***This is an article originally published in The Morning Call by Mark Scolforo of The Associated Press***
A federal judge on Thursday blew a $200 million hole in Pennsylvania’s state budget by throwing out a law that appropriated the surplus from a state-created medical malpractice insurer of last resort.
U.S. District Judge Christopher Conner sided with the Pennsylvania Professional Liability Joint Underwriting Association and declared the 2017 law violated the U.S. Constitution.
Conner said the fund is private property that may not be seized by the government without fair compensation.
The fund, he wrote, “has a perceptible benefit: it assures availability of medical professional liability coverage throughout the commonwealth at no public cost. By the same token, it also has a consequence: the General Assembly cannot claim carte blanche access to the association’s assets.”
The law that authorized the transfer was the annual amendments to the Fiscal Code, a critical part of the $32 billion budget. The wider implications of the Fiscal Code’s fate were not immediately clear.
House Republican spokesman Steve Miskin said they are reviewing their options, “especially in light of what appears to be an absolutely overly broad order — that goes way beyond the legal [scope] of the case.”
The fund consists of money from policyholder premiums and investment income and is managed by a board of directors. A lawyer for the association declined to comment.
The $200 million transfer law passed by state lawmakers and signed by Democratic Gov. Tom Wolf on Oct. 30 cited a decline in the “nature and amounts” of paid claims as justification for drawing down the fund.
The transfer into the state’s general fund has never taken place, as the association obtained an injunction from Conner in November.
Wolf spokesman J.J. Abbott called the transfer “one of the many mechanisms passed by the General Assembly and signed into law to eliminate the deficit.” He said the administration was reviewing the decision.
Conner said the association’s function is essentially private, an insurance company at its core.
“It does not `exist wholly to serve the state,’ nor is it engaged in work otherwise tasked by statute to the state’s insurance commissioner,” Conner wrote. “That the association’s private operations work an incidental public benefit does not render its function a public one.”
The association was created by the state in 1975 in the face of a medical malpractice crisis. It currently insures about 250 policyholders, with the typical policy lasting one year and having a limit of $500,000 per claim and aggregate limits of $1.5 million for individuals and $2.5 million for hospitals.
At the end of 2016, its surplus was just over $268 million.