ALBANY, N.Y., February 23 – Domestic medical malpractice insurers would become exempt from certain provisions of the insurance law under certain rate-related conditions if a new bill in the State Senate becomes law.

The bill calls for exemption from certain rehabilitiation and liquidation provisions in cases where the insurers rates fall under the purview of the insurance superintendent.

According to Senator James L. Seward (R/C/I-Chenango), the bills sponsor and Chairman of the Senate Insurance Committee, The amendments contemplated by this bill are intended to augment existing provisions of the insurance law enacted into law to establish a cohesive statutory structure to balance the equities involved where a domestic medical malpractice insurers dominion over its financial condition is limited.

Seward has also sponsored a bill that would force the rates for medical malpractice insurance insurers to be calculated pursuant to sound actuarial principals and within rating parameters.

Seward called the amendments to the bill critical to thefundamental fairness of medical malpractice statutes because they are intended to protect against the possibility that the superintendent might set rates so low as to lead to insurers liquidations. The billpreserves the authority of the superintendent to establish medical malpractice insurance rates, but importantly, Seward said, it requires the superintendent to do so within the carefully constructed guidelines set forth in the insurance rating law provisions.

In 1985, the Legislature enacted several medical malpractice reform measures, some of which involved a section of insurance law which provides that no domestic insurer whose primary liability arises from the business of medical malpractice insurance may be subject to an order of rehabilitation or liquidation for reasons relating to insolvency or impairment of capital or minimum surplus to policyholders. The rationale for this provision was that since the governors reform proposal deferred rate determinations and required that future rate determinations were to take into account the anticipated effects of medical malpractice reforms prior to such reforms actually being quantified, it would be inequitable to have a medical malpractice insurer placed into liquidation since such insurers could exert little or no control over their financial destiny.

The 1985 law was intended to balance the uncertainty of medical malpractice insurer rates with the inherent unfairness of a potential situation where the superintendent might set a medical liability insurance rate that could actually trigger financial problems for medical malpractice liability insurers such that a liquidation scenario could evolve as a consequence, Seward explained.

Subsequently, legislation was enacted in 1986 mandating the superintendent to establish rates for physicians and surgeons medical malpractice insurance at the lowest levels possible consistent with insurer solvency.

Since the law required the rates to be deemed adequate with consideration given to future surcharges added to such rates, and since the established rates were to make no provision for increasing or maintaining surplus, Seward said, it became clear that, over time, the surplus of insurers writing such coverage would be severely impacted. Thus, the limitation upon the power of the superintendent takes on even greater importance as its provision is a critical mechanism through which to promote the stability of a crucial line of insurance in New York.

Seward also said, In addition, this legislation would also add a provision prohibiting the superintendent from seeking an order of rehabilitation or liquidation against a domestic medical malpractice insurer where the insurers financial condition is such that further transaction of business will be hazardous to its policyholders, creditors, or the public, provided that the hazardous condition is principally related to the actions of the superintendent in establishing medical malpractice rates.

Insurance law, which exempts domestic medical malpractice insurers from the superintendents power to suspend the license or limit the premium writing of insurers whose surplus is inadequate in relation to its liabilities, and the insurance law that amended this by adding domestic medical malpractice insurers to the list of insurance companies that are exempt from writing a single risk in excess of 10 percent of its surplus, both recognize that by dint of legislative design, medical malpractice insurers inability to determine their own rates for solvency purposes creates an inherently inequitable situation, said Seward. Consistent with these other provisions of law, this bill is vital to maintaining this concept of fundamental fairness as embedded in the medical malpractice insurance statutory scheme.