The Public-Private Dichotomy in State-Created Insurance Entities

January, 2025 Legal Intelligencer article by Lamb McErlane Health Law Attorneys Vasilios J. Kalogredis, Esq. and Sonal Parekh, Esq.
Whether a medical malpractice insurer is a private or public entity can have significant implications on state-created organizations and their governance. On December 16, 2024, the United States Court of Appeals for the Third Circuit (the “Third Circuit”) ruled that a medical malpractice insurer established by the Pennsylvania General Assembly is a public entity that cannot bring constitutional claims against its creator in response to legislative efforts to assume control.[1]
The plaintiff in this case, the Pennsylvania Professional Liability Joint Underwriting Association (the “JUA”), was established to provide medical malpractice insurance to high-risk healthcare providers unable to obtain coverage in the private market. Over the years, the JUA accumulated a substantial surplus of approximately $300 million, leading the Commonwealth of Pennsylvania to enact legislation (Acts 44, 41, and 15) aimed at transferring portions of this surplus to the state’s General Fund. Through a series of legal battles, the JUA contested these legislative actions, asserting its status as a private entity and claiming that the state’s attempts constituted unconstitutional takings and violations of due process, leading directly to the Third Circuit’s ruling in Pennsylvania Professional Liability Joint Underwriting Association v. Governor of the Commonwealth of Pennsylvania (“Third Circuit’s 2024 Decision”).
The central issue before the Third Circuit was whether the JUA is a public entity, which would render it subject to state control, or a private entity with constitutional protections against state interference. To address this question, the court set forth four questions: (i) whether the JUA was granted political power; (ii) whether the JUA was created as a civil institution to be employed in the administration of government; (iii) whether the JUA’s funds are drawn from public property; and (iv) whether anyone but the Commonwealth has an interest in the JUA. Applying this multifactorial analysis, the court considered the following.
- Creation and Purpose: The JUA was established by the state legislature to address a public concern—the availability of medical malpractice insurance—and serves a public purpose within the state insurance market.
- Control and Oversight: Although the JUA operates with a degree of independence, the state retains significant oversight, including the authority to amend or repeal the statutes governing the JUA.
- Financial Structure: The JUA’s funds, derived from policyholder premiums and investments, are considered public funds because the entity was created to serve a public purpose (to make available a comprehensive and high-quality health system), and no private party has a legally protectable interest in its assets.
- Stakeholder Interests: The court found that only the Commonwealth has a legally protectable interest in the JUA, as it has no private stakeholders or owners.
Based on these factors, the court concluded that the JUA is a public entity, and as such, lacks the ability to assert constitutional claims against the Commonwealth, its creator.
The Third Circuit’s 2024 Decision has several significant implications.
- State Authority: The decision affirms the state’s authority to control and repurpose funds of entities it creates to serve public purposes, even when those entities operate with some independence.
- Public vs. Private Status: The ruling provides a framework for determining the public or private status of state-created entities, emphasizing the importance of legislative intent, purpose, and control.
- Constitutional Protections: Entities deemed as public lack standing to assert certain constitutional protections against the state, impacting their legal strategies in disputes over state actions.
The Third Circuit’s 2024 Decision in Pennsylvania Professional Liability Joint Underwriting Association v. Governor of the Commonwealth of Pennsylvania underscores the complex nature of state-created entities and the importance of legislative intent in determining their status. By classifying the JUA as a public entity, the court has clarified the extent of state authority over such organizations and set a precedent for future cases involving the public-private dichotomy in state-created institutions.
If you have any questions or if we may be of further assistance regarding health law matters, please feel free to contact Bill Kalogredis, Esq. or Sonal Parekh, Esq.
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Vasilios J. (Bill) Kalogredis, Esq. has been advising physicians, dentists, and other healthcare professionals and their businesses as to contractual, regulatory and transactional matters for 50 years. He is Chairman of Lamb McErlane PC’s Health Law Department. Bill can be reached by email at bkalogredis@lambmcerlane.com or by phone at 610-701-4402.
Sonal Parekh, Esq., is an associate at Lamb McErlane PC who focuses on healthcare transactional matters and a broad range of healthcare regulatory-related issues on behalf of healthcare systems, physicians, dentists, and other healthcare providers, and is a pharmacist by education and training. Sonal can be reached by email at sparekh@lambmcerlane.com or by phone at 610-701-4416.
*This article is for educational purposes only and is not intended to be legal advice. Should you require legal advice on this topic, any health care matter, or have any questions or concerns, please contact Vasilios J. (Bill) Kalogredis, Esq. or Sonal Parekh, Esq.
[1] See Pennsylvania Professional Liability Joint Underwriting Association v. Governor of the Commonwealth of Pennsylvania, 123 F.4th 623 (3d Cir. 2024).
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