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A Mercer County judge on Sept. 28 placed the ailing MIIX Insurance Co., once New Jersey’s biggest medical malpractice insurer and one of the largest nationally, into state rehabilitation. On Aug. 24, state Banking and Insurance Commissioner Holly Bakke, prompted by MIIX’s eroding financial condition, filed an order to show cause seeking to assume control of the medical malpractice insurer, which stopped writing new policies in May 2002 and has been in a voluntary runoff ever since. Its 2003 financial statement filed in March showed a negative surplus of $265 million. On Aug. 27, in Bakke v. MIIX Insurance Co., C-86-04, Superior Court Judge Neil Shuster gave Bakke immediate control over MIIX assets and records and imposed temporary restraints while allowing for continued payment and processing of claims. The restraints are aimed at preserving company assets. Among other things, they bar new suits directly against MIIX though not against its insureds. The restraints were largely made permanent by Shuster’s order appointing Bakke as MIIX’s rehabilitator under N.J.S.A. 17:30C-1 et seq. Rehabilitation is intended not to be a first step to liquidation but rather to restore MIIX to “solvent runoff condition,” says department spokesman Vincent Funelas, giving the department an opportunity to reduce expenses and more accurately assess the insurer’s condition. LAWYERS WANT TO GET PAID At a hearing in Shuster’s courtroom on Sept. 28, no one opposed rehabilitation — not MIIX nor the Medical Society of New Jersey, whose motion to intervene Shuster granted that day. In papers filed in response to the order to show cause, MIIX did not object to the rehabilitation per se or deny assertions that it was in “hazardous” financial condition but sought to sharpen the pencil on the department’s role. The only ones to weigh in against rehabilitation were more than a dozen defense lawyers who wrote to Shuster, worrying about whether they would continue to be compensated. They included Voorhees’ Stahl & DeLaurentis, Millburn’s Ruprecht Hart & Weeks, Morristown’s Giblin & Combs, Parsippany’s Sharp & Brown and West Long Branch’s Orlovsky Moody Schaaff & Gabrysiak. Some of the lawyers had voiced their concerns to the department’s lawyer, Deputy Attorney General James Carey Jr. None of them showed up at the hearing and Shuster suggested they were satisfied by assurances from Ken Watson, an independent consultant who has been acting as administrative supervisor of MIIX for the department since May 2003. “I take it that they’re willing to accept that representation without further codification,” said Shuster. But he suggested calling some of the defense lawyers to see what might put them at ease. Carey made calls during a break. New language added to the order before Shuster signed it included assurances about paying claims but not counsel fees. Defense lawyers had to settle for Carey’s statement on the record that they would be paid for fees and expenses incurred through Sept. 28. The final order states it “does not stay payment of claims or any litigation currently pending against MIIX Insurance or the insureds of MIIX Insurance and does not bar claimants from filing new actions against MIIX Insurance insureds.” But other language allows the department to go back to court to seek such a stay. The only defense lawyer present in some form at the hearing was listening by telephone from Phoenix. Melinda Bechtel of Kent & Associates, who represents a number of MIIX insureds, says two cases she had scheduled for trial this month had been continued to see what happened in New Jersey. They will now go forward. Calls to some of the defense counsel who contacted Shuster were not returned. WHAT HAPPENED TO THE MONEY? Other interested parties who did show up included plaintiffs’ lawyer Robert Ross, of Kline & Specter in Cherry Hill; Patricia Barron, of Fox Rothschild in Princeton, who represents MIIX insureds; and Neil Prupis, of West Orange’s Lampf Lipkind Prupis & Petigrow, whose shareholders’ class action against the parent company, Glasser v. MIIX Group, 03-Civ-586, is pending in federal court. Prupis, for his part, is not reassured. “No one knows what happened,” he says. MIIX’s surplus shrank by more than $300 million from 2002 to 2003, falling from $62 million to a negative $265 million, he points out. Loss reserves swelled from $691 million to $791 million, even though anticipated losses should be shrinking at this point, he observes. Lawyers for the Medical Society of New Jersey say the MIIX rehabilitation underscores the need for tighter controls on medical malpractice lawsuits and predict the insurer will end up in liquidation. MIIX is not writing policies and has no income stream, notes Steven Kern, of Bridgewater’s Kern Augustine Conroy & Schoppmann. And while the time to sue under the two-year limitations period has run on most claims against the company’s insureds, there could still be a good number of as yet unasserted claims by minors or under the discovery rule, says Kern. Kern’s partner, Robert Conroy, predicts there will be a de facto damages cap because the company will go broke and plaintiffs will be relegated to the $300,000 maximum recovery from the state insurance guaranty fund. “I think it will encourage a lot of plaintiffs’ attorneys to become very reasonable very quickly,” adds Conroy. E. Drew Britcher, chairman of the medical malpractice committee of the New Jersey chapter of the Association of Trial Lawyers of America, does not foresee such a dire scenario. Though MIIX is no longer collecting premiums, it has investment income and statutes of limitation on claims are running out. Talks with counsel for plaintiffs and defendants indicate about 95 percent of claims are filed within two years of the event, says Britcher, of Glen Rock’s Britcher Leone & Roth. “It would seem like their universe of potential claims has an end to it.” The increased loss adjustment reserve strikes him as “strange” but he does not see plaintiffs’ lawyers being panicked into taking lowball settlement offers. “Is there any reason to suddenly discount your client’s case?” he asks. Or to force a case that’s not ready for trial. In his view, those are decisions to be made case by case. One lawyer who took MIIX’s situation into account in a recent settlement was Scott Arnette of Red Bank’s Miller Gaudio Bowden & Arnette. “I moved quickly to resolve the matter … so I could get the checks written quickly and out of the insurance company’s hands into the hands of the annuity company,” he says. Britcher questions whether MIIX-insured doctors should still be allowed to exercise their contractual right to consent to settlement, noting it exposes the insurer to increased liability and wastes assets. MIIX’s attorney, Michelle Fleishman, of Newark’s Saiber Schlesinger Satz & Goldstein, declines comment, but in a statement released on Thursday, MIIX said that all directors and officers of the company and its subsidiaries had resigned, effective the date of the order. Independent consultant Richard White has been retained as deputy rehabilitator to handle the rehabilitation, says Carey.

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