Appeal from a judgment of the United States District Court for the Southern District of new York, Mary Johnson Lowe, Judge, granting defendants' motion to dismiss on the grounds that the case presented no case or controversey and, alternatively, that abstention was warranted. Reversed and Remanded.
Timbers and Kearse, Circuit Judges and Wexler, District Judge*fn*
This action involves a challenge to the constitutionality of §§ 8 and 40 of Chapter 266 of the New York Medical and Dental Malpractice and Professional Conduct Act of 1986 (the "1986 Act"). Plaintiffs are three insurance trade associations, six insurance companies, and two insurance policy holders. The insurance companies and at least 132 association members write property and casualty insurance in the State of New York. The association members account for approximately 40% of the total property and casualty insurance premiums collected in the State of New York in 1985. The individual policy holders are residents of New York.
Plaintiffs brought suit in the United States District Court for the Southern District of New York against Mario Cuomo, the Governor of New York, and James Corcoran, the New York Superintendent of Insurance, in their capacities as state officials. In their suit, plaintiffs sought a declaration that §§ 8 and 40 of the 1986 Act deprive them of property without due process of law and constitute a taking of their property without just compensation, thereby violating their rights under the United States Constitution.
Defendants moved for dismissal on the grounds that no case or controversy exists and that abstention is appropriate. The district court granted defendants' motion for dismissal, finding both that the lawsuit failed to present a case or controversy and that the Court should abstain under the Burford doctrine. This appeal followed.
Under the regulatory system governing the insurance industry in New York, both prior to and after the 1986 Act, insurance companies, including plaintiff insurers, serve as guarantors of all medical malpractice insurers in the state, even though they do not write medical malpractice insurance themselves. Most of the medical malpractice insurance in New York is offered by two providers, the Medical Liability Mutual Insurance Company ("MLMIC") and the New York Medical Malpractice Insurance Association ("MMIA"). MLMIC is owned and operated by physicians and is affiliated with the Medical Society of the State of New York. MMIA was established in 1975 by the New York State Legislature in response to the withdrawal of many private insurance companies from the medical malpractice market in New York. MMIA is a non-profit, joint underwriting association created by law to provide medical malpractice insurance to those physicians and surgeons who are unable to obtain it otherwise. N.Y. Ins. Law § 5502 (McKinney 1985 & Supp. 1988). All insurers, including plaintiff insurance companies and association members, are statutorily required to be members of MMIA as a condition of writing property or casualty insurance in New York. N.Y. Ins. Law § 5502(a). As members, plaintiffs must contribute funds to MMIA to cover its operating deficits. N.Y. Ins. Law §§ 5507, 5509 (McKinney 1985 & Supp. 1988).
Liability insurers in New York, including plaintiff insurance companies and many association members, are also required to contribute to the New York property/Casualty Insurance Security Fund (the "Fund"). The Fund secures all claims by insured New York residents against insolvent insurance companies. N.Y. Ins. Law § 7603(a)(1) (McKinney 1985 & Supp. 1988). The Superintendent of Insurance ("Superintendent") is responsible for establishing the level of contribution and may compel contribution when the Fund falls below $150 million. N.Y. Ins. Law § 7603(c)(1) (McKinney 1985). MMIA and MLMIC are covered by the Fund and are also subject to contribution to it. N.Y. Ins. Law §§ 5502(b), 7603.
When the regulatory system governing the insurance industry was originally enacted, the system provided safeguards to ensure adequate claim reserves and rates as well as to maintain sound financial operations of insurers. Medical malpractice insurers were required to submit annual rate requests to the Superintendent for approval, including actuarial evidence that the requested rates were reasonable and self-supporting. The Superintendent was responsible for assuring that insurance companies set neither excessive nor insufficient rates. N.Y. Ins. Law §§ 2303, 5503 (McKinney 1985). In addition, he was authorized to rehabilitate or liquidate insolvent insurers. N.Y. Ins. Law §§ 7402, 7404 (McKinney 1985). When, pursuant to regular examination of a carrier's financial records, the Superintendent found that the company's liabilities exceeded its admitted assets, including required reserves, he was required to find the company insolvent. N.Y. Ins. Law §§ 307, 309, 315, 1309 (McKinney 1985 & Supp. 1988). This system was designed to ensure that insurance companies had sufficient assets to cover any claims, while still offering reasonable rates.
In response to the ever-worsening medical malpractice crisis, New York State enacted the 1986 Act in an attempt to reduce the cost of medical malpractice insurance and the number and amount of malpractice claims. Section 8 of the 1986 Act, N.Y. Ins. Law § 2343(c) (McKinney Supp. 1988), imposed a moratorium on medical malpractice insolvencies by suspending the Superintendent's authority to order the liquidation or rehabilitation of any medical malpractice insurer until January 15, 1990. Section 40 of the 1986 Act, Ch. 266, 1986 N.Y. Laws 503, 570, authorizes the Superintendent to stabilize rates for medical malpractice coverage from July 1, 1985 to June 30, 1988 without conducting hearings in which insurance companies may participate. It also authorizes an 8% cap on the imposition of surcharges for medical malpractice premiums used to satisfy any deficiency resulting from the stabilization of rates during this three year period. Id.
Plaintiffs contend that §§ 8 and 40 of the 1986 Act unconstitutionally deprive them of property without due process of law by significantly increasing demands on plaintiffs to cover the severe deficit of MMIA. Plaintiffs also allege that the effect of §§ 8 and 40 amounts to an unconstitutional taking of their property by forcing them to contribute to the Fund to pay for claims left by the current insolvency of MMIA and MLMIC, which insolvency has purportedly been caused by the 1986 Act.
Plaintiffs assert that MMIA and MLMIC are currently operating at severe deficits. At the time of the 1986 Act, MLMIC was operating with a deficit of approximately $1.2 billion, MMIA with a deficit of about $85 million. The combined total, approximately $1.3 billion, dwarfs the reserves in the Fund of $150 million. Both of these providers currently meet the statutory definition of insurer insolvency under N.Y. Ins. Law § 1309(a) (McKinney 1985). Section 8 of the 1986 Act, however, overrides § 1309 and withdraws until 1990 the Superintendent's powers to act to rehabilitate the MMIA or MLMIC despite their insolvency. Therefore, plaintiffs contend, MMIA and MLMIC can continue to operate in a manner that is economically detrimental to the Fund. In addition, § 40 supersedes the original requirement that insurers set adequate and self-supporting rates. The implementation of § 40 authorizes the Superintendent to hold down medical malpractice insurance premium costs by stabilizing rates at artificially low levels without considering input from insurers. In plaintiffs' view, the rates are "stabilized" at the expense of increasing the current deficits of MMIA and MLMIC and ensuring their insolvency.
Plaintiffs project that, by 1990, the combined deficits of MMIA and MLMIC will reach more than $4 billion, and that the 8% surcharge to be imposed by the Superintendent after June 1988 can neutralize only a small portion of the 1985-88 deficit and none of the prior deficit. Plaintiffs allege that the introduction of §§ 8 and 40 to this depressed financial picture can lead to only one result. They contend that, given the size of this $4 billion deficit, MMIA can forestall insolvency, if at all, only by requiring contribution from its members, including plaintiffs. Regardless of such contribution, because MLMIC's assets are grossly inadequate as well, in 1990 or thereabout, the Superintendent will be forced to seize MLMIC for insolvency. If at the time MMIA is also unable to return to solvency through involuntary contributions, it too will be seized. At that point, outstanding claims from MLMIC, and possibly MMIA, must be satisfied from the Fund. The amount of those claims, accounting for the deficit of $4 billion, will obliterate the Fund and any prior contributions. As a result, insurers, including plaintiffs, will be called upon involuntarily to provide massive contributions in order to replenish the Fund and satisfy the claims.
Plaintiffs contend that these massive, potentially bankrupting, involuntary contributions to MMIA and the Fund will be the direct result of the suspension, under § 8, of the Superintendent's power to seize insolvent companies and that the magnitude of such contributions will be exacerbated by the Superintendent's setting of confiscatory rates under § 40 without affording insurers an opportunity to be heard on the reasonableness of those rates. Plaintiffs argue that, because of the resulting leaps in the size of the deficits, these sections of the 1986 Act establish the certainty that plaintiffs will be called upon to recoup the deficits by contributions to MMIA, the Fund, or both.
As noted above, defendants moved to dismiss the complaint on alternate grounds. First, they argued that the facts alleged failed to establish a justiciable case or controversy under Article III of the United States Constitution because the future injury alleged was too speculative. Second, defendants contended that even if jurisdiction exists, the court should abstain from decision because the case involves a complex ongoing regulatory scheme of great import to the state. In addition, they claimed that abstention was warranted since the interpretation of the 1986 Act is unsettled and depends upon resolution of state law issues. Finally, defendants argued that there are related state court proceedings which should be deferred to because they present similar challenges.
The district court granted defendants' motion and dismissed plaintiffs' complaint on both justiciability and abstention grounds. The court stated, "The evidence available at this time will simply not permit this court to resolve the disputed issues with any degree of certainty." Alliance of American Insurers v. Cuomo, No. 87 Civ. 169, slip op. at 6 (S.D.N.Y. Sept. 9, 1987). Thus, the district court found plaintiffs' claims, too speculative to constitute a case or controversy. In addition, the court held that, even overlooking the speculative nature of the plaintiffs' alleged injury, abstention was warranted. Id. at 7. The court abstained under the Burford doctrine, saying, "This court's interference would only disrupt state efforts to create a cohesive policy to deal with it's [sic] medical malpractice crisis." Id. at 12. Plaintiffs appealed the District Court's decision.
On additional fact that should be noted is that on April 25, 1988, after District Court handed down its decision, the Superintendent informed property and casualty insurers, including plaintiff insurers, that the Fund had been valued at less that $150 millions as of December 31, 1987. As a result, resumption of mandatory contribution has already been ordered, effective May 15, 1988.
Justiciable Case or Controversy
In order for a federal court to assert jurisdiction over an action, the court must find that a justiciable "case or controversy" exists. U.S. CONST. art. III § 2. To satisfy the requirements of Article III, a plaintiff "must allege some threatened or actual injury . . ." Linda R.S. v. Richard D., 410 U.S. 614, 617, 35 L. Ed. 2d 536, 93 S. Ct. 1146 (1973). Such injury must be "sufficiently real and immediate", Blum v. Yaretsky, 457 U.S. 991, 1000, 73 L. Ed. 2d 534, 102 S. Ct. 2777 (1982) (quoting O'Shea v . Littleton, 414 U.S. 488, 496, 38 L. Ed. 2d 674, 94 S. Ct. 669 (1974)), as opposed to merely "'conjectural' or 'hypothetical'", O'Shea, 414 U.S. at 494 (citations omitted). The difference between a threatened injury and a conjectural one is a matter of degree, and since no precise test exists, each case must be considered on an individual basis. Maryland Casualty Co. v. Pacific Coal & Oil Co., 312 U.S. 270, 273, 85 L. Ed. 826, 61 S. Ct. 510 (1941); Muller v. Olin Mathieson Chemical Corp., 404 F.2d 501, 504 (2d Cir. 1968). The requirement that the harm alleged be of sufficient immediacy does not, however, require plaintiffs "to await the consummation of threatened injury [before] obtain[ing] preventive relief." Blum, 457 U.S. at 1000 (citations omitted).
The District Court neatly summarized the injury that plaintiffs allege: "[I]mplementation of Sections 8 and 40 will cause increased malpractice insurer insolvency and deplete the Fund, which will trigger [plaintiffs'] obligations to pay." Alliance, slip op. at 6. The question, then, is whether, given the structure of the statutory scheme and the present financial factors, there is a sufficiently "realistic" ...