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January 10. 2014 2:30PM

NH Supreme Court shoots down LGC's $50M appeal

CONCORD - The state Bureau of Securities Regulations (BSR) got it right when it ordered the Local Government Center to return tens of millions of dollars to its members, surplus funds left over after it paid claims and administration costs, the Supreme Court ruled Friday in an unanimous decision.

In 2013, Bureau of Securities Regulations hearing officer Donald Mitchell ordered the LGC to return to its members $33.2 million it held in reserve in its HealthTrust as well as another $17 million the Health Trust improperly transferred to shore up its Workers Compensation Trust. Mitchell ruled the LGC also had to continue to return that money in the future.

"We saw something wrong and we tried to fix it," said David Lang of the Professional Fire Fighters of New Hampshire. Lang was an LGC trustee who resigned in January 2003 after seeing the group, which provides health, property and workers compensation coverage programs for towns and cities across the state as well as for public employees and retirees, make changes he did not believe were proper.

That began more than a decade long legal war with the firefighters's union, which filed a lawsuit under the Right-to-Know statute to open the LGC's books to the public. Ultimately, the Supreme Court ruled in its favor - twice - and then more legal action followed after a complaint was filed with the Bureau of Securities Regulation about taxpayers' funds not being returned annually as provided by law.

Lang said the 11-year legal battle has already resulted in $104 million in taxpayers' money being refunded.

"We're very pleased with it," Lang said. "This is a major victory for Mr. and Mrs. Smith on Main Street."

He said it was a very, very long fight that was met with some really strong opposition. "Some persons in positions of power actually were laughing at us," he said. "Now, 2,000 active and retired firefighters have been vindicated."

He said what the case amounted to was a board using health insurance money to prevent taxpayers and active and retired employees from getting their own money back. And, Lang said, instead of settling the case and complying with its mission of providing the highest quality of health insurance at the lowest affordable costs for its members, the LGC "ratcheted up the legal war machine."

The court did rule in favor of the LGC saying the hearing officer exceeded his authority when he ruled the government center had to buy reinsurance, had to maintain net assets equivalent to 15 percent of claims - RBC (risked based capital) of 3.0 - and in awarding the state all its legal costs.

Mitchell, in ordering that rate, found that HealthTrust built up assets to such a high level that in 2010 it stopped purchasing reinsurance. According to the court decision, he observed that the kinds of catastrophes for which HealthTrust was preparing to be responsible "rang(ed) from a World War I type pandemic, where 700,000 people died in this country, to a Seabrook Nuclear Power Plant failure." He said it showed HealthTrust was retaining a substantially higher level of reserves than otherwise would be necessary with reinsurance in place."

Attorney Andru H. Volinsky, who represented BSR, said under state law there is a formula to be used in calculating the net asset amount that must be retained. It comes out to the RBC 3.0 rate Mitchell ordered the LGC to use.

The court sent the case back to the hearing officer for him to recalculate what the LGC will have to reimburse the state in legal fees, based on the favorable ruling regarding reinsurance.

As for his legal fees, Volinsky said the hearing officer approved between $400,000 and $500,000 for his firm. He was pleased with the decision, saying the court upheld "the hard work done by the bureau during the last two years in almost every respect."

But he said he was disappointed that the LGC refused to settle the case two years ago and, as a result, spent about $2 million in taxpayers money on lawyers. He said at one hearing, there were 20 attorneys representing the LGC and towns and cities.

"Although we are still in the process of reviewing the court's order, what is clear is that the complex questions in this case have finally been answered," Barry Glennon, BSR director said in a prepared statement. "After a long administrative and judicial process this decision will return to cities, towns, and taxpayers that which was improperly taken from them. This five-year process involved an in-depth investigation, review of tens of thousands of pages of documents, a ten-day administrative hearing, and an appeal to the Supreme Court. As a result, tens of millions of dollars have been and will continue to be returned to New Hampshire political subdivisions."

Peter Bragdon, HealthTrust executive director, said the $33.2 million already was repaid and that HealthTrust is in compliance with everything in the BSR decision. He was pleased the court ruled in its favor in calculating its asset reserves and not being mandated to buy reinsurance, which he said would cost $5 million a year. Both decisions, he said, will give HealthTrust some flexibility.

Wendy Parker, executive director of Workers' Compensation Trust, did not return a message left for comment. LGC's attorney William Saturley told the court last Novermber during oral arguments that the trust had $10 million in assets and that it would be insolvent if it had to repay the $17 million to HealthTrust.

Volinsky, asked what would happen to the workers' compensation program, said that is to be determined but added it has hired bankruptcy attorneys.


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