared by the JUA/Private

Insurance Subcommittee and wish to offer several observations.
For the reasons stated below, I believe that the Subcommittee's
recommendations warrant further study and discussion before they
can be approved and submitted to the Governor. 1.

1. Administrative Orders Restricting Issuance of Private

Insurance. If the administrative orders of September 7, 1983 and
November 9, 1983 restricting the issuance of private medical
malpractice policies to renewals only are to be removed on
January 1, 1986, it is essential that the New Hampshire JUA be
specifically authorized to market "claims made" insurance. Since
the premiums during the early years of a "claims made" policy are
relatively low and therefore attractive, the JUA must be able to
market "claims made" policies if it is to compete successfully
with private insurers once the administrative restrictions have
been lifted. If the JUA were not permitted to offer "claims
made" policies, the private insurance market would continue to
dilute the JUA. If the voluntary market were to return, the JUA
must be in a position to compete effectively.

2. Stabilization Reserve Fund. A draconian measure such

as the Stabilization Reserve Fund ("SRF") should be pursued'only
in pressing and truly dire circumstances. As yet no reliable
data has demonstrated that such circumstances actually exist and,
therefore, I qudstion whether a SRF is justified. In fact, the
$1.5 million cost of reinsurance for the $30 million to $40
million loss corridor suggests only minimal exposure at this loss
layer. Perhaps with another year of JUA management by Johnson
and Higgins, the need for a SRF could be more readily
ascertained.

If a need could be demonstrated accurately, however, I still

question several fundamental features of the proposed SRF. For
example, the recommendation does not take into account the fact
that the Dartmouth-Hitchcock Medical Center ("DHMC") and the
individual physicians working there did not contribut,2 to the
JUA's present financial difficulties. The costs impoed on the
DHMC by the SRF would be extraordinary. indeed, it would be
Exhibit C

Honorable Louis Bergeron

December 14, 1984
Page 2

fundamentally unfair to impose a 15% premium surcharge on any

individual health care provider that has been insured outside the
JUA during the years the problems developed. If the JUA were to
assess the DHMC and other privately insured health care
providers, I fail to understand why these insureds could not, in
turn, assess the JUA.

Furthermore,- even if the SRF proposal were acceptable in

principle, its current form lacks the precision necessary to
understand its actual application. For instance, it is unclear
whether the 15% surcharge is intended to apply to the cost of
just excess coverage, just primary coverage or both. Would the
regulation apply to required assessment under restrospective rate
schemes? Would-the regulation be applied to the total premiums
paid regardless of the policy limits? The answers to these
fundamental questions will have a material impact on the cost of
non-JUA coverage; answers should be provided by the Insurance
Commission and not by the drafters of the regulation.

I also believe that the criteria by which the Commissioner

would decide that a JUA deficit no longer existed should be
explicit and written. Given the competing interest groups
affected directly and indirectly by the SRF, all parties would
benefit by a considered articulation of the SRF termination
conditions.

3. "Claims Made" Policies Offered b y JUA. The proposal to

include "claims made" policies should stand as a separate
recommendation since the implications of the shift to a "claims
made" program are considerable. Once a physician or health care
provider purchases a "claims made" policy from the JUA, the cost
of "tail" coverage from a private insurer is so great that these
insureds essentially cannot go elsewhere for their insurance
needs. Great care should be taken to inform fully individual
physicians and health care institutions about the nature of .w
"claims made" policies, and explicit provisions should be
developed for the insureds to obtain "tail" coverage at a price
that can be ascertained today. To ignore the "tail" question
could mean that the JUA indirectly could become the mandatory
insurer of all those who purchase,"41aims made" policies. The
Subcommittee has previously discussed the merits of a mandatory
state-wide JUA and if attention is -not devoted to the "tail"
issue a mandatory JUA might be created inadvertently for a select
group.

4. Additional Assessments to Defray Cash Deficits. The

relationship between the SRF and the change i hh ,7! asse ,: Ter„t
formula is vague. As mentioned above, the duration of the SRF is
unclear and, therefore, it is equally uncl. , •r whri the assessment
formula would be imposed on all liability insurance carriers in
, w Hampshire.
Exhibit C

•
Honorable Louis Bergeron
December 14, 1984
Page 3

Furthermore, I question the order for the proposed

surcharges. The proposed recommendation provides for deficit
reduction by first assessing health care providers and then, if a
deficit still exists, by assessing all liability insurance
carriers in New Hampshire. Why not impose a surcharge on
carriers first and then, to the extent a deficit remains, assess
care providers.

It is also unclear what monies would be channeled into the

JUA Occurrence Fund ("Fund"). Would the Fund be supported just
by the premiums from the occurrence policies issued prior to the
JUA offering "claims made" policies or would the Fund be
supported by occurrence policies issued both before and after
such an offering by the JUA? Would the premiums collected on
"claims made" policies also go into the Fund? These questions
warrant further discussion and analysis.

I have more specific comments on each of the recommendations

and hope that I might meet with you prior to the Subcommittee
meeting scheduled for December 18, 1984. I appreciate your
courtesy in allowing me to set forth my views on these important
matters.

Sincerely,

C . ,(10-6dC /3 Q
ohn C. Collins
Chief Executive Officer

mjb
Exhibit C

MEDICAL MUTUAL INSURANCE COMPANY OF MAINE

One City Center – Coh Floor
Portland, Maine 0410 I
(A Mutual Insurance Company, herein called "the Company")

COMPREHENSIVE PROFESSIONAL LIABILITY INSURANCE POLICY

IMPORTANT POLICY INFORMATION

The Policy contained herein does not become effective unless a DECLARATIONS PAGE is issued to form a part thereof.

This is a Non-Assessable CLAIMS-Made Policy. Except to such extent as may otherwise be provided herein, the coverage under
this Policy is limited to liability for CLAIMS which arise from MEDICAL INCIDENTS or NON-PATIENT INCIDENTS which
occur subsequent to the Retroactive Date stated on the DECLARATIONS PAGE and which are lirst made against the
INSURED while the Policy is in force.

Throughout the Policy and all related forms and documents, the words "we", "us", "our" and "the Company" refer to Medical
Mutual Insurance Company of Maine. The words "you", "your", "yours" and "INSURED(S)" refer to the NAMED INSURED
and all other persons or organizations defined as, or qualified as, INSUREDS under the Policy.

Annual meetings are held in Portland, Maine, on the first Wednesday in May of each year.

PLEASE REVIEW THE POLICY CA REFULL Y

In consideration of the payment of the premium, in reliance upon the statements and representations in the Application for this
trance and on the DECLARATIONS PAGE made a part hereof and subject to all of the terms of this Policy, the following is
the statement of agreement between the Company and the NAMED INSURED.

PROFESSIONAL LIABILITY
COVERAGE AGREEMENTS

A. •IEDICAL INCIDENT Liability

We agree to pay on your behalf DAMAGES and DEFENSE COSTS which you become legally obligated to pay due to any
CLAIM made against you as a result of a MEDICAL INCIDENT as defined in this Policy in Paragraph F., Section X.
DEFINITIONS, provided that:

1. the MEDICAL INCIDENT results from your PROFESSIONAL SERVICES or the PROFESSIONAL SERVICES by
any persons for whose acts or omissions you are legally responsible, and the MEDICAL INCIDENT occurs on or Mier
Ihe Retroactive Date noted on the DECLARATIONS PACE for this Policy; and,

the CLAIM is first made during the Policy Period and is reported to us as required by Section VI. INSURED'S
DUTIES IN THE EVEN r OF A CLAIM.

A CLAIM shall be deemed tnade he date you first report i t to us.

We will have tlk• ri .. .,;ht and duty t o ...0Cnd any such CLAIM Nr • u :. 411 and will .I;; even if the CLAIM is
groundless, false or faudulent, We will also have the rie.ht to in :illy CLAIM. but N n., • •.C1. 110 (' . mm

that falls under CO! FR 1(;E ACREFMENT A. NIEDICAL INCIDENT Liability, w;:!1, A ,:ur espress cut, We
have the sole authority t• ',elect and retain leu,a1 wit,e1 for the defense of any CLA1 . 1:t ! .tainst you. We shall 1: . )1 reimburse
any .1 , • r RI incur without •2onsent.

Page f or 12
Exhibit C

Our payment of DAMAGES under COVERAGE AGREEMENT A. MEDICAL INCIDENT Liability shall reduce the
applicable Limit of Liability shown on the DECLARATIONS PAGE of this Policy. Our payment of DEFENSE COSTS
will not reduce the applicable Limit of Liability; however, our duty to defend and pay DEFENSE COSTS on covered
CLAIMS will end when the applicable Limit of Liability has been exhausted by the payment of DAMAGES.

IL NON-PATIENT INCIDENT liability

We agree to pay on your behalf DAMAGES and DEFENSE COSTS which you become legally obligated to pay due to any
CLAIM made against you as a result of a NON-PATIENT INCIDENT as defined in this Policy in Paragraph H., Section
X. DEFINITIONS, provided that:

I. the NON-PATIENT INCIDENT results from your PROFESSIONAL SERVICES or PROFESSIONAL SERVICES
by any persons for whose acts or omissions you are legally responsible, and the NON-PATIENT INCIDENT occurs
on or alter the Retroactive Date noted on the DECLARATIONS PAGE for this Policy; and,

2. the CLAIM is first made during the Policy Period and is reported to us as required by Section VI. INSURED'S
DUTIES IN THE EVENT OF A CLAIM.

A CLAIM shall be deemed made on the date you first report it to us.

We will have the right and duty to defend any such CLAIM brought against you and will do so even if the CLAIM is
groundless, false or fraudulent. We also have the right to investigate any CLAIM and settle at our discretion any CLAIM
covered under COVERAGE AGREEMENT B. NON-PATIENT INCIDENT Liability. We have the sole authority to
select and retain legal counsel for the defense of any CLAIM against you. We shall not reimburse any costs, charges, legal
expenses or legal fees you incur without our consent.

Our payment of DAMAGES and DEFENSE COSTS under COVERAGE AGREEMENT B. NON-PATIENT
INCIDENT Liability shall reduce the applicable Limit of Liability shown on the DECLARATIONS PAGE of this
Policy; however, our duty to defend and pay DEFENSE COSTS on covered CLAIMS will end when the applicable Limit
of Liability has been exhausted by payment of DEFENSE COSTS and/or DAMAGES.

II. SUPPLEMENTARY PAYMENTS

In any CLAIM covered under COVERAGE AGREEMENT A. or B. of this Policy, the Company will pay, in addition to the
applicable Limit of Liability:

A. in any CLAIM defended by the Company, all interest on the part of any judgment which does not exceed this Policy's
Limit of Liability and which accrues after the entry ofjudgment and before the Company has paid, tendered or deposited in
court that part of the judgment which does not exceed this Policy's Limit of Liability;

B. premiums on appeal bonds required in any such CLAIM, premiums on bonds to release attachments in any such CLAIM
for an amount not in excess of the applicable Limit of Liability of this Policy, but the Company shall have no obligation to
apply for or furnish such bonds; and,

C. reasonable expense incurred by the INSURED at the Company's request in assisting the Company in the defense of any
CLAIM, including actual loss of earnings not to exceed $100 per day for each day of attendance at trial.

III. INSUREDS

Each of the fOrow in!. PEI) h• :he extent set forth below:

A. the NA ,D INSURED;

B. emplok.t-.; the NAMEI ) ED, lint only for PROFESSIO• ' .;1 . k VICES rendered within i heir scope ofduties as
such, for whom specific premium eliar!.•s :Ire stated on the DECLARATIONS PAGE for this Policy.

MM 3(10,1 (Rev, 01/08) Page 2 of 12

Exhibit C

IV. LIMITS OF LIABILITY

The limits of Liability identified on the DECLARATIONS PAGE for this Policy declare the amounts we will pay for
CLAIMS involving either MEDICAL INCIDENTS or NON-PATIENT INCIDENTS covered hereunder.

A. Each MEDICAL INCIDENT Limit of Liability. This is the most we will pay under COVERAGE AGREEMENT A.
MEDICAL INCIDENT Liability for DAMAGES resulting from any MEDICAL INCIDENT covered under this
Policy, regardless of the number of INSUREDS involved, claimants involved, CLAIMS brought, or subsequent
related CLAIMS. (For example, more than one CLAIM by a PATIENT and his or her spouse, children, other next of
kin, legal estate or legal representative arising out of a MEDICAL INCIDENT will be subject to a single Each
MEDICAL INCIDENT Limit of Liability.)

B. Aggregate MEDICAL INCIDENT Limit of Liability. This is the most we will pay under COVERAGE
AGREEMENT A. MEDICAL INCIDENT Liability for DAMAGES resulting from all MEDICAL INCIDENTS
covered under this Policy, regardless of the number of INSUREDS, claimants, CLAIMS or MEDICAL INCIDENTS.

C. Each NON-PATIENT INCIDENT Limit of Liability. This is the most we will pay under COVERAGE
AGREEMENT B. NON-PATIENT INCIDENT Liability for DAMAGES and DEFENSE COSTS resulting from
any NON-PATIENT INCIDENT covered under this Policy, regardless of the number of INSUREDS involved,
claimants involved, CLAIMS brought or subsequent related CLAIMS.

D. NON-PATIENT INCIDENT Limit of I lability. This is the most we will pay under COVERAGE
AGREEMENT B. NON-PATIENT INCIDENT Liability for DAMAGES and DEFENSE COSTS resulting from
all NON-PATIENT INCIDENTS covered under this Policy, regardless of the number of INSUREDS, claimants,
CLAIMS or NON-PATIENT INCIDENTS.

E. Defense within Limit. Under COVERAGE AGREEMENT B. NON-PATIENT INCIDENT Liability, DEFENSE
COSTS are included within the Limit of Liability. We shall have no further defense or payment obligation under
COVERAGE B. of this Policy after the applicable Limit of Liability as stated on the DECLARATIONS PAGE has
been exhausted by the payment of DEFENSE COSTS and/or DAMAGES.

F. No more than one COVERAGE AGREEMENT (A. or B.) and its applicable Limit of Liability as shown on the
DECLARATIONS PAGE shall apply to any CLAIM.
V. DEDUCTIBLES

A. Ifyour Policy provides for a Deductible, the DECLARATIONS PAGE of your Policy will state the Each MEDICAL
INCIDENT Deductible, the Each NON-PATIENT INCIDENT Deductible and the Aggregate MEDICAL
INCIDENT/NON-PATIENT INCIDENT Deductible. The Each MEDICAL INCIDENT Deductible will apply to
DAMAGES payments, only. The Each NON-PATIENT INCIDENT Deductible will apply to both DEFENSE COSTS
and DAMAGES payments.

B. We will be responsible for the Each MEDICAL INCIDENT Limit of Liability shown on the DECLARATIONS
PAGE less the Each MEDICAL INCIDENT Deductible amount shown on the DECLAMATIONS PAGE. You will
he responsible for the Each MEDICAL INCIDENT Deductible. We can it on your behalf all or part of your
Deductible to settle a CLAIM resulting from a MEDICAL INCIDENT. If we do, you agree to reimburse us the
Deductible amount within 30 days of the date we notify ),;u of the settlement.

C. We will be rest; ,Insihle for the Each N( . PATIE1% , ∎ NN'T Limit of Liability shown on the DECLARATIONS
PAGE less the \,0N - pA "II )EN l' I )cd ∎ ictihIc :;lit,wn on the 1)Et. L.I.RATION, PAGE. You
will he CLL . iiii' put or
your Deduoil-le DEFF \ CI •1 .. A lc; CLA rosuEing from a `,,( i',\ I :":1 1DIA . 1 . It'
we do, y ou , 1 :, rce to reimburse tho Deductible att p nint within 30 dan,.s cf the date we notif,:r ofsoch r,, 0 ntent,.

I). Ilan A IEDICA I, I \ T, HON - PATIENT INCH )1.:.NT Deductible is ';liown on t he DECLARATIONS
PAGE, ..ve •.',i!! he :c:;p:n;;i'71c Tar [hc Limit of Li.ibility less lie -um Lich MEDICAL INCIDEls, I
Deductibles ,ind Each •PA I I l N F Deductible:, paid in the woe Poriod, with said sum nil
exceed tho LJCIDENT. NON - PATIENT INCIDENT Deductible.

MM r „o8) Page 3 of 12
Exhibit C

E. Deductible amounts shown on the DECLARATIONS PACE do not alter the terms of this Policy such as the
Company's rights and duties with respect to the defense of CLAIMS and the INSURF.D'S duties in the event of a
CLAIM.

VI. INSURED'S DUTIES IN THE EVENT OF A CLAIM

A. You must give us written notice of any CLAIM as defined in the Policy as soon as practicable once you become aware
of it, and during the Policy Period or during any applicable EXTENDED REPORTING PERIOD. You must also
immediately forward to us every demand, notice, writ, summons or other legal document received by you or your
representative in connection with any such CLAIM,

B. Written notice of the MEDICAL INCIDENT or the NON-PATIENT INCIDENT at issue, or likely to be at issue, in a
CLAIM shall consist of:

I. the date, time and place of the MEDICAL INCIDENT or the NON-PATIENT INCIDENT;

2. a detailed description of the MEDICAL INCIDENT or the NON-PATIENT INCIDENT;

3. the name, address and date of birth of the claimant or potential claimant;

4. the names of all INSUREDS potentially involved; and,

5. the names and addresses of any witnesses.

C. The INSURED shall cooperate with the Company in the investigation, defense and settlement of CLAIMS reported
under COVERAGE AGREEMENTS A. and B. ()I' this Policy, to include attending hearings and trials, assisting in
securing and providing evidence and obtaining the attendance of witnesses.

D. The INSURED must refrain from admitting liability, voluntarily making any payment, assuming any obligation or
incurring any expense related to a CLAIM, MEDICAL INCIDENT or NON-PATIENT INCIDENT. If you make a
payment, assume an obligation or incur an expense related to a CLAIM, MEDICAL INCIDENT or NON-PATIENT
INCIDENT without receiving our prior written approval, we will have the right to decline to pay or reimburse you for
such payment, obligation or expense, even if it would otherwise have been covered by this Policy.

VIL EXCLUSIONS

A. Exclusions applicable to COVERAGE AGREEMENT A. MEDICAL INCIDENT Liability

The insurance under COVERAGE AGREEMENT A. MEDICAL INCIDENT Liability does not apply:

I. to any CLAIM based in whole or in part upon a NON-PATIENT INCIDENT;

2. except for defense, to any CLAIM by a PATIENT based in whole or in part, or in any way involving, UNDUE
FAMILIARITY. Our obligation to defend and pay DEFENSE COSTS for any INSURED for such CLAIM shall end
it tile time it is established, either by admission or through a CLAIM proceeding or in a separate insurance coverage
proceeding, that said INSURED in fact committed an act of UNDUE FAMILIARITY. However, this ENt'lusicti shall
not apply to any INSURED who did not participate in, direct, ratify, knowingly permit or 1,,no‘,in!.F. ! A L..
reasonahle steps to prevent the ;\I. )(_ FAMILI. \ ITY; or.

3. to any CLAIM by a PATIENT for breach of n mir:wr hropcli of any express or i n. r1 ; -,I
w:th re:,peet to outcomes of your PR( \ 'LS and for a breach of any e NV:IIT:111k
or •41,;tr.intkx rei•ect to any therapeutic ,igent.; you have furnished or suppliud in n treatment of .1
PA l'IF:\; . I his ir1 apply to that p . rti.al of said CLAIM alleging negligence in the INSURldfs
pertbrnliaLc ,..TPROFf.SSION.11, SERVICES.

B. Exclusions applicable to COVERAGE AGREEMENT B. NON-PATIENT INCIDENT Liability

AILA (Rev. 1(08)



Exhibit C

The insurance under COVERAGE AGREEMENT B. NON-PATIENT INCIDENT Liability does not apply:

I. to any CLAIM by a PATIENT based in whole or in part upon a MEDICAL INCIDENT;

2. to any NON-PATIENT INCIDENT CLAIM based in whole or in part, or in any way involving, UNDUE
FAMILIARITY: or,

3, to any CLAIM based in whole or in part upon an actual or alleged agreement or conspiracy to restrain trade, or upon an
actual or alleged violation of an anti-trust law. However, this Exclusion does not apply to an INSURED'S services as a
member of a hospital's or professional society's formal accreditation, peer review, credentialing, privileging, standards
review or similar board or committee, including executing the directives of such board or committee.

C. Exclusions applicable to both COVERAGE AGREEMENT A. MEDICAL INCIDENT Liability and COVERAGE
AGREEMENT B. NON-PATIENT INCIDENT Liability

The insurance under both COVERAGE AGREEMENTS A. and B. of this Policy does not apply:

I. to any CLAIM arising from a MEDICAL INCIDENT or NON-PATIENT INCIDENT that occurred prior to the
Retroactive Date stated on the DECLARATIONS PAGE for this Policy;

to any CLAIM arising from a MEDICAL INCIDENT or NON-PATIENT INCIDENT for which notice had been
made or should have been made, based on knowledge of or a reasonable expectation of a CLAIM, to another insurer,
self-insurance plan administrator or any other risk-sharing plan administrator prior to the initial elfective date of
continuous coverage under this Policy;

3. to liability of an INSURED as a proprietor, superintendent, administrator or executive officer of any hospital,

sanitarium, long-term care thcility, clinic with bed and board thcilities, ambulatory surgery center, health maintenance
organization, preferred provider organization, exclusive provider organization, laboratory, other health care entity or
business enterprise, unless the INSURED directly participated in the rendering or failure to render PROFESSIONAL
SERVICES giving rise to the alleged liability;

4. to liability of others assumed by an INSURED under any contract or agreement; however, this Exclusion does not
apply to any liability the INSURED would have in the absence of such contract or agreement;

5. to any liability as a result of a breach of contract;

6. to any CLAIM based upon, arising out of or resulting from PROFESSIONAL SERVICES by any INSURED while
that INSURED'S professional license or the INSURED'S license or registration to prescribe or dispense controlled
substances, is suspended, revoked, surrendered, otherwise terminated or not in effect; and, to any CLAIM resulting
from PROFESSIONAL SERVICES by an INSURED which violate any probation or restriction of that INSURED'S
professional license or registration or license to prescribe or dispense controlled substances;

7. to any liability in a CLAIM based upon, arising out of or resulting from any deliberately dishonest, fraudulent, criminal
or malicious act or omission; or, a willful statutory violation committed by you. We will defend and pay DEFENSE
COSTS for said CLAIM unless and until it is established that you in fact committed this excluded conduct. The
applicability of this Exclusion can be established through your admission or through a finding in a CLAIM proceeding
or in a separate insurance coverage proceeding: and, if the applicability ,:ithis Exclusion is :;o established, our duty to
delimd the CI.. \ \ y. , 11 !hall be obligated to reirnbur , .e !he C,dnpany DUI2 L\ . 0 L;TS pre\
paid in derenNe of the CIA I \.1:

tr , 111 \i\ by ,,r1 h 1, dr .,r., 1?1 .:11 "

11.1:;cd .If.DICAL IN( I DIA r L;It 1 , [ P POl 1•.SSIO", \L. VICES ronder,.d tit Pl.1) in that
s ...tpacity as a 13 ,1

to any ohligati(m 1;.:r which an INSI 'RED or other insurer may he held liable under a Workers' Compensation law,
unemployment o7mpenAtion law, disability benefits law or any similar law;

I W2 :v. iti/o8) 2
Exhibit C

I0, to an INSURED'S liability fbr PROFESSIONAL SERVICES perfOnned while the INSURED was under the influence
of alcohol, narcotics, hallucinogenic agents or other substance abuse;

11. to any liability for fines, penalties, exemplary or punitive damages or doubled, trebled or multiplied damages (except
when expressly required by law);

12. to personal injury or property damage arising out of the discharge, dispersal, release or escape of smoke, vapors, soot,
fumes, acids, alkalis, toxic chemicals, liquids or gasses, waste materials or other irritants, contaminants or pollutants
into or upon land, the atmosphere or any watercourse or body of water. This insurance also does not apply to any cost
or expense arising out of any governmental or any other demand or request that an INSURED test for, assess, monitor,
clean up, remove, contain, treat, detoxify, or neutralize any such irritants, contaminants or pollutants. The Company
shall not have the duty to defend any claim seeking to impose such damages or any other relief; and,

13. to Nuclear Energy liability as follows:

a. tinder any Liability Coverage, to bodily injury, personal injury or PROPERTY DAMAGE:

I) with respect to which an INSURED under the Policy is also an INSURED under a Nuclear Energy Liability
policy issued by Nuclear Energy Liability Insurance Association, Mutual Atomic Energy Liability Underwriters
or Nuclear Insurance Association of Canada, or would be an INSURED under any such policy but for its
termination upon exhaustion of its Limit of Liability; or,

2) resulting from the hazardous properties of NUCLEAR MATERIAL and with respect to which:

(i) any person or organization is required to maintain financial protection pursuant to the Atomic Energy Act
of 1954, or any law amendatory thereof.; or,

(ii) the INSURED is, or had this Policy not been issued would be, entitled to indemnity from the United States
of America, or any agency thereof, under any agreement entered into by the United States of America, or
any agency thereof, with any person or organization.

b. Under any Supplementary Payments provision relating to first aid, to expenses incurred with respect to personal
injury resulting from the HAZARDOUS PROPERTIES of NUCLEAR MATERIAL and arising out of the
operation of a NUCLEAR FACILITY by any person or organization.

c.0 nder any Liability Coverage, to personal injury or PROPERTY DAMAGE resulting from the HAZARDOUS
PROPERTIES of NUCLEAR MATERIAL if:

I) the NUCLEAR MATERIAL:

(i) is at any NUCLEAR FACILITY owned by, or operated by or on behalf of, an INSURED; or,
(ii) has been discharged or dispersed therefrom;
2) the NUCLEAR MATERIAL is contained in SPENT FUEL or WASTE at any time possessed, handled, used,
processed, stored, transported or disposed of by or on behalf of an INSURED; or,
3) the peronal injury or PROPERTY DA \ IAGE ari,.cs out of the furnishing by an INS1 'RED of services,
materials, parts or equipment in connection with the planning, c•aistru,:tion, maintenance. operation or use
am,, NI '1,1:AR FACILITY, but if such facility is lot.died `A !thin !he I sited S;rates,Ainertca, its territories or
'auatla, !his exclusion :11:1'lics otti; ti, PP( lAl ;I' :c .;Lt 'EL\ R
and ;my i ln,perw thereat.

d. Capitalized •terns as used in this Exclusion:

"1-1AZAR1)011S PROPERTIES" inelthle ratlioaelk.c. '• sic •)r exphr.ive properties;

"INSUND" items individual .motor , li:.tod as the NAIVIED r • .S I RID or an Additional

INSLithilt on the DECI VI IONS P.AGE or in ;in h:ndorscinent attaci p.NI lo this Pcticy. Other indi\ Hu& or
alsi: he i" Ri )ti if they quality as h'. it under Section III. ENSURLDS
lk ;his Policy:

coi)A („ 1:ev 12
Exhibit C

"NUCLEAR MATERIAL" means SOURCE MATERIAL SPECIAL NUCLEAR MATERIAL or BY-

p RoDucT MATERIAL;

"SOURCE MATERIAL," "SPECIAL NUCLEAR MATERIAL" and "BY-PRODUCT MATERIAL" have the
meanings given them in the Atomic Energy Act of 1954 or in any law amendatory thereof;

"SPENT FUEL" means any fuel clement or fuel component, solid or liquid, which has been used or exposed to
radiation in a nuclear reactor;

"WASTE" means any waste material:

I) containing BY-PRODUCT MATERIAL and

2) resulting from the operation by any person or organization of any NUCLEAR FACILITY included within
the definition of NUCLEAR FACILITY under paragraph I or 2 thereof;

"NUCLEAR FACILITY" means:

I) any nuclear reactor,

2) any equipment or device designed or used for:

(i) separating the isotopes oruranium or plutonium,

(ii) processing or utilizing SPENT FUEL or

(iii) handling, processing or packaging WASTE;

3) any equipment or device used for the processing, fabricating or alloying of SPECIAL NUCLEAR
MATERIAL if any time the total amount of such material in the custody of the INSURED at the premises
where such equipment or device is located consists of or contains more than 25 grams of plutonium or
uranium 233 or any combination thereof, or more than 250 grams of uranium 125;

4) any structure, basin, excavation, premises or place prepared or used for the storage or disposal of WASTE,
and includes the site on which any of the foregoing is located, all operations conducted on such site and all
premises used for such operations;

"NUCLEAR REACTOR" means any apparatus designed or used to sustain fission in a self-supporting chain
reaction or to contain a critical mass of fissionable material;

"PROPERTY DAMAGE" includes all forms of radioactive contamination of property.

VIII. OTHER INSURANCE

The insurance provided under COVERAGE AGREEMENTS A. and B. of this Policy is excess over any other valid and
collectible insurance or self-insurance, including any deductible or retention portion of that insurance. When this insurance and
any other insurance apply to a CLAIM as excess, in- it' the other insurance contains an escape clause, we shall share with such
other insurance by method A. or B. below. a';

A. c I c. .:ontribution by et.o.cir •.hall

that method ako. I .fticr this !mill it has paitl ittle
11 ,:ne ut the hichc ,,,cr

c , Ttrihntion by If any of the other by equal rt • wise, we

shall ...saaribute by limits. Under this method, each insurer':, ',Imre is hosed on the ratio of its applicable iiullt of insurance to
the total ,mpli...able limits of insurance of all insurers.

;
Exhibit C

C. Under no circumstances shall the Company be liable for more than the Each MEDICAL. INCIDENT Limit of Liability
under COVERAGE AGREEMENT A. MEDICAL INCIDENT Liability, subject to any limitation as a result of the
erosion of the Aggregate MEDICAL INCIDENT Limit of Liability.

D. Under no circumstances shall the Company be liable for more than the Each NON-PATIENT INCIDENT Limit of
Liability under COVERAGE AGREEMENT B. NON-PATIENT INCIDENT Liability, subject to any limitation as a
result of the erosion oldie Aggregate NON - PATIENT INCIDENT Limit of Liabil ity.

IX. REPORTING ENDORSEMENT

A. If this Policy is cancelled or not renewed for any reason (other than for the exceptions stated in Paragraph E. below), you
have the right to buy an optional EXTENDED REPORTING PERIOD ENDORSEMENT. ff you owe us premium at
termination, you must first pay us the premium owed before you can exercise your right to buy this Endorsement.

B. An optional EXTENDED REPORTING PERIOD ENDORSEMENT will not change the ending date of this agreement.
It will extend the time during which you may first report CLAIMS for DAMAGES as a result of MEDICAL INCIDENTS
or NON-PATIENT INCIDENTS that would have been covered by this agreement had the CLAIM first been reported
before this agreement was cancelled or not renewed.

C. A CLAIM must meet two requirements to be covered under the EXTENDED REPORTING PERIOD
ENDORSEMENT:

I, the CLAIM must result from a MEDICAL INCIDENT or a NON-PATIENT INCIDENT occurring on or after the
Retroactive Date shown on the DECLARATIONS PAGE For this Policy and before your Policy was terminated; and,

2. the CLAIM must he reported to us for the lirst time while the EXTENDED REPORTING PERIOD
ENDORSEMENT is in effect.

D. Your written request and premium payment for the optional EXTENDED REPORTING PERIOD ENDORSEMENT
shall be made within 30 days after your coverage ends. The premium will be based on the rules and rating plans we are
using on the date the expiring Policy terminates. If purchased, the optional EXTENDED REPORTING PERIOD
ENDORSEMENT will apply to CLAIMS insured under COVERAGE AGREEMENT A. MEDICAL INCIDENT
Liability and to CLAIMS insured under COVERAGE AGREEMENT B. NON-PATIENT INCIDENT Liability.

E. Provided that all premium owed at termination is paid, the Company shall issue with a waiver of the associated premium an
automatic EXTENDED REPORTING PERIOD ENDORSEMENT if this Policy is canceled or not renewed for any of
the following reasons:

I. the death of the NAMED INSURED;

2. the permanent and total disability of the NAMED INSURED to provide PROFESSIONAL SERVICES for which the
insurance under this Policy applies, but only if such permanent and total disability shall have continued without
significant interruption for a term of not less than six months prior to the requested termination, that said permanent
and total disability required regular treatment by a legally qualified physician or surgeon (other than the NAMED
INSURED), that you provide written proof of your permanent and total disability certified by y our treating physician
and, if we request, that you agree to submit to medical trainiaation(s) by any phy:iciant %Ne designate; or,

3, the permanent total retirement NA \!ED frnm the practice ;11.',11,;irie provided that the
NAMED k Lit IL:ast years –ILI aL the of reiircuteut q nLI 1;os insured by the Company for a
continuous peric, .,11 1L ,t

F. Under no circumstance or rcaskat ;Any NAMED INSURED qualify for more than one automatic EXTENDED
REPORTING PERIOD I 7":1)014SENIENT. •

G. Whether issued pursuant LW , h`,C j EXTENDED REPORTING PERIOD

ENDORSEMENT provides 1-.w indclinitc I r l NDED I s POI? 11 -I',6 Hitt( tIa Policy 's Limits or Liability in
play c :it the time the Foley ;initiated shall he re instated and shall apply to the EXTENDED REPORTING Pl : P 1( /I ).

(Rev 10,i,..;) 2
d 4e

Exhibit C

X. DEFINITIONS

A. "CLAIN!" means an oral or written demand against an INSURED Ibr DAMAGES, and includes civil lawsuits, arbitration
or dispute resolution proceedings to which you submit with our consent; and, CLAIM includes any MEDICAL INCIDENT
(under COVERAGE AGREEMENT A.) or NON-PATIENT INCIDENT (under COVERAGE AGREEMENT B.) that
reasonably nay be expected to result in demand for DAMAGES. A CLAIM does not include any REGULATORY OR
OTIIER DISCIPLINARY PROCEEDING.

13. "DAMAGES" mean monetary sums not exceeding the Limit of Liability for which you are legally obligated to pay
(including pre-judgment interest) to compensate for injury or death as a result of a MEDICAL INCIDENT covered under
COVERAGE AGREEMENT A. of this Policy or as a result of a NON-PATIENT INCIDENT covered under
COVERAGE AGREEMENT B. of this Policy. DAMAGES do not include restitution, non-monetary relief or the cost of
complying with non-monetary relief, uninsurable matters, lines, penalties, taxes or punitive, exemplary or multiplied
damages (except when expressly required by law).

C. "DEFENSE COSTS" mean all reasonable fees, costs and expenses incurred by you or on your behalf with our consent to
investigate and defend a CLAIM, including, but not limited to, attorney tees, filing fees, expert witness fees and
disbursements. DEFENSE COSTS shall not include any costs or expenses that fall under the Policy's Section D.
SUPPLEMENTARY PAYMENTS. Also, DEFENSE COSTS do no include your salaries, remuneration, overhead fees,
loss of earnings reimbursement or benefit expenses.

I). "EXTENDED REPORTING PERIOD" means the period of time stated in an EXTENDED REPORTING PERIOD
ENDORSEMENT to this Policy for the reporting of CLAIMS.

E. "INSURED" means any individual or organization listed as the NAMED INSURED or as an Additional INSURED on the
DECLARATIONS PAGE or on an Endorsement to this Policy. Other individuals or organizations might also be
INSUREDS if they qualify as such under the Policy's Section III. INSUREDS.

F. "MEDICAL INCIDENT" means any act, failure to act, or omission in the furnishing of PROFESSIONAL SERVICES to a
PATIENT by any INSURED. Any such act or omission along with all other related acts or omissions in the furnishing or
failure to furnish such services to any one-PATIENT shall be considered one MEDICAL INCIDENT. If a MEDICAL
INCIDENT arises from a series of related PROFESSIONAL SERVICES, such MEDICAL INCIDENT shall be deemed to
have occurred at the time of the first act or omission that causes DAMAGES which the INSURED may be legally obligated
to pay.

G. "NAMED INSURED" means the person or organization listed in Item I on the DECLARATIONS PAGE for this Policy.

II. "NON-PATIENT INCIDENT" means an occurrence other than a MEDICAL INCIDENT which arises from
PROFESSIONAL SERVICES provided by an INSURED and which results in a CLAIM for DAMAGES. Any act or
omission causing a NON-PATIENT INCIDENT, together with all related acts or omissions, shall be considered one NON-
PATIENT INCIDENT and, such NON-PATIENT INCIDENT shall be deemed to have occurred at the time of the first act
or omission causing DAMAGES for which an INSURED is legally obligated to pay.

t. "PATIENT" means ;iny person kr whom any INSURED under this Policy directly performs PROFESSIONAL
SERVICIS in the form of healthcare treatment of' that person. With respect to any CLAIM arising out of a MEDICAL
inv.:Iving P,\TI ENT, the term PATIENT shall include that person's spouse, children, other next of kin, legal
n ;,

J. "PROFESSI(Th, \ ICES - means in I EEO'S:

healthcare to a PATIENT Fell; I in ;Iraci 1 ph y sician . • r :air eon, including the tbrnishir :. „ of food
or I-c ‘ or.iges. di .,pew,in ,.2 of inedit..al .mild the handling postmortem

z. I 0/0X)
Exhibit C

2. services as a member of a hospital's or professional society's formal accreditation, peer review, credentialing,
privileging, standards review or similar board or committee, including executing the directives of such board or
committee;

3. obligation to maintain PATIENT confidentiality in the handling of PATIENT records in the direct course of providing
PROFESSIONAL SERVICES to that PATIENT; and,

4, writing of hooks, papers and articles relating to the technical aspects of medical practice if the same are published or
distributed by a recognized technical or professional publisher, academic or professional journal, or professional or
technical society or association.

PROFESSIONAL SERVICES do not include your billing and coding activities; therefore, there is no coverage for any
CLAIM arising out of such activities. PROFESSIONAL SERVICES also do not include physical or electronic security
measures to maintain the confidentiality of PATIENT records or any other records in the control of an INSURED;
therefore, there is no coverage for CLAIMS based on actual, possible or alleged identity theft arising from your failure to
adequately implement such security measures.

K. "REGULATORY OR OTHER DISCIPLINARY PROCEEDING" means:

I. any proceeding instituted by a governmental body, including but not limited to, a proceeding concerning
licensing, regulation and/or professional discipline of physicians or other health care providers;

any proceeding instituted by a hospital or other health care facility against an individual. which has as a possible
outcome the suspension, revocation, limitation of or other corrective action against the medical staff membership
or clinical privileges of the individual at said facility, as governed by applicable medical staff bylaws, rules and
regulations; or,

3. any proceeding instituted by any managed care organization, which has as a possible outcome the suspension,
termination or other limitation of the participation of an individual or other health care provider as a provider of
medical services to PATIENTS, or which contemplates the termination of the contractual relationship between the
managed care organization and the individual or other health care provider.

"UNDUE FAMILIARITY" means sexual misconduct by an INSURED toward a PATIENT such as physical touching or
any other demonstrated intention or act for the purpose of sexual stimulation.

XI. CONDITIONS

A. POLICY' PERIOD: The Policy Period for this Policy is stated on the DECLARATIONS PAGE and all references
thereto shall mean the Eastern Standard Time. Insuring agreements in the Policy begin at 12:01 a.m. on the effective date of
coverage and end at 12:01 a.m. on the expiration date of coverage. If this Policy replaces a policy ending at noon rather than
12:01 a.m., then coverage under this Policy begins at noon when the expiring policy ends. Insuring agreements or
Endorsements added to this Policy after its effective date begin at 12:01 a.m. on the effective date of the added agreement or
Endorsement. If all or part of this Policy is cancelled for any reason prior to its expiration date, coverage shall end at 12:01
a.m. on the cancellation date.

B. SUBROGATION: In the event of any payment under this Policy, the Company shall be subrogated to all of an
INSURED'S rights of recovery for said payment against any person or organization. The INSURED shall do nothing to
prejudice such rights and the INSURED shall execute and deliver instruments and papers and do whatever else is ncccssary
to secure those rights.

C. POLICY I ERRITORY: The Policy Territory is the United Stales ;Ind its territories and posse: ions. This irr.iirmice
applies. 1 1. DI( "AL. INCIDFN TS Tnd NON•PATIEN 1.\.c101A • 1 S resulting from PROLESSIoNAL
renderod in i!;, led th,i in∎ • l..A1` IS resulting rich PROFESSION. \L ST:R N. IL ES are iilcd
within Ow f riit,rv. I his arnlies '.11:1)1( 'AI, INCIDENTS and NON-PATIFAI ! \.CIE)ENTS
re miitiit;r. ircdu •SSIONAI, SE P , ICES iciklcrekl anywhere eke in the world provided the 11' ,..SURED had prior
written approval to rviider servi,..es Pith ihe appropriate ,,overnment authorities and the Company, and provided
that any CLAIM restdiin:4 Irian such IT L )I . T.SSIONAL Si IT ES is tiled within the Policy Territory.

112
Exhibit C

D. INSPECTION AND AUDIT: The Company shall be permitted but not required to inspect the NAMED INSURED'S
property and operations and examine or audit the NAMED INSURED'S books and records at any time. The Company's
right to make inspections or audits and the making thereof and any report thereon shall not constitute an undertaking on
behalf of or for the benefit of the NAMED INSURED or others to determine or warrant that such property or operations are
sate or comply with any law, rule or regulation.

ACTION AGAINST TIIE COMPANY: No action shall lie against the Company unless there has been full compliance
with all of the terms of this Policy. Furthermore, no action shall be brought against the Company until the amount of the
INSURED'S obligation to pay shall have been finally determined either by judgment against the INSURED alter actual
trial or by written agreement of the INSURED, the claimant and the Company, Any person or organization or the legal
representative thereof who has secured such judgment or written agreement shall thereafter be entitled to recover under this
Policy to the extent of the insurance afforded by this Policy. No person or organization shall have any right under this
Policy to join the Company as a party to any action against the INSURED, nor shall the INSURED interplead the Company
into a CLAIM, to determine the INSURED'S liability. Bankruptcy or insolvency of the INSURED or of the INSURED'S
estate shall not relieve the Company of any of its obligations hereunder.

F. CHANGES: Notice to any agent or knowledge possessed by any agent or by any other person shall not constitute a waiver
or a change in any part of this Policy and shall not stop the Company from asserting any right under the terms of this Policy.
The terms of this Policy may be waived or changed only by written Endorsement to this Policy approved and issued by the
Company.

G. ASSIGNMENT: Assignment of interest under this Policy shall not bind the Company unless the Company's consent is
endorsed hereon. Should the NAMED INSURED die, the insurance afforded by this Policy shall apply to the NAMED
INSURED'S estate.

II. CANCELLATION BY THE COMPANY: This Policy may be cancelled by the Company without limitation if the
Policy has been in effect less than sixty (60) days and the Policy is not a renewal. If this Policy has been in effect for sixty
(60) days or more or if it is a renewal or continuation of a Policy issued by the Company, the Company may cancel this
Policy only for one or more of the following reasons:

nonpayment of premium;

2. fraud or material misrepresentation made by or with the knowledge of the NAMED INSURED in obtaining the Policy,
continuing the Policy, or in presenting a CLAIM under the Policy;

3. substantial change in the risk which increases the risk of loss after insurance coverage has been issued or renewed,
including, but not limited to, an increase in exposure due to regulation, legislation or court decision;

4. thilure to comply with reasonable loss control recommendations;

5. substantial breach of contractual conditions or warranties; or,

6. determination by the Superintendent of Insurance that the continuation of a class or block of business to which the
Policy belongs will jeopardize the Company's solvency or will place the Company in violation of the insurance laws of
Maine or any other state.

lithe Company cancels this Policy, earned premium shall be calculated on a pro-rata basis and the cancellation will not be
cli•etike prior to ten ( I()) days after the NAMED INSURED'S receipt of our notice of cancellation. The notice tAill :state
the reasons for cancellation and the etiecli‘e of cancellation. A r.• Hoc ti &ate of mailing to the N.A.`, D
?T.! ,1) at !he •1st 1.110W11 I1 tit.: r1• Het. N‘ill be conclusive Lfnctice on the third. • .11endar
day .iner

c. n .NctiLi..% rm y BY THE NAMED INSURED: T.1 thH:ey, the NA'. I . D RID mint, prior to IN,t
• . ttectke ,1:ne -.mcellation, either deliver the Pnlicv or the part Policy to he cancelled ...jai of the
....11CORe date c • I . cancellation; or, provide advance ‘krit ten n'-ric • ,',1...%-111ce1izni, in toInc
RA: too it
lithe `,1,1\ 11 : B INSURED cancels this Policy, earned premium shall he cimputed in accordance with the etakanary short
rate table and procedure.

r 12
Exhibit C

J. NON-RENEWAL: If the Company decides not to renew this Policy, the Company shall 'nail or deliver notice of non-
renewal to the NAMED INSURED. Non-renewal will not be effective prior to thirty (30) days after the receipt by the
NAMED INSURED of the notice of non-renewal. A post office certificate of mailing to the NAMED INSURED at the last
known flailing address on the Policy shall he conclusive proof of receipt of notice on the third calendar day oiler !nailing.

K. DECLARATIONS PAGE AND APPLICATION FOR INSURANCE: By acceptance of this Policy, the NAMED
INSURED agrees that statements on the DECLARATIONS PAGE, on any INSURED'S Application 14 this insurance
and on any INSURED'S Renewal Application submitted to the Company constitute the NAMED INSURED'S agreements
and representations which are incorporated herein. By acceptance of this Policy, the NAMED INSURED acknowledges
that this Policy is issued in reliance upon the truth of such representations and that this Policy embodies all agreements
existing between the NAMED INSURED and the Company or any of its agents relating to this insurance. It is understood
and agreed that, to the extent permitted by law, the Company reserves the right to rescind this Policy or any coverage
provided pursuant to Paragraph H. CANCELLATION BY THE COMPANY, Subparagraph 2. above.

L. CERTIFICATES OF INSURANCE: At the NAMED INSURED'S request, the Company shall furnish
CERTIFICATES OF INSURANCE to third persons, describing the insurance afforded to the NAMED INSURED
hereunder, including limitations or restrictions thereon. The Company's sole responsibility with respect to such Certificates
shall be to ascertain the accuracy of the information contained therein as of the date such Certificates are issued. It shall he
the responsibility of the NAMED INSURED to inform recipients of such Certificates of any changes in, or cancellation of,
coverage under this Policy. Neither the issuance of CERTIFICATES OF INSURANCE by the Company nor the
contents of any such Certificate shall modify, add to, reduce, extend, or in any other way affect this Policy.

M. MUTUAL POLICY CONDITION - DIVIDENDS: The NAMED INSURED, by virtue of this Policy, is a member of
the Company and shall participate, to the extent and upon the conditions fixed and determined by the Board of Directors in
accordance with the provisions of law, in the distribution of dividends so fixed and determined.

N. MUTUAL POLICY CONDITION - VOTING: The NAMED INSURED, by virtue of this Policy, is a member of the
Company and is entitled to vote, either in person or by proxy, at any and all meetings of' the Company, pursuant to the
Bylaws and Certificate of Organization thereof.

0. STATE LAW AND THE TERMS OF THIS POLICY: Any terms of this Policy which are in conflict with the statutes
or regulations of a state in which this Policy is issued are amended to comply with such statutes or regulations.

P. THIS POLICY IS NOT ASSESSABLE.

IN WITNESS WHEREOF: Medical Mutual Insurance Company of Maine has caused this Policy to be signed by its President at
Portland, Maine, but the same shall not be binding except in conjunction with a completed DECLARATIONS PAGE that is
issued by a duly authorized representative of the Company to the NAMED INSURED to form a part of this Policy.

President

•n•
Exhibit D
Wes.ILaw.
992 A.2d 624
159 N.H. 627, 992 A.2d 624
(Cite as: 159 N.H. 627, 992 A.2d 624)
Supreme Court of New Hampshire.
Georgia TUTTLE, M.D. & a.
v.
NEW HAMPSHIRE MEDICAL MALPRACTICE
JOINT UNDERWRITING ASSOCIATION and an-
other.
No. 2009-555.
Argued: Oct. 15, 2009.
Opinion Issued: Jan. 28, 2010.
Background: Policyholders of Medical Malpractice
Joint Underwriting Association (JUA) filed petition
challenging statute which directed JUA to transfer
alleged excess surplus funds to the State General
Fund. The Superior Court, McGuire, J., granted poli-
cyholders summary judgment, and the State, Com-
missioner of Insurance and State Treasurer appealed.
Holdings: The Supreme Court, Conboy, J., held that:
W statute requiring JUA to transfer alleged excess
surplus funds constituted a change in law that im-
paired vested contract rights of policyholders;
(2) statute substantially impaired policyholders'
vested contract rights; and
(3) statute was not reasonable and necessary to serve
an important public purpose, and thus violated the
Contract Clauses of Federal and State Constitutions.
Affirmed.
Dalianis and Duggan, JJ., dissented and filed opin-
ion.
West Headnotes
Ill Appeal and Error 30 €893(1)
30 Appeal and Error
30XVI Review
30XVI(F) Trial De Novo
30k892 Trial De Novo
30k893 Cases Triable in Appellate
Court
© 2010 Thomson Reuters. No Claim to Orig. US Gov. Works.
Page 1
30k893(1) k. In general. Most Cited
Cases
Whether or not a statute is constitutional is a question
of law, which is reviewed de novo.
1_21. Constitutional Law 92 €1030
92 Constitutional Law
92W Enforcement of Constitutional Provisions
92VI(C) Determination of Constitutional
Questions
92VI(C)4 Burden of Proof
92k1030 k. In general. Most Cited
Cases
A party challenging a statute's constitutionality bears
the burden of proof.
f_3_1 Constitutional Law 92 €990
92 Constitutional Law
92W Enforcement of Constitutional Provisions
92VI(C) Determination of Constitutional
Questions
92VI(C)3 Presumptions and Construction
as to Constitutionality
92k990 k. In general. Most Cited Cases
The constitutionality of an act passed by the coordi-
nate branch of the government is to be presumed.
1_4_1 Constitutional Law 92 €2332
92 Constitutional Law
92XX Separation of Powers
92XX(A) In General
92k2332 k. Encroachment in general. Most
Cited Cases
Statutes 36161
361 Statutes
3611 Enactment, Requisites, and Validity in Gen-
eral
361k57 Determination of Validity of Enact-
ment
361k61 k. Presumptions and construction
in favor of validity. Most Cited Cases
A statute will not be declared to be invalid except
Exhibit D

992 A.2d 624 Page 2
159 N.H. 627, 992 A.2d 624
(Cite as: 159 N.H. 627, 992 A.2d 624)

upon inescapable grounds; and the operation under it

of another department of the state government will 1_81. Constitutional Law 92 €2669
not be interfered with until the matter has received
full and deliberate consideration.
92 Constitutional Law
92XXII Obligation of Contract
LE Constitutional Law 92 €2667 92XXII(A) In General
92k2669 k. Existence and validity of con-
92 Constitutional Law tract. Most Cited Cases
92XXII Obligation of Contract
92XXII(A) In General Constitutional Law 92 C=2671
92k2667 k. Retroactivity in general. Most
Cited Cases
92 Constitutional Law
92XXII Obligation of Contract
Statutes 361 C=278.5 92XXII(A) In General
92k2671 k. Existence and extent of im-
361 Statutes pairment. Most Cited Cases
361 VI Construction and Operation The threshold Contract Clause inquiry into whether
361VI(D) Retroactivity legislation operates as a substantial impairment of a
361k278.4 Prospective Construction contractual relationship has three components: (1)
361k278.5 k. In general. Most Cited whether there is a contractual relationship; (2)
Cases whether a change in law impairs that contractual rela-
A party asserting a Contract Clause violation of the tionship; and (3) whether the impairment is substan-
Federal Constitution and the retroactive law clause of tial. U.S.C.A. Const. Art. 1, § 10; Const. Pt. 1, Art.
the State Constitution must first demonstrate retroac- 23.
tive application of a law. U.S.C.A. Const. Art. 1, §
10; Const. Pt. 1, Art. 23. 1_9]. Constitutional Law 92 C'2672

Le Statutes 361 0278.8 92 Constitutional Law

361 Statutes
361 VI Construction and Operation
361VI(D) Retroactivity
361k278.8 k. Statutes affecting substantive
rights. Most Cited Cases
If application of a new law would adversely affect an
individual's substantive rights, under the retrospective
law clause of the State Constitution it may not be
applied retroactively. Const. Pt. 1, Art. 23.
92XXII Obligation of Contract
92XXII(A) In General
92k2672 k. Police power; purpose of regu-
lation. Most Cited Cases
If legislation substantially impairs a contract, a bal-
ancing of the police power and the rights protected by
the contract clauses must be performed, and the law
may pass constitutional muster only if it is reasonable
and necessary to serve an important public purpose.
U.S.C.A. Const. Art. 1, § 10; Const. Pt. 1, Art. 23.

L7]. Constitutional Law 92 €2671 [101 Constitutional Law 92 C=1672

92 Constitutional Law 92 Constitutional Law

92XXII Obligation of Contract
92XXII(A) In General
92k2671 k. Existence and extent of im-
pairment. Most Cited Cases
Contract Clause analysis requires a threshold inquiry
as to whether the legislation operates as a substantial
impairment of a contractual relationship. U.S.C.A.
Const. Art. 1, § 10; Const. Pt. 1, Art. 23.
92XXII Obligation of Contract
92XXII(A) In General
92k2672 k. Police power; purpose of regu-
lation. Most Cited Cases
The core task involved in resolving Contract Clause
claims is striking a balance between constitutionally
protected contract rights and the State's legitimate
exercise of its reserved police power. U.S.C.A.

© 2010 Thomson Reuters. No Claim to Orig. US Gov. Works.

Exhibit D

992 A.2d 624 Page 3
159 N.H. 627, 992 A.2d 624
(Cite as: 159 N.H. 627, 992 A.2d 624)

Const. Art. 1, § 10; Const. Pt. 1, Art. 23.

95 Contracts
1111 Insurance 217 €1713 95B Construction and Operation
95II(A) General Rules of Construction
217 Insurance 95k176 Questions for Jury
217XIII Contracts and Policies 95k176(1) k. In general. Most Cited
217XIII(A) In General Cases
217k1711 Nature of Contracts or Policies Generally, the construction of a written contract is a
217k1713 k. Policies considered as question of law for the court.
contracts. Most Cited Cases
An insurance policy is a contract. 1111. Contracts 95 €147(3)

fin Constitutional Law 92 C=I30 95 Contracts

95II Construction and Operation
92 Constitutional Law 95II(A) General Rules of Construction
92W Enforcement of Constitutional Provisions 95k147 Intention of Parties
92VI(A) Persons Entitled to Raise Constitu- 95k147(3) k. Construing whole contract
tional Questions; Standing together. Most Cited Cases
92VI(A)4 Particular Constitutional Provi- When interpreting contracts, the intent of the parties
sions in General is determined based upon an objective reading of the
92k730 k. Obligation of contract. Most agreement as a whole.
Cited Cases
Persons whose contracts have expired may not assert [161 Contracts 95 C152
Contract Clause claims. U.S.C.A. Const. Art. 1, § 10;
Const. Pt. 1, Art. 23. 95 Contracts
95II Construction and Operation
[131 Constitutional Law 92 C=1680 95II(A) General Rules of Construction
95k151 Language of Instrument
92 Constitutional Law 95k152 k. In general. Most Cited Cases
92XXII Obligation of Contract
92XXII(B) Contracts with Governmental En- Contracts 95 €154
tities
92XXII(B)1 In General 95 Contracts
92k2680 k. In general. Most Cited 95II Construction and Operation
Cases 95II(A) General Rules of Construction
95k151 Language of Instrument
Constitutional Law 92 € =2730 95k154 k. Reasonableness of construc-
tion. Most Cited Cases
92 Constitutional Law Contractual language is construed according to its
92XXII Obligation of Contract common meaning, and a court will give a contract the
92XXII(C) Contracts with Non-Governmental same meaning as would a reasonable person.
Entities
92XXII(C)1 In General 1121. Constitutional Law 92 C=1758
92k2730 k. In general. Most Cited
Cases 92 Constitutional Law
Contract Clause protections apply to contracts in- 92XXII Obligation of Contract
volving both public and private entities. U.S.C.A. 92XXII(C) Contracts with Non-Governmental
Const. Art. 1, § 10; Const. Pt. 1, Art. 23. Entities
92XXII(C)2 Particular Issues and Applica-
[141 Contracts 95 C='176(1) tions

© 2010 Thomson Reuters. No Claim to Orig. US Gov. Works.

Exhibit D
992 A.2d 624
159 N.H. 627, 992 A.2d 624
(Cite as: 159 N.H. 627, 992 A.2d 624)
92k2758 k. Insurance. Most Cited
Cases
Insurance 217 €1225(3)
217 Insurance
217IV Insurance Companies and Related Entities
217IV(D) Special Types of Entities
217k1218 Underwriting Associations and
Related Entities
217k1225 Financial Requirements
217k1225(3) k. Capital and surplus.
Most Cited Cases
Statute requiring Medical Malpractice Joint Under-
writing Association (JUA) to transfer alleged excess
surplus funds to State General Fund constituted a
change in law that impaired vested beneficial con-
tractual rights that current policyholders had in the
treatment of JUA's excess funds, for purposes of de-
termining whether statute violated Contract Clauses
of Federal and State Constitutions, where all of the
excess funds came from assessments or premiums
paid by policyholders or investment earnings, State
had not contributed funds to JUA, policies provided
that policyholders had a right to participate in excess
earnings, and, though right to participate was quali-
fied upon such conditions as determined by JUA's
directors in accordance with the law, regulation gov-
erning JUA authorized directors to dispose of excess
funds only by reducing future assessments and/or
distributing excess funds to policyholders as was just
and equitable. U.S.C.A. Const. Art. 1, § 10; Const.
Pt. 1, Art. 23; Laws 2009, 144:1; N.H. Code Admin.
R. (Ins.) 1703.07(d).
WI Constitutional Law 92 €2668
92 Constitutional Law
92XXII Obligation of Contract
92XXII(A) In General
92k2668 k. What is a "contractual obliga-
tion"; existing law. Most Cited Cases
While a beneficial interest is a right or expectancy in
something, such as a trust or an estate, as opposed to
legal title to that thing, such interest may, nonethe-
less, constitute a vested property right, subject to pro-
tection under the Contract Clauses of the Federal and
State Constitutions. U.S.C.A. Const. Art. 1, § 10;
Const. Pt. 1, Art. 23.
[191 Constitutional Law 92 €'2630
© 2010 Thomson Reuters. No Claim to Orig. US Gov. Works.
Page 4
92 Constitutional Law
92XXI Vested Rights
92k2630 k. Constitutional guarantees in gen-
eral. Most Cited Cases
Statutes 3614
361 Statutes
3611 Enactment, Requisites, and Validity in Gen-
eral
361k4 k. Powers and duties of Legislature in
general. Most Cited Cases
Statutes 361 C278.9
361 Statutes
361VI Construction and Operation
361VI(D) Retroactivity
361k278.9 k. Statutes affecting vested
rights. Most Cited Cases
Unless otherwise inhibited by either the State or Fed-
eral Constitutions, the Legislature may change exist-
ing laws, both statutory or common, at its pleasure,
but in so doing, it may not deprive a person of a
vested property right theretofore acquired under ex-
isting law. U.S.C.A. Const. Art. 1, § 10; Const. Pt. 1,
Art. 23.
2(11. Constitutional Law 92 C=1668
92 Constitutional Law
92XXII Obligation of Contract
92XXII(A) In General
92k2668 k. What is a "contractual obliga-
tion"; existing law. Most Cited Cases
To be a vested property right and subject to protec-
tion under the Contract Clauses of the Federal and
State Constitutions, a right must be more than a mere
expectation based on an anticipation of the continu-
ance of existing law, and must have become a title,
legal or equitable, to the present or future enforce-
ment of a demand, or a legal exemption from the de-
mand of another. U.S.C.A. Const. Art. 1, § 10; Const.
Pt. 1, Art. 23.
[211 Constitutional Law 92 C=1668
92 Constitutional Law
92XXII Obligation of Contract

Exhibit D
992 A.2d 624
159 N.H. 627, 992 A.2d 624
(Cite as: 159 N.H. 627, 992 A.2d 624)
92XXII(A) In General
92k2668 k. What is a "contractual obliga-
tion"; existing law. Most Cited Cases
The vested rights doctrine, under which vested prop-
erty rights are protected under the Contract Clauses
of the Federal and State Constitutions, reflects the
deeply rooted principles that persons should be able
to rely on the law as it exists and plan their conduct
accordingly and that the legal rights and obligations
that attach to completed transactions should not be
disturbed. U.S.C.A. Const. Art. 1, § 10; Const. Pt. 1,
Art. 23.
.1221. Constitutional Law 92 C=1671
92 Constitutional Law
92XXII Obligation of Contract
92XXII(A) In General
92k2671 k. Existence and extent of im-
pairment. Most Cited Cases
The determination of whether a contract impairment
is substantial, when determining whether a statute
violates the Contract Clauses of the Federal and State
Constitutions, may be influenced by whether the con-
tracting parties relied on the abridged contract right.
U.S.C.A. Const. Art. 1, § 10; Const. Pt. 1, Art. 23.
[231 Constitutional Law 92 €=1671
92 Constitutional Law
92XXII Obligation of Contract
92XXII(A) In General
92k2671 k. Existence and extent of im-
pairment. Most Cited Cases
Where the right abridged was one that induced the
parties to contract in the first place, a court can as-
sume the impairment to be substantial, for purposes
of the Contract Clauses of the Federal and State Con-
stitutions. U.S.C.A. Const. Art. 1, § 10; Const. Pt. 1.,
Art. 23.
[241 Constitutional Law 92 €=1758
92 Constitutional Law
92XXII Obligation of Contract
92XXII(C) Contracts with Non-Governmental
Entities
92XXII(C)2 Particular Issues and Applica- 92 Constitutional Law
tions
92k2758 k. Insurance. Most Cited
© 2010 Thomson Reuters. No Claim to Orig. US Gov. Works.
Page 5
Cases
Insurance 217 €1225(3)
217 Insurance
217IV Insurance Companies and Related Entities
217IV(D) Special Types of Entities
217k1218 Underwriting Associations and
Related Entities
217k1225 Financial Requirements
217k1225(3) k. Capital and surplus.
Most Cited Cases
Statute requiring Medical Malpractice Joint Under-
writing Association (JUA) to transfer alleged excess
surplus funds to the State General Fund substantially
impaired vested beneficial contractual rights that cur-
rent policyholders had in the treatment of JUA's ex-
cess funds, for purposes of determining whether the
statute violated the Contract Clauses of Federal and
State Constitutions, as the statute effectively elimi-
nated the participating nature of the policies, statute
eliminated obligation of the board of JUA to treat
excess surplus funds for the benefit of policyholders,
JUA had offered assessable and participating policies
approved by the Commissioner of Insurance since its
inception with no hint that anyone had ever intended
otherwise, and no provision of the regulatory scheme
in place prior to the passage of the statute anticipated
the transfer of JUA's excess surplus funds to the State
General Fund. U.S.C.A. Const. Art. 1, § 10; Const.
Pt. 1, Art. 23; Laws 2009, 144:1; N.H. Admin. Rules,
Ins. 1703.07(d).
j2
2 Law 92 (2660
92 Constitutional Law
92XXII Obligation of Contract
92XXII(A) In General
92k2660 k. In general. Most Cited Cases
Standing alone, a history of regulation is never a suf-
ficient condition for rejecting a challenge to a statute
or regulation based on the Contracts Clauses of the
Federal and State Constitutions. U.S.C.A. Const. Art.
1, § 10; Const. Pt. 1, Art. 23.
j2
2 Law 92 €2672
92XXII Obligation of Contract
92XXII(A) In General
Exhibit D
992 A.2d 624
159 N.H. 627, 992 A.2d 624
(Cite as: 159 N.H. 627, 992 A.2d 624)
92k2672 k. Police power; purpose of regu-
lation. Most Cited Cases
The Contract Clauses of the Federal and State Consti-
tutions do not operate to obliterate the State's police
power. U.S.C.A. Const. Art. 1, § 10; Const. Pt. 1,
Art. 23.
[271 Constitutional Law 92 C=1737
92 Constitutional Law
92XXII Obligation of Contract
92XXII(C) Contracts with Non-Governmental
Entities
92XXII(C)1 In General
92k2737 k. Police power; purpose of
regulation. Most Cited Cases
The interdiction of statutes impairing the obligation
of contracts does not prevent the State from exercis-
ing such powers as are vested in it for the promotion
of the common weal, or are necessary for the general
good of the public, though contracts previously en-
tered into between individuals may thereby be af-
fected. U.S.C.A. Const. Art. 1, § 10; Const. Pt. 1, Art.
23.
j Constitutional Law 92 C=1672
92 Constitutional Law
92XXII Obligation of Contract
92XXII(A) In General
92k2672 k. Police power; purpose of regu-
lation. Most Cited Cases
The police power, which is an exercise of the sover-
eign right of the Government to protect the lives,
health, morals, comfort and general welfare of the
people, is paramount to any rights under contracts
between individuals. U.S.C.A. Const. Art. 1, § 10;
Const. Pt. 1, Art. 23.
[291 Constitutional Law 92 €=2672
92 Constitutional Law
92XXII Obligation of Contract
92XXII(A) In General
92k2672 k. Police power; purpose of regu-
lation. Most Cited Cases
The Contract Clauses of the Federal and State Consti-
tutions impose some limits upon the power of a State
to abridge existing contractual relationships, even in
the exercise of its otherwise legitimate police power.
© 2010 Thomson Reuters. No Claim to Orig. US Gov. Works.
Page 6
U.S.C.A. Const. Art. 1, § 10; Const. Pt. 1, Art. 23.
21 Constitutional Law 92 C=1672
92 Constitutional Law
92XXII Obligation of Contract
92XXII(A) In General
92k2672 k. Police power; purpose of regu-
lation. Most Cited Cases
When determining whether a statute substantially
impairs vested property rights in violation of the
Contract Clauses of the Federal and State Constitu-
tions, a balancing of the police power and the rights
protected by the Contract Clauses must be performed,
and a bill or law which substantially impairs a con-
tractual obligation may pass constitutional muster
only if it is reasonable and necessary to serve an im-
portant public purpose. U.S.C.A. Const. Art. 1, § 10;
Const. Pt. 1, Art. 23.
[311 Constitutional Law 92 C=1672
92 Constitutional Law
92XXII Obligation of Contract
92XXII(A) In General
92k2672 k. Police power; purpose of regu-
lation. Most Cited Cases
When determining whether a statute substantially
impairs vested property rights in violation of the
Contract Clauses of the Federal and State Constitu-
tions, courts must consider whether the State's pro-
posed justification in fact serves public interests and
whether its mechanisms to serve those interests re-
flect reasonable and necessary choices. U.S.C.A.
Const. Art. 1, § 10; Const. Pt. 1, Art. 23.
.[221. Constitutional Law 92 C=1758
92 Constitutional Law
92XXII Obligation of Contract
92XXII(C) Contracts with Non-Governmental
Entities
92XXII(C)2 Particular Issues and Applica-
tions
92k2758 k. Insurance. Most Cited
Cases
Insurance 217 C'1225(3)
217 Insurance
Exhibit D

992 A.2d 624 Page 7
159 N.H. 627, 992 A.2d 624
(Cite as: 159 N.H. 627, 992 A.2d 624)

217IV Insurance Companies and Related Entities purposes for the law, a court must undertake its own
217IV(D) Special Types of Entities independent inquiry to determine the reasonableness
217k1218 Underwriting Associations and of the law and the importance of the purpose behind
Related Entities it, when determining whether the law violates the
217k1225 Financial Requirements Contract Clauses of the Federal and State Constitu-
217k1225(3) k. Capital and surplus. tions. U.S.C.A. Const. Art. 1, § 10; Const. Pt. 1, Art.
Most Cited Cases 23.
Statute requiring Medical Malpractice Joint Under-
writing Association (JUA) to transfer alleged excess [351 Constitutional Law 92 C=1672
surplus funds to the State General Fund, which sub-
stantially impaired vested contract rights that current
92 Constitutional Law
policyholders had in the treatment of JUA's excess
92XXII Obligation of Contract
funds, was not reasonable and necessary to serve an
92XXII(A) In General
important public purpose, and thus violated the Con-
92k2672 k. Police power; purpose of regu-
tract Clauses of Federal and State Constitutions; stat-
lation. Most Cited Cases
ute targeted for transfer funds generated by premiums
The general rule is that, unless the State itself is a
paid by a discrete class of private parties, and State's
contracting party, as is customary in reviewing eco-
purported reasons for enacting the statute, preventing
nomic and social regulation, courts properly defer to
distortion of the medical malpractice insurance mar-
legislative judgment as to the necessity and reason-
ket if the price of JUA policies were reduced and that
ableness of a particular measure, when the constitu-
the alleged excess funds would be more usefully em-
tionality of a statute is challenged under Contract
ployed in expanding access to medical care, did not
Clause. U.S.C.A. Const. Art. 1, § 10; Const. Pt. 1,
justify the impairment, particularly when JUA board Art. 23.
had not determined whether it had excess surplus
funds and statute was not precipitated by an emer-
gency. U.S.C.A. Const. Art. 1, § 10; Const. Pt. 1, Art. 1261. Constitutional Law 92 C=1672
23; Laws 2009, 144:1.
92 Constitutional Law
[331 Constitutional Law 92 €2672 92XXII Obligation of Contract
92XXII(A) In General
92k2672 k. Police power; purpose of regu-
92 Constitutional Law
lation. Most Cited Cases
92XXII Obligation of Contract
The deference courts give to the stated legislative
92XXII(A) In General
purpose for a statute, when a statute is challenged as
92k2672 k. Police power; purpose of regu-
violating the Contract Clauses of the Federal and
lation. Most Cited Cases
State Constitutions, serves to ensure that the constitu-
The finding of a significant and legitimate public
tional prohibition against the impairment of contracts
purpose is not, by itself, enough to justify a statute's
does not prevent the State from legitimate exercises
impairment of contractual obligations in violation of
of police power to protect the vital interests of its
the Contract Clauses of the Federal and State Consti-
people. U.S.C.A. Const. Art. 1, § 10; Const. Pt. 1,
tutions. U.S.C.A. Const. Art. 1, § 10; Const. Pt. 1.,
Art. 23.
Art. 23.

[371 Constitutional Law 92 €=1688

[341 Constitutional Law 92 €2672
92 Constitutional Law
92 Constitutional Law
92XXII Obligation of Contract
92XXII Obligation of Contract
92XXII(B) Contracts with Governmental En-
92XXII(A) In General
tities
92k2672 k. Police power; purpose of regu-
92XXII(B)1 In General
lation. Most Cited Cases
92k2688 k. Police power; purpose of
Although deference is due to the legislature, and
regulation. Most Cited Cases
weight is given to the legislature's own statement of

© 2010 Thomson Reuters. No Claim to Orig. US Gov. Works.

Exhibit D
992 A.2d 624
159 N.H. 627, 992 A.2d 624
(Cite as: 159 N.H. 627, 992 A.2d 624)
In cases where the State is itself a party to the con-
tract, heightened review of a statute challenged as
violating the Contract Clauses of the Federal and
State Constitutions is warranted, and courts generally
accord minimal deference to legislative acts affecting
such contracts. U.S.C.A. Const. Art. 1, § 10; Const.
Pt. 1, Art. 23.
[381 Constitutional Law 92 C=1688
92 Constitutional Law
92XXII Obligation of Contract
92XXII(B) Contracts with Governmental En-
tities
92XXII(B)1 In General
92k2688 k. Police power; purpose of
regulation. Most Cited Cases
Although less deference does not imply no deference
to the legislature's determination of reasonableness
and necessity, when a statute is challenged under the
Contract Clauses of the Federal and State Constitu-
tions, the Contract Clause, if they are to mean any-
thing, must prohibit the State from dishonoring its
existing contractual obligations when other policy
alternatives are available. U.S.C.A. Const. Art. 1, §
10; Const. Pt. 1, Art. 23.
[391 Constitutional Law 92 €=1672
92 Constitutional Law
92XXII Obligation of Contract
92XXII(A) In General
92k2672 k. Police power; purpose of regu-
lation. Most Cited Cases
The Contract Clauses of the Federal and State Consti-
tutions are not a dead letter and impose some limits
upon the power of a State to abridge existing contrac-
tual relationships, even in the exercise of its other-
wise legitimate police power. U.S.C.A. Const. Art. 1,
§ 10; Const. Pt. 1, Art. 23.
[401 Constitutional Law 92 €=1671
92 Constitutional Law
92XXII Obligation of Contract
92XXII(A) In General
92k2671 k. Existence and extent of im-
pairment. Most Cited Cases
The absence of a contract with the state does not
mean courts thereby believe contract-impairing legis-
© 2010 Thomson Reuters. No Claim to Orig. US Gov. Works.
Page 8
lation cannot be self-serving to the State, when de-
termining whether the statute violates the Contract
Clauses of the Federal and State Constitutions; to the
contrary, it can be. U.S.C.A. Const. Art. 1, § 10;
Const. Pt. 1, Art. 23.
[411 Constitutional Law 92 C=1671
92 Constitutional Law
92XXII Obligation of Contract
92XXII(A) In General
92k2671 k. Existence and extent of im-
pairment. Most Cited Cases
Constitutional Law 92 C=2689
92 Constitutional Law
92XXII Obligation of Contract
92XXII(B) Contracts with Governmental En-
tities
92XXII(B)1 In General
92k2689 k. Contracts with states in
general. Most Cited Cases
When determining whether a statute violates the Con-
tract Clauses of the Federal and State Constitutions,
courts must focus on whether the contract-impairing
law is self-serving, where existence of a state contract
is some indicia of self-interest, but the absence of a
state contract does not lead to the converse conclu-
sion. U.S.C.A. Const. Art. 1, § 10; Const. Pt. 1, Art.
23.
Lg. Constitutional Law 92 C=1672
92 Constitutional Law
92XXII Obligation of Contract
92XXII(A) In General
92k2672 k. Police power; purpose of regu-
lation. Most Cited Cases
Despite the customary deference courts give to state
laws directed to social and economic problems, when
statutes are challenged as violating the Contract
Clauses of the Federal and State Constitutions, legis-
lation adjusting the rights and responsibilities of con-
tracting parties must be upon reasonable conditions
and of a character appropriate to the public purpose
justifying its adoption. U.S.C.A. Const. Art. 1, § 10;
Const. Pt. 1, Art. 23.
[431 Constitutional Law 92 €='1033
Exhibit D
992 A.2d 624
159 N.H. 627, 992 A.2d 624
(Cite as: 159 N.H. 627, 992 A.2d 624)
92 Constitutional Law
92W Enforcement of Constitutional Provisions
92VI(C) Determination of Constitutional
Questions
92VI(C)4 Burden of Proof
92k1032 Particular Issues and Applica-
tions
92k1033 k. In general. Most Cited
Cases
When a statute substantially impairs vested contrac-
tual rights, the State bears the burden of proving that
the contract impairment is reasonable and necessary,
since it asserts the benefit of its own statute. U.S.C.A.
Const. Art. 1, § 10; Const. Pt. 1, Art. 23.
West Codenotes
Held UnconstitutionalLaws 2009, 144:1 **629 Nixon
Peabody, LLP, of Manchester (Kevin M. Fitzgerald,
W. Scott O'Connell, and Gordon J. MacDonald on
the brief, and Mr. Fitzgerald orally), for the petition-
ers.
Michael A. Delaney, attorney general (Anne M. Ed-
wards, associate attorney general, and Glenn A. Per-
low, assistant attorney general, on the brief), and
Rackemann, Sawyer & Brewster, P.C., of Boston,
Massachusetts (Eric A. Smith and J. David Leslie on
the brief, and Mr. Leslie orally), for the State defen-
dants.
William L. O'Brien, of Concord, & a. for the New
England Legal Foundation and National Association
of Mutual Insurance Companies, as amici curiae,
joined by forty-nine members of the New Hampshire
House of Representatives.
David I. Frydman, House Legal Counsel, for Terie
Norelli, Speaker of the House, and Sylvia B. Larsen,
Senate President, as amici curiae.
Sulloway & Hollis, PLLC, of Concord (Martin P.
Honigberg and Amy Manzelli on the brief), for the
New Hampshire Medical Society and the American
Medical Association, as amici curiae.
CONBOY, J.
*633 The State of New Hampshire, the Commis-
sioner of Insurance, and the State Treasurer appeal an
© 2010 Thomson Reuters. No Claim to Orig. US Gov. Works.
Page 9
order of the Superior Court (McGuire, J.) declaring
Laws 2009, 144:1 (the Act) unconstitutional. The Act
requires the New Hampshire Medical Malpractice
Joint Underwriting Association (JUA) to transfer a
total of $110 million to the State's general fund dur-
ing fiscal years 2009, 2010, and 2011. The trial court
ruled that the Act constituted a taking without just
compensation in violation of Part I, Article 12 of the
State Constitution and the Fifth and Fourteenth
Amendments to the Federal Constitution, and that it
impaired the petitioners' contract rights in violation of
Part I, Article 23 of the State Constitution and Article
1, Section 10 of the Federal Constitution. The trial
court also decided that the State had no right to any
"excess surplus" funds *634 held by the JUA because
the JUA is not a state agency. Because we find that
the Act constitutes a retrospective law that results in
impairment of contract rights in violation of the New
Hampshire Constitution, we affirm.
**630 I. Procedural History
In June 2009, the petitioners, present and past policy-
holders of the JUA, on their own behalf and on behalf
of a purported class of policyholders, filed a petition
for a writ of mandamus against the JUA, its board of
directors, the New Hampshire Insurance Department
(Department) and its commissioner, and for a writ of
prohibition against the Department, the New Hamp-
shire State Treasury (Treasury) and the State Treas-
urer. The petitioners alleged that, pursuant to their
contracts with the JUA and certain administrative
rules, they had a vested right in any excess surplus
premiums collected by the JUA. The Act is based
upon the State's assertion that the excess surplus held
by the JUA amounted to $110 million.
The request for mandamus asked that the court com-
pel the JUA "to evaluate its current surplus and de-
termine what in its judgment should be declared earn-
ings and returned to the [petitioners]." The request
for a writ of prohibition asked that the court prohibit
the Department and Treasury "from taking action in
furtherance of [their] erroneous interpretation[s] of
the insurance contract [s] and [New Hampshire Ad-
ministrative Rule] Ins 1703.07(d)."
Also in June 2009, the petitioners, on their own be-
half and on behalf of a purported class of policyhold-
ers, filed a petition for declaratory and injunctive
relief against the State of New Hampshire. They
Exhibit D
992 A.2d 624
159 N.H. 627, 992 A.2d 624
(Cite as: 159 N.H. 627, 992 A.2d 624)
asked the court to declare the Act unconstitutional
because: (1) it was a retrospective law that substan-
tially impaired their vested contract rights and, there-
fore, violated Part I, Article 23 of the State Constitu-
tion; (2) it constituted a "taking" of property and,
thus, violated Part I, Article 12 of the State Constitu-
tion and the Fifth and Fourteenth Amendments to the
Federal Constitution; (3) it impaired their contracts
with the JUA and, thus, violated Article I, Section 10,
Clause 1 of the Federal Constitution; and (4) it repre-
sented an unconstitutional tax in violation of Part II
Article 5 of the State Constitution. The trial court
consolidated the cases.
The parties filed cross-motions for summary judg-
ment. The State argued that the petitioners do not
have vested property rights in any excess surplus
funds held by the JUA, but have, at most, only an
expectancy interest that is contingent upon actions by
the JUA's board of directors. The State also asserted
that any excess surplus funds belong to the State be-
cause the JUA is a state agency. After a hearing, the
trial court ruled that the JUA is not a state agency,
and that the Act violates both the State and *635
Federal Constitutions because it constitutes a taking
of property belonging to the petitioners, and because
it impairs their contract rights. This appeal followed.
II. Facts
In 1975, the insurance commissioner determined that
professional medical liability insurance was not read-
ily available in the voluntary market, and that the
public interest required such availability. See RSA
404-C:1 (2006). Accordingly, the commissioner
adopted regulations creating the JUA to provide in-
surance coverage addressing the public need. See
generally N.H. Admin. Rules, Ins 1700 et seq. The
regulations also establish the plan of operation (the
plan) for the JUA. See id. 1703. The plan has been in
place, with some modifications, since 1975.
The JUA "was established to make available medical
malpractice insurance for eligible risks." NH. Admin.
Rules, Ins 1701.01 (eff.Dec.1, 2000, exp.Dec.1,
2008). An "eligible risk" is "any health care provider
operating legally in the state of New Hampshire,"
other than those who fail to **631 timely pay premi-
ums, have an outstanding judgment due for premi-
ums, or who do not provide the information neces-
sary to effect insurance coverage. NH. Admin. Rules,
© 2010 Thomson Reuters. No Claim to Orig. US Gov. Works.
Page 10
Ins. 1703.01(e). Each eligible risk insured by the as-
sociation must "receive the same level of service as is
generally available in the voluntary market." Id.
1702.04. The petitioners, as healthcare providers and
current and former JUA policyholders, are such eli-
gible risks.
The JUA is governed by a board of directors. Id.
1703.04. The commissioner is required to "grant the
board the authority to exercise all reasonable or nec-
essary powers relating to the operation of the associa-
tion." Id. 1703.04(/ ). The authority of the board in-
cludes the power to operate and manage JUA funds
by investing premiums. Id. 1703.04(p). The actual
insuring functions are carried out by a "servicing
carrier" chosen by the commissioner from among
member insurers or qualifying non-member insurers,
and the board itself acts as a servicing carrier if, for
any reason, the commissioner does not appoint one.
Id. 1703.05(c), 1702.04. The JUA enters into con-
tracts and conducts its business independently of the
Governor and Council and of the commissioner. See
id. 1703.04(o).
The plan requires all insurers authorized to write li-
ability insurance in the state to be members of the
JUA. Id. 1702.01; RSA 404-C:3. All member insur-
ers are required to share in the JUA's premiums, ex-
penses, servicing allowances and losses, based upon
their portion of net direct premiums written in the
state. Id. 1702.03(a).
The JUA's funding mechanism changed on January 1,
1986, in response to a fmding by the commissioner
that the JUA did not have sufficient assets *636 to
cover claims arising from policies written from 1975
to 1985. Compare id. 1703.07 with id. 1703.08. To
cover the deficits incurred prior to 1986, a 15% sur-
charge was assessed on every medical malpractice
liability insurance policy issued in the state beginning
in 1986, and continuing until the commissioner
should determine that a deficit no longer exists. Id.
1703.08(a), (b), (d). The JUA's reserves accrued, and
policies issued, on and after January 1, 1986, are
separately accounted for. Compare id. 1703.07 with
id. 1703.08. The JUA reserves in question are funded
by policy premiums and the interest earned thereon.
See id. 1703.07(a), 1703.04(p). The State did not
contribute funds to the JUA at the time of its creation,
and has made no contributions to it at any other time.
The State is not responsible for any JUA shortfalls,
Exhibit D
992 A.2d 624
159 N.H. 627, 992 A.2d 624
(Cite as: 159 N.H. 627, 992 A.2d 624)
and does not guarantee performance of JUA obliga-
tions. Any deficits in the post-1985 fund are to be
satisfied by assessments against the members, who
are then to be reimbursed through assessments
against policyholders and surcharges on subsequently
sold policies. Id. 1703.07(f). The post-1985 JUA fund
has not experienced a deficit and, therefore, no as-
sessments or surcharges have been necessary.
In the event of fund excess, as is purportedly the case
here, the plan provides as follows:
(c) If premiums written on association business ex-
ceed the amount necessary to pay losses and ex-
penses, the board shall apply such excess to repay
members for assessments previously levied, in pro-
portion to the amount paid by each member.
(d) If premiums written on association business ex-
ceed the amount necessary to pay losses and ex-
penses and to reimburse members for all assess-
ments pursuant to Ins 1703.07(c), then with review
and approval by the commissioner as being consis-
tent with the purposes of this chapter, the board
shall authorize **632 the application of such ex-
cess in one or both of the following ways:
(1) Against and to reduce future assessments of
the association; or
(2) Distribute the excess to such health care pro-
viders covered by the association as is just and
equitable.
Id. 1703.07(c), (d) (emphasis added). The phrase
"with review and approval by the commissioner as
being consistent with the purposes of this chapter,"
was added in January 2009. Id. Also in January 2009,
the regulations were amended to provide that "the
[JUA] will promote the public interest in ensuring
that consumers of health care services have adequate
access to needed care." N.H. Admin. Rules, Ins.
1701.01.
*637 The JUA issues individual policies to its poli-
cyholders. The policies are titled, "LIABILITY POL-
ICY (Assessable and Participating)," or "GENERAL
LIABILITY POLICY (Assessable and Participat-
ing)." Each policy provides that it "has been issued
by the [JUA] under the New Hampshire Medical
© 2010 Thomson Reuters. No Claim to Orig. US Gov. Works.
Page 11
Malpractice Joint Underwriting Association Plan
established pursuant to the Authority granted by RSA
404-C:1 and by RSA 400-A:15, and is subject to the
provisions of the Plan." The policy provisions relat-
ing to assessments and dividends provide in full:
12. Assessable Policy Provision. This policy has
been issued by the [JUA] under the New Hamp-
shire Medical Malpractice Joint Underwriting As-
sociation Plan established pursuant to the Authority
granted by RSA 404-C:1 and by RSA 400-A:15,
and is subject to the provisions of the Plan. The
Plan provides, and the named insured agrees, that
in the event an underwriting deficit exists at the
end of any fiscal year the Plan is in effect, the
board of directors of the [JUA] may make a pre-
mium contingency assessment against all policy-
holders during such year, and the named insured
shall pay to the [JUA] the named insured's part of
the premium contingency assessment based upon
the policy premium payment paid by the named in-
sured to the [JUA] with respect to that year. The
Plan further provides that the [JUA] shall cancel
the policy of any policyholder who fails to pay the
premium contingency assessment.
13. Participating Policy Provisions. The named
insured shall participate in the earnings of the
[JUA], to such extent and upon such conditions as
shall be determined by the board of directors of the
[JUA] in accordance with law and as made appli-
cable to this policy, provided the named insured
shall have complied with all the terms of this pol-
icy with respect to the payment of premium.
(Emphasis omitted.)
Since 1986, the JUA has sought to make three distri-
butions of surplus to its policyholders. In 1999 and
2000, the board submitted proposals for distribution
and received approval from the commissioner; distri-
butions were then made. The board's 2001 applica-
tion for a distribution, however, was denied. The
board has not requested a distribution since that time.
In 2008 the JUA was one of the three largest writers
of medical malpractice insurance in New Hampshire
based on premiums written. It wrote approximately
$8.8 million of the estimated $40 million in premi-
ums written. Of approximately 11,000 health care
providers in New Hampshire, the JUA insures about
Exhibit D
992 A.2d 624
159 N.H. 627, 992 A.2d 624
(Cite as: 159 N.H. 627, 992 A.2d 624)
900. It has accumulated assets of $152 million.
*638 In March 2009, the Department prepared a re-
port indicating that the JUA's 2008 year-end surplus
"is expected to be in the range of $140 million to
$145 million ... [as] a result of very efficient opera-
tions,**633 good claims management and sound in-
vestments over a number of years by the [JUA]
board." The Department concluded that the "surplus
significantly exceeds the amount of capital needed to
support the [JUA]." The report stated that "[t]he De-
partment has not engaged in any formal actuarial
exercise in reaching this conclusion." The report was
premised upon an estimate of "risk-based capital"
that the Department commissioned on behalf of the
JUA, which was submitted to the JUA with the fol-
lowing caveat:
It is [the actuarial firm's] understanding that [JUA]
management will consider [these] findings for the
purposes of evaluating the level of surplus required
to support its ongoing operations of providing
medical malpractice coverage in New Hampshire.
[The] report is not intended or necessarily suitable
for any other purposes.
Under the heading "DISTRIBUTION AND USE,"
the risk-based capital estimate report reiterated, "[The
actuarial firm has] prepared this report solely for [the
JUA's] use as described.... It is neither intended nor
necessarily suitable for any other purpose." The De-
partment nevertheless relied upon the risk-based
capital estimate and reported that it "believes that it
would be reasonable to retain a surplus of $55 million
to support the [JUA], allowing the remainder of the
surplus to be transferred to the General Fund without
placing the [JUA] under any significant financial
risk." The JUA has not made its own determination
as to what amount, if any, constitutes excess surplus.
On June 24, 2009, the legislature passed House Bill
2, which the Governor signed into law on June 30,
2009. The legislature found that "the funds held in
surplus by the [JUA] in the Post-1985 Account are
significantly in excess of the amount reasonably re-
quired to support its obligations as determined by the
insurance commissioner," and concluded that "the
purpose of promoting access to needed health care
would be better served through a transfer of the ex-
cess surplus of the Post-1985 Account to the general
© 2010 Thomson Reuters. No Claim to Orig. US Gov. Works.
Page 12
fund." Laws 2009, 144:1, II. The Act accordingly
provides:
Notwithstanding any other provision of law, the
[JUA], by and through its board of directors, and
any person having responsibility and authority for
the custody or investment of the assets of the
[JUA] are hereby authorized and directed to trans-
fer no later than July 31, 2009 for the fiscal year
ending June 30, 2009 the sum *639 of
$65,000,000, and by June 30, 2010 the additional
sum of $22,500,000, and by June 30, 2011 the ad-
ditional sum of $22,500,000 from the Post-1985
Account to the general fund. This sum shall be
used for the purpose of supporting programs that
promote access to needed health care for under-
served persons.
Laws 2009, 144:1, I.
III. The Parties' Arguments
The State asserts that, under the circumstances of this
case, we need not determine whether any JUA excess
surplus funds belong to the State. Rather, it argues,
we need only determine whether the petitioners have
a "vested right" in such funds. It asserts that "[t]he
nature of the JUA is properly considered only as it
reflects on the question whether a person purchasing
insurance from the JUA can reasonably claim to have
a vested right in surplus protected against state ac-
tion...." Thus, the State argues that the Act does not
constitute an unconstitutional "taking" under either
the State or the Federal Constitution, since the peti-
tioners do not have a vested property right in any
JUA surplus under their policies, the regulations
comprising the plan, or the statutes by whose author-
ity the JUA was created. **634 The State likewise
contends that the Act does not violate the State con-
stitutional proscription against retrospective laws or
the Federal Contracts Clause because the petitioners
do not have the prerequisite vested property right in
any JUA surplus. Furthermore, it argues, even if the
Act were a retrospective law, it would nonetheless be
constitutionally permissible under the common-law
balancing test requiring that the court examine
whether the Act is reasonable and necessary to serve
an important public purpose. The State also contests
the petitioners' ability to assert claims derivatively on
behalf of the JUA.
Exhibit D
992 A.2d 624
159 N.H. 627, 992 A.2d 624
(Cite as: 159 N.H. 627, 992 A.2d 624)
The petitioners counter that the Act constitutes a tak-
ing of property in which they have vested beneficial
rights under the plain language of their policies and
the regulations in place at the time their policies were
purchased, in violation of both the State and Federal
Constitutions. They maintain that the JUA is not a
state entity and that its funds are private funds com-
prised of premiums paid and the interest accumulated
thereon. They assert that the Act's interference with
their contract rights violates the Federal Contract
Clause and constitutes a retrospective law prohibited
by Part I, Article 23 of the New Hampshire Constitu-
tion. Furthermore, they contend, the fact that the
regulations comprising the plan may be altered by the
legislature does not permit impairment of the benefi-
cial *640 interests that have already vested under
their policies. The petitioners also assert that they
may bring claims not only in their own right, but also
derivatively on behalf of the JUA.
IV. Analysis
J- 11[21[31[4] This controversy centers upon the ten-
sion between the constitutional proscription against
governmental impairment of contract rights and the
State's sovereign authority to safeguard the welfare of
its citizens. See, e.g., Energy Reserves Group v. Kan-
sas Power & Light, 459 U.S. 400 410 103 S.Ct. 697
74 L.Ed.2d 569 (1983); United States Trust Co. v.
New Jersey, 431 U.S. 1, 21, 97 S.Ct. 1505, 52
L.Ed.2d 92 (1977). The relevant analytical frame-
work for assessing a constitutional challenge to legis-
lative action is well-established. "Whether or not a
statute is constitutional is a question of law, which
we review de novo." Akins v. Sec 'y of State, 154 N.H.
67, 70, 904 A.2d 702 (2006). "The party challenging
a statute's constitutionality bears the burden of
proof." State v. Pierce, 152 N.H. 790, 791, 887 A.2d
132 (2005). "[T]he constitutionality of an act passed
by the coordinate branch of the government is to be
presumed." Opinion of the Justices, 118 N.H. 582,
584, 392 A.2d 125 (1978) (quotation omitted). "It
will not be declared to be invalid except upon
[i]nescapable grounds; and the operation under it of
another department of the state government will not
be interfered with until the matter has received full
and deliberate consideration." Id. (quotation omitted);
see also City of Claremont v. Truell, 126 N.H. 30, 39,
489 A.2d 581 (1985) ("A statute will not be con-
strued to be unconstitutional where it is susceptible to
a construction rendering it constitutional." (quotation
© 2010 Thomson Reuters. No Claim to Orig. US Gov. Works.
Page 13
omitted)).
"In this case, however, there is no question of statu-
tory interpretation. The effects of the legislation are
obvious and acknowledged. If those effects infringe
on constitutionally protected rights, we cannot avoid
our obligation to say so." Alliance of American In-
surers v. Chu, 77 N.Y.2d 573, 569 N.Y.S.2d 364, 571
N.E.2d 672, 678 (1991) (citations omitted). We ad-
dress the petitioners' claims first under the State Con-
stitution, citing federal opinions for guidance only.
See State v. Ball, 124 N.H. 226, 231-33, 471 A.2d
347 (1983).
**635 Part I, Article 23 of the New Hampshire Con-
stitution provides: "Retrospective laws are highly
injurious, oppressive, and unjust. No such laws,
therefore, should be made, either for the decision of
civil causes, or the punishment of offenses." "Part I
Article 23 does not expressly reference existing con-
tracts. However, we have held that its proscription
duplicates the protections found in the contract clause
of the United States Constitution." State v. Fournier,
158 N.H. 214, 221, 965 A.2d 1091 (2009) (quotation
omitted). "Although the New Hampshire [retrospec-
tive law] provision affords more protection than its
federal counterpart, this court has relied on federal
contract clause cases to resolve issues raised under
*641part I, article 23 where contract impairment, and
not simply retroactive application of a law, was al-
leged." In re Grand Jury Subpoena (Issued July 10,
2006), 155 N.H. 557, 564, 926 A.2d 280 (2007). "We
therefore understand article I, section 10 [of the Fed-
eral Constitution] and part I, article 23 [of the State
Constitution] to offer equivalent protections where a
law impairs a contract, or where a law abrogates an
earlier statute that is itself a contract," and will refer
to their equivalent protections as the Federal and
State Contract Clauses, respectively. Opinion of the
Justices (Furlough), 135 N.H. 625, 630, 609 A.2d
1204 (1992).
j5][6] "The party asserting a Contract Clause viola-
tion must first demonstrate retroactive application of
a law." Petition of Concord Teachers, 158 N.H. 529,
537, 969 A.2d 403 (2009). We have held that "every
statute which takes away or impairs vested rights,
acquired under existing laws, or creates a new obliga-
tion, imposes a new duty, or attaches a new disabil-
ity, in respect to transactions or considerations al-
ready past, must be deemed retrospective." In the
Exhibit D
992 A.2d 624
159 N.H. 627, 992 A.2d 624
(Cite as: 159 N.H. 627, 992 A.2d 624)
Matter of Goldman & Elliott, 151 N.H. 770, 772, 868
A.2d 278 (2005) (quotation omitted). Thus, "[i]f ap-
plication of a new law would adversely affect an in-
dividual's substantive rights, it may not be applied
retroactively." Id.
The vested rights that the petitioners assert as the
predicate for their claims are grounded in their con-
tracts with the JUA. See, e.g., Hughes v. N.H. Div. of
Aeronautics, 152 N.H. 30, 37, 871 A.2d 18 (2005)
(contract rights can constitute vested property rights).
The transfers required by the Act occur over fiscal
years 2009, 2010, and 2011. However, because we
find, for the reasons stated below, that the petitioners'
contracts embody vested rights, and that the Act im-
pairs those rights, the Act "must be deemed retro-
spective." In the Matter of Goldman & Elliott, 151
N.H. at 772, 868 A.2d 278 (quotation omitted).
f 71[81[9] Contract Clause analysis in New Hampshire
requires a threshold inquiry as to whether the legisla-
tion operates as a "substantial impairment of a con-
tractual relationship." Lower Village Hydroelectric
Assocs. v. City of Claremont, 147 N.H. 73, 77, 782
A.2d 897 (2001). "This inquiry has three compo-
nents: whether there is a contractual relationship,
whether a change in law impairs that contractual rela-
tionship, and whether the impairment is substantial."
Id. (quotation omitted). If the legislation substantially
impairs the contract, "a balancing of the police power
and the rights protected by the contract clauses must
be performed, and ... [the] law ... may pass constitu-
tional muster only if it is reasonable and necessary to
serve an important public purpose." Furlough, 135
N.H. at 634, 609 A.2d 1204 (quotation omitted).
110] We note that other courts reviewing Contract
Clause claims have expressed the balancing test using
an array of phraseologies and placing *642 emphasis
on a variety of factors. See, e.g., **636/n re Certified
Question, 447 Mich. 765, 527 N.W.2d 468, 474
(1994), cert. denied, 514 U.S. 1127, 115 S.Ct. 2000,
131 L.Ed.2d 1001 (1995); Pomponio v. Claridgeof
Pompano Condominium, 378 So.2d 774, 780
(Fla.1979). Ultimately, "Contract Clause cases in-
volve individual inquiries, for no two cases are nec-
essarily alike." Buffalo Teachers Federation v. Tobe,
464 F.3d 362, 373 (2d Cir.2006), cert. denied, 550
U.S. 918, 127 S.Ct. 2133, 167 L.Ed.2d 864 (2007);
see also Home Bldg. & L. Assn. v. Blaisdell, 290 U.S.
398, 430, 54 S.Ct. 231, 78 L.Ed. 413 (1934) ("Every
© 2010 Thomson Reuters. No Claim to Orig. US Gov. Works.
Page 14
case must be determined upon its own circum-
stances." (quotation omitted)). Accordingly, we take
care to avoid a mechanical application of factors or
criteria. Otherwise, we risk undermining the core task
involved in resolving Contract Clause claims: strik-
ing a balance between constitutionally protected con-
tract rights and the State's legitimate exercise of its
reserved police power.
A. Substantial Impairment
1. Contractual Relationship
f111[12] An insurance policy is a contract. See, e.g.,
Bates v. Phenix Mut. Fire Ins. Co., 156 N.H. 719,
722, 943 A.2d 750 (2008) ("The fundamental goal of
interpreting an insurance policy, as in all contracts, is
to carry out the intent of the contracting parties."
(quotation omitted)). The undisputed facts of this
case establish that some of the petitioners have cur-
rent contractual relationships with the JUA, as docu-
mented by their insurance policies. It is these peti-
tioners (hereafter "policyholders") whose Contract
Clause claims we examine, because the petitioners
whose contracts have expired may not assert such
claims. See University of Hawaii Prof Assembly v.
Cayetano, 125 F.Supp.2d 1237, 1240 (D.Haw.2000)
("The contracts clause is only implicated when an
existing contract is substantially impaired.").
2. Impairment of Contractual Relationship
Next, we must determine whether the Act constitutes
a change in law that impairs the contractual relation-
ships between the policyholders and the JUA.
113] We note that the trial court, after detailed analy-
sis, concluded that the JUA is not a state entity. We
need not, however, determine whether its conclusion
was correct. Our examination of the policyholders'
contract rights is not contingent upon the JUA's status
as either a public or private entity, since Contract
Clause protections apply in either case. See, e.g., In
re Grand Jury Subpoena (Issued July 10, 2006), 155
N.H. at 564, 926 A.2d 280 ("Generally, the State and
Federal Contract Clauses prohibit the adoption of
laws *643 that would interfere with the contractual
arrangements between private citizens." (quotation,
ellipsis and brackets omitted)); Furlough, 135 N.H. at
635-36, 609 A.2d 1204 (holding that individuals'
contracts with the State are protected under the Con-
Exhibit D
992 A.2d 624
159 N.H. 627, 992 A.2d 624
(Cite as: 159 N.H. 627, 992 A.2d 624)
tract Clause); Eckles v. State of Oregon, 306 Or. 380,
760 P.2d 846, 853 (1988), appeal dismissed, 490
U.S. 1032, 109 S.Ct. 1928, 104 L.Ed.2d 400 (1989);
Fraternal Order of Police v. Prince George's Cty.,
645 F.Supp.2d 492, 508 (D.Md.2009) ("the Contract
Clause applies to private and public contracts alike").
1141[151[16] "Generally, the construction of a written
contract is a question of law for this court." Riblet
Tramway Co. v. Stickney, 129 N.H. 140, 146, 523
A.2d 107 (1987) (quotations omitted). "When inter-
preting contracts, the intent of the parties is deter-
mined based upon an objective reading of the agree-
ment as a whole. Contractual language is construed
according to its common meaning, and this court will
give a contract the same meaning as would a **637
reasonable person." Id. (citations omitted).
117] In this case, the relevant language in each policy
is clear and unambiguous. The title of each is either
"LIABILITY POLICY (Assessable and Participat-
ing)," or "GENERAL LIABILITY POLICY (Assess-
able and Participating)." Each policyholder's right to
participate in excess earnings is also explicitly set out
in the body of the policy, which provides that each
insured "shall participate in the earnings of the
[JUA], to such extent and upon such conditions as
shall be determined by the board of directors of the
[JUA] in accordance with law and as made applicable
to this policy." We note that participating policies in
other contexts have in common a policyholder's enti-
tlement to share in the company's excess surplus. See,
e.g., Prairie States Life Ins. Co. v. United States, 828
F.2d 1222, 1223 (8th Cir.1987) ( "Although taxpayer
is a stock insurance company, it issues 'participating'
policies which, like the policies issued by mutual
insurance companies, entitle the policyholders to par-
ticipate in distributions from the annual divisible sur-
plus of the company."); Ohio State Life Insurance
Company v. Clark 274 F.2d 771, 773 (6th Cir.), cert.
denied, 363 U.S. 828, 80 S.Ct. 1599, 4 L.Ed.2d 1523
(1960) ("Mutual plan policies are 'participating'
policies in that ... such policies are entitled to share in
the profits of the company to the extent that such
profits are apportioned from time to time to the re-
spective mutual plan policies by the company's Board
of Directors."); Gulf Life Ins. Co. v. United States, 35
Fed.Cl. 12, 13 (1996), affd, 118 F.3d 1563
(Fed.Cir.1997) ("[A] participating policy has a higher
stated premium than the nonparticipating policy for
the same insurance, but the policyholder expects to
© 2010 Thomson Reuters. No Claim to Orig. US Gov. Works.
Page 15
receive premium rebates in the form of policyholder
dividends. These dividends are returned to policy-
holders based on the company's experience or the
discretion of its management."). The policyholders'
insurance contracts are, therefore, by both their titles
and their content, "assessable *644 and participat-
ing," expressly obligating the policyholders to pay
premium assessments in the event an underwriting
deficit exists at the end of any fiscal year and, con-
versely, entitling the policyholders to participate in
the earnings of the JUA.
The nature of the policyholders' participation in JUA
earnings is qualified by the phrase "to such extent
and upon such conditions as shall be determined by
the board of directors of the [JUA] in accordance
with law and as made applicable to this policy." The
law that was in effect at the time the policies were
issued, and that was incorporated into the policies by
reference, includes the JUA regulations. Those regu-
lations define the obligations of the contracting par-
ties. See Worthen Co. v. Kavanaugh, 295 U.S. 56, 60,
55 S.Ct. 555, 79 L.Ed. 1298 (1935) ("To know the
obligation of a contract we look to the laws in force
at its making."); Blaisdell, 290 U.S. at 429-30, 54
S.Ct. 231 ("[T]he laws which subsist at the time and
place of the making of a contract, and where it is to
be performed, enter into and form a part of it, as if
they were expressly referred to or incorporated in its
terms." (quotation omitted)); Eckles, 760 P.2d at 858
n. 18 ("No law can impair the obligation of future
contracts because the laws in existence when a con-
tract is formed define the obligation of that con-
tract.").
The regulations provide that, in the event of an ex-
cess surplus, "the board shall authorize the applica-
tion of such excess in one or both of the following
ways: (1) Against and to reduce future assessments of
the association; or (2) Distribute the excess to such
health care providers covered by the association as is
just and **638 equitable." N.H. Admin. Rules, Ins
1703.07(d). These regulations, incorporated into the
participating policies, provide no other alternative to
the JUA board for disposition of any excess surplus
JUA funds.
We find that the language of the policies and regula-
tions, taken together, confers upon the policyholders
a vested contractual right in the treatment of any ex-
cess surplus. The policies entitle the policyholders to
Exhibit D
992 A.2d 624
159 N.H. 627, 992 A.2d 624
(Cite as: 159 N.H. 627, 992 A.2d 624)
"participate in the earnings of the [JUA]" and the
incorporated regulations mandate the board's applica-
tion of excess funds in one or both of two specified
ways: either against future assessments, or distribu-
tion to the policyholders. Under either option, the
policyholders have a direct financial interest, and not
a mere expectancy, in any excess surplus. Thus, the
policyholders have a vested right not necessarily in
the distribution of the funds, but in the treatment of
the funds for their benefit.
J18] Importantly, the policyholders' vested rights are
beneficial, rather than possessory. While a "benefi-
cial interest is defined as a right or expectancy in
something (such as a trust or an estate), as opposed to
legal *645 title to that thing," Nordic Inn Condo.
Owners' Assoc. v. Ventullo, 151 N.H. 571, 575-76,
864 A.2d 1079 (2004) (quotation, brackets and em-
phasis omitted), such interest may, nonetheless, con-
stitute a vested property right, subject to protection,
see, e.g., Ohio State Life Insurance Company, 274
F.2d at 777 (holding that policyholders had "a vested
contract right to the beneficial interest in the surplus"
of the issuing non-mutual insurance company); Chu,
569 N.Y.S.2d 364, 571 N.E.2d at 679 (fmding a
vested property right in the subject fund where the
governing statute provided that the monies would
either remain in the fund to accumulate interest or be
distributed to the contributors). Here, the policyhold-
ers' interest in any JUA excess surplus is vested and
not contingent: either they benefit from the surplus
by its reinvestment for application against future as-
sessments; or they benefit from the surplus by receipt
of a dividend.
The significance of the policyholders' beneficial,
rather than possessory, rights is twofold. First, be-
cause the policyholders' vested rights are in the
treatment of any surplus funds for their benefit, but
not necessarily in the distribution of such funds, the
JUA board and the commissioner have the ability to
protect against any undermining of the private market
that could potentially result from immediate distribu-
tion. See N.H. Admin. Rules, Ins 1702.04, 1703.11(a);
RSA 404-C:2, II (2006). Second, because the benefi-
cial rights in the treatment of any excess surplus are
contract rights, those rights vested in the policyhold-
ers upon issuance of their policies under the regula-
tory plan in place at that time, and are not contingent
upon the declaration of a dividend, as argued by the
State.
© 2010 Thomson Reuters. No Claim to Orig. US Gov. Works.
Page 16
We draw support for our conclusion that the policy-
holders' beneficial contract rights are vested from the
New York Court of Appeals' analysis in Methodist
Hospital of Brooklyn v. State Insurance Fund, 64
N.Y.2d 365, 486 N.Y.S.2d 905, 476 N.E.2d 304
(1985), appeal denied, 474 U.S. 801, 106 S.Ct. 32, 88
L.Ed.2d 26 (1985), as contrasted to its analysis in
Chu, 77 N.Y.2d 573, 569 N.Y.S.2d 364, 571 N.E.2d
672. In Methodist Hospital, the court upheld the
transfer of $190 million from the state insurance fund
to the state's general fund, concluding that, because
the state alone was liable for the payment of claims
upon that fund, because the policyholders had no
responsibility to contribute to losses, and because the
payment of dividends to policyholders **639 was
discretionary, the policyholders had no property or
contract rights in the assets or earnings of the fund.
Methodist Hosp., 486 N.Y.S.2d 905, 476 N.E.2d at
309-10; see also Chu, 569 N.Y.S.2d 364, 571 N.E.2d
at 677. In Chu, however, where the legislation at is-
sue diverted monies to the general fund in contraven-
tion of prior statutes which "provided that income
earned on new contributions to the fund would be
either returned to the contributors or credited toward
future contributions," id. at 675 the court found the
newly enacted law constituted an unconstitutional
taking of vested property rights. Id. at 679.
*646 The facts of this case distinguish it from
Methodist Hospital and align it with Chu. Here, the
JUA must satisfy claims out of its own assets and the
State bears no liability for any deficit. N.H. Admin.
Rules, Ins 1703.07(a). As the trial court found, "All
of the money in the JUA fund has come from as-
sessments of members, premiums paid by policy-
holders, and investment earnings. The State did not
financially contribute to the creation of the JUA and
has not contributed any funds since that time." It
noted that "[i]f the JUA runs a deficit, as was the case
in 1985, the members and policyholders are assessed
to make it up. The State is not responsible for any
JUA shortfalls and does not guarantee performance
of JUA obligations." Further, the JUA regulations,
rather than conferring discretion, mandate one or
both of two options for application of any excess
surplus, both of which inure to the policyholders'
direct financial benefit. Compare N.H. Admin. Rules,
Ins 1703.07(d), with Methodist Hosp., 486 N.Y.S.2d
905, 476 N.E.2d at 309. Thus, the plan here consti-
tutes a nearly identical regulatory framework to that
Exhibit D
992 A.2d 624
159 N.H. 627, 992 A.2d 624
(Cite as: 159 N.H. 627, 992 A.2d 624)
at issue in Chu.
In re Certified Question, 447 Mich. 765, 527
N.W.2d 468, to which the State attempts to analogize
this case, is not only distinguishable, but in fact sup-
ports our conclusion as to the policyholders' vested
rights. In that case, the plaintiff-policyholders of the
state accident fund alleged that they had a property
right to income from the sale of the accident fund,
and that an act transferring all of the consideration for
the sale to the general fund was, therefore, unconsti-
tutional. In re Certified Question, 527 N.W.2d at 470.
The Supreme Court of Michigan upheld the constitu-
tionality of the legislation. Id. The facts of Certified
Question, however, are significantly different from
the facts here. First, although the Certified Question
plaintiffs also had contracts with the accident fund,
they alleged impairment of an asserted contract with
the state, relying upon a statute to establish the con-
tract provisions. Id. at 473-74. Here, the policyhold-
ers' rights arise directly from their contracts with the
JUA. Further, the Certified Question plaintiffs relied
upon an alleged implied contract right to surplus, in
the absence of any contractual language entitling
them to such surplus. Id. at 476. Here, the policy-
holders' participating policies expressly provide that
the policyholders "shall participate in the earnings of
the company" as the board determines, and the
board's discretion is limited by regulation. Most sig-
nificantly, the Certified Question court held, "Absent
an explicit expression of the Legislature's intention
that premiums collected and not used to pay liabili-
ties either would earn interest or be refunded, we
cannot read [the subject legislative provisions], either
separately or together, as so promising." Id. at 477. In
contrast, the plan before us provides such explicit
regulatory expression.
*647 We are not persuaded by the State's argument
that the policies did not create vested rights because
they are subject to **640 "applicable law," which
may be changed. The three cases on which the State
relies in support of its position, Bowen v. Public
Agencies Opposed to Social Security Entrapment,
477 U.S. 41, 106 S.Ct. 2390, 91 L.Ed.2d 35 (1986),
Rhode Island Higher Education Assistance Authority
v. Secretary, U.S. Department of Education, 929 F.2d
844 (1st Cir.1991), and Tancredi v. Metropolitan Life
Insurance Company, 149 F.Supp.2d 80
(S.D.N.Y.2001), affd, 316 F.3d 308 (2d Cir.2003),
are all distinguishable. Each involved constitutional,
© 2010 Thomson Reuters. No Claim to Orig. US Gov. Works.
Page 17
statutory, or contractual provisions explicitly provid-
ing that the regulatory scheme was subject to change.
Bowen, 477 U.S. at 44, 106 S.Ct. 2390 ("Congress
expressly reserved to itself `[t]he right to alter,
amend, or repeal any provision of 'the Act. 42 U.S.C.
§ 1304."); Rhode Island Higher Educ., 929 F.2d at
847 (the subject agreements each stated that the par-
ties "shall be bound by all changes in the Act or regu-
lations in accordance with their respective effective
dates"); Tancredi, 149 F.Supp.2d at 88 ("[T]he Con-
stitution of the State of New York specifically re-
serves to the Legislature the right to alter laws under
which corporations originally were formed" and thus
constitutes notice that corporate charters may be
amended by statute).
By contrast, the JUA policies provide:
8. Changes. Notice to any agent or knowledge
possessed by any agent or by any other person shall
not effect a waiver or a change in any part of this
policy ...; nor shall the terms of this policy be
waived or changed, except by endorsement issued
to form a part of this policy, signed by a duly au-
thorized representative of the company.
Nor do the regulations, incorporated into the poli-
cies, make reference to any governmental reserva-
tion of power to amend the obligations established
by the plan or the policies. The State points to the
provision in RSA chapter 400-A delegating to the
commissioner the "full power and authority to
make, promulgate, amend and rescind reasonable
rules and regulations for ... the administration or ef-
fectuation of any provision" of the title governing
insurance in general. RSA 400-A:15, I (2006).
However, this legislative delegation of authority to
the commissioner-to make, amend and rescind in-
surance regulations-does not vitiate the binding na-
ture of the regulations incorporated into the JUA
policies, or constitute notice to the policyholders
that their contracts with the JUA are subject to any
law other than the law in effect at the time of the
issuance of their policies.
In Rhode Island Higher Education, the court ex-
plained the basis for its holding that a statute impos-
ing conditions upon reimbursement to reserve funds
did not constitute an unconstitutional taking:
*648 The public nature of the reserve funds them-
Exhibit D
992 A.2d 624
159 N.H. 627, 992 A.2d 624
(Cite as: 159 N.H. 627, 992 A.2d 624)
selves, coupled with the express contractual reser-
vation of the power to amend the terms of the [fed-
eral student loan] program and the fact that the leg-
islative changes involve a comprehensive fed-
eral/state social welfare program, forecloses a find-
ing that the state agencies have obtained unalter-
able vested property rights to certain payments.
Rhode Island Higher Educ., 929 F.2d at 851 (quota-
tion and brackets omitted). By contrast, the JUA
policies, including the incorporated regulations, con-
tain no provision indicating that they are subject to
amendment by the legislature. Further, the policy-
holders here are private parties and not state agencies.
Moreover, the Act is not part of "a comprehensive
federal/state social welfare program"; rather, it tar-
gets only one discrete fund for transfer to the general
fund.
**641 f191[201[21] We appreciate the generally
broad powers of the legislature to "change, modify
and repeal existing law, and to enact new laws."
Goldman, 151 N.H. at 773, 868 A.2d 278. However,
in light of the constitutional prohibition against retro-
spective laws, such legislative power is not without
restriction.
Unless otherwise inhibited by either the State or
Federal Constitutions, the Legislature may change
existing laws, both statutory or common, at its
pleasure, but in so doing, it may not deprive a per-
son of a property right theretofore acquired under
existing law. Those rights are designated as vested
rights, and to be vested, a right must be more than a
mere expectation based on an anticipation of the
continuance of existing law; it must have become a
title, legal or equitable, to the present or future en-
forcement of a demand, or a legal exemption from
the demand of another.
Id. at 774, 868 A.2d 278 (quotation omitted). "This
doctrine reflects the deeply rooted principles that
persons should be able to rely on the law as it exists
and plan their conduct accordingly and that the legal
rights and obligations that attach to completed trans-
actions should not be disturbed." Chu, 569 N.Y.S.2d
364, 571 N.E.2d at 678 (citation omitted). Therefore,
we conclude that, contrary to the State's assertion, the
provisions of the regulations in effect at the time of
the issuance of the policyholders' policies, and incor-
porated into the obligations of those contracts, may
© 2010 Thomson Reuters. No Claim to Orig. US Gov. Works.
Page 18
not be changed retroactively unless such change sur-
vives constitutional scrutiny.
Because the policyholders paid for and received par-
ticipating policies, incorporating the regulations in
effect at the time, their beneficial interest in the
treatment of any JUA excess surplus vested upon the
*649 issuance of their policies. The Act, diverting
$110 million of purportedly excess surplus, thus im-
pairs their contracts with the JUA.
3. Substantiality of the impairment
Having found that the Act impairs the petitioners'
contracts, we next consider whether the impairment
is substantial. See Furlough, 135 N.H. at 633, 609
A.2d 1204. Although the United States Supreme
Court has provided little specific guidance as to what
constitutes a "substantial" contract impairment,
Baltimore Tchrs. Un. v. Mayor, Etc. of Baltimore, 6
F.3d 1012, 1017 (4th Cir.1993), cert. denied, 510
U.S. 1141, 114 S.Ct. 1127, 127 L.Ed.2d 435 (1994),
"[t]otal destruction of contractual expectations is not
necessary for a fmding of substantial impairment,"
Energy Reserves Group, 459 U.S. at 411, 103 S.Ct.
697.
The severity of an impairment of contractual obli-
gations can be measured by the factors that reflect
the high value the Framers placed on the protection
of private contracts. Contracts enable individuals to
order their personal and business affairs according
to their particular needs and interests. Once ar-
ranged, those rights and obligations are binding
under the law, and the parties are entitled to rely on
them.
Furlough, 135 N.H. at 633, 609 A.2d 1204 (quota-
tion omitted). The degree of the Act's impairment of
the contracts is particularly pertinent because
[t]he severity of the impairment measures the
height of the hurdle the state legislation must clear.
Minimal alteration of contractual obligations may
end the inquiry at its first stage. Severe impair-
ment, on the other hand, will push the inquiry to a
careful examination of the nature and purpose of
the state legislation.
**642 Allied Structural Steel Co. v. Spannaus, 438
U.S. 234, 245, 98 S.Ct. 2716, 57 L.Ed.2d 727 (1978)
(footnote omitted).
Exhibit D
992 A.2d 624
159 N.H. 627, 992 A.2d 624
(Cite as: 159 N.H. 627, 992 A.2d 624)
1221 [231 [24] We recognize that the determination of
whether a contract impairment is substantial may be
influenced by whether the contracting parties relied
on the abridged contract right. "[W]here the right
abridged was one that induced the parties to contract
in the first place, a court can assume the impairment
to be substantial." Fraternal Order of Police, 645
F.Supp.2d at 510 (quotation omitted). The trial court
found that "[t]he JUA has offered an assessable and
participating policy approved by the Commissioner
since its inception with no hint in the record that any-
one had ever intended otherwise." The State does not
contest this ruling, nor does it contend that any fac-
tual dispute exists regarding the participating nature
of the policies. Neither does the State assert on ap-
peal that the policyholders*650 did not rely on the
participating nature of the policies. Thus, under the
circumstances of this case, whether any particular
policyholders relied upon the participating nature of
the policies is not relevant to our analysis.
125] In determining whether contract impairment is
substantial, some courts look to whether the subject
matter of the contract has been the focus of heavy
state regulation. See, e.g., Energy Reserves Group,
459 U.S. at 413, 103 S.Ct. 697. If so, further regula-
tion might be foreseeable and, thus, any change to the
contract caused by such regulation would not neces-
sarily constitute a substantial impairment. See, e.g.,
Mercado-Boneta v. Admin. del Fondo de Compen-
sacion, 125 F.3d 9, 13-14 (1st Cir.1997). However,
standing alone, "a history of regulation is never a
sufficient condition for rejecting a challenge based on
the contracts clause." Chrysler Corp. v. Kolosso
Sales, Inc., 148 F.3d 892, 895 (7th Cir.1998), cert.
denied, 525 U.S. 1177, 119 S.Ct. 1113, 143 L.Ed.2d
109 (1999); see also Mercado-Boneta, 125 F.3d at 14
n. 7 ("Contract Clause analysis would be enervated if
the mere fact of regulation meant there was always
foreseeability of more regulation and thus no substan-
tial impairment.").
The simple fact that insurance is a heavily regulated
industry does not preclude a conclusion that the Act
substantially impairs the policyholders' vested con-
tract rights to share in the JUA earnings. The policy-
holders did not "purchase[ ] into an enterprise already
regulated in the particular to which [they] now ob-
ject[ ]." Veix v. Sixth Ward Bldg. & Ln. Assn., 310
U.S. 32, 38, 60 S.Ct. 792, 84 L.Ed. 1061 (1940). The
© 2010 Thomson Reuters. No Claim to Orig. US Gov. Works.
Page 19
State cites no provision of the regulatory scheme in
place prior to the passage of the Act that would sug-
gest that private insureds should anticipate the trans-
fer of monies retained by their insurer into the state's
general fund. Neither the JUA policies, nor the insur-
ance regulations incorporated in the policies, make
reference to any governmental reservation of power
to amend the rights and obligations established by the
assessable and participating policies. On the contrary,
the policyholders' contracts expressly entitle them to
participate in the JUA's earnings, and the regulations
incorporated into their contracts likewise leave no
potential outlet for the accumulated funds other than
application against future assessments, or distribution
to the policyholders. Although insurance is a heavily
regulated industry, the record does not reflect a basis
in law for the policyholders to expect that the funds
in which they have a beneficial interest would be
transferred from the JUA into the general fund.
In Furlough, we held that a legislative requirement
that certain public employees be furloughed would
constitute a substantial**643 impairment because
such a requirement "impairs the very heart of an em-
ployment contract: the promise of certain work for
certain income. Its impact would likely wreak havoc
on the fmances of many of the affected workers...."
Furlough, 135 N.H. at 634, 609 A.2d 1204. We have
also found substantial impairment of *651 contract
rights by the legislature's retroactive repeal of a stat-
ute permitting municipalities to contractually set al-
ternatives to tax obligations where such action re-
sulted in an additional tax burden of nearly $40,000
to a plaintiff. Lower Village Hydroelectric Assocs.,
147 N.H. at 77, 782 A.2d 897; see also State v.
Vashaw, 113 N.H. 636, 637-38, 312 A.2d 692 (1973)
( "The underlying policy of this prohibition is to pre-
vent the legislature from interfering with the expecta-
tions of persons as to the legal significance of their
actions taken prior to the enactment of a law.").
Here, we conclude that the Act substantially impairs
the policyholders' contract rights for at least two rea-
sons. First, the Act effectively eliminates the "par-
ticipating" character of the policies, thus changing
the very nature of the contracts. The effect of the Act
is to dramatically reduce, if not eliminate, the policy-
holders' rights to a fundamental contractual benefit-
sharing in any excess surplus funds created by their
premium payments.
Exhibit D
992 A.2d 624
159 N.H. 627, 992 A.2d 624
(Cite as: 159 N.H. 627, 992 A.2d 624)
Second, the Act divests the JUA board of its obliga-
tion to the policyholders to treat any excess surplus
for their benefit, including protecting against insol-
vency. As the JUA advised the trial court,
The JUA can only comfortably state today that it
has earned a profit or lost money in 1986, 1987 and
1988. It is incumbent on the JUA to protect the
policyholders in the interim to maintain adequate
surplus and defend those claims that may yet arise
by keeping funds available for those uncertainties,
both legally and in terms of the market.... [The
board maintains] this conservative sense of the
need ... to make sure that there are funds there
available ... that there are sufficient funds within
our own capital to fulfill the purpose of the JUA.
The trial court recognized the importance of a JUA
surplus, including its impact on the policyholders,
finding:
The assessable nature of their policies and consis-
tent regulations point to the present benefit pro-
vided by any excess surplus. The surplus guards
against having insufficient assets to cover JUA ob-
ligations which would have to be covered by as-
sessments against policyholders and members.
Taking JUA funds would decrease investment
earnings which are important to the JUA's ability to
meet operating costs and malpractice claims.
The retention of, and access to, large sums of capital
is critical to the function of any insurance plan. As
the United States Supreme Court has observed:
*652 These pension plans, like other forms of in-
surance, depend on the accumulation of large sums
to cover contingencies. The amounts set aside are
determined by a painstaking assessment of the in-
surer's likely liability. Risks that the insurer fore-
sees will be included in the calculation of liability,
and the rates or contributions charged will reflect
that calculation. The occurrence of major unfore-
seen contingencies, however, jeopardizes the in-
surer's solvency and, ultimately, the insureds' bene-
fits. Drastic changes in the legal rules governing
pension and insurance funds, like other unforeseen
events, can have this effect.
Allied Structural Steel, 438 U.S. at 246-47, 98 S.Ct.
2716 (quotation and brackets omitted).
**644 We note that it is not clear that the $110 mil-
© 2010 Thomson Reuters. No Claim to Orig. US Gov. Works.
Page 20
lion in fact represents excess surplus. However,
whether some or all of the $110 million constitutes
excess surplus is not dispositive of our analysis.
Rather, the substantial character of the impairment
flows, in part, from the fact that the Act contravenes
the JUA board's contractual responsibility to its poli-
cyholders-that is, to determine whether any excess
surplus should be applied against future assessments
or distributed to the policyholders.
In sum, we conclude that the Act substantially im-
pairs the policyholders' contract rights because it ef-
fectively eliminates the participating character of the
policies and divests the board of its obligation to treat
any excess surplus funds for the policyholders' bene-
fit.
B. Reasonable and Necessary Legislation
j26][27][28] Because the Act substantially impairs
the policyholders' contracts with the JUA, it techni-
cally violates Part I, Article 23 of the State Constitu-
tion. "Nevertheless, it is to be accepted as a com-
monplace that the Contract Clause does not operate
to obliterate the [State's] police power...." Furlough,
135 N.H. at 634, 609 A.2d 1204 (quotation omitted).
It is the settled law of this court that the interdic-
tion of statutes impairing the obligation of con-
tracts does not prevent the State from exercising
such powers as are vested in it for the promotion of
the common weal, or are necessary for the general
good of the public, though contracts previously en-
tered into between individuals may thereby be af-
fected. This power, which in its various ramifica-
tions is known as the police power, is an exercise
of the sovereign right of the Government to protect
the lives, health, morals, comfort and general wel-
fare of the people, and is paramount to any rights
under contracts between individuals.
Allied Structural Steel, 438 U.S. at 241, 98 S.Ct.
2716 (quotation omitted).
1291[301[31] *653 "If the Contract Clause is to retain
any meaning at all, however, it must be understood to
impose some limits upon the power of a State to
abridge existing contractual relationships, even in the
exercise of its otherwise legitimate police power." Id
at 242, 98 S.Ct. 2716 (emphasis omitted). "Thus, a
balancing of the police power and the rights protected
Exhibit D
992 A.2d 624
159 N.H. 627, 992 A.2d 624
(Cite as: 159 N.H. 627, 992 A.2d 624)
by the contract clauses must be performed, and a bill
or law which substantially impairs a contractual obli-
gation may pass constitutional muster only if it is
reasonable and necessary to serve an important public
purpose." Furlough, 135 N.H. at 634, 609 A.2d 1204
(quotation omitted). We "must consider whether the
[State's] proposed justification in fact serves public
interests and whether its mechanisms to serve those
interests reflect reasonable and necessary choices."
Mercado-Boneta, 125 F.3d at 15.
f321[331[34] We first examine whether the law serves
an important public purpose. The Act requires that
the funds be used "for the purpose of supporting pro-
grams that promote access to needed health care for
underserved persons." Laws 2009, 144:1, I. Protec-
tion of the health of the people of New Hampshire is
certainly a legitimate and important goal. However,
"the finding of a significant and legitimate public
purpose is not, by itself, enough to justify the im-
pairment of contractual obligations." Keystone Bitu-
minous Coal Assn. v. DeBenedictis, 480 U.S. 470,
505, 107 S.Ct. 1232, 94 L.Ed.2d 472 (1987). "Al-
though deference is due to the legislature, and weight
is given to the legislature's own statement of purposes
for the law, a court must undertake its own independ-
ent inquiry to determine the reasonableness**645 of
the law and the importance of the purpose behind it."
Mercado-Boneta, 125 F.3d at 13. Accordingly, we
examine whether the Act, despite its substantial im-
pairment of contract rights, is reasonable and neces-
sary to accomplish the stated public purpose.
f351[36] In assessing the reasonableness and neces-
sity of the Act, the threshold question is the degree of
deference we must afford the legislature's decision as
to the means chosen to accomplish its purpose. The
general rule is that, "[u]nless the State itself is a con-
tracting party, 'as is customary in reviewing eco-
nomic and social regulation, courts properly defer to
legislative judgment as to the necessity and reason-
ableness of a particular measure.' " Furlough, 135
N.H. at 634-35, 609 A.2d 1204 (quotation, brackets
and ellipses omitted). This deference serves to ensure
that the constitutional prohibition against the impair-
ment of contracts does not prevent the State from
legitimate exercises of police power "to protect the
vital interests of its people." W.B. Worthen Co. v.
Thomas, 292 U.S. 426, 432-33, 54 S.Ct. 816, 78
L.Ed. 1344 (1934). As the United States Supreme
Court has noted, "The exercise of that reserved power
© 2010 Thomson Reuters. No Claim to Orig. US Gov. Works.
Page 21
has repeatedly been sustained by this Court as against
a literalism in the construction of the contract clause
which would make it *654 destructive of the public
interest by depriving the State of its prerogative of
self-protection." Id. at 433, 54 S.Ct. 816. The Su-
preme Court has also held, however, that "this essen-
tial reserved power of the State must be construed in
harmony with the fair intent of the constitutional
limitation, and that this principle preclude[s] a con-
struction which would permit the State to adopt as its
policy ... the destruction of contracts or the denial of
means to enforce them." Id.
f37] In cases where the State is itself a party to the
contract, heightened review is warranted and courts
generally accord minimal deference to legislative acts
affecting such contracts. See, e.g., Lower Village, 147
N.H. at 78, 782 A.2d 897; see also Furlough, 135
N.H. at 635, 609 A.2d 1204 ("When a State itself
enters into a contract, it cannot simply walk away
from its financial obligations. In almost every case,
the Court has held a governmental unit to its contrac-
tual obligations when it enters fmancial or other mar-
kets." (quotation omitted)); National R. Passenger
Corp. v. A.T. & S.F.R. Co., 470 U.S. 451, 472 n. 24,
105 S.Ct. 1441, 84 L.Ed.2d 432 (1985) ( "[T]he
Court has observed that in order to maintain the
credit of public debtors, and because the State's self-
interest is at stake, the Government's impairment of
its own obligations perhaps should be treated differ-
ently." (quotations and citations omitted)).
f38] We make no ruling as to whether the policy-
holders' contracts with the JUA constitute State con-
tracts. We note, however, that the State's underlying
justification for transferring funds from the JUA to
the general fund is based upon the State's assertion
that "the JUA is part of the State." If we were to as-
sume, for the purposes of analysis, that the JUA is
part of the State, then the petitioners' participating
policies would be public contracts. The Act, which
interferes with those contracts, would therefore be
subject to the heightened standard of review we ap-
plied in Furlough and Lower Village. We invalidated
the legislation in those cases as unconstitutional, rea-
soning that "financial necessity, though superficially
compelling, has never been sufficient of itself to
permit states to abrogate contracts." Lower Village,
147 N.H. at 78, 782 A.2d 897 (brackets omitted)
(quoting Furlough, 135 N.H. at 635, 609 A.2d 1204).
Although "less deference does not imply no defer-
Exhibit D
992 A.2d 624
159 N.H. 627, 992 A.2d 624
(Cite as: 159 N.H. 627, 992 A.2d 624)
ence" to the legislature's determination of reason-
ableness**646 and necessity, Buffalo Teachers, 464
F.3d at 370, "[t]he [C]ontract [C]lause, if it is to
mean anything, must prohibit the State from dishon-
oring its existing contractual obligations when other
policy alternatives are available," Furlough, 135
N.H. at 635-36, 609 A.2d 1204 (quotation and brack-
ets omitted). "If governments could reduce their fi-
nancial obligations whenever an important public
purpose could be conceived for repudiating a con-
tract[,] the Contract Clause would provide *655 no
protection at all." Id. at 635, 609 A.2d 1204 (quota-
tions omitted). If, as the State contends, the JUA is a
part of the State, less deference to legislative judg-
ment is warranted.
j39] If, on the other hand, the JUA is a private entity,
as found by the trial court, more deference is war-
ranted, but complete deference is unsupportable. As
we have previously held, "the [C]ontract [C]lause is
not a dead letter and does impose some limits upon
the power of a State to abridge existing contractual
relationships, even in the exercise of its otherwise
legitimate police power." Smith Insurance, Inc. v.
Grievance Committee, 120 N.H. 856, 863, 424 A.2d
816 (1980) (quotations omitted). For the Contract
Clause to retain any vitality, we must be able to con-
sider the reasonableness and necessity of the legisla-
ture's chosen action, particularly where the action's
substantial impairment of contract rights inures to the
State's fmancial benefit.
f401[41] "[T]he absence of a contract with the state
does not mean we thereby believe the [contract-
impairing legislation] cannot be self-serving to the
state. To the contrary, it can be." Buffalo Teachers,
464 F.3d at 370; see also Mercado-Boneta, 125 F.3d
at 16 ("the real issue in determining the level of def-
erence given to a legislative determination of reason-
ableness and necessity is not so much whether the
state is arguably a nominal party to the contract, but
whether the state is acting in its own pecuniary or
self-interested capacity"). "The better rule therefore
calls for focusing on whether the contract-impairing
law is self-serving, where existence of a state contract
is some indicia of self-interest, but the absence of a
state contract does not lead to the converse conclu-
sion." Buffalo Teachers, 464 F.3d at 370. Here, given
the nature and effect of the Act, we conclude that the
State's self-interest is at stake. Accordingly,
© 2010 Thomson Reuters. No Claim to Orig. US Gov. Works.
Page 22
complete deference to a legislative assessment of
reasonableness and necessity is not appropriate be-
cause the State's self-interest is at stake. A gov-
ernmental entity can always find a use for extra
money, especially when taxes do not have to be
raised. If a State could reduce its financial obliga-
tions whenever it wanted to spend the money for
what it regarded as an important public purpose,
the Contract Clause would provide no protection at
all.
Furlough, 135 N.H. at 635, 609 A.2d 1204 (quota-
tion omitted).
j42][43] We note also that the United States Supreme
Court has distinguished the deference accorded state,
as opposed to federal, legislation:
*656 When the court reviews state economic legis-
lation the inquiry will not necessarily be the same
[as a deferential review of federal economic legis-
lation].... [W]e have never held that the principles
embodied in the Fifth Amendment's due process
guarantee are coextensive with the prohibitions
against state impairment of contracts under the
Contract Clause, and, we observed, to the extent
the standards differ, a less searching inquiry occurs
in the review of federal economic legislation.
**647 National R. Passenger Corp., 470 U.S. at 472-
73 n. 25, 105 S.Ct. 1441; see also Nieves v. Hess Oil
Virgin Islands Corp., 819 F.2d 1237, 1251 (3d
Cir.1987) (contrasting "limitations imposed on States
by the Contract Clause with the less searching stan-
dards imposed on [federal] economic legislation by
the Due Process Clauses") (quotation and emphasis
omitted). Thus, "[d]espite the customary deference
courts give to state laws directed to social and eco-
nomic problems, legislation adjusting the rights and
responsibilities of contracting parties must be upon
reasonable conditions and of a character appropriate
to the public purpose justifying its adoption." Allied
Structural Steel, 438 U.S. at 244, 98 S.Ct. 2716 (quo-
tation and brackets omitted). Moreover, the State
bears the burden of proving that the contract impair-
ment is reasonable and necessary, since it asserts the
benefit of its own statute. In re Seltzer, 104 F.3d 234,
236 (9th Cir.1996); see also Univ. of Hawaii Profes-
sional Assembly v. Cayetano, 183 F.3d 1096, 1106
(9th Cir.1999), injunction dissolved, 125 F.Supp.2d
1237, 1242-43 (D.Haw.2000).
Exhibit D
992 A.2d 624
159 N.H. 627, 992 A.2d 624
(Cite as: 159 N.H. 627, 992 A.2d 624)
While the Act's stated purpose is to provide funds to
support "programs that promote access to needed
health care for underserved persons," Laws 2009,
144:1, I, it does not constitute broad-based social or
economic regulation directed to meet a societal need.
Rather, the Act singularly targets for transfer to the
State's general fund discrete funds generated by pre-
miums paid by a discrete class of private parties.
Compare Buffalo Teachers, 464 F.3d at 368-69 (up-
holding legislation imposing a generally applicable
public employee wage freeze), with Assn of Sur. &
Sup.Ct. Rptrs. v. State, 79 N.Y.2d 39, 580 N.Y.S.2d
153, 588 N.E.2d 51, 54 (1992) (striking down legisla-
tion as unconstitutional where it imposed a payroll
lag upon a narrow class of State employees); see also
Exxon Corp. v. Eagerton, 462 U.S. 176 192 103
S.Ct. 2296, 76 L.Ed.2d 497 (1983) (noting that the
statute at issue in Allied Structural Steel applied so
narrowly that "its sole effect was to alter contractual
duties"); Allied Structural Steel, 438 U.S. at 247-49,
98 S.Ct. 2716. The Act's funding scheme is qualita-
tively different from social or economic regulatory
legislation which establishes a broad-based mecha-
nism for addressing a public need.
The State offers two justifications for the Act. First,
the State contends that "[t]he Act furthers the public
purpose of the JUA by avoiding *657 distortions of
the market that would inevitably flow from the distri-
butions sought by petitioners," because such distribu-
tions have "the potential to disrupt the voluntary
market by reducing the price of JUA insurance and
creating an incentive for providers to move to the
JUA." In rejecting the identical argument, the trial
court observed:
This argument is based on the unwarranted as-
sumption that if the State does not get the $110
million, the policyholders will ... thus receiv[e] a
"windfall." As the Court made clear at the outset of
the ... hearing, it has no authority, and will not at-
tempt, to order any distribution of the surplus
funds. Dividends can only be distributed pursuant
to the procedures contained in the policy and regu-
lations: by request of the JUA board and approval
of the Commissioner.
We likewise reject this argument. What the policy-
holders stand to gain by our ruling is the enforcement
of their contract rights to the application of any ex-
© 2010 Thomson Reuters. No Claim to Orig. US Gov. Works.
Page 23
cess surplus for their benefit in one or both of the
ways specified by the regulations incorporated into
their policies. The question of whether the JUA board
should make distributions of any excess surplus is not
before us, and we express no opinion on that issue.
**648 Second, the State contends that the purpose of
the Act is "much more than merely financial," assert-
ing that the legislature "reasonably concluded that the
excess surplus [in the JUA fund] would be more use-
ful in promoting access to health care through state
programs for the medically underserved than if the
funds remained 'trapped' in the JUA or were distrib-
uted to those providers that happen to be insured
through the JUA."
Although funding state programs for the medically
underserved is an important public purpose, we con-
clude that the Act is not appropriately tailored to
serve that purpose. First, it is not clear that all of the
$110 million is in fact "excess surplus." Although a
risk-based capital estimate was prepared for the JUA,
the JUA board made no determination as to the
amount of any excess surplus. Under these circum-
stances, any assessment of the reasonableness of the
amount subject to transfer is questionable. Further,
the State has not suggested, and nothing in the record
indicates, that the Act was precipitated by an emer-
gency, or that it constitutes a temporary measure,
with future reimbursement of the funds contemplated.
See, e.g., Garris v. Hanover Ins. Co., 630 F.2d 1001,
1008 (4th Cir.1980) (in evaluating the reasonableness
and necessity of challenged legislation, court exam-
ines: "(1) [the legislation's] emergency nature; (2) its
purpose to protect a broad societal interest, not a fa-
vored group; (3) the tailoring of its remedial effect to
its emergency cause; (4) the reasonableness of its
basic features; and (5) its limited effect in temporal
terms."). Nor does the record *658 reflect that other
avenues of funding, which do not substantially inter-
fere with the policyholders' contracts, have been ex-
hausted, or even considered. See Buffalo Teachers,
464 F.3d at 371 ("Only after ... more drastic steps
were taken and a finding that the freeze was essential
was made, did the [governmental authority] institute
the wage freeze."); Fraternal Order of Police, 645
F.Supp.2d at 510-18 (examining various factors to
determine reasonableness and necessity, including
"efforts to exhaust numerous alternatives before re-
sorting to" legislation that substantially impaired a
contract). Thus, we cannot conclude that the means
Exhibit D
992 A.2d 624
159 N.H. 627, 992 A.2d 624
(Cite as: 159 N.H. 627, 992 A.2d 624)
chosen to accomplish the Act's stated purpose are
reasonable and necessary.
Our conclusion rests upon the retroactive effect of the
Act; if the legislature had addressed policyholders'
rights prospectively-that is, effective upon issuance
of new policies-our analysis would of necessity be
different. See Chu, 569 N.Y.S.2d 364, 571 N.E.2d at
678. To be sure, the Act expediently accomplishes
the legislature's stated purpose of supporting pro-
grams that promote access to needed health care. But
such expediency does not, in and of itself, render the
transfer of these funds reasonable and necessary. The
legislature has other reasonable alternatives to ac-
complish its goal, including amending the rights and
responsibilities under newly-issued JUA policies. As
"there is no showing in the record before us that this
severe disruption of contractual expectations was
necessary to meet an important general social prob-
lem[, t]he presumption favoring legislative judgment
as to the necessity and reasonableness of a particular
measure, simply cannot stand in this case." Allied
Structural Steel, 438 U.S. at 247, 98 S.Ct. 2716 (quo-
tation and citation omitted; emphasis added).
V. Conclusion
Because the Act substantially interferes with the cur-
rent policyholders' contracts with the JUA, and is not
reasonable and necessary to accomplish the legisla-
ture's stated public purpose, the Act constitutes a ret-
rospective law that results in an impairment**649 of
contract in violation of the New Hampshire Constitu-
tion and is, therefore, unenforceable. In view of this
holding, we need not consider the merits of the for-
mer policyholders' claims, or the current policyhold-
ers'takings" claim, the claims they assert deriva-
tively on behalf of the JUA, or their claims under the
Federal Constitution.
Affirmed.
BRODERICK, C.J., and HICKS, J., concurred;
DALIANIS and DUGGAN, JJ., dissented.
DALIANIS and DUGGAN, JJ., dissenting.
The court today overturns a legislative decision to
allocate $110 million to programs that promote ac-
cess *659 to needed health care for underserved per-
sons and, instead, creates a potential $110 million
windfall for the doctors, hospitals and other health
care providers insured by the New Hampshire Medi-
© 2010 Thomson Reuters. No Claim to Orig. US Gov. Works.
Page 24
cal Malpractice Joint Underwriting Association
(JUA). Although one of the stated purposes of the
JUA is to "promote the public interest in ensuring
that consumers of health care services have adequate
access to needed care," NH. Admin. Rules, Ins
1701.01, and although the legislature has specifically
found that this purpose "would be better served
through a transfer of the excess surplus [in a certain
JUA account] to the general fund," Laws 2009,
144:1, (the Act), the majority declines to defer to this
legislative finding. Holding that only current policy-
holders with policies written on or after January 1,
1986 (policyholders) have a vested right in the sur-
plus being used for their benefit, the majority con-
cludes that the Act violates Part I, Article 23 of the
State Constitution because it is a retrospective law
that substantially impairs the policyholders' contrac-
tual rights. We respectfully believe that in so doing
the majority errs.
First, the majority concludes that the policyholders
have a vested right that is beneficial; it is well-
established under New Hampshire law, however, that
a beneficial right is not a vested right entitled to con-
stitutional protection. Because the policyholders lack
vested rights either to the surplus or to its use for
their benefit, their constitutional claims must fail.
Second, even if we agreed with the majority that the
Act in some way impaired the policyholders' insur-
ance contracts, we believe that any impairment was
insubstantial as a matter of law. The Act leaves intact
the very purpose for which the policyholders entered
into their contracts-to obtain otherwise difficult or
impossible to obtain coverage for medical malprac-
tice claims. Moreover, there is no evidence that trans-
ferring $110 million from the JUA will in any way
jeopardize its solvency. An actuarial study shows
that, even without the $110 million, the JUA has
more than enough assets to cover future claims.
Third, the majority subjects the Act to an unnecessar-
ily stringent standard of review. When, as in this
case, the State is not a party to a contract, this court is
required to defer to the legislature's determination
that a particular measure is reasonable and necessary
to serve a legitimate public purpose. Instead, the ma-
jority makes its own de novo determination as to
whether another alternative would have constituted a
better solution to the problem at hand.
Exhibit D
992 A.2d 624
159 N.H. 627, 992 A.2d 624
(Cite as: 159 N.H. 627, 992 A.2d 624)
Fourth, this entire litigation may soon be moot and/or
the petitioners may lack standing to bring it given the
majority's holding that only petitioners with current
JUA policies may assert Contract Clause claims. The
record does not reveal whether any of the petitioners
have current JUA **650 policies; thus, it is not clear
whether any petitioner has standing to *660 bring a
Contract Clause claim. See University of Hawaii
Prof Assembly v. Cayetano, 125 F.Supp.2d 1237,
1240 (D.Haw.2000). Moreover, to the extent that the
"current" policies were issued after the Act became
effective, we believe that the petitioners with such
policies cannot have a vested right to the excess sur-
plus. Policies issued after the Act's effective date
necessarily incorporate the Act's provisions. As to
petitioners with such policies, the Act applies pro-
spectively, not retrospectively.
In sum, we believe the majority misapplies settled
New Hampshire law, ignores critical evidence in the
record, and creates a new, expanded role for judicial
review of economic legislation.
I. Part I, Article 23
A. In General
Part I, Article 23 of the State Constitution provides
that "[r]etrospective laws are highly injurious, op-
pressive, and unjust. No such laws, therefore, should
be made, either for the decision of civil causes, or the
punishment of offenses." We have held that Part I
Article 23 contains two prohibitions: the making of
retrospective laws and the impairment of contractual
rights. See State v. Fournier, 158 N.H. 214, 218, 221,
965 A.2d 1091 (2009). Although our case law has not
always viewed them as such, see Opinion of the Jus-
tices (Furlough), 135 N.H. 625, 630, 609 A.2d 1204
(1992), the prohibition against retrospective laws and
the prohibition against legislation that impairs con-
tractual rights are analytically distinct. We believe
that the majority errs by combining its analysis of
whether the Act is a retrospective law with its analy-
sis of whether the Act unconstitutionally impairs con-
tractual rights.
A retrospective law is one that "takes away or im-
pairs vested rights, acquired under existing laws, or
creates a new obligation, imposes a new duty, or at-
taches a new disability, in respect to transactions or
considerations already past." In re Grand Jury Sub-
© 2010 Thomson Reuters. No Claim to Orig. US Gov. Works.
Page 25
poena (Issued July 10, 2006), 155 N.H. 557, 564, 926
A.2d 280 (2007) (quotation omitted). The other pro-
hibition contained in Part I, Article 23 concerns im-
pairment of contracts. This section of Part I, Article
23 "prohibit[s] the adoption of laws that would inter-
fere with the contractual arrangements between pri-
vate citizens." Id. (quotation, brackets and ellipsis
omitted). Our State Constitution affords more protec-
tion than the Federal Constitution with respect to
retrospective laws, and the same protection as the
Federal Constitution with respect to contract impair-
ment. See Fournier, 158 N.H. at 221, 965 A.2d 1091;
Opinion of the Justices (Furlough), 135 N.H. at 630,
609 A.2d 1204.
Whether a vested right is impaired determines
whether the law at issue operates retrospectively. It is
not dispositive, however, of whether the law *661
unconstitutionally impairs contractual rights. As will
be discussed in more detail below, a law does not
unconstitutionally impair contractual rights unless the
impairment is substantial, the State lacks a significant
and legitimate public purpose for it, and the adjust-
ment of the contracting parties' rights and responsi-
bilities is not based upon reasonable conditions and is
not of a character appropriate to the public purpose
justifying the law's adoption. Energy Reserves Group
v. Kansas Power & Light, 459 U.S. 400, 411-12, 103
S.Ct. 697, 74 L.Ed.2d 569 (1983). Accordingly, we
will analyze the two prohibitions contained in Part I,
Article 23 separately.
B. Retrospective Law
The majority concludes that the Act "constitutes a
retrospective law," but, in **651 our view, does not
fully analyze this issue. In testing legislation against
Part I, Article 23, we conduct a two-part analysis to
determine if it is unconstitutionally retrospective.
Fournier, 158 N.H. at 218, 965 A.2d 1091. First, we
discern whether the legislature intended the law to
apply retroactively. Id. "When the legislature is silent
as to whether a statute should apply prospectively or
retrospectively, our interpretation turns on whether
the statute affects the parties' substantive or proce-
dural rights. There is a presumption of prospectivity
when a statute affects substantive rights." In re Estate
of Sharer 156 N.H. 28, 30, 930 A.2d 388 (2007)
(quotation omitted). "Where the statute is remedial or
procedural in nature, however, the presumption is
reversed, and the statute is usually deemed to apply
Exhibit D
992 A.2d 624
159 N.H. 627, 992 A.2d 624
(Cite as: 159 N.H. 627, 992 A.2d 624)
retroactively to those pending cases which on the
effective date of the statute have not yet gone beyond
the procedural stage to which the statute pertains."
Appeal of Wal-Mart Stores, 145 N.H. 635, 638, 765
A.2d 168 (2000) (quotation omitted). "In the final
analysis, however, the question of retrospective ap-
plication rest[s] on a determination of fundamental
fairness, because the underlying purpose of all legis-
lation is to promote justice." Id (quotation and
brackets omitted).
If we find that the statute applies retroactively, we
then inquire whether such retroactive application is
constitutionally permissible. Fournier, 158 N.H. at
218, 965 A.2d 1091. This second inquiry concerns
whether the legislation at issue impairs vested rights.
See In re Estate of Sharer 156 N.H. at 30, 930 A.2d
388. "Unless otherwise inhibited by either the State
or Federal Constitutions, the Legislature may change
existing laws, ... statutory or common, at its pleasure,
but in so doing, it may not deprive a person of a
property right theretofore acquired under existing
law." Id. (quotation omitted). "Those rights are des-
ignated as vested rights, and to be vested, a right
must be more than a mere expectation based on an
anticipation of the continuance of existing law; it
must have become a title, legal or equitable, to the
present or future enforcement of a demand, or a legal
exemption from the demand of another." Id. (quota-
tion omitted).
*662 Rather than analyze the issue, the majority ap-
parently assumes that the Act applies retroactively.
Even if we were to agree, we believe that the policy-
holders have failed to establish that they have a
vested right to any excess surplus. We believe that
the pertinent regulations and insurance policies do
not confer upon the policyholders a vested right ei-
ther to the surplus itself or to its use for their benefit.
To determine the nature of the policyholders' right to
the surplus, we first set forth the pertinent regulatory
language. New Hampshire Administrative Rules, Ins
1703.07 governs the policies at issue in this case
(those issued on or after January 1, 1986). In light of
the majority's holding that only policyholders with
current JUA policies may bring Contract Clause
claims, for the purposes of our discussion, we will
assume that the regulations currently in effect are
incorporated into the policies at issue. To the extent
that the majority suggests that the policyholders have
© 2010 Thomson Reuters. No Claim to Orig. US Gov. Works.
Page 26
a "vested" right in the law regulating their JUA con-
tracts remaining unchanged, the majority is mistaken.
"No person has a vested interest in any rule of law,
entitling him to insist that it shall remain unchanged
for his benefit." Estabrook v. American Hoist & Der-
rick, Inc., 127 N.H. 162, 171, 498 A.2d 741 (1985)
(quotation omitted), overruled on other grounds by
Young v. Prevue Products, Inc., 130 N.H. 84, 88, 534
A.2d 714 (1987), and Thompson v. Forest, 136 N.H.
215, 219, 614 A.2d 1064 (1992); **652New York
Cent. R.R. Co. v. White, 243 U.S. 188, 198, 37 S.Ct.
247, 61 L.Ed. 667 (1917).
Rule 1703.07(c) provides: "If premiums written on
[JUA] business exceed the amount necessary to pay
losses and expenses, the board shall apply such ex-
cess to repay [insurer] members for assessments pre-
viously levied, in proportion to the amount paid by
each [insurer] member." See N.H. Admin. Rules, Ins
1702.01, 1703.01(b), (i). Rule 1703.07(d) provides:
If premiums ... exceed the amount necessary to
pay losses and expenses and to reimburse members
for all assessments pursuant to Ins 1703.07(c), then
with review and approval by the [Commissioner of
the New Hampshire Insurance Department] as be-
ing consistent with the purposes of this chapter, the
board shall authorize the application of such excess
in one or both of the following ways:
(1) Against and to reduce future assessments of
the [JUA]; or
(2) Distribute the excess to such health care pro-
viders covered by the [JUA] as is just and equita-
ble.
We next set forth the policy language, which pro-
vides, in pertinent part: "The named insured shall
participate in the earnings of the [JUA], to such ex-
tent and upon such conditions as shall be determined
by the board of directors of the [JUA] in accordance
with law and as made applicable to this policy...."
*663 The plain meaning of the regulatory and policy
language demonstrates that the policyholders have no
vested, enforceable right to any surplus amount. Un-
der the regulation, the policyholders have a right to
the surplus itself only if (1) the board declares an
excess; (2) the board decides that it need not retain
the funds against and to reduce future assessments
Exhibit D
992 A.2d 624
159 N.H. 627, 992 A.2d 624
(Cite as: 159 N.H. 627, 992 A.2d 624)
against insurer members; (3) the board decides to
distribute the excess to the policyholders under such
terms as are "just and equitable"; and (4) the insur-
ance commissioner approves this distribution "as
being consistent with the [regulatory] purposes" of
the JUA. N.H. Admin. Rules, Ins 1703.07(d). Only if
these contingencies occur, would the policyholders
have a claim to the surplus. A contingent interest is,
by defmition, not a vested right, and, therefore, is not
constitutionally protected. See In the Matter of
Goldman & Elliott, 151 N.H. 770, 774, 868 A.2d 278
(2005).
Similarly, under the terms of the policy the policy-
holders "shall" participate in the JUA's earnings only
"to such extent and upon such conditions as shall be
determined" by the JUA's board "in accordance with
law." The phrase "[t]he named insured shall partici-
pate" in the JUA's earnings is modified by the phrase
"to such extent and upon such conditions" as the
board may determine. In this context, the use of the
word "shall" does not transform the policyholders'
hopes for a future discretionary distribution into a
"fixed, certain and absolute right" that the board must
allow them to participate in the JUA's earnings. Id.
At best, the regulatory and policy language together
confer upon the policyholders mere expectancies
based upon "the anticipated continuance of the pre-
sent laws, the existence of a ... surplus," as well as
the board's exercise of its discretion, with the com-
missioner's approval, to distribute the surplus to the
policyholders. Butler Weldments v. Liberty Mut. Ins.,
3 S.W.3d 654, 659 (Tex.Ct.App.1999). Mere expec-
tancies are not vested rights as a matter of law. In the
Matter of Goldman & Elliott, 151 N.H. at 774, 868
A.2d 278; see 2 N. Singer & J.D. Shambie Singer,
Sutherland Statutory Construction § 41.6, at 456-57
(2009) ("The mere expectation of **653 a future
benefit or contingent interest does not create a vested
right.").
Perhaps to avoid this result, the majority holds that
the regulatory and policy language "taken together
confers upon the policyholders a vested contractual
right in the treatment of any excess surplus." (Em-
phasis added.) The policyholders, the majority as-
serts, "have a vested right not necessarily in distribu-
tion of the funds, but in the treatment of the funds for
their benefit." The majority explains that "the policy-
holders' vested rights are beneficial, rather than pos-
© 2010 Thomson Reuters. No Claim to Orig. US Gov. Works.
Page 27
sessory.... [E]ither they benefit from the surplus by its
reinvestment for application against future assess-
ments; or they benefit from the surplus by receipt of a
dividend."
*664 We first observe that whatever benefit the poli-
cyholders would receive from the JUA's retention of
the surplus is derivative. The "future assessments" to
which the regulation refers are levied against insur-
ers, not insureds. See N.H. Admin. Rules, Ins
1703.07, 1703.08, 1703.13. The primary beneficiaries
of the JUA's decision to retain any surplus are, there-
fore, the JUA's member insurers, not the policyhold-
ers.
Additionally, we believe that the majority errs when
it concludes that the policyholders' so-called "benefi-
cial interest" in the surplus is entitled to constitu-
tional protection under Part I, Article 23. Part I, Arti-
cle 23 protects only vested rights. See In re Estate of
Sharek 156 N.H. at 30, 930 A.2d 388. By definition,
a beneficial interest is not a vested right as a matter of
law. See Nordic Inn Condo. Owners' Assoc. v. Ven-
tullo, 151 N.H. 571, 575-76, 864 A.2d 1079 (2004);
cf. Dubois v. Smith, 135 N.H. 50, 59, 599 A.2d 493
(1991) (noting that "beneficiary interest is not a
vested property right"). To be vested, a right "must
become a title, legal or equitable," and cannot be a
"mere expecta[ncy]." In re Estate of Sharek 156
N.H. at 30, 930 A.2d 388 (quotations omitted). A
beneficial interest is only an expectancy and not legal
title, and, therefore, is not a vested right. See Nordic
Inn Condo. Owners' Assoc., 151 N.H. at 575-76, 864
A.2d 1079. Accordingly, a beneficial interest is not a
vested right entitled to constitutional protection under
Part I, Article 23. See In re Estate of Sharek 156
N.H. at 31, 930 A.2d 388 (testator's right to name a
beneficiary is no more vested than beneficiary's right
to take under a will).
The majority concludes that the policyholders"bene-
ficial" rights are "vested" merely because they are
contractual. The majority further concludes, without
citation, that the policyholders' rights vested "upon
issuance of their policies." To the contrary, not all
rights created by contract are "vested," and, therefore,
inviolable for the purposes of Part I, Article 23. See
Hayes v. LeBlanc, 114 N.H. 141, 145, 316 A.2d 187
(1974) (Part I, Article 23's prohibition against retro-
spective laws "was not intended to prevent the legis-
lature from amending laws which regulate contracts
Exhibit D
992 A.2d 624
159 N.H. 627, 992 A.2d 624
(Cite as: 159 N.H. 627, 992 A.2d 624)
in the public interest where such laws have proven
inadequate to accomplish their task.").
The United States Supreme Court "has long recog-
nized that a statute does not violate the [Constitution]
simply because it has the effect of restricting, or even
barring altogether, the performance of duties created
by contracts entered into prior to its enactment. If the
law were otherwise, one would be able to obtain im-
munity from state regulation by making private con-
tractual arrangements." Exxon Corp. v. Eagerton, 462
U.S. 176, 190, 103 S.Ct. 2296, 76 L.Ed.2d 497
(1983) (citation and quotation omitted); see East New
York Bank v. Hahn, 326 U.S. 230, 232, 66 S.Ct. 69,
90 L.Ed. 34 (1945). As Justice Holmes put it: "One
whose rights, such as they **654 are, are subject to
state restriction, cannot remove them from the power
of the State by making a contract about them. The
*665 contract will carry with it the infirmity of the
subject matter." Hudson Water Co. v. McCarter, 209
U.S. 349, 357, 28 S.Ct. 529, 52 L.Ed. 828 (1908); see
Exxon Corp., 462 U.S. at 190, 103 S.Ct. 2296.
The majority relies upon Ohio State Life Insurance
Co. v. Clark, 274 F.2d 771 (6th Cir.), cert. denied,
363 U.S. 828, 80 S.Ct. 1599, 4 L.Ed.2d 1523 (1960),
and Alliance of American Insurers v. Chu, 77 N.Y.2d
573, 569 N.Y.S.2d 364, 571 N.E.2d 672 (1991), to
support its contention that the policyholders' benefi-
cial interests are entitled to constitutional protection.
Both cases are inapposite. In Chu, 569 N.Y.S.2d 364,
571 N.E.2d at 678, the issue of whether the policy-
holders had vested rights was undisputed. The court
stated that because it was "not disputed" that had the
State failed to give the contributors payment or cred-
its attributable to their contribution, they "could have
asserted a legitimate claim of entitlement to the mon-
eys, grounded in the statutory guarantee." Chu, 569
N.Y.S.2d 364, 571 N.E.2d at 678 (quotation and cita-
tion omitted).
Moreover, Chu is factually distinguishable from the
instant case. In Chu, the relevant statutes mandated
that income earned would be either returned to the
contributors or credited toward their future contribu-
tions. Chu, 569 N.Y.S.2d 364, 571 N.E.2d at 675.
Here, whether the policyholders receive a distribution
from the surplus is entirely at the discretion of the
JUA's board of directors. See Methodist Hosp. of
Brooklyn v. State Ins. Fund, 64 N.Y.2d 365, 486
N.Y.S.2d 905, 476 N.E.2d 304, 309, appeal dis-
© 2010 Thomson Reuters. No Claim to Orig. US Gov. Works.
Page 28
missed, 474 U.S. 801, 106 S.Ct. 32, 88 L.Ed.2d 26
(1985).
Clark is also factually distinguishable. In that case,
ownership of the surplus retained by a life insurance
company, which primarily wrote policies on a mutual
plan, but also wrote policies on a stock plan, was
expressly granted to its policyholders. Clark, 274
F.2d at 773, 777. The company's charter stated that
the company's surplus "shall belong to the holders of
policies on the mutual plan and shall be apportioned
and distributed on such equitable plan as the directors
may provide." Id. at 777. Neither the JUA's govern-
ing regulations nor its insurance policies contain
similarly unconditional language granting the policy-
holders ownership of the surplus.
The majority's entire discussion of vested rights is
premised upon its assumption that the JUA operates
like a mutual insurance company. However, the JUA
is not a mutual insurance company. "[A] mutual
company is owned by the policyholders." [1 Essen-
tials of Insurance Law] New Appleman on Ins. L.
Libr. Ed. (MB) § 1.08[4][c], at 1-83 (Oct.2009) (em-
phasis omitted). It "is organized and operated for the
benefit of its policyholders who are by virtue of their
policies members of the company," Methodist Hosp.
of Brooklyn, 486 N.Y.S.2d 905, 476 N.E.2d at 308,
and is "managed by people elected by the policy-
holders." Kelso & Irwin, P.A. v. State Ins. Fund, 134
Idaho 130, 997 P.2d 591, 596 (2000). In a mutual
insurance company:
*666 Each member pays a premium in advance,
usually in an amount slightly larger than what is
necessary to cover that individual's expected loss
plus a fair share of administrative expenses. In lieu
of paid-in capital to guarantee solvency, the mutual
company relies on an accumulated surplus. De-
pending on the company's losses and expenses and
the amount of investment income earned on the re-
serves, the company may refund a portion of the
premium to the policyholder**655 at the end of the
year in the form of a dividend.... Some mutuals ...
have the option to assess the members for sums
(usually not exceeding the amount of the premium)
necessary to cover unanticipated large losses.
New Appleman on Ins. L. Libr. Ed., supra §
1.08[4][c], at 1-83.
Exhibit D
992 A.2d 624
159 N.H. 627, 992 A.2d 624
(Cite as: 159 N.H. 627, 992 A.2d 624)
Unlike the policyholders of a mutual insurance com-
pany, the policyholders here are not members of the
JUA and "have no vote or say in [its] administra-
tion." Methodist Hosp. of Brooklyn, 486 N.Y.S.2d
905, 476 N.E.2d at 308-09; see N.H. Admin. Rules,
Ins 1702, 1703.04. The JUA is administered by a
board whose members are appointed by the insurance
commissioner, pursuant to regulations adopted by the
commissioner. See N.H. Admin. Rules, Ins 1703.04(a)
(board is comprised of seven voting members ap-
pointed by commissioner), 1703.04(p) (requiring
JUA to invest premiums in certain manner), 1703.12
(providing that JUA "shall be subject to examination
by the Commissioner" and requiring JUA to submit
certain reports to same). Nor is there any evidence in
the record that the policyholders paid slightly larger
premiums so as to cover administrative expenses.
While the JUA has some of the features of a mutual
insurance carrier, there is no indication that the legis-
lature intended it to be "owned" by its policyholders
in the same way that a private mutual insurance com-
pany is owned by its policyholders. See Kelso & Ir-
win, P.A., 997 P.2d at 596.
The majority also places great weight on the fact that
the insurance policies at issue describe themselves as
"participating." The majority observes "that partici-
pating policies in other contexts have in common a
policyholder's entitlement to share in the company's
excess surplus." See, e.g., Gulf Life Ins. Co. v. United
States, 35 Fed.Cl. 12, 13 (1996) ("[A] participating
policy has a higher stated premium than the nonpar-
ticipating policy for the same insurance, but the poli-
cyholder expects to receive premium rebates in the
form of policyholder dividends. These dividends are
returned to policyholders based on the company's
experience or the discretion of its management."),
aff'd, 118 F.3d 1563 (Fed.Cir.1997). The JUA poli-
cies, however, are not "participating" simply because
they say they are. See *667 Concord Hosp. v. NH.
Medical Malpractice Joint Underwriting Assoc., 137
N.H. 680, 683, 633 A.2d 1384 (1993). Moreover,
nothing in the record demonstrates that the policy-
holders have paid higher premiums than they would
have paid for non-JUA insurance.
Because the policyholders have failed to establish a
vested, constitutionally protected right either to the
surplus itself or to its use for their benefit, the Act
does not violate Part I, Article 23's prohibition
against retrospective laws. Having concluded that the
© 2010 Thomson Reuters. No Claim to Orig. US Gov. Works.
Page 29
Act is not an unconstitutional retrospective law, we
next analyze whether it otherwise violates Part I, Ar-
ticle 23 because it substantially impairs the policy-
holders' contractual rights.
B. Contract Impairment
"[T]he general purpose of the [Contract] Clause [is]
clear: to encourage trade and credit by promoting
confidence in the stability of contractual obligations.
Nevertheless, a State continues to possess authority
to safeguard the vital interests of its people. This
principle of harmonizing the constitutional prohibi-
tion with the necessary residuum of state power has
had progressive recognition in the decisions of [the
United States Supreme] Court." United States Trust
Co. v. New Jersey, 431 U.S. 1, 15, 97 S.Ct. 1505, 52
L.Ed.2d 92 (1977) (quotation, citation and ellipsis
omitted). Accordingly, resolving a Contract Clause
claim entails "reconcil[ing] the **656 strictures of
the Contract Clause with the essential attributes of
sovereign power, necessarily reserved by the States
to safeguard the welfare of their citizens." Id. at 21,
97 S.Ct. 1505 (quotation and citation omitted). Al-
though the language of the Federal and State Contract
Clauses is "facially absolute, [their] prohibition[s]
must be accommodated to the inherent police power
of the State." Energy Reserves Group, 459 U.S. at
410, 103 S.Ct. 697. The Contract Clause's prohibition
"is not ... the Draconian provision that its words
might seem to imply," Allied Structural Steel Co. v.
Spannaus, 438 U.S. 234, 240, 98 S.Ct. 2716, 57
L.Ed.2d 727 (1978), and "does not trump the police
power of a state to protect the general welfare of its
citizens, a power which is paramount to any rights
under contracts between individuals." Buffalo Teach-
ers Federation v. Tobe, 464 F.3d 362, 367 (2d
Cir.2006) (quotation omitted), cert. denied, 550 U.S.
918, 127 S.Ct. 2133, 167 L.Ed.2d 864 (2007).
We employ a three-step analysis when determining
whether legislation constitutes an impairment of con-
tract. See Fournier, 158 N.H. at 221, 965 A.2d 1091.
The first step is to analyze whether the law has oper-
ated as a substantial impairment of a contractual rela-
tionship. General Motors Corp. v. Romein, 503 U.S.
181, 186, 112 S.Ct. 1105, 117 L.Ed.2d 328 (1992). If
the impairment is minimal, then it does not rise to a
constitutional violation and our inquiry is at an end.
Allied Structural Steel Co., 438 U.S. at 244, 98 S.Ct.
2716. If, however, we find substantial impairment,
Exhibit D
992 A.2d 624
159 N.H. 627, 992 A.2d 624
(Cite as: 159 N.H. 627, 992 A.2d 624)
the next step is to determine whether "the State in
justification, ... [has] a significant and legitimate pub-
lic purpose behind the regulation, such as the reme-
dying of a broad and general social or economic
problem." *668Energv Reserves Group, 459 U.S. at
411-12, 103 S.Ct. 697 (citation omitted). The third
step is to determine "whether the adjustment of the
rights and responsibilities of contracting parties is
based upon reasonable conditions and is of a charac-
ter appropriate to the public purpose justifying the
legislation's adoption." Id. at 412, 103 S.Ct. 697
(quotation and brackets omitted).
1. Substantial Impairment
We first examine whether the Act substantially im-
pairs the policyholders' contractual rights. "This in-
quiry has three components: whether there is a con-
tractual relationship, whether a change in law impairs
that contractual relationship, and whether the im-
pairment is substantial." Romein, 503 U.S. at 186,
112 S.Ct. 1105; see Fournier, 158 N.H. at 221, 965
A.2d 1091; Lower Village Hydroelectric Assocs. v.
City of Claremont, 147 N.H. 73, 77, 782 A.2d 897
(2001).
The parties do not dispute the existence of a contract
for professional liability insurance. Further, we as-
sume, arguendo, that the majority correctly con-
cludes that the Act impairs the contract. We disagree,
however, that the policyholders have met their bur-
den in proving that the impairment is substantial.
In the few opportunities we have had to consider
whether a law substantially impairs a contract, we
have examined: (1) the nature of the contract and the
affected contractual terms; (2) the degree to which
the parties reasonably relied upon those terms at the
time they formed the contract; and (3) the practical
effect the challenged law would have upon parties.
See Lower Village Hydroelectric Assocs., 147 N.H. at
77, 782 A.2d 897; Opinion of the Justices (Fur-
lough), 135 N.H. at 633-34, 609 A.2d 1204; Smith
Insurance, Inc. v. Grievance Committee, 120 N.H.
856, 863, 424 A.2d 816 (1980); accord Mobil Oil
Corp. v. Rossi, 138 Cal.App.3d 256, 187 Cal.Rptr.
845, 850 (1982) ("[S]pecific factors**657 which may
be important in gauging the severity of impairment
include the nature and significance of the right im-
paired, ... whether the parties have relied on the pre-
existing contract right and the extent to which the
© 2010 Thomson Reuters. No Claim to Orig. US Gov. Works.
Page 30
statute violates the reasonable expectations of the
parties; whether the law is temporary or indefinite in
duration and whether the legislation is in a previously
regulated area." (citations omitted)). For example, in
holding that a law mandating forced unpaid leave for
state employees substantially impaired employment
contracts, we stated: "The bill under consideration
here impairs the very heart of an employment con-
tract: the promise of certain work for certain income.
Its impact would likely wreak havoc on the finances
of many of the affected workers and can only be con-
sidered substantial." Opinion of the Justices (Fur-
lough), 135 N.H. at 634, 609 A.2d 1204. Contrary to
the policyholders' assertions, the amount of money
the Act seeks to *669 transfer from the JUA to the
general fund is not sufficient, by itself, to establish
that impairment of the contract was substantial, and,
accordingly, unconstitutional.
Although courts have not precisely defined what con-
stitutes substantial impairment, see Coleman & Dar-
den, The Constitutionality of Retroactive Franchise
Laws, 21 Franchise L.J. 13, 14 (2001); Baltimore
Tchrs. Un. v. Mayor, Etc., of Baltimore, 6 F.3d 1012,
1017 (4th Cir.1993), cert. denied, 510 U.S. 1141, 114
S.ct. 1127, 127 L.Ed.2d 435 (1994), they agree that
the impairment need not necessarily "[t]otal[ly]
destr[oy] ... contractual expectations" to be consid-
ered substantial. Energy Reserves Group, 459 U.S. at
411, 103 S.Ct. 697. "[S]tate regulation that restricts a
party to gains it reasonably expected from the con-
tract does not necessarily constitute a substantial im-
pairment." Id. Along similar lines, New Hampshire
and other jurisdictions have held that an impairment
is substantial when a statute affects the right to com-
pensation in employment contracts or when it impairs
a party's right to terminate a contract pursuant to its
terms. See, e.g., Equipment Mfrs. Institute v. Janklow,
300 F.3d 842, 855-56 (8th Cir.2002); Baltimore
Tchrs. Un., 6 F.3d at 1018; Fraternal Order of Police
v. Prince George's Cty., 645 F.Supp.2d 492, 510
(D.Md.2009) ("Certainly, in the employment context,
no right is more central to the contract's inducement
than the right to compensation at the contractually
specified level." (quotation, ellipses, and brackets
omitted)); Kendall-Jackson Winery, Ltd. v. Branson,
82 F.Supp.2d 844, 873 (N.D.I11.2000); Opinion of the
Justices (Furlough), 135 N.H. at 634, 609 A.2d 1204;
Grievance Committee, 120 N.H. at 863, 424 A.2d
816.
Exhibit D
992 A.2d 624
159 N.H. 627, 992 A.2d 624
(Cite as: 159 N.H. 627, 992 A.2d 624)
Courts have placed great weight upon the second
consideration noted above: the degree to which the
parties reasonably relied upon the impaired terms at
the time they formed the contract, or put another way,
their reasonable expectations. See, e.g., Houlton Citi-
zens' Coalition v. Town of Houlton, 175 F.3d 178,
190 (1st Cir.1999) ("In order to weigh the substanti-
ality of a contractual impairment, courts look long
and hard at the reasonable expectations of the par-
ties."); Sal Tinnerello & Sons, Inc. v. Town of Ston-
ington, 141 F.3d 46, 53 (2d Cir.) ("[T]he primary
consideration in determining whether the impairment
is substantial is the extent to which reasonable expec-
tations under the contract have been disrupted."),
cert. denied, 525 U.S. 923, 119 S.Ct. 278, 142
L.Ed.2d 230 (1998); Fraternal Order of Police, 645
F.Supp.2d at 510 ("[W]here the right abridged was
one that induced the parties to contract in the first
place, a court can assume the impairment to be sub-
stantial." (quotation omitted)).
**658 The majority acknowledges that evidence of a
party's reliance upon the impaired contractual term is
relevant in determining whether the impairment is
substantial. It conducts no analysis, however, to de-
termine whether, and to what degree, the policyhold-
ers may have relied upon the participating*670 provi-
sion of the policy in contracting with the JUA for
professional liability insurance. Instead, the majority
simply quotes the trial court's ruling that "[t]he JUA
has offered an assessable and participating policy
approved by the Commissioner since its inception
with no hint in the record that anyone had ever in-
tended otherwise." It then concludes that, because the
State does not "contest this ruling," or "contend that
any factual dispute exists," or "assert on appeal that
the policyholders did not rely upon the participating
nature of the policies[,] ... whether any particular
policyholders relied upon the participating nature of
the policies is not relevant to our analysis."
Perhaps the reason that the majority avoids this issue
is that, in this case, the policyholders do not even
attempt to argue that they relied upon the impaired
provision when contracting with the JUA for profes-
sional liability insurance. Indeed, their own statement
runs contrary to establishing reliance. The affidavit of
Thomas Buchanan, Chief Executive Officer of poli-
cyholder Derry Medical Center, submitted with the
policyholders' opposition to the respondents' sum-
mary judgment motion, concedes that "Derry Medi-
© 2010 Thomson Reuters. No Claim to Orig. US Gov. Works.
Page 31
cal was constrained to do business with [the JUA],
not because of the prospect of a return of surplus, but
because the commercial carriers were not interested
in selling coverage to our practice due to the greater
risk they perceived in insuring a larger primary care
provider with typical claims history." In other words,
when contracting for insurance, the policyholders had
no choice but to contract with the JUA, and were not
in a bargaining position to choose a plan based upon
any features other than liability coverage, including
whether the plan contained the opportunity for sur-
plus distribution.
Moreover, proving reliance upon a term affected by a
change in law necessarily requires that the facts aris-
ing under the contract term and its impairment were
foreseeable. Assuming, arguendo, the foreseeability
of a surplus, it would not be reasonably foreseeable
that any surplus would be distributed given that the
disposition of surplus is subject to approval by the
commissioner, see N.H. Admin. Rules, Ins
1703.07(d), the JUA's last request for distribution
was denied in 2001, and no distributions have been
requested since. Indeed, in the thirty-four years since
the JUA was created, distributions to policyholders
have only been made twice, in 1999 and 2000.
Even if we were to find that the policyholders relied
upon the impaired provision, any reliance would be
unreasonable because the JUA is part of a highly-
regulated industry and is a creature of state regula-
tion. Whether reliance is reasonable is greatly influ-
enced by "whether the industry the complaining party
has entered has been regulated in the past." Energy
Reserves Group, 459 U.S. at 411, 103 S.Ct. 697. This
is because "[w]hen regulation already *671 exists, it
is foreseeable that changes in the law may alter con-
tractual obligations," thereby making it unreasonable
to expect that the law would remain unchanged.
Kittery Retail Ventures v. Town of Kittery, 856 A.2d
1183, 1195 (Me.2004), cert. denied, 544 U.S. 906,
125 S.Ct. 1603, 161 L.Ed.2d 279 (2005). "Of great,
and we are inclined to say controlling, importance in
the determination of whether a law violates the con-
tracts clause is the foreseeability of the law when the
**659 original contract was made." Chrysler Corp. v.
Kolosso Auto Sales, Inc., 148 F.3d 892, 894-95 (7th
Cir.1998), cert. denied, 525 U.S. 1177, 119 S.Ct.
1113, 143 L.Ed.2d 109 (1999). This is because "what
was foreseeable then will have been taken into ac-
count in the negotiations over the terms of the con-
Exhibit D
992 A.2d 624
159 N.H. 627, 992 A.2d 624
(Cite as: 159 N.H. 627, 992 A.2d 624)
tract." Id.
It is well-established that "[i]nsurance has long been
a heavily regulated industry." Jost, Health Insurance
Exchanges: Legal Issues, 37 J.L. Med. & Ethics 53,
56 (2009); see Brown, Constitutional Limits on State
Insurance Regulation, 29 Tort & Ins. L.J. 651, 652
(1994); Mercado-Boneta v. Admin. del Fondo de
Compensacion, 125 F.3d 9, 13-14 (1st Cir.1997). In
New Hampshire specifically, the JUA was estab-
lished in 1975 by the insurance commissioner, pursu-
ant to his authority under RSA 404-C:1 (2006) "to
provide such insurance coverage for any risks in this
state which are equitably entitled to but otherwise
unable to obtain such coverage." It is a State-created
entity, and its operations are controlled by regulations
promulgated by the insurance commissioner. All this
is to say that, not only is the JUA part of the highly-
regulated insurance industry, it is a creature of state
regulation itself and would not exist but for the regu-
lation that created it. Thus, in light of the State's per-
vasive and longstanding regulation, the legislative act
at issue here was by no means unforeseeable. Ac-
cordingly, to the extent that the policyholders argue
that they relied upon the law relevant to the disposi-
tion of the JUA's funds, beyond those that are neces-
sary to cover their claims, any such reliance is, with-
out question, unreasonable. Accord Veix v. Sixth
Ward Assn., 310 U.S. 32, 38, 60 S.Ct. 792, 84 L.Ed.
1061 (1940) (When a party "purchase[s] into an en-
terprise already regulated in the particular to which
he now objects, he purchase[s] subject to further leg-
islation upon the same topic."); Blue Cross/Blue
Shield of Rhode Island v. Rhode Island Dept. of Bus.
Reg., No. 04-5769, 2005 WL 1530449, at *7-8
(R.I.Super. June 23, 2005) (finding no substantial
impairment even though statute at issue "totally de-
prive[d] [non-profit corporation's] Directors of all
compensation" in part because the non-profit was "a
creature of special legislation in an industry that is
extensively regulated").
The majority concedes that a history of regulation in
the industry is one factor courts consider in determin-
ing whether impairment is substantial and that insur-
ance is, in fact, a heavily-regulated industry. It fails,
however, to apply this factor in determining whether
the insurance industry's history *672 of regulation
has any impact on the reasonableness of the policy-
holders' purported reliance on the impaired contract
term. Instead, it concludes only that "[t]he simple fact
© 2010 Thomson Reuters. No Claim to Orig. US Gov. Works.
Page 32
that insurance is a heavily regulated industry does not
preclude a conclusion that the Act substantially im-
pairs the policyholders' vested contract rights to share
in the JUA earnings."
In reading the majority's analysis, one might con-
clude that the Contract Clause mandates that con-
tracts between parties be governed by the statutes and
regulations in effect at their formation unless the leg-
islature expressly reserves the authority to change the
applicable law. Such a conclusion is contradicted by
well-settled precedent. See Bowen v. Agencies Op-
posed to Soc. Sec. Entrap., 477 U.S. 41, 52, 106 S.Ct.
2390, 91 L.Ed.2d 35 (1986) (noting that the State
does not "waive[ ] the right to exercise one of its sov-
ereign powers" if it fails to "expressly reserve[ ] the
right to exercise that power.... [S]overeign power,
even when unexercised, is an enduring presence that
governs all contracts[,] ... and will remain intact
unless surrendered in unmistakable terms." (quota-
tions**660 and citations omitted)); see also Hayes,
114 N.H. at 145, 316 A.2d 187.
The majority's reliance upon paragraph eight in the
JUA policies is particularly misplaced. Paragraph 8
provides:
Notice to any agent or knowledge possessed by
any agent or by any other person shall not effect a
waiver or a change in any part of this policy ...; nor
shall the terms of this policy be waived or changed,
except by endorsement issued to form a part of this
policy, signed by a duly authorized representative
of the company.
This paragraph defines the responsibilities of the JUA
and its insured; it has no bearing whatsoever upon the
commissioner's regulatory authority or the power of
the legislature to amend laws regulating contracts.
See Hayes, 114 N.H. at 145, 316 A.2d 187.
We observe also that, relevant to the third considera-
tion-the practical effect the challenged law would
have upon parties-the record reflects that removing
$110 million from the fund would have no practical
effect upon the ability of the JUA to cover future
policyholder claims. While the majority suggests that
the surplus could be required to protect the JUA from
insolvency, stating that "it is not clear that the $110
million in fact represents excess surplus," this propo-
sition is squarely contradicted by the record. As the
Exhibit D
992 A.2d 624
159 N.H. 627, 992 A.2d 624
(Cite as: 159 N.H. 627, 992 A.2d 624)
majority acknowledges, the record shows that the
Department contracted with an independent actuarial
consulting firm that produced a detailed report esti-
mating the JUA's risk-based capital levels for 2009
through 2013. Risk-based capital is a method devel-
oped by the National Association of Insurance Com-
missioners to measure the amount of capital that an
insurance company needs to support its overall busi-
ness operations. To develop a range of risk-based
capital levels for the years *673 2009 through 2013,
the actuarial firm modeled four different scenarios
reflecting different levels of anticipated JUA pre-
mium volume. The premium volume assumptions
ranged from the JUA continuing to grow modestly,
with five percent annual growth, to it having to ex-
pand its writings significantly because one or more
carriers departed from the New Hampshire market.
With the premium assumptions and other assump-
tions in place, the firm created a financial projection
model that calculated expected fmancial results.
Based upon this report, the Department determined
that even after the $110 million is transferred to the
general fund over a three-year period, the JUA will
remain as well-capitalized as private insurers writing
medical malpractice insurance in New Hampshire, at
a risk-based capital level more than three times that
of the industry minimum.
Moreover, given that the majority holds that only
current policyholders have rights at stake, the sol-
vency issue is not whether the JUA will be solvent in
three years or later, as the majority appears to state,
but whether the JUA will become insolvent during
the term of the current policyholders' contracts. The
record submitted on appeal reveals that these con-
tracts lasted for only one year, and may have expired
while this litigation was pending. Given the limited
period during which the policyholders have any
rights, the majority's concern regarding potential in-
solvency appears to be ephemeral.
We note that the impairment of contract in this case
is unlike that at issue in Lower Village Hydroelectric
Associates. That case concerned the retroactive repeal
of a statute that had permitted qualifying businesses
to negotiate payment-in-lieu-of-taxes (PILOT)
agreements with the cities and towns in which they
were located. **661Lower Village Hydroelectric
Assocs., 147 N.H. at 74, 782 A.2d 897. The purpose
of the statute was to encourage the propagation of
local small power production and cogeneration facili-
© 2010 Thomson Reuters. No Claim to Orig. US Gov. Works.
Page 33
ties. Id. Pursuant to the statute, Lower Village Hy-
droelectric Associates, L.P. (LVHA) negotiated a
PILOT agreement with Claremont under which it
would pay 2.5% of gross revenues from 1997 to 2004
and 5% of gross revenues from 2005 to 2011. Id.
Before the agreement was finalized and before the
first payment had been tendered by LVHA, the stat-
ute permitting the PILOT agreements was repealed
with a retroactive effective date. Id. The city, believ-
ing it was not bound by its agreement, assessed
LVHA's facility $46,338.24 in ad valorem taxes, in-
stead of $6,570.61, the amount that would have been
due under the PILOT agreement. Id. at 75, 782 A.2d
897. Finding that there was a binding contract in ef-
fect, we held that the repeal of the statute was a retro-
spective law in violation of Part I, Article 23 of the
New Hampshire Constitution. *674/d. at 75-77, 782
A.2d 897. Specifically, we stated that the law "nulli-
fied the PILOT agreement," and that, accordingly,
"there can be no question that the contract ... was
substantially impaired." Id. at 77 , 782 A.2d 897.
The retrospective law at issue in Lower Village Hy-
droelectric Associates totally destroyed LVHA's con-
tractual expectations. LVHA contracted for a particu-
lar PILOT for a period of fourteen future tax years,
presumably relying upon that reduced tax burden as it
structured its business. Id. at 74-75, 77, 782 A.2d
897. The repeal of the law permitting the contract
abridged a right "that induced the parties to contract
in the first place," and, accordingly, we correctly "as-
sume[d] the impairment to be substantial." Fraternal
Order of Police, 645 F.Supp.2d at 510 (quotation
omitted). Consistent with our holding in Opinion of
the Justices (Furlough), where we also found sub-
stantial impairment, the repeal of the statute "im-
pair[ed] the very heart" of LVHA's contract and "[i]ts
impact would [have] likely wreak[ed] havoc on
[LVHA's] finances." Opinion of the Justices (Fur-
lough), 135 N.H. at 634, 609 A.2d 1204.
By contrast, there is no indication in the record that
the right to a distribution of surplus induced the poli-
cyholders to contract for professional liability insur-
ance with the JUA. The "very heart" of the contract
at issue in this case is financial protection from pro-
fessional liability in the amount contracted for, and
there is nothing in the record indicating that transfer
of the surplus to the general fund would affect the
policyholders' finances, let alone "wreak havoc" on
them. Id. The transfer of the surplus simply "restricts
Exhibit D
992 A.2d 624
159 N.H. 627, 992 A.2d 624
(Cite as: 159 N.H. 627, 992 A.2d 624)
[the policyholders] to gains [they] reasonably ex-
pected from the contract," and, accordingly, there is
no substantial impairment. Energy Reserves Group,
459 U.S. at 411, 103 S.Ct. 697.
2. Legitimate Public Purpose
Because there is no substantial impairment, there is
no constitutional violation, and we could here end our
inquiry. See Allied Structural Steel, 438 U.S. at 244,
98 S.Ct. 2716. However, even if we were to assume
that the impairment is substantial, consideration of
the remaining steps in the three-step analysis would
still lead us to conclude that there is no constitutional
violation.
The second step is to determine whether the State has
established a legitimate public purpose for the Act.
"The requirement of a legitimate public purpose
guarantees that the State is exercising its police
power, rather than providing a benefit to special in-
terests." Energy Reserves Group, 459 U.S. at 412,
103 S.Ct. 697. The majority concedes, as it must, that
the purpose **662 of the Act, which is to support
programs that promote access to needed health care
for underserved persons, is a "legitimate and impor-
tant goal." We agree. An additional legitimate public
purpose is to eliminate a potential *675 unforeseen
windfall to the JUA's insureds. See id. (observing that
"[o]ne legitimate state interest is the elimination of
unforeseen windfall profits").
3. Whether Legislation is Reasonable and Necessary
Finally, we determine whether the legislation is rea-
sonable and necessary to achieve the legislature's
legitimate public purpose. "Unless the State itself is a
contracting party, as is customary in reviewing eco-
nomic and social regulation, courts properly defer to
legislative judgment as to the necessity and reason-
ableness of a particular measure." Id. at 412-13, 103
S.Ct. 697 (quotation, citation, brackets and ellipsis
omitted); see Opinion of the Justices (Furlough), 135
N.H. at 634-35, 609 A.2d 1204. "If the state is a party
to the contract, such deference is inappropriate, and
the court may inquire whether a less drastic alteration
of contract rights could achieve the same purpose and
whether the law is reasonable in light of changed
circumstances." Nieves v. Hess Oil Virgin Islands
Corp., 819 F.2d 1237, 1243 (3d Cir.), cert. denied,
484 U.S. 963, 108 S.Ct. 452, 98 L.Ed.2d 392 (1987);
© 2010 Thomson Reuters. No Claim to Orig. US Gov. Works.
Page 34
see United States Trust Co., 431 U.S. at 25-26, 30-32,
97 S.Ct. 1505.
In this case, because the State is not a party to the
agreements between the JUA and the policyholders,
we must defer to the legislature's judgment that the
Act is reasonable and necessary to achieve its legiti-
mate public purpose. See Lower Village Hydroelec-
tric Assocs., 147 N.H. at 78, 782 A.2d 897. Contrary
to the majority's assertions, this does not mean that
we give the legislature "complete deference," but
rather that we examine whether the adjustment of
contract rights is reasonable and appropriate to the
public purpose underlying the Act. See Keystone Bi-
tuminous Coal Assn. v. DeBenedictis, 480 U.S. 470,
505, 107 S.Ct. 1232, 94 L.Ed.2d 472 (1987) (holding
that "the fmding of a significant and legitimate public
purpose is not, by itself, enough to justify the im-
pairment of contractual obligations"; rather, the court
"must also satisfy itself that the legislature's adjust-
ment of the rights and responsibilities of contracting
parties is based upon reasonable conditions and is of
a character appropriate to the public purpose justify-
ing the legislation's adoption" (quotations and brack-
ets omitted)).
In analyzing the reasonableness of the legislation,
courts have focused upon such as factors as whether:
(1) the law meets an emergency need; (2) the law was
enacted to protect a basic societal interest, rather than
a favored group; (3) the law is appropriately tailored
to the targeted emergency; (4) whether the imposed
conditions are reasonable; and (5) whether the law is
limited to the duration of the emergency. See Home
Bldg. & L. Assn. v. Blaisdell, 290 U.S. 398, 444-47,
54 S.Ct. 231, 78 L.Ed. 413 (1934); Ken Moorhead
Oil Co., Inc. v. Federated Mut. Ins., 323 S.C. 532,
476 S.E.2d 481, 488-89 (S.C.1996); Kimball v. NH.
Bd. of Accountancy, 118 N.H. 567, 570, 391 A.2d
888 (1978). An emergency need not exist, however,
before a state may enact a law that *676 impairs a
private contract. See Energy Reserves Group, 459
U.S. at 412, 103 S.Ct. 697 (observing that, to be le-
gitimate, "the public purpose need not be addressed
to an emergency or temporary situation"); Allied
Structural Steel, 438 U.S. at 249 n. 24, 98 S.Ct. 2716.
In our opinion, the Act easily survives scrutiny under
this deferential standard. The Act was passed to pro-
tect a basic **663 societal interest-affordable health-
care for underserved populations. "The protection of
Exhibit D
992 A.2d 624
159 N.H. 627, 992 A.2d 624
(Cite as: 159 N.H. 627, 992 A.2d 624)
public health ... serves broad societal interests, not
merely some 'favored' special interest group." Ken
Moorhead Oil, 476 S.E.2d at 489.
In our view, the Act is a reasonable decision by the
legislature that it can better meet this need by trans-
ferring funds to programs that provide such access
instead of retaining them in the JUA's coffers. The
legislature has determined that the funds held by the
JUA in its account "are significantly in excess of the
amount reasonably required to support its obligations
as determined by the insurance commissioner." Laws
2009, 144:1. This determination is supported by evi-
dence in the record, which includes an actuarial study
that shows that the transfer will not jeopardize the
JUA's solvency. The legislature has further deter-
mined that "the purpose of promoting access to
needed health care would be better served through a
transfer of the excess surplus ... to the general fund,"
than by retaining the funds in the JUA's account. Id.
As the majority concedes, "the Act expediently ac-
complishes the legislature's stated purpose."
Additionally, in our view, the State's adjustment of
the policyholders' contractual rights (to the extent that
any has occurred) to allow for the transfer of funds
from the JUA to the general fund to support programs
that provide access to healthcare serves this public
purpose. Particularly given the actuarial study show-
ing that transfer of the funds would in no way jeop-
ardize the JUA's solvency, we believe that the State
has reasonably adjusted the policyholders' contractual
rights. Accordingly, we conclude that the impairment
of the policyholders' contractual rights, to the extent
that any has occurred, is amply justified by the public
purposes served by the Act, and also that the legisla-
ture has reasonably adjusted the contract rights at
issue. See Keystone Bituminous Coal Assn., 480 U.S.
at 505, 107 S.Ct. 1232.
Although "[c]ourts are required to defer to the legis-
lature's judgment concerning the necessity and rea-
sonableness of economic and social legislation," the
majority declines to do so. Nieves, 819 F.2d at 1249
(emphasis added). The majority contends that sub-
stantial judicial deference is unwarranted because the
Act transfers money from the JUA to the general
fund. But see Mercado-Boneta, 125 F.3d at 16 n. 8
(noting, "even where public contracts are at issue,
some deference is due a legislature"); Local Div. 589,
Etc. v. Comm. of Mass., 666 F.2d 618, 642 (1st
© 2010 Thomson Reuters. No Claim to Orig. US Gov. Works.
Page 35
Cir.1981) (even where public contracts are involved,
courts are not required to *677 "reexamine de novo
all the factors underlying the legislation and to make
a totally independent determination" regarding the
necessity and reasonableness of the law), cert. de-
nied, 457 U.S. 1117, 102 S.Ct. 2928, 73 L.Ed.2d
1329 (1982); but cf. United States Trust Co., 431
U.S. at 25, 97 S.Ct. 1505 (holding, "[t]he Contract
Clause is not an absolute bar to subsequent modifica-
tion of a State's own financial obligations"). This
transfer to the general fund, the majority reasons, is
not "broad-based social or economic regulation di-
rected to meet a societal need," but a sign that the
State's self-interest is at stake, thus, justifying review-
ing the Act under a heightened standard.
In our view, the majority's reasoning is flawed in
several respects. First, we fail to see how an act de-
signed to support programs that promote public ac-
cess to health care is not "broad-based social or eco-
nomic regulation directed to meet a societal need."
The legislature's justification for the Act, to support
health care programs for underserved populations,
**664 serves public interests. It stands "in stark con-
trast to the narrowly focused, private interest-oriented
law" that the United States Supreme Court struck
down in Allied Structural Steel, 438 U.S. at 248-49,
98 S.Ct. 2716. Mercado-Boneta, 125 F.3d at 15. The
law at issue in Allied Structural Steel applied only to
certain private employers with voluntary private pen-
sion plans and only when such employers closed their
Minnesota offices or terminated their pension plans.
Allied Structural Steel, 438 U.S. at 248, 98 S.Ct.
2716. As such, the law had an "extremely narrow
focus" and was not enacted "to protect a broad socie-
tal interest rather than a narrow class." Id. at 248,
249, 98 S.Ct. 2716. By contrast, here, the State "was
not legislating on behalf of private interests when it
enacted [the Act], and sought only to protect the le-
gitimate interests of the public" in having affordable
health care. Mercado-Boneta, 125 F.3d at 15.
The majority concludes that the Act is not broad-
based social or economic regulatory legislation be-
cause of its "funding scheme," which the majority
describes as "singularly target[ing] for transfer to the
State's general fund discrete funds generated by pre-
miums paid by a discrete class of private parties."
Regardless of its funding mechanism, the Act consti-
tutes broad-based social or economic legislation be-
cause it was enacted "to protect a broad societal in-
Exhibit D
992 A.2d 624
159 N.H. 627, 992 A.2d 624
(Cite as: 159 N.H. 627, 992 A.2d 624)
terest rather than a narrow class." Allied Structural
Steel, 438 U.S. at 249, 98 S.Ct. 2716.
Moreover, the record refutes the majority's assertion
that the funds were "generated by premiums paid by
a discrete class of private parties." According to the
deputy commissioner of the insurance department,
while the excess surplus has resulted, in part, from
the accumulation of premiums, it has also resulted
from the accumulation of "investment income free of
taxes and assessments paid by private insurers." The
JUA is exempt from federal income tax and New
Hampshire premium tax. It is also exempt from and
has never paid the New Hampshire business profits
tax, *678 business enterprise tax, and the interest and
dividends tax. It is also exempt from assessments
levied upon private insurers that fund the insurance
department.
Second, we believe that the majority construes the
term "self-interest" too broadly. Under the majority's
construction of the term, "virtually every state statute
that impairs a purely private contract would be sub-
ject to heightened scrutiny." Ken Moorhead Oil Co.,
476 S.E.2d at 488. "Presumably, every state statute is
intended to serve [the State's] self-interest; otherwise
the General [Court] would not enact the legislation in
the first place." Id. The self-interest to which the
United States Supreme Court has referred "is the
state's interest as a party to a contract, rather than to
its interests as a sovereign seeking to further impor-
tant public policies." Id • see Keystone Bituminous
Coal Assn., 480 U.S. at 505, 107 S.Ct. 1232 (United
States Supreme Court "has repeatedly held that
unless the State is itself a contracting party, courts
should properly defer" to the legislature's judgment
(quotation omitted)); Peick v. Pension Ben. Guar.
Corp., 724 F.2d 1247, 1270 (7th Cir.1983) (holding
that there is "no merit" to the argument that height-
ened scrutiny applies to legislative impairment of
private contracts; such scrutiny applies only when the
State is a contracting party), cert. denied, 467 U.S.
1259, 104 S.Ct. 3554, 82 L.Ed.2d 855 (1984); Lower
Village Hydroelectric Assocs., 147 N.H. at 78, 782
A.2d 897 (judicial deference required unless State is
contracting party). When, as in this case, "the state
has in fact altered none of its own financial obliga-
tions," then the legislature's assessment of whether
the **665 legislation is reasonable and necessary
"deserves significant deference because the state is
essentially acting not according to its economic inter-
© 2010 Thomson Reuters. No Claim to Orig. US Gov. Works.
Page 36
ests, but pursuant to its police powers." Mercado-
Boneta, 125 F.3d at 16 (emphasis added).
We disagree with the majority's conclusion that the
Act "inures to the State's financial benefit." Unlike
the majority, we give credence to the fact that the Act
specifically earmarks the transferred funds to support
programs that provide underserved populations with
access to needed healthcare. Under such a scheme, "it
[is] the public welfare, not the [State's] bank account,
that [stands] to [gain]." Id. Contrary to the majority's
implication, there is no evidence in the record that the
legislature enacted the Act because of "an ill-motive
of political expediency or unjustified welching."
Buffalo Teachers, 464 F.3d at 373.
Third, even if a heightened standard of review were
justified in this case, we disagree with the majority's
application of this standard. "[L]ess deference does
not imply no deference." Id. at 370. Even when the
State's purported self-interest is at stake, courts are
not required "to reexamine all of the factors underly-
ing the legislation at issue and to make a de novo
determination whether another alternative would
have constituted a better statutory solution to a given
problem." Id • see *679Local Div. 589, Etc., 666 F.2d
at 642. "Nor is the heightened scrutiny to be applied
as exacting as that commonly understood as strict
scrutiny." Buffalo Teachers, 464 F.3d at 371.
Finally, today's decision leaves a number of unre-
solved issues, including:
• What now becomes of the $110 million surplus?
• If it is to be distributed "to such health care pro-
viders covered by the [JUA]," does that include
both current and past policyholders, even if, as the
majority holds, only "current policyholders" have
viable Contract Clause claims?
• Once the policyholders' policies expire, does their
supposed vested right to the $110 million surplus
also expire? If so, does this mean that, as the ma-
jority suggests, if new legislation were passed that
became effective upon issuance of the policyhold-
ers' new policies, the legislature could require the
JUA to transfer the $110 million surplus without
violating the policyholders' constitutional rights?
Exhibit D

992 A.2d 624 Page 37
159 N.H. 627, 992 A.2d 624
(Cite as: 159 N.H. 627, 992 A.2d 624)

• What effect will this decision have on the JUA's
exemption from both State and Federal taxes?
• If it is distributed to policyholders, what impact
will this have on the private medical malpractice
insurance market in New Hampshire?
III. Part I, Article 12
Our determination that the policyholders lack vested
rights to the surplus itself or to its use for their benefit
is dispositive of their claim that the Act constitutes a
"taking." The New Hampshire Constitution provides
that "no part of a man's property shall be taken from
him ... without his own consent." N.H. CONST. pt . I,
art. 12. In the absence of a vested property right, no
taking for purposes of Part I, Article 12 of the State
Constitution has occurred. See Adams v. Bradshaw,
135 N.H. 7, 14, 599 A.2d 481 (1991), cert. denied,
503 U.S. 960, 112 S.Ct. 1560, 118 L.Ed.2d 208
(1992). Accordingly, because the policyholders lack
vested rights, the Act does not operate as a "taking"
for the purposes of Part I, Article 12.
IV. Conclusion
the judiciary that the citizens have delegated the
power to make the law." Chu, 569 N.Y.S.2d 364, 571
N.E.2d at 690 (Hancock, J., dissenting) (citation
omitted); see Appeal of Bosselait, 130 N.H. 604, 613,
547 A.2d 682 (1988) (observing, "legislation merely
regulating economic benefits and burdens ... is re-
viewable under the rational basis criterion when chal-
lenged ... under the due process clause"), cert. de-
nied, 488 U.S. 1011, 109 S.Ct. 797, 102 L.Ed.2d 788
(1989); Petition of Kilton, 156 N.H. 632, 645, 939
A.2d 198 (2007) (noting, "[m]atters of public policy
are reserved for the legislature"). The majority's opin-
ion is contrary to the rule that "[t]he wisdom, effec-
tiveness, and economic desirability of a statute is not
for us to decide." Grievance Committee, 120 N.H. at
863, 424 A.2d 816. We, therefore, cannot join it, and
respectfully dissent.
N.H.,2010.
Tuttle v. New Hampshire Medical Malpractice Joint
Underwriting Association
159 N.H. 627, 992 A.2d 624
END OF DOCUMENT

We believe that the majority's conclusion that the Act

violates Part I, Article 23 **666 of the State Consti-
tution is erroneous as a matter of law. We also be-
lieve that by failing to defer to the legislature's judg-
ment that the Act is *680 a reasonable and necessary
measure to further an indisputably legitimate public
purpose, the majority encroaches upon legislative
decision-making.

"If there is one rule that is now ingrained in the doc-

trine of judicial review of legislative enactments it is
this: that an act of the Legislature is presumed to be
constitutional and may be struck down only when it
is proven to be unconstitutional beyond a reasonable
doubt." Chu, 569 N.Y.S.2d 364, 571 N.E.2d at 690
(Hancock, J., dissenting); see N.H. Assoc. of Counties
v. State of N.H., 158 N.H. 284, 288, 965 A.2d 1012
(2009). "Particularly since the Supreme Court's aban-
donment of the Lochner [v. New York 198 U.S. 45,
25 S.Ct. 539, 49 L.Ed. 937 (1905)] era concept of
economic due process as a justification for striking
down regulatory legislation, courts have been mind-
ful of this rule in recognition of the basic principle
that under the doctrine of separation of powers, it is
to their elected representatives, not to the members of

© 2010 Thomson Reuters. No Claim to Orig. US Gov. Works.