(MADISON, WI) The Wisconsin Supreme Court has cited the decision in New Hampshire’s JUA Lawsuit as it rejected a similar attempt by state government to seize the funds in a medical malpractice account.

In Wisconsin Medical Society v Morgan, the high court shot down an attempt by the Legislature to transfer $200 million from the Injured Patients and Families Compensation Fund (the Fund) to the Medical Assistance Trust Fund (MATF). The Wisconsin Medical Society sued, only to have the case dismissed by a circuit court, which found that the Medical Society did not have a property interest in the Fund.

The Wisconsin Supreme Court reversed that decision, and ordered the $200 million returned, along with lost earnings and interest.

“We conclude that the health care providers have a constitutionally protected property interest in the Fund. Wisconsin Stat. § 655.27(6) defines the Fund as an irrevocable trust, and the structure and purpose of the Fund satisfy all the elements necessary to establish a formal trust. Because the health care providers are specifically named as beneficiaries of the trust, they have equitable title to the assets of the Fund.”

The Court went on to describe the Wisconsin law as “unconstitutional because it authorizes an unconstitutional taking of private property without just compensation.”

The Wisconsin Court cited the New Hampshire Supreme Court’s January 28th decision in Tuttle V New Hampshire.

Vested rights may be constitutionally protected even if they are “beneficial” rights——such as rights in a trust estate——rather than legal or possessory rights. See Tuttle v. N.H. Med. Malpractice Joint Underwriting Ass’n, 992 A.2d 624, 638 (N.H. 2010).

The Wisconsin Court also replied heavily on the New Hampshire case to determine that while policy holders do not own the Fund outright, they do have a vested interest that can not be taken away by the state.

“Our conclusion on this point is supported by the New Hampshire Supreme Court’s recent decision in Tuttle. Tuttle involved a transfer of money in New Hampshire’s Medical Malpractice Joint Underwriting Association (JUA) to the state’s general fund. Tuttle, 159 N.H. at 633. The JUA has been funded by surcharges on medical malpractice insurance policies and, if the plan experiences an excess of funds, the board managing the plan is required to reduce future assessments or distribute the excess. Id. at 636. Although the court held the transfer unconstitutional on impairment-of-contract grounds, its reasoning with regard to the assessments applies to the transfer from the Fund in this case.”

In Tuttle, the Court struck down a similar tactic proposed by Governor John Lynch to transfer $110 million from the Joint Underwriting Association to the state’s General Fund in order to help balance a cash-strapped budget.

JUA policy holders sued. Merrimack County Judge Kathleen McGuire first determined that the JUA was not a state agency, and then issued a scathing opinion rejecting the state’s claim to the surplus funds. Governer Lynch appealed to the Supreme Court, which by a 3-2 vote upheld McGuire’s decision and blocked the transfer.

Ironically, Assistant Attorney General Glenn Perlow cited the Wisconsin Circuit Court’s decision in his February 2009 memo justifying New Hampshire’s ability to transfer the JUA surplus to the state’s General Fund.

Gordon MacDonald, an attorney with Nixon Peabody in Manchester and part of the legal team that challenged the JUA transfer, says that the Wisconsin decision is based on the same logic that his clients used to in New Hampshire.

“The Wisconsin case reaffirms the essential principle recognized by our Supreme Court: that the JUA policyholders have a vested property right in the excess surplus funds. It is that principle which makes the governor and insurance commissioner’s present effort an unlawful theft.”

Yesterday, the New Hampshire Insurance Department held a public hearing on an administrative rules change that would transform the JUA into a new state agency. State officials say the move would protect JUA funds from federal taxes, arguing that the Tuttle decision destroyed the group’s tax-exempt status. The JUA plaintiffs counter that the rules change is a backdoor attempt to steal the same money that the Supreme Court ruled did not belong to the state.
Wisconsin Medical Society v Morgan 07-20-10