In re Senior Health Ins. Co. of Pa.

310 A.3d 26

IN RE: SENIOR HEALTH INSURANCE COMPANY OF PENNSYLVANIA (In Rehabilitation)

Appeal of: the Superintendent of Insurance of the State of Maine, the Commissioner of Insurance of the Commonwealth of Massachusetts and the Insurance Commissioner of the State of Washington

No. 71 MAP 2021

Supreme Court of Pennsylvania.

Argued: September 15, 2022

Decided: June 20, 2023

Opinion Filed: January 29, 2024

Appeal from the Order of the Commonwealth Court at No. 1 SHP 2020 dated August 24, 2021, Mary Hannah Leavitt, Judge

Perri Ann Babalis, Esq., Kimberly C. Bailey, Esq., Geoffrey R. Bonham, Esq., Jim Brader, Esq., Bryan E. Brock, Esq., Andrew J. Bruck, Esq., J. Van Lear Dorsey, Esq., Elizabeth Kelleher Dwyer, Esq., Gregory Elam, Esq., Lynette Evans, Esq., Thomas M. Fisher, Esq., John M. Formella, Esq., Kevin Gaffney, Esq., Erin Hunter, Esq., Christina Kelsey, Esq., Adam Kenworthy, Esq., Jared Kosky, Esq., Jeff Landry, Esq., Frank A. Marnell, Esq., Elizabeth Baker Murrill, Esq., Ole Olson, Esq., Johannes Palsgraaf, Esq., Theodore Rokita, Esq., David S. Rubin, Esq., Jeffrey P. Rude, Esq., M. Denise Stanford, Esq., Lawrence Wasden, Esq., Richard B. Wicka, Esq., Joan M. Wilson, Esq., Karima Woods, Esq., Richard B. Word, Esq., David Yost, Esq., James Joseph Lawless Jr., Esq., Butler Snow LLP, for Amicus Curiae State Insurance Regulators.

Stephen G. Harvey, Esq., Steve Harvey Law LLC, J. David Leslie, Esq., for. Appellant Maine Superintendent of Ins., Massachusetts Commissioner of Ins. and Washington Ins. Commissioner.

Michael John Broadbent, Esq., Dexter Ryan Hamilton, Esq., Haryle Kaldis, Esq., Cozen O’Connor, Preston M. Buckman, Esq., Pennsylvania Insurance Department, Patrick Herrera Cantilo, Esq., Cantilo & Bennett, LLP, Leslie Miller Greenspan, Esq., Tucker Law Group, LLC, Kathryn McDermott Speaks, Esq., Pennsylvania Insurance Department, for Appellees Senior Health Insurance Company of Pennsylvania and Michael Humphreys, Acting

Insurance Commissioner of the Commonwealth of PA.

Andrew M. Buttaro, Esq., Benjamin J. Cordiano, Esq., Morgan Lewis & Bockius, L.L.P., Harold S. Horwich, Esq., John P. Lavelle Jr., Esq., Morgan, Lewis & Bockius LLP, for Appellees Anthem, Inc., et al.

Joseph M. Donley, Esq., Scott Brandon Galla, Esq., Clark Hill PLC, for Appellee ACSIA Long Term Care, Inc., et al.

James Steven Gkonos, Esq., Saul Ewing Arnstein & Lehr LLP, for Appellee Primerica Life Insurance Company.

Caryn M. Glawe, Esq., Faegre Baker Daniels, LLP, Jane Dall Wilson, Esq., for Appellee National Organization of Life and Health Insurance Guaranty Associations.

Dorothy Alicia Hickok, Esq., Faegre Drinker Biddle & Reath LLP, for Appellee National Organization of Life and Health Insurance Guaranty Associations.

James F. Lapinski, Pro Se.

Georgianna Parisi, Pro Se.

BAER, C.J., TODD, DONOHUE, DOUGHERTY, WECHT, MUNDY, BROBSON, JJ.

OPINION

CHIEF JUSTICE TODD

On June 20, 2023, this Court issued a per curiam order affirming the order of the Commonwealth Court approving the Second Amended Plan of Rehabilitation for Senior Health Insurance Company of Pennsylvania ("SHIP") filed by the Insurance Commissioner of the Commonwealth of Pennsylvania in the capacity as the Statutory Rehabilitator of SHIP. We now set forth the rationale for our order.

I. Factual and Procedural Background

A. SHIP’s Insolvency and Rehabilitation

During the last 30 years, insurance companies such as SHIP, which is a Pennsylvania domiciled insurance company, sold "long term care policies" to purchasers in a number of states, including the Commonwealth of Pennsylvania. Such policies, as a general matter, promised the purchaser that, in exchange for paying a premium, if they became disabled and in need of long-term care in a skilled nursing facility, the cost of such care would be provided to the policyholder for the duration of their stay in such facilities.¹ However, regrettably, the premiums charged for many of these policies proved inadequate to cover the high cost of such care, and companies which wrote them, such as SHIP, began to face deteriorating financial conditions because they were paying out more under the policies which they had written than the premiums they were collecting could cover.

SHIP sold long term care policies from the 1980s until the early 2000s in 46 states, including Pennsylvania, as well as the District of Columbia and the U.S. Virgin Islands. However, in 2003, SHIP was forced into bankruptcy because of poor investments, in addition to the fact that the total outstanding liabilities on the policies it sold far exceeded its assets and ability to pay promised benefits. Under the supervision of the federal bankruptcy court, SHIP went into "run-off" status, under which it stopped selling any new long-term care policies and began to "run off" the policies it had already issued — that is to say, it attempted to pay benefit claims under the extant policies. In 2008, SHIP’s ownership was formally transferred to a non-profit organization, the Senior Health Care Oversight Trust ("Trust"), which has managed the assets of SHIP and orchestrated the run-off process since that time. In re SHIP, 266 A.3d at 1147.

In January 2020, because SHIP’s financial woes continued to mount, and because it was having great difficulty paying on the policies it had already issued, the Pennsylvania Insurance Department, through its then-Commissioner Jessica Altman, applied to the Commonwealth Court for an order of rehabilitation pursuant to Article V of "The Insurance Department Act of 1921," 40 P.S. §§ 221.1-221.63 ("Insurance Act"),² on the basis that SHIP was insolvent, the Trust and SHIP’s directors consented to the rehabilitation.³

On January 29, 2020, the Commonwealth Court issued an order granting the petition and, consistent with the Insurance Act, appointed the Commissioner as "statutory rehabilitator."⁴ The Rehabilitator, in turn, appointed a special Deputy Rehabilitator, Patrick Cantilo, an expert in long-term insolvency matters, to study SHIP’s financial condition, to manage the overall operations of the company, and to implement corrective measures to stabilize its precarious financial state.

The case was assigned to President Judge Emerita Mary Hannah Leavitt of the Commonwealth Court who, sitting in a single judge capacity, has exercised and continues to exercise judicial oversight of these rehabilitation proceedings. Through evidence presented to that court, the following breakdown of SHIP’s outstanding policies and liabilities, which prompted the Rehabilitator to commence the rehabilitation process, was established: As of December 31, 2020, SHIP had 39,148 outstanding active policies, almost 10 percent of which are held by Pennsylvanians (3,862). In the states represented by outside regulators — the Maine Superintendent of Insurance, the Massachusetts Commissioner of Insurance, and the Washington Insurance Commissioner, collectively "Regulators," — Maine has 316 residents with such policies, Massachusetts has 296, and Washington has 1,287.⁵

The average age of a SHIP policyholder is 86, and 47 percent of the policyholders pay no premiums because they are in the "premium waiver" status described above, or because the policyholders previously elected a "non-forfeiture" option which permitted them to discontinue paying premiums in exchange for a period of coverage that equaled the amount of premiums paid, less benefits already received. The Rehabilitator estimated that, if no action was taken, by the year 2050 the value of claims by current policyholders will rise to $3 billion, while the amount of premiums SHIP would be able to collect would only be $230 million. The Rehabilitator calculated that, at the time the application for rehabilitation was filed, SHIP’s liabilities on its outstanding policies already exceeded its revenues and assets by $1.2 billion dollars, a difference the parties refer to as the "Funding Gap." In re SHIP, 266 A.3d at 1147-48.

The Rehabilitator submitted to the court an initial proposed rehabilitation plan on April 22, 2020. Thereafter, the Commonwealth Court issued a case management order ("CMO") which directed the Rehabilitator to advise "Interested Parties" — which the order defined, inter alia, as including "the insurance regulatory authorities in each jurisdiction in which SHIP issued policies that remain in effect" — of the filing of the proposed plan and the procedures to offer comments on it, and to participate in the hearing the court would be conducting to determine whether it should be adopted. In re SHIP, 1 SHP 2020 (Pa. Cmwlth. filed June 12, 2020) (order), at 1-2. The CMO also provided that any commenter who intended to participate in the hearing was required to apprise the court of their comments, and to file a formal application with the Commonwealth Court to intervene in the proceeding. Id. at 3-4. Thereafter, pursuant to Pa.R.A.P. 3775,⁶ regulators from Maine and Massachusetts filed a joint application for intervention, which the court granted by order issued September 15, 2020, and regulators from the state of Washington, who had filed a separate application for intervention, were joined with them as intervenors, via an order issued September 18, 2020.⁷

Other entities and persons which applied for and were granted intervenor status by the court are Appellees, a coalition of health insurers including, inter alia, Anthem, parent of Highmark Insurance, United Health Care, and Blue Cross Blue Shield of New Jersey (collectively, "Health Insurers"), the National Organization of Life and Health Guaranty Associations ("NOLHGA"), and an individual, James Lapinski, who is both a SHIP policyholder and insurance agent. All intervenors submitted both formal and informal comments on the proposed plan.

After reviewing these comments, the Rehabilitator ultimately filed a Second Amended Plan ("Plan") with the court on May 3, 2021. The Rehabilitator constructed this Plan based on the conclusion that there was a historic premium...