In re Penn Treaty Network America Insurance
119 A.3d 313
| Pa. | 2015Background
- Penn Treaty Network America Insurance Co. (PTNA) and subsidiary American Network Insurance Co. (ANIC) sold underpriced “OldCo” long‑term care policies in the 1990s that produced mounting losses; later “NewCo” policies were profitable.
- From 2001 the Pennsylvania Insurance Department supervised the Companies and pursued corrective plans (rate increases, expense cuts, reinsurance); results were uneven across states and insufficient to restore solvency.
- In January 2009 the Commonwealth Court placed the Companies in rehabilitation with the Insurance Commissioner as statutory rehabilitator; the Commissioner later petitioned to convert rehabilitation to liquidation under 40 P.S. § 221.18(a).
- The Commonwealth Court held lengthy evidentiary hearings with competing actuarial experts; it denied the liquidation petitions in May 2012, finding the Commissioner had not shown futility or substantial increased risk from continued rehabilitation and criticized prior Commissioners’ candor and use of rehabilitation.
- The Pennsylvania Supreme Court reviewed whether judicial review of a Commissioner’s conversion decision should be deferential (abuse‑of‑discretion) or de novo, and whether the Commonwealth Court properly overturned the Commissioner’s liquidation petitions.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Standard of review for Commissioner’s petition to convert rehabilitation to liquidation under § 518(a) | Intervenors: court should apply statutory standards without special deference (no deference). | Commissioner: court should give due deference to Commissioner’s expertise; use abuse‑of‑discretion standard. | Court: apply deferential abuse‑of‑discretion review to the rehabilitator’s decision to seek conversion, though courts may intervene where process was misused. |
| Meaning/scope of "reasonable cause" under § 518(a) | Intervenors: require strong factual showing that rehabilitation is futile or insurer unsalvageable. | Commissioner: "reasonable cause" is a lower threshold tied to futility or substantial increase in risk of loss; decision informed by expertise and evidence. | Court: reasonable cause must be assessed with deference and remain tied to futility and risk‑of‑loss factors. |
| Whether Commonwealth Court properly reversed Commissioner’s liquidation petitions based on its factual findings (candor/misuse) | Intervenors: Commonwealth Court correctly found rehabilitation viable and found misuse and lack of candor, so denial proper. | Commissioner: Commonwealth Court substituted its judgment for Commissioner, failed to apply deferential standard; record supported liquidation. | Court: affirmed Commonwealth Court’s denial but clarified future review must be deferential; declined to disturb lower court’s factual findings here because misuse findings justified review and relief. |
| Effect of guaranty associations and liquidation analysis on decision to convert | Commissioner: liquidation could better protect many policyholders via guaranty association coverage than prolonged, asset‑depleting rehabilitation. | Intervenors: rehabilitation could generate sufficient premium and investment income (with rate increases) to pay claims long‑term. | Court: acknowledged liquidation grounds existed (insolvency) but deferred to Commonwealth Court’s factual determination that immediate liquidation would cause more harm; review of conversion is deferential but not toothless. |
Key Cases Cited
- Koken v. Legion Ins. Co., 831 A.2d 1196 (Pa. Cmwlth. 2003) (discusses deference and judicial review in insurer rehabilitation/liquidation matters)
- Koken v. Villanova Ins. Co., 878 A.2d 51 (Pa. 2005) (per curiam affirmance of Commonwealth Court decision)
- Foster v. Mutual Fire Ins. Co., 614 A.2d 1086 (Pa. 1992) (courts to give great deference to Insurance Commissioner in rehabilitation matters)
- LaVecchia v. HIP of N.J., Inc., 734 A.2d 361 (N.J. Super. Ct. App. Div. 1999) (discusses deference to insurance commissioner in conversion contexts)
- Kentucky Cent. Life Ins. Co. v. Stephens, 897 S.W.2d 583 (Ky. 1995) (courts should follow Commissioner’s liquidation recommendation absent strong contrary showing)