Appeal of the Local Government Center, Inc. & a .
165 N.H. 790
| N.H. | 2014Background
- The Local Government Center (LGC) operated pooled risk-management programs: HealthTrust (health), P‑L Trust (property‑liability), and Workers’ Compensation Trust; after a 2003 reorganization LGC centralized control and abolished separate boards.
- HealthTrust was the largest pool, handling hundreds of millions in premiums and large net assets (e.g., ~$86.8M in 2010); LGC set internal reserve targets expressed as RBC ratios and stopped buying certain reinsurance in 2010.
- Between 2003 and 2010 LGC transferred roughly $18.3M from HealthTrust (and smaller amounts from P‑L Trust) to subsidize Workers’ Compensation Trust; a later promissory note for ~$17.1M was interest‑free.
- The New Hampshire Bureau of Securities Regulation (Bureau) prosecuted administrative charges under RSA chapter 5‑B, alleging violations of governance (separate boards/bylaws) and RSA 5‑B:5,I(c) (return of earnings/surplus in excess of amounts required for administration, claims, reserves, and purchase of excess insurance).
- The presiding officer found violations of RSA 5‑B:5,I(b), (c), and (e), ordered re‑establishment of independent boards/bylaws, required HealthTrust to return $33.2M to members and P‑L Trust to return $3.1M (and to repay $17.1M to HealthTrust), imposed prospective limits on retained reserves (15% of claims or RBC 3.0), and awarded Bureau fees; appeal followed.
Issues
| Issue | Plaintiff's Argument (Bureau) | Defendant's Argument (LGC & trusts) | Held |
|---|---|---|---|
| Whether respondents retained more funds than allowed by RSA 5‑B:5,I(c) | Statute requires returning earnings/surplus in excess of amounts required for administration, claims, reserves, and reinsurance; respondents accumulated excess and improperly set high RBC targets and kept undesignated funds | Boards have business‑judgment discretion to set reserve levels and methodologies; enforcement amounted to ad hoc rulemaking and denied due process | Court: RSA 5‑B:5,I(c) precludes unfettered discretion; presiding officer reasonably found improper accumulation and retention; rejection of blanket business‑judgment defense affirmed |
| Whether ceasing purchase of reinsurance violated RSA 5‑B:5,I(c) | Accumulating extraordinary reserves instead of buying reinsurance inflated reserves and violated statute’s limits on retained amounts | No statutory mandate to buy reinsurance; decision is business judgment | Court: In context of excessive reserve accumulation and arbitrary targets, discontinuing reinsurance evidenced violation; factual finding upheld, but later prospective mandate to require reinsurance vacated |
| Whether returning surplus via "rate stabilization" satisfied the statutory "return" requirement | Statute requires return of excess; rate stabilization (multi‑year rate credits) did not equate to returning earnings/surplus in cash/cash equivalents | Rate stabilization is standard practice and members preferred it; statute does not specify form of return | Court: "Return" means give back earnings/surplus; rate stabilization did not meet RSA 5‑B:5,I(c); presiding officer properly required future returns in cash/dividends/equivalents |
| Whether presiding officer could impose specific prospective reserve/reinsurance requirements (RBC 3.0; 15% of claims; mandatory reinsurance) | Bureau sought constraints to prevent recurrence | Respondents argued prospective metrics and mandatory reinsurance exceeded adjudicator's authority and constituted rulemaking | Court: Vacated the presiding officer’s specific numeric reserve and mandatory reinsurance requirements as impermissible modification of statute; but left requirement that reserves be actuarially sound and excess returned |
| Whether ordering repayment of $17.1M for pre‑2010 transfers was retroactive/unconstitutional | Bureau: enforcement of existing statutory duty to return excess applies to past transfers retained in violation | Respondents: Bureau lacked enforcement authority before 2010; forcing repayment is retroactive and impairs vested expectations | Court: No improper retroactivity; statute always required return of excess and repayment enforces existing law, not create new obligations |
| Recusal of presiding officer and award of fees | Bureau relied on statutory enforcement and prevailed; presiding officer’s employment/payment method did not create disqualifying bias | Respondents argued presiding officer had pecuniary incentive and late‑raised recusal claims | Court: Recusal objection waived by late motion; fee award authorized by RSA 5‑B:4‑a but vacated pending recalculation because parts of order were vacated |
Key Cases Cited
- Prof’l Firefighters of N.H. v. Local Gov’t Ctr., 159 N.H. 699 (2010) (background re LGC governance after 2003 reorganization)
- Appeal of Basani, 149 N.H. 259 (2003) (standard of review for administrative fact findings)
- State Employees’ Assoc. of N.H. v. State of N.H., 161 N.H. 730 (2011) (principles of statutory interpretation)
- In re Jack O’Lantern, Inc., 118 N.H. 445 (1978) (agency may not add to or modify statute by adjudication)
- Van der Stok v. Van Voorhees, 151 N.H. 679 (2005) (fee awards should exclude time on unsuccessful, severable claims)
- Appeal of City of Keene, 141 N.H. 797 (1997) (quasi‑judicial impartiality standards)
- Appeal of Hurst, 139 N.H. 702 (1995) (conflict of interest and disqualification principles)