A team of litigators at Ballard Spahr persuaded the Commonwealth Court of Pennsylvania to reject the Pennsylvania Insurance Department's (PID) efforts to liquidate two long-term care insurance companies and send their policyholders to the state guaranty fund system. The ruling marks the first time a petition to liquidate an insurer was defeated in the Keystone State. Nationwide, petitions filed by state insurance departments are routinely granted.

The companies—Penn Treaty Network America Insurance Company and American Network Insurance Company—issued long-term care insurance policies nationwide. The companies were limited by regulators in certain states from increasing premium rates on policies sold before 2002, despite the fact that the rates requested were actuarially justified. Actuarial projections suggest these justified rate increases are necessary for the companies to be assured of meeting their obligations far into the future.

The companies' boards of directors consented to rehabilitation, and in 2009 the Commonwealth Court ordered the PID to rehabilitate them. When the PID instead sought to liquidate the companies, their boards authorized their chairman, Eugene J. Woznicki, to intervene and oppose liquidation. He and the companies' corporate parent, Penn Treaty American Corporation, turned to a Ballard Spahr litigation team headed by Douglas Y. Christian, leader of the firm's insurance practice.

The ruling was a decisive victory for our clients and for the companies' policyholders. In a 164-page opinion, Judge Mary Hannah Leavitt concluded that the PID had not undertaken a meaningful effort to rehabilitate the companies and, to the contrary, acted to frustrate rehabilitation. The court ruled that policyholders would face an increased risk of loss in liquidation because their policy benefits would be capped at the guaranty fund limits. 

The court ordered the PID to collaborate with our clients and submit to the court within 90 days a rehabilitation plan that addresses and eliminates the "inadequate and unfairly discriminatory premium rates." The court also ordered the payment of our clients' costs and expenses, including legal and actuarial fees.

In recent years, many state insurance departments, including Pennsylvania's, have denied actuarially justified rate increases despite proof that they were needed to maintain the financial health of the company and the policies. According to the American Association for Long-Term Care Insurance, more than 10 million Americans have purchased long-term care insurance policies. But many companies have decided not to sell such policies because of their inability to obtain necessary premium rate increases.

Said our client, Mr. Woznicki: "As we have said all along, these companies can be properly rehabilitated with a sincere and collaborative effort that includes appropriate premium rate increases and other options. We hope this decision signals a turnaround for the companies as well as the long-term care industry."