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Maine.gov > PFR Home > Insurance Regulation> Administrative & Enforcement Actions > Document 18 : INS 99-14 : Hearing Decision
STATE OF MAINE
DEPARTMENT OF PROFESSIONAL AND FINANCIAL REGULATION
BUREAU OF INSURANCE
Pursuant to the Notice of Pending Proceeding and Prehearing Conference dated September 24, 1999, Applicants move that the Superintendent issue a Procedural Order in the form attached hereto as Exhibit A (the "Proposed Order" or "Order").
The goal of the Proposed Order is to promote and facilitate an efficient and organized proceeding, with procedures that both support the Superintendents effort to conduct a thorough and careful review of the proposed transactions, and provide the parties with a full and fair opportunity to present information relevant to the Superintendents review.
I. APPLICABLE LAW
The Bureaus Rules of Practice apply generally to these proceedings, as the Proposed Order recites. (Bureau of Insurance Rule Chapter 350, "Rules of Practice and Procedure Governing Adjudicatory Proceedings," or "Rules of Practice," 2(A)(1).)
When, however, "the circumstances of a particular proceeding require more detailed procedures than those set forth in [the Rules of Practice], additional procedures may be specified by the Superintendent, by order applicable to that particular proceeding." (Rules of Practice 2(A)(1).) See also Rules of Practice 3(A) ("In special cases, where good cause appears, the Superintendent may permit deviation from the [Rules of Practice] or may deviate from them on his own motion, insofar as he may find compliance therewith to be impracticable, inexpedient or unnecessary"); 5 M.R.S.A. § 9060(2) (Bureau "may adopt rules providing for discovery to the extent and in the manner appropriate to its proceeding.").
Most of the procedures in the Proposed Procedural Order are expressly set forth in the Rules of Practice. The complexity of this proceeding and the potential involvement of many parties, however, warrants reinforcement of some of these Rules in a comprehensive procedural order, along with the adoption of additional, more specific procedures as permitted by Rule of Practice 2(A)(1). The proposed additional procedures are consistent with, and are intended to promote the purpose of, the Rules of Practice"to secure just, speedy and economic determination of all matters pending before the Superintendent or his staff." (Rule of Practice 2(B).) Likewise, any deviations from the Rules of Practice are intended to promote the efficiency and fairness of the proceeding when the given Rule is impracticable, inexpedient, or unnecessary in the context of this proceeding.
II. SPECIFIC PROPOSED PROCEDURES
A. Parties and Intervention
This proceeding has the potential of involving many intervenors. To advance efficiency, focus the proceeding on relevant issues, and prevent needless duplication, the Proposed Order underscores the Superintendents discretion to require coordination of informational requests and presentations of evidence and testimony.
Responding to informational requests can produce unnecessarily voluminous documentary material. Coordinating requests so that documents can be produced once, rather than at separate times, reduces unnecessary confusion and delay. Simultaneous requests from several parties also increases the likelihood of duplicative requests and the number of objections to those requests, and complicates the task of responding to them. Such a procedure can be inefficient, cumbersome, unnecessarily confusing, and inevitably results in delay.
To reduce these difficulties and complications, the Proposed Order authorizes the Superintendent to require parties to coordinate their requests, and to make them after the Superintendent has made his first requests.
Given that we do not yet know how many intervenors will participate, or the nature of their potentially overlapping interests and concerns, the Procedural Order does not explicitly order coordination for any party. Rather, it simply makes clear from the beginning the Superintendents authority to enter such an order.
B. Scope of Proceeding and Specification of Issues
Several of the statutory inquiries in this proceeding have provisions that overlap (e.g., the character of management). The application of some other statutes to this proceeding is an awkward fit, given the unusual nature of the proceeding (e.g., provisions governing a Certificate of Authority in the context of a newly formed Maine insurer, as opposed to a foreign insurer seeking to do business in Maine).
The list of issues included in the Proposed Order attempts to (1) consolidate overlapping provisions into one inquiry, and (2) apply each statutory issue in a way relevant to this proceeding. The goal of the list is to consolidate, for ease of reference and discovery, all of the inquiries necessary in the proceeding.
C. Procedural Rules
The Proposed Order includes details regarding filing adapted from Rule of Practice 4 to respond to a potentially large and complex proceeding. Most significantly, the Order makes clear that, in order to prevent confusion or misunderstanding, all filings are to be served on all parties to the proceeding and to any putative intervenor whose motion for intervention is pending. The Superintendent retains the discretion to modify this requirement if it becomes unduly burdensome. In addition, the Proposed Order encourages efficiency by requiring parties to submit electronic copies of filings when feasible.
2. Informational Requests and Responses
Similarly, the Proposed Order requires all parties to serve informational requests (and documents responsive thereto) on all other parties in addition to the Superintendent. The Superintendent retains the discretion to modify this requirement if it is unduly burdensome. (Rule of Practice 10.) To increase efficiency for all parties and the Superintendent, the Proposed Order requires that all requests and responses be made in written and, where feasible, electronic form. Again, should the number of parties or size of the filed materials support adjustment of this proposed process, the Superintendent retains his authority to respond accordingly.
The Proposed Procedural Order follows Rule of Practice 7 with respect to motions. In addition, the Order underscores the provision in Rule of Practice 19 that neither motions for rehearing or reopening, nor any decision to grant such a motion, stays the effect of the Superintendents original order in any respect.
4. Mode of Service
To facilitate communications among the Superintendent, the Attorney General, the Bureau Staff, and parties, the Proposed Order permits service by fax. For the same reason, the Order deems a filing to have been made when the first version, fax or written, is received by the Superintendent, provided that the version in the alternate form is received within 24 hours. To prevent any confusion, the Order makes clear to the parties that inability to complete a fax transmission by an established deadline does not excuse the party from meeting the deadline.
D. Scope of Discovery
The Proposed Order adopts Rule of Practice 10 to govern discovery in the proceeding. In addition, to avoid duplication and irrelevant or unnecessary requests, the Order explicitly requires the parties to (1) recognize the Superintendents general, pre-existing knowledge of transactions like this one, and (2) restrict informational requests to solicitation of materials necessary for resolution of the statutory issues before the Superintendent. For the same reasons, no party is to serve an informational request until after the Superintendent has made his initial requests.
To eliminate, or at least minimize, the number of discovery disputes that the Superintendent must decide, the Order charges the parties with the responsibility to attempt to resolve such disputes prior to filing an objection with the Superintendent. The Order also establishes a procedure for the resolution of discovery and other disputes. To deal with such disputes efficiently, the Order provides that a member of the Bureau staff will be available once a week to resolve any disputes.
E. Communications with the Bureau
To ensure fairness and avoid duplication of conversations about an issue, the Proposed Order provides that any communication with respect to a substantive matter should not be made unless the other parties have an opportunity to participate. A party and the Superintendents advisors are permitted to speak to each other without the opportunity for all other parties to be present when the subject matter is the scope of a discovery request by the Superintendent. To apprise other parties of any modification made as the result of such a conversation, the Order requires that the Superintendent provide a notice to all parties of such a modification.
Finally, to prevent any confusion, the Order identifies, and sets forth the role of, the Staff Advisory Panel.
F. Bureau Consultants
The Proposed Order identifies consultants that the Superintendent has retained, and applies the communications rules in the Order to those consultants. See 5 M.R.S.A.. § 9055(2)(B) (applying communication exception to both staff advisors and consultants).
G. Superintendents Designee
The Procedural Order recognizes the Superintendents authority under Rule of Practice 13(F)(1) and 5 M.R.S.A. § 9062 to delegate duties to a designee.
The Proposed Order gives notice to all parties that the proceedings will be conducted in accordance with the Protective Order dated October 19, 1999 and the Confidentiality Agreement attached thereto.
I. Anticipated Schedule of Proceeding
The Proposed Order sets forth the longest schedule for the proceeding that Applicants believe within the realm of reasonableness. Further delay would harm all involved.
This proceeding should go forward as quickly as a thorough review will permit, for many legal and practical reasons, e.g., applicable statutes and rules require it. See 24-A M.R.S.A. § 222(7)(A) (hearing must be held within 30 days of filing of application); 24-A M.R.S.A. § 3476(3) (same); Rule of Practice 2(B) (Bureaus Rules are to be "liberally construed to secure just, speedy and economic determination of all matters").
Assuming for the purposes of this point, moreover, that Applicants were ultimately successful in persuading the Superintendent to approve the Acquisition and related transactions, delay in reviewing the applications would adversely affect Anthem, BCBSME, its subscribers, its employees, the communities it serves, and the State of Maine. For example:
Risk of Loss of a Favorable Transaction. The Asset Purchase Agreement has several conditions to closing. Delay could result in one or more conditions not being satisfied, raising the risk that the transaction would not close and its benefits would be lost.
Risk to Charitable Trust of Lost Earnings. Assuming a moderately conservative investment policy, the Charitable Trust could be expected to earn at least $6,000,000 to $7,000,000 annually on the projected $90,000,000 to $100,000,000 base. Until the Charitable Trust is funded, however, this income will be foregone, causing a loss of earnings of at least $500,000 per month. This significant monthly loss would never be recaptured. Thus, any substantial delay in these proceedings will reduce the value of the Charitable Trust, and cause the people of the State of Maine to potentially lose millions of dollars in critical health care resources that would otherwise be available.
Lost Premium Tax. BCBSME is currently exempt from paying the states two percent premium tax on approximately $200,000,000 in annual indemnity health insurance revenue. This exemption will not apply to Anthem BCBSME, a for-profit domestic health insurer. Upon consummation of the Acquisition, the State of Maine will earn over $300,000 per month in insurance premium tax. These taxes, however, cannot be earned until after the conversion is complete.
Employee Risks. Delay in proceedings of this nature creates uncertainty for employees and provides greater opportunity for other employers to lure employees away from BCBSME, especially in light of the recent announcement by a national health carrier to expand its operations in Maine. Anthem BCBSMEs ability to retain BCBSMEs skilled and knowledgeable employees may be directly affected by the length and uncertainty of the proceedings regarding the Acquisition.
Competitive Effects and Loss of Momentum in the Marketplace. Protracted proceedings delay the beneficial effects of improved efficiencies and new products, which can not come about until after closing. In addition, the uncertainty created during a change-of-control transaction can adversely affect the market competitiveness of the insurers involved in the transaction.
Applicants believe that adoption of the schedule set forth in the Proposed Procedural Order draws an appropriate balance that meets the needs of the Bureau, the public, and the parties to the transaction.
J. The Hearing
The Proposed Order establishes the rules for the submission of prefiled testimony in accordance with the discretion given to the Superintendent in Rule of Practice 15. The Order makes clear that the testimony must be in question and answer format, and will be admitted as part of the record only if adopted by the witness under oath.
Parties may request the Superintendent to take official notice of appropriate facts. See 5 M.R.S.A. § 9058. Allowing the submission of such facts and adopting them if appropriate will promote efficiency by narrowing the subjects of the hearing to those facts and issues that can reasonably be in dispute.
Because the Superintendent will be the presiding officer at the hearing in this matter, Rule of Practice 13(F)(2), and the first sentence of Rule of Practice 13(D) do not apply.
K. Failure to Comply with the Superintendents Orders
The Proposed Order reinforces the ramifications of a participants refusal to comply with Rules and the specific orders issued by the Superintendent. The Order thus provides further notice to participants of such potential sanctions, allowing the Superintendent to expedite the proceedings without unnecessary delays associated with additional warnings for failures to comply.
Applicants believe that the Proposed Order establishes procedures for an orderly and efficient proceeding fair to all, and recognizes the Superintendents need to conduct a thorough and professional review of the transaction. They respectfully request that the Superintendent adopt the Proposed Order attached hereto as Exhibit A.
DATED: October 27, 1999
Last Updated: January 21, 2014
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