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Pa. Supreme Court backs Woznicki team on Penn Treaty

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Updated version: Shortly after the original version of this story appeared, the Pennsylvania department responded with a statement, which is included at the end of this article.

Members of the Pennsylvania Supreme Court have decided 5-0 to keep the Pennsylvania Insurance Department from liquidating Penn Treaty Network America Insurance Company and an affiliate.

See also: Penn Treaty rehabilitator posts update

A lower-level state court, the Commonwealth Court, ruled in favor of a team of challengers led by Eugene Woznicki, the chairman of the Penn Treaty board and a longtime Penn Treaty executive, in 2012. The Supreme Court upheld the lower-court ruling.

Penn Treaty helped create the modern U.S. long-term care insurance industry. It ran into financial problems when regulators found that the company’s LTCI obligations were outstripping the company’s ability to support the LTCI obligations.

State insurance regulators put the company in rehabilitation in 2009. At this point, the company is still generating the revenue it needs to pay claims, the Supreme Court says in an opinion explaining its ruling.

In a separate legal action, the Woznicki team and Pennsylvania insurance regulators are working on a Penn Treaty rehabilitation plan. A court held a hearing on a proposal July 13.

Back in 2012, a state court blocked an effort by the Pennsylvania department to turn rehabilitation proceedings for Penn Treaty and the affiliate, American Network Insurance Company, into liquidation proceedings, based partly on concerns that liquidation would hurt the LTCI policyholders, and in part on concerns that regulators had not been entirely candid with the court.

See also: Court Blocks Liquidation of Penn Treaty

The lower-court judge said the commissioner had erred by putting off a move to liquidate the companies, and by treating the rehabilitation as a conservatorship to give him more time to prepare for liquidation.

Normally, a court should give deference to a statutory rehabilitator’s conversion petition, but, in this case, because state regulators originally put off asking for liquidation, even though they seemed to have grounds for liquidation, and because moving forward with rehabilitation efforts does not seem likely to hurt policyholders, the court will not do anything to keep the lower court from considering the rehabilitation plan proposal, the Supreme Court says.

See also: Could state regulators be ganging up on Penn Treaty?

But the current acting insurance commissioner is not the commissioner who originally asked the courts to put Penn Treaty and its affiliate in rehabilitation, and judicial review of the rehabilitation plan proposal “should proceed subject to a more deferential overlay relative to the new acting commissioner,” the court says.

Two of the court’s seven justices did not participate in the ruling, and one issued a concurring opinion emphasizing the need for deference to a rehabilitator’s views.

Shortly after the original version of this story appeared, the Pennsylvania department responded with a statement. Below is an excerpt:

“While we believe the outcome of the Supreme Court’s decision provides helpful clarification on the applicable law in cases such as this, our focus remains on resolving the underlying matter,” the department said in the statement. “When the department appealed to the Supreme Court after the Commonwealth Court’s earlier decision, we simultaneously began drafting a rehabilitation plan. This plan was first submitted to the Commonwealth Court in April 2013 and again in October 2014 as an amended version. We expect a final Commonwealth Court decision on the plan in the next few months and we are hopeful that the court will approve the plan so we may provide options and certainty to Penn Treaty and American Network policyholders.”