The New Jersey Department of Banking and Insurance has filed legal proceedings to begin the process of taking over the management of MIIX Insurance Co., once the state's largest medical malpractice insurance carrier, which is now winding down its business in the state.
The state attorney general's office Tuesday filed in Mercer County Superior Court Chancery Division on behalf of the department an application for an order to show cause why the carrier should not be placed in rehabilitation. The state also is asking the court to order a ban on the filing of any new lawsuits against the company without the permission of the department or the court.
Peter Hart, assistant director of the division of insurance for the state regulatory agency said today that an unaudited financial report for the second quarter of 2004 filed by the company with the state earlier this week triggered the legal action.
Donald Bryan, the division director, said the financial position of the company has been eroding to the point that the state deemed it to be in "hazardous financial condition."
Bryan said the state has not moved to stop payment of insurance claims, "We just want to understand better the ability of the company to pay future claims."
Under New Jersey law, he said, policyholders have a preferential position in claims against the company's assets, and the state wants to be in a position to protect the assets for that purpose. "In order to do that, we need to be in there."
Bryan said he expects the judge to rule on the motion within a few days.
Stung by successive net losses of $36.5 million in 2000, $157.6 million in 2001 and $116 million in 2002, the company stopped writing new policies in 2002 and entered into a period of "rolloff" in which it began winding down its business and paying off residual claims. Also that year, MIIX went about setting up an independent, privately held physician-owned company, MIIX Advantage, which today covers about 3,235 physicians, according to a Modern Physician survey of physician-owned medical malpractice insurers.
The MIIX Group, which is a publicly traded stock company, has management contracts to run both MIIX Advantage and MIIX Insurance.
In an interview in the July/August 2002 issue of New Jersey Medicine, the peer-reviewed journal of the Medical Society of New Jersey, Patricia Costante, chairman and chief executive officer of the MIIX Group, said MIIX Isurance insured 9,000 physicians.
At the time, the company controlled 35% to 40% of the state medical malpractice insurance market and was New Jersey's largest carrier, Hart said.
The state also asked the court to keep in place the management services agreement between the parent and subsidiary companies.
"I don't want to panic the employees," Bryan said, adding they will be needed to process claims of both MIIX Insurance and MIIX Advantage.
The MIIX Group, based in Lawrenceville, N.J., in a release filed with the Securities and Exchange Commission Tuesday, said it "has not consented to the entry of the orders requested by the department."
Messages left for the company's chief financial officer, Allen Sugerman, requesting comment were unanswered at deadline today.
John Shaffer, spokesman for the Medical Society of New Jersey, said the major worry for physicians is what will happen if MIIX Insurance winds up in bankruptcy proceedings and a state guarantee fund takes over with maximum coverage of only $300,000 per physician.
"It's not like that's an uncommon occurrence," Shaffer said. "We've had a couple of other carriers go bankrupt here and then, when the doctor gets sued, he's not adequately covered."
Bryan said the state has been monitoring the company's affairs for the past four or five months with a lot of cooperation from top and mid-level managers, and "we hope that will continue."
As to assuaging the physicians worries about bankruptcy and a shortage of assets to cover future claims, "It's too early to tell," Bryan said.