State’s effort to fine insurance company stalls

Monday, Sept. 22, 2003 | 11:11 a.m.

CARSON CITY -- A hearing by Nevada's insurance division over whether to fine an insurance company $24 million for touching off the medical malpractice crisis in Clark County is expected to be delayed at least until November.

The state insurance division also wants St. Paul Cos. to repay $822,000 to doctors in Southern Nevada who were allegedly overcharged.

St. Paul has denied the allegations in the complaint filed May 29, 2002, and says there are misstatements and errors by the state.

A hearing had been scheduled to start today in Carson City for the division to make its case. But it was postponed when hearing officer Doug Walther was named interim director of the newly created state Mortgage Lenders Division.

Walther said he could not handle the hearing, expected to last two weeks, and also put together the new agency. A new hearing is expected to be set for sometime in November with a new hearing officer.

St. Paul was the largest insurer of doctors in Clark County. The company claims it suffered "staggering" losses that forced it to give up its medical malpractice business nationwide. After its pullout in Nevada, doctors had trouble finding coverage and premiums skyrocketed. Physicians say the problems persist.

Senior Deputy Attorney General Bob Auer and his predecessor, former Deputy Attorney General Gabrielle Carr say the company violated a number of regulations and conducted "unfair and deceptive" practices while doing business in Nevada.

But Elizabeth Brennan, a Las Vegas attorney representing St. Paul, says the conduct of the company was approved by the insurance division and there was no proof of any violations.

The complaint alleges St. Paul overcharged 161 Clark County physicians by 25 percent in 2001 without assessing the individual risk characteristics of each doctor. It said St. Paul wrongfully paid the Nevada State Medical Association $97,310 over a period of years starting in 1996 to promote its insurance policies to doctors who belonged to the organization.

Auer says it was illegal for St. Paul to make payments to the medical society, which is not licensed as an insurance agent.

Brennan says the company was within its rights to impose a 25 percent fee on the doctors. Evidence of this, she said, is that the insurance division approved a 35 percent increase in premiums to doctors later. And the company submitted its rate filing for approval to the office of state Insurance Commissioner Alice Molasky-Arman, Brennan said.

Molasky-Arman says she did not learn about the payoffs to the medical society in Las Vegas until after St. Paul pulled out of Nevada. But Brennan claims documents dating to 1996 show that the insurance commissioner was informed of the arrangement. St. Paul, according to the complaint, induced physicians to buy policies by offering free "tail" coverage in case of death, disability or retirement. The insurance division says the company included 2 percent to 3 percent of their premiums to cover the "tail," that is, to provide coverage of prior acts after the doctor leaves his practice. That part of the premium was collected in 2001 and 2002 from about 540 physicians.

Auer said the company left the market, kept the premiums and didn't provide the tail coverage. The state says the 540 physicians should get their money back.

Brennan says the tail coverage applied only while the policy was in effect and anyone could cancel it. She said in her pre-hearing statement: "The division, apparently under political pressure for failing to forestall Nevada's medical malpractice crisis, is attempting to rewrite the terms of the policies that the division has previously approved." She said St. Paul honored all the terms of its policies.

The state also says St. Paul withdrew without giving notice of at least 60 days. The company disputes that claim. The complaint said that St. Paul also failed to file reports on the impact on the medical malpractice market after the insurance commissioner allowed rates to go up by 70 percent in a three-step process. But St. Paul said it withdrew from Nevada and the "request for additional information was moot."

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