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The latest chapter in the demise of MIIX Insurance Co., once New Jersey’s largest medical malpractice insurer, has plaintiffs lawyers in a quandary. Should they go along with a mass settlement proposed by regulators? Or should they risk the effort failing and the company liquidating, which would relegate them to payouts from the N.J. Property-Liability Insurance Guaranty Association capped at $300,000? Under the plan, set out in an order to show cause filed by Banking and Insurance Commissioner Holly Bakke, not-yet-started trials against MIIX insureds, along with any settlement conferences, arbitrations or mediations, would be stayed until September. Mercer County Judge Neil Shuster signed the order Jan. 13 in I/M/O Rehabilitation of MIIX Insurance Co., MER-C-086-04, setting a Feb. 18 hearing date Regulators say the proposed plan is a last-ditch effort to stave off liquidation in the face of a mounting deficit. They assert that the stay, which would afford them breathing space while they try to settle hundreds of outstanding claims, would not interfere with the filing of new cases or discovery in pending cases. MIIX stopped writing new policies in May 2002 and went into voluntary runoff. Last September, Shuster appointed Bakke rehabilitator so the state could try to restore MIIX to solvent runoff condition. The company’s finances continue to deteriorate. The most recent financial statement shows that as of last Oct. 31, MIIX had a “negative surplus” of $306,207,000 based on assets of about $542,565,000 and liabilities of about $848,000,000. The shortfall was up more than $50 million from the $255,796,000 deficit reported at the close of 2003, which was the basis for placing the company into rehabilitation. MIIX paid out an average of $27 million per month in verdicts, settlements and defense costs in 2004, and about $41 million since it went into rehabilitation. Bakke’s motion papers refer to the company’s current situation as “dire,” with insufficient funds to pay existing and anticipated claims. “There is no chance of equitably paying all remaining claims under policies of MIIX Insurance and rehabilitating the company if it continues to incur an average of $27 million per month in indemnity payments and defense costs,” states a supporting certification by Richard White, the deputy rehabilitator appointed by the state to run the company. CLAIM SELECTION To avert liquidation, the state wants to settle a large chunk of the roughly 2,600 claims outstanding against MIIX insureds, 1,200 of them in New Jersey courts. It is in the process of selecting 700 to 900 “probable liability cases” for immediate settlement and intends to come up with “fair and equitable” offers by classifying injuries into nine categories based on severity and permanency, and looking at the average indemnity cost for each class of injury from 2002 to 2004, excluding the cost of defense. For example, the maximum offer for the most severe category of injury, including brain damage with permanent total or partial disability, would be $1 million, White’s certification says. The nonnegotiable offers should total $400 million. Claims not meeting the “probable liability” standard would be scheduled for dismissals and trials, he says in the certification. If Shuster approves and all goes according to plan, offers would be mailed out by May 1 and plaintiffs would have six weeks to accept or reject. The state would have an additional six weeks to review the acceptances. Only if enough plaintiffs accept would settlements go forward and payments be made. The motion papers refer to a “participation target” which, if unmet, would derail the plan, but do not quantify that target. If the plan fails, Bakke will declare MIIX insolvent and seek to liquidate. UNSETTLED OVER UNCERTAINTY On Jan. 6, the New Jersey chapter of the Association of Trial Lawyers of America wrote to Shuster voicing general concerns, though not taking a position on the requested stay. The author, E. Drew Britcher, chairman of ATLA-NJ’s medical malpractice committee, took issue with the uncertainty of settlements under the plan if not enough plaintiffs go along. That creates a “potential conflict for attorneys representing multiple claimants whose interests in acceptance or rejection may differ,” he wrote. “An offer made and an offer accepted should be an offer paid,” he said last week. Britcher, of Glen Rock’s Britcher Leone & Roth, says lawyers from major plaintiffs firms discussed the situation during a conference call in December shortly after Bakke and White met with representatives of ATLA-NJ and the Medical Society of New Jersey to explain the state’s plan. Those with trials set for this month have been trying to avoid adjournments if they feel they might recover more than the $300,000 PLIGA limit, he says. ATLA-NJ’s other concern is with the right of doctors to withhold consent to settlement under the terms of their policies. The state indicated at the December meeting that it planned to honor the consent provisions, says Britcher. “Our position is that as soon as the Department of Banking and Insurance took over MIIX for rehabilitation, any contractual obligation to get consent was abrogated,” he says. His letter asked Shuster to hold that the state has no duty to obtain doctors’ consent and to bar it from conditioning settlement on the consent of individual insureds. Plaintiffs’ lawyer Carol Forte also wrote to Shuster last week on the same topic. “I have a case on for trial Jan. 24 where the doctor has refused consent to settle at any amount,” says Forte of Chatham, N.J.’s Blume Goldfaden Berkowitz Donnelly Fried & Forte. “The state’s papers don’t say anything about cases where the doctor has refused consent. Is the state taking the position that it will go ahead and settle anyway?” she asks. TIMING QUESTIONS An additional uncertainty faces lawyers about to go to trial, depending on when the stay would commence. Many lawyers breathed a sigh of relief when Shuster set the hearing date for Feb. 18, instead of Jan. 21 as requested by the state, thereby allowing four extra weeks of trials to go forward. For other lawyers, though, the unfairness goes beyond falling on the wrong side of an arbitrary date. One, who did not want to be named, fears the stay will impact a trial scheduled for December but adjourned because defense counsel fell ill. Not only was it the ninth adjournment in the case but the claim, for obstetrical malpractice involving “catastrophic injuries,” is worth well more than the $1 million top offer under the state plan, he laments. The four-week delay in hearing date might allow him to beat the stay. Jay Scott MacNeill, the only MIIX defense lawyer to return a telephone call, applauded the global settlement plan, calling it “creative.” Its aim of enabling continuation of a voluntary runoff is “the best result you could hope for,” says MacNeill, of Post, Polak, Goodsell, MacNeill & Strauchler in Roseland, N.J. The Medical Society’s lawyer sees the plan as vindicating his view that “caps are the solution.” It amounts to a de facto cap consisting of the $1 million top settlement offer — which is “higher than we would ask” — and if that fails, a triggering of the $300,000 PLIGA limit, says Robert Conroy, of Kern Augustine Conroy & Schoppmann in Bridgewater, N.J. In his view, plaintiffs who receive payouts from PLIGA would not be able to obtain deficiency judgments against individual doctors. The state seems to disagree. It argues that the plan “will protect policyholders from the possibility of claimants obtaining deficiency judgments above the $300,000 Guaranty Fund cap or their policy limits.” Another question mark is whether courts in other jurisdictions where claims are pending will go along with the stay. About 35 percent of the claims are venued in Pennsylvania or Texas, with the remainder scattered among 20 other states. MIIX’s lawyer, David D’Aloia, of Newark, N.J.’s Saiber Schlesinger Satz & Goldstein, declines comment. Deputy Attorney General James Carey Jr., who represents Bakke and White, did not return a reporter’s call. The stock of parent MIIX Group rebounded to .02 per share Jan. 13 after falling to .01 earlier in the week. When MIIX insurance went into rehabilitation last September, it was trading at .09 per share.

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