N.H. Supreme Court rules LGC must repay millions to member communities
The former Local Government Center must repay $33 million that it improperly withheld from member communities and restore an additional $17.1 million that it illegally transferred between its two risk pools, the New Hampshire Supreme Court ruled yesterday.
That decision will have an immediate impact on the operation of the organization, which was restructured last year into two separate risk pools: HealthTrust and Property-Liability Trust.
In reaction to the court’s ruling yesterday, the risk pools entered into a debt recovery agreement under which Property-Liability Trust will transfer its assets and liabilities to HealthTrust, allowing it to repay $17.1 million and continue providing insurance to its members. Its staff members will join HealthTrust.
The Supreme Court upheld key findings against the LGC by the state Bureau of Securities Regulation, bringing some closure to a lengthy legal battle over the organization’s use of surplus funds.
The former LGC has already returned the $33 million to its member communities under an order that was upheld by the Supreme Court.
Andru Volinksy, special counsel to the Bureau of Securities Regulation, said the state is pleased with the decision.
“It vindicated all of the analysis and hard work that the bureau’s gone through for the last five years,” he said.
Some aspects of the bureau’s 2012 order were not upheld. Risk pools like the LGC must keep an appropriate level of reserve funds, but state regulators cannot set a specific level. The court also ruled that the risk pools cannot be required to purchase reinsurance.
HealthTrust Executive Director Peter Bragdon said he is happy the court decision will allow all parties to move forward.
“I think it resolves a lot of issues, clarifies a lot of issues, and I think it gives all the risk pools . . . a clear set of rules to go by,” he said. “And I think a little clarity is always good. So hopefully it allows people to focus on the future now, and not have a lot of time consumed on litigation issues.”
The Bureau of Securities Regulations, which is part of Secretary of State Bill Gardner’s office, regulates public risk pools and began investigating the LGC in 2009.
The LGC, which provided insurance to local governments, was dissolved last year. The two businesses it ran, HealthTrust and Property-Liability Trust, still provide insurance to cities, towns and school districts across the state by grouping them into risk pools.
Bragdon, also a Republican state senator, became executive director of the LGC last summer. After it was restructured into separate risk pools, Wendy Lee Parker became executive director of Property-Liability Trust.
Property-Liability Trust released a statement yesterday that called the court decision disappointing, but said the debt repayment agreement will provide insurance coverage to its members through June 30, 2016.
“Members are our priority in deciding our next steps,” said Dennis Pavlicek, chairman of the risk pool’s board and Newbury’s town administrator. “The PLT board believes that in light of the Supreme Court’s opinion, this plan allows for a smooth transition and provides the concrete direction and certainty our members need and expect.”
Yesterday’s decision was based on an LGC appeal of a 2012 order from the Bureau of Securities Regulation. A hearings officer found the LGC had illegally subsidized its workers’ compensation business with revenue from its health insurance business. Those two businesses are now Property-Liability Trust and HealthTrust, respectively. The order included repaying $33 million to member communities and $17.1 million from Property-Liability Trust to HealthTrust.
The Supreme Court heard oral arguments in LGC’s appeal in November.
Bragdon said he felt the high court’s decision gave the risk pools “the managerial flexibility we’re looking for,” by not upholding a specific ratio of reserve funds set by the securities bureau.
But Volinsky said the court still found that the LGC’s actions were illegal, which will allow future regulation of risk pools.
“The court did us a huge favor in that they said that (hearing officer Don Mitchell’s) analysis that resulted in the return of the $50 million was proper,” Volinksy said. “And that means that the same analysis may be legally applied every year going forward, and to every risk pool.”
Dave Lang, a longtime critic of the LGC and president of the Professional Fire Fighters of New Hampshire, said yesterday that he was pleased with the court’s decision.
“No longer is it acceptable in the state of New Hampshire that money in a risk pool environment goes unregulated, which I think is huge,” Lang said. “There has to be transparency. There has to be oversight. And this decision goes a long way to ensuring that.”
Not every aspect of the legal fight was settled yesterday. Legal fees have not yet been awarded to the state; the court will allow both sides to litigate that matter based on the outcome of yesterday’s decision.
Justice Jim Bassett recused himself from the Supreme Court case. Several attorneys from his old law firm, Orr & Reno, were involved in the early stages of the case. The decision was unanimous among the four remaining justices.