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N.H. high court hears arguments in ex-Local Government Center’s fight with state regulators

The New Hampshire Supreme Court yesterday waded into the long-running legal fight between the former Local Government Center and its state regulator, the Bureau of Securities Regulation.

A key question in the case argued for nearly 40 minutes yesterday: Did an administrative hearing officer in 2012 have the power to determine the LGC’s board made bad decisions and then set new standards for the organization, even if those standards aren’t specified in state law or administrative rules?

“He may have the power to (say) there was unreasonable action, and may have the power to order some other relief, but did he really have the power to set precise standards?” asked Associate Justice Carol Ann Conboy.

The LGC ran two risk pools, HealthTrust and Property-Liability Trust, that provide insurance coverage to local governments including cities, towns and school districts. A corporate reorganization Sept. 1 effectively dissolved the LGC and left the two risk pools as technically independent organizations, though they still share a headquarters in Concord.

The Bureau of Securities Regulation, which is part of Secretary of State Bill Gardner’s office, regulates public risk pools and since 2009 has been investigating the LGC for its business practices. Among other things, the bureau has accused the LGC of retaining too much money instead of refunding it to members and illegally subsidizing its workers’ compensation business with revenue from its health insurance business.

In August 2012, hearing officer Don Mitchell ordered the LGC to, among other things, return money to its members and refund $17.1 million from Property-Liability Trust to HealthTrust.

The LGC appealed Mitchell’s ruling to the Supreme Court. LGC attorney William Saturley argued yesterday that the 2012 order “strays so far from what the statute requires, or the structure of risk pool governance envisions, that it must be undone.”

He said administrative rules and state law don’t set out specific standards for capital reserves and the like, instead giving the LGC’s board of directors authority to determine what is in the group’s best interests.

But Andru Volinsky, special counsel for the securities bureau, argued that the LGC’s board had “conflicting priorities,” and that the administrative hearing process gave it a chance to weigh in on the standards that the officer eventually set.

“In part, the LGC complains they didn’t receive sufficient due process because there was no rule-making. If there were rule-making, they would have been able to submit statements challenging the rule,” Volinsky said. But during the hearing, “Here, they had six, eight months . . . of discovery and experts, a fully invested trial.”

Conboy noted the $17.1 million transfer to Property-Liability Trust, to subsidize the workers’ compensation program with money from the health insurance program, seems to show there was a surplus that could have been refunded to members.

“For me, that’s the nub of the issue,” she told Saturley. “You may be right that the hearing officer was unwarranted in setting particular standards, but I wonder whether the circumstances of this case suggest that there was a breach of obligations here.”

Saturley argued the LGC’s leaders studied the issue and made a legitimate business decision that pooling resources would lower rates for members of both risk pools.

The court last month said the $17.1 million repayment to HealthTrust, due Dec. 1, could be delayed until the case is decided. Saturley said yesterday that requiring Property-Liability Trust to make that payment “is probably going to put it out of business.”

The court didn’t indicate when it would issue a ruling in the case.

Only four of the five justices are hearing the LGC’s appeal. Associate Justice Jim Bassett, an attorney with Orr & Reno before he joined the high court last summer, is recused from the case; several attorneys from his old law firm participated in its early stages.

(Ben Leubsdorf can be reached at 369-3307 or or on Twitter @BenLeubsdorf.)

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